10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

COMMISSION FILE NUMBER 000-22371

DECRANE AIRCRAFT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware	34-1645569
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
2361 Rosecrans Avenue, Suite 180 El Segundo, California 90245 (310) 725-9123
(Address and Telephone Number of Principal Executive Offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý YES o NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). o YES ý NO

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: Nil

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

The number of shares of Common Stock outstanding on March 28, 2003 was 100.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

Table of Contents

Part I
Item 1.	Description of Business
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
Part II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes In and Disagreements With Accountants On Accounting and Financial Disclosure
Part III
Item 10.	Directors and Executive Officers of the Registrant
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management
Item 13.	Certain Relationships and Related Transactions
Item 14.	Controls and Procedures
Part IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Signatures
Certifications
Index to Financial Statements, Supplementary Financial Information and Financial Statement Schedules

All statements other than statements of historical facts included in this report are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to known and unknown risks, uncertainties and other factors, which are difficult to predict.  Changes in such factors could cause actual results to differ materially from those contemplated in such forward-looking statements as we describe in “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-Looking Statements and Risk Factors.”  Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct.  We undertake no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Company Overview

DeCrane Aircraft Holdings, Inc., a Delaware corporation founded in 1989, is a leading provider of integrated assemblies, sub-assemblies and component parts to the aerospace industry.  Since our founding in 1989, we have experienced both internal growth and external growth by identifying fragmented, high-growth niche segments within the aerospace industry and acquiring market-leading companies in those niches.  We have assembled product capability within three specific segments of the aerospace industry: cabin management for corporate, VIP and head-of-state aircraft; specialty aviation electronic components, commonly referred to as avionics; and systems integration.  Within these markets, our customers include original manufacturers of aircraft and related avionics equipment, commonly referred to as OEM’s, major components suppliers, aircraft repair and modification centers and commercial airlines.

Our Operating Groups

We are organized into three operating groups, consistent with the segments in which we operate: Cabin Management, Specialty Avionics and Systems Integration.  Through our operating groups, we offer a complete line of cabinetry, galleys, seating and cabin management systems for corporate, VIP and head-of-state aircraft, as well as specialty avionics components and systems integration services.

On March 14, 2003 we entered into a definitive agreement to sell our Specialty Avionics Group for $140.0 million in cash.  The sale is expected to close prior to June 30, 2003 and is subject to customary closing conditions, including financing and the receipt of regulatory and other third-party approvals.  The sale of our Specialty Avionics Group is not expected to affect the operations of our remaining operating groups.  See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview” for additional information.

Our historical financial position and results of operations have also been affected by our history of acquisitions.  Our acquisitions are described in “—Other Information–Acquisitions” below.

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Cabin Management Group

DeCrane’s Cabin Management Group contributed approximately 53% of our revenues for the year ended December 31, 2002.

Business Description

Our Cabin Management Group is a leading independent provider of cabin products, with a primary focus on serving the corporate, VIP and head-of-state aircraft market.  Since 1997, our Cabin Management Group has acquired nine companies involved in the engineering, manufacturing and assembly of the key components for the interior of a corporate/VIP/head-of-state aircraft, including cabin interior furnishings, cabin management systems, seating and composite components.  Our Cabin Management Group serves major manufacturers of corporate/VIP/head-of-state aircraft, including Boeing Business Jet, Bombardier, Cessna, Dassault, Gulfstream and Raytheon.

The Cabin Management Group introduced the concept of modularity to the corporate, VIP and head-of-state aircraft market by offering totally integrated interior products.  In our view, one of the greatest challenges facing the industry’s aircraft manufacturers is minimizing the lead-time necessary to complete an unfinished “green” aircraft.  We also believe our distinctive approach of delivering integrated assemblies and sub-assemblies addresses this challenge by providing our customers with entire pre-engineered, pre-wired and pre-plumbed modular cabin interiors and management systems ready for final integration into the aircraft.  We believe our totally integrated interior products enable our customers to reduce their lead times, supplier base and overall costs.

The Cabin Management Group is guided by our overall strategy to gain market leadership positions in high-growth segments of the aerospace industry by building more related product capabilities than any other company in the industry.  To that end, our Cabin Management Group has focused on pursuing two, closely related, strategic imperatives:

•Building Critical Mass in Cabin Interior Furnishings, Cabin Management Systems and Seating for the Corporate, VIP and Head-of-State Aircraft Markets.  Our Cabin Management Group is aggressively focused on broadening and deepening its product offerings to the corporate, VIP and head-of-state aircraft markets.  As a result of this strategy, we have increased revenue content per plane with our existing customer base and have successfully attracted new customers.

•Developing Capabilities to Provide Modular “Total Cabin Solutions” to the Corporate, VIP and Head-of-State Aircraft Market.  Consistent with our overall corporate strategy to build integrated system solutions, the Cabin Management Group is focused on aggregating its capabilities to provide partial or fully assembled modular corporate/VIP/head-of-state aircraft cabin interiors to its customers.

In order to meet these strategic objectives, we have aggressively pursued growth in our Cabin Management Group through selective acquisitions.

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Products and Services

Our Cabin Management Group designs, engineers and manufactures a full line of customized, pre-fit products and provides related services.  Approximately 53% of our Cabin Management Group’s revenues in 2002 were from two customers, Textron and Bombardier.  Our products and services are in four broad categories, as summarized below.

Interior Furnishings		Seating
•	entertainment and refreshment centers	•	executive track and swivel seats
•	conference tables	•	jump-seats
•	hi-low dining and coffee tables	•	divans, including models that convert to beds or contain storable tables
•	end tables
•	cabinets	•	upholstery services
•	arm and side ledges
•	galleys	Composite Components
•	lavatories	•	sound-dampening side walls and headliners
•	vanities	•	passenger service units
•	room enclosures	•	environmental (HVAC) ducting
•	cabinetry refurbishment services	•	closets
Cabin Management Systems
•	in-flight entertainment systems
•	in-flight data network and communication systems
•	cabin controls
•	switches

Our interior furnishings products and services provided approximately 33% of our consolidated revenues in 2002 and 2001 and 32% in 2000.

Competition

The markets served by our Cabin Management Group are fragmented, with several competitors offering similar products and services.  Due to the global nature of the aerospace industry, competition comes from both U.S. and foreign companies.  Our Cabin Management Group generally faces competition from a group of smaller companies and enterprises, except for the corporate, VIP and head-of-state aircraft manufacturers and independent completion centers.  We believe that the principal competitive factors in the markets we serve are quality, price, timely deliveries and overall customer service.  Our principal competitors are summarized below.

Interior Furnishings		Cabin Management Systems
•	BE Aerospace	•	DPI Labs
•	C & D Interiors	•	Honeywell Cabin Management Systems and Services
•	Global Technology	•	IEC, International
•	Hiller	•	Rockwell Collins / Airshow
•	The Nordam Group
•	Independent completion centers	Composite Components
•	Corporate, VIP and head-of-state aircraft manufacturers and completion centers	•	AAR
		•	Fibre Art
Seating		•	Plastic Fab
•	BE Aerospace	•	Scale Composite Works
•	Fisher (Germany)	•	The Nordam Group

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Specialty Avionics Group

DeCrane’s Specialty Avionics Group contributed approximately 29% of our revenues for the year ended December 31, 2002.  As described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview,” on March 14, 2003 we entered into a definitive agreement to sell our Specialty Avionics Group.

Business Description

Our Specialty Avionics Group supplies aircraft avionics components to the commercial and military aircraft markets as well as to several avionics systems suppliers including Honeywell and Rockwell Collins.  We focus on assembling design, engineering and manufacturing capabilities across several specialty avionics product categories, including cockpit and cabin audio management systems, flight deck visual display and communication systems, power and control devices, and specialty interconnect solutions such as contacts, connectors and various harness assemblies.  Our Specialty Avionics Group is also a leading manufacturer of high quality electrical contacts for military and aviation applications.

Through its strong focus on building integrated solutions, we believe our Specialty Avionics Group has achieved solid positions in many product categories within the avionics components market.  Today, we believe we are the world’s largest supplier of power and signal contacts to the aircraft market, with almost twice the number of FAA approved parts as our nearest competitor.  In addition, our dichroic liquid crystal display devices, commonly referred to as LCD’s, are found on most, if not all, commercial aircraft produced today, making us the largest supplier of dichroic LCD devices to commercial aircraft OEM’s.  Our Specialty Avionics Group has leveraged its reputation as a high quality manufacturer of avionics products and contacts to build a broader customer base and to deepen its relationships with existing customers.

The strategic objectives of our Specialty Avionics Group are well aligned with our overall corporate strategy of capturing and maintaining number 1 or 2 market share in high growth segments of the avionics component market.  In pursuing our objectives for the group, we have been guided by three strategic principles:

•Broaden and Deepen Relationships with Key Customers by Assembling Integrated Customer Solutions.  We believe our Specialty Avionics Group has aggressively pursued opportunities to assemble more integrated product capabilities in the specialty avionics segment than any competitor in the aerospace industry, thereby increasing revenue content per plane and growing profitability.

•Identify and Evaluate Opportunities in High-Growth Product Categories.  We continue to explore and evaluate growth opportunities in product categories within the specialty avionics segment of our business.

•Maintain Technologically Superior Product Offerings.  The specialty avionics market is a highly specialized and highly technical business.  It is imperative that we remain abreast of technological innovations and incorporate them into our products and services.

Products and Services

Our Specialty Avionics Group designs, engineers and manufactures electronic components, electronic display devices and interconnect components and assemblies.  Approximately 15% of our Specialty Avionics Group’s revenues in 2002 were from Boeing.  The products we offer are described below.

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Cockpit and Cabin Audio, Communication, Lighting and Power and Control Devices.  Our Specialty Avionics Group is a leading manufacturer of cockpit audio, lighting and power and control devices, including selective calling system decoders, used in commercial, regional and corporate, VIP and head-of-state aircraft.  We also manufacture a variety of other commercial aircraft safety system components, including warning tone generators, temperature and de-icing monitoring systems, steep approach monitors and low voltage power supplies for traffic collision avoidance systems.  These products have provided approximately 13% of our consolidated revenues over the last three years.

Electrical Contacts.  Contacts conduct electronic signals or electricity and are installed at the terminus of a wire or an electronic or electrical device.  We supply precision-machined contacts for use in connectors found in virtually every electronic and electrical system on a commercial aircraft.  We sell contacts directly to aircraft and related electronics manufacturers and through our private labeling programs to several major connector manufacturers who sell connectors to the same markets under their brand name.  Our contacts are also widely used in military aircraft as well as a variety of commercial and defense telecommunication and data communication applications.

Connectors and Harness Assemblies.  Electronic and electrical connectors link wires and devices in avionics systems, and permit their assembly, installation, repair and removal.  Our connectors are specially manufactured to meet the critical performance requirements demanded by manufacturers and required in the harsh environment of an operating aircraft.  We produce connectors that are used in aircraft galleys, flight decks and control panels in the passenger cabin, in addition to producing wire harness assemblies for use in cabin avionics systems, including wire, connectors, contacts and hardware.  We typically sell our harness assemblies to manufacturers of aircraft electronic systems.

Liquid Crystal Display Devices.  We manufacture a wide variety of displays in both dichroic and twisted nematic formats, as well as LCD modules used in commercial and military aircraft.  LCD modules are liquid crystal displays packaged with a backlight source, and additional mechanical and electronic components that are plug-and-play ready for our customers’ instrument display applications.  Dichroic displays perform best in situations with high ambient lighting and low backlighting.  Twisted nematic displays are suited for situations where a strong backlight is required.  Our LCD products are used in a variety of flight deck applications such as auto pilot flight control systems, fuel quantity indicators, exhaust gas temperature indicators, airborne communications, navigation and safety systems and transportation signage.  Dichroic and twisted nematic liquid crystal display products are widely used in the aerospace industry because they are easily adapted to custom design and possess a variety of high performance characteristics, including wide viewing angles, high readability in sunlight and the ability to withstand wide temperature fluctuations.  We also manufacture a variety of electronic clock instruments for commercial and military aircraft, including fixed wing and rotary wing, all of which use our LCD devices.

Wire Marking and Crimping Equipment.  We design and manufacture surface preparation and wire marking systems.  Our products include laser and inkjet marking systems, atmospheric plasma systems and automatic crimping systems.  Our products are used in the aerospace, defense, medical device and biomedical industries, principally wire and cable fabricators, wire processors, fiber optics manufacturers and consumer-based products manufacturers.

Competition

The markets served by our Specialty Avionics Group are fragmented, with several competitors offering similar products and services.  Due to the global nature of the aerospace industry, competition comes from both U.S. and foreign companies.  Our Specialty Avionics Group generally faces competition from large, diversified companies that produce a broad range of products.  We believe that the principal competitive factors in the markets we serve are product innovations, technological superiority and

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performance, quality, price, timely deliveries and overall customer service.  Our principal competitors are summarized below.

Cockpit and Cabin Audio, Communication, Lighting and Power and Control Devices		Connector and Harness Assemblies
		•	AMP (connectors)
•	Baker Electronics	•	Carlyle (harness assemblies)
•	Diehl GmbH (Germany)	•	Electronic Cable Specialists (harness assemblies)
•	Gables Engineering
•	Korry	•	ITT Cannon (connectors)
•	Team (France)	•	Radiall S.A. (France) (connectors)
Electrical Contacts		Liquid Crystal Displays and Chronometers
•	Deutsch	•	Air Precision
•	Lemco	•	Davtron
•	Several small contact blank suppliers	•	DCI (LCD’s only)
		•	Electronique Martin (LCD’s only)
		•	Smiths Group

Systems Integration Group

DeCrane’s Systems Integration Group contributed approximately 18% of our revenues for the year ended December 31, 2002.

Business Description

Our Systems Integration Group provides aircraft retrofit, completion and refurbishment solutions, from conceptual design to Federal Aviation Administration certification, including engineering, manufacturing and installation.  Our largest business is the design, production and installation of auxiliary fuel systems, which extend the range of an aircraft.  Our Systems Integration Group has an exclusive long-term contract with Boeing Business Jet to design, manufacture and install auxiliary fuel systems on the BBJ, a Boeing 737-700IGW, and the BBJ2, a Boeing 737-800, and is one of only three world-wide approved BBJ/BBJ2 service centers.  We also focus on regulatory authority safety mandates and believe we are the major supplier of integration kits for smoke detection and fire suppression in the cargo hold.  We also perform structural, avionics and mechanical systems modifications and FAA certification of those modifications before returning an aircraft to service.  During 2002, we delivered our first corporate/VIP/head-of-state aircraft interior completion on a BBJ2 aircraft and are under contract to perform an interior completion on a BBJ aircraft for delivery in 2003.

The aerospace industry is highly regulated in the United States by the FAA and similar regulatory agencies abroad, such as the European Joint Aviation Authorities (commonly referred to as the JAA), to ensure that aviation products and services meet stringent safety and performance standards.  There are a limited number of companies that have the necessary Designated Alteration Station authorization to offer aircraft certification on behalf of the FAA.  Our Systems Integration Group is authorized to provide the full spectrum of services, from design to FAA certification, needed for timely retrofitting of an aircraft, thus providing a significant competitive advantage.

Our Systems Integration Group has adopted a two-pronged strategic approach to managing its operations:

•Develop the Most Comprehensive Integrated Retrofit Offering.  For the last twelve years, our Systems Integration Group has focused on developing the capabilities necessary to provide a fully integrated offering with respect to aircraft refurbishing and aircraft retrofitting with FAA mandated changes and technological innovations.  Through several related acquisitions and

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aggressive internal product development, our Systems Integration Group has become one of the few non-OEM related operations with the authority to provide alteration services and to offer FAA certification of aircraft that undergo overhaul.  This certification ability represents a significant competitive advantage, as we can offer all the products and services required to re-commission an aircraft in a timely and cost efficient manner.  We believe we have developed the most comprehensive offering in retrofitting aircraft with auxiliary fuel systems in the industry.

•Target Development of Specialty Products and Services Relating to Regulatory Authority Mandates.  Consistent with its first strategic imperative, our Systems Integration Group is also growing its capabilities in providing solution “kits” in response to FAA and JAA mandated aircraft upgrades.  Our Systems Integration Group has demonstrated the ability to identify and quickly respond to probable new regulatory authority mandates.  For example:

•Many domestic commercial airlines believe the FAA will issue a safety mandate requiring cockpit door video surveillance on every commercial aircraft traveling in U.S. domestic airspace in 2003.  In response, we consulted with commercial airlines and developed what we believe to be a low-cost, high quality cockpit door video surveillance system.  Our Sentry One™ system is based on an in-house developed camera control unit with integral power supplies and is combined with state-of-the-art extreme low light cameras and 5.6” video monitors with existing FAA approvals.  We believe we will obtain rapid FAA approval of our Sentry One™ system once the final specific requirements of the safety mandate are determined.

•We believe the JAA will mandate new fire safety measures for all aircraft in Europe, similar to the FAA mandate in the United States.  We expect to develop a stand-alone kit, similar to our FAA approved kit, which can be quickly incorporated into an aircraft to ensure compliance with the JAA ruling with minimal downtime.

Products and Services

Our Systems Integration Group provides auxiliary fuel systems, auxiliary power units and system integration services, including engineering, kit manufacturing, installation and certification.  Customers include Boeing (Boeing Business Jet, Boeing’s Commercial Airplane Group and Boeing Integrated Defense Systems), Bombardier, Cessna, Gulfstream, Honeywell, Raytheon and Rockwell Collins.  Approximately 56% of our Systems Integration Group’s revenues in 2002 were from Boeing.  The products and services we provide are described below.

Auxiliary Fuel Systems and Power Units.  We design, engineer, manufacture and install auxiliary fuel systems for corporate, VIP, head-of-state and commercial aircraft.  Our unique design and construction have made us a leader in the auxiliary fuel system market.  We also manufacture auxiliary power units, which provide ground power to corporate jets made by Bombardier, Cessna, Gulfstream, Learjet and Raytheon.  These products and services provided approximately 11% of our consolidated revenues in 2002.

Cabin and Flight Deck Systems Integration.  We have designed and patented avionics support structures we sell under the Box-Mount™ name.  These structures are used to support and environmentally cool avionics equipment, including navigation, communication and flight control equipment.  These support structures are sold to aircraft and related electronics manufacturers, airlines and major modification centers.  In addition, these products are essential components of the installation kits used in our systems integration operations.

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Aircraft Completion and Modification Services.  We are one of only three world-wide approved Boeing Business Jet Service Centers providing extensive completion, modification and integration services to the corporate, VIP and head-of-state aircraft market.

Retrofit and Refurbishment Services.  We also provide retrofit and refurbishment services, including engineering, kit manufacturing, installation and certification, to both commercial and corporate/VIP/head-of-state aircraft customers.

Competition

The markets served by our Systems Integration Group are fragmented with several competitors offering similar products and services.  Due to the global nature of the aerospace industry, competition comes from both U.S. and foreign companies.  Our Systems Integration Group generally faces competition from a group of smaller companies and enterprises, except for the corporate/VIP/head-of-state aircraft manufacturers and independent completion centers.  We believe that the principal competitive factors in the markets we serve are quality, price, timely deliveries and overall customer service.  Our principal competitors are summarized below.

Auxiliary Fuel Systems and Power Units		Cabin and Flight Deck Systems Integration and Retrofit and Refurbishment Services
•	Marshalls
•	Pfalz Flugewerke (Germany)	•	ARINC
		•	Aviation Sales
Auxiliary Power Units (Integration Only)		•	Boeing Aircraft Services
•	Honeywell	•	Flight Structures
•	Sundstrand	•	In-house engineering departments of commercial airlines
		•	Numerous independent airframe maintenance and modification companies
Aircraft Modification Services
•	Associated Air Center
•	Jet Aviation
•	Lufthansa

Other Information

Acquisitions

Companies Acquired by DeCrane Aircraft

During the five years ended December 31, 2002, DeCrane Aircraft has acquired the stock or assets of eight significant businesses, as such term is defined by Securities and Exchange Commission rules, as follows:

Cabin Management Group

•all of the common stock of Precision Pattern, Inc., a Kansas-based designer and manufacturer of interior furniture components for corporate, VIP and head-of-state aircraft, on April 23, 1999;

•substantially all of the assets of Custom Woodwork & Plastics, Inc., a Georgia-based designer and manufacturer of interior furniture components for corporate, VIP and head-of-state aircraft, on August 5, 1999;

•substantially all of the assets of PCI NewCo, Inc., a Kansas-based manufacturer of composite material and components for corporate, VIP and head-of-state aircraft, on October 6, 1999;

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•substantially all of the assets of The Infinity Partners, Ltd., a Texas-based designer and manufacturer of interior furniture components for middle- and high-end corporate, VIP and head-of-state aircraft, on December 17, 1999;

•substantially all of the assets of Carl F. Booth & Co., an Indiana-based manufacturer of wood veneer panels primarily used in aircraft interior cabinetry, on May 11, 2000;

•all of the common stock of ERDA, Inc. (subsequently renamed DeCrane Aircraft Seating Co., Inc.), a Wisconsin-based designer and manufacturer of aircraft seating, on June 30, 2000;

Specialty Avionics Group

•all of the common stock of Avtech Corporation, a Washington-based designer and manufacturer of avionics components for commercial and corporate, VIP and head-of-state aircraft, on June 26, 1998; and

Systems Integration Group

•all of the common stock of PATS, Inc., a Maryland-based designer, manufacturer and installer of auxiliary fuel systems for corporate, VIP and head-of-state aircraft and a manufacturer of aircraft auxiliary power units, on January 22, 1999.

All of the acquisitions were accounted for as purchases.  We intend to use the acquired assets to manufacture products similar to those previously manufactured by the companies prior to their acquisition.  Our financial statements reflect the acquired companies subsequent to their respective acquisition dates.  As a result, our historical financial statements do not reflect the financial position and results of operations of our current businesses and capital structure.  Our acquisitions are described in Note 3 accompanying our financial statements included in this report.

DeCrane Holdings’ Acquisition of DeCrane Aircraft

DeCrane Holdings Co. and DLJ Merchant Banking Partners II, L.P. and affiliated entities acquired all of the stock of DeCrane Aircraft in August 1998 for $186.3 million.  This acquisition is referred to in this report as the DLJ acquisition.  As a result of the DLJ acquisition, DeCrane Aircraft presents its financial information on a predecessor/successor basis.

In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc.  As a result, DLJ Merchant Banking Partners II, L.P. and other entities affiliated with Donaldson Lufkin & Jenrette, Inc. became indirect affiliates of Credit Suisse First Boston, Inc. and Credit Suisse Group.  The combined operations of the DLJ entities and Credit Suisse First Boston are commonly referred to collectively as Credit Suisse First Boston.  See “Item 13. Certain Relationships and Related Transactions—Acquisition of Donaldson, Lufkin & Jenrette, Inc. by Credit Suisse Group” for additional information.

Customers

We estimate that in 2002, we sold our products and services to approximately 1,500 customers.  Our primary customers include manufacturers of aircraft and related avionics equipment, airlines, aircraft component manufacturers and distributors, and aircraft repair and modification companies.

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Each of the following customers accounted for 10% or more of our consolidated revenues for the year ended December 31, 2002:

Significant Customers	Cabin Management Group		Specialty Avionics Group		Systems Integration Group		Consolidated Total(1)
Percent of consolidated revenues:
Textron(2)	16.6	%	0.8	%	—	%	17.4	%
Boeing(3)	1.0		4.5		9.9		15.4
Bombardier	11.3		1.9		1.0		14.2
Consolidated revenues	28.9	%	7.2	%	10.9	%	47.0	%
Percent of group revenues(4):
Textron(2)	31.3	%	2.6	%	0.1	%
Boeing(3)	1.9		15.3		55.7
Bombardier	21.4		6.5		5.4
Group revenues	54.6	%	24.4	%	61.2	%

(1)Historical data for the three years ended December 31, 2002 is presented in Note 16 accompanying our financial statements included in this report.

(2)Includes Cessna.

(3)Reflects only our direct revenues from Boeing.  Excludes revenues from components our Specialty Avionics Group provides indirectly to Boeing through its sales to other Boeing suppliers.  Our Systems Integration Group’s revenues from Boeing result from auxiliary fuel systems for the Boeing Business Jet.

(4)Inter-group revenues are eliminated against the group originating the sale.

Complete loss of any of the customers identified above could have a significant adverse impact on our results of operations expected in future periods.

Significant portions of our revenues from our major customers are pursuant to contracts that may include a variety of terms favorable to the customer.  Such terms may include our agreement to one or more of the following:

•the customer is not required to make purchases, and may terminate such contract at any time;

•we make substantial expenditures to develop products for customers that we may not recoup if we do not receive sufficient orders;

•on a prospective basis, we must extend to the customers any reductions in prices or lead times that we provide to other customers;

•we must match other suppliers’ price reductions or delete the affected products from the contract; and

•we must grant irrevocable non-exclusive worldwide licenses to use our designs, tooling and other intellectual property rights to products sold to a customer if we default, or suffer a bankruptcy filing, or transfer our manufacturing rights to a third party.

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Backlog

As of December 31, 2002, we had an aggregate sales order backlog of $105.6 million compared to $149.9 million as of December 31, 2001, as follows:

	December 31,
(In thousands)	2002		2001
Cabin Management	$	31,679	$	43,653
Specialty Avionics	38,760		50,410
Systems Integration	35,126		55,865
Consolidated totals	$	105,565	$	149,928

Orders are usually filled within twelve months; however, backlog totaling $12.8 million as of December 31, 2002 is scheduled for delivery in 2004 and beyond.  Orders may be subject to cancellation by the customer prior to shipment.  The level of unfilled orders at any given date will be materially affected by when we receive orders and how fast we fill them.  Period-to-period comparisons of backlog figures may not be meaningful.  For that reason, our backlogs do not necessarily accurately predict actual shipments or sales for any future period.

As described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Industry Overview and Trends,” the acts, and ongoing threats, of global terrorism and the current military conflicts, SARS epidemic and weak global economic conditions are all adversely impacting air travel and, in turn, the aerospace industry and our business.  We are not able to predict the continuing impact these events will have in future periods.  However, given the magnitude of these events, the adverse impact could be material.

Employees

As of December 31, 2002, we had 2,176 employees: 1,117 in our Cabin Management Group; 733 in our Specialty Avionics Group; 313 in our Systems Integration Group; and 13 in our corporate office.  None of our employees are subject to a collective bargaining agreement, and we have not experienced any material business interruption as a result of labor disputes.  We believe that we generally have a good relationship with our employees.

Research and Development

We continually evaluate opportunities to improve our product offerings and develop new products that incorporate new technologies to meet the demands of our customers and the FAA.  Total expenditures were $2.5 million for the year ended December 31, 2002, $3.7 million during the year ended December 31, 2001 and $4.6 million during the year ended December 31, 2000.

Financial Information About Geographic Areas

Financial information about our revenues and assets by geographic area are included in Note 16 accompanying our financial statements included in this report.

Seasonality

Our businesses generally are not seasonal in nature.

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Sales and Marketing

Our Cabin Management Group has designated relationship managers who are responsible for maintaining and cultivating relationships with customers.  In addition, a dedicated sales force is utilized for some of our products and services.

Our Specialty Avionics Group utilizes a dedicated sales force, distributors and independent sales representatives to execute its sales and marketing strategy.  We have distributors that purchase, stock and resell several of our product lines.

Our Systems Integration Group has a dedicated sales force that handles most of its sales activities.

We are continuously seeking opportunities to combine our sales efforts across all of our operating groups in order to ensure that all sales opportunities are explored and that we maximize our revenue content per plane.  We may also assign marketing and sales responsibilities for key customers to one of our senior corporate executives.

Raw Materials and Component Parts

The components we manufacture require the use of various raw materials including gold, aluminum, copper, rhodium, plating chemicals, LCD glass, hardwoods and plastics.  The availability and prices of these materials may fluctuate.  The cost of such raw materials is a significant component in, and part of, the sales price of many of our products.  Although some of our contracts have prices tied to raw materials prices, we cannot always recover increases in raw materials prices in our product sale prices.  We also purchase a variety of manufactured sub-component parts from various suppliers.  Raw materials and component parts are generally available from multiple suppliers at competitive prices.  However, any delay in our ability to obtain necessary raw materials and component parts may affect our ability to meet customer production needs.

Intellectual Property and Proprietary Information

We have various trade secrets, proprietary information, trademarks, tradenames, patents, copyrights and other intellectual property rights we believe are important to our business in the aggregate, but not individually.

Government Regulation

Federal Aviation Administration

The aerospace industry is highly regulated in the United States by the Federal Aviation Administration and in other countries by similar agencies to ensure that aviation products and services meet stringent safety and performance standards.  In addition, many of our customers impose their own compliance and quality requirements on us.  The FAA prescribes standards and licensing requirements for aircraft components, issues designated alteration station authorizations, and licenses private repair stations.  We hold various FAA approvals and licenses, which may only be used by our subsidiary obtaining such approval.  If material FAA or customer authorizations or approvals were revoked or suspended, our operations could be adversely affected.

The FAA can authorize or deny authorization of many of the services and products we provide.  Any such denial would preclude our ability to provide the pertinent service or product.  If we failed to comply with applicable FAA standards or regulations, the FAA could exercise a wide range of remedies, including a warning letter, a letter of correction, a civil penalty action, and emergency or non-emergency suspension or revocation of a certificate or approval.

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Each type of aircraft operated by airlines in the United States must possess an FAA type certificate, generally held by the aircraft manufacturer, indicating that the type design meets applicable airworthiness standards.  When someone else develops a major modification to an aircraft already type-certificated, that person must obtain an FAA-issued Supplemental Type Certificate for the modification.  Historically, we have obtained several hundred of these Supplemental Type Certificates, most of which we obtained on behalf of our customers as part of our systems integration services.  Some of these certificates we obtain were or eventually will be transferred to our customers.  As of December 31, 2002, we own and/or manage on behalf of our customers approximately 300 Supplemental Type Certificates.  Many are multi-aircraft certificates, which apply to all of the aircraft of a single type.  We foresee the need to obtain additional Supplemental Type Certificates so that we can expand the services we provide and the customers we serve and believe we will be able to obtain such certificates as the need arises.

Supplemental Type Certificates can be issued for proposed aircraft modifications directly by the FAA, or on behalf of the FAA by a Designated Alteration Station.  The FAA designates what types of Supplemental Type Certificates can be issued by each Designated Alteration Station.  A subsidiary within our Systems Integration Group is an FAA-authorized Designated Alteration Station and can directly issue many of the Supplemental Type Certificates our customers and we require for our systems integration operations.

After obtaining a Supplemental Type Certificate, a manufacturer must apply for a Parts Manufacturer Approval from the FAA, or a supplement to an existing Parts Manufacturer Approval, which permits the holder to manufacture and sell installation kits according to the approved design and data package.  We have nine Parts Manufacturer Approvals and over 215 supplements to those approvals.  In general, each initial Parts Manufacturer Approval is an approval of a manufacturing or modification facility’s production quality control system.  Each Parts Manufacturer Approval supplement authorizes the manufacture of a particular part in accordance with the requirements of the corresponding Supplemental Type Certificate.  We routinely apply for and receive such Parts Manufacturer Approval supplements.  In order to perform the actual installations of a modification, we are also required to have FAA approval.  This authority is contained either in our Parts Manufacturer Approvals and related supplements, or in our repair station certificates.  In order for a company to perform most kinds of repair, engineering, installation or other services on aircraft, its facility must be designated as an FAA-authorized repair station.  As of December 31, 2002, we had nine authorized repair stations and employed over 120 FAA certified representatives.

Occupational Safety and Health Administration

Our manufacturing operations in the United States are subject to a variety of worker and community safety laws.  The Occupational Safety and Health Act of 1970 mandates general requirements for safe workplaces for all employees.  In addition, OSHA provides special procedures and measures for the handling of hazardous and toxic substances and has established specific safety standards for workplaces engaged in the treatment, disposal or storage of hazardous waste.  We believe that our operations are in material compliance with OSHA’s health and safety requirements.

Environmental Matters

Our facilities and operations are subject to various federal, state, local, and foreign environmental laws and regulations, including those relating to discharges to air, water, and land, the handling and disposal of solid and hazardous waste, and the cleanup of properties affected by hazardous substances.  In addition, some environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA”) and similar state laws, impose strict liability upon persons responsible for releases or potential releases of hazardous substances.  That liability generally is retroactive, and may create “joint and several” liability among multiple parties who have

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some relationship to a site or a source of waste.  We have sent waste to treatment, storage, or disposal facilities that have been designated as National Priority List sites under CERCLA or equivalent listings under state laws.  We have received CERCLA requests for information or allegations of potential responsibility from the Environmental Protection Agency regarding our use of several of those sites.  In addition, some of our operations are located on properties that are contaminated to varying degrees.

We have not incurred, nor do we expect to incur, liabilities in any significant amount as a result of the foregoing matters, because in these cases other entities have been held primarily responsible, the levels of contamination are sufficiently low so as not to require remediation, or we are indemnified against such costs.  In most cases, we do not believe that we have any material liability for past waste disposal.  However, in a few cases, we do not have sufficient information to assess our potential liability, if any.  It is possible, given the potentially retroactive nature of environmental liability, that we will receive additional notices of potential liability relating to current or former activities.

Some of our manufacturing processes create wastewater that requires chemical treatment, and one of our facilities was cited for excessive quantity and strength of its wastewater.  The costs associated with remedying that failure were not material.

We believe that we have been and are in substantial compliance with environmental laws and regulations and that we have no liabilities under environmental laws and regulations, except for liabilities which we do not expect would likely have a material adverse effect on our business, financial position, results of operations or cash flows.  However, some risk of environmental liability is inherent in the nature of our business, and we might in the future incur material costs to meet current or more stringent compliance, cleanup, or other obligations pursuant to environmental laws and regulations.

ITEM 2. PROPERTIES

We operate in a number of manufacturing, engineering and office facilities in the United States and abroad.  At December 31, 2002, we utilized approximately 1.3 million square feet of floor space, approximately 93% of which is located in the United States.  We believe that our facilities are in good condition and are adequate to support our operations for the foreseeable future.  Our operating groups’ facilities at December 31, 2002 are summarized below.

(In thousands of square feet)	Leased	Owned	Total
Cabin Management	506	204	710
Specialty Avionics	164	88	252
Systems Integration	114	150	264
Corporate	8	—	8
Total in use	792	442	1,234
Not in use, held for sale	—	104	104
Not in use, subleased to others	84	32	116
Total	876	578	1,454

In addition to the 252,000 square feet of facilities used by the Specialty Avionics Group, an additional 32,000 square feet of owned facilities not in use and subleased to others will be transferred to the buyer in connection with our sale of the group in 2003.  The sale of the Specialty Avionics Group will not have an impact on the utilization of our remaining facilities.

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ITEM 3. LEGAL PROCEEDINGS

As part of its investigation of the crash of Swissair Flight 111 off the Canadian coast on September 2, 1998, the Canadian Transportation Safety Board (the “CTSB”) initially notified us that it recovered burned wire that was attached to the in-flight entertainment system installed on some of Swissair’s aircraft by one of our subsidiaries.  Our subsidiary has worked vigorously over the last four years with the CTSB investigators in the fact-finding investigation of this catastrophic incident.  On March 27, 2003, the CTSB released its final report on its investigation.  This report indicated that the CTSB was unable to conclusively determine the cause of the fire which led to the crash of the aircraft.

Families of most of the 229 persons who died aboard the flight have filed actions in federal and state courts against us, our subsidiary, and many other unaffiliated parties, including Swissair and Boeing (“Passenger Actions”).  The Passenger Actions claim negligence, strict liability, and breach of warranty relating to the installation and testing of the in-flight entertainment system.  The Passenger Actions seek damages and costs in an unstated amount.  All of the Passenger Actions have been transferred to the United States District Court for the Eastern District of Pennsylvania and assigned under MDL Case No. 1269 for coordinated or consolidated pre-trial proceedings.  Most of the Passenger Actions have been settled by Boeing and Swissair.  Boeing and Swissair have advised us that they intend to seek contribution from our subsidiary.  We do not believe, based, in part, on information received from independent fire and safety experts retained by us, that the installation of the equipment installed by our subsidiary impacted the operation or safety of the aircraft.  Accordingly, we continue to defend the claims.

We are party to other litigation incident to the normal course of business.  We do not believe that the outcome of all such matters in which we are currently involved will have a material adverse effect on our business, financial position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

There is no established public trading market for our shares.  In August 1998, we sold all of our issued and outstanding shares to DeCrane Holdings, our parent company, in connection with the DLJ acquisition.

Holders

As of March 28, 2003, DeCrane Holdings is our only common stockholder.

Dividends

We have not paid dividends to date on our common stock and do not anticipate paying any cash dividends in the foreseeable future.  The terms of our senior credit facility and senior subordinated note indenture restrict our ability to pay dividends if we do not meet certain financial criteria.

Recent Sale of Unregistered Securities

None.

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ITEM 6. SELECTED FINANCIAL DATA

	Year Ended December 31,(1)
													1998
(In thousands)	2002			2001			2000			1999			Four Months Ended December 31, 1998			Eight Months Ended August 31, 1998
							(Successor)(2)									(Predecessor)(2)
Statement of Operations Data:
Revenues	$	325,630		$	395,352		$	347,379		$	244,048		$	60,356		$	90,077
Cost of sales(3)	233,950			279,681			232,048			165,871			42,739			60,101
Gross profit	91,680			115,671			115,331			78,177			17,617			29,976
Selling, general and administrative expenses(4)	51,884			59,934			45,394			40,157			10,274			19,351
Impairment of goodwill(5)	7,672			8,583			—			—			—			—
Amortization of intangible assets(6)	5,768			19,920			17,948			13,073			3,148			1,347
Operating income	26,356			27,234			51,989			24,947			4,195			9,278
Interest expense	33,894			39,001			41,623			27,918			6,852			2,350
Other expenses, net(7)	944			1,047			482			447			335			847
Income (loss) before provision for income taxes, cumulative effect of change in accounting principle and extraordinary item	(8,482		)	(12,814		)	9,884			(3,418		)	(2,992		)	6,081
Provision for income taxes (benefit)(8)	354			1,188			6,282			952			(2,668		)	2,892
Income (loss) before cumulative effect of change in accounting principle and extraordinary item	(8,836		)	(14,002		)	3,602			(4,370		)	(324		)	3,189
Cumulative effect of change in accounting principle(9)	(57,150		)	—			—			—			—			—
Extraordinary loss from debt refinancing(10)	—			—			—			—			(2,229		)	—
Net income (loss)	$	(65,986	)	$	(14,002	)	$	3,602		$	(4,370	)	$	(2,553	)	$	3,189
Net income (loss) applicable to common stockholders	$	(71,827	)	$	(19,063	)	$	1,328		$	(4,370	)	$	(2,553	)	$	3,189
Other Financial Data:
Cash flows from operating activities	$	30,318		$	14,929		$	16,783		$	15,200		$	1,008		$	3,014
Cash flows from investing activities	(11,319		)	(24,792		)	(112,164		)	(152,774		)	(1,813		)	(87,378		)
Cash flows from financing activities	(16,228		)	11,397			95,656			142,052			(1,597		)	89,871
EBITDA(11)	70,018			88,791			80,992			56,526			13,476			13,743
Depreciation and amortization(12)	17,119			32,376			27,187			19,186			4,604			4,358
Capital expenditures:
Paid in cash(13)	5,429			11,899			22,689			7,262			1,813			1,745
Financed with capital lease obligations	264			4,438			109			1,711			48			116
Ratio of earnings to fixed charges(14)	—			—			1.2		x	—			—			3.0		x
Other Operating Data:
Bookings(15)	$	281,267		$	366,983		$	359,975		$	252,100		$	54,021		$	94,439
Backlog at end of period(16)	105,565			149,928			178,297			156,100			75,388			84,184

	As of December 31, (in thousands)(1)
(In thousands)	2002		2001		2000		1999		1998
	(Successor)(2)
Balance Sheet Data:
Cash and cash equivalents	$	12,612	$	9,794	$	8,199	$	7,918	$	3,518
Working capital	88,689		81,656		61,398		32,412		49,033
Total assets	548,967		645,711		664,254		531,842		330,927
Total debt(17)	381,707		400,250		383,279		315,651		186,765
Mandatorily redeemable securities(18)	34,081		28,240		23,179		—		—
Stockholder’s equity	33,638		100,376		119,755		106,241		97,921

See accompanying Notes to Selected Financial Data.

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Notes to Selected Financial Data:

(1)Reflects the results of operations and financial position of companies we acquired for all periods subsequent to their respective acquisition dates as follows:

Company Acquired		Date Acquired
•	Coltech	August 31, 2000
•	DeCrane Aircraft Seating Co. (formerly ERDA)	June 30, 2000
•	Carl F. Booth & Co.	May 11, 2000
•	Infinity	December 17, 1999
•	International Custom Interiors	October 8, 1999
•	PCI NewCo	October 6, 1999
•	Custom Woodwork	August 5, 1999
•	Precision Pattern	April 23, 1999
•	PATS	January 22, 1999
•	Dettmers	June 30, 1998
•	Avtech	June 26, 1998

(2)Reflects our results of operations and financial position prior to (predecessor) and subsequent to (successor) our acquisition by DLJ.

(3)Includes charges to reflect:

•a noncash inventory write-down of $7.2 million, a $2.6 million charge for estimated losses on uncompleted long-term contracts and $1.2 million of other charges during the twelve months ended December 31, 2002 related to our restructuring activities;

•a noncash inventory write-down of $4.2 million, a noncash write-off of $7.9 million of product development costs and charges totaling $3.9 million for the realignment of production programs between facilities during the twelve months ended December 31, 2001 related to our restructuring;

•a noncash inventory write-down of $6.0 million during the twelve months ended December 31, 1999 related to our Systems Integration Group restructuring; and

•cost of sales based on the fair value of inventory acquired of $1.6 million during the twelve months ended December 31, 1999 in connection with the Precision Pattern and Custom Woodworks acquisitions and $4.4 million during the four months ended December 31, 1998 in connection with the DLJ acquisition, collectively referred to as noncash acquisition charges.

(4)Includes charges of:

•$6.5 million during the year ended December 31, 2002 related to restructuring, asset impairment and other charges related to our restructuring activities, $3.9 million of which was a noncash asset impairment write-down;

•$4.0 million during the year ended December 31, 2001 related to restructuring and asset impairment charges, $1.3 million of which was a noncash asset impairment write-down;

•$3.9 million during the year ended December 31, 1999 related to our Systems Integration Group’s restructuring and asset impairment charges, $1.3 million of which was a noncash asset impairment write-down; and

•$3.6 million during the eight months ended August 31, 1998 for non-capitalized transaction costs associated with the DLJ acquisition.

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(5)Reflects noncash goodwill impairment charges resulting from:

•our annual impairment testing during the year ended December 31, 2002 as required by SFAS No. 142 “Goodwill and Other Intangible Assets,” which was effective January 1, 2002; and

•our restructuring during the year ended December 31, 2001.

(6)For the five years ended December 31, 2002, reflects the amortization of identifiable intangible assets.  For periods prior to January 1, 2002, also reflects the amortization of goodwill.  Starting January 1, 2002, goodwill is no longer amortized but instead subject to annual impairment testing with a loss charged to operations in the period in which impairment occurs as described in Note 5.

(7)For the eight months ended August 31, 1998, reflects a $0.6 million charge for costs incurred in connection with a debt offering terminated as a result of the DLJ acquisition.

(8)For the four months ended December 31, 1998, includes a $2.6 million benefit from the reduction of the deferred tax valuation allowance.  The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income before income taxes primarily due to the effects of state and foreign income taxes and non-deductible expenses, principally goodwill impairment charges and amortization (for periods prior to January 1, 2002).  The difference in the effective tax rates between periods is mostly a result of the relationship of non-deductible expenses to income before income taxes.

(9)Reflects the noncash charge, net of $0.9 million tax benefit, for the impairment of goodwill upon adoption of SFAS No. 142 on January 1, 2002.

(10)Reflects the write-off of deferred financing costs, net of an income tax benefit, as a result of the repayment of our then existing indebtedness in connection with the DLJ acquisition and the refinancing of the bridge notes during the four months ended December 31, 1998.

(11)We define EBITDA as earnings before interest, income taxes, depreciation and amortization, restructuring, asset impairment and other related charges, acquisition related charges not capitalized and other noncash and nonoperating charges.  EBITDA, as defined, is the primary measurement we use to evaluate our operating groups’ performance and is consistent with the manner in which our lenders and ultimate investors measure our overall performance.  The table below reconciles EBITDA to consolidated operating income.

	Year Ended December 31,
													1998
(In thousands)	2002			2001			2000			1999			Four Months Ended December 31, 1998			Eight Months Ended August 31, 1998
							(Successor)									(Predecessor)
Consolidated EBITDA	$	70,018		$	88,791		$	80,992		$	56,526		$	13,476		$	13,743
Depreciation and amortization	(17,119		)	(32,376		)	(27,187		)	(19,186		)	(4,604		)	(4,358		)
Restructuring, asset impairment and other related charges	(25,243		)	(28,658		)	—			(9,935		)	—			—
Acquisition related charges:
Acquisition related charges not capitalized	(1,162		)	(308		)	(1,255		)	(709		)	(229		)	(107		)
Noncash inventory related charges (Note 3)	—			—			—			(1,606		)	(4,448		)	—
Other noncash charges	(138		)	(215		)	(561		)	(143		)	—			—
Consolidated operating income	$	26,356		$	27,234		$	51,989		$	24,947		$	4,195		$	9,278

EBITDA is not a measure of performance or financial condition under accounting principles generally accepted in the United States of America.  EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative to income from operations or net income computed in accordance with generally accepted accounting principles, as an indicator of

19

our operating performance, as an alternative to cash flow from operating activities or as a measure of liquidity.  The funds depicted by EBITDA are not available for our discretionary use due to funding requirements for working capital, capital expenditures, debt service, income taxes and other commitments and contingencies.  We believe that EBITDA is a standard measure of performance commonly reported and widely used by analysts, investors and other interested parties in the financial markets.  However, not all companies calculate EBITDA using the same method, and the EBITDA numbers we report may not be comparable to EBITDA reported by other companies.

(12)Reflects depreciation and amortization of plant and equipment, goodwill (for periods prior to the January 1, 2002 adoption of SFAS No. 142) and other intangible assets.  Excludes amortization of deferred financing costs and debt discounts that are classified as a component of interest expense.

(13)Includes $5.4 million for the year ended December 31, 2000 related to our acquisition of a manufacturing facility.

(14)For purposes of calculating the ratio of earnings to fixed charges, earnings represent net income before income taxes, minority interests in the income of majority-owned subsidiaries, extraordinary items and fixed charges.  Fixed charges consist of:

•interest, whether expensed or capitalized;

•amortization of debt expense and discount or premium relating to any indebtedness, whether expensed or capitalized; and

•one-third of rental expenses under operating leases which is considered to be a reasonable approximation of the interest portion of such expense.

There were deficiencies of earnings to cover fixed charges of $8.3 million for the year ended December 31, 2002, $12.7 million for the year ended December 31, 2001, $3.2 million for the year ended December 31, 1999 and $2.9 million for the four months ended December 31, 1998.

(15)Bookings represent the total invoice value of purchase orders received during the period.

(16)Backlog represents the total invoice value of unfilled purchase orders at the end of the period. Orders may be subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date during the year will be materially affected by the timing of our receipt of orders and the speed with which those orders are filled.

(17)Total debt is defined as long-term debt, including current portion, and short-term borrowings.

(18)Reflects mandatorily redeemable 16% preferred stock.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussions should be read in conjunction with our financial statements and accompanying notes included in this report.

Overview

Our historical financial statements include the financial position and results of operations of our Specialty Avionics Group.  On March 14, 2003, we entered into a definitive agreement to sell this group for $140,000,000 in cash, with the net proceeds from the sale going to repay borrowings under DeCrane’s senior credit facility.  The sale is expected to be consummated prior to June 30, 2003 and is subject to customary closing conditions, including financing and the receipt of regulatory and other third-party approvals.  The sale of our Specialty Avionics Group is not expected to affect the operations of our remaining operating groups.  See “—Liquidity and Capital Resources” below for additional information.

Our financial position and results of operations have also been affected by our history of acquisitions.  As a result, our historical financial statements do not reflect the financial position and results of operations of our current businesses.  Our most recent acquisitions, which affect the comparability of the historical financial condition and results of operations described herein, are within our Cabin Management Group and include Carl F. Booth & Co., acquired on May 11, 2000, and DeCrane Aircraft Seating Co. (formerly ERDA), acquired on June 30, 2000.  Our historical financial statements reflect the financial position and results of operations of the acquired businesses subsequent to their respective acquisition dates.

Industry Overview and Trends

We compete in the aircraft products and services market of the aerospace industry.  The market for our products and services is largely driven by demand in the three civil aircraft markets: commercial, regional and corporate, VIP and head-of-state aircraft.  The September 11, 2001 terrorist attack on the United States, ongoing concerns about global terrorism, the current Middle-Eastern military conflicts, the Severe Acute Respiratory Syndrome (SARS) epidemic and weak global economic conditions are all adversely impacting air travel and, in turn, the aerospace industry and our business.

In response to these adverse conditions, we announced and implemented a restructuring plan in December 2001 designed to reduce expenses and conserve working capital.  This plan includes permanently closing one manufacturing facility and idling a second facility for an indefinite period, curtailing several product development programs and instituting workforce reductions.  During the first quarter of fiscal 2002, we also announced we would consolidate the production of four Cabin Management manufacturing facilities into two facilities, resulting in the permanent closure of two additional facilities.  During the second quarter of fiscal 2002, we also announced we would permanently close the temporarily idled manufacturing facility.  See “—Restructuring, Asset Impairment and Other Related Charges” below for additional information.

The commercial aircraft portion of our business experienced significant weakness in 2002 and we believe this condition will continue into 2003 and 2004, with potential recovery not expected to occur until 2005.  The corporate, VIP and head-of-state aircraft portion of our business also experienced growing weakness during 2002 and this trend is likely to worsen in 2003.  However, we believe the potential exists for corporate, VIP and head-of-state aircraft deliveries to recover modestly in 2004 and reflect growing strength in 2005.

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Results of Operations

Our results of operations for the years ended December 31, 2002 and 2001 have been affected by restructuring, asset impairment and other related charges relating to our restructuring activities.  These restructuring charges, which affect the comparability of our reported results of operations between periods, are more fully described in “—Restructuring, Asset Impairment and Other Related Charges” below.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Revenues.Revenues decreased $69.8 million, or 17.6%, to $325.6 million for the year ended December 31, 2002 from $395.4 million for the year ended December 31, 2001.  By segment, revenues changed as follows:

	Increase (Decrease) From 2001
(In millions)	Amount			Percent
Cabin Management	$	(33.2	)	(16.1	)%
Specialty Avionics	(27.5		)	(22.3	)
Systems Integration	(9.5		)	(14.0	)
Inter-group elimination	0.4
Total	$	(69.8	)

Cabin Management.  Revenues decreased by $33.2 million, or 16.1% compared to the prior year.  The decrease, which is across most of our product and services categories, is caused by the adverse impact of weak global economic conditions on the corporate, VIP and head-of-state aircraft market in 2002 versus 2001 as follows:

•a $22.4 million decrease in aircraft furniture and related products revenues;

•a $9.8 million decrease in cabin management and entertainment systems revenues; and

•a $6.1 million decrease in seating products revenues; offset by

•a $5.1 million increase in other product and services revenues.

Specialty Avionics.  Revenues decreased by $27.5 million, or 22.3% compared to the prior year, due to decreases in commercial aircraft production affecting the following product lines:

•a $16.9 million volume decrease in interconnect products; and

•a $10.6 million decrease in cockpit audio, communications, lighting and power and control devices revenues.

Systems Integration.  Revenues decreased by $9.5 million, or 14.0% compared to the prior year, due to:

•a $7.5 million decrease in the commercial aircraft systems integration engineering services we provide in the aftermath of September 11^th; and

•a $2.0 million decrease resulting from reduced production and delivery of corporate, VIP and head-of-state aircraft auxiliary fuel systems due to the adverse impact of weak global economic conditions on the demand for those types of aircraft.

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Gross profit.  Gross profit decreased $24.0 million, or 20.7%, to $91.7 million for the year ended December 31, 2002 from $115.7 million for the same period last year.  By segment, gross profit changed as follows:

	Increase (Decrease) From 2001
(In millions)	Amount			Percent
Cabin Management	$	(10.7	)	(21.7	)%
Specialty Avionics	(8.1		)	(20.0	)
Systems Integration	(5.3		)	(20.3	)
Inter-group elimination	0.1
Total	$	(24.0	)

Gross profit is reduced by restructuring, asset impairment and other related charges totaling $11.0 million for the year ended December 31, 2002 and $16.1 million for the year ended December 31, 2001.  Excluding these charges, gross profit decreased $29.1 million, or 22.1%, to $102.7 million for the year ended December 31, 2002 compared to $131.8 million for the same period last year and gross profit as a percent of revenues was 31.5% for the year ended December 31, 2002 compared to 33.3% for the same period last year.

Cabin Management.  Gross profit decreased by $10.7 million, or 21.7% compared to the prior year, primarily due to:

•a $6.6 million net decrease caused by charges related to our 2001 and 2002 restructuring activities;

•a $3.8 million decrease in profit margins due to lower volume for our corporate, VIP and head-of-state aircraft furniture and seating products, and

•a $0.3 million decrease in gross profit related to lower volume for our cabin management and entertainment systems.

Specialty Avionics.  Gross profit decreased by $8.1 million, or 20.0% compared to the prior year, due to:

•a $5.1 million decrease related to lower volume for our cockpit audio, communications, lighting and power and control devices products;

•a $3.0 million decrease caused by lower volume for our interconnect products.

Systems Integration.  Gross profit decreased by $5.3 million, or 20.3% compared to the prior year, primarily due to $4.1 million of other asset impairment related charges and lower sales volume.

Selling, general and administrative expenses.  Selling, general and administrative expenses decreased $8.0 million, or 13.4%, to $51.9 million for the year ended December 31, 2002, from $59.9 million for the same period last year.  By segment, SG&A expenses changed as follows:

	Increase (Decrease) From 2001
(In millions)	Amount			Percent
Cabin Management	$	(1.9	)	(7.3	)%
Specialty Avionics	(2.9		)	(20.3	)
Systems Integration	(2.1		)	(22.0	)
Corporate	(1.1		)
Total	$	(8.0	)

23

SG&A expenses include restructuring, asset impairment and other related charges of $6.5 million for the year ended December 31, 2002 and $4.0 million for the year ended December 31, 2001.  Excluding these charges, SG&A expenses decreased $10.5 million, or 18.8%, to $45.4 million for the year ended December 31, 2002 compared to $55.9 million for the same period last year and SG&A expenses as a percent of revenues were 13.9% for the year ended December 31, 2002 compared to 14.1% for the same period last year.

Cabin Management.  SG&A expenses decreased by $1.9 million, or 7.3% compared to the prior year, due to:

•a $4.8 million decrease in expenses as a result of cost reduction measures implemented in 2001 and 2002 in response to lower sales volume resulting from the weak global economic conditions; offset by

•a $2.9 million increase caused by charges relating to our 2001 and 2002 restructuring activities.

Specialty Avionics.  SG&A expenses decreased by $2.9 million, or 20.3% compared to the prior year, due to:

•a $2.5 million decreased in expenses as a result of lower labor and employee benefit costs resulting from workforce reductions implemented during the fourth quarter of fiscal 2001; and

•a $0.4 million decrease caused by restructuring charges relating to our 2001 restructuring activities.

Systems Integration.  SG&A expenses decreased by $2.1 million, or 22.0% compared to the prior year, due to lower labor and employee benefit costs resulting from workforce reductions implemented during the fourth quarter of fiscal 2001.

Corporate.  SG&A expenses decreased by $1.1 million compared to the prior year, primarily due to workforce and travel expense reductions offset by increases in insurance and employee benefit costs.

Impairment of goodwill.  In the fourth fiscal quarter of 2002, a $7.7 million charge was recorded the reflect the additional impairment of goodwill in connection with the annual impairment testing provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”.  The additional impairment results from continued weakness in the commercial aircraft portion of our business and pertains to our Specialty Avionics Group.

In 2001, an $8.6 million impairment charge was recognized pursuant to the provisions of SFAS No. 121, “Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” to reflect the impairment resulting from our restructuring.

Depreciation and amortization of intangibles.  Depreciation and amortization expense decreased $15.3 million to $17.1 million for the year ended December 31, 2002 compared to $32.4 million for the same period last year, primarily resulting from the adoption of new accounting standards.

Effective January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets” and the provisions of SFAS No. 141, “Business Combinations,” which were required to be adopted concurrent with the adoption of SFAS No. 142.  Under these new standards, goodwill is deemed to be an indefinite-lived asset and, as a result, the recording of periodic goodwill amortization charges was discontinued effective January 1, 2002.  In addition, SFAS No. 141 requires that intangible assets relating to acquired assembled workforce intangibles not meeting the criteria for recognition apart from goodwill be reclassified to goodwill.  Goodwill amortization was $14.3 million for the year ended December 31, 2001,which includes $1.6 million of assembled workforce amortization, now deemed part of goodwill.

24

Excluding the effect of the accounting change, depreciation and amortization decreased $1.0 million as a result of lower depreciable costs resulting from the impairment of long-lived assets recorded during the fourth quarter of fiscal 2001 and 2002, partially offset by additional depreciation resulting from capital expenditures during the period.

EBITDA and Operating income.  EBITDA decreased $18.8 million, or 21.1%, to $70.0 million for the year ended December 31, 2002, from $88.8 million for the same period last year.  Operating income decreased $0.8 million to $26.4 million for the year ended December 31, 2002, from $27.2 million for the same period last year.  EBITDA and operating income changed as follows:

	Increase (Decrease) From 2001
(In millions)	Amount			Percent
EBITDA:
Cabin Management	$	(12.9	)	(28.3	)%
Specialty Avionics	(7.9		)	(23.8	)
Systems Integration	0.9			5.4
Corporate	1.0			14.8
Inter-group elimination	0.1
Total EBITDA	(18.8		)
Depreciation and amortization	15.3
Restructuring, asset impairment and other related charges	3.5
Other noncash and acquisition related charges	(0.8		)
Total operating income	$	(0.8	)

Cabin Management.  EBITDA decreased by $12.9 million, or 28.3% compared to the prior year, primarily due to:

•a $9.3 million decrease related principally to lower revenues in our corporate, VIP and head-of-state aircraft furniture and seating operations;

•a $3.6 million decrease resulting from lower sales volume for our cabin management and entertainment systems.

Specialty Avionics.  EBITDA decreased by $7.9 million, or 23.8% compared to the prior year, primarily due to:

•a $9.1 million decrease related to lower demand for our commercial aircraft products; offset by

•a $1.2 million increase resulting from the effect of cost reduction programs implemented in 2001 and 2002.

Systems Integration.  EBITDA increased by $0.9 million, or 5.4% compared to the prior year, primarily the result of reduced SG&A spending resulting from workforce reductions.

Corporate.  EBITDA increased $1.0 million, or 14.8% compared to the prior year, due to principally to reduced SG&A spending.

Interest expense.  Interest expense decreased $5.1 million, or 13.1%, to $33.9 million for the year ended December 31, 2002 compared to $39.0 million for the same period last year due almost entirely to lower average interest rates charged by our lenders.

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Provision for income taxes.  The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income before income taxes primarily due to the effects of state and foreign income taxes and non-deductible expenses, principally goodwill impairment charges and amortization (for periods prior to the January 1, 2002 adoption of SFAS No. 142).  The difference in the effective tax rates between periods is mostly the result of the adoption of SFAS No. 142.

Loss before cumulative effect of change in accounting principle.  Loss before cumulative effect of change in accounting principle decreased $5.2 million to a net loss of $8.8 million for the year ended December 31, 2002, compared to a net loss of $14.0 million for the same period last year.

Cumulative effect of change in accounting principle.  The $57.2 million charge to reflect the cumulative effect of change in accounting principle for the year ended December 31, 2002 was a result of transitional goodwill impairment charges recognized upon initial adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.”

Net income (loss).  Net loss increased $52.0 million to a net loss of $66.0 million for the year ended December 31, 2002 compared to a net loss of $14.0 million for the same period last year.  The increase over the prior year is primarily a result of the cumulative effect of change in accounting principle.

Net income (loss) applicable to common stockholder.  Net loss applicable to DeCrane Holdings, our common stockholder, increased $52.7 million to a net loss of $71.8 million for the year ended December 31, 2002 compared to a net loss of $19.1 million for the same period last year.  The increase in the net loss applicable to our common stockholder is attributable to:

•a $57.2 million charge to reflect the cumulative effect of the change in accounting principle; and

•a $0.7 million increase in accrued 16% mandatorily redeemable preferred stock dividends resulting from the quarterly compounding of accrued dividends; offset by

•a $5.2 million decrease in our loss before the cumulative effect of the change in accounting principle.

Bookings.  Bookings decreased $85.7 million, or 23.4%, to $281.3 million for the year ended December 31, 2002 compared to $367.0 million for the same period last year.  The decrease in bookings for 2002 is due to decreases in orders for all three of our business segments.

Backlog at end of period.  Backlog decreased $44.3 million to $105.6 million as of December 31, 2002 compared to $149.9 million as of December 31, 2001.

As described in “—Industry Overview and Trends,” the acts, and ongoing threats, of global terrorism and the current military conflicts, SARS epidemic and weak global economic conditions are having an adverse impact on our business, resulting in the decrease in bookings during 2002 and related backlog at the end of the period.  In addition, we believe that some of our customers have substantially reduced their order lead times which may have adversely affected bookings during the period.

We are not able to predict the continuing impact these events will have on bookings and backlog in future periods.  However, given the magnitude of these events, the adverse impact could be material.

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Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues.Revenues increased $48.0 million, or 13.8%, to $395.4 million for the year ended December 31, 2001 from $347.4 million for the year ended December 31, 2000.  By segment, revenues changed as follows:

	Increase (Decrease) From 2000
(In millions)	Amount			Percent
Cabin Management	$	31.3		17.9	%
Specialty Avionics	12.3			11.1
Systems Integration	4.6			7.2
Inter-group elimination	(0.2		)
Total	$	48.0

Cabin Management.  Revenues increased by $31.3 million, or 17.9% over the prior year, due to:

•the inclusion of $23.8 million of revenues resulting from our acquisitions of Carl F. Booth & Co. and DeCrane Aircraft Seating Co. in 2000; and

•a $7.5 million increase in cabin furniture and related products revenues.

Specialty Avionics.  Revenues increased by $12.3 million, or 11.1% over the prior year, due to:

•a $8.5 million increase in cockpit audio, communications, lighting and power and control devices revenues; and

•a $3.8 million revenue increase resulting from higher volume for our interconnect products.

Systems Integration.  Revenues increased by $4.6 million, or 7.2% over the prior year, due to:

•a $9.3 million increase in auxiliary fuel system and power unit revenues; offset by

•a $4.7 million decrease in cabin and flight deck systems integration revenues resulting from reducing the number of product offerings to focus on our core product lines.

Gross profit.  Gross profit increased $0.4 million, or 0.3%, to $115.7 million for the year ended December 31, 2001, from $115.3 million of the same period last year.  By segment, gross profit changed as follows:

	Increase (Decrease) From 2000
(In millions)	Amount			Percent
Cabin Management	$	(9.5	)	(15.9	)%
Specialty Avionics	6.5			19.0
Systems Integration	3.5			15.7
Inter-group elimination	(0.1		)
Total	$	0.4

Gross profit for the year ended December 31, 2001 is reduced by $16.1 million of restructuring and asset impairment charges relating to our 2001 restructuring.  Excluding these charges, gross profit increased $16.5 million, or 14.3%, to $131.8 million for the year ended December 31, 2001 and gross profit as a percent of revenues of 33.3% for the year ended December 31, 2001 is comparable to 33.2% for the same period last year.

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Cabin Management.  Gross profit decreased by $9.5 million, or 15.9% compared to prior year, primarily due to:

•a $13.6 million decrease caused by 2001 restructuring charges relating to the curtailment and resulting write-off of inventoried costs for several product development programs, realignment of production programs between facilities and inventory write-downs, and

•a $4.3 million decrease in profit margins associated with higher manufacturing costs for corporate, VIP and head-of-state aircraft furniture related to large airframe models; offset by

•a $7.1 million increase in gross profit related to our 2000 acquisitions; and

•a $1.3 million increase in gross profit related to higher product volume for corporate, VIP and head-of-state aircraft furniture.

Specialty Avionics.  Gross profit increased by $6.5 million, or 19.0% over the prior year, due to:

•a $4.6 million increase related to higher volume for our cockpit audio, communications, lighting and power and control devices products; and

•a $4.4 million increase related to a shift in product mix to items with higher margins; offset by

•a $2.5 million decrease caused by 2001 restructuring charges relating to excess inventory write-downs.

Systems Integration.  Gross profit increased by $3.5 million, or 15.7% over the prior year, due to:

•a $3.1 million increase due to higher auxiliary fuel systems volume and favorable manufacturing efficiencies; and

•a $1.2 million increase resulting, in part, from improved operating results subsequent to our fourth quarter 1999 restructuring; offset by

•a $0.8 million decrease resulting from lower cabin and flight deck systems integration services volume.

Selling, general and administrative expenses.  Selling, general and administrative expenses increased $14.5 million, or 31.9%, to $59.9 million for the year ended December 31, 2001, from $45.4 million for the same period last year. By segment, SG&A expenses changed as follows:

	Increase (Decrease) From 2000
(In millions)	Amount		Percent
Cabin Management	$	10.3	65.0	%
Specialty Avionics	2.5		20.4
Systems Integration	1.1		12.5
Corporate	0.6		7.6
Total	$	14.5

SG&A expenses for the year ended December 31, 2001 includes $4.0 million of restructuring and asset impairment charges relating to our 2001 restructuring.  Excluding these charges, SG&A expenses increased $10.5 million, or 23.1%, to $55.9 million for the year ended December 31, 2001 and SG&A expenses as a percent of revenues increased to 14.1% for the year ended December 31, 2001 compared to 13.1% for the same period last year.

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Cabin Management.  SG&A expenses increased by $10.3 million, or 65.0% over the prior year, due to:

•a $3.6 million increase caused by 2001 restructuring and asset impairment charges relating to severance, lease termination and other related costs;

•a $3.6 million increase in expenses to support increased production and new programs; and

•a $3.1 million increase in expenses resulting from our 2000 acquisitions.

Specialty Avionics.  SG&A expenses increased by $2.5 million, or 20.4% over the prior year, due to:

•a $2.1 million increase in labor and employee benefit costs in support of revenue growth; and

•a $0.4 million increase caused by 2001 restructuring charges relating to severance and other related compensation costs.

Systems Integration.  SG&A expenses increased by $1.1 million, or 52.4% over the prior year, due to an increase in expenses associated with refocusing our cabin and flight deck systems integration services to product offerings requiring higher levels of sales and marketing, program management and customer service support.

Corporate.  SG&A expenses increased by $.6 million, or 7.6% over the prior year, primarily due to increased depreciation expense.

Impairment of goodwill.  In 2001, an $8.6 million impairment charge was recognized pursuant to the provisions of SFAS No. 121, “Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” to reflect the impairment resulting from our restructuring.

Depreciation and amortization of intangibles.  Depreciation and amortization expense, which includes amortization of goodwill and identifiable intangible assets, increased $5.2 million, or 19.1%, for the year ended December 31, 2001.  The increase results from the inclusion of $2.2 million of depreciation and amortization expense in 2001 from companies we acquired during 2000 and additional depreciation resulting from our capital expenditures during the period.

EBITDA and Operating income.  EBITDA increased $7.8 million to $88.8 million, or 9.6%, for the year ended December 31, 2001, from $81.0 million for the same period last year.  EBITDA as a percent of revenues decreased to 22.5% for the year ended December 31, 2001, from 23.3% for the same period last year.

Operating income decreased $24.8 million to $27.2 million for the year ended December 31, 2001, from $52.0 million for the same period last year.  Operating income for the year ended December 31, 2001 is reduced by $28.7 million of restructuring and asset impairment charges, $22.1 million of which are noncash charges.  Excluding these restructuring and asset impairment charges, operating income increased $3.9 million, or 7.5%, over the prior year.

29

EBITDA and operating income changed as follows:

	Increase (Decrease) From 2000
(In millions)	Amount			Percent
EBITDA
Cabin Management	$	(0.5	)	(1.1	)%
Specialty Avionics	6.6			24.6
Systems Integration	2.1			14.1
Corporate	(0.2		)	(2.2	)
Inter-group elimination	(0.2		)
Total EBITDA	7.8
Restructuring, asset impairment and other related charges	(28.7		)
Depreciation and amortization	(5.2		)
Other noncash and acquisition related charges	1.3
Total operating income	$	(24.8	)

Cabin Management.  EBITDA decreased by $0.5 million, or 1.1% compared to the prior year, primarily due to:

•a $5.5 million decrease primarily resulting from higher manufacturing costs for corporate, VIP and head-of-state aircraft furniture related to the large airframe models; offset by

•a $5.0 million increase resulting from our 2000 acquisitions.

Specialty Avionics.  EBITDA increased by $6.6 million, or 24.6% over the prior year, due to higher demand for our commercial aircraft products prior to the September 11^th terrorist attack.

Systems Integration.  EBITDA increased by $2.1 million, or 14.1% over the prior year, due principally to higher auxiliary fuel systems revenues and favorable manufacturing efficiencies.

Interest expense.  Interest expense was $39.0 million for the year ended December 31, 2001 compared to $41.6 million for the year ended December 31, 2000, a reduction of $2.6 million due to the following:

•a $4.4 million decrease resulting from lower average interest rates charged by our lenders during 2001; offset by

•a $1.8 million increase resulting from higher levels of indebtedness.

Provision for income taxes.  The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income before income taxes primarily due to the effects of state and foreign income taxes and non-deductible expenses, principally goodwill amortization.  The difference in the effective tax rates between periods is mostly a result of the relationship of non-deductible expenses to income before income taxes.

Net income (loss).  Net income decreased $17.6 million to a net loss of $14.0 million for the year ended December 31, 2001 compared to net income of $3.6 million for the same period last year.

30

Net income (loss) applicable to common stockholder.  Net income applicable to DeCrane Holdings, our common stockholder, decreased $20.4 million to a net loss of $19.1 million for the year ended December 31, 2001 compared to net income of $1.3 million for the same period last year.  The increase is attributable to:

•a $17.6 million net loss increase; and

•a $2.8 million increase in accrued dividends and redemption value accretion resulting from the issuance of 16% mandatorily redeemable preferred stock on June 30, 2000.

Bookings.  Bookings increased $7.0 million, or 1.9%, to $367.0 million for the year ended December 31, 2001 compared to $360.0 million for the same period last year.  The increase in bookings for 2001 results from:

•a $22.5 million increase associated with companies we acquired during 2000 that are included for a full year in our 2001 results; offset by

•a $15.5 million decrease resulting from the adverse impact the events of September 11^th and its aftermath and the weakening global economic conditions are having on our businesses.

Backlog at end of period.  Backlog decreased $28.4 million to $149.9 million as of December 31, 2001 compared to $178.3 million as of December 31, 2000.  The decrease in backlog for 2001 primarily results from the adverse impact the events of September 11^th and its aftermath and the weakening global economic conditions are having on our businesses.

31

Restructuring, Asset Impairment and Other Related Charges

The following discussion should be read in conjunction with Note 2 accompanying our financial statements included in this report.

During the years ended December 31, 2002 and 2001, we recorded restructuring, asset impairment and other related pre-tax charges, principally related to two restructuring plans.  These charges, and the effect these charges had on our reported results of operations for the periods, are summarized below along with comparative information for the year ended December 31, 2000.

	Year Ended December 31,
(In millions)	2002			2001			2000
Nature of charges:
2001 Asset Realignment Restructuring	$	6.9		$	28.7		$	—
2002 Seat Manufacturing Facilities Restructuring	6.3			—			—
Other asset impairment related charges	12.0			—			—
Total pre-tax charges	$	25.2		$	28.7		$	—
Charged to operations:
Cost of sales	$	11.0		$	16.1		$	—
Selling, general and administrative expenses	6.5			4.0			—
Impairment of goodwill	7.7			8.6			—
Total pre-tax charges	$	25.2		$	28.7		$	—
Components of charges:
Noncash charges	$	19.4		$	22.1		$	—
Cash charges	5.8			6.6			—
Total pre-tax charges	$	25.2		$	28.7		$	—
As reported:
Gross profit	$	91.7		$	115.7		$	115.3
Selling, general and administrative expenses	51.9			59.9			45.4
Impairment of goodwill	7.7			8.6			—
Operating income	26.4			27.2			52.0
Income (loss) before taxes and change in accounting principle	(8.5		)	(12.8		)	9.9
As adjusted:
Gross profit	$	102.7		$	131.8		$	115.3
Selling, general and administrative expenses	45.4			55.9			45.4
Impairment of goodwill	—			—			—
Operating income	51.6			55.9			52.0
Income (loss) before taxes and change in accounting principle	16.7			15.9			9.9

2001 Asset Realignment Restructuring

During the second quarter of fiscal 2001, we adopted a restructuring plan to realign aircraft furniture production programs among our manufacturing facilities.  In addition, and in response to the adverse impact on the aerospace industry resulting from the September 11^th terrorist attack and its aftermath, as well as the weakening of global economic conditions, we announced and implemented a further restructuring plan in December 2001 designed to reduce costs and conserve working capital.  This plan included permanently closing one manufacturing facility and idling a second facility for an indefinite period, curtailing several product development programs and instituting workforce reductions.  This plan primarily affected our Cabin Management and Specialty Avionics Groups.

32

In connection with this restructuring plan, we recorded pre-tax charges to operations of $28.7 million in fiscal 2001, of which $22.1 million were noncash charges, for the impairment of long-lived assets and restructuring costs related to write-downs and write-offs of inventoried costs, costs associated with the realignment of aircraft furniture production programs among facilities, severance, lease termination and other related costs.  During 2001, we paid $5.0 million of costs related to this restructuring in cash and a $1.6 million restructuring reserve remained at December 31, 2001 solely for severance, lease termination and other related costs.

Due to the ongoing weakness of the corporate, VIP and head-of-state aircraft market, we decided during the second quarter of fiscal 2002 to permanently close the temporarily idled manufacturing facility.  In connection with this decision, we recorded additional pre-tax charges to operations totaling $6.9 million during the year ended December 31, 2002, of which $3.8 million were noncash charges, for restructuring, asset impairment charges and other related expenses.  During 2002, we paid $4.6 million of costs related to this restructuring in cash and a $0.1 million restructuring reserve remained at December 31, 2002 solely for the remaining lease termination and other related costs.  The restructuring plan relating to leased facilities was completed during the second quarter of fiscal 2002; however, future cash payments extend beyond this date due to lease payments on the vacated facilities and the incurrence of other exit costs.  Future cash payments will be funded from existing cash balances and internally generated cash from operations.

2002 Seat Manufacturing Facilities Restructuring

In 2002, we announced we would consolidate the production of four seating and related manufacturing facilities into two, resulting in the permanent closure of two facilities.  This plan was designed to improve manufacturing efficiencies and to further reduce costs and conserve working capital.  In connection with this restructuring plan, we recorded pre-tax charges to operations totaling $6.3 million during the year ended December 31, 2002, of which $3.6 million were noncash charges, for restructuring, asset impairment and other related restructuring charges.

The restructuring, asset impairment and other related expenses are comprised of charges for current asset write-downs, the impairment of long-lived assets, severance and lease termination costs and other restructuring-related expenses pertaining to FAA retesting and recertification, moving, transportation and travel costs and shutdown and startup costs.

The restructuring plan was substantially completed during the second quarter of fiscal 2002.  A $0.1 million restructuring reserve remains at December 31, 2002 for lease termination and other related costs.  The manufacturing facilities were closed during June 2002; however, future cash payments extend beyond this date due to lease payments on the vacated facilities and the incurrence of other exit costs.  Future cash payments will be funded from existing cash balances and internally generated cash from operations.

Other Asset Impairment Related Charges

Due to continued weakness in the commercial aircraft portion of our business, in the fourth quarter of fiscal 2002 we recorded a pre-tax charge of $12,048,000 for additional asset impairments.  Of this amount, $7,672,000 related to our annual goodwill impairment testing pursuant to SFAS No. 142 and $4,376,000 related to inventories and was charged to cost of goods sold.

33

Liquidity and Capital Resources

Our principal cash needs are for debt service, working capital, capital expenditures and strategic acquisitions, as well as to provide DeCrane Holdings with cash to finance its needs, which consists primarily of cash dividends on its preferred stock beginning in 2005.  Our principal sources of liquidity are expected to be cash flow from operations and third party borrowings, principally under our senior credit facility.

Net cash provided by operating activities was $30.3 million for the year ended December 31, 2002 and consisted of $30.8 million of cash provided by operations after adding back depreciation, amortization, the noncash portion of our restructuring and asset impairment charges and other noncash items, $0.4 million used for working capital, and $0.1 million used for other liabilities.  The following factors contributed to the $0.4 million working capital increase:

•a $18.5 million decrease in accounts payable and accrued expenses, primarily resulting from reduced purchasing commensurate with lower revenues; and

•a $1.4 million inventory increase; offset by

•a $19.1 million accounts receivable decrease resulting from decreased revenues as well as timing differences relating to progress and final billings on long-term contracts; and further offset by

•a $0.4 million increase in income taxes payable.

We expect moderate working capital growth during 2003.

Net cash used for investing activities was $11.3 million for the year ended December 31, 2002 and consisted of:

•$5.9 million of contingent acquisition consideration paid during 2002; and

•$5.4 million for capital expenditures.

We anticipate spending approximately $5.0 to $6.0 million for capital expenditures in 2003.  As of December 31, 2002, there are no remaining contingent consideration payment obligations.

Net cash used for financing activities was $16.2 million for the year ended December 31, 2002.  Cash of $22.3 million was used for net repayments of our revolving line of credit borrowings under our senior credit facility, principal payments on our term debt, capitalized lease obligations and other debt, financing costs associated with amending our senior credit facility and the repurchase of stock and options from former management members.  Cash of $6.1 million was provided by a $5.0 million capital contribution from DeCrane Holdings and $1.1 million of additional long-term borrowings.

At December 31, 2002, our senior credit facility borrowings totaling $270.2 million are at variable interest rates based on defined margins over the current prime rate or LIBOR.  We also had $100.0 million of 12% senior subordinated notes and other indebtedness totaling $11.5 million outstanding as of the end of the year.  The total annual maturities of all of our indebtedness outstanding as of December 31, 2002 are as follows: 2003 – $16.9 million; 2004 – $54.0 million; 2005 – $97.8 million; 2006 – $107.1 million; 2007 – $0.6 million; and 2008 and thereafter – $105.3 million.  The senior credit facility and senior subordinated notes indenture impose restrictive and financial covenants on us.  In March 2003, terms and financial covenants contained in our senior credit facility were amended as described below.

At December 31, 2002, we had $88.7 million of working capital and had $43.6 million of borrowings available under our revolving line of credit.

34

As described in “—Industry Overview and Trends,” the acts, and ongoing threats, of global terrorism and the current military conflicts, SARS epidemic and weak global economic conditions are all adversely impacting our business.  In response, we implemented restructuring plans in 2001 and 2002, as described in “—Restructuring, Asset Impairment and Other Related Charges,” designed to reduce costs and conserve working capital.

During the fourth quarter of fiscal 2002, we further assessed our long-term business strategies in light of current aerospace industry conditions.  In addition, we subsequently determined that we would likely not be in compliance with our senior credit facility’s financial covenants in 2003.  We believe that as the aerospace industry recovers, the demand for our Cabin Management and Systems Integration groups’ products and services for corporate, VIP and head-of-state aircraft will return to historical levels and, accordingly, we decided to focus our resources in these market segments.  To accomplish this objective, we embarked on a plan to sell our Specialty Avionics Group, which is highly dependent on the commercial airline industry.

In March 2003, we entered into a definitive agreement to sell our Specialty Avionics Group and received requisite lender approval to amend the senior credit facility to permit the sale.  The amendment provides that the estimated net proceeds of $132.0 million from the sale will be used to repay borrowings under our senior credit facility.  The amendment also relaxes various financial covenants for 2003 and beyond, decreases by $10,000,000 the maximum permitted revolving line of credit borrowings to $40,000,000, increases the prime rate and LIBOR interest margins by 1.5% and permits the issuance of additional indebtedness and the repurchase of a portion of our 12% senior subordinated notes.

The amended senior credit facility also provides that an event of default will occur if the sale is not consummated by or is terminated for any reason prior to June 30, 2003.  If an event of default should occur, the lenders may, at that date, cease to provide additional borrowings and may accelerate repayment of all borrowings then outstanding.  If the lenders took such action, that would be an event of default under our other debt agreements, permitting those lenders to accelerate repayment of all such debt, as well.  In such event, we would require alternate sources of capital, which we may not be able to obtain.  As a result, there are doubts about our ability to continue as a going concern.

We are working diligently to close the sale, which is subject to customary closing conditions, including buyer financing and the need to obtain third party consents, and expect the sale will be consummated prior to June 30, 2003.  We expect to be in compliance with the revised financial covenants through 2003 based on our current operating plan and our ability to respond to further adverse changes in our business through additional cost reduction measures.  We expect to continue conducting our operations in the ordinary course of business.

Although we cannot be certain and provided that the sale of the Specialty Avionics Group described above will be consummated prior to June 30, 2003, we believe our operating cash flows, together with borrowings under our senior credit facility, will be sufficient to meet our future short- and long-term operating expenses, working capital requirements, capital expenditures and debt service obligations for the next twelve months.  However, our ability to pay principal or interest, to comply with our debt financial covenants or refinance our debt and to satisfy our other debt obligations will depend on our future operating performance as well as competitive, legislative, regulatory, business and other factors beyond our control.

In addition, we are continually considering acquisitions that complement or expand our existing businesses or that may enable us to expand into new markets.  Future acquisitions may require additional debt, equity financing or both.  We may not be able to obtain any additional financing on acceptable terms.

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Disclosure of Contractual Obligations and Commitments

The following table summarizes our known obligations to make future cash payments as of December 31, 2002, as well an estimate of the periods during which these payments are expected to be made.

			Years Ending December 31,
(In millions)	Total		2003		2004 and 2005		2006 and 2007		2008 and Beyond
Long-term debt:
Senior credit facility	$	270.2	$	14.7	$	149.4	$	106.1	$	—
12% senior subordinated notes	100.0		—		—		—		100.0
Capital lease obligations	4.2		0.7		1.2		0.7		1.6
Other indebtedness	7.3		1.5		1.2		0.9		3.7
Total long-term debt	381.7		16.9		151.8		107.7		105.3
Operating lease obligations	25.4		3.2		6.1		5.2		10.9
Mandatorily redeemable preferred stock redemption obligation	37.0		—		—		—		37.0
Total obligations	$	444.1	$	20.1	$	157.9	$	112.9	$	153.2

The senior credit facility obligations reflected above are prior to the effect of the March 2003 amendment and application of the estimated net proceeds of $132.0 million from the pending sale of our Specialty Avionics Group as required by the amendment.  Assuming the pending sale of our Specialty Avionics Group were to have been consummated on December 31, 2002, our obligations would have been as follows:

				Years Ending December 31,
(In millions)	Total			2003			2004 and 2005			2006 and 2007			2008 and Beyond
Senior credit facility:
As reported	$	270.2		$	14.7		$	149.4		$	106.1		$	—
Assumed debt repayment	(132.0		)	(11.4		)	(70.1		)	(50.5		)	—
As adjusted	$	138.2		$	3.3		$	79.3		$	55.6		$	—
Total obligations:
As reported	$	444.1		$	20.1		$	157.9		$	112.9		$	153.2
Assumed debt repayment	(132.0		)	(11.4		)	(70.1		)	(50.5		)	—
As adjusted	$	312.1		$	8.7		$	87.8		$	62.4		$	153.2

Disclosure About Off-Balance Sheet Commitments and Indemnities

We are a wholly-owned subsidiary of DeCrane Holdings, whose capital structure also includes mandatorily redeemable preferred stock.  Since we are DeCrane Holdings’ only operating subsidiary and source of cash, we may be required to fund DeCrane Holdings’ redemption obligation in the future.  The DeCrane Holdings preferred stock has a total redemption value of $62.2 million as of December 31, 2002 and is mandatorily redeemable on September 30, 2009.

During our normal course of business, we have entered into agreements containing indemnities pursuant to which we may be required to make payments in the future.  These indemnities are in connection with facility leases and liabilities for specified claims arising from investment banking services our financial advisors provide to us.  The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite.

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Substantially all of these indemnities provide no limitation on the maximum potential future payments we could be obligated to make and is not quantifiable.  We have not recorded any liability for these indemnities as of December 31, 2002 since no claims have been asserted to date.

In connection with the pending sale of our Specialty Avionics Group, we will also be making indemnities to the buyer with respect to a number of customary, and certain other specific, representations and warranties.   Our indemnities with respect to some of these matters will be limited in terms of duration with the maximum of potential future payments capped at $14.0 million, while others will have no limitations.

As of December 31, 2002, we also had an irrevocable standby letter of credit in the amount of $0.4 million issued and outstanding under our senior credit facility.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America.  Our preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

We evaluate our estimates on an on-going basis.  We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results could differ from these estimates under different assumptions or conditions.  We believe the following critical accounting policies affect our more significant estimates and judgments used in the preparation of our financial statements.

Allowance for uncollectible accounts receivable.  Accounts receivable are reduced by an allowance for amounts that are deemed uncollectible.  The estimated allowance for uncollectible amounts is based primarily on our evaluation of the financial condition of each of our customers and their payment history.  We also provide an allowance based on the age of all receivables for which we have not established a customer-specific allowance.  Generally, we do not require collateral or other security to support accounts receivable, however, under certain circumstances, we require deposits or cash-on-delivery terms.  While our losses have been within our expectations, a deterioration of our customers’ financial condition may require that we provide additional allowances, reducing our operating income in future periods.  Our customers operate in the corporate, VIP and head-of-state and commercial aircraft industry throughout the world and are being adversely impacted by the acts, and ongoing threats, of global terrorism and the current military conflicts, SARS epidemic and weak global economic conditions.  Accounts receivable of $40.7 million is reduced by an allowance for uncollectible accounts of $1.8 million as of December 31, 2002.

Work-in-process inventory–deferred program costs.  We incur product development costs, comprised principally of engineering costs, relative to programs and contracts with long production cycles.  In accordance with industry practice, we defer these costs in inventory.  Program costs are charged to cost of sales over the production cycle of the program.  Periodically, we assess the recoverability of the deferred program costs based on existing order backlog and our estimate of future orders.  We reduce the deferred program costs to estimated realizable value in the period in which recoverability becomes uncertain.  As of December 31, 2002, we have $14.8 million of deferred program costs included in work-in-process inventory.

Allowance for excess and obsolete inventory.  Inventories are reduced by an allowance for estimated excess and obsolete inventory.  The allowance is the difference between the cost of the

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inventory and its estimated market value.  Our market value estimates are based upon existing order backlog, our assumptions about market conditions, including future orders and market pricing.  While our products are not subject to rapid technological obsolescence, we also consider this factor in determining our market value estimates.  If our customers cancel existing orders or actual market conditions, including future orders, are less favorable than we projected, we may provide additional allowances, reducing our gross profit in future periods.  Inventories of $86.5 million were reduced by an allowance for excess and obsolete inventory of $5.7 million as of December 31, 2002.

Goodwill impairment.  On January 1, 2002, we began accounting for goodwill under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 142 requires an impairment-only approach to accounting for goodwill.  Because of our history of acquisitions, goodwill constitutes a significant portion of our long-term assets.  As a result of the adoption of SFAS No. 142, we recorded a transitional goodwill impairment charge of $57.2 million in 2002 as the cumulative effect of the change in accounting principle.

The SFAS No. 142 goodwill impairment model is a two-step process.  First, it requires a comparison of the book value of net assets to the fair value of the reporting units that have goodwill assigned to them.  If the fair value is determined to be less than book value, a second step is performed to compute the amount of the impairment.  In this process, a fair value for goodwill is estimated, based in part on the fair value of the reporting unit used in the first step, and is compared to its carrying value.  The amount by which carrying value exceeds fair value represents the amount of goodwill impairment.  SFAS No. 142 requires goodwill to be tested for impairment annually at the same time every year, and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist.  We have selected October 31^st as our annual testing date.

We estimate the fair values of our reporting units using a discounted cash flow approach, taking into consideration projections based on the individual characteristics of the reporting units, historical trends, market multiples for comparable businesses and independent appraisals.  The forecasts of future cash flows are based on our best estimate of future revenues and operating costs, based primarily on existing backlog, expected future bookings and general market conditions.  Changes in these forecasts could cause a particular reporting unit to either pass or fail the first step in the goodwill impairment mode, which could significantly change the amount of impairment recorded.

As a result of our first required annual testing, as of October 31, 2002, we recorded an additional $7.7 million pre-tax impairment charge to operations.  The charge was primarily the result of using lower cash flow forecasts for the commercial aircraft portion of our business.  Goodwill with an aggregate book value of $277.1 million remains as of December 31, 2002 and will be subject impairment testing in 2003.

Valuation of long-lived assets and other intangible assets.  In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” We review long-lived assets and other identifiable intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.  Factors we consider important, which could trigger an impairment review, include significant:

•underperformance relative to expected future operating results;

•changes in the manner of our use of the acquired assets;

•changes in our business strategy; or

•negative aerospace industry or global economic conditions.

Our impairment review consists of comparing the sum of the expected undiscounted future cash flows resulting from the use of the asset to the carrying value of the assets.  When we determine that the carrying value may not be recoverable, we record an impairment loss equal to the excess of the asset’s

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carrying value over its fair value.  We measure fair value based on a projected discounted cash flow method using a discount rate we believe to be commensurate with the risk inherent in our current business model.  Net long-lived assets and intangible assets, excluding goodwill, amounted to $103.6 million as of December 31, 2002.

Accounting for income taxes.  As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.  This process involves estimating our actual current tax exposure together with assessing permanent and temporary differences resulting from differing treatment of items, such as amortization of assets and other nondeductible expenses, for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are included within our statement of financial position.  We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance which increases our provision for income taxes in our statement of operations.

We have $22.6 million of deferred tax assets as of December 31, 2002, which includes $12.2 million of federal and state loss carryforwards.  Based on our estimates of taxable income by jurisdiction and the periods over which our deferred tax assets will be recoverable, we believe it is more likely than not that we will generate taxable income in future periods sufficient to realize the tax benefit associated with these assets.  As a result, we have not established a valuation allowance reducing our deferred tax assets as of December 31, 2002.  In the event actual results differ from our estimates or we adjust these estimates in future periods, we would need to establish a valuation allowance in the period such determination is made, which would increase our provision for income taxes.

Revenue and profit recognition under long-term contracts.  Because of relatively long production cycles, a portion of our revenues and profits are recognized under percentage-of-completion method of accounting using total contract price, actual costs incurred to date and an estimate of the completion costs for each contract.  We use this method because reasonably accurate estimates of the revenue and costs applicable to the various stages of a contract can be made.  Recognized revenues and profits on each contract are subject to revisions as the contract progresses towards completion.  Revisions to revenue and profit estimates are made in the period in which the facts that give rise to the revision become known.  Provisions for estimated losses on uncompleted contracts are fully recognized in the period in which such losses are determined.  Approximately 20.4% of our revenues and 16.3% of our gross profit during the year ended December 31, 2002 was recognized under the percentage-of-completion method of accounting.

Litigation.  We evaluate contingencies in accordance with SFAS No. 5, “Accounting for Contingencies.”  We establish reserves for estimated loss contingencies when it is our assessment that a loss is probable and the amount of the loss can be reasonably estimated.  Revisions to contingent liabilities are charged against income in the period in which different facts or information becomes known or circumstances change that affect the previous assumptions with respect to the likelihood or amount of loss.  Reserves for contingent liabilities are based upon our assumptions and estimates, advice of legal counsel or other third parties regarding the probable outcomes of the matter.  Should the outcome differ from the assumptions and estimates, revisions to the estimated reserves for contingent liabilities would be required.

As described in “Item 3. Legal Proceedings” and Note 12 accompanying our financial statements included in this report, we are involved in legal proceedings for which no reserves for estimated loss contingencies have been established as of December 31, 2002.  Our current evaluation of these matters is that it is probable we will prevail and therefore are not required to accrue estimated losses in accordance with SFAS No. 5.  However, there is a possibility that we may ultimately be required to pay all or a

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portion of the contingent liabilities related to these matters, which may have an adverse impact on our business, financial position, results of operations or cash flows in future periods.

Restructuring of our businesses.  As described in “—Restructuring, Asset Impairment and Other Related Charges,” we recorded charges totaling $25.2 million during 2002 and $28.7 million during 2001 in response to the adverse aerospace industry impact the acts, and ongoing threats, of global terrorism and the current weak global economic conditions are having on our businesses.  These charges are based on our present estimates of the impact these events are having on our businesses and the future recovery of the aerospace industry.  Actual results and future recovery could differ from these estimates, potentially resulting in further restructuring, asset impairment and other related charges.

Recently Issued Accounting Pronouncements

SFAS No. 145

In May 2002, the Financial Accounting Standards Board issued SFAS No. 145, “Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections.”  Among other things, SFAS No. 145 rescinds various pronouncements regarding early extinguishment of debt and allows extraordinary accounting treatment for early extinguishment only when the provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations–Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” are met.  SFAS No. 145 provisions regarding early extinguishment of debt are generally effective for fiscal years beginning January 1, 2003.  We believe this new standard will not have an impact on our business, consolidated financial position, results of operations or cash flow.

SFAS No. 146

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).”

SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be initially measured at fair value and recognized when the liability is incurred.  In periods subsequent to initial measurement, changes to the liability are measured using the credit-adjusted risk-free rate that was used in the initial measurement of the liability recorded.  The cumulative effect of a change resulting from revisions to either the timing or the amount of estimated cash flows is recognized as an adjustment to the liability in the period of the change and charged to the same line items in the statement of operations used when the related costs were initially recognized.  Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan.

The provisions of SFAS No. 146 are required to be applied prospectively to exit or disposal activities initiated after December 31, 2002.  We believe SFAS No. 146 may affect the timing of recognizing future restructuring costs, as well as the amounts recognized, depending on the nature of the exit or disposal activity and the timing of the related estimated cash flows.

FIN No. 45

In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”  FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued.

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The interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.  The initial recognition and initial measurement provisions of FIN No. 45 are applicable to us on a prospective basis to guarantees issued or modified after December 31, 2002.  However, the disclosure requirements in FIN No. 45 are effective for our financial statements for periods ending after December 15, 2002.

We are not a party to any agreement in which it is a guarantor of indebtedness of others therefore the interpretation is not expected to have a material effect on our financial position, results of operations or cash flows.  We have adopted the disclosure requirements of this interpretation as of December 31, 2002.

SFAS No. 148

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.”  SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.  In addition, SFAS No. 148 amends the disclosure requirements of SFAS 123, “Accounting for Stock-Based Compensation,” to require disclosure in both interim and annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

SFAS No. 148 is effective for our fiscal year ended December 31, 2002 and for interim financial statements beginning in 2003.  SFAS No. 148 is not expected to have a significant effect on our financial position, results of operations or cash flows.

FIN No. 46

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities.”  FIN No. 46 addresses consolidation by business enterprises of variable interest entities (formerly special purpose entities or “SPEs”).  We do not have any variable interest entities as defined in FIN No. 46.

Forward-Looking Statements and Risk Factors

Special Note Regarding Forward-Looking Statements

All statements other than statements of historical facts included in this report are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements are subject to known and unknown risks, uncertainties and other factors, which are difficult to predict.  Some of those risks are specifically described below, but we are also vulnerable to a variety of elements that affect many businesses, such as:

•fuel prices and general economic conditions that affect demand for aircraft and air travel, which in turn affect demand for our products and services;

•acts, and ongoing threats, of global terrorism, military conflicts and health epidemics that affect demand for aircraft and air travel, which in turn affect demand for our products and services;

•inflation, and other general changes in costs of goods and services;

•price and availability of raw materials, component parts and electrical energy;

•liability and other claims asserted against us that exceeds our insurance coverage;

•the ability to attract and retain qualified personnel;

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•labor disturbances;

•changes in operating strategy, or our acquisition and capital expenditure plans; and

•the risks described below.

Changes in such factors could cause our actual results to differ materially from those expressed or implied in this report.  Although we believe that the expectations reflected in such statements are reasonable, we can give no assurance that such expectations will prove to be correct.  We undertake no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.  You should not rely on our forward-looking statements as if they were certainties.

Risk Factors

Liquidity.  An event of default under our senior credit facility will occur if we do not consummate the sale of our Specialty Avionics Group prior to June 30, 2003, accelerating the repayment of substantially all of our indebtedness and raising substantial doubt about our ability to continue as a going concern.

If the sale is not consummated and an event of default should occur, the lenders may, at that date, cease to provide additional borrowings and may accelerate repayment of all borrowings then outstanding.  If the lenders took such action, that would be an event of default under our other debt agreements, permitting those lenders to accelerate repayment of all such debt, as well.  In such event, we would require alternate sources of capital, which we may not be able to obtain.

Our financial statements do not reflect any adjustments that may result from the outcome of these uncertainties.

Substantial Leverage.  Our substantial levels of debt could adversely affect our financial health and prevent us from fulfilling our obligations under the debt agreements.

As of December 31, 2002, we had total consolidated indebtedness of approximately $381.7 million, and we had $43.6 million of additional revolving line of credit borrowings available under our senior credit facility.  In order to borrow those funds, we will have to satisfy funding conditions of the kind usually imposed in similar agreements.  The senior credit facility and the indenture under which our senior subordinated notes are issued each also permit us to incur significant amounts of additional debt and to secure that debt with some of our assets.

The amount of debt we carry could have important consequences:

•It may limit the cash flow available for general corporate purposes and acquisitions.  Interest payments on our debt were $28.4 million for the year ended December 31, 2002.

•It may limit our ability to obtain additional debt financing in the future for working capital, capital expenditures or acquisitions.

•It may limit our flexibility in reacting to competitive and other changes in the industry and economic conditions generally.

•It may expose us to increased interest expenses, when interest rates fluctuate, because some of our borrowing may be, and in recent years most of it has been, at variable “floating” rates.

•It may limit our ability to respond to changes in our markets or exploit business opportunities.

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Restrictive Covenants.  Our operations and those of our subsidiaries are restricted by the terms of our senior credit facility and senior subordinated notes indenture.

Our senior credit facility and the indenture under which our senior subordinated notes are issued limit our flexibility in operating our businesses, including our ability and the ability of our subsidiaries to:

•incur debt;

•issue preferred stock;

•repurchase capital stock or subordinated debt;

•enter into transactions with affiliates;

•enter into sale and leaseback transactions;

•create liens or allow them to exist;

•pay dividends or other distributions;

•make investments;

•sell assets; and

•enter into mergers and consolidations.

In addition, our senior credit facility requires that we satisfy several tests of financial condition.  Our ability to do so can be affected by events beyond our control, and we cannot assure you that we will meet those tests.  Our failure to do so could result in a default under our senior credit facility or the notes.

Potential Inability to Service Debt.  We will require a significant amount of cash to service our debt.  Our ability to generate cash depends on cash flows from our subsidiaries and many factors beyond our control.

Our ability to satisfy our debt obligations and to fund our operations and planned capital expenditures will depend on our ability to generate cash in the future.  This, to an extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We cannot assure you that our operating cash flow will be sufficient to meet our anticipated future operating and capital expenditures and debt payments as they become due or that future borrowings will be available to us for such purposes.  If our cash flow is lower than we expect, we might be forced to reduce or delay acquisitions or capital expenditures, sell assets and/or reduce operating expenses in order to make all required debt service payments.  Alternatively, we may have to refinance all or a portion of our debt on or before maturity.  A reduction in our operating expenses might reduce important efforts, such as selling and marketing programs, management information system upgrades and new product development.  In addition, we may not be able to refinance our debt on commercially reasonable terms or at all.

For example, we reported losses of $8.8 million for the year ended December 31, 2002 and $14.0 million for the same period in 2001.  The losses include pre-tax restructuring charges of $25.2 in 2002 and $28.7 million in 2001 we recorded as a result of restructuring plans we implemented in response to the adverse impact the events described in “—Aerospace Industry Risks” below are having on our business.

Aerospace Industry Risks.  The aerospace industry is cyclical and affected by many factors beyond our control, including the financial condition of the commercial airline industry and global economic conditions.

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We compete in the aircraft products and services market of the aerospace industry.  The market for our products and services is largely driven by demand in the three civil aircraft markets: commercial, regional and corporate, VIP and head-of-state aircraft.   The September 11, 2001 terrorist attack on the United States, ongoing concerns about global terrorism, the current Middle-Eastern military conflicts, the Severe Acute Respiratory Syndrome (SARS) epidemic and weak global economic conditions are all adversely impacting air travel and, in turn, the aerospace industry and our business.

Based on industry and market data, we believe the commercial aircraft portion of our business will experience significant weakness during 2003 and 2004, with potential recovery not expected to occur until 2005.  We also believe the corporate, VIP and head-of-state aircraft portion of our business will experience growing weakness during 2003 with aircraft deliveries possibly recovering in 2004 and continuing recovery thereafter.

Further or prolonged decreases in demand for new aircraft, both commercial and corporate, VIP and head-of-state, as well as related component parts, would result in additional decreases in demand for our products and services, and, correspondingly, our revenues, thereby adversely affecting our financial condition.  In addition, further deterioration or prolonged decreases in demand could result in further restructurings of our business.

Concentration of Key Customers.  We receive a significant portion of our revenues from a small group of key customers, and we are vulnerable to changes in their economic condition and purchasing plans.

A significant decline in business from any one of our key customers could have a material adverse effect on our business.  Our three largest customers accounted for 47.0% of our consolidated revenues for the year ended December 31, 2002 as follows: Textron (which includes Cessna) – 17.4%; Boeing – 15.4%; and Bombardier – 14.2%.  Some of our customers also have the in-house capabilities to perform the services and provide many of the products we offer and, accordingly, could discontinue outsourcing their business to us.

In addition, significant portions of our revenues from our major customers are pursuant to contracts that may include a variety of terms favorable to the customer.  Such terms may include our agreement to one or more of the following:

•the customer is not required to make purchases, and may terminate such contracts at any time;

•we make substantial expenditures to develop products for customers that we may not recoup if we do not receive sufficient orders;

•on a prospective basis, we must extend to the customers any reductions in prices or lead times that we provide to other customers;

•we must match other suppliers’ price reductions or delete the affected products from the contract; and

•we must grant irrevocable non-exclusive worldwide licenses to use our designs, tooling and other intellectual property rights to products sold to a customer if we default, or suffer a bankruptcy filing, or transfer our manufacturing rights to a third party.

Intangible Asset Impairment.  Our total assets include a substantial amount of intangible assets.  The write-off of a significant portion of intangible assets would negatively affect our results of operations.

At December 31, 2002, goodwill and other intangible assets represented approximately 60% of our total assets.  Intangible assets consist of goodwill and other identifiable intangible assets associated with our acquisitions, representing the excess of cost over the fair value of tangible assets we have acquired.

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We may not be able to realize the value of these assets.  Goodwill in not amortized but is subject to annual testing for impairment.  Identifiable intangible assets with finite lives are amortized over their individual useful lives and are also subject to annual impairment testing.  Simply stated, if the carrying value of the asset exceeds the estimated undiscounted future cash flows from operating activities of the related business, an impairment is deemed to have occurred.  In this event, the amount is written down accordingly.  Under current accounting rules, this would result in a charge against income from operations.  We have recorded goodwill asset impairment charges totaling $16.3 million during the two years ended December 31, 2002.  In addition, we recorded a transitional goodwill impairment charge of $57.2 million as of January 1, 2002 in connection with the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.”

Any future impairment testing resulting in the write-off of a significant portion of goodwill or identifiable intangible assets will have an adverse impact on our results of operations and total capitalization, the effect of which could be material.

Competition.  We operate in a highly competitive industry and compete against a number of companies, some of which have significantly greater financial, technological and marketing resources than we do.

We operate in highly competitive markets within the aerospace industry.  Our competitors include corporate aircraft manufacturers, independent completion and modification companies, major airlines and other independent service organizations, including some of our customers, many of whom may have significantly greater financial, technological, manufacturing and marketing resources than we do.  The niche markets within the aerospace industry that we serve are relatively fragmented, with several competitors offering the same products and services we provide.  Due to the global nature of the aerospace industry, competition comes from both U.S. and foreign companies.

We believe our ability to compete depends on high product performance, short lead-time and timely delivery, competitive pricing, superior customer service and support and continued certification under customer quality requirements and assurance programs.  There can be no assurance that we will be able to compete successfully with respect to these factors in the future.

Growth Strategy.  Our acquisition of other companies may pose certain risks.

We consider and take advantage of selected opportunities to grow by acquiring other businesses whose operations or product lines complement our existing businesses.  Our ability to implement this growth strategy will depend on finding suitable acquisition candidates at acceptable prices and obtaining the required financing.  Any acquisition we may make in the future could be subject to a number of risks, including:

•our ability to integrate the operations and personnel of the acquired company;

•our failure to identify liabilities of the acquired company for which we may be responsible as a successor owner or operator;

•the loss of key personnel in the acquired company; and

•the impact on our financial position, results of operations and cash flows resulting from additional acquisition indebtedness.

Our inability to adequately manage these or other risks could have an adverse effect on our business.

Regulation.  The FAA closely regulates many of our operations.  If we fail to comply with its many standards, or if those standards change, we could lose installation or certification capabilities, which are important to our business.

The aerospace industry is highly regulated in the United States by the Federal Aviation Administration to ensure that aviation products and services meet stringent safety and performance standards.  The FAA prescribes standards and licensing requirements for aircraft components, issues designated alteration station authorizations, and licenses private repair stations.  We hold various FAA authorizations and licenses, including a Designated Alteration Station authorization, which gives one of

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our subsidiaries the authority to certify some aircraft design modifications on behalf of the FAA.  Our business depends on our continuing access to, or use of, these FAA authorizations and licenses, and our employment of, or access to, FAA-certified individual engineering professionals.

We cannot assure you that we will continue to have adequate access to those authorizations, licenses and certified professionals, ..the loss or unavailability of which could adversely affect our operations.  The FAA could also change its policies regarding the delegation of inspection and certification responsibilities to private companies, which could adversely affect our business.

Environmental Risks and Regulation.  Some of our operations and facilities generate waste or have done so in the past, which may result in unknown future liabilities for environmental remediation.

Federal and state laws, particularly the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), impose strict, retroactive and joint and several liability upon persons responsible for releases or potential releases of hazardous substances and other parties who have some relationship to a site or a source of waste.  We have sent waste to treatment, storage or disposal facilities that have been designated as National Priority List sites under CERCLA or equivalent listings under state laws.  We have received requests for information or allegations of potential responsibility from the U.S. Environmental Protection Agency regarding our use of several of these sites.  Given the potentially retroactive nature of environmental liability, it is possible that we will receive additional notices of potential liability relating to current or former activities.  We may incur costs in the future for prior waste disposal by us or former owners of our subsidiaries or our facilities.  Some of our operations are located on properties that are contaminated to varying degrees.  In addition, some of our manufacturing processes create wastewater that requires chemical treatment, and one of our facilities has been cited for excessive quantity and strength of its wastewater.  We may incur costs in the future to address existing or future contamination.  If we incur significant costs in connection with these or other environmental issues, our business and financial condition could be adversely affected.

Excess Loss Risks.  We could sustain losses in excess of our insurance for liability claims.

Our business exposes us to possible claims for damages resulting from the manufacture, installation and use of our products.  Many factors beyond our control could lead to such claims, such as the failure of an aircraft on which our products have been installed, the reliability and skill of the operators of such aircraft and the maintenance performed on such aircraft.  We carry aircraft products and grounding liability insurance for this purpose, but we cannot assure you that our insurance coverage will be adequate to cover claims that may arise or that we will be able to renew our coverage in the future at commercially reasonable rates.

Industry and Market Data.  We cannot guarantee the accuracy and completeness of the industry and market data and trends we describe in this report and rely upon in preparing our operating forecasts.

The industry and market data we use is based on the good faith estimates of our management, which estimates are based primarily upon internal management information and, to the extent available, independent industry publications and other publicly available information.  However, the nature of the aerospace industry and competition in our markets results in limited availability of reliable, independent data.  Although we believe that the sources we have used are reliable, we do not guarantee, and have not independently verified, the accuracy and completeness of the information.

Dependence on Key Personnel.  We need to retain the services of our key employees.

Our success and growth depends in large part on the skills and efforts of our management team and on our ability to attract and retain qualified personnel experienced in the various operations of our business.  The loss of key personnel, including our founder, R. Jack DeCrane, combined with the failure

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to attract additional qualified personnel for whatever reason, could delay implementation of our business plan or otherwise adversely affect our operations.  We do not carry key man life insurance on any members of our management team.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including interest rates and changes in foreign currency exchange rates.  Market risk is the potential loss arising from adverse changes in prevailing market rates and prices.  From time to time, we use derivative financial instruments to manage and reduce risks associated with these factors.  We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk.  A significant portion of our capital structure is comprised of long-term variable and fixed-rate debt.

Market risk related to our variable-rate debt is estimated as the potential decrease in pre-tax earnings resulting from an increase in interest rates.  The interest rates applicable to variable-rate debt are, at our option, based on defined margins over the current prime rate or LIBOR.  At December 31, 2002, the current prime rate was 4.75% and the current LIBOR was 1.95%.  Based on $270.2 million of variable-rate debt outstanding as of December 31, 2002, a hypothetical one percent rise in interest rates, to 5.75% for prime rate borrowings and 2.95% for LIBOR borrowings, would reduce our pre-tax earnings by $2.7 million annually.

To limit our exposure related to rising interest rates, we have entered into an interest rate swap contract to effectively convert $4.5 million of variable-rate industrial revenue bonds to 4.2% fixed-rate debt until maturity in 2008.  The contract is considered to be a hedge against changes in the amount of future cash flows associated with interest payments on this portion of our variable-rate debt.  Market risk related to this interest rate swap contract is estimated as the potential higher interest expense we will incur if the variable interest rate decreases below the 4.2% fixed rate.  Based on the $4.5 million of variable-rate debt converted to fixed-rate debt outstanding as of December 31, 2002, a hypothetical one percent decrease in the variable interest rate to 3.2%, would reduce our pre-tax earnings by less than $0.1 million annually.

The estimated fair value of our $100.0 million fixed-rate long-term debt decreased $53.5 million, or 57.2%, to approximately $40.0 million at December 31, 2002 from $93.5 million at December 31, 2001.  We believe the decrease is attributable to the overall deterioration of the aerospace industry’s financial condition following the events of September 11^th and its aftermath.  Subsequent to December 31, 2002, the estimated fair value increased by $10.0 million to approximately $50.0 million as of March 20, 2003.  Although we cannot be certain, we believe the increase may be a result of our announcement that we have entered into a definitive agreement to sell our Specialty Avionics Group.  Market risk related to our fixed-rate debt is deemed to be the potential increase in fair value resulting from a decrease in interest rates.  For example, a hypothetical ten percent decrease in the interest rates, from 12.0% to 10.8%, would increase the fair value of our fixed-rate debt by approximately $7.0 million.

Foreign Currency Exchange Rate Risk.  Our foreign customers are located in various parts of the world, primarily Western Europe, the Far East and Canada, and we have subsidiaries with manufacturing facilities in Switzerland and Mexico.  To limit our foreign currency exchange rate risk related to sales to our customers, orders are primarily valued and sold in U.S. dollars.  From time to time we have entered into forward foreign exchange contracts to limit our exposure related to foreign inventory procurement and operating costs.  While we have not entered into any such contracts since 1998, we may do so in the future depending on our assessment of future foreign exchange rate trends.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements, supplementary financial information and financial statement schedules are included in a separate section at the end of this report.  The financial statements, supplementary information and schedules are listed in the index on page F-1 of this report and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

The following table sets forth certain information concerning each person who is currently a director or executive officer of DeCrane Aircraft and its parent company, DeCrane Holdings.

Name	Age	DeCrane Aircraft	DeCrane Holdings
R. Jack DeCrane(1)	56	Director and Chief Executive Officer	Vice Chairman of the Board of Directors and Chief Executive Officer
Richard J. Kaplan	60	Director, Senior Vice President, Chief Financial Officer, Secretary and Treasurer	Director, Chief Financial Officer and Assistant Secretary
Robert G. Martin	65	Senior Vice President and Group President	—
Jeffrey A. Nerland	45	Senior Vice President and Group President	—
Jeffrey F. Smith	42	Senior Vice President and Group President	—
Thompson Dean	45	Chairman of the Board of Directors	Chairman of the Board of Directors
James A. Quella	53	Director	Director
Susan C. Schnabel(1)(2)	41	Director	Director
Albert E. Suter(1)(2)	67	Director	Director

(1)Member of the Compensation Committee; Ms. Schnabel serves as the committee’s chairperson.

(2)Member of the Audit Committee; Mr. Suter serves as the committee’s chairman.

R. Jack DeCrane is the founder of DeCrane Aircraft.  Mr. DeCrane served as President from the time DeCrane Aircraft was founded in December 1989 until April 1993, when he was elected to the newly created office of Chief Executive Officer.  In August 2002, Mr. DeCrane was also appointed Chief

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Executive Officer of DeCrane Holdings.  He has served on the board of directors of DeCrane Aircraft and DeCrane Holdings since their inceptions.

Richard J. Kaplan has been the Senior Vice President, Chief Financial Officer, Secretary and Treasurer of DeCrane Aircraft and Assistant Treasurer and Assistant Secretary (principal accounting officer) of DeCrane Holdings since March 1999.  In August 2002, Mr. Kaplan was appointed Chief Financial Officer and Assistant Secretary of DeCrane Holdings.  From April 1998 to March 1999, he served as Executive Vice President and Chief Operating Officer of Developers Diversified Realty Corporation.  From 1977 to 1998, he was a partner with Price Waterhouse LLP, having joined the firm in 1964.  He became a director of DeCrane Aircraft and DeCrane Holdings in 2000.

Robert G. Martin has been our Senior Vice President and President of the Systems Integration Group since October 1999.  Mr. Martin also served as President of PATS since we acquired it in January 1999 through December 2002 and as President of Aerospace Display Systems from September 1996 until October 1999.

Jeffrey A. Nerland has been our Senior Vice President and President of the Cabin Management Group since December 2001.  From January 1999 until December 2001, Mr. Nerland served as Vice President, Business Development, and was appointed Senior Vice President in March 2001.  From July 1994 through December 1998, he was President of The Nerland Group and a partner with Budetti, Harrison, Nerland and Associates, a consulting and interim management firm.

Jeffrey F. Smith has been our Senior Vice President and President of the Specialty Avionics Group since October 1999 and President of Avtech since we acquired it in June 1998.  Previously, he has served in various capacities with Avtech since 1989.

Thompson Dean has been a director of DeCrane Aircraft and DeCrane Holdings in 1998.  Mr. Dean also served are President of DeCrane Holdings from its inception in 1998 through August 2002.  Mr. Dean has also been the Managing Partner of DLJ Merchant Banking, Inc. since November 1995.  In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc.  As a result, DLJ Merchant Banking, Inc. became an indirect affiliate of Credit Suisse First Boston, Inc. and Credit Suisse Group.  Mr. Dean serves as a director of AKI Holding Corp., Amatek Holdings S.A., Arcade Holding Corporation, Manufacturers’ Services Limited, Mueller Holdings, Inc., and Von Hoffman Holdings, Inc.

James A. Quella has been a director of DeCrane Aircraft and DeCrane Holdings since February 2003.  Mr. Quella has also been a Managing Director and Operating Partner of DLJ Merchant Banking, Inc. since July 2000.  In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc.  As a result, DLJ Merchant Banking, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation became indirect affiliates of Credit Suisse First Boston, Inc. and Credit Suisse Group.  Previously, Mr. Quella was a Managing Director with GH Ventures Partners LLC from January 2000 through July 2000 and Vice Chairman of Mercer Management Consulting, Inc. from 1997 through 1999.  Mr. Quella serves as a director of Advanstar Holdings, Inc., Merrill Corporation and Von Hoffman Holdings, Inc.

Susan C. Schnabel has been a director of DeCrane Aircraft and DeCrane Holdings since 1998.  Ms. Schnabel has also been a Managing Director of DLJ Merchant Banking, Inc. since January 1998.  In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc.  As a result, DLJ Merchant Banking, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation became indirect affiliates of Credit Suisse First Boston, Inc. and Credit Suisse Group.  Ms. Schnabel serves as a director of Environmental Systems Products Holdings, Inc., Noveon, Inc. and Shoppers Drug Mart, Inc.

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Albert E. Suter has been a director of DeCrane Aircraft and DeCrane Holdings since May 2002.  Mr. Suter is a Senior Advisor and Retired Vice Chairman and Chief Operating Officer of Emerson Electric Co., a manufacturer of electrical, electromechanical and electronic products and systems.  Mr. Suter has served Emerson in various capacities since 1989.  Mr. Suter serves as a director of Furniture Brands International, Inc.

Selection of Directors and Term of Office

DLJ Merchant Banking Partners II, L.P. is entitled to select all members of the Board of Directors of DeCrane Holdings and DeCrane Aircraft as described in “Item 13. Certain Relationships and Related Transactions—Investors’ Agreement.”  At least one of such directors selected by DLJ Merchant Banking on each board must be an independent director.  Mr. Suter is an independent director.  All directors hold office until their successor is designated and qualified.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table describes all annual compensation awarded to, earned by or paid to our Chief Executive Officer and the four most highly compensated executive officers other than the Chief Executive Officer for the three years ended December 31, 2002.

		Annual Compensation				All Other Compensation
Name	Year	Salary		Bonus		Securities Underlying Options(1)	Other(2)
R. Jack DeCrane(3)	2002	$	355,144	$	750,000	—	$	19,477
Chief Executive Officer and Director	2001	352,906		1,290,000		—	15,741
	2000	341,381		1,100,000		2,981	48,979
Richard J. Kaplan(4)	2002	212,200		330,000		—	9,029
Senior Vice President and Director	2001	212,200		470,000		—	5,809
	2000	207,293		400,000		4,093	25,721
Robert G. Martin(5)	2002	222,789		300,000		—	6,500
Senior Vice President	2001	222,789		403,639		—	6,275
	2000	216,300		384,000		3,229	5,100
Jeffrey A. Nerland(6)	2002	210,000		225,000		—	6,507
Senior Vice President	2001	191,794		290,000		—	5,541
	2000	185,338		250,000		5,344	5,024
Jeffrey F. Smith(7)	2002	212,181		275,000		—	4,565
Senior Vice President	2001	212,003		490,000		—	5,250
	2000	206,063		249,000		3,000	5,250

(1)Number of shares of common stock of DeCrane Holdings issuable upon exercise of options granted pursuant to our management incentive plan during the applicable fiscal year.

(2)Comprised of relocation costs, life insurance premiums and matching contributions to the 401(k) Retirement Plan.

(3)Mr. DeCrane also serves as Vice Chairman of the Board of Directors of DeCrane Holdings and was appointed its Chief Executive Officer in August 2002.

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(4)Mr. Kaplan also served as Assistant Treasurer and Assistant Secretary (principal accounting officer) of DeCrane Holdings from March 1999 until August 2002 when he was appointed its Chief Financial Officer and Assistant Secretary.

(5)Mr. Martin served as President of PATS since we acquired it in January 1999 through December 2002.  In October 1999, Mr. Martin also became our Senior Vice President and Group President of Systems Integration.

(6)Mr. Nerland served as Vice President, Business Development, from January 1999 through December 2001 and was appointed Senior Vice President in March 2001.  In December 2001, Mr. Nerland became our President of the Cabin Management Group.

(7)Mr. Smith has been our Senior Vice President and President of the Specialty Avionics Group since October 1999.  Prior to October 1999, Mr. Smith was President of our Avtech subsidiary.

Stock Option Grants in Last Fiscal Year

During the fiscal year ended December 31, 2002, no options to purchase shares of DeCrane Holdings common stock were granted pursuant to the management incentive plan.  See “—Employment Agreements and Compensation Arrangements – Incentive Plans.”

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

No stock options were exercised by our executive officers during the year ended December 31, 2002.  The following table sets forth information about the stock options held by the executive officers named below as of December 31, 2002.

Name	Number of Securities Underlying Unexercised Options Exercisable / Unexercisable	Value of Unexercised In-the-Money Options at Fiscal Year End(1) Exercisable / Unexercisable
R. Jack DeCrane	36,253 / 73,605	$	— / —
Richard J. Kaplan	10,812 / 21,950	— / —
Robert G. Martin	6,944 / 14,098	— / —
Jeffrey A. Nerland	5,291 / 10,741	— / —
Jeffrey F. Smith	7,019 / 14,253	— / —

(1)Unexercised options had an exercise price above fair market value as of December 31, 2002.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of our Board of Directors makes decisions regarding officer compensation.  Jack DeCrane, chief executive officer of DeCrane Aircraft and DeCrane Holdings, participates in those discussions as a member of the Committee.

Employment Agreements and Compensation Arrangements

R. Jack DeCrane

On July 17, 1998, the Compensation Committee of our Board of Directors approved a three-year employment agreement between DeCrane Aircraft and R. Jack DeCrane, replacing his prior employment agreement that was to expire on September 1, 1998.  Mr. DeCrane’s employment agreement was amended on May 5, 2000 to provide for a term through June 30, 2001, which term shall automatically extend for additional one year periods unless terminated by either party giving the other party notice of termination prior to April 1^st of the year prior to the year in which the agreement would otherwise

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terminate.  Mr. DeCrane’s employment agreement provides for various benefits, including an initial salary of $310,000, which is subject to annual review and increase, but not a decrease, and an annual bonus, currently determined pursuant to the performance-based cash incentive bonus plan.

The employment agreement also provides that if specified change-of-control events occur, and Mr. DeCrane’s employment is terminated by us for any reason other than for cause or as a result of his death or disability, or by Mr. DeCrane for “good reason,” as defined in the agreement, then we will pay Mr. DeCrane a lump sum in cash within fifteen days.  The amount of that payment will be $1.00 less than three times the sum of Mr. DeCrane’s average base salary plus bonus for the five calendar years preceding his termination date and accrued but unpaid salary and bonus through the termination date.  Mr. DeCrane will also receive other specified benefits, including continued coverage under our welfare plans for up to two years; a lump sum payment in cash equal to any unvested portions of our contributions to him under specified savings plans, plus two times the amount of our annual contributions on his behalf to those plans; a lump sum payment in cash equal to our matching contributions under those savings plans that Mr. DeCrane would have received had he continued maximum participation in the plans until the earlier of two years following his termination and December 31 of the year he turns 65, plus the vested and unvested amounts credited to him under any of our deferred compensation plans and the amount required to be credited during the year of his termination; and outplacement consulting services to aid Mr. DeCrane with re-employment.  We will reduce these payments to the extent necessary to ensure deductibility for tax purposes.

Change of Control Agreements

In August 2002, we entered into change of control agreements with each of our executive officers, other than Mr. DeCrane, whose above described employment agreement contains provisions concerning change of control.  The agreements, which replaced earlier agreements which had expired, provide that, for a term of two years from the effective date, should a change of control, as defined, occur during the term of the agreement and the executive officer’s employment shall be involuntarily terminated for any reason on a date which is less than two years after the date of the change of control, other than for cause, death or disability, DeCrane Aircraft is required to pay such executive his then salary plus average annual bonus over the last five years, equal to twenty four months compensation less the number of months elapsed from the date of the change of control to the employment termination date.

401(k) Retirement Plan

Substantially all of our full-time employees are eligible to participate in one of the 401(k) retirement plans we sponsor.  The 401(k) plans allow employees as participants to defer, on a pre-tax basis, a portion of their salary and accumulate tax deferred earnings, as a retirement fund.  The plans generally provide for a discretionary Company match of a percentage of the employee contribution up to a specified percentage of the employee’s salary.  The full amount vested in a participant’s account will be distributed to a participant following termination of employment, normal retirement or in the event of disability or death.

Incentive Plans

Our management incentive plan provides for the issuance of options to purchase the common stock of DeCrane Holdings as incentive compensation to designated executive personnel and other key employees of DeCrane Aircraft and its subsidiaries.  The Compensation Committee of the Board of Directors administers the management incentive plan.  The plan provides for the granting of options to purchase 356,257 common shares and expires in 2009.  Substantially all of the options awarded become fully vested and exercisable eight years from the date of grant but vesting and exercise can be accelerated based upon future attainment of defined performance criteria.  At December 31, 2002, 32% of the options granted pursuant to the plan are vested and exercisable.  We believe the per share exercise price of the

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options granted approximated the fair market value of the underlying common stock on each of the grant dates.

From time-to-time, we permit designated executive personnel and other key employees to purchase shares of common stock of DeCrane Holdings.  Prior to the July 30, 2002 enactment of the Sarbanes-Oxley Act of 2002, a portion of the purchase price was in certain instances, loaned to the participants by DeCrane Aircraft.  This arrangement was made available to persons and in amounts determined by the Compensation Committee of the Board of Directors.  In December 1999, management purchased 171,295 shares of DeCrane Holdings common stock for $23.00 per share.  The total purchase price was $3.9 million, of which one-half was paid in cash and one-half was loaned to management by DeCrane Aircraft with interest at applicable federal rates.  During 2000, an additional 19,707 shares of DeCrane Holdings common stock was purchased by employees at $23.00 per share, which was paid in cash.  Subsequent to the July 30, 2002 enactment of the Sarbanes-Oxley Act, we have discontinued making new loans to participants as mandated by the Act.  Loans originated prior to and outstanding as of the effective date of the Act will be repaid in accordance with their terms, as permitted by the Act.

Our cash incentive bonus plan provides for the allocation of a bonus pool each year for incentive compensation to designated executive personnel and certain other employees of DeCrane Aircraft and its subsidiaries.  The bonus pool, which is approved by the compensation committee, is adjusted each year based on EBITDA and cash flow, as defined, generated by the relevant participant’s operating unit.  Bonus payments are generally made in the quarter following the end of the year or period to which they pertain.

Deferred Compensation Plan

From December 1999 through December 2002, we had a deferred compensation plan in which certain designated executive officers and key employees were permitted to defer a portion of their compensation earned.  DeCrane Aircraft invested amounts deferred and participants were fully vested in the amounts representing the fair market value of their investment accounts.  We made no contributions on behalf of the participants and the invested assets are subject to the claims of our general creditors.  The plan was terminated in January 2003 and the fair market values of the individual investment accounts on the termination date were distributed to the individual participants.

Directors’ Compensation

The directors of DeCrane Holdings and DeCrane Aircraft generally do not receive annual fees or fees for attending meetings of the Board of Directors or committees thereof.  However, Albert E. Suter, an independent director not affiliated with any investor in DeCrane Holdings, receives a director’s fee of $50,000 per year.  In addition, the Board of Directors of DeCrane Holdings authorized the issuance of options to purchase 7,500 shares of DeCrane Holdings common stock to Mr. Suter under the same terms as the management incentive plan.  See “Item 13. Certain Relationships and Related Transactions—Transactions with Management and Others – Transactions During 2001 and 2002” for additional information.  Also, Mr. Suter is reimbursed for out-of-pocket expenses.  We expect to continue these policies.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners and Management

DeCrane Aircraft

As of March 28, 2003, DeCrane Aircraft has the following securities issued and outstanding:

•100 shares of common stock, which are owned by one stockholder; and

•250,000 shares of non-voting 16% Senior Redeemable Exchangeable Preferred Stock Due 2009, which are owned by nine stockholders.

The following table sets forth the beneficial ownership of DeCrane Aircraft’s voting and non-voting securities as of March 28, 2003 by its principal owners and its executive officers and directors.

	Common Stock(2)			16% Senior Redeemable Preferred Stock
Name of Beneficial Owner(1)	Number of Shares, Partially Diluted	Percentage		Number of Shares	Percentage
DeCrane Holdings Co.	100	100.0	%	—	—
c/o DLJ Merchant Banking Partners II, L.P. Eleven Madison Avenue, New York, NY 10010
DLJ Merchant Banking Partners II, L.P. affiliates(3)	—	—		200,000	80.0	%
Eleven Madison Avenue, New York, NY 10010
Thompson Dean(4)	—	—		—	—
c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010
James A. Quella(4)	—	—		—	—
c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010
Susan C. Schnabel(4)	—	—		—	—
c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010
Putnam Investment Management, Inc. and affiliates(5)	—	—		50,000	20.0	%
One Post Office Square, Boston, MA 02109
Albert E. Suter	—	—		—	—
R. Jack DeCrane	—	—		—	—
Richard J. Kaplan	—	—		—	—
Robert G. Martin	—	—		—	—
Jeffrey A. Nerland	—	—		—	—
Jeffrey A. Smith	—	—		—	—
All directors and named executive officers as a group (nine persons)	—	—		—	—

(1)Each person who has the power to vote and direct the disposition of shares is deemed to be a beneficial owner of those shares.

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(2)The common stock columns reflect the number of shares owned and the total percentage ownership in the manner required by Securities and Exchange Commission rules.  The entries for each holder assumes, if applicable, that the particular holder, and no one else, fully exercises all rights under warrants to purchase common stock and common stock which may be acquired upon the exercise of stock options and which are exercisable, or will be exercisable, prior to 60 days from March 28, 2003.

(3)Reflects preferred stock held by the following investors affiliated with DLJ Merchant Banking Partners II, L.P.:

•DLJ Investment Partners, L.P.	•DLJIP II Holdings, L.P.
•DLJ Investment Partners II, L.P.

The address of each of the investors is Eleven Madison Avenue, New York, New York 10010.

(4)Mr. Dean, Mr. Quella and Ms. Schnabel are officers of DLJ Merchant Banking, Inc., an affiliate of DLJ Merchant Banking Partners II, L.P. and directors of DeCrane Holdings Co.  The DLJ entities are affiliates of, and commonly collectively referred to as, Credit Suisse First Boston.  See “Item 13. Certain Relationships and Related Transactions—Transactions with Management and Others” for additional information.  The share data shown for these individuals excludes shares shown as held by the DLJ affiliates and DeCrane Holdings Co. separately listed in this table; Mr. Dean, Mr. Quella and Ms. Schnabel disclaim beneficial ownership of those shares.

(5)Reflects preferred stock held by the following investors related to Putnam Investment Management, Inc.:

•Putnam Diversified Income Trust	•Putnam High Yield Trust
•Putnam Fund Trust - Putnam High Yield Trust II	•Putnam Strategic Income Fund
•Putnam High Yield Advantage Fund	•Putnam Variable Trust - Putnam VT High Yield Fund

The address of each of the investors is One Post Office Square, Boston, MA 02109.

DeCrane Holdings

As of March 28, 2003, DeCrane Holdings has the following securities issued and outstanding:

•4,116,627 shares of common stock, which is owned by 37 stockholders; and

•342,417 shares of non-voting 14% Senior Redeemable Exchangeable Preferred Stock Due 2009, which is owned by 18 stockholders.

The following table sets forth the beneficial ownership of DeCrane Holdings’ voting and non-voting securities as of March 28, 2003 by its principal owners and its executive officers and directors.

	Common Stock(2)			14% Senior Redeemable Preferred Stock
Name of Beneficial Owner(1)	Number of Shares, Partially Diluted	Percentage		Number of Shares	Percentage
DLJ Merchant Banking Partners II, L.P. and affiliates(3) Eleven Madison Avenue, New York, NY 10010	4,179,530	95.4	%	340,000	99.3	%
Thompson Dean(4)	—	—		—	—
c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010
James A. Quella(4)	—	—		—	—
c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010

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	Common Stock(2)			14% Senior Redeemable Preferred Stock
Name of Beneficial Owner(1)	Number of Shares, Partially Diluted	Percentage		Number of Shares	Percentage
Susan C. Schnabel(4)	—	—		—	—
c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010
Putnam Investment Management, Inc. and affiliates(5) One Post Office Square, Boston, MA 02109	27,871		*	—	—
Albert E. Suter(6)	6,204		*	—	—
R. Jack DeCrane(7)	95,755	2.3	%	—	—
Richard J. Kaplan(8)	33,698		*	—	—
Robert G. Martin(9)	11,520		*	—	—
Jeffrey A. Nerland(10)	12,156		*	—	—
Jeffrey A. Smith(11)	16,173		*	—	—
All directors and named executive officers as a group (nine persons)	175,506	4.2	%	—	—

*Less than 1.0%

(1)Each person who has the power to vote and direct the disposition of shares is deemed to be a beneficial owner of those shares.

(2)The common stock columns reflect the number of shares owned and the total percentage ownership in the manner required by Securities and Exchange Commission rules.  The entries for each holder assumes, if applicable, that the particular holder, and no one else, fully exercises all rights under warrants to purchase common stock and common stock which may be acquired upon the exercise of stock options and which are exercisable, or will be exercisable, prior to 60 days from March 28, 2003.

(3)Reflects 3,913,044 shares of common stock, warrants to purchase an additional 266,486 shares of common stock and preferred stock held directly by DLJ Merchant Banking Partners II, L.P. and the following affiliated investors:

•DLJ Diversified Partners, L.P.	•DLJ Millennium Partners, L.P.
•DLJ Diversified Partners-A, L.P.	•DLJ Millennium Partners-A, L.P.
•DLJ EAB Partners, L.P.	•DLJ Offshore Partners II, C.V.
•DLJ ESC II, L.P.	•DLJIP II Holdings, L.P.
•DLJ First ESC L.P.	•DLJMB Funding II, Inc.
•DLJ Investment Partners, L.P.	•MBP II Plan Investors
•DLJ Investment Partners II, L.P.	•UK Investment Plan 1997 Partners, Inc.
•DLJ Merchant Banking Partners II-A, L.P.

The address of each of the investors is Eleven Madison Avenue, New York, New York 10010.

(4)Mr. Dean, Mr. Quella and Ms. Schnabel are officers of DLJ Merchant Banking, Inc., an affiliate of DLJ Merchant Banking Partners II, L.P. and directors of DeCrane Aircraft.  The DLJ entities are affiliates of, and commonly collectively referred to as, Credit Suisse First Boston.  See “Item 13.

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Certain Relationships and Related Transactions—Transactions with Management and Others” for additional information.  The share data shown for these individuals excludes shares shown as held by the DLJ affiliates separately listed in this table; Mr. Dean, Mr. Quella and Ms. Schnabel disclaim beneficial ownership of those shares.

(5)Reflects warrants to purchase shares of common stock held by the following investors related to Putnam Investment Management, Inc.:

•Putnam Diversified Income Trust	•Putnam High Yield Trust
•Putnam Fund Trust - Putnam High Yield Trust II	•Putnam Strategic Income Fund
•Putnam High Yield Advantage Fund	•Putnam Variable Trust - Putnam VT High Yield Fund

The address of each of the investors is One Post Office Square, Boston, MA 02109.

(6)Includes 2,500 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

(7)Includes 36,253 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

(8)Includes 10,812 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

(9)Includes 6,944 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

(10)Includes 5,291 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

(11)Includes 7,019 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

Securities Authorized for Issuance Under Equity Compensation Plans

We have a Management Incentive Stock Option Plan under which shares of DeCrane Holdings common stock are authorized for issuance to employees and directors in exchange for their services.  In 1999, we also granted DeCrane Holdings incentive common stock options to non-employees in exchange for consulting and advisory services.  Our Management Incentive Stock Option Plan and the stock options awarded to non-employees are approved by our security holders.  The following table provides aggregate information regarding the shares of DeCrane Holdings common stock that may be issued upon the exercise of the options as of December 31, 2002.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(1))
Equity compensation plans approved by security holders:
Management Incentive Stock Option Plan	293,461	$	24.58	53,544
Incentive stock options granted to non-employees	44,612	23.00		—
Equity compensation plans not approved by security holders	—	—		—
Total	338,073		24.37	53,544

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The provisions of our Management Incentive Stock Option Plan and the terms of the options granted to non-employees are described in Note 14 accompanying our financial statements included in this report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Management and Others

Acquisition of Donaldson, Lufkin & Jenrette, Inc. by Credit Suisse Group

DLJ Merchant Banking Partners, II, L.P. is an affiliate of Donaldson, Lufkin & Jenrette, Inc.  In November 2000, Credit Suisse Group and its Credit Suisse First Boston, Inc. subsidiary acquired Donaldson, Lufkin & Jenrette, Inc.  Upon completion of the acquisition, Donaldson, Lufkin & Jenrette, Inc. was renamed Credit Suisse First Boston (USA), Inc.  The combined operations are commonly referred to collectively as Credit Suisse First Boston or CSFB.

Arrangements With Other CSFB / DLJ Affiliates

Credit Suisse First Boston, as successor to DLJ Capital Funding, Inc., receives customary fees and reimbursement of expenses in connection with the arrangement and syndication of our senior bank credit facility and as a lender thereunder.  Credit Suisse First Boston Corporation, referred to herein as CSFB Corporation and formerly known as Donaldson, Lufkin & Jenrette Securities Corporation, is the sole market-maker for our senior subordinated notes.  In addition, DeCrane Aircraft is obligated to pay CSFB Corporation a $350,000 annual advisory fee.  We may from time to time enter into other investment banking relationships with CSFB Corporation or one of its affiliates pursuant to which they will receive customary fees and will be entitled to reimbursement for all reasonable disbursements and out-of-pocket expenses incurred in connection therewith.  We expect that any such arrangement will include provisions for the indemnification of CSFB Corporation against liabilities, including liabilities under the federal securities laws.

Investors’ Agreement

Investors owing 96.7% of DeCrane Holdings’ issued and outstanding common stock and common stock warrants and options, all of DeCrane Holdings’ preferred stock and all of DeCrane Aircraft’s preferred and common stock, have entered into an Amended and Restated Investors’ Agreement, dated October 6, 2000.  The investors who own DeCrane Holdings’ warrants to purchase 159,794 shares of common stock are not parties to the Investors’ Agreement.  The agreement provides that:

•The parties to the agreement shall vote their shares to cause DLJ Merchant Banking Partners, II, L.P. to select all members of the Board of Directors of DeCrane Holdings and DeCrane Aircraft and at least one of such directors on each board shall be an independent director.

•Transfers of the shares by the parties to the agreement are restricted.

•Parties to the agreement may participate in some specific kinds of sales of shares by DLJ affiliates.

•DLJ affiliates may require the other parties to the agreement to sell shares of DeCrane Holdings’ common stock in some cases should the DLJ affiliates choose to sell any such shares owned by them.

•The DLJ affiliates may request six demand registrations with respect to all or any of the DeCrane Holdings common stock, preferred stock and Class A warrants to purchase 155,000

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common shares held by those affiliates, which are immediately exercisable subject to customary deferral and cutback provisions.

•The holders of Class B warrants to purchase 139,357 shares of DeCrane Holdings common stock may request two demand registrations together with all or any common stock held by them, which are immediately exercisable subject to customary deferral and cutback provisions.

•The parties to the agreement are entitled to unlimited piggyback registration rights, subject to customary cutback provisions, and excluding registrations of shares issuable in connection with any employee stock options, employee benefit plan or an acquisition.

•DeCrane Holdings will indemnify the stockholders against some liabilities and expenses, including liabilities under the Securities Act.

•Any person acquiring shares of common stock or preferred stock who is required by the terms of the Investors’ Agreement or any employment agreement or stock purchase, option, stock option or other compensation plan to become a party thereto shall execute an agreement to become bound by the Investors’ Agreement.

Each DeCrane Holdings’ Class A Warrant entitles the holder to purchase one share of common stock at an exercise price of not less than $0.01 per share subject to customary antidilution provisions and other customary terms.  The warrants are exercisable at any time prior to 5:00 p.m. New York City time on August 28, 2009, subject to applicable federal and state securities laws.

Each DeCrane Holdings’ Class B Warrant entitles the holder to purchase one share of common stock at an exercise price of not less than $0.01 per share subject to customary antidilution provisions and other customary terms.  The warrants are exercisable at any time prior to 5:00 p.m. New York City time on June 30, 2010, subject to applicable federal and state securities laws.

Transactions During 2002 and 2003

Securities and Exchange Commission rules require we briefly describe transactions, or series of similar transactions, with specified persons (as defined in the rules) and involving amounts exceeding $60,000, which have occurred since January 1, 2002, the beginning of our most recent fiscal year.  These transactions are briefly described below and are also described in the notes accompanying our financial statements included in this report.

•DeCrane Holdings repurchased 18,308 shares of its common stock from a former DeCrane Aircraft executive officer for $0.5 million ($27.00 per share) in January 2002.  In connection with the repurchase, DeCrane Aircraft’s $0.2 million loan to the executive officer collateralized by the repurchased common stock was repaid, plus accrued interest.  The former executive officer also elected to exercise 9,120 vested stock options on a cashless basis and received $36,000 for the net difference between the $27.00 per share repurchase price and the $23.00 per share option exercise price.  DeCrane Aircraft funded DeCrane Holdings’ cash requirements for the transactions.

•DeCrane Aircraft amended its senior credit facility in March 2002.  Credit Suisse First Boston, as successor to DLJ Capital Funding, Inc., received customary fees and reimbursement of expenses in connection with obtaining the amendment.

•Mr. Suter purchased 3,704 shares of DeCrane Holdings common stock for $0.1 million and was granted options to purchase an additional 7,500 common shares, all at $27.00 per share, in May and June 2002.  The shares purchased and options granted were under the same terms as the management incentive plan, which also pertains to independent non-management directors.  DeCrane Holdings contributed the net proceeds to DeCrane Aircraft.

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•DLJ Merchant Banking and affiliates purchased 217,392 shares of DeCrane Holdings common stock for $5.0 million ($23.00 per share) in September 2002.  DeCrane Holdings contributed the net proceeds to DeCrane Aircraft.

•DeCrane Aircraft entered into a definitive agreement to sell its Specialty Avionics Group on March 14, 2003.  CSFB Corporation served as DeCrane Aircraft’s financial advisors for the transaction and will receive customary fees and reimbursement of expenses upon closing of the transaction.  The closing is expected to occur before June 30, 2003.

•In connection with DeCrane Aircraft’s sale of its Specialty Avionics Group, DeCrane Aircraft further amended its senior credit facility in March 2003.  Credit Suisse First Boston received customary fees and reimbursement of expenses in connection with obtaining the amendment.

•CSFB Corporation receives a $350,000 annual advisory fee.

Indebtedness of Executive Officers and Directors

The following table sets forth all indebtedness owed to us by our executive officers and directors that individually exceeds $60,000 as required by Securities and Exchange Commission rules.  All indebtedness set forth below results from purchases of DeCrane Holdings common stock in transactions consummated prior to the July 30, 2002 enactment of the Sarbanes-Oxley Act of 2002 and is payable to DeCrane Aircraft.  Beginning July 30, 2002, we no longer provide loans to directors or executive officers as mandated by the Act.  The indebtedness, plus accrued interest, is payable upon the sale of the DeCrane Holdings stock held as collateral for each of the loans.  See “Item 10. Directors and Executive Officers of the Registrant” for information regarding each individual’s relationship with DeCrane Aircraft and DeCrane Holdings.

Name	Number of Shares Held as Collateral(1)	Interest Rate(2)		Total Indebtedness to DeCrane Aircraft as of December 31, 2002
				Principal(3)		Accrued Interest(4)		Total(5)
R. Jack DeCrane	56,521	5.74	%	$	649,991	$	119,806	$	769,797
Richard J. Kaplan	21,739	5.74		249,998		46,079		296,077
Robert G. Martin(6)	4,347	5.74		49,990		9,214		59,204
Jeffrey A. Nerland	6,521	5.74		74,991		13,822		88,813
Jeffrey F. Smith	8,695	5.74		99,992		18,430		118,422

(1)Reflects the number of shares of DeCrane Holdings common stock held by DeCrane Aircraft as collateral for the loans.

(2)Reflects the applicable federal rate of interest charged on the loans.  Interest is compounded annually.

(3)Reflects the original principal amount of the loans.

(4)Reflects accrued interest payable through December 31, 2002.

(5)Reflects the maximum amount of indebtedness during the year ended December 31, 2002.

(6)Total indebtedness exceeds $60,000 as of the filing date of this report.

ITEM 14. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.  Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures within 90 days of the filing of this report.  These controls and procedures are designed to ensure that all of the information required to be disclosed by us in our periodic reports filed with the Securities and Exchange Commission (the

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“Commission”) is recorded, processed, summarized and reported within the time periods specified by the Commission and that the information is communicated to the Chief Executive Officer and Chief Financial Officer on a timely basis.  Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were suitable and effective.

Changes in internal controls.  Subsequent to the date of their evaluation, there have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)List of Documents Filed as Part of this Report

1.Financial Statements

Our consolidated financial statements filed with this report are included in a separate section at the end of this report and are listed in an index on page F-1.

2.Financial Statement Schedules

Our consolidated financial statement schedules filed with this report are included in a separate section at the end of this report and are listed in an index on page F-1.

3.Exhibits

The following exhibits are filed as part of this report.

Exhibit Number	Filing Reference	Exhibit Description
2.1	*	Stock Purchase Agreement dated as of March 14, 2003 among Wings Holdings, Inc. and DeCrane Aircraft Holdings, Inc. and DeCrane Holdings Co. relating to the purchase and sale of 100% of the Common Stock of Avtech Corporation and Tri-Star Electronics International, Inc. and 100% of the Membership Interest of Aerospace Display Systems, LLC
3.2.1	(1)	Certificate of Incorporation of DeCrane Aircraft Holdings, Inc.
3.2.1.1	(15)	Certificate of Amendment of Certificate of Incorporation of  DeCrane Aircraft Holdings, Inc. dated October 17, 2001
3.2.2	(1)	Bylaws of DeCrane Aircraft Holdings, Inc.
3.3.1	(10)	Certificate of Formation and Certificate of Merger of  Aerospace Display Systems, LLC
3.3.2	(10)	Limited Liability Company Operating Agreement for  Aerospace Display Systems, LLC
3.3.2.1	*	Amendment No. 1 to Limited Liability Company Agreement of Aerospace Display Systems, LLC dated March 9, 2003
3.4.1	(1)	Articles of Incorporation of Audio International, Inc.
3.4.2	(1)	Amended & Restated Bylaws of Audio International, Inc.

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Exhibit Number	Filing Reference	Exhibit Description
3.5.1	(1)	Articles of Incorporation of Avtech Corporation
3.5.2	(1)	Bylaws of Avtech Corporation
3.7.1	(16)	Certificate of Formation and Certificate of Merger of Dettmers Industries, LLC
3.7.2	(16)	Limited Liability Company Operating Agreement of Dettmers Industries, LLC
3.10.1	(1)	Articles of Incorporation of Hollingsead International, Inc.
3.10.2	(1)	Bylaws of Hollingsead International Inc.
3.11.1	(1)	Articles of Incorporation of Tri-Star Electronics International, Inc.
3.11.2	(1)	Bylaws of Tri-Star Electronics International, Inc.
3.12.1	(1)	Articles of Incorporation of PATS, Inc.
3.12.2	(1)	Bylaws of PATS, Inc.
3.12.3	(1)	Amendment to Articles of Incorporation of PATS, Inc.
3.12.4	(1)	Amendment to Bylaws of PATS, Inc.
3.17.1	(3)	Articles of Incorporation of PPI Holdings, Inc.
3.17.2	(3)	Bylaws of PPI Holdings, Inc.
3.18.1	(3)	Articles of Incorporation of Precision Pattern, Inc.
3.18.2	(3)	Bylaws of Precision Pattern, Inc.
3.19.1	(10)	Certificate of Formation and Certificate of Merger for  Custom Woodwork & Plastics, LLC
3.19.2	(10)	Limited Liability Company Operating Agreement for  Custom Woodwork & Plastics, LLC
3.20.1	(4)	Articles of Incorporation of PCI Newco, Inc. (formerly  PCI Acquisition Co., Inc.)
3.20.1.1	(16)	Certificate of Amendment of Articles of Incorporation of  PCI Acquisition Co., Inc. (changing its name to PCI Newco, Inc.)
3.20.2	(4)	Bylaws of PCI Newco, Inc. (formerly PCI Acquisition Co., Inc.)
3.22.1	(5)	Articles of Incorporation DAH-IP Holdings, Inc.
3.22.2	(5)	Bylaws of DAH-IP Holdings, Inc.
3.23.1	(5)	Articles of Incorporation of DAH-IP Infinity, Inc.
3.23.2	(5)	Bylaws of DAH-IP Infinity, Inc.
3.24.1	(5)	Certificate of Limited Partnership of The Infinity Partners, LTD. (formerly DAH-IP Acquisition Co., L.P.)
3.24.1.1	(16)	Certificate of Amendment of the Certificate of Limited Partnership of DAH-IP Acquisition Co., L.P. (changing its name to The Infinity Partners, LTD.)
3.24.2	(5)	Limited Partnership Agreement of The Infinity Partners, LTD. (formerly DAH-IP Acquisition Co., L.P.) among DAH-IP Holdings, Inc., the General Partner, and DeCrane Aircraft Holdings, Inc., the Limited Partner
3.24.3	(5)	Assignment of Partnership Interest in The Infinity Partners, LTD. (formerly DAH-IP Acquisition Co., L.P.) by DeCrane Aircraft Holdings, Inc. to DAH-IP Infinity, Inc.

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Exhibit Number	Filing Reference	Exhibit Description
3.25.1	(8)	Certificate of Formation and Certificate of Amendment of  Carl F. Booth & Co., LLC
3.25.2	(8)	Limited Liability Company Agreement of Carl F. Booth & Co., LLC
3.26.1	(10)	Restated Articles of Incorporation of ERDA, Inc.
3.26.1.1	(17)	Articles of Amendment amending the Restated Articles of Incorporation of ERDA, Inc. (changing its name to DeCrane Aircraft Seating Company, Inc.
3.26.2	(10)	Bylaws of ERDA, Inc. (formerly ERDA Acquisition Co., Inc.)
3.27.1	(12)	Articles of Incorporation of Coltech, Inc.
3.27.2	(12)	Bylaws of Coltech, Inc.
3.29.1	(13)	Certificate of Limited Partnership of DeCrane Aircraft Furniture Co., LP
3.29.2	(13)	Limited Partnership Agreement of DeCrane Aircraft Furniture Co., LP
3.30.1	(17)	Certificate of Formation of DeCrane Cabin Interiors, LLC
3.30.2	(17)	Limited Liability Company Agreement of DeCrane Cabin Interiors, LLC
4.1	(1)	Indenture dated October 5, 1998 between DeCrane Aircraft and  State Street Bank and Trust Company
4.1.1	(1)	Supplemental Indenture dated January 22, 1999 among PATS, Inc. and its subsidiaries, the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.2	(2)	Supplemental Indenture to be dated April 23, 1999 among PPI Holdings, Inc., Precision Pattern, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.3	(12)	Supplemental Indenture to be dated August 5, 1999 among CWP Acquisition, Inc. d/b/a Custom Woodwork & Plastics, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.4	(12)	Supplemental Indenture to be dated October 6, 1999 among PCI Acquisition Co., Inc. d/b/a PCI Newco, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.5	(12)	Supplemental Indenture to be dated October 8, 1999 among International Custom Interiors, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.6	(12)	Supplemental Indenture to be dated December 17, 1999 among DAH-IP Acquisition, L.P. d/b/a Infinity Partners, L.P., DAH-IP Holdings, Inc., DAH-IP Infinity, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.7	(12)	Supplemental Indenture to be dated May 11, 2000 among Booth Acquisition, LLC, the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.8	(12)	Supplemental Indenture to be dated June 16, 2000 among DeCrane Aircraft Furniture Co., L.P., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.9	(12)	Supplemental Indenture to be dated June 30, 2000 among ERDA, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company

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Exhibit Number	Filing Reference	Exhibit Description
4.1.10	(12)	Supplemental Indenture to be dated August 31, 2000 among Coltech, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.2	(1)	A/B Exchange Registration Rights Agreement among DeCrane Aircraft Holdings, Inc., the subsidiary guarantors, and DLJ Securities Corporation
4.5	(1)	Form of DeCrane Aircraft 12% Senior Subordinated Notes due 2008
4.6	(10)	Certificate of Designations, Preferences and Rights of 16% Senior Redeemable Exchangeable Preferred Stock due 2009
4.6.1	(12)	Amendment to the Certificate of Designations, Preferences and Rights of 16% Senior Redeemable Exchangeable Preferred Stock due 2009 dated October 5, 2000
4.7	(10)	Senior Preferred Stock Registration Rights Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc. and the Holders of Senior Preferred Stock
4.7.1	(12)	Amendment No. 1 to the Senior Preferred Stock Registration Rights Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc. and the Holders of Senior Preferred Stock dated October 6, 2000
10.1	(10)	Securities Purchase Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc., DeCrane Holdings Co. and the purchasers named therein
10.2	(12)	Amended and Restated Investors’ Agreement dated as of October 6, 2000 by and among DeCrane Holdings Co., DeCrane Aircraft Holdings, Inc. and the stockholders named therein
10.5	(1)	Tax Sharing Agreement dated March 15, 1993 between DeCrane Aircraft and several subsidiaries
10.6**	(1)	Employment Agreement dated July 17, 1998 between DeCrane Aircraft Holdings, Inc. and R. Jack DeCrane
10.6.1**	(13)	First Amendment to Employment Agreement dated May 5, 2000 between DeCrane Aircraft Holdings, Inc. and R. Jack DeCrane
10.7**	(1)	401(k) Salary Reduction Non-Standardized Adoption Agreement dated April 30, 1992 between the Company and The Lincoln National Life Insurance Company
10.8	(1)	Form of Subscription Agreement for DeCrane Holdings Co. common and preferred stock by certain members of Global Technology Partners LLC
10.10	(1)	Credit Agreement dated August 28, 1998 by and among DeCrane Aircraft Holdings, Inc. (successor by merger to DeCrane Finance Co.) and DLJ Capital Funding, Inc.
10.10.1	(1)	First Amendment to Credit Agreement dated January 22, 1999
10.10.2	(6)	Second Amended and Restated Credit Agreement dated as of December 17, 1999 among DeCrane Aircraft Holdings, Inc., the lenders listed therein, DLJ Capital Funding, Inc., as syndication agent, and Bank One NA, as administrative agent

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Exhibit Number	Filing Reference	Exhibit Description
10.10.3	(9)	Third Amended and Restated Credit Agreement dated as of May 11, 2000 among DeCrane Aircraft Holdings, Inc., the lenders listed therein, DLJ Capital Funding, Inc., as syndication agent, and Bank One NA, as administrative agent
10.10.3.1	(12)	First Amendment to the Third Amended and Restated Credit Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc., the lenders listed therein, DLJ Capital Funding, Inc., as syndication agent, and Bank One NA, as administrative agent
10.10.4	(14)	Increased Commitments Agreement, dated as of April 27, 2001, pursuant to Third Amended and Restated Credit Agreement, dated as of May 11, 2000, as amended by the First Amendment to the Third Amended and Restated Credit Agreement, dated as of June 30, 2000
10.10.5	(16)	Second Amendment to the Third Amended and Restated Credit Agreement dated as of March 19, 2002 among DeCrane Aircraft Holdings, Inc., the lenders listed therein, Credit Suisse First Boston (as successor to DLJ Capital Funding, Inc.) as syndication agent, and Bank One NA, as administrative agent
10.10.6	*	Third Amendment to the Third Amended and Restated Credit Agreement dated as of March 31, 2003 among DeCrane Aircraft Holdings, Inc., the lenders listed therein, Credit Suisse First Boston (as successor to DLJ Capital Funding, Inc.) as syndication agent, and Bank One NA, as administrative agent
10.19**	(5)	Amended Management Incentive Stock Option Plan
10.20**	(5)	Amended Stock Subscription Agreement
10.21**	(5)	Amended Incentive Bonus Plan
10.22**	(7)	Executive Deferred Compensation Plan
10.23**	*	Form of Change of Control Agreements between DeCrane Aircraft Holdings, Inc. and certain executives
12.1	*	Computation of Earnings to Fixed Charges Ratios
21.1	(17)	List of Subsidiaries of Registrant
99.1	*	Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2	*	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*Filed herewith.

**Denotes management contracts and compensatory plans and arrangements required to be filed as exhibits to this report.

(1)Filed as an exhibit to our Registration Statement (Registration No. 333-70365) on Form S-1 (Amendment No. 1) filed with the Commission on March 3, 1999.

(2)Filed as an exhibit to our Registration Statement (Registration No. 333-70365) on Form S-1 (Amendment No. 2) filed with the Commission on April 23, 1999.

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(3)Filed as an exhibit to our Registration Statement (Registration No. 333-70365) on Form S-1 (Amendment No. 3) filed with the Commission on May 6, 1999.

(4)Filed as an exhibit to our Form 8-K dated August 5, 1999 filed with the Commission on October 19, 1999.

(5)Filed as an exhibit to our Form 8-K dated December 17, 1999 filed with the Commission on December 31, 1999.

(6)Filed as an exhibit to our Form 10-K dated December 31, 1999 filed with the Commission on March 30, 2000.

(7)Filed as an exhibit to our Form 10-Q dated March 31, 2000 filed with the Commission on May 9, 2000.

(8)Filed as an exhibit to our Form 8-K dated May 11, 2000 filed with the Commission on May 25, 2000.

(9)Filed as an exhibit to our Form 8-K (Amendment No. 1) dated May 11, 2000 filed with the Commission on June 16, 2000.

(10)Filed as an exhibit to our Form 8-K (Amendment No. 1) dated June 30, 2000 filed with the Commission on August 2, 2000.

(11)Filed as an exhibit to our Form 10-Q dated June 30, 2000 filed with the Commission on August 14, 2000.

(12)Filed as an exhibit to our Form 10-Q dated September 30, 2000 filed with the Commission on November 14, 2000.

(13)Filed as an exhibit to our Form 10-K dated December 31, 2000 filed with the Commission on March 30, 2001.

(14)Filed as an exhibit to our Form 10-Q dated March 31, 2001 filed with the Commission on May 14, 2001.

(15)Filed as an exhibit to our Form 10-Q dated September 30, 2001 filed with the Commission on November 13, 2001.

(16)Filed as an exhibit to our Form 10-K dated December 31, 2001 filed with the Commission on March 27, 2002.

(17)Filed as an exhibit to our Form 10-Q dated March 31, 2002 filed with the Commission on May 13, 2002.

(b)Reports of Form 8-K Filed During the Quarter Ended December 31, 2002

On November 26, 2002 we filed a Form 8-K Current Report regarding a meeting held with our bondholders on that day.  A copy of the slide presentation given to the bondholders during the meeting is filed as an exhibit.

In addition, on March 17, 2003 we also filed a Form 8-K Current Report regarding DeCrane Aircraft entering into a definitive agreement to sell its Specialty Avionics Group.  The text of the press release is contained in the filing.

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SIGNATURES

Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DECRANE AIRCRAFT HOLDINGS, INC. (Registrant)

By:	/s/  R. Jack DeCrane	By:	/s/  Richard J. Kaplan
	R. Jack DeCrane		Richard J. Kaplan
	Chief Executive Officer		Senior Vice President, Chief Financial
			Officer, Secretary and Treasurer
Date:	April 15, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/  Thompson Dean	By:	/s/  R. Jack DeCrane
	Thompson Dean		R. Jack DeCrane
	Chairman of the Board of Directors		Director
By:	/s/  Richard J. Kaplan	By:	/s/  James A. Quella
	Richard J. Kaplan		James A. Quella
	Director		Director
By:	/s/  Susan C. Schnabel	By:	/s/  Albert E. Suter
	Susan C. Schnabel		Albert E. Suter
	Director		Director
Date:	April 15, 2003

67

CERTIFICATIONS

Chief Executive Officer Certification

I, R. Jack DeCrane, certify that:

1.I have reviewed this annual report on Form 10-K of DeCrane Aircraft Holdings, Inc.;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 15, 2003
	/s/  R. Jack DeCrane
	R. Jack DeCrane
	Chief Executive Officer

68

Chief Financial Officer Certification

I, Richard J. Kaplan, certify that:

1.I have reviewed this annual report on Form 10-K of DeCrane Aircraft Holdings Inc.;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 15, 2003
	/s/  Richard J. Kaplan
	Richard J. Kaplan
	Senior Vice President, Chief Financial Officer,
	Secretary and Treasurer

69

Index to Consolidated Financial Statements and Financial Statement Schedules

Consolidated Financial Statements

For the years ended December 31, 2002, 2001 and 2000:

All other schedules are omitted because they are either not applicable or the required information is shown in the consolidated financial statements or notes thereto.

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholder of
DeCrane Aircraft Holdings, Inc.

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of DeCrane Aircraft Holdings, Inc. and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.  We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in the notes 1 and 18, the Company will be in default of various financial covenants contained in its senior credit facility on June 30, 2003 unless it successfully consummates the sale of its Specialty Avionics Group prior to that date, which raises substantial doubt about its ability to continue as a going concern.  Management’s plans and expectations in regard to these matters are also described in Note 1.  The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

As discussed in Note 7, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”  Accordingly, the Company ceased amortizing goodwill as of January 1, 2002.

PRICEWATERHOUSECOOPERS LLP

Los Angeles, California

February 18, 2003, except for Note 18,

which is as of March 28, 2003

F-2

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	December 31,
(In thousands, except share data)	2002			2001
Assets
Current assets:
Cash and cash equivalents	$	12,612		$	9,794
Accounts receivable, net	38,982			58,451
Inventories	80,802			86,498
Deferred income taxes	22,631			14,063
Prepaid expenses and other current assets	2,816			2,559
Total current assets	157,843			171,365
Property and equipment, net	51,883			61,073
Other assets, principally goodwill and other intangibles, net	339,241			413,273
Total assets	$	548,967		$	645,711
Liabilities, Mandatorily Redeemable Preferred Stock and Stockholder’s Equity
Current liabilities:
Current portion of long-term debt	$	16,859		$	13,899
Accounts payable	17,239			19,051
Accrued liabilities	35,056			56,626
Income taxes payable	—			133
Total current liabilities	69,154			89,709
Long-term debt	364,848			386,351
Deferred income taxes	39,187			33,597
Other long-term liabilities	8,059			7,438
Commitments and contingencies (Note 12)
Mandatorily redeemable preferred stock	34,081			28,240
Stockholder’s equity:
Common stock, $.01 par value, 1,000 shares authorized as of December 31, 2002 and 2001; 100 shares issued and outstanding as of December 31, 2002 and 2001	—			—
Additional paid-in capital	121,212			122,469
Notes receivable for shares sold	(2,591		)	(2,668		)
Accumulated deficit	(83,309		)	(17,323		)
Accumulated other comprehensive loss	(1,674		)	(2,102		)
Total stockholder’s equity	33,638			100,376
Total liabilities and stockholder’s equity	$	548,967		$	645,711

The accompanying notes are an integral part of the consolidated financial statements.

F-3

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

	Year Ended December 31,
(In thousands)	2002			2001			2000
Revenues	$	325,630		$	395,352		$	347,379
Cost of sales	233,950			279,681			232,048
Gross profit	91,680			115,671			115,331
Operating expenses:
Selling, general and administrative expenses	51,884			59,934			45,394
Impairment of goodwill	7,672			8,583			—
Amortization of goodwill and other intangible assets	5,768			19,920			17,948
Total operating expenses	65,324			88,437			63,342
Income from operations	26,356			27,234			51,989
Other expenses:
Interest expense	33,894			39,001			41,623
Other expenses, net	944			1,047			482
Income (loss) before provision for income taxes and cumulative effect of change in accounting principle	(8,482		)	(12,814		)	9,884
Provision for income taxes	354			1,188			6,282
Income (loss) before cumulative effect of change in accounting principle	(8,836		)	(14,002		)	3,602
Cumulative effect of change in accounting principle	(57,150		)	—			—
Net income (loss)	(65,986		)	(14,002		)	3,602
Accrued preferred stock dividends	(5,373		)	(4,593		)	(2,040		)
Preferred stock redemption value accretion	(468		)	(468		)	(234		)
Net income (loss) applicable to common stockholder	$	(71,827	)	$	(19,063	)	$	1,328

The accompanying notes are an integral part of the consolidated financial statements.

F-4

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholder’s Equity

(In thousands, except share data)				Additional Paid-in Capital			Notes Receivable For Shares Sold			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
	Common Stock
	Shares	Amount
Balance, December 31, 1999	100	$	—	$	117,158		$	(2,468	)	$	(6,923	)	$	(1,526	)	$	106,241
Comprehensive income (loss):
Net income	—	—		—			—			3,602			—			3,602
Translation adjustment	—	—		—			—			—			(161		)	(161		)
																3,441
Capital contribution, net of common stock repurchased	—	—		7,851			51			—			—			7,902
Value of warrants issued with sale of preferred stock	—	—		4,019			—			—			—			4,019
Accrued preferred stock dividends	—	—		(2,040		)	—			—			—			(2,040		)
Preferred stock redemption value accretion	—	—		(234		)	—			—			—			(234		)
Compensatory stock option expense	—	—		561			—			—			—			561
Notes receivable interest accrued	—	—		—			(135		)	—			—			(135		)
Balance, December 31, 2000	100	—		127,315			(2,552		)	(3,321		)	(1,687		)	119,755
Comprehensive income (loss):
Net loss	—	—		—			—			(14,002		)	—			(14,002		)
Translation adjustment	—	—		—			—			—			(327		)	(327		)
Unrealized loss on interest rate swap contract	—	—		—			—			—			(88		)	(88		)
																(14,417		)
Accrued preferred stock dividends	—	—		(4,593		)	—			—			—			(4,593		)
Preferred stock redemption value accretion	—	—		(468		)	—			—			—			(468		)
Compensatory stock option expense	—	—		215			—			—			—			215
Notes receivable interest accrued	—	—		—			(116		)	—			—			(116		)
Balance, December 31, 2001	100	—		122,469			(2,668		)	(17,323		)	(2,102		)	100,376
Comprehensive income (loss):
Net loss	—	—		—			—			(65,986		)	—			(65,986		)
Translation adjustment	—	—		—			—			—			701			701
Unrealized loss on interest rate swap contract	—	—		—			—			—			(273		)	(273		)
																(65,558		)
Capital contribution	—	—		5,000			—			—			—			5,000
Return of capital in connection with the repurchase of common stock, net of related note receivable repaid and tax benefit of options exercised	—	—		(554		)	200			—			—			(354		)
Accrued preferred stock dividends	—	—		(5,373		)	—			—			—			(5,373		)
Preferred stock redemption value accretion	—	—		(468		)	—			—			—			(468		)
Compensatory stock option expense	—	—		138			—			—			—			138
Notes receivable interest accrued	—	—		—			(123		)	—			—			(123		)
Balance, December 31, 2002	100	$	—	$	121,212		$	(2,591	)	$	(83,309	)	$	(1,674	)	$	33,638

The accompanying notes are an integral part of the consolidated financial statements.

F-5

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Year Ended December 31,
(In thousands)	2002			2001			2000
Cash flows from operating activities:
Net income (loss)	$	(65,986	)	$	(14,002	)	$	3,602
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Cumulative effect of change in accounting principle	57,150			—			—
Depreciation and amortization	19,811			34,594			29,445
Noncash portion of restructuring, asset impairment and other related charges	19,444			22,058			—
Deferred income taxes	32			(37		)	5,121
Other, net	386			689			773
Changes in assets and liabilities, net of effect from acquisitions:
Accounts receivable	19,136			(5,085		)	1,036
Inventories	(1,351		)	(11,990		)	(14,321		)
Prepaid expenses and other assets	(69		)	(2,278		)	2,048
Accounts payable	(1,906		)	(1,248		)	2,259
Accrued liabilities	(16,617		)	(7,615		)	(12,973		)
Income taxes payable	399			64			583
Other long-term liabilities	(111		)	(221		)	(790		)
Net cash provided by operating activities	30,318			14,929			16,783
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired	(5,890		)	(13,529		)	(89,546		)
Capital expenditures	(5,429		)	(11,899		)	(22,689		)
Other, net	—			636			71
Net cash used for investing activities	(11,319		)	(24,792		)	(112,164		)
Cash flows from financing activities:
Senior term debt borrowings	—			20,000			55,000
Senior revolving line of credit borrowings (repayments), net	(6,000		)	(400		)	12,400
Proceeds from sale of preferred stock and warrants	—			—			24,924
Capital contributions	5,000			—			7,902
Other long-term borrowings	1,145			2,797			3,451
Principal payments on term debt, capitalized leases and other debt	(14,150		)	(10,076		)	(5,824		)
Deferred financing costs	(1,656		)	(767		)	(1,900		)
Return of capital in connection with shares repurchased	(368		)	—			—
Other, net	(199		)	(157		)	(297		)
Net cash provided by financing activities	(16,228		)	11,397			95,656
Effect of foreign currency translation on cash	47			61			6
Net increase in cash and cash equivalents	2,818			1,595			281
Cash and cash equivalents at beginning of period	9,794			8,199			7,918
Cash and cash equivalents at end of period	$	12,612		$	9,794		$	8,199

The accompanying notes are an integral part of the consolidated financial statements.

F-6

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1.Summary of Significant Accounting Policies

Description of the Business

DeCrane Aircraft Holdings, Inc. and subsidiaries (the “Company” or “DeCrane Aircraft”) is a leading provider of integrated assemblies, sub-assemblies and component parts to the aerospace industry.  The Company’s businesses are organized into three separate operating groups: Cabin Management, Specialty Avionics and Systems Integration.  The Company is a wholly-owned subsidiary of DeCrane Holdings Co. (“DeCrane Holdings”).

Basis of Presentation

The consolidated financial statements include the accounts of the Company and all wholly-owned subsidiaries and a majority-owned partnership.  All intercompany accounts and transactions have been eliminated.  Certain reclassifications have been made to prior years’ financial statements to conform to the current year presentation.

Preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Financial Condition and Liquidity

The Company’s consolidated financial statements are prepared assuming that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The September 11, 2001 terrorist attack on the United States, ongoing concerns about global terrorism, the current Middle-Eastern military conflicts, the Severe Acute Respiratory Syndrome (SARS) epidemic and weak global economic conditions are all adversely impacting air travel and, in turn, the aerospace industry and the Company’s business.  In response, the Company implemented restructuring plans in 2001 and 2002 designed to reduce costs and conserve working capital (Note 2).  The Company reported losses for the two years ended December 31, 2002, primarily resulting from charges associated with these restructuring activities, as well as the impairment of goodwill.

During the fourth quarter of fiscal 2002, the Company further assessed its long-term business strategies in light of current aerospace industry conditions.  In addition, the Company subsequently determined that it would likely not be in compliance with its senior credit facility’s financial covenants in 2003.  The Company believes that as the aerospace industry recovers, the demand for its Cabin Management and Systems Integration groups’ products and services for corporate, VIP and head-of-state aircraft will return to historical levels and, accordingly, the Company decided to focus its resources in these market segments.  To accomplish this objective, the Company embarked on a plan to sell its Specialty Avionics Group, which is highly dependent on the commercial airline industry.

F-7

As described in Note 18, in March 2003 the Company entered into a definitive agreement to sell its Specialty Avionics Group and received requisite lender approval to amend its senior credit facility to permit the sale.  The amendment also relaxes the financial covenants for 2003 and beyond provided senior credit facility borrowings are reduced with the estimated net proceeds of $132,000,000 from the sale.

The amended senior credit facility also provides that an event of default will occur if the sale is not consummated by or is terminated for any reason prior to June 30, 2003.  If an event of default should occur, the lenders may, at that date, cease to provide additional borrowings and may accelerate repayment of all borrowings then outstanding.  If the lenders took such action, that would be an event of default under the Company’s other debt agreements, permitting those lenders to accelerate repayment of all such debt, as well.  In such event, the Company would require alternate sources of capital, which the Company may not be able to obtain.

Company management is working diligently to close the sale, which is subject to customary closing conditions, including buyer financing and the need to obtain third party consents, and expects the sale will be consummated prior to June 30, 2003.  Company management expects to be in compliance with the revised financial covenants through 2003 based on its current operating plan and its ability to respond to further adverse changes in the Company’s business through additional cost reduction measures.  The Company expects to continue conducting its operations in the ordinary course of business.

Although we cannot be certain and provided that the sale of the Specialty Avionics Group described above will be consummated prior to June 30, 2003, we believe our operating cash flows, together with borrowings under our senior credit facility, will be sufficient to meet our future short- and long-term operating expenses, working capital requirements, capital expenditures and debt service obligations for the next twelve months.

Inventories

Inventories are stated at the lower of cost, as determined under the first-in, first-out (“FIFO”) method, or market.  Costs include materials, labor, including direct engineering labor, tooling costs and manufacturing overhead.  In accordance with industry practice, inventoried costs also include amounts relating to programs and contracts with long production cycles that will be recovered from future sales.  Periodic assessments are performed to ensure recoverability of the program costs and adjustments are made, if necessary, to reduce inventoried costs to estimated realizable value.

Property and Equipment

Property and equipment for companies acquired are stated at fair value as of the date the acquisition occurred and at cost for all subsequent additions.  Property and equipment are depreciated using the straight-line method over their estimated useful lives.  Useful lives for machinery and equipment range from three to twenty years.  Building and building improvements are depreciated using the straight-line method over their estimated useful lives of forty years.  Leasehold improvements are amortized using the straight-line method over their estimated useful lives or remaining lease term, whichever is less.  Expenditures for maintenance and repairs are expensed as incurred.  The costs for improvements are capitalized.  Upon retirement or disposal, the cost and accumulated depreciation of property and equipment are reduced and any gain or loss is recorded in income or expense.

F-8

Goodwill

Prior to January 1, 2002, goodwill was amortized on a straight-line basis over thirty years from the date the acquisition occurred.  Additional goodwill resulting from contingent consideration payments subsequent to the acquisition date was amortized prospectively over the remaining period of the initial thirty-year term.  Starting January 1, 2002, goodwill is no longer amortized but instead subject to annual impairment testing with a loss charged to operations in the period in which impairment occurs (Note 7).

Other Assets

Identifiable finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from three to fifteen years.  Deferred financing costs are amortized using either the straight-line or effective interest method, over the term of the related debt.

Impairment of Goodwill

Effective January 1, 2002 the Company adopted and began testing goodwill for impairment in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” as described in Note 7.  As required by SFAS No. 142, the Company tests goodwill for impairment annually, on October 31^st of each year, or when events or changes in circumstances indicate the carrying amount may not be recoverable.  The goodwill impairment model is a two-step process.  First, it requires a comparison of the book value of net assets to the fair value of the related operations that have goodwill assigned to them.  If the fair value is determined to be less than book value, a second step is performed to compute the amount of the impairment.  In this process, a fair value for goodwill is estimated, based in part on the fair value of the operations used in the first step, and is compared to its carrying value.  The amount by which carrying value exceeds fair value represents the amount of goodwill impairment.  As a result of the 2002 impairment testing, the Company recorded a $7,672,000 pre-tax charge to operations.

Prior to adoption of SFAS No. 142, impairment testing was in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.”  In 2001, the Company recorded a $8,583,000 pre-tax charge to reflect the impairment loss resulting from its restructuring plan to close a manufacturing facility (Notes 2 and 7).

Impairment of Long-Lived Assets and Other Intangible Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews long-lived assets held for use and intangible assets, other than goodwill, for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  In the event the sum of the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded.  Long-lived assets deemed held for sale are stated at the lower of cost or fair value.  As a result of two restructuring programs conducted during 2001 and 2002, the Company recorded pre-tax charges of $1,320,000 during 2001 and $3,931,000 during 2002 to reflect the impairment of long-lived assets.  The impairment losses are described in Note 2.

F-9

Product Warranty Obligations

The Company sells some products to customers with various repair or replacement warranties.  The terms of the warranties vary according to the customer and/or product involved.  The most common warranty periods are generally one to five years from the earlier of the date of delivery to the customer or six to twelve months from the date of manufacture.

Provisions for estimated future warranty costs are made in the period corresponding to the sale of the product and such costs have been within management’s expectations.  Classification between current and long-term warranty obligations is estimated based on historical trends.

Income Taxes

Deferred income taxes are determined using the liability method.  A deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse.  Deferred tax expense is the result of changes in the deferred tax asset or liability.  If necessary, valuation allowances are established to reduce deferred tax assets to their expected realizable values.

Derivative Financial Instruments

Effective January 1, 2001, the Company adopted and began accounting for derivative financial instruments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  The adoption did not have a material impact on the Company’s business, consolidated financial position, results of operations or cash flows.  SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value.  It also requires that gains or losses resulting from changes in the values of those derivatives be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting.

The Company does not use derivative financial instruments for trading purposes but only to manage the risk that changes in interest rates would have on future interest payments for a portion of its variable-rate debt.  At December 31, 2002, the Company has an interest rate swap contract to effectively convert $4,500,000 of variable-rate debt to 4.2% fixed-rate debt until maturity in 2008.  The contract is considered to be a hedge against changes in the amount of future cash flows associated with interest payments on this variable-rate debt.  As a result, the interest rate swap contract is reflected at fair value and the related loss of $361,000 on this contract is deferred in stockholder’s equity as a component of comprehensive income (loss).  The deferred loss will be recognized in future periods as interest expense as the related fixed-rate interest payments are made.  In the unlikely event that the counterparty fails to perform under the contract, the Company bears the credit risk that payments due to the Company may not be collected.

F-10

Fair Value of Financial Instruments

All financial instruments are held for purposes other than trading.  The estimated fair value of the Company’s long-term debt is based on either quoted market prices or current rates for similar issues for debt of the same remaining maturities.  The estimated fair value of the Company’s $100,000,000 senior subordinated debt was approximately $40,000,000 at December 31, 2002 and $93,500,000 at December 31, 2001.  All other non-derivative financial instruments as of December 31, 2002 and 2001 approximate their carrying amounts either because of the short maturity of the instrument, or based on their effective interest rates compared to current market rates for similar long-term debt or obligations.

Foreign Currency Translation and Transactions

The financial statements of the Company’s U.K. and Swiss subsidiaries have been translated into U.S. dollars from their functional currencies, pounds sterling and Swiss francs, respectively, in the consolidated financial statements.  Assets and liabilities have been translated at the exchange rate on the balance sheet date and income statement amounts have been translated at average exchange rates in effect during the period.  The net translation adjustment is reflected as a component of accumulated comprehensive income or loss within stockholder’s equity.

Realized foreign currency exchange gains included in “other expenses, net” caption in the consolidated statements of operations were $194,000 for the year ended December 31, 2002, $103,000 for the year ended December 31, 2001 and $351,000 for the year ended December 31, 2000.

Revenue Recognition

Revenues from the sale of manufactured products, except for products manufactured under long-term contracts, are recognized upon shipment of product to the customer provided that the Company has received a signed purchase order, the price is fixed, title has transferred, collection of the resulting receivables is probable, product returns are reasonably estimable and there are no remaining significant obligations.  Provision for future returns is recorded based on historical experience at the time revenue is recognized.

Revenues for products manufactured under long-term contracts are recognized under the percentage-of-completion method using total contract price, actual costs incurred to date and an estimate of the completion costs for each contract.  Costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs.  Selling, general, and administrative costs are charged to expense as incurred.

F-11

Percentage-of-completion is measured using an estimate of direct labor incurred to date to total expected direct labor for each contract.  This method is used because management considers expended direct labor to be the best available measure of progress on these contracts.  Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.  Management believes that the Company will not incur any losses on uncompleted contracts at December 31, 2002.

Measuring a contract’s percentage-of-completion requires management to make estimates.  As a result, it is reasonably possible that factors may cause management to change its revenue and cost estimates, thereby altering estimated profitability.  These factors include, but are not limited to, changes in contract scope, material and labor efficiencies, contract penalty provisions, if any, and final contract settlements.  Revisions to revenue and profit estimates are made in the period in which the facts that give rise to the revision become known.

The asset “Costs and estimated earnings in excess of billings” represents revenues recognized in excess of amounts billed on uncompleted contracts and is reflected as a component of inventory.  Conversely, the liability “Billings in excess of costs and estimated earnings” represents billings in excess of revenues recognized on uncompleted contracts and is reflected as an accrued liability.  Unbilled revenues are expected to be billed and collected during the succeeding twelve-month period.

Research and Development Costs

Research and development costs are expensed as incurred.  Such costs were $2,490,000 for the year ended December 31, 2002, $3,697,000 for the year ended December 31, 2001 and $4,630,000 for the year ended December 31, 2000.

Stock Option Plan

As permitted under SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company measures compensation expense related to the employee stock option plan utilizing the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”

Statements of Cash Flows

For purposes of the statements of cash flows, cash equivalents include short-term, highly liquid investments with maturities of three months or less at the time of purchase.

F-12

Recent Accounting Pronouncements

SFAS No. 145

In May 2002, the Financial Accounting Standards Board issued SFAS No. 145, “Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections.”  Among other things, SFAS No. 145 rescinds various pronouncements regarding early extinguishment of debt and allows extraordinary accounting treatment for early extinguishment only when the provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations–Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” are met.  SFAS No. 145 provisions regarding early extinguishment of debt are generally effective for fiscal years beginning January 1, 2003.  The Company believes this new standard will not have an impact on its business, consolidated financial position, results of operations or cash flow.

SFAS No. 146

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).”

SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be initially measured at fair value and recognized when the liability is incurred.  In periods subsequent to initial measurement, changes to the liability are measured using the credit-adjusted risk-free rate that was used in the initial measurement of the liability recorded.  The cumulative effect of a change resulting from revisions to either the timing or the amount of estimated cash flows is recognized as an adjustment to the liability in the period of the change and charged to the same line items in the statement of operations used when the related costs were initially recognized.  Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan.

The provisions of SFAS No. 146 are required to be applied prospectively to exit or disposal activities initiated after December 31, 2002.  The Company believes SFAS No. 146 may affect the timing of recognizing future restructuring costs, as well as the amounts recognized, depending on the nature of the exit or disposal activity and the timing of the related estimated cash flows.

F-13

FIN No. 45

In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”  FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued.  The interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.  The initial recognition and initial measurement provisions of FIN No. 45 are applicable to the Company on a prospective basis to guarantees issued or modified after December 31, 2002.  However, the disclosure requirements in FIN No. 45 are effective for the Company’s financial statements for periods ending after December 15, 2002.

The Company is not a party to any agreement in which it is a guarantor of indebtedness of others therefore the interpretation is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.  The disclosure requirements of this interpretation have been adopted by the Company as of December 31, 2002.

SFAS No. 148

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.”  SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.  In addition, SFAS No. 148 amends the disclosure requirements of SFAS 123, “Accounting for Stock-Based Compensation,” to require disclosure in both interim and annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

SFAS No. 148 is effective for the Company’s fiscal year ended December 31, 2002 and for interim financial statements beginning in 2003.  SFAS No. 148 is not expected to have a significant effect on the Company’s financial position, results of operations or cash flows.

FIN No. 46

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities.”  FIN No. 46 addresses consolidation by business enterprises of variable interest entities (formerly special purpose entities or “SPEs”).  The Company does not have any variable interest entities as defined in FIN No. 46.

F-14

Note 2.Restructuring, Asset Impairment and Other Related Charges

During the two years ended December 31, 2002, the Company recorded restructuring, assets impairment and other related charges as follows:

	Year Ended December 31,
(In thousands)	2002		2001
Nature of charges:
2001 Asset Realignment Restructuring	$	6,901	$	28,658
2002 Seat Manufacturing Facilities Restructuring	6,294		—
Other asset impairment related charges	12,048		—
Total pre-tax charges	$	25,243	$	28,658
Charged to operations:
Cost of sales	$	10,992	$	16,057
Selling, general and administrative expenses	6,579		4,018
Impairment of goodwill	7,672		8,583
Total pre-tax charges	$	25,243	$	28,658
Components of charges:
Noncash charges	$	19,444	$	22,058
Cash charges	5,799		6,600
Total pre-tax charges	$	25,243	$	28,658

2001 Asset Realignment Restructuring

During the second quarter of 2001, the Company’s Cabin Management Group adopted a restructuring plan to realign production programs between its manufacturing facilities.  In response to the adverse impact on the aerospace industry resulting from the September 11^th terrorist attack and its aftermath, as well as the weakening of global economic conditions, the Company announced and implemented a further restructuring plan in December 2001 designed to reduce costs and conserve working capital.  This plan included permanently closing one manufacturing facility and idling a second facility for an indefinite period, curtailing several product development programs and instituting workforce reductions.  Due to the ongoing weakness of the corporate, VIP and head-of-state aircraft market, the Company decided during the second quarter of fiscal 2002 to permanently close the temporarily idled manufacturing facility.  This plan primarily affected the Company’s Cabin Management and Specialty Avionics Groups.

The restructuring, asset impairment and other related charges are comprised of the following:

•Impairment of Long-Lived Assets.  In 2001, the restructuring plan resulted in the impairment of property, equipment and goodwill and, accordingly, these assets were written down to their net realizable value.  In 2002, the decision to permanently close the additional manufacturing facility resulted in an additional impairment of property and equipment and, accordingly, these assets were written down to their estimated net realizable value in 2002.  Net realizable values are based on estimated current market values and the actual losses could exceed these estimates.

F-15

•Write-off of Product Development Costs.  The curtailment of several product development programs in 2001 resulting in the write-off of inventoried costs related to these programs.

•Excess Inventory Write-Downs.  Inventory was written down to net realizable value for quantities on hand exceeding current and forecast order backlog requirements.

•Realignment of Production Programs Between Facilities.  Costs associated with this realignment were incurred during the fiscal second quarter of 2001.

•Severance and Other Compensation Costs.  Since the September 11^th terrorist attack, the Company has reduced its total workforce by approximately 500 employees, or 18.5%, as of December 2002, of which approximately 260 employees had separated as of December 31, 2001.

•Lease Termination and Other Related Costs. Lease termination and other related costs are comprised of the net losses expected to be incurred under the existing long-term lease agreements for facilities permanently vacated.  The losses have been reduced by the expected sublease income.  These expected losses were based on estimated current market rates and anticipated dates that these facilities are subleased.  If market rates decrease or should it take longer than expected to sublease these facilities, the actual loss could exceed these estimates.

•Other Asset Impairment Related Charges.  Other expenses pertain to provisions for estimated losses on uncompleted long-term contracts aggregating $2,577,000 and other related charges expensed as incurred.

The components of the restructuring, assets impairment and other related charges are as follows:

(In thousands)	Balance at Beginning of the Year		Total Charges								Balance at End of the Year
					Amounts Incurred
					Noncash			Cash
Year ended December 31, 2002:
Severance and other compensation costs	$	1,185	$	—	$	—		$	(1,185	)	$	—
Lease termination and other related costs	424		—		—			(334		)	90
Impairment of property and equipment	—		2,557		(2,557		)	—			—
Excess inventory write-downs	—		1,265		(1,265		)	—			—
Total	$	1,609	3,822		$	(3,822	)	$	(1,519	)	$	90
Other restructuring-related charges			3,079
Total pre-tax charges			$	6,901

F-16

(In thousands)	Balance at Beginning of the Year		Total Charges								Balance at End of the Year
					Amounts Incurred
					Noncash			Cash
Year ended December 31, 2001:
Impairment of long-lived assets:
Goodwill	$	—	$	8,583	$	(8,583	)	$	—		$	—
Property and equipment	—		1,320		(1,320		)	—			—
Product development cost write-offs	—		7,908		(7,908		)	—			—
Excess inventory write-downs	—		4,247		(4,247		)	—			—
Realignment of production programs between facilities	—		3,902		—			(3,902		)	—
Severance and other compensation costs	—		2,024		—			(839		)	1,185
Lease termination and other related costs	—		674		—			(250		)	424
Total	$	—	$	28,658	$	(22,058	)	$	(4,991	)	$	1,609

This restructuring plan was completed during the fourth quarter of fiscal 2002.  From the inception of this restructuring plan in 2001, severance and other compensation costs of approximately $2,024,000 have been paid to manufacturing and administrative employees terminated at the manufacturing facilities closed.  Since the September 11^th terrorist attack, the Company has, in addition to the positions eliminated as a result of the 2002 plant closures described above, reduced its total workforce by approximately 500 employees, or 18.5%, as of December 2002 pursuant to this restructuring plan, of which approximately 260 employees had separated as of December 31, 2001.

The remaining balance of restructuring costs includes lease termination and other exit costs.  The restructuring plan related to leased facilities was completed during the second quarter of fiscal 2002; however, future cash payments extend beyond this date due to lease payments on the vacated facility and the incurrence of other exit costs.  Future cash payments will be funded from existing cash balances and internally generated cash from operations.

2002 Seat Manufacturing Facilities Restructuring

During the first quarter of fiscal 2002, the Company announced it would consolidate the production of four seating and related manufacturing facilities into two, resulting in the permanent closure of two facilities.  This plan was designed to improve manufacturing efficiencies and to further reduce costs and conserve working capital.  In connection with this restructuring plan, the Company recorded pre-tax charges to operations totaling $6,294,000 during 2002 for restructuring, asset impairment and other related charges.  The charges are comprised of the following:

•Inventory and Accounts Receivable Write-Downs.  In connection with the consolidation of all production, the Company will discontinue manufacturing certain products, principally those which overlap.  Inventory and certain receivables related to the discontinued products were written down to net realizable value.

F-17

•Impairment of Long-Lived Assets.  The restructuring plan resulted in the impairment of property and equipment and, accordingly, these assets were written down to their net realizable value.

•Severance and Other Compensation Costs.  Approximately 115 employees were terminated in connection with the permanent closure of the manufacturing facilities.

•Lease Termination and Other Related Costs.  Lease termination and other related costs are comprised of the net losses expected to be incurred under existing long-term lease agreements for the facilities being permanently vacated.  The losses have been reduced by the expected sublease income.  These expected losses were based on estimated current market rates and anticipated dates that these facilities are subleased.  If market-rates decrease or should it take longer than expected to sublease these facilities, the actual loss could exceed these estimates.

•Other Asset Impairment Related Expenses.  Other expenses pertain to FAA retesting and recertification of products manufactured at a different facility, moving, transportation and travel costs and shutdown / startup costs.  Such costs were charged to expense as incurred.

The components of the restructuring, assets impairment and other related charges are as follows:

(In thousands)	Total Charges								Balance at December 31, 2002
			Amounts Incurred
			Noncash			Cash
Restructuring and assets impairment charges:
Inventory and accounts receivable write-downs	$	2,200	$	(2,200	)	$	—		$	—
Impairment of property and equipment	1,374		(1,374		)	—			—
Severance and other compensation costs	450		—			(450		)	—
Lease termination and other related costs	300		—			(236		)	64
Total restructuring and asset impairment charges	4,324		$	(3,574	)	$	(686	)	$	64
Other restructuring-related expenses	1,970
Total pre-tax charges	$	6,294

This restructuring plan was completed during the second quarter of fiscal 2002.  The remaining balance of restructuring costs includes lease termination and other exit costs.  The manufacturing facilities were closed during June 2002; however, future cash payments extend beyond this date due to lease payments on the vacated facilities and the incurrence of other exit costs.  Future cash payments will be funded from existing cash balances and internally generated cash from operations.

Other Asset Impairment Related Charges

Due to continued weakness in the commercial aircraft portion of our business, in the fourth quarter of fiscal 2002 the Company recorded a pre-tax charge of $12,048,000 for additional asset impairments.  Of this amount, $7,672,000 related to the Company’s annual goodwill impairment testing pursuant to SFAS No. 142 (Note 7) and $4,376,000 related to inventories and was charged to cost of goods sold.

F-18

Note 3.Acquisitions

Acquisitions Completed During 2000

During the year ended December 31, 2000, the Company acquired:

Cabin Management Group

•substantially all of the assets of Carl F. Booth & Co., an Indiana-based manufacturer of wood veneer panels primarily used in aircraft interior cabinetry, on May 11, 2000;

•all of the common stock of ERDA, Inc. (subsequently renamed DeCrane Aircraft Seating Co., Inc.), a Wisconsin-based designer and manufacturer of aircraft seating, on June 30, 2000; and

Specialty Avionics Group

•all of the common stock of Coltech, Inc., an Arizona-based designer and manufacturer of audio components for commercial and corporate, VIP and head-of-state aircraft, on August 31, 2000.

The consolidated financial statements reflect the acquired companies subsequent to their respective acquisition dates.  The aggregate purchase price for the acquisitions was $59,363,000 in cash, plus contingent consideration totaling a maximum of $2,000,000 payable over three years based on future attainment of defined performance criteria.  The aggregate purchase price includes $3,511,000 of acquisition related costs.  The acquisitions were accounted for as purchases and the assets acquired and liabilities assumed have been recorded at their estimated fair values.  As a result, identifiable intangible assets, principally FAA certifications, totaling $18,936,000 were recorded and the $41,622,000 difference between the aggregate purchase price and the fair value of the net assets acquired was recorded as goodwill.

Identifiable intangible assets are being amortized on a straight-line basis over their estimated useful lives, ranging from seven to fifteen years.  Prior to the January 1, 2002 adoption of SFAS No. 142 (Note 7), goodwill was being amortized on a straight-line basis over thirty years.  Contingent consideration totaling $2,000,000 was earned during the three years ended December 31, 2002 resulting in a corresponding increase in goodwill.

The acquisitions were funded with borrowings under the Company’s senior credit facility, equity contributions from DeCrane Holdings and the sale of preferred stock as described in Note 11.

F-19

Contingent Acquisition Consideration Paid for All Acquisitions

Prior to the year 2000, six additional companies were acquired in transactions in which the sellers were entitled to contingent consideration payments based upon their respective levels of attainment of defined performance criteria.  Based upon the level of attainment of defined performance criteria during the three years ended December 31, 2002, the Company recorded contingent consideration payable of $600,000 in 2002, $700,000 in 2001 and $20,154,000 in 2000 resulting in a corresponding increase in goodwill.  As of December 31, 2002, there are no remaining contingent consideration payment obligations.

During 2001, the Company settled its asserted claims against the sellers of two companies acquired in 2000 for breach of representation and warranty provisions contained in the purchase agreements.  The Company received $3,718,000 from the sellers upon entering into the settlement agreements, which also provided that the Company pay in 2002 a minimum of $3,125,000 of previously contingent consideration for the year ended December 31, 2001 which was reflected as an accrued liability as of December 31, 2001.

Unaudited Pro Forma Information

Unaudited pro forma consolidated results of operations are presented in the table below for the year ended December 31, 2000.  The results of operations reflect the Company’s acquisitions as if all of these transactions were consummated as of January 1, 2000.

(Unaudited, in thousands)	Pro Forma Year Ended December 31, 2000
Revenues	$	371,584
EBITDA, as defined (Note 16)	89,160
Net income before cumulative effect of change in accounting principle	5,357

The pro forma results of operations do not purport to represent what actual results would have been if the transactions described above occurred on such dates or to project the results of operations for any future period.  The above information reflects adjustments for inventory, depreciation, amortization, general and administrative expenses and interest expense based on the new cost basis and debt and capital structure of the Company following the acquisitions.

During 2002, three customers accounted for more than 10% of the Company’s consolidated revenues (Note 16).  If the Company had completed its 2000 acquisitions at the beginning of 2000, unaudited pro forma revenues from these customers for year ended December 31, 2000 would have been as follows: Bombardier – $65,746,000; Boeing – $53,735,000; and Textron – $53,669,000.  Complete loss of any of the customers identified above could have a significant adverse impact on the results of operations expected in future periods.

F-20

Note 4.Accounts Receivable

The Company is potentially subject to concentrations of credit risk as the Company relies heavily on customers operating in the domestic and foreign corporate, VIP and head-of-state and commercial aircraft industries.  Generally, the Company does not require collateral or other security to support accounts receivable subject to credit risk.  Under certain circumstances, deposits or cash-on-delivery terms are required.  The Company maintains reserves for potential credit losses and generally, such losses have been within management’s expectations.

Accounts receivable are net of an allowance for doubtful accounts of $1,758,000 at December 31, 2002 and $2,647,000 at December 31, 2001.

Note 5.Inventories

Inventories are comprised of the following as of December 31, 2002 and 2001:

	December 31,
(In thousands)	2002		2001
Raw materials	$	39,765	$	50,503
Work-in-process:
Direct and indirect manufacturing costs	14,641		16,260
Program costs, principally engineering costs	14,769		10,974
Finished goods	7,623		3,089
Costs and estimated earnings in excess of billings on uncompleted contracts	4,004		5,672
Total inventories	$	80,802	$	86,498

Periodic assessments are performed to ensure recoverability of the program costs and adjustments are made, if necessary, to reduce inventoried costs to estimated realizable value.  In connection with the 2001 restructuring, $7,908,000 of previously inventoried program costs were determined to be unrecoverable and were charged to cost of sales in 2001; no adjustments were required during the years ended December 31, 2002 and 2000.

Total costs and estimated earnings on all uncompleted contracts as of December 31, 2002 and 2001 are comprised of the following:

	December 31,
(In thousands)	2002			2001
Costs incurred on uncompleted contracts	$	49,572		$	46,757
Estimated earnings recognized	63,699			50,413
Total costs and estimated earnings	113,271			97,170
Less billings to date	(109,880		)	(102,653		)
Net	$	3,391		$	(5,483	)
Balance sheet classification:
Asset – Costs and estimated earnings in excess of billings	$	4,004		$	5,672
Liability – Billings in excess of costs and estimated earnings (Note 8)	(613		)	(11,155		)
Net	$	3,391		$	(5,483	)

F-21

Revenues and earnings for products manufactured under long-term contracts are recognized under the percentage-of-completion method using total contract price, actual costs incurred to date and an estimate of the completion costs for each contract.  Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.  The Company recorded a provision for estimated losses totaling $2,577,000 during 2002 relating to uncompleted contracts at the furniture manufacturing facility permanently closed.

Note 6.Property and Equipment

Property and equipment includes the following as of December 31, 2002 and 2001:

	December 31,
(In thousands)	2002			2001
Land, buildings and leasehold improvements	$	36,342		$	34,795
Machinery and equipment	29,586			30,311
Computer equipment and software, furniture and fixtures	17,804			17,396
Tooling	6,152			6,052
Total cost	89,884			88,554
Accumulated depreciation and amortization	(38,001		)	(27,481		)
Net property and equipment	$	51,883		$	61,073

Included above are owned land and buildings held for sale related to a manufacturing facility the Company closed during 2002 (Note 2).  The cost of the land and buildings is $2,820,000 and the corresponding accumulated depreciation and amortization is $31,000 as of December 31, 2002.

Property and equipment under capital leases included above consists of the following as of December 31, 2002 and 2001:

	December 31,
(In thousands)	2002			2001
Land, buildings and leasehold improvements	$	3,558		$	4,388
Machinery and equipment	1,337			1,281
Computer equipment and software, furniture and fixtures	2,040			1,836
Total cost	6,935			7,505
Accumulated depreciation and amortization	(2,092		)	(2,193		)
Net property and equipment	$	4,843		$	5,312

Depreciation of property and equipment under capital leases is included in depreciation expense in the consolidated financial statements.

F-22

Note 7.Other Assets

Other assets are comprised of the following as of December 31, 2002 and 2001:

	December 31,
(In thousands)	2002		2001
Goodwill	$	277,152	$	337,443
Identifiable intangible assets with finite useful lives	51,732		63,648
Deferred financing costs	9,168		10,204
Other non-amortizable assets	1,189		1,978
Total other assets	$	339,241	$	413,273

SFAS No. 141 and 142 Adopted as of January 1, 2002

Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” and the provisions of SFAS No. 141, “Business Combinations,” which were required to be adopted concurrent with the adoption of SFAS No. 142.  Adoption of these accounting pronouncements resulted in the following:

•Reassessment of Useful Lives of Intangible Assets.  The reassessment of the useful lives of intangible assets acquired on or before June 30, 2001 was completed during the first quarter of fiscal 2002.  The remaining useful lives were deemed appropriate.

•Reclassification of Intangible Assets.  Intangible assets relating to acquired assembled workforce intangibles not meeting the criteria for recognition apart from goodwill were reclassified to goodwill, net of deferred income taxes.

•Discontinuance of Goodwill Amortization.  Goodwill is deemed to be an indefinite-lived asset.  As a result, and in accordance with SFAS No. 142, the recording of periodic goodwill amortization charges was discontinued effective January 1, 2002.

During 2002, the Company completed the transitional impairment testing of goodwill recorded as of January 1, 2002 as required under SFAS No. 142.  Fair value of each reporting unit was determined using a discounted cash flow approach taking into consideration projections based on the individual characteristics of the reporting units, historical trends, market multiples for comparable businesses and independent appraisals.  Unallocated goodwill was allocated to the reporting units for impairment testing purposes.  The results indicated that the carrying value of goodwill was impaired.  The resulting impairment was primarily attributable to a change in the evaluation criteria for goodwill utilized under previous accounting guidance to the fair value approach stipulated in SFAS No. 142.  In accordance with the transitional provision of SFAS No. 142, the Company recorded a $57,150,000 noncash write-down of goodwill (net of $878,000 income tax benefit) as of January 1, 2002 as a cumulative effect of a change in accounting principle.

F-23

Reported income (loss), net of tax before the cumulative effect of the change in accounting principle, adjusted to reflect the discontinuance of periodic goodwill and assembled workforce amortization charges, is as follows:

	Year Ended December 31,
(In thousands)	2002			2001			2000
Reported income (loss)	$	(8,836	)	$	(14,002	)	$	3,602
Add back goodwill and assembled workforce amortization, net of tax	—			11,573			10,492
Adjusted income (loss)	$	(8,836	)	$	(2,429	)	$	14,094

Goodwill

Changes in the carrying amount of goodwill, by business segment (Note 16), for the two years ended December 31, 2002 are as follows:

(In thousands)	Cabin Management Group			Specialty Avionics Group			Systems Integration Group			Corporate			Consolidated Total
Balance, December 31, 2000	$	187,797		$	131,472		$	32,982		$	4,105		$	356,356
Amortization during the period	(6,640		)	(4,709		)	(1,180		)	(149		)	(12,678		)
Impairment charge	(5,058		)	—			(3,525		)	—			(8,583		)
Contingent consideration earned, including acquisition related expenses	3,832			—			—			—			3,832
Cash received from sellers, net of additional liabilities recorded, upon settlement of asserted claims	(1,216		)	—			—			—			(1,216		)
Foreign currency translation	—			(268		)	—			—			(268		)
Balance, December 31, 2001	178,715			126,495			28,277			3,956			337,443
Adoption of SFAS 141 and 142:
Reclassification of intangible assets	3,076			1,221			386			120			4,803
Transitional impairment charge	(8,463		)	(39,322		)	(7,881		)	(2,362		)	(58,028		)
Contingent consideration earned, including acquisition related expenses	606			—			—			—			606
Impairment charge	—			(7,672		)	—			—			(7,672		)
Balance, December 31, 2002	$	173,934		$	80,722		$	20,782		$	1,714		$	277,152

F-24

In 2001, the Company recorded impairment charges total $8,583,000 in connection with its restructuring plan.  During the fourth quarter of fiscal 2002, the Company performed its annual impairment testing and recorded an additional $7,672,000 impairment charge.  The charge results from a decrease in fair value due to further weakness during 2002 in the commercial aircraft portion of our business.  These charges are included as a component of income from operations.

Identifiable Intangible Assets with Finite Useful Lives

Identifiable intangible assets with finite useful lives are comprised of the following as of December 31, 2002 and 2001:

	December 31, 2002							December 31, 2001
(In thousands)	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
FAA certifications	$	45,816	$	(11,539	)	$	34,277	$	45,816	$	(8,485	)	$	37,331
Engineering drawings	14,621		(3,791		)	10,830		14,617		(2,816		)	11,801
Assembled workforce	—		—			—		11,499		(4,535		)	6,964
Other identifiable intangibles	13,105		(6,480		)	6,625		12,293		(4,741		)	7,552
Total identifiable intangibles	$	73,542	$	(21,810	)	$	51,732	$	84,225	$	(20,577	)	$	63,648

Estimated annual amortization expense for all identifiable intangible assets with finite useful lives for the five-year period ending December 31, 2006 is as follows: 2003 – $5,845,000; 2004 – $5,792,000; 2005 – $5,625,000; 2006 – $4,423,000; and 2007 – $4,323,000.

Note 8.Accrued Liabilities

Accrued liabilities are comprised of the following as of December 31, 2002 and 2001:

	December 31,
(In thousands)	2002		2001
Salaries, wages, compensated absences and payroll related taxes	$	11,213	$	17,179
Billings in excess of costs and estimated earnings on uncompleted contracts	613		11,155
Acquisition related contingent consideration	600		6,904
Accrued interest	7,465		4,692
Customer advances and deposits	4,723		3,260
Other accrued liabilities	10,442		13,436
Total accrued liabilities	$	35,056	$	56,626

F-25

Accrued Product Warranty Obligations

The following table reflects the accrued product warranty obligation activity during the three years ended December 31, 2002.

	Year Ended December 31,
(In thousands)	2002			2001			2000
Accrual activity during the year:
Accrual at beginning of the year	$	3,348		$	3,346		$	3,595
Accruals for warranties issued during the period	1,443			921			1,286
Change in accrual estimate related to pre-existing warranties	481			(482		)	(1,157		)
Settlements made (in cash or in kind) during the period	(880		)	(437		)	(378		)
Accrual at end of the year	$	4,392		$	3,348		$	3,346
Classification at end of the year:
Current liability	2,991			2,721			2,373
Long-term liability	1,401			627			973
Total	$	4,392		$	3,348		$	3,346

Note 9.Long-Term Debt

Long-term debt includes the following amounts as of December 31, 2002 and 2001:

	December 31,
(In thousands)	2002			2001
Senior credit facility:
Term loans	$	264,200		$	275,706
Revolving line of credit	6,000			12,000
12% senior subordinated notes	100,000			100,000
Capital lease obligations and term debt financing, secured by property and equipment	10,509			10,745
Other indebtedness	998			1,799
Total long-term debt	381,707			400,250
Less current portion	(16,859		)	(13,899		)
Long-term debt, less current portion	$	364,848		$	386,351

F-26

Senior Credit Facility

During 2002, the Company amended certain of the terms of its senior credit facility.  The amendment combined two $25,000,000 working capital and acquisitions lines of credit into a single $50,000,000 working capital line of credit, increased the prime rate and LIBOR interest margins by 50 basis points and amended certain financial covenants, principally through December 31, 2003.  During 2001, the Company borrowed $20,000,000 under its term loan senior credit facility and used the net proceeds to repay amounts then outstanding under the acquisition revolving line of credit.

The senior credit facility provides for term loan borrowings in the initial principal amount of $290,000,000 and a revolving line of credit for borrowings up to an aggregate principal amount of $50,000,000 for working capital and to finance acquisitions.  Principal payments for term loan borrowings are due in increasing amounts over the next four years and all borrowings under the revolving loan facility must be repaid by September 30, 2004.  Loans under the senior credit facility generally bear interest based on a margin over, at the Company’s option, prime rate or LIBOR.  The margins applicable to portions of amounts borrowed may vary depending upon the Company’s consolidated debt leverage ratio.  Currently, the applicable margins are 2.50 to 3.25 for prime rate borrowings and 3.75% to 4.50% for LIBOR borrowings.  The weighted-average interest rate on all senior credit facility borrowings outstanding was 5.97% as of December 31, 2002.  Borrowings under the senior credit facility are secured by substantially all of the assets of the Company.  The Company is subject to certain commitment fees under the facility as well as the maintenance of certain financial ratios, cash flow results and other restrictive covenants, including the payment of dividends in cash.

As of December 31, 2002, the Company had an irrevocable standby letter of credit in the amount of $400,000 issued and outstanding under is senior credit facility, which reduces borrowings available under the revolving line credit.

On March 28, 2003, the Company received requisite lender approval to further amend the terms of its senior credit facility (Note 18).

12% Senior Subordinated Notes

The senior subordinated notes mature on September 30, 2008 and interest is payable semi-annually on March 30, and September 30, of each year.  The senior subordinated notes are unsecured general obligations of the Company and are subordinated in right of payment to substantially all existing and future senior indebtedness of the Company, including senior credit facility indebtedness.  Prior to maturity, the Company may redeem all or some of the senior subordinated notes at defined redemption prices, which may include a premium.  In the event of a change in control, the holders may require the Company to repurchase the senior subordinated notes for a redemption price that may also include a premium.  The Company is subject to restrictive covenants, including the payment of dividends in cash.

F-27

Other Indebtedness

As of December 31, 2002, other indebtedness reflects acquisition financing payable to sellers in connection with their respective acquisitions.  The debt is non-interest bearing; original issue discounts ranging between 10.5% and 12.5% are being amortized over their terms.

Aggregate Maturities

The total annual maturities of long-term debt outstanding as of December 31, 2002 are as follows:

(In thousands)

Year ending December 31,
2003	$	16,887
2004	54,043
2005	97,766
2006	107,090
2007	650
2008 and thereafter	105,299
Total aggregate maturities	381,735
Less unamortized debt discounts	(28		)
Total long-term debt	$	381,707

Note 10.  Income Taxes

Income (loss) before income taxes and cumulative effect of change in accounting principle was taxed under the following jurisdictions:

	Year Ended December 31,
(In thousands)	2002			2001			2000
Domestic	$	(7,381	)	$	(12,236	)	$	10,049
Foreign	(1,101		)	(578		)	(165		)
Total	$	(8,482	)	$	(12,814	)	$	9,884

F-28

The provisions for income taxes (benefit) are as follows:

	Year Ended December 31,
(In thousands)	2002			2001			2000
Current:
U.S. federal	$	—		$	62		$	370
State and local	255			1,133			671
Foreign	67			30			120
Total current	322			1,225			1,161
Deferred:
U.S. federal	(144		)	545			4,599
State and local	463			(464		)	557
Foreign	(287		)	(118		)	(35		)
Total deferred	32			(37		)	5,121
Total provision:
U.S. federal	(144		)	607			4,969
State and local	718			669			1,228
Foreign	(220		)	(88		)	85
Total provision	$	354		$	1,188		$	6,282

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal rate to the income (loss) before income taxes and cumulative effect of change in accounting principle as a result of the following differences:

	Year Ended December 31,
(In thousands)	2002			2001			2000
Income tax (benefit) at U.S. statutory rates	$	(2,969	)	$	(4,485	)	$	3,459
Tax effect of increases (decreases) resulting from:
Amortization of assets and other expenses not deductible for income tax purposes	2,927			5,477			2,247
State income taxes, net of federal benefit	467			265			798
Lower tax rates on earnings of foreign subsidiaries and foreign sales corporation	(8		)	(57		)	(214		)
Other, net	(63		)	(12		)	(8		)
Income tax at effective rates	$	354		$	1,188		$	6,282

F-29

Deferred tax liabilities (assets) are comprised of the following as of December 31, 2002 and 2001:

	December 31,
(In thousands)	2002			2001
Gross deferred tax liabilities:
Intangible assets	$	31,267		$	31,849
Program costs	6,168			4,839
Property and equipment	3,119			3,461
Other	56			322
Gross deferred tax liabilities	40,610			40,471
Gross deferred tax (assets):
Loss carryforwards	(12,173		)	(8,980		)
Accrued liabilities	(6,797		)	(7,732		)
Inventory	(4,252		)	(3,130		)
Other	(832		)	(1,095		)
Gross deferred tax (assets)	(24,054		)	(20,937		)
Net deferred tax liability	$	16,556		$	19,534
Balance sheet classification:
Noncurrent deferred tax liability	$	39,187		$	33,597
Current deferred tax asset	(22,631		)	(14,063		)
Net deferred tax liability	$	16,556		$	19,534

As of December 31, 2002, the Company has total loss carryforwards of approximately $30,782,000 for federal income tax purposes and $21,268,000 for state income tax purposes, including federal loss carryforwards acquired in acquisitions.  The Company expects that federal loss carryforwards acquired in an acquisition totaling approximately $12,600,000 will transfer to the buyer in connection with the sale of the Specialty Avionics Group described in Note 18.  The loss carryforwards are not subject to limitations on their annual utilization (“Section 382 limitation,” as defined in the Internal Revenue Code) and therefore are available for utilization in 2002.  The federal and state loss carryforwards expire in varying amounts commencing in 2011 and continuing through 2022.  Management believes that it is more likely than not that the Company will generate taxable income sufficient to realize the tax benefit associated with the future deductible deferred tax assets and loss carryforwards prior to their expiration.

Undistributed earnings of foreign subsidiaries are not material to the consolidated financial statements.  As such, foreign taxes that may be due, net of U.S. foreign tax credits, have not been provided.

F-30

Note 11.  Capital Structure

Authorized Capital Structure

In October 2001, DeCrane Aircraft amended its articles of incorporation and reduced its authorized capital structure by eliminating all previously authorized but never issued cumulative convertible preferred stock and undesignated preferred stock and reduced the number of common shares authorized for issuance.  Subsequent to the amendment, DeCrane Aircraft is authorized to issue 1,000 shares of common stock ($.01 par value) and 700,000 shares of 16% Senior Redeemable Exchangeable Preferred Stock Due 2009 ($.01 par value).

Mandatorily Redeemable Preferred Stock

The table below summarizes mandatorily redeemable preferred stock issued during the three years ended December 31, 2002.

(In thousands)	Number of Shares	Mandatory Redemption Value		Unamortized Issuance Discount			Net Book Value
Sale of preferred stock	250,000	$	25,000	$	(4,019	)	$	20,981
Issuance costs	—	—		(76		)	(76		)
Accrued dividends and redemption value accretion	20,400	2,040		234			2,274
Balance, December 31, 2000	270,400	27,040		(3,861		)	23,179
Accrued dividends and redemption value accretion	45,930	4,593		468			5,061
Balance, December 31, 2001	316,330	31,633		(3,393		)	28,240
Accrued dividends and redemption value accretion	53,731	5,373		468			5,841
Balance, December 31, 2002	370,061	$	37,006	$	(2,925	)	$	34,081

On June 30, 2000, 250,000 shares of DeCrane Aircraft 16% preferred stock and warrants to purchase 139,357 shares of DeCrane Holdings common stock were sold for $25,000,000 to DLJ affiliates (Note 15).  The proceeds from the sale were used to fund, in part, the ERDA acquisition (subsequently renamed DeCrane Aircraft Seating Co.).  A portion of the proceeds from the sale totaling $4,019,000 were ascribed to the common stock warrants and was credited to additional paid-in capital.  The corresponding reduction in redemption value of the preferred stock, and related issuance costs, are recorded as an issuance discount and are being amortized using the effective interest method through the preferred stock mandatory redemption date.

DeCrane Aircraft is authorized to issue 700,000 shares of 16% Senior Redeemable Exchangeable Preferred Stock Due 2009, $.01 par value.  The preferred stock has a $100.00 per share liquidation preference, plus accrued and unpaid cash dividends, and is non-voting.

F-31

Holders of the preferred stock are entitled to receive, when, as and if declared, dividends at a rate equal to 16% per annum.  Prior to June 30, 2005, DeCrane Aircraft may, at its option, pay dividends either in cash or by the issuance of additional shares of preferred stock.  Since the preferred stock issuance date on June 30, 2000, DeCrane Aircraft has elected to issue additional shares in lieu of cash dividend payments.  The preferred stock is mandatorily redeemable on March 31, 2009.  Upon the occurrence of a change in control, as defined, each holder has the right to require DeCrane Aircraft to redeem all or part of such holder’s shares at a price equal to 101% of the liquidation preference, plus accrued and unpaid cash dividends.

Common Stock

DeCrane Aircraft has 100 shares ($.01 par value) issued and outstanding as of December 31, 2002 and 2001.  All of the shares are owned by DeCrane Holdings, DeCrane Aircraft’s parent company.

During 2000 and 2002, DeCrane Aircraft received additional cash capital contributions from DeCrane Holdings aggregating $7,902,000 in 2000 and $5,000,000 in 2002 resulting from DeCrane Holdings’ sale of capital stock.  The proceeds were used to fund portions of the acquisitions completed during 2000 and to fund working capital requirements in 2002.

Also during 2002, DeCrane Holdings repurchased and canceled 18,743 common shares from former members of the Company’s management.  The former management members also elected to exercise 9,252 vested stock options on a cashless basis.  The $14,000 income tax benefit associated with the stock options exercised was also credited to additional paid-in capital.  In connection with the repurchase, a note receivable collateralized by the repurchased common stock was repaid.  The Company returned $368,000 of paid-in capital to DeCrane Holdings to fund its cash requirements for these transactions.

Notes Receivable for Shares Sold

During 1998 and 1999, DeCrane Holdings sold mandatorily redeemable preferred and common stock in three transactions in which one-half of the purchase price was paid in cash and one-half was loaned to the purchasers by DeCrane Aircraft, with interest at the then applicable federal rates.  The loans bear interest at rates ranging between 4.33% and 5.74%.  The loans, plus accrued interest, are payable upon the sale of the stock and are collateralized by such stock.  The resulting notes receivable, plus accrued interest, are classified as a reduction of stockholder’s equity in the consolidated statement of financial position.

F-32

The three transactions, which were based on the fair market value of the underlying securities as determined by the Board of Directors, resulted in loans for one-half of the total purchase price, were as follows:

•in December 1998, a group of related party investors (Note 15) purchased mandatorily redeemable preferred and common stock for $704,000;

•in October 1999, the same group of investors purchased additional shares of common stock for $250,000; and

•in December 1999, DeCrane Aircraft’s management purchased common stock for $3,940,000.

During 2000, a note receivable totaling $51,000, including accrued interest, was canceled in conjunction with the repurchase of the common stock that collateralized the note for its original $23.00 per share issuance price.  During 2002, a note receivable totaling $200,000, plus accrued interest, was repaid in connection with the repurchase of the common stock collateralizing the note receivable.

Note 12.  Commitments and Contingencies

Litigation

As part of its investigation of the crash of Swissair Flight 111 off the Canadian coast on September 2, 1998, the Canadian Transportation Safety Board (the “CTSB”) initially notified the Company that it recovered burned wire that was attached to the in-flight entertainment system installed on some of Swissair’s aircraft by one of the Company’s subsidiaries.  The Company’s subsidiary has worked vigorously over the last four years with the CTSB investigators in the fact-finding investigation of this catastrophic incident.  On March 27, 2003, the CTSB released its final report on its investigation.  This report indicated that the CTSB was unable to conclusively determine the cause of the fire which led to the crash of the aircraft.

Families of most of the 229 persons who died aboard the flight have filed actions in federal and state courts against the subsidiary, the Company, and many other unaffiliated parties, including Swissair and Boeing (“Passenger Actions”).  The Passenger Actions claim negligence, strict liability, and breach of warranty relating to the installation and testing of the in-flight entertainment system.  The Passenger Actions seek damages and costs in an unstated amount.  All of the Passenger Actions have been transferred to the United States District Court for the Eastern District of Pennsylvania and assigned under MDL Case No. 1269 for coordinated or consolidated pre-trial proceedings.  Most of the Passenger Actions have been settled by Boeing and Swissair.  Boeing and Swissair have advised the Company that they intend to seek contribution from the Company’s subsidiary.  The Company, based in part on information received from independent fire and safety experts retained by it, does not believe that the installation of the equipment installed by its subsidiary impacted the operation or safety of the aircraft.  Accordingly, the Company continues to defend the claims.

F-33

The Company and its subsidiaries are also involved in other routine legal and administrative proceedings incident to the normal conduct of business.  Management believes the ultimate disposition of all such matters will not have a material adverse effect on the Company’s business, consolidated financial position, results of operations or cash flows.

Lease Commitments

The Company leases some of its facilities and equipment under capital and operating leases.  Some of the leases require payment of property taxes and include escalation clauses.  Future minimum capital and operating lease commitments under non-cancelable leases are as follows as of December 31, 2002:

(In thousands)	Capital Leases			Operating Leases
Year ending December 31,
2003	$	1,108		$	3,167
2004	966			3,085
2005	790			3,030
2006	567			2,726
2007	497			2,479
2008 and thereafter	1,995			10,953
Total minimum payments required	5,923			$	25,440
Less amount representing future interest cost	(1,737		)
Recorded obligation under capital leases	$	4,186

Total rental expense charged to operations was $4,393,000 for the year ended December 31, 2002, $4,232,000 for the year ended December 31, 2001 and $3,903,000 for the year ended December 31, 2000.

Funding of DeCrane Holdings Preferred Stock Obligations

The Company is a wholly owned subsidiary of DeCrane Holdings whose capital structure also includes mandatorily redeemable preferred stock.  Since the Company is DeCrane Holdings’ only operating subsidiary and source of cash, the Company may be required to fund DeCrane Holdings’ preferred stock dividend and redemption obligations in the future.

DeCrane Holdings’ preferred stock dividends are payable quarterly at a rate of 14% per annum.  Prior to September 30, 2005, dividends are not paid in cash but instead accrete to the liquidation value of the preferred stock, which, in turn, increases the redemption obligation.  On or after September 30, 2005, preferred stock dividends are required to be paid in cash, if declared.  The DeCrane Holdings preferred stock has a total redemption value of $62,222,000 as of December 31, 2002, including accumulated dividends.

F-34

Note 13.  Consolidated Statements of Cash Flows

The following information supplements the Company’s consolidated statements of cash flows.

	Year Ended December 31,
(In thousands)	2002			2001			2000
Components of cash paid for acquisitions:
Fair value of assets acquired	$	—		$	—		$	94,155
Liabilities assumed	—			—			(34,792		)
Cash paid	—			—			59,363
Less cash acquired	—			—			(292		)
Net cash paid for acquisitions	—			—			59,071
Contingent consideration paid for previously completed acquisitions	5,826			17,075			29,825
Cash purchase price reductions received as a result of settling asserted claims against the sellers (Note 3)	—			(3,718		)	—
Additional acquisition related expenses	64			172			650
Total cash paid for acquisitions	$	5,890		$	13,529		$	89,546
Noncash investing and financing transactions:
16% mandatorily redeemable preferred stock dividends paid by the issuance of additional shares	$	5,373		$	4,593		$	2,040
Capital expenditures financed with capital lease obligations	264			4,438			109
Additional acquisition contingent consideration recorded	600			3,825			20,154
Interest accrued during the period on loans to stockholders for the purchase of DeCrane Holdings capital stock	123			116			135
Paid in cash:
Interest	$	28,417		$	35,821		$	39,160
Income taxes paid (refunded), net	(91		)	1,161			578

F-35

Note 14.  Employee Benefit Plans

Stock Based Incentive Compensation

Management Incentive Stock Option Plan

DeCrane Holding’s Board of Directors has approved a management incentive plan which provides for the issuance of options to purchase the common stock of DeCrane Holdings as incentive compensation to designated executive personnel and other key employees of the Company and its subsidiaries.  The Compensation Committee of the Board of Directors of DeCrane Holdings administers the plan and makes a determination as to any options to be granted.  The plan provides for the granting of options to purchase a maximum of 356,257 common shares prior to expiration in 2009.  The options are granted at fair market value at the date of grant.  Substantially all of the options awarded become fully vested and exercisable eight years from the date of grant but vesting can be accelerated based upon future attainment of defined performance criteria.  In addition, the Compensation Committee may authorize alternate vesting schedules.  The plan also provides for the acceleration of vesting upon the occurrence of certain events, including, under certain circumstances, a change of control.

During 2000, options to purchase 80,623 shares were granted under the plan, of which 15,828 shares vested immediately.  An additional 36,832 shares from the 1999 (inception of the plan) and 2000 grants vested based on the attainment of year 2000 performance criteria.  During 2001, no options were granted under the plan and no additional shares from the 1999 and 2000 grants vested based on the required year 2001 performance criteria.  During 2002, options to purchase 15,000 shares, with vesting over a three year period from the grant date, were granted under the plan and no additional shares from prior year grants vested based on the required year 2002 performance criteria.

The per share exercise price of the options granted was equal to the fair market value of the common stock on each of the grant dates and, accordingly, no compensation expense was recognized during the three years ended December 31, 2002.

Incentive Stock Options Granted to Others

In July 1999, a group of related party investors, including two individuals who were then serving as directors, were granted options as compensation for consulting services.  Options were granted to purchase 44,612 shares of DeCrane Holdings common stock at an exercise price of $23.00 per share, equal to the fair market value of the common stock on the grant date.  The options vest over a three-year period, are subject to acceleration if DLJ and its affiliates sell any of their shares of common stock, and expire in 2009.  The options are fully vested as of December 31, 2002.

F-36

Summary of All Stock Options

The following table summarizes all stock option activity during the three years ended December 31, 2002.

	Year Ended December 31,
	2002				2001				2000
	Number of Shares		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price
Options outstanding at beginning of the year	363,353		$	24.82	386,869		$	24.86	327,534		$	23.00
Granted	15,000		27.00		—		—		80,623		31.94
Exercised	(9,252	)	23.00		—		—		—		—
Canceled	(31,028	)	31.32		(23,516	)	25.55		(21,288	)	23.00
Options outstanding at end of the year	338,073		24.37		363,353		24.82		386,869		24.86
Options exercisable at end of the year	138,546		23.66		139,051		23.82		124,395		24.07

As of December 31, 2002, options to purchase 53,544 common shares remained available for grant under the Management Incentive Stock Option Plan.  The following table summarizes information about stock options outstanding and stock options exercisable at December 31, 2002.

	All Options Outstanding		Number of Shares Exercisable as of December 31, 2001
	Number of Shares as of December 31, 2001	Weighted-Average Remaining Contractual Life
Per share exercise price:
$23.00	294,527	6.95 years	130,946
$27.00	7,500	9.35 years	—
$35.00	36,046	7.93 years	7,600
Total	338,073	7.11 years	138,546

For compensatory stock options granted to non-employees, the Company recognized compensation expense of $138,000 for the year ended December 31, 2002, $215,000 for the year ended December 31, 2001 and $561,000 for the year ended December 31, 2000.  For non-compensatory stock options, the Company uses APB Opinion No. 25 to account for stock-based compensation and, accordingly, no compensation expense was recognized during the three years ended December 31, 2002.  The Company has adopted the disclosure-only provisions of SFAS No. 123.

F-37

For the three years ended December 31, 2002, net income (loss), pro forma for the effect of applying the fair value method to the options granted, would have been as follows:

	Year Ended December 31,
(In thousands, except per share data)	2002			2001			2000
Net income (loss):
As reported	$	(65,986	)	$	(14,002	)	$	3,602
Pro forma	(66,362		)	(14,394		)	3,163
Weighted-average fair value of options granted (per share)	10.96			—			9.48

For the purposes of the pro forma disclosure, the estimated fair value of the options is amortized over the options’ vesting period.  The effect of applying SFAS No. 123 may not be representative of the pro forma effect in future years since additional options may be granted during those future years.

The fair value of the options was determined using the following assumptions:

	2002		2001		2000
Compensatory options(1):
Risk free interest rates	5.13	%	5.35	%	5.23	%
Expected dividend yield	—		—		—
Expected life	10 years		10 years		10 years
Expected stock price volatility	—		—		—
Employee and director options(2):
Risk free interest rates	—		—		5.5-6.7	%
Expected dividend yield	—		—		—
Expected life	—		—		8 years

(1)Using the Black Scholes option valuation model.

(2)Using the minimum value method.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable.  In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.  Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models, as well as the minimum value method, do not necessarily provide a reliable single measure of its employee stock options.

The minimum value method, which is an acceptable method for non-public companies, excludes stock price volatility.

F-38

Management Stock Purchases

Beginning in December 1999, DeCrane Holding’s Board of Directors has permitted designated executive personnel and other key employees to purchase shares of common stock of DeCrane Holdings, with a portion of the purchase price to be loaned to the participants by DeCrane Aircraft.  In December 1999, management purchased 171,295 shares of DeCrane Holdings’ common stock for $23.00 per share.  The total purchase price was approximately $3,900,000, of which one-half was paid in cash and one-half was loaned to management by DeCrane Aircraft as described in Note 11.  In 2000, management purchased an additional 20,707 shares for $23.00 per share in cash pursuant to the plan’s antidilution provisions.  Dilution resulted from the issuance of the DeCrane Holdings common stock warrants in connection with the sale of DeCrane Aircraft’s 16% preferred stock.

401(k) Retirement Plan

Substantially all domestic employees are eligible to participate in one of the 401(k) retirement plans the Company sponsors, which are defined contribution plans satisfying the requirements of the Employee Retirement Income Security Act of 1974.  The Company’s expense related to its matching contributions to these plans totaled $1,469,000 for the year ended December 31, 2002, $2,272,000 for the year ended December 31, 2001 and $2,203,000 for the year ended December 31, 2000.

Note 15.  Related Party Transactions

The Company’s transactions with related parties included in the consolidated financial statements are summarized in the table below.

	Year Ended December 31,
(In thousands)	2002		2001		2000
CSFB / DLJ:
Transaction financing fees and expenses	$	1,627	$	520	$	1,703
Management fees:
Charged to operations during the period	350		300		300
Payable as of period end	125		375		75
Global Technology Partners, LLC:
Promissory notes:
Receivable as of period end, including interest	567		542		518

Each related party is described below.

F-39

CSFB / DLJ

DLJ Merchant Banking Partners II, L.P. and affiliated funds own 85.1% of DeCrane Holdings common stock and 99.3% of its preferred stock, and 80.0% of DeCrane Aircraft’s preferred stock, all on a fully diluted basis.  In November 2000, DLJ Merchant Banking Partners II, L.P. and affiliated funds became indirect affiliates of Credit Suisse Group and Credit Suisse First Boston, Inc.

DLJ affiliated funds were the initial purchasers of all of DeCrane Aircraft’s 16% preferred stock and DeCrane Holdings common stock warrants sold during 2000.  Subsequent to the initial purchase, the DLJ affiliated funds sold 20% of the preferred stock and common stock warrants to unaffiliated parties in a private transaction.

DLJ is represented on the Board of Directors of both DeCrane Holdings and DeCrane Aircraft.  In addition, Credit Suisse First Boston Corporation (formerly Donaldson, Lufkin & Jenrette Securities Corporation) is involved in market-making activities for DeCrane Holding’s Class A $22.31 common stock warrants and DeCrane Aircraft’s senior subordinated notes and may hold such securities from time to time.  A DLJ affiliate is also paid fees for arranging the syndicate of lenders providing DeCrane Aircraft’s senior credit facility.

Global Technology Partners, LLC

Members of Global Technology own 1.5% of DeCrane Holdings common stock and 0.7% of its preferred stock, all on a fully diluted basis, and had two members on the Company’s Board of Directors from August 1998 through July 2000.  DeCrane Aircraft loaned one-half of the purchase price for such shares to the members at rates ranging between 4.33% and 5.44%.  The loans, plus accrued interest, are payable from the proceeds from the sale of the stock and are collateralized by such stock.

F-40

Note 16.  Business Segment Information

The Company supplies products and services to the aerospace industry.  The Company’s subsidiaries are organized into three groups, each of which are strategic businesses that develop, manufacture and sell distinct products and services.  The groups and a description of their businesses are as follows:

•Cabin Management – provides interior cabin components for the corporate, VIP and head-of-state aircraft market, including cabin interior furnishings, cabin management systems, seating and composite components;

•Specialty Avionics – designs, engineers and manufactures electronic components, display devices and interconnect components and assemblies; and

•Systems Integration – manufacturers auxiliary fuel systems and auxiliary power units, provides system integration services, provides corporate, VIP and head-of-state aircraft completion and refurbishment services and is a Boeing Business Jet authorized service center.

Management utilizes more than one measurement to evaluate group performance and allocate resources, however, management considers EBITDA to be the primary measurement of overall economic returns and cash flows.  Management defines EBITDA as earnings before interest, income taxes, depreciation and amortization, restructuring, asset impairment and other related charges, acquisition related charges not capitalized and other noncash and nonoperating charges.  This is consistent with the manner in which the Company’s lenders and ultimate investors measure its overall performance.

The accounting policies of the groups are substantially the same as those described in the summary of significant accounting policies (Note 1).  Some transactions are recorded at the Company’s corporate headquarters and are not allocated to the groups, such as most of the Company’s cash and cash equivalents, debt and related net interest expense, corporate headquarters costs and income taxes.

F-41

Summary of Business by Segment

	Year Ended December 31,
(In thousands)	2002			2001			2000
Revenues:
Cabin Management	$	172,832		$	206,052		$	174,796
Specialty Avionics	95,789			123,240			110,878
Systems Integration	58,051			67,528			62,965
Inter-group elimination(1)	(1,042		)	(1,468		)	(1,260		)
Consolidated totals	$	325,630		$	395,352		$	347,379
Revenues from significant customers(2):
Cabin Management	$	94,014		$	108,737		$	107,194
Specialty Avionics	23,356			35,115			30,542
Systems Integration	35,388			46,138			31,750
Consolidated totals	$	152,758		$	189,990		$	169,486
EBITDA:
Cabin Management	$	32,644		$	45,554		$	46,041
Specialty Avionics	25,353			33,272			26,696
Systems Integration	18,084			17,152			15,026
Corporate(3)	(6,072		)	(7,125		)	(6,969		)
Inter-group elimination(4)	9			(62		)	198
Consolidated totals(5)	$	70,018		$	88,791		$	80,992
Depreciation and amortization:
Cabin Management	$	6,695		$	14,607		$	9,477
Specialty Avionics	6,507			12,012			12,101
Systems Integration	2,956			4,346			4,682
Corporate	961			1,411			927
Consolidated totals(6)	$	17,119		$	32,376		$	27,187
Total assets (as of period end):
Cabin Management	$	281,655		$	311,476		$	307,241
Specialty Avionics	154,540			214,569			227,093
Systems Integration	62,437			76,312			86,602
Corporate(7)	50,448			43,497			43,651
Inter-group elimination(8)	(113		)	(143		)	(333		)
Consolidated totals	$	548,967		$	645,711		$	664,254
Capital expenditures:
Cabin Management	$	3,829		$	6,579		$	14,896
Specialty Avionics	1,073			1,708			2,496
Systems Integration	478			3,371			1,612
Corporate	49			241			3,685
Consolidated totals(9)	$	5,429		$	11,899		$	22,689

The notes appear on the next page.

F-42

Summary of Business by Geographical Area

	Year Ended December 31,
(In thousands)	2002		2001		2000
Consolidated net revenues to unaffiliated customers(10):
United States	$	322,811	$	391,296	$	344,150
Western Europe	2,819		4,056		3,229
Consolidated totals	$	325,630	$	395,352	$	347,379
Consolidated long-lived assets(11):
United States	$	48,000	$	56,218	$	54,566
Western Europe	2,164		2,564		2,758
Mexico	1,719		2,291		2,167
Consolidated totals	$	51,883	$	61,073	$	59,491

Notes

(1)Inter-group sales are accounted for at prices comparable to sales to unaffiliated customers, and are eliminated in consolidation.

(2)Three customers each accounted for more than 10% of the Company’s consolidated revenues during the three years ended December 31, 2002 as shown in the table below.  Complete loss of any of these customers could have a significant adverse impact on the results of operations expected in future periods.

	Year Ended December 31,
(In thousands)	2002		2001		2000
Textron(a)	$	56,563	$	58,192	$	52,620
Boeing(b)	50,065		70,257		52,735
Bombardier(b)	46,130		61,541		64,131
Consolidated totals	$	152,758	$	189,990	$	169,486

(a)All operating groups derived revenues from Textron during each of the periods except for the Systems Integration Group during 2000.

(b)All operating groups derived revenues from Boeing and Bombardier during each of the periods.

(3)Reflects the Company’s corporate headquarters costs and expenses not allocated to the groups.

(4)Reflects elimination of the effect of inter-group profits in inventory.

F-43

(5)The table below reconciles EBITDA to consolidated income from operations and income (loss) before income taxes.

	Year Ended December 31,
(In thousands)	2002			2001			2000
Consolidated EBITDA	$	70,018		$	88,791		$	80,992
Depreciation and amortization(6)	(17,119		)	(32,376		)	(27,187		)
Restructuring, asset impairment and other related charges	(25,243		)	(28,658		)	—
Acquisition related charges not capitalized	(1,162		)	(308		)	(1,255		)
Other noncash charges	(138		)	(215		)	(561		)
Consolidated income from operations	26,356			27,234			51,989
Interest expense	(33,894		)	(39,001		)	(41,623		)
Other expenses, net	(944		)	(1,047		)	(482		)
Consolidated income (loss) before income taxes	$	(8,482	)	$	(12,814	)	$	9,884

(6)Reflects depreciation and amortization of long-lived assets, goodwill (for periods prior to the January 1, 2002 adoption of SFAS No. 142) and other intangible assets.  Excludes amortization of deferred financing costs, which are classified as a component of interest expense.  The table below reconciles depreciation and amortization of long-lived assets to consolidated depreciation and amortization.

	Year Ended December 31,
(In thousands)	2002		2001		2000
Depreciation and amortization of long-lived assets	$	17,119	$	32,376	$	27,187
Amortization of deferred financing costs	2,692		2,218		2,258
Consolidated depreciation and amortization	$	19,811	$	34,594	$	29,445

(7)Reflects the Company’s corporate headquarters assets, excluding investments in and notes receivable from subsidiaries.

(8)Reflects elimination of inter-group receivables and profits in inventory as of period end.

(9)Reflects capital expenditures paid in cash.  Excludes capital expenditures financed with capital lease obligations of $264,000 for the year ended December 31, 2002, $4,438,000 for the year ended December 31, 2001 and $109,000 for the year ended December 31, 2000.

(10)Allocated on the basis of the location of the subsidiary originating the sale.

(11)Allocated on the basis of the location of the subsidiary and consists of the Company’s property and equipment.  Corporate long-lived assets are included with the United States assets.

F-44

Note 17.  Supplemental Condensed Consolidating Financial Information

In conjunction with the senior credit facility and 12% senior subordinated notes described in Note 9, the following condensed consolidating financial information is presented segregating the Company, as the issuer, and guarantor and non-guarantor subsidiaries.  The accompanying financial information in the guarantor subsidiaries column reflects the financial position, results of operations and cash flows for those subsidiaries guaranteeing the senior credit facility and the notes.

The guarantor subsidiaries are wholly-owned subsidiaries of the Company and their guarantees are full and unconditional on a joint and several basis.  There are no restrictions on the ability of the guarantor subsidiaries to transfer funds to the issuer in the form of cash dividends, loans or advances.  Separate financial statements of the guarantor subsidiaries are not presented because management believes that such financial statements would not be material to investors.  Investments in subsidiaries in the following condensed consolidating financial information are accounted for under the equity method of accounting.  Consolidating adjustments include the following:

(1)Elimination of investments in subsidiaries.

(2)Elimination of intercompany accounts.

(3)Elimination of intercompany sales between guarantor and non-guarantor subsidiaries.

(4)Elimination of equity in earnings of subsidiaries.

F-45

Balance Sheets

	December 31, 2002
(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Assets
Current assets:
Cash and cash equivalents	$	12,343		$	146		$	123		$	—		$	12,612
Accounts receivable, net	—			37,822			1,160			—			38,982
Inventories	—			79,360			1,442			—			80,802
Other current assets	23,912			1,244			291			—			25,447
Total current assets	36,255			118,572			3,016			—			157,843
Property and equipment, net	2,485			47,232			2,166			—			51,883
Other assets, principally intangibles, net	11,708			327,518			15			—			339,241
Investments in subsidiaries	351,502			10,963			—			(362,465		)(1)	—
Intercompany receivables	273,178			172,389			5,740			(451,307		)(2)	—
Total assets	$	675,128		$	676,674		$	10,937		$	(813,772	)	$	548,967
Liabilities, Mandatorily Redeemable Preferred Stock and Stockholder’s Equity
Current liabilities:
Current portion of long-term debt	$	15,337		$	1,516		$	6		$	—		$	16,859
Other current liabilities	16,786			34,284			1,225			—			52,295
Total current liabilities	32,123			35,800			1,231			—			69,154
Long-term debt, less current portion	355,568			9,280			—			—			364,848
Intercompany payables	172,389			278,918			—			(451,307		)(2)	—
Other long-term liabilities	45,655			1,535			56			—			47,246
Mandatorily redeemable preferred stock	34,081			—			—			—			34,081
Stockholder’s equity:
Paid-in capital	118,621			337,592			15,440			(353,032		)(1)	118,621
Retained earnings (deficit)	(83,309		)	13,910			(4,477		)	(9,433		)(1)	(83,309		)
Accumulated other comprehensive loss	—			(361		)	(1,313		)	—			(1,674		)
Total stockholder’s equity	35,312			351,141			9,650			(362,465		)	33,638
Total liabilities, mandatorily redeemable preferred stock and stockholder’s equity	$	675,128		$	676,674		$	10,937		$	(813,772	)	$	548,967

F-46

	December 31, 2001
(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Assets
Current assets:
Cash and cash equivalents	$	9,641		$	(92	)	$	245		$	—		$	9,794
Accounts receivable, net	—			56,973			1,478			—			58,451
Inventories	—			84,864			1,634			—			86,498
Other current assets	15,153			1,138			331			—			16,622
Total current assets	24,794			142,883			3,688			—			171,365
Property and equipment, net	3,355			55,152			2,566			—			61,073
Other assets, principally intangibles, net	15,348			388,269			9,656			—			413,273
Investments in subsidiaries	403,786			20,697			—			(424,483		)(1)	—
Intercompany receivables	256,360			121,030			4,300			(381,690		)(2)	—
Total assets	$	703,643		$	728,031		$	20,210		$	(806,173	)	$	645,711
Liabilities, Mandatorily Redeemable Preferred Stock and Stockholder’s Equity
Current liabilities:
Current portion of long-term debt	$	11,839		$	2,054		$	6		$	—		$	13,899
Other current liabilities	24,849			49,854			1,107			—			75,810
Total current liabilities	36,688			51,908			1,113			—			89,709
Long-term debt, less current portion	376,392			9,959			—			—			386,351
Intercompany payables	120,998			260,660			32			(381,690		)(2)	—
Other long-term liabilities	38,847			1,806			382			—			41,035
Mandatorily redeemable preferred stock	28,240			—			—			—			28,240
Stockholder’s equity:
Paid-in capital	119,801			336,986			15,440			(352,426		)(1)	119,801
Retained earnings (deficit)	(17,323		)	66,800			5,257			(72,057		)(1)	(17,323		)
Accumulated other comprehensive loss	—			(88		)	(2,014		)	—			(2,102		)
Total stockholder’s equity	102,478			403,698			18,683			(424,483		)	100,376
Total liabilities, mandatorily redeemable preferred stock and stockholder’s equity	$	703,643		$	728,031		$	20,210		$	(806,173	)	$	645,711

F-47

Statements of Operations

	Year Ended December 31, 2002
(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	—		$	321,634		$	9,325		$	(5,329	)(3)	$	325,630
Cost of sales	—			231,284			7,995			(5,329		)(3)	233,950
Gross profit	—			90,350			1,330			—			91,680
Selling, general and administrative expenses	8,334			42,265			1,285			—			51,884
Impairment of goodwill	—			7,672			—			—			7,672
Amortization of intangible assets	—			5,767			1			—			5,768
Interest expense	28,303			5,585			6			—			33,894
Intercompany charges	(24,309		)	24,309			—			—			—
Equity in earnings of subsidiaries	52,890			9,535			—			(62,425		)(4)	—
Other expenses (income), net	495			209			240			—			944
Provision for income taxes (benefit)	(1,211		)	1,785			(220		)	—			354
Cumulative effect of change in accounting principle	1,484			46,113			9,553			—			57,150
Net loss	$	(65,986	)	$	(52,890	)	$	(9,535	)	$	62,425		$	(65,986	)

	Year Ended December 31, 2001
(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	—		$	391,677		$	11,322		$	(7,647	)(3)	$	395,352
Cost of sales	—			277,414			9,914			(7,647		)(3)	279,681
Gross profit	—			114,263			1,408			—			115,671
Selling, general and administrative expenses	9,390			49,764			780			—			59,934
Impairment of goodwill	—			8,583			—			—			8,583
Amortization of intangible assets	202			19,313			405			—			19,920
Interest expense	37,796			1,187			18			—			39,001
Intercompany charges	(23,815		)	23,815			—			—			—
Equity in earnings of subsidiaries	(4,894		)	(115		)	—			5,009		(4)	—
Other expenses (income), net	361			508			178			—			1,047
Provision for income taxes (benefit)	(5,038		)	6,314			(88		)	—			1,188
Net income (loss)	$	(14,002	)	$	4,894		$	115		$	(5,009	)	$	(14,002	)

F-48

	Year Ended December 31, 2000
(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Revenues	$	—		$	343,710		$	11,873		$	(8,204	)(3)	$	347,379
Cost of sales	—			230,864			9,388			(8,204		)(3)	232,048
Gross profit	—			112,846			2,485			—			115,331
Selling, general and administrative expenses	8,720			35,359			1,315			—			45,394
Amortization of intangible assets	276			17,263			409			—			17,948
Interest expense	40,864			752			7			—			41,623
Intercompany charges	(20,214		)	20,214			—			—			—
Equity in earnings of subsidiaries	(15,668		)	(681		)	—			16,349		(4)	—
Other expenses (income), net	336			158			(12		)	—			482
Provision for income taxes (benefit)	(17,916		)	24,113			85			—			6,282
Net income	$	3,602		$	15,668		$	681		$	(16,349	)	$	3,602

F-49

Statements of Cash Flows

	Year Ended December 31, 2002
(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Cash flows from operating activities:
Net loss	$	(65,986	)	$	(52,890	)	$	(9,535	)	$	62,425	(4)	$	(65,986	)
Noncash adjustments:
Equity in earnings of subsidiaries	52,890			9,535			—			(62,425		)(4)	—
Other noncash adjustments	5,542			81,077			10,204			—			96,823
Changes in working capital	31,114			(30,912		)	(721		)	—			(519		)
Net cash provided by (used for) operating activities	23,560			6,810			(52		)	—			30,318
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired	(5,890		)	—			—			—			(5,890		)
Capital expenditures	(49		)	(5,263		)	(117		)	—			(5,429		)
Net cash used for investing activities	(5,939		)	(5,263		)	(117		)	—			(11,319		)
Cash flows from financing activities:
Net senior credit facility borrowings	(6,000		)	—			—			—			(6,000		)
Capital contribution, net	4,632			—			—			—			4,632
Other long-term borrowings	—			1,145			—			—			1,145
Principal payments on long-term debt, capitalized leases and other debt	(11,895		)	(2,255		)	—			—			(14,150		)
Deferred financing costs	(1,656		)	—			—			—			(1,656		)
Other, net	—			(199		)	—			—			(199		)
Net cash used for financing activities	(14,919		)	(1,309		)	—			—			(16,228		)
Effect of foreign currency translation on cash	—			—			47			—			47
Net increase (decrease) in cash and equivalents	2,702			238			(122		)	—			2,818
Cash and equivalents at beginning of period	9,641			(92		)	245			—			9,794
Cash and equivalents at end of period	$	12,343		$	146		$	123		$	—		$	12,612

F-50

	Year Ended December 31, 2001
(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Cash flows from operating activities:
Net income (loss)	$	(14,002	)	$	4,894		$	115		$	(5,009	)(4)	$	(14,002	)
Noncash adjustments
Equity in earnings of subsidiaries	(4,894		)	(115		)	—			5,009		(4)	—
Other noncash adjustments	3,950			52,467			887			—			57,304
Changes in working capital	19,987			(47,707		)	(653		)	—			(28,373		)
Net cash provided by operating activities	5,041			9,539			349			—			14,929
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired	(13,529		)	—			—			—			(13,529		)
Capital expenditures and other	(241		)	(10,470		)	(552		)	—			(11,263		)
Net cash used for investing activities	(13,770		)	(10,470		)	(552		)	—			(24,792		)
Cash flows from financing activities:
Debt financing for acquisitions	20,000			—			—			—			20,000
Net revolving line of credit repayments	(400		)	—			—			—			(400		)
Other borrowings	—			2,797			—			—			2,797
Principal payments on long-term debt and leases	(8,203		)	(1,847		)	(26		)	—			(10,076		)
Other, net	(580		)	(344		)	—			—			(924		)
Net cash provided by (used for) financing activities	10,817			606			(26		)	—			11,397
Effect of foreign currency translation on cash	—			—			61			—			61
Net increase (decrease) in cash and equivalents	2,088			(325		)	(168		)	—			1,595
Cash and equivalents at beginning of period	7,553			233			413			—			8,199
Cash and equivalents at end of period	$	9,641		$	(92	)	$	245		$	—		$	9,794

F-51

	Year Ended December 31, 2000
(In thousands)	Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
Cash flows from operating activities:
Net income	$	3,602		$	15,668		$	681		$	(16,349	)(4)	$	3,602
Noncash adjustments:
Equity in earnings of subsidiaries	(15,668		)	(681		)	—			16,349		(4)	—
Other noncash adjustments	9,092			25,293			954			—			35,339
Changes in working capital	1,283			(22,458		)	(983		)	—			(22,158		)
Net cash provided by (used for) operating activities	(1,691		)	17,822			652			—			16,783
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired	(89,838		)	292			—			—			(89,546		)
Capital expenditures and other	(3,614		)	(18,370		)	(634		)	—			(22,618		)
Net cash used for investing activities	(93,452		)	(18,078		)	(634		)	—			(112,164		)
Cash flows from financing activities:
Debt financing for acquisitions	55,000			—			—			—			55,000
Proceeds from sale of preferred stock and warrants	24,924			—			—			—			24,924
Net revolving line of credit borrowings	12,400			—			—			—			12,400
Capital contribution	7,902			—			—			—			7,902
Other borrowings	—			3,451			—			—			3,451
Principal payments on long-term debt and leases	(3,419		)	(2,392		)	(13		)	—			(5,824		)
Other, net	(1,950		)	(247		)	—			—			(2,197		)
Net cash provided by (used for) financing activities	94,857			812			(13		)	—			95,656
Effect of foreign currency translation on cash	—			—			6			—			6
Net increase (decrease) in cash and equivalents	(286		)	556			11			—			281
Cash and equivalents at beginning of period	7,839			(323		)	402			—			7,918
Cash and equivalents at end of period	$	7,553		$	233		$	413		$	—		$	8,199

F-52

Note 18.  Subsequent Events

On March 14, 2003 the Company entered into a definitive agreement to sell its Specialty Avionics Group to Odyssey Investment Partners, LLC for $140,000,000 in cash.  The estimated net proceeds of $132,000,000 from the sale will be used to repay borrowings under the Company’s senior credit facility.  The sale is expected to be consummated prior to June 30, 2003 and is subject to customary closing conditions, including financing and the receipt of regulatory and other third-party approvals.

On March 28, 2003 the Company received requisite lender approval to amend its senior credit facility to permit the above described sale of its Specialty Avionics Group.  The amendment also revises various financial covenants (which the Company would otherwise have not been able to meet as of March 31, 2003), decreases by $10,000,000 the maximum permitted revolving line of credit borrowings to $40,000,000, increases the prime rate and LIBOR interest margins by 1.5% and permits the issuance of additional indebtedness and the repurchase of a portion of the Company’s 12% senior subordinated notes.

The amendment also provides that an event of default will occur if the sale is not consummated by or is terminated for any reason prior to June 30, 2003.  If an event of default occurs, the credit agreement provides that the lenders may, at that date, cease to provide additional revolving credit facility borrowings and may accelerate repayment of all borrowings then outstanding.  If the lenders took such action, that would be an event of default under the Company’s other debt agreements, permitting those lenders to accelerate repayment of all such debt, as well.

F-53

Consolidated Supplementary Financial Information

Selected Quarterly Financial Data (Unaudited)

Unaudited condensed quarterly data for the two years ended December 31, 2002 are summarized in the tables below.

	Year Ended December 31, 2002
(In thousands)	1st			2nd			3rd		4th
Revenues	$	86,163		$	86,332		$	79,621	$	73,514
Gross profit	25,715			21,838			25,583		18,544
EBITDA, as defined (Note 16)	17,321			18,089			18,849		15,759
Income (loss) before cumulative effect of change in accounting principle	398			(1,932		)	2,530		(9,832		)
Cumulative effect of change in accounting principle	(57,150		)	—			—		—
Net income (loss)	(56,752		)	(1,932		)	2,530		(9,832		)

During 2002, the Company recorded restructuring, asset impairment and other related charges pertaining to a further restructuring pursuant to a plan commenced in 2001 and a 2002 seat manufacturing facilities restructuring in response to the ongoing weakness of the corporate, VIP and head-of-state aircraft market.  The charges totaled $25,243,000 for the year, of which $19,444,000 were noncash charges, and were charged to operations during the year as follows: 1^st Quarter – $4,043,000; 2^nd Quarter – $7,666,000; 3^rd Quarter – $1,486,000; and 4^th Quarter – $12,048,000.  In accordance with the transitional provisions of SFAS No. 142, the Company also recorded a $57,150,000 noncash write-down of goodwill as of January 1, 2002 as a cumulative effect of a change in accounting principle.

	Year Ended December 31, 2001
(In thousands)	1st		2nd		3rd		4th
Revenues	$	99,151	$	102,780	$	102,928	$	90,493
Gross profit	35,045		32,576		32,776		15,274
EBITDA, as defined (Note 16)	23,385		26,308		21,998		17,100
Net income (loss)	2,472		2,111		862		(19,447		)

During the second quarter of 2001, the Company adopted a restructuring plan to realign production programs between its manufacturing facilities and recorded restructuring charges aggregating $3,902,000 related to this restructuring.  During the fourth quarter of 2001, the Company announced and implemented a further restructuring plan in response to the adverse impact on the aerospace industry resulting from the September 11^th terrorist attack and further weakening of global economic conditions.  As a result, additional restructuring and asset impairment charges aggregating $24,756,000 were recorded in the fourth quarter.  Restructuring and asset impairment charges totaled $28,658,000 for the year, of which $22,058,000 were noncash charges.

F-54

Consolidated Financial Statement Schedules

Schedule II – Valuation and Qualifying Accounts

(In thousands)	Balance at Beginning of Period		Charged to Cost and Expense		Charged to Other Accounts			Deductions		Balance at End of Period
Year Ended December 31, 2002
Allowance for doubtful accounts	$	2,647	$	1,287	$	—		$	2,176	$	1,758
Reserve for excess, slow moving and potentially obsolete material(1)	7,436		3,704		—			5,396		5,744
Year Ended December 31, 2001
Allowance for doubtful accounts	$	1,902	$	2,418	$	—		$	1,673	$	2,647
Reserve for excess, slow moving and potentially obsolete material(2)	6,380		1,829		—			773		7,436
Year Ended December 31, 2000
Allowance for doubtful accounts	$	1,966	$	120	$	223	(3)	$	407	$	1,902
Reserve for excess, slow moving and potentially obsolete material(3)	7,766		1,261		215		(3)	2,862		6,380

(1)Excludes $7,241,000 of other asset impairment related charges resulting from the 2002 and 2001 restructuring plans.

(2)Excludes $12,155,000 of inventory and capitalized program cost write-offs resulting from the 2001 restructuring plan.

(3)Attributable to companies acquired. Reflects historical amounts used to determine the fair value of assets acquired.

F-55

EX-2.1

Exhibit 2.1

STOCK PURCHASE AGREEMENT

dated as of

March 14, 2003

among

WINGS HOLDINGS, INC.

and

DECRANE AIRCRAFT HOLDINGS, INC.

and

DECRANE HOLDINGS CO.

relating to the purchase and sale

of

100% of the Common Stock

of

AVTECH CORPORATION

and

TRI-STAR ELECTRONICS INTERNATIONAL, INC.

and

100% of the Membership Interests

of

AEROSPACE DISPLAY SYSTEMS, LLC

TABLE OF CONTENTS

ARTICLE 1
DEFINITIONS
Section 1.01.	Definitions
ARTICLE 2
PURCHASE AND SALE
Section 2.01.	Purchase and Sale
Section 2.02.	Purchase Price Allocation
Section 2.03.	Closing
Section 2.04.	Closing Working Capital
Section 2.05.	Adjustment of Purchase Price
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.01.	Existence and Power
Section 3.02.	Corporate Authorization
Section 3.03.	Governmental Authorization
Section 3.04.	Noncontravention
Section 3.05.	Capitalization
Section 3.06.	Ownership of Shares
Section 3.07.	Subsidiaries
Section 3.08.	Financial Statements
Section 3.09.	Absence of Certain Changes
Section 3.10.	No Undisclosed Material Liabilities
Section 3.11.	Intercompany Accounts
Section 3.12.	Material Contracts
Section 3.13.	Litigation
Section 3.14.	Compliance with Laws and Court Orders
Section 3.15.	Properties
Section 3.16.	Intellectual Property
Section 3.17.	Insurance Coverage
Section 3.18.	Finders’ Fees
Section 3.19	Employees
Section 3.20.	Employee Benefit Plans
Section 3.21.	Environmental Matters
Section 3.22.	Taxes
Section 3.23.	Arrangements With Buyer
Section 3.24.	Permits

Section 3.25.	Accounts Receivable
Section 3.26.	Inventory
Section 3.27.	WARN Act
Section 3.28.	Product Liability
Section 3.29.	No Other Representations
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.01.	Corporate Existence and Power
Section 4.02.	Corporate Authorization
Section 4.03.	Governmental Authorization
Section 4.04.	Noncontravention
Section 4.05.	Financing
Section 4.06.	Purchase for Investment
Section 4.07.	Litigation
Section 4.08.	Finders’ Fees
Section 4.09.	Inspections; No Other Representations
ARTICLE 5
COVENANTS OF SELLER
Section 5.01.	Conduct of the Companies and the Subsidiaries
Section 5.02.	Access to Information
Section 5.03.	Notices of Certain Events
Section 5.04.	Resignations
Section 5.05.	Taxes
Section 5.06.	Intercompany Accounts
Section 5.07.	No-Shop
Section 5.08.	Confidentiality
ARTICLE 6
COVENANTS OF BUYER
Section 6.01.	Confidentiality
Section 6.02.	Access
Section 6.03.	Trademarks; Tradenames
Section 6.04.	Taxes
Section 6.05.	Notices of Certain Events
ARTICLE 7
COVENANTS OF BUYER AND SELLER
Section 7.01.	Further Assurances

ii

Section 7.02.	Certain Filings
Section 7.03.	Public Announcements
Section 7.04.	Non Solicitation/Noncompetition
Section 7.05.	Insurance
ARTICLE 8
TAX MATTERS
Section 8.01.	Filing of Returns
Section 8.02.	Refunds
Section 8.03.	Transfer Taxes
Section 8.04.	Tax Sharing
Section 8.05.	Cooperation on Tax Matters
Section 8.06.	Indemnification by Seller
Section 8.07.	Indemnification by Buyer
Section 8.08.	Closing of Tax Periods
Section 8.09.	Reattribution Of Net Operating Losses
Section 8.10.	Purchase Price Adjustment
ARTICLE 9
EMPLOYEE BENEFITS
Section 9.01.	Maintenance of Employee Benefits
Section 9.02.	Employee Agreements; Change Of Control Agreements and Severance Agreements
Section 9.03.	401(k) Plan Covenants
ARTICLE 10
CONDITIONS TO CLOSING
Section 10.01.	Conditions to Obligations of Buyer and Seller
Section 10.02.	Conditions to Obligation of Buyer
Section 10.03.	Conditions to Obligation of Seller
ARTICLE 11
SURVIVAL; INDEMNIFICATION
Section 11.01.	Survival
Section 11.02.	Indemnification
Section 11.03.	Procedures
Section 11.04.	Calculation of Damages
Section 11.05.	Environmental Matters
Section 11.06.	Assignment of Claims
Section 11.07.	Exclusivity

iii

ARTICLE 12
TERMINATION
Section 12.01.	Grounds for Termination
Section 12.02.	Effect of Termination
ARTICLE 13
MISCELLANEOUS
Section 13.01.	Notices
Section 13.02.	Amendments and Waivers
Section 13.03.	Expenses
Section 13.04.	Successors and Assigns
Section 13.05.	Governing Law
Section 13.06.	WAIVER OF JURY TRIAL
Section 13.07.	Disputes Arising On or Prior to the Closing Date
Section 13.08.	Disputes Arising After the Closing Date
Section 13.09.	Counterparts; Third Party Beneficiaries
Section 13.10.	Entire Agreement
Section 13.11.	Captions
Section 13.12.	Interpretation

SCHEDULES

Schedule 1.01	Liens on Shares / Definitions
Schedule 2.02	Purchase Price Allocation
Schedule 3.03	Governmental Consents
Schedule 3.04	Noncontravention
Schedule 3.05	Capitalization
Schedule 3.07	Subsidiaries
Schedule 3.08	Financial Statements
Schedule 3.09	Absence of Certain Changes
Schedule 3.10	Certain Liabilities
Schedule 3.11	Intercompany Accounts
Schedule  3.12	Certain Contracts

iv

Schedule 3.13	Litigation
Schedule 3.15	Properties
Schedule 3.16	Intellectual Property
Schedule 3.17	Insurance
Schedule 3.19	Employees
Schedule 3.20(a)	List of Employee Plans
Schedule 3.20(f)	Employee Benefit Plans–Increases or Changes to Benefits and/or Acceleration of Payment or Vesting under any Benefit Plans and Arrangements as a Result of the Transaction
Schedule 3.21	Environmental Matters
Schedule 3.22(c)	Taxes–Tax Jurisdictions
Schedule 3.22(f)	Taxes–Entity Status
Schedule 3.22(k)	Tax Sharing Agreements
Schedule 4.05	Financing Commitment Letters
Schedule 6.03	Trademarks and Tradenames
Schedule 9.02	Employee Agreements and Change of Control
Schedule 10.02(d)	Liens
Schedule 10.02(g)	Third Party Consents

EXHIBIT A Opinion of Seller’s Counsel

v

STOCK PURCHASE AGREEMENT

AGREEMENT dated as of March 14, 2003 among Wings Holdings, Inc., a Delaware corporation (“Buyer”), DeCrane Aircraft Holdings, Inc., a Delaware corporation (“Seller”), and DeCrane Holdings Co., a Delaware corporation (“Parent”).

W I T N E S S E T H :

WHEREAS, Seller is the record and beneficial owner of all of the outstanding (i) shares of common stock, no par value (the “Avtech Shares”) of Avtech Corporation, a Washington corporation (“Avtech”), (ii) shares of common stock, no par value (the “Tri-Star Shares”), of Tri-Star Electronics International, Inc., a California corporation (“Tri-Star”), and (iii) membership interests (the “ADS Shares” and, collectively with the Avtech Shares and the Tri-Star Shares, the “Shares”), of Aerospace Display Systems, LLC, a Delaware limited liability company (“ADS” and, each of Avtech, Tri-Star and ADS, a “Company” and, collectively, the “Companies”).

WHEREAS, Seller desires to sell the Shares to Buyer, and Buyer desires to purchase the Shares from Seller, upon the terms and subject to the conditions hereinafter set forth;

The parties hereto agree as follows:

ARTICLE 1
DEFINITIONS

Section 1.01. Definitions. (a) The following terms, as used herein, have the following meanings:

“ADS Competitive Activities” has the meaning set forth in Item 3 on Schedule 1.01.

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person.  For purposes of this Agreement, each Company and each Subsidiary shall, (i) prior to the Closing, be treated as an Affiliate of Seller and Parent and not be treated as an Affiliate of Buyer, and (ii) from and after the Closing (and solely after the Closing Date for purposes of Sections 2.01, 2.03(b) and 3.07(b)), (x) be treated as an Affiliate of Buyer (for so long as Buyer directly or indirectly controls, is controlled by or is under common control with such Company or Subsidiary) and (y) not be treated as an Affiliate of Seller or Parent.

1

“Antitrust Law” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other applicable, federal, state and foreign, statutes, rules, regulations, orders, decrees, administrative and judicial doctrines and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of competition through merger or acquisition.

“Avtech Competitive Activities” has the meaning set forth in Item 3 on Schedule 1.01.

“Balance Sheet” means the audited special purpose combined balance sheet of the Companies and the Subsidiaries as of December 31, 2002.

“Balance Sheet Date” means December 31, 2002.

“Business Day” means any day on which commercial banks are open for business in New York City.

“Capital Stock” means (i) in the case of a corporation, its corporate stock, (ii) in the case of a partnership or limited liability company, its partnership or membership interests or units (whether general or limited), and (iii) any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distribution of assets of, the issuing entity.

“Change of Control” means, with respect to Parent or Seller, a transaction in which such Person consolidates with, or merges with or into, another Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into Parent or Seller, where, in each case, immediately after such transaction, DLJ Merchant Banking Partners II, L.P. and its Affiliates own, directly or indirectly, less than 50% of the total Voting Securities of the surviving or transferee corporation, as applicable.

“Closing Date” means the date of the Closing.

“Code” means the Internal Revenue Code of 1986, as amended.

“Coltech Obligations” means Avtech’s obligations to pay deferred purchase price consideration to the sellers of Coltech, Inc. pursuant to that certain Stock Purchase and Sale Agreement dated August 18, 2000 by and among the shareholders of Coltech, Inc. listed therein, Coltech, Inc., Seller and Avtech.

“Combined Income Tax” means any income Tax payable to any state, local or foreign taxing jurisdiction in which any Company or any Subsidiary has filed or will file a Return with a member of the Seller Group on an affiliated, consolidated, combined or unitary basis with respect to such Tax.

2

“Employees” means all current and former employees of the Companies and the Subsidiaries, including any such employees on approved leaves of absence (whether family leave, maternity or parental leave, workers’ compensation, short-term disability, long-term disability (but only to the extent that any such employee returns to active employment with any of the Companies or any Subsidiary), medical leave or military leave) and the term “Employee” means any of the Employees.

“Environmental Claims” means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter or other written communication from any third party, including, any Governmental Authority, alleging any actual or alleged violations of, or actual or potential liability under, any Environmental Laws.

“Environmental Costs and Liabilities” means any and all claims (including Environmental Claims), actions, suits, proceedings, liabilities (whether absolute or contingent), obligations, losses, damages, judgment, awards, settlement amounts, demands, counterclaims, clean-up obligations, costs and expenses (including the reasonable fees of attorneys, consultants, engineers and other experts), in each case, arising under or pursuant to any Environmental Law.

“Environmental Laws” means all foreign, federal, regional, state, or local Laws and Permits relating to, or imposing liability or establishing standards of conduct for, pollution or protection of the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, and the regulations promulgated pursuant thereto and all analogous state or local statutes.

“Equity Securities” means (i) shares of Capital Stock or other equity securities, (ii) subscriptions, calls, warrants, options or commitments of any kind or character relating to, or entitling any person or entity to purchase or otherwise acquire, any Capital Stock or other equity securities and (iii) securities convertible into or exercisable or exchangeable for shares of Capital Stock or other equity securities.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder.

“ERISA Affiliate” of any Person means any other Person that, together with such Person, would be treated as a single employer under Section 414 of the Code.

“Federal Income Tax” means any Tax with respect to which any Company or any Subsidiary has filed or will file a Return with a member of the Seller Group on a consolidated basis pursuant to Section 1501 of the Code.

3

“GAAP” means generally accepted accounting principles in the United States of America.

“Governmental Authority” means any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to United States federal, state or local government, including any governmental authority, agency, department, board, commission or instrumentality of the United States, any state of the United States or any political subdivision thereof, and any tribunal, court or arbitrator(s) of competent jurisdiction.

“Harness Permitted Activities” has the meaning set forth in Item 3 on Schedule 1.01.

“Hazardous Materials” means (a) any element, compound, or chemical that is defined, listed or otherwise classified as a contaminant, pollutant, waste, toxic pollutant, toxic or hazardous substance, extremely hazardous substance or chemical, hazardous waste, medical waste, biohazardous or infectious waste or special waste under Environmental Laws; (b) petroleum, petroleum-based or petroleum-derived products; (c) polychlorinated biphenyls and (d) any asbestos containing materials.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Indebtedness” means any of the following: (a) any indebtedness for borrowed money; (b) any obligations evidenced by bonds, debentures, notes or other similar instruments; (c) any obligations to pay the deferred purchase price of property or services, except trade accounts payable and other current liabilities arising in the Ordinary Course of Business; (d) any obligations as lessee under capitalized leases; (e) any indebtedness created or arising under any conditional sale or other title retention agreement with respect to acquired property; (f) any obligations, contingent or otherwise, under bankers acceptance, letters of credit or similar facilities; and (g) any guaranty of any of the foregoing.

“Intellectual Property Right” means any (i) patents, patent applications, and patentable inventions, (ii) trademarks, service marks, brand marks, trade names, brand names, logos, and corporate names, and registrations and applications for registration thereof and such unregistered rights, (iii) copyrights, (iv) domain names, (v) computer software, source code and object code and (vi) trade secrets.

“Knowledge of Seller”, “Seller’s Knowledge” or any other similar knowledge qualification relating to Seller in this Agreement means to the actual knowledge of the persons listed in Item 2 of Schedule 1.01.

“Laws” means (a) all laws, statutes, ordinances, regulations, decrees, rules and orders of every federal, state, local or foreign government and every federal,

4

state, local or foreign court or other Governmental Authority and (b) any judgment, decision, decree or order of any Governmental Authority.

“Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest or other encumbrance in respect of such property or asset.

“Majority-Owned Subsidiary” means, with respect to any Person, any other Person of which a majority of the outstanding Voting Securities are directly or indirectly owned by such Person.

“Material Adverse Effect” means a material adverse effect on, or material adverse change with respect to, the business, assets, financial condition or results of operations of the Companies and the Subsidiaries, taken as whole, except any such effect or change (i) resulting from or arising in connection with (A) changes or conditions affecting the commercial aerospace industry generally, (B) changes in economic or political conditions generally or (C) any act(s) of war (whether or not declared) or terrorism, or (ii) attributable to the fact that the prospective owner of the Companies and Subsidiaries hereunder is an Affiliate of Odyssey Investment Partners, LLC.

“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Ordinary Course of Business” means the ordinary course of business of the Companies and the Subsidiaries, consistent with past practices.

“Organizational Documents” means the articles of incorporation, by-laws, articles of organization, limited liability company agreement, partnership agreement, formation agreement, joint venture agreement or other similar organizational documents (in each case, as amended).

“Permitted Liens” means, collectively, Liens of the type described in any of paragraphs (a)-(d) of this definition:

(a)           Liens disclosed in Item 1 of Schedule 1.01 or on Schedule 3.15;

(b)           Liens for Taxes that are not yet due;

(c)           mechanic’s, materialman’s, carrier’s, repairer’s and other similar Liens imposed by Law arising or incurred in the Ordinary Course of Business with respect to amounts that are not yet due; or

(d)           other Liens arising in the Ordinary Course of Business, securing liabilities (other than Indebtedness), which do not materially detract from the value of the encumbered property or asset.

5

“Person” means an individual, corporation, partnership, limited partnership, limited liability company, association, trust, joint venture or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Post-Closing Tax Period” means any Tax period beginning after the Closing Date; and, with respect to a Tax period that begins on or before the Closing Date and ends thereafter, the portion of such Tax period beginning on the day after the Closing Date.

“Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date; and, with respect to a Tax period that begins on or before the Closing Date and ends thereafter, the portion of such Tax period ending on the Closing Date.

“Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing of Hazardous Materials into the environment.

“Remedial Action” means (a) all actions required under Environmental Law to be taken to clean up, remove, remediate, contain, treat, monitor (including any post-remedial operation and maintenance activities) assess, evaluate or in any other way address Hazardous Materials in the environment or (b) any other actions required by 42 U.S.C. 9601.

“Seller Group” means, with respect to Federal Income Taxes, the affiliated group of corporations (as defined in Section 1504(a) of the Code) of which Seller is a member, and with respect to Taxes other than Federal Income Taxes, any affiliated, consolidated, combined or unitary group of which Seller or any of its Affiliates is a member.

“Separate Income Tax” means, any income Tax other than a Federal Income Tax or a Combined Income Tax.

“Subsidiary” means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by any of the Companies.

“Systems Permitted Activities” has the meaning set forth in Item 3 on Schedule 1.01.

“Tax” means (i) any tax, governmental fee or other like assessment or charge of any kind whatsoever (including, but not limited to, withholding on amounts paid to or by any Person), together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (a “Taxing Authority”) responsible for the imposition of any such tax (domestic or foreign),

6

and any liability for any of the foregoing as transferee, and (ii) in the case of any Company or any Subsidiary, liability for the payment of any amount of the type described in clause (i) as a result of being or having been before the Closing Date a member of an affiliated, consolidated, combined or unitary group with any other corporation at any time on or prior to the Closing Date.

“Tax Asset” means any net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or any other credit or tax attribute that could be carried forward or back to reduce Taxes (including without limitation deductions and credits related to alternative minimum Taxes).

“Tri-Star Competitive Activities” has the meaning set forth in Item 3 on Schedule 1.01.

“Voting Securities” means, with respect to any Person, the Equity Securities of any class or kind ordinarily having the power to vote for the election of directors or other members of the governing body of such Person.

(b)      Each of the following terms is defined in the Section set forth opposite such term:

Term	Section
Accounting Referee	2.02	(a)
ADS	Recitals
ADS Allocation Statement	2.02	(a)
ADS Shares	Recitals
Avtech	Recitals
Avtech Shares	Recitals
Basket	11.02	(a)
Buyer	Preamble
Buyer Tax Loss	8.06	(a)
CERCLA	1.01	(a)
Cap	11.02	(a)
Claim	11.03	(a)
Closing	2.03
Closing Working Capital	2.04	(a)
Closing Working Capital Statement	2.04	(a)
Commitment Letters	4.05
Companies	Recitals
Company	Recitals
Company Intellectual Property Rights	3.16	(a)
Company Securities	3.05	(b)
Confidentiality Agreement	6.01	(a)
Damages	11.02	(a)
DeCrane Group	7.04	(b)
Direct Meeting	13.08	(h)
Dispute Notice	7.05	(b)

7

Term	Section
Employee Plans	3.20	(a)
401(k) Plan	9.03	(a)
Final Working Capital	2.05	(a)
Indemnified Party	11.03	(a)
Indemnifying Party	11.03	(a)
Indemnity Notice	11.03	(a)
International Plan	3.20	(h)
JAMS	13.08	(a)
JAMS Rules	13.08	(a)
Licenses and Permits	3.24	(a)
Parent	Preamble
Payment Request	7.05	(b)
Permits	3.21	(b)
PMA	3.24	(b)
Pre-Closing Releases	11.05	(a)
Potential Contributor	11.06
Prohibited Action	11.05	(c)
Properties	11.05	(a)
Proposed Acquisition Transaction	5.07
Purchase Price	2.01
Remedial Action Documents	11.05	(b)
Representatives	5.08
Returns	3.22	(a)
Seller	Preamble
Seller Credit Agreement	10.02	(d)
Seller Indenture	10.02	(d)
Seller Tax Loss	8.07	(a)
Shares	Recitals
Specified Layoff	3.27
Subject Patent	3.16	(e)
Subject Product	3.16	(e)
Subsidiary Securities	3.07	(b)
Successor 401(k) Plan	9.03	(b)
Termination Date	7.04	(b)
Third Party Claim	11.03	(b)
Tri-Star	Recitals
Tri-Star Shares	Recitals
Tri-Star Technologies	3.07	(b)
WARN	3.27
Warranty Breach	11.02	(a)

8

ARTICLE 2

PURCHASE AND SALE

Section 2.01.  Purchase and Sale.  Upon the terms and subject to the conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Shares (free and clear of all Liens, other than Liens created by Buyer or any of its Affiliates) at the Closing.  The purchase price for the Shares is $140,000,000 in cash (the “Purchase Price”).  The Purchase Price shall be paid as provided in Section 2.03 and shall be subject to adjustment as provided in Section 2.05.

Section 2.02.  Purchase Price Allocation.  (a)The Purchase Price shall be allocated in accordance with Schedule 2.02.  As soon as practicable after the Closing Date (but no later than 90 days after the Closing Date), Buyer shall deliver to Seller a statement allocating the portion of the Purchase Price (plus assumed liabilities, to the extent properly taken into account under Section 1060 of the Code) that is allocated to the ADS Shares pursuant to Schedule 2.02 among ADS’s assets in accordance with Section 1060 of the Code (the “ADS Allocation Statement”).  If, within 20 days after the delivery of the ADS Allocation Statement, Seller notifies Buyer in writing that Seller objects to the allocation set forth in the ADS Allocation Statement, Buyer and Seller shall use commercially reasonable efforts to resolve such dispute within 20 days.  If Buyer and Seller are unable to resolve such dispute within 20 days, Buyer and Seller shall jointly retain Ernst & Young LLP (or, if such firm shall decline or is unable to act, or has a material relationship with Buyer or Seller or their respective Affiliates or other material conflicts, another nationally recognized independent accounting firm mutually acceptable to Seller and Buyer) (the “Accounting Referee”) to resolve the disputed items.  Upon resolution of the disputed items, the allocation reflected on the ADS Allocation Statement shall be adjusted to reflect such resolution.  The costs, fees and expenses of the Accounting Referee shall be borne proportionately by Buyer and Seller based on the extent to which Buyer’s and Seller’s respective allocations differ from the allocation reflected on the final ADS Allocation Statement.

(b)           Seller and Buyer agree to (i) be bound by Schedule 2.02 and the ADS Allocation Statement and (ii) act in accordance with Schedule 2.02 and the ADS Allocation Statement in the preparation, filing and audit of any Tax return (including, without limitation, in filing Form 8594 with its Federal Income Tax return for the taxable year that includes the Closing Date).

(c)           If an adjustment is made to the Purchase Price pursuant to Section 2.05, Schedule 2.02 and the ADS Allocation Statement shall be adjusted in accordance with Section 1060 of the Code and as mutually agreed by Buyer and Seller.  In the event that an agreement regarding such adjustment is not reached within 30 days after the determination of Final Working Capital, any disputed items shall be resolved in the manner described in Section 2.02(a).  Buyer and

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Seller agree to file any additional information return required to be filed in order to treat Schedule 2.02 and the ADS Allocation Statement as so adjusted.

(d)           Not later than 20 days prior to the filing of their respective Forms 8594 relating to this transaction, each party shall deliver to the other party a copy of its Form 8594.

Section 2.03.  Closing.  The closing (the “Closing”) of the purchase and sale of the Shares hereunder shall take place at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York, as soon as possible, but in no event later than five business days after satisfaction (or waiver as provided herein) of the conditions set forth in Article 10 (other than those conditions that by their nature will be satisfied at the Closing), or at such other time or place as Buyer and Seller may agree. Buyer and Seller will use their respective commercially reasonable efforts to cause the Closing of the purchase and sale of the Shares hereunder to take place no later than March 31, 2003 and, if such Closing does not occur on or prior to such date, then as soon as practicable thereafter; provided that neither party shall be required as a result of the foregoing to waive any conditions to such party’s obligations to consummate the Closing. At the Closing:

(a)           Buyer shall deliver to Seller the Purchase Price in immediately available funds by wire transfer to an account of Seller with a bank designated by Seller, by notice to Buyer, which notice shall be delivered no later than three days prior to the Closing Date.

(b)           Seller shall deliver to Buyer (i) certificates for the Avtech Shares and Tri-Star Shares duly endorsed or accompanied by stock powers duly endorsed in blank, with any required transfer stamps affixed thereto, (ii) transfer and assignment instruments evidencing the transfer of the ADS Shares, and (iii) other documents and instruments necessary to vest in Buyer all of Seller’s right, title and interest in and to the Shares, free and clear of all Liens (other than Liens created by Buyer or any of its Affiliates).

(c)           Seller or Buyer, as applicable, shall deliver the certificates, instruments and other documents required to be delivered pursuant to Article 10 or otherwise reasonably necessary to evidence the satisfaction of the conditions set forth in Article 10.

Section 2.04.  Closing Working Capital.  (a)As promptly as practicable, but no later than 60 days after the Closing Date, Buyer will cause to be prepared and delivered to Seller an unaudited Closing Working Capital Statement (the “Closing Working Capital Statement”), setting forth Buyer’s calculation of Closing Working Capital (as defined below). The Closing Working Capital Statement shall (x) be prepared in accordance with GAAP applied on a basis substantially consistent with those used in the preparation of the Balance Sheet

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and fairly present in all material respects the combined current assets and current liabilities of the Companies and the Subsidiaries as at the close of business on the Business Day immediately preceding the Closing Date, (y) include line items for current assets and current liabilities substantially consistent with those in the Balance Sheet, and (z) be prepared in accordance with accounting policies and practices (including methods for determining reserves) substantially consistent with those used in the preparation of the Balance Sheet; provided, that GAAP shall apply to the extent any of the foregoing are not permitted by GAAP.  “Closing Working Capital” means the excess of the combined current assets over the combined current liabilities of the Companies and the Subsidiaries as shown on the Closing Working Capital Statement excluding (i) all cash and cash-equivalents, (ii) all Indebtedness, (iii) all receivables and payables between Parent, Seller or any of their respective Affiliates (other than any Company or any Subsidiary), on the one hand, and any Company or any Subsidiary, on the other hand, (iv) the Coltech Obligations, and (v) all fees and expenses incurred in connection with the transactions contemplated by this Agreement.

(b)           If Seller disagrees with Buyer’s calculation of Closing Working Capital delivered pursuant to Section 2.04(a), Seller may, within 10 days after receipt of the documents referred to in Section 2.04(a), deliver a written notice to Buyer disagreeing with such calculation and setting forth Seller’s calculation of Closing Working Capital.  Any such notice of disagreement shall specify those items or amounts as to which Seller disagrees, with a written explanation of the reasons for disagreement with each such item or amount, and Seller shall be deemed to have agreed with all other items and amounts contained in the Closing Working Capital Statement and the calculation of Closing Working Capital delivered pursuant to Section 2.04(a).  If Seller fails to deliver such a written notice within such 10 day period, Buyer’s calculation of Closing Working Capital shall be binding upon the parties.  Notwithstanding anything in this Section 2.04(a) to the contrary, (i) Seller shall not contest any item for which the amount in disagreement is less than $25,000 and shall not contest Buyer’s calculation of the Closing Working Capital if the difference between Seller’s calculation and Buyer’s calculation is less than $100,000 and (ii) Seller’s only basis for disagreement shall be (A) non-compliance with the standards set forth in Section 2.04(a) for the preparation of the Closing Working Capital Statement and (B) computation errors.

(c)           If a notice of disagreement shall be duly delivered pursuant to Section 2.04(b), Buyer and Seller shall, during the 30 days following such delivery, use their commercially reasonable efforts to reach agreement on the disputed items or amounts in order to determine, as may be required, the amount of Closing Working Capital, which amount shall not be more than the amount thereof shown in Seller’s calculations delivered pursuant to Section 2.04(b) nor less than the amount thereof shown in Buyer’s calculation delivered pursuant to Section 2.04(a).  If, during such period or any mutually agreed extension thereof, Buyer and Seller are unable to reach such agreement, they shall promptly

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thereafter cause the Accounting Referee promptly to review this Section 2.04 and the disputed items or amounts for the purpose of calculating Closing Working Capital.  In making such calculation, the Accounting Referee shall consider only those items or amounts in Buyer’s calculation of Closing Working Capital as to which Seller has disagreed.  The Accounting Referee shall deliver to Buyer and Seller, as promptly as practicable, a report setting forth such calculation.  Such report shall be final and binding upon Buyer and Seller.  The fees and expenses of the Accounting Referee shall be borne proportionately by Buyer and Seller based on the extent to which Buyer’s and Seller’s respective determinations differ from the Accounting Referee’s determination.

(d)           Buyer and Seller agree that they will, and agree to cause their respective independent accountants and the Companies and the Subsidiaries to, cooperate and assist in the preparation of the Closing Working Capital Statement and the calculation of Closing Working Capital and, including without limitation, the making available to the extent necessary books, records, work papers and personnel.

Section 2.05.  Adjustment of Purchase Price.  (a)If Final Working Capital is less than $27,750,000, Seller shall pay to Buyer, as an adjustment to the Purchase Price, in the manner and with interest as provided in Section 2.05(b), an amount of cash equal to the difference between $27,750,000 and Final Working Capital.  If Final Working Capital exceeds $29,000,000, Buyer shall pay to Seller, in the manner and with interest as provided in Section 2.05(b), an amount of cash equal to the difference between Final Working Capital and $29,000,000.  If Final Working Capital is equal to $27,750,000 or $29,000,000, or is greater than $27,750,000 but less than $29,000,000, no amount shall be payable by either Seller or Buyer under this Section 2.05.  “Final Working Capital” means the Closing Working Capital (i) as shown in Buyer’s calculation delivered pursuant to Section 2.04(a), if no notice of disagreement with respect thereto is duly delivered pursuant to Section 2.04(b); or (ii) if such a notice of disagreement is delivered, (A) as agreed by Buyer and Seller pursuant to Section 2.04(c) or (B) in the absence of such agreement, as shown in the Accounting Referee’s calculation delivered pursuant to Section 2.04(c); provided that in no event shall Final Working Capital be more than Seller’s calculation of Closing Working Capital delivered pursuant to Section 2.04(b) or less than Buyer’s calculation of Closing Working Capital delivered pursuant to Section 2.04(a).

(b)           Any payment pursuant to Section 2.05(a) shall be made at a mutually convenient time and place within three Business Days after the Final Working Capital has been determined by delivery by Buyer or Seller, as the case may be, of a wire transfer of immediately available funds to the account of the other party as may be designated by such other party at least one Business Day prior to such delivery.  The amount of any payment to be made pursuant to this Section 2.05 shall bear interest from and including the Closing Date to but excluding the date of payment at a rate per annum equal to the Prime Rate as published in the Wall Street Journal, Eastern Edition in effect from time to time

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during the period from the Closing Date to the date of payment.  Such interest shall be payable at the same time as the payment to which it relates and shall be calculated daily on the basis of a year of 365 days and the actual number of days elapsed, without compounding.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLER

Each of Seller and, with respect to Parent, Parent represents and warrants to Buyer as of the date hereof and as of the Closing Date that:

Section 3.01.  Existence and Power.  Each of Seller, Parent and each Company is duly formed, validly existing and in good standing under the laws of its jurisdiction of formation and has all powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted and to own, operate and lease its facilities and assets as presently owned, leased and operated, except for those licenses, authorizations, permits, consents and approvals the absence of which would not have a Material Adverse Effect and would not materially adversely affect the ability of Seller to consummate the transactions contemplated by this Agreement.  Each Company is duly qualified to do business as a foreign company in all jurisdictions where such qualification is required, except for such jurisdictions where the lack of such qualifications would not, individually or in the aggregate, have a Material Adverse Effect.

Section 3.02.  Corporate Authorization.  The execution, delivery and performance by each of Seller and Parent of this Agreement, and the consummation of the transactions contemplated hereby, are within each of Seller’s and Parent’s corporate powers and have been duly authorized by all necessary corporate action on the part of each of Seller and Parent.  This Agreement constitutes a valid and binding agreement of each of Seller and Parent, in each case enforceable against each of Seller and Parent in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles.

Section 3.03.  Governmental Authorization.  The execution, delivery and performance by each of Seller and Parent of this Agreement, and the consummation of the transactions contemplated hereby, require no action by or in respect of, or filing with, any Governmental Authority, other than (i) compliance with any applicable requirements of the HSR Act; (ii) compliance with any applicable requirements of the 1934 Act; (iii) any such action or filing listed on Schedule 3.03 and (iv) any such action or filing as to which the failure to make or obtain would not have a Material Adverse Effect and would not materially adversely affect the ability of Seller or to consummate the transactions contemplated by this Agreement.

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Section 3.04.  Noncontravention.  The execution, delivery and performance by each of Seller and Parent of this Agreement, and the consummation of the transactions contemplated hereby, do not and will not (i) violate the Organizational Documents of Seller, Parent, any Company or any Subsidiary, (ii) assuming compliance with the matters referred to in Section 3.03, violate any applicable Laws, except for any such violations which would not have a Material Adverse Effect, (iii) except as disclosed in Schedule 3.04 or as to matters which would not have a Material Adverse Effect, require any consent or other action by any Person under, constitute a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of any Company or any Subsidiary or to a loss of any benefit to which such Company or such Subsidiary is entitled under any provision of any agreement or other instrument binding upon such Company or such Subsidiary or (iv) result in the creation or imposition of any Lien on any material asset of any Company or any Subsidiary, except for any Permitted Liens.

Section 3.05.  Capitalization.  (a) The (i) authorized Capital Stock, (ii) par value per share, as applicable, and (iii) number of issued and outstanding shares of Capital Stock of each of the Companies are as set forth in Schedule 3.05.

(b)           All of the Shares have been duly authorized and validly issued and are fully paid and non-assessable.  Except as set forth on Schedule 3.05, there are no outstanding (i) Equity Securities of any Company, (ii) securities of Seller, any Company or any Subsidiary convertible into or exchangeable for Equity Securities of any Company, or (iii) options, subscriptions, warrants, calls, rights of first offer, rights of first refusal, tag along rights, drag along rights or other rights to acquire from Seller, any Company or any Subsidiary, or other obligation of any Company to issue, Equity Securities or securities convertible into or exchangeable for Equity Securities of any Company (the items in clauses 3.05(b)(i), 3.05(b)(ii) and 3.05(b)(iii) being referred to collectively as the “Company Securities”).  There are no outstanding obligations of any Company or any Subsidiary to repurchase, redeem or otherwise acquire any Company Securities.  There are no stockholder agreements, voting trusts, proxies or other agreements, instruments or understandings with respect to the purchase, sale or voting of the Company Securities, except for this Agreement and as disclosed in Schedule 3.05.  No Company Securities are reserved for issuance.

Section 3.06.  Ownership of Shares.  Seller is the record and beneficial owner of the Shares, free and clear of any Lien other than Permitted Liens, and will transfer and deliver to Buyer at the Closing valid title to the Shares free and clear of any Lien, other than Liens created by Buyer.

Section 3.07.  Subsidiaries.  (a) Each Subsidiary is duly formed, validly existing and in good standing (if applicable) under the laws of its jurisdiction of formation and has all powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted and to own, operate and lease its facilities and assets as presently

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owned, leased and operated, except for those licenses, authorizations, consents and approvals the absence of which would not have a Material Adverse Effect.  Each of the Subsidiaries is duly qualified to do business as a foreign company in all jurisdictions where the qualification is required, except where the lack of such qualification would not, individually or in the aggregate, have a Material Adverse Effect.  All Subsidiaries and their respective jurisdictions of formation are identified on Schedule 3.07.

(b)           All of the outstanding shares of Capital Stock or membership interests of each Subsidiary (other than Tri-Star Technologies, a California general partnership (“Tri-Star Technologies”)) have been duly authorized and validly issued and are fully paid and non-assessable.  All of the general partnership interests of Tri-Star Technologies owned by Tri-Star have been duly authorized and validly issued.  Except as disclosed in Schedule 3.07, all of the outstanding Equity Securities of each Subsidiary are owned by the Company identified as the owner on Schedule 3.07, directly or indirectly, free and clear of any Lien, other than Permitted Liens.  At Closing, the Company identified as the owner on Schedule 3.07 will own the Equity Securities of the Subsidiary identified as owned by such Company, directly or indirectly, free and clear of all Liens, other than Liens created by Buyer or any of its Affiliates.  Except as disclosed in Schedule 3.07, there are no outstanding (i) Equity Securities of any Subsidiary, (ii) securities of Seller, any Company or any Subsidiary convertible into or exchangeable for Equity Securities of any Subsidiary or (iii) options, subscriptions, warrants, calls, rights of first offer, rights of first refusal, tag along rights, drag along rights or other rights to acquire from Seller, any Company or any Subsidiary, or other obligation of any Subsidiary to issue, any Equity Securities of any Subsidiary (the items in clauses 3.07(b)(i) and 3.07(b)(iii) being referred to collectively as the “Subsidiary Securities”).  There are no outstanding obligations of any Company or any Subsidiary to repurchase, redeem or otherwise acquire any Subsidiary Securities.  Except as disclosed in Schedule 3.07, there are no stockholder agreements, voting trusts, proxies or other agreements, instruments or understandings with respect to the purchase, sale or voting of the Subsidiary Securities.  No Subsidiary Securities are reserved for issuance.

(c)           Other than as disclosed in Section 3.07(a) and (b) above, no Company, directly or indirectly, owns or has the right to acquire any Capital Stock or other Equity Securities, or securities convertible into or exchangeable for any Capital Stock or other Equity Securities, in any other Person.

Section 3.08.  Financial Statements.  (a) The unaudited balance sheet as of December 31, 2001 and the related unaudited statement of income and cash flow of the Companies and the Subsidiaries for the year ended December 31, 2001, attached hereto as Schedule 3.08, have been derived from the consolidated audited financial statements of Seller and its subsidiaries, have been prepared in accordance with GAAP consistently applied and fairly present in all material respects the financial position of each of the Companies and their respective Subsidiaries as of the date thereof and their respective results of operations and

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cash flow for the year then ended (subject to the omission of footnote disclosures and other presentation items, it being understood that such financial statements have been prepared without consideration of income taxes).

(b)           The audited special purpose combined balance sheet as of December 31, 2002 and the related audited special purpose combined statement of income and cash flow of the Companies and the Subsidiaries for the year ended December 31, 2002 (together with notes thereto), attached hereto as Schedule 3.08, have been prepared in accordance with GAAP consistently applied, and fairly present in all material respects the financial position of the Companies and the Subsidiaries as of the date thereof and their results of operations and cash flow for the year then ended (it being understood that such financial statements have been prepared without consideration of income taxes and as special purpose combined financial statements).

Section 3.09.  Absence of Certain Changes.  Except as disclosed in Schedule 3.09, since the Balance Sheet Date to the date hereof, the business of the Companies and the Subsidiaries has been conducted in the Ordinary Course of Business and there has not been:

(a)           any event, occurrence or development which has had, or could reasonably be expected to have, a Material Adverse Effect;

(b)           any declaration, setting aside or payment of any dividend or other distribution with respect to any Equity Securities of any Company or any Subsidiary, or any repurchase, redemption or other acquisition by any Company or any Subsidiary of any outstanding Equity Securities or other securities of any Company or any Subsidiary;

(c)           any amendment of any term of any outstanding security of any Company or any Subsidiary;

(d)           any incurrence, assumption or guarantee by any Company or any Subsidiary of any Indebtedness other than any Indebtedness owed to Parent, Seller or any of its Subsidiaries incurred in the Ordinary Course of Business;

(e)           any making by any Company or any Subsidiary of any loan, advance or capital contributions to or investment in any Person other than  (i) to Parent, Seller or any of its Subsidiaries in the Ordinary Course of Business and (ii) loans or advances to employees in the Ordinary Course of Business;

(f)            any transaction or commitment made, or any contract or agreement entered into, by any Company or any Subsidiary relating to its assets or business (including without limitation any sale, lease, transfer or other disposal of any such asset or business, or any acquisition of any business), or any modification thereto, that is material to the Companies and the Subsidiaries, taken as a whole, other

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than sales of inventory or purchases of supplies in the Ordinary Course of Business and those specifically contemplated by this Agreement;

(g)           any shutdown by any Company or any Subsidiary of any manufacturing facility;

(h)           any material change in any method of accounting or accounting practice by any Company or any Subsidiary, except for any such change required by reason of a concurrent change in GAAP;

(i)            any (i) employment, deferred compensation, severance, retirement or other similar agreement entered into with any director, officer or employee of any Company or any Subsidiary (or any amendment to any such existing agreement), (ii) grant of any severance or termination pay to any director, officer or employee of any Company or any Subsidiary, or (iii) change in compensation, benefit plans or other benefits payable to any director, officer or employee of any Company or any Subsidiary pursuant to any severance or retirement plans or policies thereof or compensation increases for employees, directors, officers, consultants or agents, in each case other than to or for any non-executive employee in the Ordinary Course of Business;

(j)            any material payments, discount activity or any other consideration to customers or suppliers, other than in the Ordinary Course of Business;

(k)           any damage, destruction or loss of property of any of the Companies or any of the Subsidiaries that exceeded $100,000 in any one instance;

(l)            any alteration through merger, liquidation, reorganization or restructuring of the corporate structure or ownership of any Company or any Subsidiary;

(m)          any payment, discharge or satisfaction of any material liability, other than in the Ordinary Course of Business;

(n)           any changes or amendments to the Organizational Documents of any Company or any Subsidiary;

(o)           any revaluation of any of the assets or properties of the Companies or the Subsidiaries, including, without limitation, any write-off (in whole or in part) of notes or accounts receivable, the cancellation, waiver or release of any material other right or claim or any increase in any reserve, or unbilled customer expenses other than in the Ordinary Course of Business;

(p)           any written notice received by Seller, the Company or any of the Subsidiaries of any termination of any material customer account or group of accounts or material reduction in purchases or royalties payable by any customer, and Seller otherwise has no Knowledge of the occurrence of any event that is

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likely to result in any such termination or reduction (except any of the matters specified as exceptions in the definition of Material Adverse Effect in Section 1.01);

(q)           any settlement or compromise of (i) any litigation or (ii) the matters referred to in Items 3 and 4 of Schedule 3.09;

(r)            any labor strike, slowdown or work stoppage, or, to the Knowledge of Seller, any threat thereof;

(s)           any material changes or amendments to any contract or agreement listed on Schedule 3.12;

(t)            any failure to pay or satisfy when due any material liability of any Company or any Subsidiary; or

(u)           if applicable, agreement or commitment to do any of the foregoing.

Section 3.10.  No Undisclosed Material Liabilities.  (a) There are no liabilities or obligations (whether direct or indirect, known or unknown, absolute or contingent, liquidated or unliquidated, accrued or unaccrued, matured or unmatured) of any Company or any Subsidiary of any kind, other than:

(i)            liabilities or obligations reflected on or reserved for on the Balance Sheet or included in the calculation of Closing Working Capital;

(ii)           liabilities or obligations disclosed on Schedule 3.10;

(iii)          liabilities or obligations disclosed in, related to, or arising under any lease, agreement, contract or instrument or with respect to other matters disclosed in this Agreement or any Schedule hereto;

(iv)          liabilities or obligations for Federal Income Taxes, Combined Income Taxes and Separate Income Taxes relating to any Pre-Closing Tax Period;

(v)           obligations to comply with Laws;

(vi)          liabilities and obligations arising after the date hereof in the Ordinary Course of Business or as otherwise required or permitted by this Agreement;

(vii)         liabilities and obligations for compensation and benefits with respect to Employees; and

(viii)        other undisclosed liabilities which, individually or in the aggregate, do not and could not reasonably be expected to have a Material Adverse Effect.

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(b)           Except as disclosed on Schedule 3.10, no Company or Subsidiary has any obligations or liabilities relating to any Indebtedness.

Section 3.11.  Intercompany Accounts.  Schedule 3.11 contains a complete list of all intercompany balances, as of the Balance Sheet Date, between Seller and its Affiliates (other than any Company or any Subsidiary), on the one hand, and any Company and any Subsidiary, on the other hand.  Since the Balance Sheet Date there has not been any accrual of liability by any Company or any Subsidiary to Seller or any of its Affiliates (other than any Company or any Subsidiary) or other transaction between any Company or any Subsidiary and Seller or any of its Affiliates (other than any Company or any Subsidiary), except in the Ordinary Course of Business of the Companies and the Subsidiaries or as provided in Schedule 3.11.

Section 3.12.  Material Contracts.  (a)  Except (x) as disclosed in Schedule 3.12 and (y) for any contracts or agreements entered into after the date hereof in the Ordinary Course of Business (subject to Section 5.01) or as otherwise required or permitted by this Agreement, no Company or Subsidiary is a party to or bound by:

(i)            any lease (whether of real or personal property) providing for annual rentals of $100,000 or more that cannot be terminated on not more than 60 days’ notice without payment by any Company or any Subsidiary of any material penalty;

(ii)           any agreement for the purchase of materials, supplies, goods, services, equipment or other assets providing for either (A) annual payments by any Company or any Subsidiary of $250,000 or more or (B) aggregate payments by any Company or any Subsidiary of $1,000,000 or more, in each case that cannot be terminated on not more than 60 days’ notice without payment by any Company or any Subsidiary of any material penalty;

(iii)          any contract or agreement (A) providing for the sale by any Company or any Subsidiary of materials, supplies, goods, services, equipment or other assets that provides for a specified annual minimum dollar sales amount by any Company or any Subsidiary of $1,000,000 or more or (B) pursuant to which any Company or any Subsidiary received payments of $500,000 or more in the year ended December 31, 2002;

(iv)          any partnership, joint venture or other similar agreement;

(v)           any agreement relating to the acquisition or disposition of any material business (whether by merger, sale of stock, sale of assets or otherwise);

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(vi)          any agreement relating to Indebtedness, except any such agreement entered into subsequent to the date of this Agreement as permitted by Section 5.01;

(vii)         any material agreement that limits the freedom of any Company or any Subsidiary to compete in any line of business or with any Person or in any area;

(viii)        any material agreement with Seller or any of its Affiliates (other than any Company or any Subsidiary) or any director or officer of Seller or any of its Affiliates (other than any Company or any Subsidiary) (each of which, if any, may be terminated by the relevant Company or Subsidiary on not more than 10 days’ notice);

(ix)           any employment or compensation agreement with any director, stockholder or officer of the Companies and the Subsidiaries or any other material agreement with any Employee;

(x)            any agreement relating to securities of any Company or any Subsidiary or rights in connection therewith;

(xi)           any contract pursuant to which any of the Intellectual Property Rights are licensed or sublicensed to or from any Company or any Subsidiary;

(xii)          any contract under which any Company or any Subsidiary has loaned money or promised to lend money, or made any other loan or advance to, or other investment in, any other Person;

(xiii)         any collective bargaining agreement or similar labor related contract; and

(xiv)        any other agreement not made in the Ordinary Course of Business that involves aggregate payments hereafter to or by any Company or any Subsidiary of more than $100,000.

(b)           Each lease, agreement or contract required to be disclosed pursuant to Section 3.12(a) is a valid and binding agreement of the relevant Company or Subsidiary, as the case may be, and is in full force and effect, and none of the Companies, the Subsidiaries or, to the Knowledge of Seller, any other party thereto is in default or breach in any respect under the terms of any such lease or agreement, and no event has occurred that, with the passing of time or the giving of notice would result in a default or breach of any such contract, lease or agreement, or allow for termination or cancellation thereof, except for any such defaults or breaches which have not had and which are not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.  Neither Seller nor any of its Affiliates has received any written notice from any party to such

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lease, agreement or contract of any intention to terminate, cancel or otherwise fail to perform any obligations of such party under any such lease, agreement or contract.

Section 3.13.  Litigation.  Except as disclosed on Schedule 3.13, there are no actions, suits, investigations, proceedings or claims pending before any Governmental Authority against, or to the Knowledge of Seller, threatened against or affecting, any Company, any Subsidiary or any of their respective properties or any Employee Plan (other than routine audits or routine claims for benefits) which have had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or which in any manner challenges or seeks to prevent, enjoin or materially delay the transactions contemplated by this Agreement.

Section 3.14.  Compliance with Laws and Court Orders.  None of the Companies, any Subsidiary or any Employee Plan is in violation of any applicable Law, except for violations which have not had and which are not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

Section 3.15.  Properties.  Schedule 3.15 sets forth, and identifies as such, all real property owned or leased by any Company or any Subsidiary.  Except as set forth on Schedule 3.15, there are no leases, subleases, licenses, options or other agreements granting to any party the right of occupancy or ownership of any portion of the real property owned by any Company or any Subsidiary.  The Companies and the Subsidiaries have good title to, or in the case of leased property and assets have valid leasehold interests in, all property and assets (whether real, personal, tangible or intangible) reflected on the Balance Sheet or acquired after the Balance Sheet Date and material to the Companies and the Subsidiaries, taken as a whole, except for inventory and obsolete equipment sold since the Balance Sheet Date in the Ordinary Course of Business or in accordance with Section 5.01.  The assets and properties owned, leased or licensed by the Companies and the Subsidiaries are sufficient for the conduct of the businesses of the Companies and the Subsidiaries as presently conducted.  None of such property or assets is subject to any Lien, except for Permitted Liens.

Section 3.16.  Intellectual Property.  (a)  Except as set forth in item 1 of Schedule 3.16, the Companies and the Subsidiaries have ownership or valid and legally enforceable rights to use, free and clear of all Liens (other than Permitted Liens), all material Intellectual Property Rights used or held for use by any Company or any Subsidiary and necessary for the conduct of the business of the Companies and the Subsidiaries as currently conducted (the “Company Intellectual Property Rights”), except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(b)           No Company Intellectual Property Right is subject to any outstanding judgment, injunction, order, decree or agreement restricting the use thereof by any Company or any Subsidiary or restricting the licensing thereof by

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any Company or any Subsidiary to any Person, except for any judgments, injunctions, orders, decrees or agreements which do not, individually or in the aggregate, have a Material Adverse Effect.  Except as set forth in Schedule 3.16, to the Knowledge of Seller, (i) no Person is infringing on or violating any Company Intellectual Property Rights, and (ii) no Company nor any Subsidiary is infringing on or violating the Intellectual Property Rights of any other Person.

(c)           The consummation of the transactions contemplated by this Agreement, with or without the giving of notice or the lapse of time or both, do not and will not trigger any provision under any license agreement with respect to Company Intellectual Property Rights to permit the termination of such agreement by the licensor, permit the renegotiation of any terms, including without limitation the amount of any commission, royalty or other fee(s) payable under such agreement, restrict, in any material way, the use of such Company Intellectual Property Rights in the business subsequent to the Closing Date, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(d)           Each Company and Subsidiary has taken reasonable steps necessary to protect such Company’s or Subsidiary’s rights in all material trade secrets, know-how or other confidential or proprietary information of such Company or such Subsidiary by limiting the disclosure and use of such information pursuant to appropriate confidentiality agreements, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(e)           Prior to the date hereof, the Companies and the Subsidiaries have not (i) infringed upon or violated any valid and enforceable claim of the patent referred to in Item 2 of Schedule 3.16 (the “Subject Patent”), or (ii) manufactured, produced or sold the product referred to in Item 3 of Schedule 3.16 (the “Subject Product”), other than the manufacture and production of prototypes or display units of such product.

Section 3.17.  Insurance Coverage.  Schedule 3.17 sets forth all insurance policies and fidelity bonds of the Companies and the Subsidiaries.  Seller has made available to Buyer true and complete copies of all insurance policies and fidelity bonds relating to the assets, business, operations, employees, officers or directors of the Companies and the Subsidiaries.  There are no material claims by any Company or any Subsidiary pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds or in respect of which such underwriters have reserved their rights.  The insurance policies and bonds set forth on Schedule 3.17 (i) are in full force and effect and, to the Knowledge of Seller, are free from any right of termination on the part of the insurance carriers, (ii) except as set forth on Schedule 3.17, all premiums due with respect thereto have been paid or, with respect to the premiums not yet due, accrued by Seller, (iii) no written notice of termination or cancellation has been received with respect to any such policy and (iv) no written notice has been received with respect to any material changes that

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are required in the conduct of the business of any Company or any Subsidiary as a condition to the continuation of coverage under, or renewal of, any such policy.  With respect to “occurrence” based policies, (i) there are no lapses in historical insurance coverage, (ii) current and historical limits of liability have not been exhausted and (iii) each of the Companies is a named insured party.

Section 3.18.  Finders’ Fees.  Except for Credit Suisse First Boston Corporation, whose fees will be paid by Seller, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Seller or any Company or any Subsidiary or any of their respective Affiliates who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement.

Section 3.19. Employees.  Schedule 3.19 sets forth a true and complete list of the names, titles, current annual salaries and most recent bonuses paid for all officers of the Companies and the Subsidiaries and all other current employees, in each case whose annual base salary exceeds $100,000.  No Company or Subsidiary is a party to any collective bargaining or other labor agreement with respect to any Employees with any union, labor association, workers counsel or similar organization.  No Company or Subsidiary has received written notice of, or to the Knowledge of Seller has experienced, any attempt by a union, labor association, workers counsel or similar organization (or any representative thereof) to make any of the Companies or any Subsidiary conform with the demands of organized labor relating to any Employees or to enter into any agreement with any such union, labor association, workers counsel or similar organization.  There is no strike or unfair labor practice pending or, to the Knowledge of Seller, threatened against any Company or Subsidiary.

Section 3.20.  Employee Benefit Plans.  (a) Seller has provided to Buyer a list of and copies of each material “employee benefit plan”, as defined in Section 3(3) of ERISA, each material employment, severance or similar contract, plan arrangement or policy and each other material plan or arrangement (written or oral) providing for compensation, bonuses, profit-sharing, stock option or other stock related rights or other forms of incentive or deferred compensation, vacation benefits, insurance (including any self-insured arrangements), health or medical benefits, employee assistance program, disability or sick leave benefits, workers’ compensation, supplemental unemployment benefits, severance benefits and post-employment or retirement benefits (including compensation, pension, health, medical or life insurance benefits) which is maintained, administered or contributed to by any Company or any ERISA Affiliate and covers any Employee (or any dependent or beneficiary thereof) or any current or former director or independent contractor of any Company or any Subsidiary (and, if applicable, related trust or funding agreements or insurance policies) and all amendments thereto and written interpretations thereof have been furnished to Buyer together with the most recent annual report (Form 5500 including, if applicable, Schedule B thereto) and Form 990, if applicable, prepared in connection with any such plan or trust.  Such plans are referred to collectively herein as the “Employee Plans”.

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Schedule 3.20(a) contains a correct and complete list identifying each Employee Plan.

(b)           None of the Companies, any ERISA Affiliate or any predecessor thereof sponsors, maintains or contributes to, or has in the past sponsored, maintained or contributed to, any Employee Plan subject to Title IV of ERISA.

(c)           None of the Companies, any ERISA Affiliate or any predecessor thereof contributes to, or has in the past contributed to, any multiemployer plan, as defined in Section 3(37) of ERISA.

(d)           Each Employee Plan that is intended to be qualified under Section 401(a) of the Code is subject to a favorable determination letter from the Internal Revenue Service and all amendments to any such Employee Plan for which the remedial amendment period (as defined in Section 401(b) of the Code and applicable regulations) has expired are covered by a favorable determination letter from the Internal Revenue Service and, to the Knowledge of Seller, no fact or circumstance exists giving rise to a material likelihood that such Employee Plan would not be treated as so qualified by the Internal Revenue Service.  Seller has provided to Buyer copies of the most recent Internal Revenue Service determination letters with respect to each such Employee Plan.  Each Employee Plan has been maintained in compliance with its terms and with the requirements prescribed by all applicable Laws (including but not limited to ERISA and the Code), except for such terms and requirements which have not had and which are not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

(e)           None of the Companies nor any Subsidiary has any current or projected liability in respect of post-employment or post-retirement health or medical or life insurance benefits for Employees, except as required to avoid excise tax under Section 4980B of the Code.

(f)            Except as set forth on Schedule 3.20(f), no Employee will become entitled to any bonus, retirement, severance, job security or similar benefit or any accelerated or enhanced payment or benefit as a result of the transactions contemplated by this Agreement.

(g)           There is no contract, plan or arrangement (written or otherwise) covering any Employee that, individually or collectively, would reasonably be expected to give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code.

(h)           Any Employee Plan that has been adopted or maintained by any Company or any Subsidiary principally for the benefit of Employees outside the United States (“International Plan”) has been maintained in all material respects with its terms and conditions and in all material respects with all applicable Laws (including without limitation any special provisions relating to the tax status of

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contributions to, earnings of, or distributions from such International Plans where the applicable International Plan was intended to have such tax status).  With respect to each International Plan, all employer and employee contributions have been made or, if applicable, accrued in accordance with applicable accounting practices.  Each International Plan that is required to be registered with any governmental entity or regulatory authority has been so registered and has been maintained in good standing with all applicable governmental entities and regulatory authorities, except such terms, conditions and requirements which have not had and which are not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

(i)            There have been no prohibited transactions (within the meaning of Section 406 of ERISA or 4975 of the Code) with respect to any Employee Plan.  No fiduciary (within the meaning of Section 3(21) of ERISA) has any material liability for breach of fiduciary duty or for any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Plan.  There have been no acts or omissions by any person with respect to any Employee Plan that have given rise to, or could reasonably be expected to give rise, to any material liability under Section 502 of ERISA.

(j)            None of the Companies or any of the Subsidiaries maintains or otherwise has any liability with respect to any deferred compensation, excess benefit or other non-qualified supplemental retirement plan, program or arrangements.

Section 3.21.  Environmental Matters.  Except as disclosed on Schedule 3.21 or except as to matters which have not had and which are not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect:

(a)           there are no Environmental Claims pending or, to the Knowledge of Seller, threatened, in each case relating to any Company or any Subsidiary;

(b)           each Company and each Subsidiary possess all permits, licenses, authorizations or consents (“Permits”) necessary for its operations to comply with all applicable Environmental Laws and are in compliance with the terms of such Permits and all such Permits are listed on Schedule 3.21;

(c)           there have been no written environmental audits, reports, analyses, studies, investigations or assessments conducted within the past five years by, or on behalf of, Seller, any Company or any Subsidiary of any property currently owned or leased by any Company or any Subsidiary that has not been made available to Buyer prior to the date hereof;

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(d)           The business and operations, and the owned, operated or leased property of any Company or any Subsidiary are currently in compliance with all Environmental Laws and have been in compliance for the past 5 years with all Environmental Laws;

(e)           There has been no Release of Hazardous Materials which resulted, or could reasonably be expected to result, in a required Remedial Action by any Company or any Subsidiary, and neither any Company nor any Subsidiary is currently conducting, or can reasonably be expected to need to conduct, any Remedial Action;

(f)            None of any Companies or any Subsidiaries (i) has received any written request for information, or has been notified that it is a potentially responsible party, under CERCLA or any similar state law or (ii) has been, or is reasonably likely to be, subject to any Environmental Costs or Liabilities arising under or pursuant to CERCLA or any similar state law; and

(g)           None of any Companies or any Subsidiaries has created or assumed any liabilities, guaranties, obligations or indemnifications under any consent decree, settlement agreement or contract with any third party, including any Governmental Authority, related to any actual or potential Environmental Costs and Liabilities.

Except as set forth in this Section 3.21, no representations or warranties are being made with respect to environmental matters.

Section 3.22.  Taxes.  (a)  All material Tax returns, statements, reports, elections, declarations, disclosures, schedules and forms (including estimated tax or information returns and reports) filed or required to be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of any Company or any Subsidiary (collectively, the “Returns”), have, to the extent required to be filed on or before the date hereof, been filed when due in accordance with all applicable laws.  As of the time of filing, the Returns were true and complete in all material respects.  All material Taxes of the Companies and the Subsidiaries have been timely paid, or withheld and remitted to the appropriate Taxing Authority.

(b)           No member of the Seller Group has granted any extension or waiver of the statute of limitations period applicable to any Return, which period (after giving effect to such extension or waiver) has not yet expired.  There is no audit now pending against or with respect to any Company or any Subsidiary nor is there any audit pending against or with respect to any member of the Seller Group in respect of any material Tax or material Tax Asset of the Seller Group.  No adjustment that would materially increase the Tax liability, or materially reduce any Tax Asset, of any Company or any Subsidiary has been made or proposed by a Taxing Authority during any audit of a Pre-Closing Tax Period that is

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reasonably expected to be made or proposed in an audit of any subsequent Pre-Closing Tax Period or Post-Closing Tax Period.  There are no requests for rulings or determinations in respect of any material Tax or material Tax Asset pending between any Company or any Subsidiary and any Taxing Authority.  None of the Companies, the Subsidiaries, or any member of the Seller Group has received a tax opinion with respect to any transaction relating to any Company or any Subsidiary, other than a transaction in the Ordinary Course of Business.

(c)           (i)  Schedule 3.22(c) contains a list of each jurisdiction (whether foreign or domestic) in which any Company or any Subsidiary has filed a Federal Income Tax Return, a Combined Income Tax Return or a Separate Income Tax Return during the five-year period ending on the date hereof; and (ii) no jurisdiction other than a jurisdiction listed on Schedule 3.22(c) has asserted, during the five-year period ending on the date hereof, that any Company or any Subsidiary owes a Federal Income Tax, a Combined Income Tax or a Separate Income Tax to a Taxing Authority within such jurisdiction.

(d)           None of the Companies or any Subsidiary has been a member of an affiliated, consolidated, combined or unitary group other than one of which Seller was the common parent.  None of Seller, the Companies or any Subsidiary has entered into any agreement or arrangement with any Taxing Authority with regard to the Tax liability of any Company or any Subsidiary affecting any Tax period for which the applicable statute of limitations, after giving effect to extensions or waivers, has not expired.

(e)           None of the Companies, the Subsidiaries or any member of the Seller Group is a party to any understanding or arrangement described in Section 6111(d) or Section 6662(d)(2)(C)(iii) of the Code.  During the five-year period ending on the date hereof, none of the Companies or any Subsidiary was a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.  None of Seller, any Company or any Subsidiary is a party to any transaction, understanding or arrangement that qualifies as a “reportable transaction” under Treasury Regulations Section 1.6011-4T(b).

(f)            Except as set forth on Schedule 3.22(f), (i) no election has been made under Treasury Regulations Section 301.7701-3 or any similar provision of Tax law to treat any Company or any Subsidiary as an association, corporation or partnership; (ii) none of the Companies nor any Subsidiary, is disregarded as an entity for Tax purposes; (iii) none of Seller, any Company, any Subsidiary, or any other person on behalf of any Company or any Subsidiary, has entered into any agreement or consent pursuant to Section 341(f) of the Code.

(g)           None of the assets of any Company or Subsidiary is property required to be treated as being owned by any other person pursuant to the “safe harbor lease” provisions of former Section 168(f)(8) of the Code.  None of the assets of any Company or Subsidiary directly or indirectly secures any debt the

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interest on which is tax-exempt under Section 103(a) of the Code.  None of the assets of any Company or Subsidiary is “tax-exempt use property” within the meaning of Section 168(h) of the Code.

(h)           No Company or Subsidiary has agreed to make, or is required to make, any adjustment under Section 481(a) of the Code or any comparable provision of state or foreign tax laws by reason of a change in accounting method or otherwise that would result in a material income inclusion for such Company or Subsidiary in any Post-Closing Tax Period.

(i)            No Company or Subsidiary will be required to include any material item of taxable income or exclude any material item of deduction in a Post-Closing Tax Period as a result of an intercompany transaction, as defined in Treasury Regulations Section 1.1502-13, entered into by such entity in a Pre-Closing Tax Period.

(j)            No Company or Subsidiary has entered into an installment sale or open transaction in a Pre-Closing Tax Period that will result in a material Tax liability or materially reduce any Tax Asset of such entity in a Post-Closing Tax Period.

(k)           Except as set forth on Schedule 3.22(k), no Company or Subsidiary is a party to or bound by any Tax indemnity, Tax sharing or Tax allocation agreement.

Section 3.23.  Arrangements With Buyer.  No representations or warranties shall be deemed to have been made with respect to any relationship, arrangement, transaction, or agreement of any kind with Buyer or any of its Affiliates.

Section 3.24.  Permits.  (a) The Companies and the Subsidiaries have all material local, state and federal governmental licenses, permits, registrations, certificates, contracts, consents, accreditations and approvals (collectively, the “Licenses and Permits”) necessary to operate and conduct their businesses as presently conducted, except for Licenses and Permits the failure of which to have could not reasonably be expected to have a Material Adverse Effect.  No Company or Subsidiary is in violation of any of the Licenses and Permits, except for violations which have not had and which are not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

(b)           To the Knowledge of Seller, as of the date of this Agreement, (i) each Company and each Subsidiary has all of the Parts Manufacturer Approvals (“PMA”) and repair stations facilities certificates from the Federal Aviation Administration or the Department of Transportation needed to conduct its business as presently conducted and (ii) no competitor of any Company or any Subsidiary has obtained a PMA for any material product that competes in any material respect with any material product currently offered by any Company or any Subsidiary that is material to the business of such Company or Subsidiary.

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Section 3.25.  Accounts Receivable.  The accounts and notes receivable reflected on the Balance Sheet (except to the extent collected since the Balance Sheet Date) arose in the Ordinary Course of Business.  Such accounts and notes receivable have been determined in accordance with GAAP consistently applied, and no additional performance is required on the part of any Company or any Subsidiary for such accounts and notes receivables to be recognized as such in accordance with GAAP.

Section 3.26.  Inventory.  Each Company and each Subsidiary has good title to its inventory free and clear of Liens, except for Permitted Liens.  The inventory reflected on the Balance Sheet has been determined in accordance with GAAP consistently applied.

Section 3.27.  WARN Act.  No Company or Subsidiary has within the 180 days immediately preceding the date hereof, effectuated a “plant closing” or “mass layoff” as defined in the Workers Adjustment and Retraining Notification (“WARN”) Act, or any analogous U.S. state or U.S. local Law affecting in whole or in part any facility, site of employment, operating unit or employees of any Company or any Subsidiary, without fully complying with the WARN Act or any analogous U.S. state or U.S. local law.  No Specified Layoff has occurred during the 90 days immediately preceding the date hereof.  For purposes of this Section 3.27, “Specified Layoff” means a reduction in force which results in employment loss by at least 45 Employees at a single site of employment during any 30 day period.

Section 3.28.  Product Liability.  (a) Each of the products produced or sold by each Company and each Subsidiary is, and at all times up to and including the sale thereof by any Company or any Subsidiary has been, (i) in compliance in all material respects with all applicable Laws, (ii) in conformity in all material respects with any warranties made in any written materials accompanying such product or in connection with its sale and (iii) fit for the ordinary purpose for which such product is intended to be used.  No Company or Subsidiary has received written notice of, and Seller has no Knowledge of, any claim based on any product warranty.

(b)           No Company or Subsidiary has committed any act, and there has been no omission, which would reasonably be expected to result in, and there has been no occurrence which would reasonably be expected to give rise to, product liability or liability for breach of warranty on the part of any Company or any Subsidiary with respect to products designed, manufactured, assembled or sold prior to or on the Closing Date, except for any such liabilities which would not have a Material Adverse Effect. There are no product warranties applicable to products sold by the Companies and the Subsidiaries except the express warranties which are set forth in written agreements between the applicable Company or Subsidiary and its customers and such warranties as are imposed by applicable Law. Each of such products bears such warnings and, when delivered, instructions, as are required by applicable Laws.

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(c)           No Company or Subsidiary has received any statements, citations, decisions or orders by any Governmental Authority stating that any product produced or sold by any Company or Subsidiary is defective or unsafe or fails to meet any product warranty or any standards promulgated by any such Governmental Authority.  No products produced or sold by any Company or Subsidiary have been subject to any material recall.

(d)           No Company or Subsidiary uses or has used any asbestos or asbestos containing material in its manufacturing operations or processes, including but not limited to the use of asbestos as a raw material.

(e)           To the extent that any representation or warranty of Seller contained in this Section 3.28 relates to any Company or Subsidiary at any time prior to Seller’s direct or indirect ownership of such Company or Subsidiary, such representation or warranty shall be deemed to be made to Seller’s Knowledge.

Section 3.29.  No Other Representations.  Seller is an informed and sophisticated party and has engaged expert advisors experienced in transactions of the type contemplated by this Agreement. Seller hereby acknowledges and affirms that in making its decision to enter into this Agreement and to consummate the transactions contemplated hereby it has relied solely on the representations, warranties and covenants of the Buyer contained in this Agreement.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller as of the date hereof and as of the Closing Date that:

Section 4.01.  Corporate Existence and Power.  Buyer is duly formed, validly existing and in good standing under the laws of the State of Delaware and has all powers and all material governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted.

Section 4.02.  Corporate Authorization.  The execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated hereby are within Buyer’s corporate powers and have been duly authorized by all necessary corporate action on the part of Buyer.  This Agreement constitutes a valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles.

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Section 4.03.  Governmental Authorization.  The execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated hereby require no material action by or in respect of, or material filing with, any governmental body, agency or official other than (i) compliance with any applicable requirements of the HSR Act; (ii) compliance with any applicable requirements of the 1934 Act and (iii) any such action or filing as to which the failure to make or obtain would not materially adversely affect the ability of Buyer to consummate the transactions contemplated by this Agreement.

Section 4.04.  Noncontravention.  The execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated hereby do not and will not (i) violate the certificate of incorporation or bylaws of Buyer, (ii) assuming compliance with the matters referred to in Section 4.03, violate any applicable Law, (iii) other than any consents that have been obtained, require any consent or other action by any Person under, constitute a default under, or give rise to any right of termination, cancellation or acceleration of any right or obligation of Buyer or to a loss of any benefit to which Buyer is entitled under any provision of any agreement or other instrument binding upon Buyer or (iv) result in the creation or imposition of any Lien on any material asset of Buyer.

Section 4.05.  Financing.  Buyer has received, and furnished to Seller a copy of, all of the commitment letters and the accompanying term sheets (the “Commitment Letters”) from financing sources set forth in Schedule 4.05.  The aggregate proceeds of the financing to be provided thereunder will be in an amount sufficient to acquire the Shares and to pay all fees and expenses incurred by Buyer in connection with the transactions contemplated by this Agreement and the Commitment Letters.  As of the date hereof, the Commitment Letters are in full force and effect and Buyer knows of no facts or circumstances that are reasonably likely to result in any such commitment not being funded or in any condition set forth in any Commitment Letter not being satisfied.

Section 4.06.  Purchase for Investment.  Buyer is purchasing the Shares for investment for its own account and not with a view to, or for sale in connection with, any distribution thereof.  Buyer (either alone or together with its advisors) has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares and is capable of bearing the economic risks of such investment.

Section 4.07.  Litigation.  There is no action, suit, investigation or proceeding pending against, or to the knowledge of Buyer threatened against or affecting, Buyer before any court or arbitrator or any governmental body, agency or official which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement.

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Section 4.08.  Finders’ Fees.  Except for the fees of Odyssey Investment Partners, LLC, whose fees will be paid by Buyer or, if the Closing occurs, by one or more of the Companies (after the Closing), there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Buyer who might be entitled to any fee or commission from Seller or any of its Affiliates upon consummation of the transactions contemplated by this Agreement.

Section 4.09.  Inspections; No Other Representations.  Buyer is an informed and sophisticated purchaser, and has engaged expert advisors, experienced in the evaluation and purchase of companies such as the Companies and the Subsidiaries as contemplated hereunder.  Buyer has undertaken such investigation and has been provided with and has evaluated such documents and information as it has deemed necessary to enable it to make an informed and intelligent decision with respect to the execution, delivery and performance of this Agreement.  Buyer will undertake prior to Closing such further investigation and request such additional documents and information as it deems necessary.  Buyer hereby acknowledges and affirms that in making its decision to enter into this Agreement and to consummate the transactions contemplated hereby it has relied solely on (A) its own investigation of the Companies and (B) the representations, warranties and covenants of the Seller contained in this Agreement.  Seller acknowledges and agrees that Buyer’s inspection shall not be asserted as defense against Buyer or its Affiliates in any proceeding alleging, or otherwise limit the rights of Buyer and its Affiliates (pursuant to Section 11.02 or otherwise) with respect to, any breach of any representation or warranty expressly set forth in this Agreement.  Buyer acknowledges that none of Seller or any of its Affiliates, counsel, advisors, accountants or other representatives makes any representation or warranty with respect to (i) any projections, estimates or budgets delivered to or made available to Buyer of future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of any Companies or any Subsidiaries or the future business and operations of any Companies or any Subsidiaries or (ii) any other information or documents made available to Buyer or its counsel, advisors, accountants or other representatives with respect to any Companies or any Subsidiaries or their respective businesses or operations, except as expressly set forth in this Agreement.

ARTICLE 5

COVENANTS OF SELLER

Seller agrees that:

Section 5.01.  Conduct of the Companies and the Subsidiaries.  From the date hereof until the Closing Date, Seller shall cause each Company and each Subsidiary to maintain its corporate existence, conduct its business in the

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Ordinary Course of Business and to use its commercially reasonable efforts to preserve intact its business organizations and relationships with third parties and to keep available the services of its present officers and employees.  Without limiting the generality of the foregoing, from the date hereof until the Closing Date, Seller will not permit any Company or any Subsidiary to:

(a)           adopt or propose any change in its Organizational Documents;

(b)           acquire a material amount of assets from any other Person; except (i) pursuant to existing contracts or commitments disclosed on Schedules hereto or (ii) otherwise in the Ordinary Course of Business;

(c)           sell, lease, license or otherwise dispose of any material assets or property except (i) pursuant to existing contracts or commitments disclosed on Schedules hereto or (ii) sales of inventory or obsolete equipment in the Ordinary Course of Business;

(d)           declare, set aside or pay any dividend or other distribution with respect to any Equity Securities, or repurchase, redeem or otherwise acquire any of its Equity Securities;

(e)           amend any term of any of its outstanding securities;

(f)            incur, assume or guarantee any Indebtedness other than any Indebtedness owed to Parent, Seller or any of its subsidiaries;

(g)           make any loan, advance or capital contributions to or investment in any other Person other than (i) to Parent, Seller or any of its subsidiaries in the Ordinary Course of Business or (ii) loans or advances to employees in the Ordinary Course of Business;

(h)           adopt, propose or enter into any (A) employment, deferred compensation, severance, retirement or other similar agreement with any director, officer or employee of such Person (or any amendment to any such existing agreement), (B) grant of any severance or termination pay to any director, officer or employee of such Person, or (C) change in compensation, benefit plans or other benefits payable to any director, officer or employee of such Person pursuant to any severance or retirement plans or policies thereof or compensation increases for employees, directors, officers, consultants or agents, in each case other than to or for any non-executive employee in the Ordinary Course of Business;

(i)            shut down any manufacturing facility;

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(j)            make any material change in any method of accounting or accounting practice by any Company or any Subsidiary, except for any such change required by reason of a concurrent change in GAAP;

(k)           increase in any material way any payments, discount activity or any other consideration to customers or suppliers, other than in the Ordinary Course of Business;

(l)            alter its structure or existence through merger, liquidation, reorganization or restructuring of the corporate structure or ownership;

(m)          make any payment, discharge or satisfaction of any material liability, other than in the Ordinary Course of Business;

(n)           settle or compromise (i) any litigation or (ii) the matters set forth in Items 3 and 4 of Schedule 3.09;

(o)           make any material changes or amendments to any contract or agreement listed on any Schedule hereto;

(p)           (i) infringe upon or violate any valid and enforceable claim of the Subject Patent or (ii) manufacture, produce, market or sell the Subject Product; or

(q)           agree or commit to do any of the foregoing.

Section 5.02.  Access to Information.  (a) From the date hereof until the Closing Date, Seller will (i) give, and will cause each Company and each Subsidiary to give, Buyer, its counsel, financial advisors, auditors and other authorized representatives reasonable access to the offices, properties, books and records of the Companies and the Subsidiaries and to the books and records of Seller relating to the Companies and the Subsidiaries, (ii) furnish, and will cause each Company and each Subsidiary to furnish, to Buyer, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information relating to any Company or any Subsidiary as such Persons may reasonably request and (iii) instruct the employees, counsel and financial advisors of Seller or any Company or any Subsidiary to cooperate with Buyer in its investigation of any Company or any Subsidiary. Any investigation pursuant to this Section shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of Seller, the Companies and the Subsidiaries.  Notwithstanding the foregoing, Buyer shall not have access to any personnel records relating to individual performance or evaluation records, medical histories or other information that in Seller’s good faith opinion is sensitive or the disclosure of which could reasonably be expected to subject Seller, or any Company or any Subsidiary to risk of liability and Buyer shall not be entitled to conduct any invasive sampling or testing with respect to the properties of any Person.

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(b)           Buyer shall bear all of the out-of-pocket costs and expenses (including, without limitation, Buyer’s attorneys’ fees, but excluding reimbursement for general overhead, salaries, expenses and employee benefits of Seller, any Company or any Subsidiary) reasonably incurred in connection with the foregoing.

Section 5.03.  Notices of Certain Events.  (a) Seller shall promptly notify Buyer of:

(i)            any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

(ii)           any notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated by this Agreement;

(iii)          any actions, suits, claims, investigations or proceedings commenced relating to Seller, any Company or any Subsidiary that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 3.13;

(iv)          the occurrence of a Material Adverse Effect, or any event that could reasonably be expected to cause a Material Adverse Effect; and

(v)           any event, notice or occurrence that would reasonably be expected to result in the failure of any condition set forth in Section 10.01 or Section 10.02 hereof to be satisfied;

provided that any such notification pursuant to this Section 5.03 shall not be deemed to cure, or to relieve Seller of any liability or obligation with respect to any breach of, or failure to satisfy any, representation, warranty, covenant or agreement hereunder.

Section 5.04.  Resignations.  At or prior to the Closing, Seller will deliver to Buyer the resignations of (i) all directors of each Company and each Subsidiary and (ii) all officers of each Company and each Subsidiary who, upon consummation of the Closing, are not current Employees, in each case, from their positions with such Company or such Subsidiary at or prior to the Closing Date.

Section 5.05.  Taxes.  Without the prior written consent of Buyer, neither Seller nor any Affiliate of Seller shall, to the extent it may affect or relate to any Company or any Subsidiary, make or change any Tax election, change any annual Tax accounting period, adopt or change any method of Tax accounting, file any amended Return, enter into any closing agreement, settle any Tax claim or assessment, surrender any right to claim a Tax refund, offset or other reduction in Tax liability, consent to any extension or waiver of the limitations period

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applicable to any Tax claim or assessment or take or omit to take any other action, if any such action or omission would have the effect of materially increasing the Tax liability or materially reducing any Tax Asset of any Company or any Subsidiary with respect to a Post-Closing Tax Period.

Section 5.06.  Intercompany Accounts.  All intercompany accounts between Parent, Seller or any of its subsidiaries (other than Company or any Subsidiary), on the one hand, and any Company or any Subsidiary, on the other hand, remaining unpaid as of the Closing Date shall be repaid or canceled as determined by Seller (irrespective of the terms of payment of such intercompany accounts), and if canceled shall be canceled in a manner designed to minimize any tax consequences associated with such cancellation; provided that any liabilities of any Company or any Subsidiary for Taxes resulting from such repayment or cancellation will be deemed Buyer Tax Losses for purposes of Section 8.06.

Section 5.07.  No-Shop.  Seller shall not, and shall cause the Companies and the Subsidiaries, and their respective shareholders, members, managers, directors, officers, employees and representatives (including, without limitation, investment bankers, attorneys and accountants) not to, directly or indirectly, through any agent or otherwise, enter into, solicit, initiate, conduct or continue any discussions or negotiations with, or encourage any inquiries or proposals or offers by, provide information to, or otherwise cooperate in any other way with, any Person or group, other than Buyer, concerning (i) any sale of all or any material portion of the assets (other than as otherwise permitted under this Agreement) or the business of, or of any shares or equity securities in, any Company or any Subsidiary, (ii) any merger, acquisition, consolidation, recapitalization, liquidation, dissolution or similar transaction involving any Company or any Subsidiary or (iii) any transaction that would have an effect similar to the transactions described in (i) or (ii) (each such transaction being referred to herein as a “Proposed Acquisition Transaction”).  Seller hereby represents that it is not now engaged in discussions or negotiations with any Person other than Buyer with respect to any Proposed Acquisition Transaction.  Seller shall not, and shall cause the Companies and the Subsidiaries not to, release any Person from, or waive any provision of, any confidentiality or standstill agreement to which they (or any of them) are a party in connection with any Proposed Acquisition Transaction.  If Seller, any Company or any Subsidiary receives any inquiry relating to any Proposed Acquisition Transaction, Seller shall promptly notify the Buyer if any offer is made (including the terms of such offer) or if any discussions or negotiations are sought to be initiated with respect to any Proposed Acquisition Transaction.

Section 5.08.  Confidentiality.  From and after the Closing, Seller will, and will cause its Affiliates to, hold, and will use its commercially reasonable efforts to cause their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents (“Representatives”) to hold, in confidence, except to the extent compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information

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concerning the Companies and the Subsidiaries, including any confidential documents and information disclosed pursuant to Section 6.02, except to the extent that such information can be shown to have been (i) in the public domain through no fault of Seller or any of its Affiliates or (ii) lawfully acquired by Seller or any of its Affiliates after the Closing Date from sources which, to Seller’s Knowledge, are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation; provided that Seller may disclose such information to its officers, directors, employees, accountants, counsel, consultants, advisors and agents in connection with the transactions contemplated by this Agreement, any matter relating to this Agreement or its rights and obligations hereunder or thereunder or any period ending on or before the Closing Date so long as such Persons are informed by Seller of the confidential nature of such information and are directed by Seller to treat such information confidentially.  Seller shall be responsible for any failure to treat such information confidentially by such Persons.  The obligation of each Person to hold any such information in confidence shall be satisfied if they exercise the same care with respect to such information as they would take to preserve the confidentiality of their own similar information.  If Seller or any of its Affiliates or Representatives are compelled to disclose any such information by judicial or administrative process or by other requirements of Law, Seller shall promptly notify Buyer in writing.

ARTICLE 6

COVENANTS OF BUYER

Buyer agrees that:

Section 6.01.   Confidentiality. (a) Prior to the Closing Date and after any termination of this Agreement, Buyer and its Affiliates will comply with all of the obligations of TransDigm Inc. under the confidentiality agreement dated November 21, 2002 between Seller and TransDigm Inc. (the “Confidentiality Agreement”) to the full extent of such obligations as if Buyer was a party to and duly executed such Confidentiality Agreement.  From and after the Closing, Buyer and its Affiliates will hold, and will use their commercially reasonable efforts to cause their respective Representatives to hold, in confidence, except to the extent compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information relating to Seller and its Affiliates (other than any Company or any Subsidiary) furnished to Buyer or its Affiliates in connection with the transactions contemplated by this Agreement, except to the extent that such information can be shown to have been (i) previously known on a nonconfidential basis by Buyer, (ii) in the public domain through no fault of Buyer or (iii) later lawfully acquired by Buyer from sources other than Seller or any Company or any Subsidiary which, to Buyer’s knowledge are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation; provided that Buyer may disclose such

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information to its officers, directors, employees, accountants, counsel, consultants, advisors, lenders and agents in connection with the transactions contemplated by this Agreement so long as such Persons are informed by Buyer of the confidential nature of such information and are directed by Buyer to treat such information confidentially.  Buyer shall be responsible for any failure to treat such information confidentially by such Persons.  The obligation of each Person to hold any such information in confidence shall be satisfied if they exercise the same care with respect to such information as they would take to preserve the confidentiality of their own similar information.  If this Agreement is terminated, Buyer and its Affiliates will, and will use their commercially reasonable efforts to cause their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents to, destroy or deliver to Seller, upon request, all documents and other materials, and all copies thereof, obtained by Buyer or its Affiliates or on their behalf from Seller, any Company or any Subsidiary, their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents in connection with this Agreement that are subject to such confidence.  If Buyer or any of its Affiliates or Representatives are compelled to disclose any such information by judicial or administrative process or by other requirements of law, Buyer shall promptly notify Seller in writing.

(b)           At the time of the Closing, the Confidentiality Agreement will terminate; provided that such termination will not affect any rights that any party thereto may have with respect to a breach of the Confidentiality Agreement which occurred prior to the Closing Date.

Section 6.02.  Access.  Buyer will cause each Company and each Subsidiary, on and after the Closing Date, to afford promptly to Seller and its agents reasonable access to their offices, properties, books, records, employees and auditors solely to the extent necessary to permit Seller to determine any matter relating to its rights and obligations hereunder or to any period ending on or before the Closing Date; provided that any such access by Seller and its agents shall not unreasonably interfere with the conduct of the business of Buyer.

Section 6.03.  Trademarks; Tradenames.  From and after the date that is twelve months after the Closing, Buyer shall not, and shall not permit any of its Affiliates to, use any of the marks or names set forth on Schedule 6.03.

Section 6.04.  Taxes.  Buyer covenants that, except as required to comply with applicable law, it will not, and will not cause or permit any Company, any Subsidiary or any Affiliate of Buyer to, (i) take any action on the Closing Date other than in the Ordinary Course of Business, including but not limited to the distribution of any dividend or the effectuation of any redemption that could give rise to any Tax liability or reduce any Tax Asset of the Seller Group or give rise to any loss of Seller or the Seller Group under this Agreement, (ii) make any election or deemed election under Section 338 of the Code or any comparable provision under applicable law with respect to the transactions contemplated by this Agreement, or (iii) make or change any Tax election that affects any Pre-

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Closing Tax Period or amend any Return that was filed with respect to any Pre-Closing Tax Period, in either such case that results in any materially increased Tax liability or material reduction of any Tax Asset of Seller or the Seller Group in respect of any Pre-Closing Tax Period.

Section 6.05.  Notices of Certain Events.  Buyer shall promptly notify Seller of any event, notice or occurrence that would reasonably be expected to result in the failure of any condition set forth in Section 10.01 or 10.03 hereof to be satisfied; provided that any such notification pursuant to this Section 6.05 shall not be deemed to cure, or to relieve Buyer, of any liability or obligation with respect to any breach of, or failure to satisfy any, representation, warranty, covenant or agreement hereunder.

ARTICLE 7

COVENANTS OF BUYER AND SELLER

Buyer and Seller agree that:

Section 7.01.  Further Assurances.  Subject to the terms and conditions of this Agreement, Buyer and Seller will use their respective commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable laws and regulations to consummate the transactions contemplated by this Agreement.  Seller and Buyer agree, and Seller, prior to the Closing, and Buyer, after the Closing, agree to cause each Company and each Subsidiary, to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the transactions contemplated by this Agreement.  If Seller, Buyer or any Company determines that any material assets or property (other than cash or cash equivalents) have been used or held for use by any Company or any Subsidiary primarily in the operation of the business of such Company or Subsidiary prior to the Closing but are in fact owned or leased by Parent or Seller or any of their respective Affiliates (other than any Company or any Subsidiary), then, prior to the Closing, Seller shall cause any such assets or properties to be assigned or otherwise transferred to the appropriate Company or Subsidiary, without any payments by such Company or Subsidiary.

Section 7.02.  Certain Filings.  (a) Seller and Buyer shall cooperate with one another (i) in determining whether any action by or in respect of, or filing with, any Governmental Authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement and (ii) in taking such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals or waivers.

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(b)           Each of Buyer and Seller shall use commercially reasonable efforts to cooperate in all respects with each other, and to keep the other party informed in all material respects with respect to any communication given or received, in connection with any filing, submission, investigation or proceeding relating to the transactions contemplated hereby.

(c)           Each of Buyer and Seller agrees to make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby as promptly as practicable and in any event within ten business days of the date hereof and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act.

(d)           If any objections are asserted with respect to the transactions contemplated hereby under any Antitrust Law or if any suit or proceeding is instituted or threatened by any governmental authority or any private party challenging any of the transactions contemplated hereby as violative of any Antitrust Law, each of Buyer and Seller shall use its commercially reasonable efforts promptly to resolve such objections; provided that none of Seller, Buyer or any of their respective Affiliates shall have any obligation to hold separate or divest any material property or assets, expend significant funds or defend against any lawsuit, action or proceeding, judicial or administrative, challenging this Agreement or the transactions contemplated hereby.

Section 7.03.  Public Announcements.  The parties agree to consult with each other as to the form and substance of any press release or public statement with respect to this Agreement or the transactions contemplated hereby before issuing such press release or making such public statement and, except for any press releases and public announcements the issuance or making of which may be required by applicable law or any listing agreement with any national securities exchange, will not issue any such press release or make any such public statement prior to such consultation.

Section 7.04.  Non Solicitation/Noncompetition.  (a)  Each of the parties agrees that for a period of two full years from and after the Closing Date, neither it nor any of its direct or indirect Majority-Owned Subsidiaries shall employ or solicit, or receive or accept the performance of services by, any employee of the other party or its Majority-Owned Subsidiaries; provided that this Section 7.04(a) shall not prohibit or restrict any party from hiring any such employee who independently responds to general advertising or solicitations not targeted, directly or indirectly, at any such employee.

(b)           Parent agrees that, prior to the fifth anniversary of the Closing Date (the “Termination Date”), neither it nor any of its Majority-Owned Subsidiaries (other than the Companies and the Subsidiaries) (collectively, the “DeCrane Group”) shall engage, either directly or indirectly, in Avtech Competitive Activities, Tri-Star Competitive Activities or ADS Competitive Activities;

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provided that nothing herein shall prohibit the DeCrane Group from acquiring any Person having, at the time of such acquisition, (i) annual revenues (based on its most recent annual financial statements) of (A) not more than the lesser of $2,000,000 and 33% of such annual revenues attributable to Avtech Competitive Activities and (B) not more than $500,000 of such annual revenues attributable to any of (x) lighting, (y) Selcal or (z) cockpit and flight-deck audio (in any such case, as individual product lines, to the extent included in Avtech Competitive Activities), (ii) annual revenues (based on its most recent annual financial statements) of not more than the lesser of $2,000,000 and 33% of such annual revenues attributable to Tri-Star Competitive Activities, and (iii) annual revenues (based on its most recent annual financial statements) of not more than the lesser of $500,000 and 33% of such annual revenues attributable to ADS Competitive Activities; provided further that if, following any such acquisition, the annual revenues derived by the DeCrane Group for any fiscal year (A) from Avtech Competitive Activities exceeds $2,000,000, (B) from any of (x) lighting, (y) Selcal or (z) cockpit and flight-deck audio (in any such case, as individual product lines, to the extent included in Avtech Competitive Activities) exceeds $500,000, (C) from Tri-Star Competitive Activities exceeds $2,000,000 or (D) from ADS Competitive Activities exceeds $500,000, the DeCrane Group shall, within 12 months after the end of such fiscal year (if such 12 month period ends prior to the Termination Date), dispose of or otherwise discontinue such activities to cause its annual revenues derived from such activities to be less than such amounts.  This Section 7.04(b) shall cease to be binding on Parent or Seller (but not such Person’s Majority-Owned Subsidiaries at the time of the applicable Change of Control) if a Change of Control occurs with respect to such Person (unless such Person, immediately prior to such Change of Control, conducts any material activities except those of a holding company with respect to ownership interests in other Persons).

(c)           If any provision contained in this Section 7.04 shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Section, but this Section shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.  It is the intention of the parties that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time which is not permitted by applicable law, or in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would be valid or enforceable under applicable law, a court of competent jurisdiction shall construe and interpret or reform this Section to provide for a covenant having the maximum enforceable geographic area, time period and other provisions (not greater than those contained herein) as shall be valid and enforceable under such applicable law.

Section 7.05.  Insurance. (a) To the extent Parent, Seller, any Company or any Subsidiary shall be entitled, under the terms and conditions of its

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“occurrence” based insurance policies in effect on the date hereof, to coverage for losses suffered by any Company or any Subsidiary after the Closing arising out of any occurrences covered by such policies occurring prior to the Closing, Parent shall, and shall cause its subsidiaries to, use such efforts and take such actions to recover such losses on behalf of such Company or such Subsidiary pursuant to such policies as it would use or take in conducting its own businesses in the ordinary course if such losses were suffered by Parent or any of its subsidiaries, and shall deliver the proceeds thereby recovered to such Company or such Subsidiary.  In the event of any dispute regarding the date of any loss or occurrence, the terms of the applicable insurance policy shall govern.  Parent shall continue to maintain such insurance policies, to the extent they apply on the date hereof to the Companies and the Subsidiaries, in full force and effect (and without any amendment that would be adverse, in any material respect, to any Company or any Subsidiary) with respect to occurrences prior to and including the Closing, and Parent shall continue to have each Company as a named insured party under each such policy with respect to occurrences prior to and including the Closing.

(b)           Buyer agrees to pay Parent and its Affiliates promptly upon demand for any and all out-of-pocket costs and expenses (including any fees and expenses of counsel) that may be suffered or incurred by Parent or any of its Affiliates in performing its obligations pursuant to this Section 7.05, as such amounts are suffered or incurred (or in advance if reasonably requested by Seller).  If Buyer does not either (i) pay such amount in full or (ii) deliver to Parent or such Affiliate a written notice (a “Dispute Notice”) that it disputes its obligation hereunder to pay any such amount (which written notice must provide an explanation of the reasons for such dispute), in either case by the end of the 30^th day after Parent or any of its Affiliates delivers a written demand for payment of any such costs and expenses (a “Payment Request”), then Parent’s obligations pursuant to this Section 7.05 shall terminate on the 10^th day after Parent or such Affiliate delivers a second written demand for payment of such amount unless Buyer either pays such amount in full or delivers a Dispute Notice by the end of such 10^th day.  If Buyer timely delivers a Dispute Notice at any time prior to the end of such 10 day period, the applicable dispute shall be resolved in accordance with Section 13.08, except the costs of arbitration shall be paid by the non-prevailing party in such dispute.  If Buyer fails to pay the amount of such award by the end of the 10^th day after such award is rendered, Parent’s obligations under this Section 7.05 shall terminate on such 10^th day.

(c)           If Buyer delivers a Dispute Notice, the amount of any payment pursuant to Section 7.05(b) shall bear interest from and including the date of the Payment Request to but excluding the date of payment at a rate per annum equal to the Prime Rate as published in the Wall Street Journal, Eastern Edition in effect from time to time.  Such interest shall be payable at the same time as the payment to which it relates and shall be calculated daily on the basis of a year of 365 days and the actual number of days elapsed, without compounding.

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(d)           Buyer shall provide, and shall cause each Company and Subsidiary to provide, Parent with all records and other information necessary for the reporting, investigation, negotiation and, if applicable, prosecution of any claim made by Parent pursuant to this Section 7.05.  Any deductible or similar amount that may be payable in respect thereof shall be the responsibility of Buyer.

ARTICLE 8

TAX MATTERS

Section 8.01.  Filing of Returns.  (a)Seller shall prepare and timely file, or cause to be prepared and filed, all Federal Income Tax returns and Combined Income Tax returns required to be filed on or after the Closing Date with respect to any Company or any Subsidiary with respect to any Pre-Closing Tax Period (taking into account any extension of a required filing date).  Seller shall, no later than 15 Business Days prior to the filing date of such tax returns, submit copies of the portions of such returns relating to the Companies or Subsidiaries to Buyer for Buyer’s review.  Seller shall timely pay or cause to be paid all Taxes shown to be due on such tax returns.

(b)           Buyer shall prepare and timely file, or cause to be prepared and timely filed, all other tax returns required to be filed by any Company or any Subsidiary after the Closing Date with respect to any Pre-Closing Tax Period (taking into account any extension of a required filing date).  Except as otherwise required by applicable law, any such return shall be prepared in a manner consistent with past practice and without a change of any election or any accounting method and shall be submitted by Buyer to Seller (together with schedules, statements and, to the extent requested by Seller, supporting documentation) at least 15 days prior to the due date (including extensions) of such return for Seller’s consent, which consent shall not be unreasonably withheld or delayed.  Seller shall pay to Buyer, prior to the due date for such returns, the Taxes that relate to the Pre-Closing Tax Period as shown on such returns, determined in the manner provided in Section 8.06(b), except to the extent that such Taxes are reflected as a liability in the calculation of Final Working Capital and not included on the Balance Sheet.

Section 8.02.  Refunds.  Buyer shall promptly pay or cause to be paid to Seller all refunds of Taxes and interest thereon received by Buyer, any Affiliate of Buyer, any Company or any Subsidiary attributable to Taxes paid by Seller or any Affiliate of Seller (or any predecessor or affiliate of the foregoing) with respect to any Pre-Closing Tax Period except to the extent that such refund arises as a result of a carryback of a loss or other Tax benefit from a Post-Closing Tax Period, or to the extent such refund was reflected as an asset in the calculation of Final Working Capital and not included on the Balance Sheet.

Section 8.03.  Transfer Taxes.  All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and

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interest) incurred in connection with transactions contemplated by this Agreement (including any real property transfer Tax and any similar Tax) shall be borne and paid 50% by Buyer, and 50% by Seller, and Buyer will file all necessary returns and other documentation with respect to all such Taxes and fees, and, if required by applicable law, Seller will, and will cause Parent and its Subsidiaries to, join in the execution of any such returns and other documentation.  Each of Buyer and Seller will bear 50% of the cost of any such filings.

Section 8.04.  Tax Sharing. Any and all existing Tax indemnity, Tax allocation or Tax sharing agreements between any Company or any Subsidiary and any other member of the Seller Group shall be terminated as of the Closing Date. After such date, none of the Companies, any Subsidiary, Seller or any Affiliate of Seller shall have any further rights or liabilities thereunder.  This Agreement shall be the sole Tax sharing agreement relating to any Company or any Subsidiary for any Pre-Closing Tax Period.

Section 8.05.  Cooperation on Tax Matters.  Buyer and Seller agree to furnish or cause to be furnished to each other, upon request, as promptly as practicable, such information (including access to books and records) and assistance relating to the Companies as is reasonably necessary for the filing of any tax return (including any report required pursuant to Section 6043 of the Code and all Treasury Regulations promulgated thereunder), for the preparation for any audit, and for the prosecution or defense of any claim, suit or proceeding relating to any proposed Tax adjustment.  Buyer and Seller agree to retain or cause to be retained all books and records pertinent to the Companies and the Subsidiaries until the applicable period for assessment under applicable law (giving effect to any and all extensions or waivers) has expired, and to abide by or cause the abidance with all record retention agreements entered into with any Taxing Authority.  Buyer agrees to use its best efforts to cause the Companies and the Subsidiaries to give Seller reasonable notice prior to transferring, discarding or destroying any such books and records relating to Tax matters and, if Seller so requests, cause the Companies and the Subsidiaries to allow Seller to take possession of such books and records.  Buyer and Seller shall cooperate with each other in the conduct of any audit or other proceedings involving any Company or any Subsidiary for any Tax purposes and each shall execute and deliver such powers of attorney and other documents as are necessary to carry out the intent of this subsection.

Section 8.06.  Indemnification by Seller. (a) Seller and Parent hereby indemnify Buyer and its Affiliates against and agrees to hold each of them harmless from (i) any Federal Income Tax, Combined Income Tax or Separate Income Tax of any Company or any Subsidiary or any income Tax of any member of the Seller Group relating to a Pre-Closing Tax Period and (ii) any Taxes or damages incurred or suffered by Buyer or any of its Affiliates arising out of a breach of any other covenants or agreements contained in this Article 8 (the sum of (i) and (ii) being referred to as a “Buyer Tax Loss”); provided that the term Buyer Tax Loss shall not include, and Seller and Parent shall have no

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liability for, the payment of any such Tax attributable to or resulting from any action described in Section 6.04, including, without limitation, an election made or deemed made by Buyer or any of its Affiliates under Section 338 of the Code or any comparable provision of applicable law; and provided further thatSeller shall have no liability for the payment of a Buyer Tax Loss to the extent that such Buyer Tax Loss is reflected as a liability in the calculation of Final Working Capital and not included on the Balance Sheet.

(b)           Any Taxes for a period that begins on or before the Closing Date and ends thereafter shall be apportioned between the Pre-Closing Tax Period and the Post-Closing Tax Period based on the actual activities, taxable income or taxable loss of the applicable entity during such Pre-Closing Tax Period and such Post-Closing Tax Period.

(c)           Any payment by Seller or Parent pursuant to this Section 8.06 shall be made not later than 30 days after receipt by Seller of written notice from Buyer stating that any Buyer Tax Loss will, within the next 30 days, be paid by Buyer or any of its Affiliates and the amount of the indemnity payment requested.

(d)           If any claim or demand for Taxes in respect of which indemnity may be sought pursuant to this Section 8.06 is asserted in writing against Buyer or any of its Affiliates, Buyer shall notify Seller of such claim or demand within 15 days of receipt thereof, or such earlier time that would allow Seller to timely respond to such claim or demand, and shall give Seller such information with respect thereto as Seller may reasonably request.  Seller may discharge, at any time, its indemnification obligation under this Section 8.06 by paying to Buyer the amount payable pursuant to this Section 8.06, calculated on the date of such payment. Seller may, at its own expense, participate in and, upon notice to Buyer, assume the defense of any such claim, suit, action, litigation or proceeding (including any Tax audit).  If Seller assumes such defense, Seller shall have the sole discretion as to the conduct of such defense and Buyer shall have the right (but not the duty) to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by Seller, provided, however, that Seller may not settle any claim, suit, action, litigation, or proceeding that relates solely to a Company or Subsidiary without Buyer’s consent, not to be unreasonably withheld or delayed.  Whether or not Seller chooses to defend or prosecute any claim, all of the parties hereto shall cooperate in the defense or prosecution thereof.

(e)           Seller or Parent shall not be liable under this Section 8.06 for (i) any Tax the payment of which was made without Seller’s prior written consent or (ii) any settlement of a claim, suit, action, litigation or proceeding with respect to which Seller was not notified pursuant to Section 8.06(d) unless Seller unreasonably withheld or delayed such consent or Seller failed to notify Buyer that it desired to participate in or assume the defense of such Tax proceedings leading to such settlement; provided, that Seller shall only be relieved of liability pursuant to this Section 8.06(e) to the extent that Seller is materially prejudiced by the failure of Buyer to obtain such consent or give such notice.

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Section 8.07.  Indemnification by Buyer. (a)Notwithstanding Section 8.06(a), Buyer agrees that Seller is to have no liability for any Tax resulting from any action referred to in Section 6.04 of any Company, any Subsidiary, Buyer or any Affiliate of Buyer, and agrees to indemnify and hold harmless Seller and its Affiliates against (i) any such Tax and, (ii) any Tax or damages incurred or suffered by Seller or any of its Affiliates arising out of a breach of any other covenant or agreement contained in this Article 8, (the sum of (i) and (ii), being referred to as a “Seller Tax Loss”).  Seller agrees to give prompt notice to Buyer of the assertion of any claim, or the commencement of any action or proceeding, in respect of which indemnity may be sought under this Section 8.07.  Buyer may participate in any such suit, action or proceeding at its own expense and the parties hereto shall cooperate in the defense or prosecution thereof.

(b)           Buyer shall not be liable under this Section 8.07 for (i) any Tax the payment of which was made without Buyer’s prior written consent or (ii) any settlement of a claim, suit, action, litigation, or proceeding with respect to which Buyer was not notified pursuant to Section 8.07(a) unless Buyer unreasonably withheld or delayed such consent or Buyer failed to notify Seller that it desired to participate in or assume the defense of such tax proceedings leading to such settlement; provided that Buyer shall only be relieved of liability pursuant to this Section 8.07(b) to the extent that Buyer is materially prejudiced by the failure of Seller to obtain such consent or give such notice.

Section 8.08.  Closing of Tax Periods.  To the extent permitted under applicable state, local or foreign law, Seller and Buyer agree to close the taxable year of each Company and Subsidiary on the Closing Date.

Section 8.09.  Reattribution Of Net Operating Losses.  Seller shall not elect to reattribute to itself any Tax Assets of the Companies or the Subsidiaries pursuant to Treasury Regulations Section 1.1502-20(g).

Section 8.10.  Purchase Price Adjustment.  Any amount paid by Seller or Buyer under Article 8 or Article 11 will be treated as an adjustment to the Purchase Price to the extent permitted by applicable law.

ARTICLE 9

EMPLOYEE BENEFITS

Section 9.01.  Maintenance of Employee Benefits. (a) For a period of twelve months from the Closing Date, Buyer agrees that it will, and will cause the Companies and the Subsidiaries to, provide the current Employees with compensation and benefits coverage that, in the aggregate, is substantially comparable to the compensation and benefits coverage provided to such Employees immediately prior to the Closing Date; provided, that in no event shall Buyer be required to provide such Employees with any benefits to the extent that such provision of benefits would adversely affect the financial condition or results

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of operation of the Companies and the Subsidiaries on a stand-alone basis.  Without limiting the generality of the foregoing, Buyer shall honor and assume the vacation or other paid time off for each Employee that has been accrued on the Closing Working Capital Statement but remains unused as of the Closing Date.

(b)           Buyer will, and will cause the Companies and the Subsidiaries to, (i) waive all limitations as to pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Employees under any health and welfare plans in which such Employees are eligible to participate after the Closing Date to the extent that such limitations were waived under the applicable employee plan; (ii) provide each Employee with credit for any co-payments and deductibles paid prior to the Closing Date in satisfying any applicable deductible or out-of-pocket requirements under any health and welfare plans that such Employees are eligible to participate in after the Closing Date; and (iii) provide each Employee with full credit for all service with Seller, any Company or any Subsidiary for purposes of eligibility and vesting (but not for purposes of benefit accrual under any defined benefit pension plan) under any such plans or arrangements provided after the Closing Date pursuant to this Section 9.01.

(c)           Buyer and Seller acknowledge and agree that nothing contained in this Section 9.01 shall be construed to limit in any way the ability of Buyer, the Companies or the Subsidiaries to terminate the employment of any current Employee from and after the Closing Date.

Section 9.02.  Employee Agreements; Change Of Control Agreements and Severance Agreements.  From and after the Closing Date, Buyer agrees that it will, and will cause the Companies and the Subsidiaries to, honor and perform all obligations of Seller, the Companies and Subsidiaries pursuant to each of the change of control, severance and employment agreements and arrangements set forth on Schedule 9.02, and Buyer acknowledges and agrees that the consummation of the transactions contemplated by this Agreement will constitute, to the extent applicable, a “change of control” of the Companies for purposes of all such plans, arrangements and agreements.  Buyer further agrees that, from and after the Closing Date, Buyer, the Companies and the Subsidiaries shall be responsible for any liabilities or claims that may arise under the plans, arrangements and agreements set forth on Schedule 9.02.  Notwithstanding the foregoing, Seller agrees that it will be responsible for paying all transaction or similar bonuses that Seller (or any of the Companies or the Subsidiaries) has agreed, orally or in writing, to provide to any Employee (including without limitation those certain bonuses that Seller has orally agreed to provide to the persons listed and in the amounts set forth on Schedule 3.20(f)).

Section 9.03.  401(k) Plan Covenants.  (a) With respect to each of Seller’s 401(k) retirement plans (“401(k) Plan”), on the Closing Date or as soon as practicable thereafter, Seller shall (i) fully vest all current Employees under the

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401(k) Plan; (ii) cause the trustee of the 401(k) Plan to segregate the assets of the 401(k) Plan representing the full account balances of current Employees as of the Closing Date; (iii) make any and all filings and submissions to the appropriate governmental agencies arising in connection with such segregation of assets and (iv) make all necessary amendments to the 401(k) Plan and related trust agreement to provide for such segregation of assets and the transfer of assets as described below. The manner in which the account balances of current Employees under the 401(k) Plans are invested shall not be affected by such segregation of assets.

(b)           On or prior to the Closing Date, Buyer shall establish or designate a 401(k) plan for the benefit of current Employees (the “Successor 401(k) Plan”), shall take all necessary action, if any, to qualify such plan under the applicable provisions of the Code and shall make any and all filings and submissions to the appropriate governmental agencies required to be made by it in connection with the transfer of assets described below.  As soon as practicable following the earlier of the delivery to Seller of a favorable determination letter from the Internal Revenue Service regarding the qualified status of the Successor 401(k) Plan as amended to the date of transfer, or the issuance of indemnities satisfactory to Seller and Buyer, Seller shall cause the trustee of the 401(k) Plan to transfer in the form of cash (notes evidencing employee indebtedness or such other form as may be agreed by Buyer and Seller) the full account balances of current Employees under the 401(k) Plan (which account balances will have been credited with appropriate earnings attributable to the period from the Closing Date to the date of transfer described herein), reduced by any necessary benefit or withdrawal payments to or in respect of current Employees occurring during the period from the Closing Date to the date of transfer described herein, to the appropriate trustee as designated by Buyer under the trust agreement forming a part of the Successor 401(k) Plan.  Seller and Buyer shall cooperate to ensure that the transactions under this Agreement will not give rise to a default event for any current Employee’s 401(k) Plan loan.

(c)           In consideration for the transfer of assets described herein, Buyer shall, effective as of the date of transfer described herein, assume all of the obligations of Seller and any of its ERISA Affiliates in respect of the account balances accumulated by current Employees under the 401(k) Plan (exclusive of any portion of such account balances which are paid or otherwise withdrawn prior to the date of transfer described herein) on or prior to the Closing Date.  Neither Buyer nor any of its Affiliates shall assume any other obligations or liabilities arising under or attributable to the 401(k) Plan.

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ARTICLE 10

CONDITIONS TO CLOSING

Section 10.01.  Conditions to Obligations of Buyer and Seller.  The obligations of Buyer and Seller to consummate the Closing are subject to the satisfaction of the following conditions:

(a)           Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby shall have expired or been terminated.

(b)           No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the consummation of the Closing.

(c)           All actions by or in respect of, or filings with and all consents, authorizations and approvals of, any Governmental Authority, including without limitation those listed on Schedule 3.03, required to permit the consummation of the Closing shall have been taken, made or obtained.

Section 10.02.  Conditions to Obligation of Buyer.  The obligation of Buyer to consummate the Closing is subject to the satisfaction (or waiver by Buyer in its sole discretion), of the following further conditions:

(a)           (i) Each of Seller and Parent shall have performed in all material respects all of its obligations hereunder required to be performed by it on or prior to the Closing Date, (ii) the representations and warranties of each of Seller and Parent contained in this Agreement and in any certificate or other writing delivered by Seller or Parent pursuant hereto shall be true at and as of the Closing Dateas if made at and as of such date (except to the extent a representation or warranty is expressly made as of an earlier date, in which case such representation or warranty shall be true at and as of such date) with only such exceptions as would not in the aggregate have a Material Adverse Effect and (iii) Buyer shall have received a certificate signed by the Senior Vice President/Chief Financial Officer of each of Seller and Parent to the foregoing effect.  For purposes of Section 10.02(a)(ii), the representations and warranties of each of Seller and Parent contained in this Agreement or in any certificate or writing delivered by Seller or Parent pursuant hereto shall be deemed to have been made without any qualifications as to materiality and, accordingly, all references therein to “material,” “Material Adverse Effect,” “in all material respects” and similar qualifications as to materiality shall be deemed to be deleted therefrom (except where any such provision requires disclosure of lists of items of a material nature or above a specified threshold).

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(b)           Buyer shall have received all documents it may reasonably request relating to the existence of each of Seller and Parent, the Companies and the Subsidiaries and the authority of each of Seller and Parent to enter into and perform this Agreement, all in form and substance reasonably satisfactory to Buyer.

(c)           Buyer shall have received a certificate signed by Seller to the effect that Seller is not a “foreign person” as defined in Section 1445 of the Code and, upon Buyer’s request, any clearance certification or similar document(s) that, in Buyer’s determination, may be required by any state taxing authority in order to relieve Buyer of any obligation to withhold any portion of the Purchase Price.

(d)           Seller shall have delivered to Buyer evidence of (i) the release, concurrently with Closing, of all Liens listed on Schedule 10.02(d) with respect to the property or assets of the Companies and the Subsidiaries, including Liens securing the obligations under or in connection with the Third Amended and Restated Credit Agreement dated as of May 11, 2000 (as subsequently amended from time to time) among Seller and the other parties listed on the signature pages thereto (the “Seller Credit Agreement”) (ii) the repayment of all outstanding Indebtedness of the Companies and the Subsidiaries (other than liabilities under capitalized leases identified on Schedule 3.10), (iii) the repayment or other cancellation of all intercompany accounts between Parent, Seller or its subsidiaries (other than any Company or an Subsidiary), on the one hand, and any Company or any Subsidiary on the other hand, and (iv) the release of all guarantees by any Company or any Subsidiary of any Indebtedness or other obligation of any third party, including the Seller or any of its Affiliates, including, without limitation, any such guarantees under the Seller Credit Agreement and the Indenture between Seller and the State Street Bank and Trust Company, dated October 15, 1998 (the “Seller Indenture”), in each case in form and substance reasonably satisfactory to the Buyer.

(e)           Buyer shall have obtained an aggregate of $80,000,000 of financing from the lenders referred to in the Commitment Letters set forth as items 1 and 2 of Schedule 4.05 and on the terms and structure and in the amounts contemplated in the term sheets attached to such Commitment Letters.

(f)            Buyer shall have received a written opinion from counsel for the Seller, dated as of the Closing Date, addressed to Buyer, substantially in the form of Exhibit A hereto.

(g)           Buyer shall have received copies of the third party consents and approvals set forth on Schedule 10.02(g).

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Section 10.03.  Conditions to Obligation of Seller.  The obligation of Seller to consummate the Closing is subject to the satisfaction (or waiver by Seller in its sole discretion) of the following further conditions:

(a)           (i) Buyer shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Closing Date, (ii) the representations and warranties of Buyer contained in this Agreement and in any certificate or other writing delivered by Buyer pursuant hereto shall be true in all material respects at and as of the Closing Date, as if made at and as of such date (except to the extent a representation or warranty is expressly made as of an earlier date, in which case such representation and warranty shall be true at and, as of such date) and (iii) Seller shall have received a certificate signed by the Chief Financial Officer of Buyer to the foregoing effect.  For purposes of Section 10.03(a)(ii), the representations and warranties of Buyer contained in this Agreement or in any certificate or writing delivered by Buyer pursuant hereto shall be deemed to have been made without any qualifications as to materiality and, accordingly, all references therein to “material,” “Material Adverse Effect,” “in all material respects” and similar qualifications as to materiality shall be deemed to be deleted therefrom (except where any such provision requires disclosure of lists of items of a material nature or above a specified threshold).

(b)           Seller shall have received all documents it may reasonably request relating to the existence of Buyer and the authority of Buyer to enter into and perform this Agreement, all in form and substance reasonably satisfactory to Seller.

ARTICLE 11

SURVIVAL; INDEMNIFICATION

Section 11.01.  Survival.  The representations and warranties of the parties hereto contained in this Agreement shall survive the Closing until the first anniversary of the Closing Date; provided that (i) the representations and warranties contained in Sections 3.01 3.02, 3.05, 3.06, 3.07, 3.18, 4.02, and 4.08, shall survive indefinitely, and (ii) the representations and warranties contained in Sections 3.20 and 3.22 shall survive until 30 days after the expiration of the statute of limitations applicable to the matters covered thereby (giving effect to any waiver, mitigation or extension thereof), if later.  The covenants and agreements of the parties hereto shall remain in full force and effect in accordance with their terms (or, if no survival period is specified herein, such covenants and agreements shall survive until fully performed or fulfilled).  Notwithstanding the preceding sentences, any covenant, agreement, representation or warranty in respect of which indemnity may be sought under this Agreement shall survive the time at which it would otherwise terminate, if notice of the inaccuracy or breach

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thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time.  The indemnity obligation pursuant to Section 11.02(a)(3) shall survive indefinitely.

Section 11.02.  Indemnification.  (a) Seller and Parent hereby indemnify Buyer and its Affiliates (including the Companies and the Subsidiaries) against and agree to hold each of them harmless from any and all damage, loss, liability, cost, charge, obligation, fee and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys’ fees and expenses in connection with any action, suit or proceeding) (“Damages”) incurred or suffered by any such Persons arising out of, resulting from, or relating or incident to (1) any misrepresentation or breach of a representation or warranty (each such misrepresentation and breach of a representation or warranty, a “Warranty Breach”), (2) any breach of covenant or agreement made or to be performed by Seller pursuant to this Agreement (other than in each case, any covenant or agreement made or to be performed pursuant to Article 8, which shall be governed by Section 8.06) or (3) the crash of Swissair Flight 111 on September 2, 1998; provided that with respect to indemnification by Seller and Parent for any Warranty Breach pursuant to this Section, (i) neither Seller nor Parent shall be liable unless the aggregate amount of Damages with respect to such Warranty Breaches exceeds $2,000,000 (the “Basket”) and then only to the extent of such excess, (ii) neither Seller nor Parent shall be liable for any single claim with respect to Warranty Breaches which results in Damages of $50,000 or less (and such claims shall not be aggregated for purposes of clause 11.02(a)(i); provided that multiple claims arising out of the same or similar event or occurrence shall be aggregated for purposes of clause 11.02(a)(ii)) and (iii) Seller’s and Parent’s maximum aggregate liability for all such Warranty Breaches shall not exceed $14,000,000 (the “Cap”).  Notwithstanding the foregoing, the limitations set forth in the proviso to the foregoing sentence shall not apply to indemnification pursuant to Section 11.02(a)(2) or 11.02(a)(3).  For purposes of Section 11.02(a)(1), the representations and warranties herein shall be deemed to have been made without any qualifications as to materiality and, accordingly, all references therein to “material,” “Material Adverse Effect,” “in all material respects” and similar qualifications as to materiality shall be deemed to be deleted therefrom (except where any such provision requires disclosure of lists of items of a material nature or above a specified threshold).

(b)           Buyer hereby indemnifies Seller and its Affiliates against and agrees to hold each of them harmless from any and all Damages incurred or suffered by Seller or any of its Affiliates arising out of any (1) Warranty Breach or (2) breach of covenant or agreement made or to be performed by Buyer pursuant to this Agreement (other than a covenant or agreement made or to be performed pursuant to Section 6.04 or Article 8, which shall be governed by Section 8.07); provided that with respect to indemnification by Buyer for any Warranty Breach pursuant to this Section, (i) Buyer shall not be liable unless the aggregate amount of Damages with respect to such Warranty Breaches exceeds the Basket and then

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only to the extent of such excess, (ii) Buyer shall not be liable for any single claim which results in Damages of $50,000 or less (and such claims shall not be aggregated for purposes of clause 11.02(b)(i); provided that multiple claims arising out of the same or similar event or occurrence shall be aggregated for purposes of clause 11.02(b)(ii)) and (iii) Buyer’s maximum aggregate liability for all such Warranty Breaches shall not exceed the Cap.  Notwithstanding the foregoing, the limitations set forth in the proviso to the foregoing sentence shall not apply to indemnification pursuant to Section 11.02(b)(2).  For purposes of Section 11.02(b)(1), the representations and warranties herein shall be deemed to have been made without any qualifications as to materiality and, accordingly, all references therein to “material,” “Material Adverse Effect,” “in all material respects” and similar qualifications as to materiality shall be deemed to be deleted therefrom (except where any such provision requires disclosure of lists of items of a material nature or above a specified threshold).

Section 11.03.  Procedures.  (a) The party seeking indemnification under Section 11.02 (the “Indemnified Party”) shall give prompt notice (the “Indemnity Notice”) to the party against whom indemnity is sought (the “Indemnifying Party”) of the assertion of any claim, or the commencement of any suit, action or proceeding (“Claim”) in respect of which indemnity may be sought under such Section and will provide the Indemnifying Party such information with respect thereto that the Indemnifying Party may reasonably request. The failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except to the extent such failure shall have adversely prejudiced the Indemnifying Party.

(b)           The Indemnifying Party shall be entitled to participate in the defense of any Claim asserted by any third party (“Third Party Claim”) and, subject to the limitations set forth in this Section, shall be entitled to control and appoint lead counsel for such defense, in each case at its expense.  If the Indemnifying Party intends to control the defense of a Third Party Claim, the Indemnifying Party shall so notify the Indemnified Party in writing within 30 days of the delivery of the Indemnity Notice with respect to such Third Party Claim.

(c)           If the Indemnifying Party shall assume the control of the defense of any Third Party Claim, (i) the Indemnifying Party shall obtain the prior written consent of the Indemnified Party before entering into any settlement of such Third Party Claim, if (A) the settlement does not release the Indemnified Party from all liabilities and obligations with respect to such Third Party Claim or (B) the settlement imposes injunctive or other equitable relief against the Indemnified Party and (ii) the Indemnified Party shall be entitled to participate in the defense of such Third Party Claim and to employ separate counsel of its choice for such purpose.  The fees and expenses of such separate counsel shall be paid by the Indemnified Party; provided that such fees and expenses will be paid by the Indemnifying Party if the Indemnified Party (y) has assumed the defense of such action pursuant to Section 11.03(d) or (z) reasonably determines in good faith based on advice of counsel that a conflict exists between the interests of the

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Indemnified Party and the Indemnifying Party, or that one or more defenses may be available to the Indemnified Party that may not be available to the Indemnifying Party.

(d)           If (i) the Indemnifying Party does not notify the Indemnified Party in writing within 30 days of the delivery of the Indemnity Notice with respect to a Third Party Claim that the Indemnifying Party will assume the defense of such Third Party Claim or (ii) the Indemnified Party reasonably determines in good faith that the Indemnifying Party has failed to pursue the defense thereof in good faith, then the Indemnified Party may assume such defense by notifying the Indemnifying Party of its election to do so.

(e)           The Indemnified Party shall obtain the prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed) before entering into any settlement of any Third Party Claim.

(f)            Each party shall cooperate, and cause their respective Affiliates to cooperate, in the defense or prosecution of any Third Party Claim and shall furnish or cause to be furnished such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials or appeals, as may be reasonably requested in connection therewith.

(g)           Each Indemnified Party shall use its commercially reasonable efforts to collect any amounts available under insurance coverage, or from any other Person alleged to be responsible, for any Damages payable under Section 11.02; provided that this Section 11.03(g) shall not prevent such Indemnified Party from exercising its rights under Section 11.02 prior to or concurrently with its use of such efforts.

Section 11.04.  Calculation of Damages.  (a) The amount of any Damages payable under Section 11.02 by the Indemnifying Party shall be reduced by any amounts recovered by the Indemnified Party under applicable insurance policies or from any other Person alleged to be responsible therefor.  If the Indemnified Party receives any amounts under applicable insurance policies or from any other Person alleged to be responsible for any Damages, subsequent to an indemnification payment by the Indemnifying Party, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any payment made or expense incurred by such Indemnifying Party in connection with providing such indemnification payment up to the amount received by the Indemnified Party, net of any expenses incurred by such Indemnified Party in collecting such amount.

(b)           The Indemnifying Party shall not be liable under Section 11.02 for Damages relating to any matter to the extent that (i) there is included in the Closing Working Capital Statement and in the calculation of Final Working Capital a specific liability or reserve relating to such matter that was not included on the Balance Sheet or (ii) the Indemnified Party had otherwise been

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compensated for such matter pursuant to the Purchase Price adjustment under Section 2.05.

(c)           Each party agrees that, for so long as such party has any right of indemnification under Section 11.02, it will not, and agrees to use its commercially reasonable efforts to ensure that its Affiliates do not, voluntarily or by discretionary action (including, without limitation, conducting any invasive sampling or testing), accelerate the timing, or increase the cost, of any obligations of any other party under Section 11.02 or this Section 11.04, except to the extent such action is taken (i) for a reasonable legitimate business purpose and not with a purpose of discovering a condition that would constitute a breach of any representation, warranty, covenant or agreement of any other party hereto or (ii) in response to a discovery by such party (or, in the case of Buyer, by any Company or any Subsidiary), without violation of clause (i) above, of meaningful evidence of a condition that constitutes a breach of any representation, warranty, covenant or agreement of any other party hereunder.

(d)           The Indemnifying Party shall not be liable under Section 11.02 for any punitive Damages (other than punitive Damages paid to any third party in respect of a Third Party Claim).

(e)           Seller acknowledges and agrees that, upon and after the Closing, none of the Companies or the Subsidiaries shall have any liability or obligation to indemnify, save or hold harmless or otherwise pay, reimburse or make Seller or any of its Affiliates or Representatives whole for or on account of any indemnification claims made by Seller or any of its Affiliates or Representatives for any breach of any representation, warranty, covenant or agreement of Seller, the Company, or any of the Subsidiaries, and Seller and its Affiliates and Representatives shall have no right of contribution against any Company or any Subsidiary.

Section 11.05.  Environmental Matters.  (a) Seller and Parent hereby indemnify Buyer and its Affiliates (including the Companies and the Subsidiaries) against, and agree to hold each of them harmless from, any and all Environmental Costs and Liabilities incurred or suffered by any such Persons arising out of the Release, prior to the Closing Date, of any Hazardous Materials (“Pre-Closing Releases”) at, on, under or from Avtech’s facilities located at 3400, 3326, 3320 and 3422 Wallingford Avenue North and 1813, 1815, and 1914 North 34^th Street, Seattle, Washington (collectively, the “Properties”); provided that (i) Seller’s maximum liability under this Section 11.05(a) shall not exceed, in the aggregate, $5,000,000, (ii) Seller’s obligation to indemnify Buyer and its Affiliates pursuant to this Section 11.05(a) shall terminate on the earlier of (x) 7.5 years after the Closing Date and (y) the repayment and termination of the senior secured credit facility described in the Commitment Letter for such facility set forth on Schedule 4.05 and (iii) Seller shall have no obligation under this Section 11.05 to indemnify Buyer and its Affiliates to the extent that any Environmental Costs and Liabilities are caused or exacerbated as a direct result of any action or omissions of Buyer or

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its Affiliates (including the Companies and the Subsidiaries) after the Closing Date.

(b)           With respect to any Pre-Closing Releases for which Seller is obligated to indemnify Buyer and its Affiliates pursuant to this Section 11.05, Buyer shall have the right to control any Remedial Action which may be required in connection with such Pre-Closing Releases; provided that (i) Buyer shall provide Seller with any report, workplan, technical data, test result, correspondence or other information in connection with such Remedial Action (“Remedial Action Documents”) and an opportunity to comment on (which comments shall not be unreasonably withheld or delayed and shall be reasonably taken into account by Buyer) and approve (which approval shall not be unreasonably withheld or delayed by Seller) such Remedial Action Documents prior to their submission to any Governmental Authority or third party claimant, (ii) Seller shall be provided with at least ten (10) days’ notice of (except in the case of an emergency, Seller shall be provided with notice of any meetings or  scheduled telephonic conferences as soon as practicable prior thereto), and have the right to attend, any meetings or scheduled telephonic conferences with any Governmental Authority or third party claimant relating to such Remedial Action and (iii) Seller shall have the right to take split samples and shall be provided reasonable access, in each case, for the purpose of verifying the performance of any Remedial Action.

(c)           Buyer agrees that it shall not, for so long as it has any right of indemnification under this Section 11.05, and agrees to use its best efforts to ensure that its Affiliates (including the Companies and the Subsidiaries) do not, voluntarily or by discretionary action, (including, without limitation, conducting any invasive sampling or testing) accelerate the timing of, or increase the cost of, any obligation of Seller under this Section 11.05, except to the extent that such action is taken (i) for a reasonable legitimate business purpose and not with a purpose of discovering a condition that could lead to an indemnification claim under this Section 11.05 or (ii) in response to a discovery by Buyer, any Company or any Subsidiary, without violation of clause (i) above, of meaningful evidence of a condition that could lead to an indemnification claim under this Section 11.05; (any such voluntary or discretionary action, other than as so excepted, a “Prohibited Action”).  Notwithstanding any provision herein to the contrary, Seller shall not be obligated to indemnify Buyer and its Affiliates under this Section 11.05 for any Environmental Costs and Liabilities to the extent identified as a result of, or arising from, any Prohibited Action.

(d)           Notwithstanding any other provision herein to the contrary, Seller shall be obligated to indemnify Buyer and its Affiliates pursuant to this Section 11.05 only to the extent that any Remedial Action conducted pursuant to this Section 11.05 (i) is required pursuant to an applicable Environmental Law in effect as of the Closing Date, (ii) shall be the most reasonable cost-effective method under the circumstances and based upon the assumption that the use of the Properties is the same as that of the Closing Date, and (iii) shall not exceed the

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least stringent requirements of any applicable Environmental Law in effect as of the Closing Date.  To the extent necessary to achieve the purposes set forth in this Section 11.05(d), Buyer shall agree to the institution of any deed or land use restrictions or other institutional controls in the scope of work for the Remedial Action so long as such restrictions or controls do not materially or unreasonably restrict or limit the activities currently being performed at the Properties.

(e)           In the event Seller purchases an environmental risk insurance policy insuring Seller against any Environmental Costs and Liabilities that it may incur pursuant to this Section 11.05, Buyer agrees that it shall pay all premiums relating to such insurance policy, not to exceed $110,000.

(f)            This Section 11.05 shall not limit, restrict, impact, alter or otherwise have any effect on the indemnification set forth in Section 11.02.  In the event that Buyer can make a claim under both Sections 11.02 and 11.05, Buyer shall not be precluded from making a claim under one section by virtue of its pursuit of a claim under the other section; provided that any Environmental Costs and Liabilities recovered under one section with respect to a particular matter shall not be recoverable under the other section.

Section 11.06.  Assignment of Claims.  If the Indemnified Party receives any payment from an Indemnifying Party in respect of any Damages pursuant to Section 11.02 or 11.05 and the Indemnified Party could have recovered all or a part of such Damages from a third party (a “Potential Contributor”) based on the underlying claim asserted against the Indemnifying Party, the Indemnified Party shall use commercially reasonable efforts to assign such of its rights to proceed against the Potential Contributor as are necessary to permit the Indemnifying Party to seek to recover from the Potential Contributor the amount of such payment.

Section 11.07.  Exclusivity.  Except as specifically set forth in Sections 8.06, 8.07, 11.02 and 11.05 and effective as of the Closing, each party and each party on behalf of each of its Affiliates waives any rights and claims (other than rights to an equitable remedy for breach of any covenants contained herein) that it may have against any other party and such other party’s Affiliates, and their respective counsel, financial advisors, auditors and other authorized representatives, whether in law or in equity, relating to any Company, any Subsidiary or the Shares or the transactions contemplated hereby.  The rights and claims referred to in the immediately preceding sentence include, without limitation, claims for contribution or other rights of recovery arising out of or relating to any Environmental Law, whether now or hereafter in effect, claims for breach of contract, breach of representation or warranty, negligent misrepresentation and all other claims for breach of duty.  After the Closing, Sections 8.06, 8.07, 11.02 and 11.05 will provide the exclusive remedy for any misrepresentation, breach of warranty, covenant or other agreement or other claim arising out of this Agreement or the transactions contemplated hereby (other than rights to an equitable remedy for breach of any covenants contained herein).

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Notwithstanding the foregoing, nothing shall limit the rights of (i) any Person to assert any claim alleging fraud or deceit or (ii) Seller or its Affiliates to assert any claim with respect to any Releases of Hazardous Materials (excluding any future migration of Pre-Closing Releases) or violations of any Environmental Laws, in each case, to the extent that such Releases or violations occur after the Closing Date, in connection with any Company or Subsidiary or their respective properties.

ARTICLE 12

TERMINATION

Section 12.01.  Grounds for Termination.  This Agreement may be terminated at any time prior to the Closing:

(a)           by mutual written agreement of Seller and Buyer;

(b)           by either Seller or Buyer if the Closing shall not have been consummated on or before June 30, 2003;

(c)           by Buyer (if Buyer is not in breach of any of the representations, warranties or covenants made by it under this Agreement), if Seller is in breach of any representation, warranty or covenant made by Seller hereunder, which breach (i) would, if not remedied, result in the failure of any condition set forth in Section 10.01 or 10.02 to be satisfied and (ii) either (A) is impossible to remedy or (B) is not remedied within 30 days of delivery of notice of such breach by Buyer to Seller;

(d)           by Seller (if Seller is not in breach of any of the representations, warranties or covenants made by it under this Agreement), if Buyer is in breach of any representation, warranty or covenant made by Buyer hereunder, which breach (i) would if not remedied, result in the failure of any condition set forth in Section 10.01 or 10.03 to be satisfied and (ii) either (A) is impossible to remedy or (B) is not remedied within 30 days of delivery of notice of such breach by Seller to Buyer;

(e)           by either Seller or Buyer if consummation of the transactions contemplated hereby would violate any non-appealable final order, decree or judgment of any Governmental Authority having competent jurisdiction.

The party desiring to terminate this Agreement pursuant to clause 12.01(b), 12.01(c), 12.01(d) or 12.01(e) shall give notice of such termination to the other party.

Section 12.02.  Effect of Termination.  If this Agreement is terminated as permitted by Section 12.01, such termination shall be without liability of either party (or any stockholder, director, officer, employee, agent, consultant, Affiliate

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or representative of such party) to the other party to this Agreement; provided that if such termination shall result from the willful (i) failure of either party to fulfill a condition to the performance of the obligations of the other party, (ii) failure of either party to perform a covenant of this Agreement or (iii) breach by either party hereto of any representation or warranty or agreement contained herein, such party shall be fully liable for any and all Damages incurred or suffered by the other party as a result of such failure or breach.  The provisions of Sections 6.01and 7.03 and Article 13 shall survive any termination hereof pursuant to Section 12.01.

ARTICLE 13

MISCELLANEOUS

Section 13.01.  Notices.  All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given,

if to Buyer, to:

Wings Holdings, Inc.

c/o Odyssey Investment Partners, LLC

280 Park Avenue

West Tower, 38th Floor

New York, New York 10017

Attention:  Bill Hopkins

Telecopy No.: (212) 351-7930

with a copy to:

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

Attention: Robert Kennedy

Telecopy No.: (212) 751-4865

if to Seller, to:

DeCrane Aircraft Holdings, Inc.

2361 Rosecrans Avenue

Suite 180

El Segundo, CA  90245

Attention: Richard J. Kaplan

Fax: (310) 643-5106

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with a copy to:

Davis Polk & Wardwell

450 Lexington Avenue

New York, New York  10017

Attention: Nancy L. Sanborn

Fax:  (212) 450-3800

All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a business day in the place of receipt.  Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt.

Section 13.02.  Amendments and Waivers.  (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective.

(b)           No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 13.03.  Expenses.  Except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense; provided that all fees and expenses of the Companies’ and the Subsidiaries’ outside counsel, financial advisors, independent accountants and other advisors incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by Seller (other than any amounts incurred after the date hereof at the request of Buyer or any of its Affiliates, (provided that Seller notifies Buyer in writing prior to the incurrence of such expense that such expense will be paid by Buyer) or otherwise in connection with the financing of the Purchase Price, and fees and expenses of Buyer and its Affiliates).

Section 13.04.  Successors and Assigns.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other party hereto.  Notwithstanding the immediately preceding sentence, Buyer may assign, delegate, or otherwise transfer all or any part of its rights and obligations under this Agreement (i) to any Affiliate of Buyer that owns directly or indirectly the Companies and the Subsidiaries, (ii) in connection with the sale of all or substantially all of the business and assets of the Companies

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and the Subsidiaries, or (iii) as collateral security for the agent and lenders pursuant to the senior secured credit facility referenced in the Commitment Letters; in each case, so long as Buyer and such transferee each shall be responsible for Buyer’s obligations under this Agreement.  In addition, prior to the Closing, Buyer may assign its right to purchase the Shares in whole or in part to one or more subsidiaries of Buyer, so long as Buyer and such transferee each shall be responsible for Buyer’s obligations under this Agreement.

Section 13.05.  Governing Law.  This Agreement shall be governed by and construed in accordance with the law of the State of New York, without regard to the conflicts of law rules of such state.

Section 13.06.  WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING BROUGHT BY ANY PARTY HERETO ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 13.07.  Disputes Arising On or Prior to the Closing Date.  (a) Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding brought by any party hereto on or prior to the Closing Date which seeks to enforce any provision of, or is based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Southern District of New York or any New York State court sitting in New York County, so long as one of such courts shall have subject matter jurisdiction over such suit, action or proceeding, and that any cause of action arising out of this Agreement shall be deemed to have arisen from a transaction of business in the State of New York, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding, and each party irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum.  Process in any such suit, action or proceeding, may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court.  Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 13.01 shall be deemed effective service of process on such party.

(b)           The parties hereto agree that irreparable damage would occur if any provision of this Agreement which is anticipated to be performed on or prior to the Closing Date were not performed in accordance with the terms hereof and that each party shall be entitled to equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or injunctions or other equitable relief to prevent breaches of any such provisions of this Agreement or to enforce specifically the performance of any such terms

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and provisions of this Agreement in the United States District Court for the Southern District of New York or any New York State court sitting in New York County, in addition to any other remedy to which such party is entitled at law or in equity.

Section 13.08.  Disputes Arising After the Closing Date.  (a) The parties hereto agree that any and all disputes, claims or controversies brought by any party hereto after the Closing Date that arise out of or relate to this Agreement, other than disputes pursuant to Section 2.02 or 2.04 of this Agreement, but including disputes with respect to issues regarding the validity, formation or enforceability of this Agreement, shall be submitted to final and binding arbitration before Jams in  NEW YORK, NEW YORK (“JAMS”), or its successor; provided that any disputes arising under Sections 2.02 or 2.04(c) of this Agreement shall be resolved in accordance with the dispute resolution mechanisms contained in those Sections.  Any party may commence the arbitration process called for in this Section by filing a written demand for arbitration with JAMS, with copies to the other party.  The arbitration will be conducted in accordance with the provisions of JAMS’ Streamlined Arbitration Rules and Procedures as revised September 2002 (“JAMS Rules”), except that the time deadlines and other terms in this Agreement shall govern and supersede the JAMS Rules in the event of a conflict.  The parties will cooperate with JAMS and with one another in selecting an arbitrator from JAMS’ panel of neutrals, and in scheduling the arbitration proceedings.  The parties agree that they will participate in the arbitration in good faith, and that they will share equally in its costs.  The provisions of this Section may be enforced by any court of competent jurisdiction.

(b)           The arbitration shall be conducted by one neutral arbitrator, who must be a retired state court or federal court judge, selected in accordance with JAMS Rule 12.  The JAMS Case Manager shall supervise the selection of the arbitrator to assure that an arbitrator is appointed and that the parties participate in an initial conference with the arbitrator within 30 days of the date of the filing of the demand for arbitration with JAMS.  In no event shall any delay in the selection and appointment of the arbitrator delay the time deadline for the commencement of the arbitration hearing as provided for in Section 13.08(d) of this Agreement.

(c)           The exchange of information by the parties to the arbitration shall be in accordance with JAMS Rule 13, except that the arbitrator shall have the discretion to permit the parties to conduct additional discovery as long as such discovery is reasonable and does not delay the commencement of the arbitration hearing as provided for in Section 13.08(d) of this Agreement.

(d)           The arbitrator, after consultation with the parties, shall determine the date of the arbitration hearing.  The arbitration hearing should begin within 60 calendar days of the filing of the demand for arbitration with JAMS.  In no event shall the arbitration hearing commence later than 75 calendar days from the date

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of filing of the demand for arbitration, as the parties agree that time is of the essence.  The arbitrator and the parties shall schedule the hearing for no longer than 10 consecutive business days, with time at the hearing allocated equally to each side.  The place of arbitration shall be New York City.

(e)           Absent good cause for an extension, the arbitrator shall render an award within 15 calendar days of the conclusion of the arbitration hearing in accordance with JAMS Rule 19(f), except that the arbitrator shall provide a written statement of his or her reasons for the award which shall become part of the award and be admissible in any judicial proceeding to enforce the award.  The award of the arbitrator shall be final, binding, non-appealable and enforceable as a judgment in any court of competent jurisdiction.  No motion for a new trial or hearing will be allowed.

(f)            Any action brought to enforce this Section or any arbitration award pursuant to this Section shall be brought in the United States District Court for the Southern District of New York in the State of New York or in any New York State court sitting in New York County, and each of the parties hereby irrevocably consents to the jurisdiction of such court.

(g)           The costs of such arbitration pursuant to this Section 13.08, including the fees and expenses of the arbitrator, shall be shared equally by the parties.  Each party shall bear the costs of preparing and presenting its case, including its own attorney’s fees.  Buyer and Seller agree that this provision and the arbitrator’s authority to grant relief shall be subject to the United States Arbitration Act, 9 U.S.C. 1-16 et seq., the provisions of this Agreement, and the ABA-AAA Code of Ethics for Arbitrators in Commercial Disputes.  Buyer and Seller agree that the arbitrator shall have no power or authority to make awards or issue orders of any kind except as expressly permitted by this Agreement, and that in no event shall the arbitrator have the authority to make any award that provides for punitive or exemplary damages.

(h)           At the option of either party, such party may include in the demand for arbitration a request for a meeting between senior executives of the parties having responsibility for the matter (the “Direct Meeting”).  If a request for a Direct Meeting is made, the parties to this Agreement shall cause their respective senior executives to meet in person or, by agreement by the parties, by a telephonic conference call, no later than 10 calendar days following receipt of the request.  The parties may consider mediation; however, in no event shall the Direct Meeting and/or mediation delay or change the time deadlines for the arbitration.

Section 13.09.  Counterparts; Third Party Beneficiaries.  This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto.  No provision

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of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

Section 13.10.  Entire Agreement.  This Agreement and the Confidentiality Agreement constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement.

Section 13.11.  Captions.  The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

Section 13.12.  Interpretation.  Each of the parties acknowledges that it has been represented by counsel in connection with this Agreement and the transactions contemplated hereby and thereby.  Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application and is expressly waived.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

WINGS HOLDINGS, INC.
By:	/s/ William F. Hopkins
	Name:	William F. Hopkins
	Title:	President
DECRANE AIRCRAFT HOLDINGS, INC.
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President, Chief Financial Officer, Secretary and Treasurer
DECRANE HOLDINGS CO.
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Chief Financial Officer and Assistant Secretary

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EX-3.3.2.1

Exhibit 3.3.2.1

AMENDMENT NO. 1 TO LIMITED LIABILITY COMPANY
AGREEMENT OF AEROSPACE DISPLAY SYSTEMS, LLC

AMENDMENT dated as of March 9, 2003 to the Limited Liability Company Agreement of Aerospace Display Systems, LLC (“ADS”) dated as of July 1, 2000 (as heretofore amended, the “LLC Agreement”).

W I T N E S S E T H :

WHEREAS, DeCrane Aircraft Holdings, Inc. (the “Initial Member”), as the sole Member of ADS, wishes to amend the LLC Agreement as set forth herein;

NOW, THEREFORE, the Initial Member hereby approves the following:

Section 1.  Definitions; References.  Unless otherwise specifically defined herein, each capitalized term used herein which is defined in the LLC Agreement shall have the meaning assigned to such term in the LLC Agreement.  Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the LLC Agreement shall, from and after the date hereof, refer to the LLC Agreement as amended hereby.

Section 2.  Amendment to Permitted Transfer Provisions.  Section 9.2 of the LLC Agreement is amended by inserting the following sentence at the end thereof:

“In addition, the Initial Member or other Members may transfer all of their respective Interests in connection with a sale of all of the outstanding Interests to a single transferee or group of affiliates transferees.”

Section 3.  Amendment to Admission of Members Provision.  Section 9.7 of the LLC Agreement is amended by adding the following sentence at the end thereof:

“Notwithstanding the foregoing, if the Initial Member or other Members shall transfer all of their respective Interests in connection with a sale of all of the outstanding Interests to a single transferee or a group of affiliated transferees, each such transferee shall be admitted as a Member without the approval required by Section 5.6.”

Section 4.  Approval Of Amendment.  Notwithstanding any provision to the contrary in the LLC Agreement, no separate instrument reflecting the approval of this Amendment by the Members shall be required for this Amendment to be effective as of the date hereof.

Section 5.  GOVERNING LAW.  DELAWARE LAW SHALL GOVERN THIS AMENDMENT AND ALL DISPUTES ARISING HEREUNDER.

Section 6.  Counterparts; Effectiveness.  This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Amendment shall be effective as of the date hereof when executed by the Initial Member.

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IN WITNESS WHEREOF, the Initial Member has caused this Amendment to be duly executed as of the day and year first above written.

DECRANE AIRCRAFT HOLDINGS, INC.
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President, Chief Financial Officer, Secretary and Treasurer

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EX-10.10.6

Exhibit 10.10.6

DECRANE AIRCRAFT HOLDINGS, INC.

THIRD AMENDMENT
TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT

This THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is dated as of March 31, 2003 and entered into by and among DeCrane Aircraft Holdings, Inc., a Delaware corporation (“Company”), the financial institutions listed on the signature pages hereof (“Lenders”), Credit Suisse First Boston (successor to DLJ Capital Funding, Inc.), as syndication agent for Lenders (“Syndication Agent”), and Bank One, NA, as administrative agent for Lenders (“Administrative Agent”), and is made with reference to that certain Third Amended and Restated Credit Agreement, dated as of May 11, 2000, as amended by a First Amendment to Third Amended and Restated Credit Agreement, dated as of June 30, 2000, and as further amended by an Increased Commitments Agreement to Third Amended and Restated Credit Agreement, dated as of April 27, 2001 and as further amended by a Second Amendment to Third Amended and Restated Credit Agreement dated as of March 19, 2002 (the “Credit Agreement”), by and among Company, the lenders listed on the signature pages thereof, Syndication Agent and Administrative Agent.  Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement.

RECITALS

WHEREAS, Company and Lenders desire to amend the Credit Agreement to (i) consent to the appointment of a successor administrative agent, (ii) increase the interest rate margins applicable to the Loans, (iii) reduce the Revolving Loan Commitments to $40,000,000, (iv) modify the financial covenants in certain respects, (v) permit the sale of Company’s Specialty Avionics Group, (vi) permit the issuance of Indebtedness of up to $100,000,000 and the repurchase of Senior Subordinated Notes of up to $20,000,000, and (vii) make certain other amendments as set forth below:

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:

Section 1.AMENDMENTS TO THE CREDIT AGREEMENT

1.1Amendments to Section 1: Definitions

A.Subsection 1.1 of the Credit Agreement is hereby amended by adding thereto the following definitions, which shall be inserted in proper alphabetical order:

“First Lien Leverage Ratio” means, as of any date, the ratio of (a) Net Senior Debt minus Permitted Indebtedness as of the last day of a Fiscal Quarter to (b) Consolidated EBITDA for the consecutive four Fiscal Quarters ending on the last day of such Fiscal Quarter.

“Holders of Permitted Indebtedness” means the holders from time to time of any Permitted Indebtedness issued by Company and their representatives.

“Intercreditor Agreement” means an intercreditor agreement among Syndication Agent and the Holders of Permitted Indebtedness, which shall be satisfactory in form and substance to Syndication Agent and which shall provide, among other things, that (i) no Holder of Permitted Indebtedness may take any enforcement action in respect of the Permitted Indebtedness or the Collateral, or any portion thereof, unless the Obligations have been paid in full in cash, all Letters of Credit have expired or been surrendered to Issuing Lender or cash collateralized in a manner satisfactory to Syndication Agent and the Revolving Loan Commitments have been terminated; (ii) no payment may be made in respect of such Permitted Indebtedness on and after the date that the Holders of Permitted Indebtedness have been notified in writing by Syndication Agent that an Event of Default pursuant to subsection 8.1 hereof has occurred and is continuing; (iii) Syndication Agent and Requisite Lenders may consent to any sale of assets and to the release of Liens in respect of the Collateral without consent of the Holders of Permitted Indebtedness; (iv) Syndication Agent and Requisite Lenders may consent to the use of cash collateral and provide financing in any voluntary or involuntary bankruptcy or insolvency proceeding in respect of Company or any Subsidiary on terms acceptable to them, without consent of the Holders of Permitted Indebtedness; (v) the Holders of Permitted Indebtedness may not initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity, perfection or priority of the Obligations or any Liens securing the payment of the Obligations; (vi) the Liens securing the Permitted Indebtedness shall be subordinated to the Liens securing the Obligations for all purposes; (vii) proceeds of the sale or other disposition of the Collateral (pursuant to permitted asset sales, foreclosure or otherwise) shall be applied in accordance with the terms of this Agreement or as otherwise consented to by Syndication Agent and Requisite Lenders, without in any case the consent of, or any accounting to, the Holders of Permitted Indebtedness; and (viii) no amendments or changes to the documents evidencing the Permitted Indebtedness shall be effective if the effect of such amendment or change is to increase the interest rate on such Permitted Indebtedness, change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, or change any collateral therefor (other than to release such collateral) or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder to the detriment of Lenders or to confer any additional rights on the Holders of Permitted Indebtedness (or a trustee or other representative on their behalf) which would be adverse to Lenders, without the consent of Requisite Lenders.

“Permitted Indebtedness”  means up to $100,000,000 in aggregate principal amount of Indebtedness, which (a) shall (i) provide for no scheduled redemptions, prepayments, sinking fund installment payments or maturities prior to June 30, 2007 and (ii) not bear cash interest in excess of 12% per annum, (b) may be secured by Liens on all or a portion of the Collateral, as evidenced by an Intercreditor Agreement, and (c) shall be issued pursuant to documentation containing covenants, defaults, remedies and other material terms in form and substance satisfactory to Syndication Agent.

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“Rating Downgrade Period” means any period during which the rating with respect to the Loans established by S&P is “CCC+” or lower, or in which the rating established by Moody’s is “Caa1” or lower, or during which either S&P or Moody’s does not provide a rating with respect to the Loans.

“Refurbishment Project” means capital expenditures directly related to the acquisition of facilities, equipment, tooling and startup of a refurbishment business activity to corporate, VIP and head of state aircraft.

 “SAG Stock Purchase Agreement” means the agreement between Odyssey Investment Partners LLC or its affiliates and Company dated as of March 14, 2003, pursuant to which Specialty Avionics Group is to be sold, as amended to the date of effectiveness of the Third Amendment to this Agreement.

“SAG Sale” means the sale of all of the capital stock (or other equity interests) of the Subsidiaries constituting the Specialty Avionics Group or the sale of all of the assets of such Subsidiaries to Odyssey Investment Partners LLC or its affiliates pursuant to the SAG Stock Purchase Agreement.

“Specialty Avionics Group” means the specialty avionics business of Company that is conducted by Avtech, Aerospace Display Systems, LLC and Tri-Star Electronics International, Inc.

“Subdebt Reduction Event” means the first issuance after April 1, 2003 of Permitted Indebtedness in a principal amount equal to or greater than $50 million.

B.Subsection 1.1 of the Credit Agreement is hereby amended by adding an “and” and the following at the end of the definition of “Permitted Acquisition”:

“(iii) equity Securities of Parent issued as consideration with respect to any acquisition consummated after April 1, 2003 shall be excluded from any such calculation on any date.

Notwithstanding the foregoing, no acquisition otherwise permitted hereby by Company or a Subsidiary shall be a Permitted Acquisition if any consideration therefor consists of any Cash, Indebtedness or other assets other than equity securities of Parent or Earn-outs unless, after giving effect to such transaction, (A) the First Lien Leverage Ratio is equal to or less than 2.5x for the four Fiscal Quarter period for which financial statements have been delivered pursuant to subsection 6.1 ending immediately prior to the date of closing of such acquisition, as evidenced by an Officer’s Certificate of Company delivered on such date of closing to Syndication Agent showing the calculations therefor and (B) on the date of closing of such acquisition, the difference between the aggregate Revolving Commitments and the Total Utilization of Revolving Loan Commitments is at least $15,000,000.”

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1.2Amendments to Section 2: Amounts and Terms of Commitments and Loans

A.Subsection 2.1A(iii) of the Credit Agreement is hereby amended by adding the following at the end thereof:

“Notwithstanding the foregoing, the aggregate amount of the Revolving Loan Commitments is $40,000,000; provided that the aggregate amount of the Revolving Loan Commitments shall be reduced to $35,000,000 upon the Subdebt Reduction Event.”

B.Subsection 2.2A(i) of the Credit Agreement is hereby amended by deleting it in its entirety and substituting the following therefor:

“(i)(a)Subject to the provisions of subsection 2.2E, the Tranche A Term Loans and the Revolving Loans shall bear interest from March 31, 2003 through maturity as follows:

(1)if a Base Rate Loan, then at the sum of the Base Rate plus the Base Rate Margin set forth in the table below opposite the Consolidated Leverage Ratio as set forth in the most recent Margin Determination Certificate delivered pursuant to subsection 6.1(iv); or

(2)if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate for the Interest Period applicable to such Loan plus the Eurodollar Rate Margin set forth in the table below opposite the Consolidated Leverage Ratio as set forth in the most recent Margin Determination Certificate delivered pursuant to subsection 6.1(iv):

Consolidated Leverage Ratio	Applicable Eurodollar Rate Margin		Applicable Base Rate Margin
Greater than or equal to 5.00:1.00	5.25	%	4.00	%
Greater than or equal to 4.50:1.00 but less than 5.00:1.00	5.00	%	3.75	%
Greater than or equal to 4.00:1.00 but less than 4.50:1.00	4.75	%	3.50	%
Greater than or equal to 3.50:1.00 but less than 4.00:1.00	4.25	%	3.00	%
Greater than or equal to 3.00:1.00 but less than 3.50:1.00	4.00	%	2.75	%
Less than 3.00:1.00	3.50	%	2.25	%

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provided that (i) during a Rating Downgrade Period each of the applicable margins provided in the above table shall be increased by 0.5% and (ii) upon the Subdebt Reduction Event each of the applicable margins provided in the above table shall be decreased by 0.5%;

Changes in the applicable margin for Tranche A Term Loans and Revolving Loans resulting from a change in the Consolidated Leverage Ratio shall become effective as provided in subsection 2.3C.

If at any time a Margin Determination Certificate is not delivered at the time required pursuant to subsection 6.1(iv), from the time such Margin Determination Certificate was required to be delivered until delivery of such Margin Determination Certificate, such applicable margins shall be the maximum percentage amount for the relevant Loan set forth above.

(b)Subject to the provisions of subsection 2.2E, the Tranche B Term Loans shall bear interest from March 31, 2003 through maturity as follows:

(1)if a Base Rate Loan, then at the sum of the Base Rate plus 4.25% per annum; provided that during a Rating Downgrade Period, such margin shall be increased by 0.5% per annum and if the Subdebt Reduction Event occurs, such margin shall be decreased by 0.5%; or

(2)if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate for the Interest Period applicable for such Loan plus 5.50% per annum; provided that during a Rating Downgrade Period, such margin shall be increased by 0.5% per annum and if the Subdebt Reduction Event occurs, such margin shall be decreased by 0.5%.

(c)Subject to the provisions of subsection 2.2E, the Tranche D Term Loans shall bear interest from March 31, 2003 through maturity as follows:

(1)if a Base Rate Loan, then at the sum of the Base Rate plus 4.75% per annum; provided that during a Rating Downgrade Period, such margin shall be increased by 0.5% per annum and if the Subdebt Reduction Event occurs, such margin shall be decreased by 0.5%; or

(2)if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate for the Interest Period applicable to such

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Loan plus 6.00% per annum; provided that during a Rating Downgrade Period, such margin shall be increased by 0.5% per annum and if the Subdebt Reduction Event occurs, such margin shall be decreased by 0.5%.”

C.Subsection 2.4B(iii)(a) of the Credit Agreement is hereby amended by adding at the end the following:

“provided that the Net Asset Sale Proceeds from the SAG Sale shall be applied to prepay the Loans as provided in subsection 2.4B(iv)(b) no later than the first Business Day following the receipt thereof.”

D.Subsection 2.4B(iii)(c) of the Credit Agreement is hereby amended by adding at the end the following:

“provided further that, notwithstanding the foregoing, 50% of the Net Securities Proceeds from the issuance of any Permitted Indebtedness shall be applied to prepay the Loans as provided in subsection 2.4B(iv)(b) no later than the first Business Day following the receipt thereof.”

E.Subsection 2.4B(iv)(b) of the Credit Agreement is hereby amended by adding at the end the following:

“provided that $4,000,000 of the Net Asset Sale Proceeds from the SAG Sale shall be applied to prepay the Revolving Loans, without a reduction in Revolving Loan Commitments, and the remaining balance of such Net Asset Sale Proceeds shall be applied to the prepayment of the Term Loans as provided in subsection 2.4B(iv)(c).”

1.3Amendment to Section 6:  Company’s Affirmative Covenants

Subsection 6.1 of the Credit Agreement is hereby amended by adding the following at the end of subsection 6.1(ii):

“provided that the report on Company’s consolidated financial statements by independent certified public accountants that is required to be delivered without Impermissible Qualification pursuant to this subsection 6.1(ii) within 105 days of the end of the Fiscal Year ended December 31, 2002 may be delivered by Company at any time on or prior to the thirtieth day following consummation of the SAG Sale;”

1.4.Amendments to Section 7:  Company’s Negative Covenants

A.Subsection 7.1 of the Credit Agreement is hereby amended by adding an “and” and the following new clause (x) immediately after subsection 7.1(ix) as follows:

“(x)Company may become and remain liable with respect to Permitted Indebtedness; provided that Company causes an opinion of counsel in form and substance reasonably satisfactory to Administrative Agent to be delivered to

6

Administrative Agent to the effect that the incurrence and performance of the terms of such Permitted Indebtedness do not conflict with or violate the terms of this Agreement or the Senior Subordinated Note Indenture at or prior to the date such Permitted Indebtedness is incurred.”

B.Subsection 7.2A of the Credit Agreement is hereby amended by adding an “and” and the following new clause (xi) immediately after subsection 7.2A(x) as follows:

“(xi)Liens securing Permitted Indebtedness, such Liens to be subject to an Intercreditor Agreement.”

C.Subsection 7.2B of the Credit Agreement is hereby amended by adding immediately after the reference to the numeral “(viii)” the phrase “or (x)”.

D.Subsection 7.5 of the Credit Agreement is hereby amended by adding an “and” and the following new clause (vii) immediately after subsection 7.5(vi) as follows:

“(vii)Company may purchase, redeem, or otherwise acquire or retire Subordinated Indebtedness in an amount up to but not exceeding $20 million with proceeds from the issuance of Subordinated Indebtedness permitted by subsection 7.1 or equity Securities of Company.”

E.Subsection 7.6 of the Credit Agreement is hereby amended by deleting it in its entirety and substituting the following therefor:

“7.6Financial Covenants.

“A.Minimum Fixed Charge Coverage Ratio.  Company shall not permit the Consolidated Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending March 31, 2003, occurring during any period set forth below to be less than the correlative ratio indicated:

Period	Minimum Fixed Charge Coverage Ratio
1st Fiscal Quarter, 2003	1.15	x
2nd Fiscal Quarter, 2003	0.75	x
3rd Fiscal Quarter, 2003	0.70	x
4th Fiscal Quarter, 2003	0.70	x
1st Fiscal Quarter, 2004	0.75	x
2nd Fiscal Quarter, 2004	0.75	x
3rd Fiscal Quarter, 2004	0.70	x
4th Fiscal Quarter, 2004	0.70	x
1st Fiscal Quarter, 2005 and thereafter	1.20	x

B.Maximum Leverage Ratio.  Company shall not permit the Consolidated Leverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter

7

ending March 31, 2003, occurring during any period set forth below to exceed the correlative ratio indicated:

Period	Maximum Consolidated
1st Fiscal Quarter, 2003	6.40	x
2nd Fiscal Quarter, 2003	8.25	x
3rd Fiscal Quarter, 2003	9.95	x
4th Fiscal Quarter, 2003	10.40	x
1st Fiscal Quarter, 2004	10.25	x
2nd Fiscal Quarter, 2004	9.10	x
3rd Fiscal Quarter, 2004	8.65	x
4th Fiscal Quarter, 2004	8.00	x
1st Fiscal Quarter, 2005 and thereafter	3.00	x

C.Minimum Consolidated EBITDA.  Company shall not permit Consolidated EBITDA for the consecutive four-Fiscal-Quarter period ending on the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending March 31, 2003, occurring during any period set forth below to be less than the correlative amount (the “Minimum EBITDA Amount”) indicated:

Quarter Ended	Minimum EBITDA Amount
1st Fiscal Quarter, 2003	$	61,000,000
2nd Fiscal Quarter, 2003	31,000,000
3rd Fiscal Quarter, 2003	26,000,000
4th Fiscal Quarter, 2003	23,500,000
1st Fiscal Quarter, 2004	24,500,000
2nd Fiscal Quarter, 2004	27,500,000
3rd Fiscal Quarter, 2004	29,000,000
4th Fiscal Quarter, 2004	30,500,000
1st Fiscal Quarter, 2005 and thereafter	82,783,200

; provided that

(x)the Minimum EBITDA Amount for the consecutive four-Fiscal-Quarter period ending at the last day of any Fiscal Quarter during any period set forth above shall be increased by an amount equal to 80% of the Acquired Business EBITDA of each Acquired Business whose Acquired Business Date falls during the period from and including the day following the Third Amended and Restated Credit Agreement Closing Date to and including the last day of such Fiscal Quarter; and

(y)to the extent the amount of Consolidated EBITDA for the immediately preceding consecutive four-Fiscal-Quarter period exceeds the amount of EBITDA required to be maintained for such consecutive four-Fiscal-Quarter period pursuant to this subsection, an amount equal to 50% of such excess amount may be carried forward to (but only to) the then current Fiscal Quarter (any such amount to be

8

certified to Administrative Agent in the Compliance Certificate delivered for the last Fiscal Quarter of such consecutive four-Fiscal-Quarter period).

For purposes of this subsection 7.6C, the following terms have the following meanings:

“Acquired Business” means any business acquired (whether through the purchase of assets or shares of capital stock) by Company or any of its Subsidiaries after the Second Amended and Restated Credit Agreement Closing Date.

“Acquired Business Date” means, with respect to any Acquired Business, the date of consummation of the acquisition thereof by Company or any of its Subsidiaries.

“Acquired Business EBITDA” means, with respect to any Acquired Business, (x) the consolidated net income of such Acquired Business for the consecutive four-Fiscal-Quarter period ended on or most recently prior to its Acquired Business Date and with respect to which financial statements are available on the Acquired Business Date plus (y) to the extent deducted in determining such consolidated net income for such period, the sum of (i) consolidated interest expense, (ii) income taxes, (iii) depreciation, (iv) amortization, (v) any extraordinary or non-recurring losses, and (vi) any non-cash items minus (z) to the extent included in such consolidated net income, extraordinary gains.

D.Minimum Interest Coverage Ratio.  Company shall not permit the Consolidated Interest Coverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending March 31, 2003, occurring during any period set forth below to be less than the correlative ratio indicated:

Period	Minimum Interest Coverage Ratio
1st Fiscal Quarter, 2003	1.95	x
2nd Fiscal Quarter, 2003	1.30	x
3rd Fiscal Quarter, 2003	1.05	x
4th Fiscal Quarter, 2003	1.00	x
1st Fiscal Quarter, 2004	1.05	x
2nd Fiscal Quarter, 2004	1.15	x
3rd Fiscal Quarter, 2004	1.20	x
4th Fiscal Quarter, 2004	1.30	x
1st Fiscal Quarter, 2005 and thereafter	3.00	x

E.Maximum Net Senior Debt Ratio.  Company shall not permit the Net Senior Debt Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending March 31, 2003, occurring during any period set forth below to be more than the correlative ratio indicated:

9

Period	Maximum Net Senior Debt Ratio
1st Fiscal Quarter, 2003	4.75	x
2nd Fiscal Quarter, 2003	5.05	x
3rd Fiscal Quarter, 2003	6.05	x
4th Fiscal Quarter, 2003	6.15	x
1st Fiscal Quarter, 2004	6.20	x
2nd Fiscal Quarter, 2004	5.50	x
3rd Fiscal Quarter, 2004	5.20	x
4th Fiscal Quarter, 2004	4.75	x
1st Fiscal Quarter, 2005 and thereafter	3.00	x”

F.Subsection 7.8(i) of the Credit Agreement is hereby amended by deleting it in its entirety and substituting the following therefor:

“(i)Company will not, and will not permit any of its Subsidiaries to, make or commit to make Consolidated Capital Expenditures in any Fiscal Year, except Consolidated Capital Expenditures which do not aggregate in excess of the corresponding amount set forth below opposite such Fiscal Year:

Fiscal Year	Consolidated Capital Expenditures
Fiscal Year ending December 31, 2003	$	5,000,000
Fiscal Year ending December 31, 2004	$	5,000,000
Fiscal Year ending December 31, 2005	$	7,000,000

provided that (a) if the aggregate amount of Consolidated Capital Expenditures actually made in any such Fiscal Year shall be less than the limit with respect thereto set forth above (before giving effect to any increase therein pursuant to this proviso) (the “Base Amount”), then the amount of such shortfall (up to an amount equal to 50% of the Base Amount for such Fiscal Year, without giving effect to this proviso) may be added to the amount of such Consolidated Capital Expenditures permitted for the immediately succeeding Fiscal Year and any such amount carried forward to a succeeding Fiscal Year shall be deemed to be used prior to Company and its Subsidiaries using the amount of capital expenditures permitted by this section in such succeeding Fiscal Year, without giving effect to such carryforward and (b) for any Fiscal Year (or portion thereof) following any acquisition of a business (whether through the purchase of assets or of shares of capital stock) permitted under subsection 7.7, the Base Amount for such Fiscal Year (or portion) shall be increased, for each such acquisition, by an amount equal to the product of (A) the lesser of (x) $5,000,000 and (y) 4% of revenues of the business acquired in such acquisition for the period of four Fiscal Quarters most recently ended on or prior to the date of such Business Acquisition multiplied by (B) (x) in the case of any partial Fiscal Year, a

10

fraction, the numerator of which is the number of days remaining in such Fiscal Year after the date of such Business Acquisition and the denominator of which is 365 (or 366 in a leap year), and (y) in the case of any full Fiscal Year, 1 and provided further that the Company may make Consolidated Capital Expenditures in respect of the Refurbishment Project for Fiscal Year 2003 in an additional amount not to exceed $4,000,000.”

1.5Amendment to Section 8:  Events of Default

Section 8 of the Credit Agreement is hereby amended by adding an “or” and the following new subsection 8.14 immediately after subsection 8.13 as follows:

“8.14   SAG Sale.

(i) The SAG Stock Purchase Agreement shall have been terminated without consummation of the SAG Sale; or (ii) Company shall have failed to receive at least $130,000,000 in proceeds from the SAG Sale and applied such proceeds to prepayment of the Loans as set forth in subsection 2.4B on or prior to June 30, 2003.”

Section 2.CONSENT TO APPOINTMENT OF SUCCESSOR ADMINISTRATIVE AGENT

Bank One, NA has informed Company and Lenders of its resignation as Administrative Agent.  In accordance with subsection 9.3 of the Credit Agreement, the undersigned, constituting Requisite Lenders, and Company hereby consent to the appointment of either U.S. Bancorp or CSFB as successor Administrative Agent (in such capacity, the “Approved Successor”), such appointment to become effective immediately upon the later of the acceptance by an Approved Successor of such appointment and the Third Amendment Effective Date.  Such consent by Requisite Lenders and Company shall be effective after the acceptance of such appointment by either Approved Successor if such Approved Successor thereafter resigns and the other Approved Successor accepts such appointment.  Upon such acceptance, (a) the Approved Successor accepting such appointment shall (i) promptly notify Lenders and Company of such acceptance and (ii) succeed to and become vested with all the rights, power, privileges and duties of Administrative Agent as provided in the Credit Agreement and the other Loan Documents, and (b) Bank One NA or the other Approved Successor, if such other Approved Successor has previously succeeded Bank One NA as Administrative Agent, shall be discharged from its duties and obligations as Administrative Agent.

Section 3.CONSENT TO SALE OF SPECIALTY AVIONICS GROUP

Subject to the terms and conditions set forth herein and in reliance on the representations and warranties of Company herein contained, Lenders hereby (i) consent to the SAG Sale, (ii) agree to the release of related Liens and Guaranties by Administrative Agent and (iii) agree that subsection 7.7 of the Credit Agreement is hereby amended to permit the SAG Sale; provided that (a) the SAG Sale shall be consummated and the Net

11

Asset Sale Proceeds thereof applied to prepay Loans on or before June 30, 2003; (b) the Net Asset Sale Proceeds received by the Company shall be Cash in an amount not less than $130,000,000; (c) such Net Asset Sale Proceeds shall be applied in accordance with subsection 2.4B of the Credit Agreement; and (d) a certified copy of the executed SAG Stock Purchase Agreement is delivered to Syndication Agent.

Section 4.CONDITIONS TO EFFECTIVENESS

Sections 1, 2 and 3 of this Amendment shall become effective only upon the satisfaction on or prior to March 31, 2003 of all of the following conditions precedent and the conditions set forth in Section 7E hereof (the date of satisfaction of such conditions being referred to herein as the “Third Amendment Effective Date”):

A.On or before the Third Amendment Effective Date, Company shall deliver to Lenders (or to Syndication Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Third Amendment Effective Date:

1Resolutions of its Board of Directors approving and authorizing the execution, delivery, and performance of this Amendment, certified as of the Third Amendment Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment;

2Signature and incumbency certificates of its officers executing this Amendment;

3Executed originals of this Amendment, executed by Company and by each Subsidiary Guarantor; and

4Certified copy of the SAG Stock Purchase Agreement.

B.Lenders shall have received originally executed copies of one or more favorable written opinions of Davis Polk & Wardwell, Spolin Silverman Cohen & Bartlett LLP and other counsel reasonably acceptable to the Agents, each counsel for Company, in form and substance reasonably satisfactory to Syndication Agent and its counsel, dated as of the Third Amendment Effective Date and setting forth, collectively, substantially the matters in the opinions designated in Annex A to this Amendment.

C.All documents executed or submitted in connection with the transactions contemplated hereby by or on behalf of Company or any of its Subsidiaries shall be reasonably satisfactory in form and substance to Agents and their counsel; Agents and their counsel shall have received all information, approvals, opinions, documents or instruments that Agents or their counsel shall have reasonably requested.

Section 5.COMPANY’S REPRESENTATIONS AND WARRANTIES

In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company represents and warrants to each

12

Lender that the following statements are true, correct and complete on and as of the Third Amendment Effective Date:

A.Corporate Power and Authority.  Each of Company and its Subsidiaries has all requisite corporate power and authority to enter into this Amendment and the SAG Stock Purchase Agreement and to carry out the transactions contemplated by, and perform its obligations under, (i) the Credit Agreement as amended by this Amendment (the “Amended Agreement”) and (ii) the SAG Stock Purchase Agreement.

B.Authorization of Agreements.  The execution and delivery of this Amendment and by the SAG Stock Purchase Agreement and the performance of the Amended Agreement and by the SAG Stock Purchase Agreement have been duly authorized by all necessary corporate action on the part of each of Company and its Subsidiaries.

C.No Conflict.  The execution, delivery and performance by each of Company and each of its Subsidiaries of this Amendment and the SAG Stock Purchase Agreement, and the performance by Company of the Amended Agreement and the SAG Stock Purchase Agreement do not and will not (i) violate any provision of (x) any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries where such violations in the aggregate have had or could reasonably be expected to have a Material Adverse Effect, (y) the Certificate or the Articles of Incorporation or Bylaws of Parent, Company or any of Company’s Subsidiaries or (z) any order, judgment or decree of any court or other agency of government binding on Company or any of Company’s Subsidiaries where such violations in the aggregate have had or could reasonably be expected to have a Material Adverse Effect, (ii) conflict with, result in a breach of or constitute a default under any Contractual Obligation of Parent, Company or any of its Subsidiaries where such conflict, breach or default in the aggregate have had or could reasonably be expected to have a Material Adverse Effect, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of Company’s Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of or consent of any Person under any Contractual Obligation of Parent, Company or any of Company’s Subsidiaries, except for this Amendment and such approvals or consents the failure of which to obtain has not had and could not reasonably be expected to have a Material Adverse Effect.

D.Governmental Consents.  The execution, delivery and performance by each of Company and each of its Subsidiaries of this Amendment and the SAG Stock Purchase Agreement and the performance by Company of the Amended Agreement and the SAG Stock Purchase Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body other than any such registrations, consents, approvals, notices or other actions (x) that have been made, obtained or taken on or prior to the date on which such registrations, consents, approvals, notices or other actions are required to be made, obtained or taken, as the case may be, and are in full force and effect or (y) the failure of which to make, obtain or take has not had and could not reasonably be expected to have a Material Adverse Effect.

13

E.Binding Obligation.  Each of this Amendment, the SAG Stock Purchase Agreement and the Amended Agreement has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.

F.Incorporation of Representations and Warranties From Credit Agreement.  The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Third Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date.

G.Absence of Default.  No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default.

Section 6.ACKNOWLEDGEMENT AND CONSENT

Each of Parent and the Subsidiary Guarantors (each a “Guarantor”) is a party to a Guaranty and each such Guarantor has guarantied the Obligations.

Each Guarantor hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment.  Each Guarantor hereby confirms that the Guaranty to which it is a party or otherwise bound will continue to guaranty to the fullest extent possible the payment and performance of all “Guarantied Obligations” as such term is defined in the applicable Guaranty, including without limitation the payment and performance of all such “Guarantied Obligations” in respect of the Obligations of Company now or hereafter existing under or in respect of the Amended Agreement.

Each Guarantor (a) acknowledges and agrees that the Guaranty to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment;  (b) represents and warrants that all representations and warranties contained in the Amended Agreement and in the Guaranty to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the Third Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date; and (c) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Guarantor is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to

14

the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Guarantor to any future amendments to the Credit Agreement.

Section 7.MISCELLANEOUS

A.Effect of Amendment.  Reference to and effect on the Credit Agreement and the other Loan Documents.

(i)On and after the Third Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement.

(ii)On and after the Third Amendment Effective Date, each reference in the other Loan Documents to the “Lenders,” “Commitments,” or words of like import shall mean and be a reference to the Lenders and Commitments as amended by this Agreement.

(iii)Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

(iv)The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Agents or any Lender under, the Credit Agreement or any of the other Loan Documents.

B.Fees and Expenses.  Company acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Agents and their counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company.

C.Headings.  Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.

D.Applicable Law.  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

15

E.Counterparts; Effectiveness.  This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.  This Amendment (other than the provisions of Sections 1, 2 and 3 hereof, the effectiveness of which is governed by Section 4 hereof) shall become effective upon the execution of a counterpart hereof by Company, Requisite Lenders, Lenders holding at least 51% of the Term Loans, Syndication Agent and the Guarantors and receipt by Company and Agents of written or telephonic notification of such execution and authorization of delivery thereof.

[Remainder of page intentionally left blank]

16

IN WITNESS WHEREOF, the parties hereto have caused this Amended Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

DECRANE AIRCRAFT HOLDINGS, INC., a Delaware corporation
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
AEROSPACE DISPLAY SYSTEMS, LLC., a Delaware limited liability company (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
AUDIO INTERNATIONAL, INC., an Arkansas corporation (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
AVTECH CORPORATION, a Washington corporation (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer

S-1

CARL F. BOOTH & CO., LLC, a Delaware limited liability company (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
CUSTOM WOODWORK & PLASTICS, LLC., a Delaware limited liability company (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
DAH-IP HOLDINGS, INC., a Delaware corporation (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
DAH-IP INFINITY, INC., a Delaware corporation (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer

S-2

DECRANE AIRCRAFT FURNITURE CO., L.P., a Texas limited partnership By: DAH-IP Holdings, Inc., a Delaware corporation, its General Partner (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
DECRANE AIRCRAFT SEATING COMPANY, INC., a Wisconsin corporation (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
DECRANE CABIN INTERIORS, LLC, a Delaware limited liability company (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
HOLLINGSEAD INTERNATIONAL, INC., a California corporation (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer

S-3

PATS, INC., a Maryland corporation (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
PCI NEWCO., INC., a Kansas corporation (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
PPI HOLDINGS, INC., a Kansas corporation(for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
PRECISION PATTERN, INC., a Kansas corporation (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer

S-4

THE INFINITY PARTNERS, LTD., a Texas limited partnership
by: DAH-IP Holdings, Inc., a Delaware limited partnership, its general partner (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
TRI-STAR ELECTRONICS INTERNATIONAL, INC., a California corporation (for purposes of Section 6 only) as a Subsidiary Guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President and Chief Financial Officer
DECRANE HOLDINGS CO., a Delaware corporation (for purposes of Section 6 only) as a guarantor
By:	/s/ Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Assistant Secretary

S-5

CREDIT SUISSE FIRST BOSTON (successor to DLJ Capital Funding, Inc.), as a Lender and as Syndication Agent
By:
	Name:
	Title:
By:
	Name:
	Title:
BANK ONE, NA, as a Lender
By:
	Name:
	Title:
U.S. BANCORP, as a Lender
By:
	Name:
	Title:

S-6

ANNEX A

MATTERS TO BE COVERED IN OPINION OF COUNSEL TO COMPANY

1.Company has been duly incorporated, and is validly existing in good standing under the laws of the State of Delaware with corporate power to own its properties and assets, to enter into the Amendment and to perform its obligations under the Amendment.

2.The execution, delivery and performance of the Amendment by Company have been duly authorized by all necessary corporate action on the part of Company, the Amendment has been duly executed and delivered by Company, and the Amendment and the Amended Agreement constitute the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law.

3.Company’s execution and delivery of the Amendment and the consummation of the transactions contemplated by the Amendment do not and will not (i) violate the Certificate of Incorporation or By-laws of Parent or of Company, (ii) violate, breach or result in a default under any existing obligation of Parent or of Company under any other agreement, (iii) breach or otherwise violate any existing obligation of Company under any order, judgment or decree of any New York, California or federal court or Governmental Authority binding on Company or (iv) violate any New York, California or federal statute or regulation.

4.No governmental consents, approvals, authorizations, registrations, declarations or filings are required by Company in connection with the execution and delivery by Company of the Amendment, and the performance by Company of the Amended Agreement.

A-1

EX-10.23

Exhibit 10.23

FORM OF CHANGE OF CONTROL AGREEMENT

This Change of Control Agreement (the “Agreement”) is made and entered into [**Date**], by and between DeCrane Aircraft Holdings, Inc. (the “Company”) and [**Name of Executive**] (“Executive”) based on the following facts:

A.Executive is currently employed by the Company in the capacity as [**Executive’s Title**] and is a key executive of the Company.

B.The Company desires to define the terms and conditions of any termination of employment upon a Change of Control (as defined herein) in the Company.

Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows:

1.	Term of Agreement.  Except as otherwise provided herein, the term of this Agreement shall commence effective the date hereof and shall continue for one year (the “Term”).
2.	A.	Compensation Upon Termination Following a Change of Control.  In the event that (i) a Change of Control shall have occurred during the term of this Agreement and while Executive is employed by the Company and (ii) the Executive’s employment shall be involuntarily terminated for any reason on a date which is less than 2 years after the date of the Change of Control (whether during or after the term of this Agreement) other than for Cause, death or disability or Executive shall terminate his employment for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the “Termination Date”), subject in each case to any applicable payroll or other taxes required to be withheld.
		(1)	The Company shall pay Executive a lump sum amount in cash equal to the sum of (a) Executive’s monthly base salary multiplied by a number equal to 12 minus the number of whole months elapsed from the date of the Change of Control to the Termination Date (the “Multiplier”) and (b) Executive’s average annual bonus including in such average any such annual bonus earned (even though such bonus may be paid in the year following the year in which earned), (computed over the shorter of (x) the period of Executive’s employment by the Company or (y) five calendar years each as measured to the day-immediately preceding the Termination Date) divided by 12 and multiplied by the Multiplier.

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	(2)	The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date.
B.	Definitions.
	(1)	As used in this Agreement, “Change of Control” shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as:  (i) any “person” (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its

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	parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company’s four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company.  For purposes of this definition of Change of Control, the term “Excluded Person” shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company.
(2)	As used in this Agreement, “Good Reason” shall mean the occurrence, following a Change of Control, of anyone of the following events without Executive’s consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive’s base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with past practices and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (v) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement.
(3)	For Cause.  As used in this Agreement, “Cause” shall mean (i) any material act of dishonesty constituting a felony (of which Executive is convicted or pleads guilty) which results or is

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		intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury to the Company.  The following shall not constitute Cause: (i) Executive’s bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission.
3.	Mitigation.  Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement.
4.	Assignment.  Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement.  The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction.
5.	This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee.  The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement.

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6.	Notices.
	If to Company:	DeCrane Aircraft Holdings, Inc.
		2361 Rosecrans Avenue, Suite 180
		El Segundo, CA 90245
		Attention: Chief Financial Officer
		Fax: 310-643-0746
	If to Executive:
		Fax:
7.	Facsimile Signatures.  Execution and Delivery.  This Agreement shall be effective upon transmission of a signed facsimile by one party to the other.
8.	Miscellaneous.  This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive.  This Agreement shall be governed by and construed in accordance with the laws of the State of California.

This Agreement has been executed on the date specified in the first paragraph.

DECRANE AIRCRAFT HOLDINGS, INC.
By:
	Authorized Signature
	EXECUTIVE
	[**Name of Executive**]

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EX-12.1

Exhibit 12.1

DeCrane Aircraft Holdings, Inc.

Computation of Earnings to Fixed Charges Ratios

	Year Ended December 31,
													1998
(Dollars in thousands)	2002			2001			2000			1999			Four Months Ended December 31, 1998			Eight Months Ended August 31, 1998
							(Successor)									(Predecessor)
Earnings:
Income (loss) before provision for income taxes, cumulative effect of change in accounting principle and extraordinary item	$	(8,482	)	$	(12,814	)	$	9,884		$	(3,418	)	$	(2,992	)	$	6,081
Minority interest in income of subsidiary with fixed charges	215			148			228			197			82			48
Fixed charges	35,357			40,410			42,923			29,123			7,217			3,117
Total earnings	$	27,090		$	27,744		$	53,035		$	25,902		$	4,307		$	9,246
Fixed Charges:
Interest expense, including amortization of debt discounts and issuance costs(1)	$	33,894		$	39,001		$	41,623		$	27,918		$	6,852		$	2,350
Interest component of rentals(2)	1,463			1,409			1,300			1,205			365			767
Total fixed charges	$	35,357		$	40,410		$	42,923		$	29,123		$	7,217		$	3,117
Ratio of Earnings to Fixed Charges:
Ratio	—			—			1.2		x	—			—			3.0		x
Deficiency	$	8,267		$	12,666		$	—		$	3,221		$	2,910		$	—

(1)None capitalized.

(2)Reflects one-third of rental expense under operating leases considered to represent interest costs.

EX-99.1

Exhibit 99.1

CHIEF EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

R. Jack DeCrane, as Chief Executive Officer of DeCrane Aircraft Holdings, Inc., a Delaware corporation (the “Company”), hereby certifies that:

(1)The Company’s periodic report on Form 10-K for the period ended December 31, 2002 (the “Form 10-K”) fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

April 15, 2003	By:	/s/  R. Jack DeCrane
	Name:	R. Jack DeCrane
	Title:	Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to DeCrane Aircraft Holdings, Inc. and will be retained by DeCrane Aircraft Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This certification is being submitted to the Securities and Exchange Commission solely for the purpose of complying with Section 1350 of Chapter 63 of Title 18 of the United States Code.  This certification shall not to be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section.  This certification does not constitute a part of Registrant’s Annual Report on Form 10-K accompanying this certification and to which it is an exhibit.

EX-99.2

Exhibit 99.2

CHIEF FINANCIAL OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Richard J. Kaplan, as Chief Financial Officer of DeCrane Aircraft Holdings, Inc., a Delaware corporation (the “Company”), hereby certifies that:

(1)The Company’s periodic report on Form 10-K for the period ended December 31, 2002 (the “Form 10-K”) fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

April 15, 2003	By:	/s/  Richard J. Kaplan
	Name:	Richard J. Kaplan
	Title:	Senior Vice President, Chief Financial Officer,
		Secretary and Treasurer

A signed original of this written statement required by Section 906 has been provided to DeCrane Aircraft Holdings, Inc. and will be retained by DeCrane Aircraft Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This certification is being submitted to the Securities and Exchange Commission solely for the purpose of complying with Section 1350 of Chapter 63 of Title 18 of the United States Code.  This certification shall not to be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section.  This certification does not constitute a part of Registrant’s Annual Report on Form 10-K accompanying this certification and to which it is an exhibit.