PROSPECTUS FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-43496
DECRANE AIRCRAFT HOLDINGS, INC.
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12% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
We issued the notes in exchange for our old 12% Series A Senior
Subordinated Notes due 2008. The notes are identical to the old notes, except
that certain transfer restrictions and registration rights relating to the old
notes do not apply to the new notes.
Interest on the notes is payable on March 30 and September 30 of each
year, beginning March 30, 1999. We have the right to redeem any new notes at any
time beginning September 30, 2003 at the redemption prices set forth on page 20,
plus accrued interest. In addition, before September 30, 2001, we may redeem up
to 35% of the notes at a redemption price of 112% of their principal amount,
plus interest, using proceeds from certain sales of our stock; provided that at
least 65% of the principal amount of notes ever issued under the indenture
remains outstanding immediately after such redemption. We will also have the
right to redeem, and you will have the right to require us to purchase, the
notes upon the occurrence of certain change of control events, at the price set
forth on page 21.
The notes rank junior to our senior indebtedness and secured debt,
including the debt owed under our bank credit facility. The notes rank equally
with any further unsecured, senior subordinated debt. The notes are
unconditionally guaranteed on a senior subordinated basis by all of our existing
wholly-owned domestic subsidiaries, and rank junior to such guarantors' senior
and secured debt and equally with their future unsecured, senior subordinated
debt. The notes will effectively rank junior to all liabilities of our
subsidiaries that are not guarantors. As of December 31, 2000, DeCrane Aircraft
and its guarantor subsidiaries had outstanding approximately $283.2 million of
senior indebtedness, and the non-guarantor subsidiaries had approximately $1.9
million of outstanding liabilities, including trade payables.
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
This prospectus is to be used by Credit Suisse First Boston Corporation
in connection with offers and sales in market-making transactions at negotiated
prices related to prevailing market prices. We do not intend to list the notes
on any securities exchange. CSFB Corporation has advised us that it intends to
make a market in the notes; however, it is not obligated to do so and may stop
at any time. We will not receive the proceeds of the sale of the notes but will
bear the expenses of registration.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CREDIT SUISSE FIRST BOSTON
The date of this Prospectus is March 29, 2001
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TABLE OF CONTENTS
PAGE
Summary ................................................................................................ 1
Our Company ............................................................................................ 1
Risk Factors ........................................................................................... 4
Ratio of Earnings to Fixed Charges ..................................................................... 13
The Notes .............................................................................................. 14
Where You Can Find More Information .................................................................... 16
Use of Proceeds ........................................................................................ 16
Description of Notes ................................................................................... 17
Plan of Distribution ................................................................................... 54
Experts ................................................................................................ 55
Index to Unaudited Pro Forma Financial Data ............................................................ P-1
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You should rely only on the information contained in this prospectus and
any supplement. We have not authorized any other person to provide you with
different or additional information. If anyone provides you with different or
additional information, you should not rely on it. This prospectus is not an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in or
incorporated by reference in this prospectus and any supplement is accurate as
of its date only. Our business, financial condition, results of operations and
prospects may have changed since that date.
.
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus or incorporated by reference
in this prospectus and may not contain all the information that is important to
you. This prospectus presents information on a "pro forma" basis, giving effect
to all of the companies we have acquired as described in the unaudited pro forma
financial accompanying this prospectus. See "Index to Unaudited Pro Forma
Financial Data."
OUR COMPANY
DeCrane Aircraft is a leading provider of integrated assemblies,
sub-assemblies and component parts to the aircraft industry. Since our founding
in 1989, we have experienced both internal growth and growth by identifying
fragmented, high-growth niche segments of the industry and acquiring
market-leading companies in those niches. Today, we have assembled product
capability within three specific segments of the aircraft industry: cabin
management for corporate, VIP and head-of-state aircraft; specialty aviation
electronic components, commonly referred to as avionics; and systems
integration. We have also focused on diversifying our revenue stream between the
commercial, commercial after- and retrofit markets, and corporate and regional
aircraft markets in order to reduce the impact from cycles in any single market
segment. 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. We generated pro forma revenues of $371.6 million and EBITDA (as
defined) of $89.2 million for the year ended December 31, 2000. Our historical
revenues and EBITDA for those periods and our definition of EBITDA appear in our
audited financial statements. See "Where You Can Find More Information."
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 entertainment systems of corporate aircraft, as
well as specialty avionics components and systems integration services.
THE CABIN MANAGEMENT GROUP
DeCrane's Cabin Management Group is a leading independent provider of
cabin products, with a primary focus on serving the corporate aircraft market.
Our Cabin Management Group contributed approximately 52% of our pro forma
revenues for the year ended December 31, 2000.
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 aircraft, including interior furnishings, cabin
management systems, seating and composite components. Our Cabin Management Group
serves major manufacturers of corporate aircraft, including Boeing Business Jet,
Bombardier, Cessna, Dassault, Gulfstream and Raytheon.
The Cabin Management Group has introduced the concept of modularity to
the corporate aircraft market through its "cabinet in a box" product. We believe
this distinctive approach of delivering integrated assemblies and sub-assemblies
that can be quickly incorporated into the aircraft has been well received by the
market. We are currently pioneering the next step in modularity, "cabin in a
box." This new concept is designed to address one of the greatest challenges
facing the industry's aircraft manufacturers: the lead-time necessary to
complete an unfinished "green" aircraft. Through providing entire pre-wired and
pre-plumbed modular cabin interiors that will be delivered "just in time" for
final integration into the aircraft, we believe we will be able to reduce our
customers' lead times, supplier base and overall costs.
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THE SPECIALTY AVIONICS GROUP
DeCrane's 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. Our Specialty
Avionics Group contributed approximately 31% of our pro forma revenues for the
year ended December 31, 2000.
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 industry. 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 every 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 SYSTEMS INTEGRATION GROUP
DeCrane's Systems Integration Group provides aircraft retrofit and
refurbishment solutions, from design to FAA certification, including
engineering, manufacturing and installation. Our Systems Integration Group
contributed approximately 17% of our pro forma revenues for the year ended
December 31, 2000.
Our primary focus is on retrofitting new systems onto existing aircraft.
Our largest business is the design, production and installation of auxiliary
fuel tanks, which extend the range of the aircraft. Our Systems Integration
Group has an exclusive long-term contract with Boeing Business Jet to design,
manufacture and install auxiliary fuel tanks. We also focus on FAA safety
mandate "kits" and we believe we are the major supplier of integration kits for
smoke detection and fire suppression in the cargo hold. We also perform
structural modifications and FAA re-certification before placing aircraft back
into service.
There are a limited number of companies that have the necessary
authorization to offer aircraft re-certification on behalf of the FAA. Our
Systems Integration Group is authorized to provide the full spectrum of
services, from design to FAA re-certification, needed for timely retrofitting of
an aircraft, thus providing a significant competitive advantage.
RECENT DEVELOPMENTS
DeCrane Holdings Co. and DLJ Merchant Banking Partners II, L.P. and
affiliated entities acquired DeCrane Aircraft in August 1998. This acquisition,
referred to in this prospectus as the DLJ acquisition, is described in Note 2
accompanying our financial statements, which we have incorporated by reference
into this prospectus. See "Where You Can Find More Information."
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
affiliates of Credit Suisse First Boston, Inc and Credit Suisse Group. On
February 1, 2001, Donaldson, Lufkin & Jenrette Securities Corporation changed
its name to Credit Suisse First
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Boston Corporation. The combined operations of the DLJ entities and Credit
Suisse First Boston are commonly referred to collectively as Credit Suisse First
Boston.
* * * * *
Our principal executive offices are located at 2361 Rosecrans Avenue,
Suite 180, El Segundo, California 90245. Our telephone number is (310) 725-9123.
Further information is also available as noted under "Where You Can Find More
Information."
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION AS PART OF YOUR
EVALUATION OF OUR COMPANY AND ITS BUSINESS BEFORE MAKING AN INVESTMENT IN THE
OFFERED SECURITIES.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus discuss future expectations,
beliefs or strategies, projections or other "forward-looking" information. These
statements are subject to known and unknown risks. Many factors could cause
actual company results, performance or achievements, or industry results, to be
materially different from the projections expressed or implied by this
prospectus. 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;
- inflation, and other general changes in costs of goods and
services;
- liability and other claims asserted against us;
- the ability to attract and retain qualified personnel;
- labor disturbances; and
- changes in operating strategy, or our acquisition and capital
expenditure plans.
We cannot predict any of the foregoing with certainty, so our
forward-looking statements are not necessarily accurate predictions. Also, we
are not obligated to update any of these statements, to reflect actual results
or report later developments. You should not rely on our forward-looking
statements as if they were certainties.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL LEVELS OF DEBT COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE DEBT
AGREEMENTS.
We incurred significant debt in connection with the DLJ acquisition in
August 1998 and in connection with companies we have acquired. As of December
31, 2000, we had total consolidated indebtedness of approximately $383.3
million, and we had available $37.6 million of additional revolving line of
credit borrowings under the DeCrane Aircraft bank credit facility. In order to
borrow those funds, we will have to satisfy funding conditions of the kind
usually imposed in similar agreements. The bank credit facility and the
indenture under which DeCrane Aircraft's 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 would
have been $40.5 million for the year ended December 31, 2000, on a
pro forma basis.
- We had deficiencies of earnings to cover fixed charges of $2.9
million for the four months ended December 31, 1998 and $3.2
million for the year ended December 31, 1999.
- 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.
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- 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.
RESTRICTIVE COVENANTS--OUR OPERATIONS AND THOSE OF OUR SUBSIDIARIES ARE
RESTRICTED BY THE TERMS OF THE NOTES AND OUR BANK CREDIT FACILITY.
The indenture under which the notes were issued and our bank credit
facility 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 bank 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 bank credit facility or the
notes.
ADDITIONAL BORROWINGS--DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR
SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD
INTENSIFY THE RISKS DESCRIBED ABOVE.
DeCrane Aircraft and its subsidiaries may be able to incur substantial
additional indebtedness in the future. The terms of our debt do not fully
prohibit us or our subsidiaries from doing so. In addition to senior debt that
we might incur, we may issue an unlimited amount of additional senior
subordinated notes under the existing indenture, so long as the total amount of
debt is permitted by our financial covenants and our bank credit facility is
amended to permit additional senior subordinated indebtedness. If new debt is
added to our and our subsidiaries' current debt levels, the related risks that
we and they now face could intensify.
SUBORDINATION--YOUR RIGHTS UNDER THE NOTES ARE SUBORDINATED TO SUBSTANTIALLY ALL
OUR EXISTING DEBT.
The notes and the subsidiary guarantees are general unsecured obligations
of DeCrane Aircraft and its subsidiaries that have provided note guarantees. The
notes and the subsidiary guarantees rank lower in right of payment than most of
the debt of those companies, including the amounts owed under the bank credit
facility. The senior creditors have rights that might reduce the payments made
to you as a holder of the notes. Among other things:
- As of December 31, 2000, DeCrane Aircraft and the guarantor
subsidiaries had outstanding about $283.2 million of senior debt.
We would be required to pay the applicable holders of this senior
debt in full before paying the holders of the notes if DeCrane
Aircraft or one of the guarantor subsidiaries, as applicable,
suffers a bankruptcy filing, insolvency, liquidation or similar
event, or if such senior debt is accelerated.
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- We are blocked from paying holders of the notes whenever there is
a payment default on specified senior debt, and principal and
premium payments may also be blocked for up to 179 days while
there is a non-payment default on such senior debt. See
"Description of Notes--Subordination" for the terms of this
subordination.
- The bank credit facility is secured by our key assets, excluding
assets of our foreign subsidiaries. If we default under our senior
debt agreements, the lenders could choose to declare all
outstanding amounts immediately due and payable, and seek
foreclosure of the assets we granted to them as collateral. We
cannot assure you that, if our bank credit facility were
accelerated, our assets would be sufficient to repay all of our
debt, including the notes, in full.
HOLDING COMPANY--OUR ABILITY TO REPAY THE NOTES AND OUR OTHER DEBT DEPENDS ON
CASH FLOW FROM OUR SUBSIDIARIES; OUR NON-GUARANTOR SUBSIDIARIES' LIABILITIES
WILL BE EFFECTIVELY SENIOR TO THE NOTES.
We conduct all of our operations through subsidiaries. We have no
material operations or assets other than the capital stock of our operating
subsidiaries. Consequently, we depend on distributions or other intercompany
transfers of funds from our subsidiaries to meet our debt service and other
obligations. We cannot assure you that the operating results of our subsidiaries
will be sufficient to enable us to make payments on the notes. Our non-guarantor
subsidiaries are not obligated to make funds available to us for payment on the
notes, and state law also may limit the amount of the dividends that any of our
subsidiaries are permitted to pay to us.
In addition, our non-guarantor subsidiaries' liabilities will be
effectively senior to the notes. Our rights and the rights of our creditors,
including holders of the notes, to participate in the assets of any of our
non-guarantor subsidiaries upon their liquidation or recapitalization will
generally be subject to the prior claims of those subsidiaries' creditors. As of
December 31, 2000, our non-guarantor subsidiaries had $1.9 million of
outstanding liabilities, including trade payables.
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.
On a pro forma basis, we would have had a net loss of $2.0 million for
the year ended December 31, 1999, although, in 2000, we would have had net
income of $5.4 million on a pro forma basis. In the past, the DLJ acquisition
and our acquisitions have resulted in increased interest and amortization
expenses. As a result we have incurred historical net losses in the past,
despite positive
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operating income. The first historical net profit we reported occurred in 1997,
in part, because of the repayment of a significant part of our outstanding debt
with the net proceeds of our initial public offering.
AIRCRAFT INDUSTRY RISKS--THE AIRCRAFT INDUSTRY IS CYCLICAL AND AFFECTED BY MANY
FACTORS BEYOND OUR CONTROL, INCLUDING MILITARY SPENDING TRENDS AND REGIONAL
ECONOMIC INSTABILITY IN ASIA.
A downturn in the aircraft market could adversely affect our business.
- The principal markets for corporate aircraft manufacturers are
corporations, fractional ownership programs and wealthy
individuals. The corporate aircraft market is cyclical and has
been adversely affected by a number of factors, including the
general state of the U.S. economy, corporate profits, interest
rates and commercial airline fares. A downturn in any of these
factors could depress the demand for corporate aircraft.
- The principal markets for manufacturers of commercial aircraft are
the commercial and regional airline industries, which are cyclical
and have been adversely affected by a number of factors, including
increased fuel and labor costs and intense price competition.
Commercial aircraft production may increase and decrease in
response to changes in customer demand caused by general economic
conditions. For example, new commercial aircraft deliveries
declined from a peak of approximately 767 aircraft in 1991 to
approximately 367 aircraft in 1995, according to Aerospace and Air
Transport Current Analysis published by Standard and Poor's
Industry Surveys. The Boeing Company also has announced that they
delivered 489 aircraft during 2000 and they project delivery of
approximately 530 aircraft in both 2001 and 2002, which is
substantially lower than the 620 aircraft Boeing reported it
delivered during 1999.
- The Asian markets are important for manufacturers of commercial
aircraft and components for those aircraft. Boeing has
characterized the economic situation in Asia as a risk to its
deliveries over the next few years. The Asian market situation
could, if it continues or worsens, result in significant
cancellations or deferrals of deliveries for new aircraft.
- The military aircraft industry is dependent upon the level of
equipment expenditures by the armed forces of countries throughout
the world, and especially those of the United States. In recent
years, this industry has been adversely affected by a number of
factors, including the reduction in military spending since the
end of the Cold War. Further decreases in military spending could
further depress demand for military aircraft.
Any decrease in demand for new aircraft, both commercial and general
aviation, will likely result in a decrease in demand for our products and
services, and, correspondingly, our revenues, thereby adversely affecting our
financial condition.
CONCENTRATION OF KEY CUSTOMERS--WE RECEIVE A SIGNIFICANT SHARE 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 for
the year ended December 31, 2000 were Bombardier, Boeing and Textron (which
includes Cessna). On a pro forma basis, Bombardier accounted for approximately
17.7% of our consolidated revenues for that twelve-month period, Boeing for
approximately 14.5% and Textron for approximately 14.4%. Some of our customers
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.
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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.
COMPETITION--WE COMPETE WITH LARGER COMPANIES IN A FRAGMENTED INDUSTRY.
We operate in a highly competitive industry. Some of our competitors
include corporate aircraft manufacturers and independent completion and
modification companies, major airlines and other independent services
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 aircraft 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 aircraft
industry, competition comes from both U.S. and foreign companies.
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 Federal Aviation Administration prescribes standards and licensing
requirements for aircraft components, licenses private repair stations and
issues Designated Alteration Station approvals, which give the holder the right
to certify some aircraft design modifications on behalf of the FAA. Our ability
to
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arrange for rapid government certification of the systems integration services
we perform is important to that portion of our business. Our systems integration
business depends on our continuing access to, or use of, these FAA
certifications and approvals, 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 certifications, approvals and certified
professionals. The loss of a required license or certificate, or its
unavailability, 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.
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.
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.
REPURCHASE UPON CHANGE OF CONTROL--WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FUND A CHANGE OF CONTROL OFFER IF IT IS REQUIRED BY THE
INDENTURE.
If we experience a change of control of the types described in
"Description of Notes--Repurchase at the Option of Holders," you will have the
right to require us to repurchase all or any part of your notes at an offer
price in cash equal to 101% of the aggregate principal amount, plus accrued
interest to the date of repurchase. We cannot assure you that we will have
sufficient resources to satisfy our repurchase obligation to every note holder
following a change of control.
Our bank credit facility prohibits us from purchasing the notes, and
makes change of control events a default. The terms of any other future senior
debt may contain similar restrictions. If a change of control occurs while any
senior debt prohibits us from purchasing the notes, we could seek the consent of
the senior lenders to the purchase, or attempt to refinance the debt that
prohibits it. However, we cannot assure you that those attempts would be
successful. If they are not, we would still be prohibited from repurchasing the
notes. Our failure to do so would result in a default under the indenture, which
could
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also result in a default in the senior debt, and therefore block any
payments to you under the "blocking" covenants described in "Description of
Notes--Subordination."
CONTROL BY PRINCIPAL STOCKHOLDERS--WE ARE CONTROLLED BY PRINCIPAL STOCKHOLDERS
WHO ARE AFFILIATED WITH OUR LENDERS AND MAY HAVE ECONOMIC INTERESTS WHICH DIFFER
OR CONFLICT WITH YOURS.
DeCrane Aircraft is a wholly-owned subsidiary of DeCrane Holdings, and a
significant amount of DeCrane Holding's common stock outstanding is held by DLJ
Merchant Banking Partners II, L.P. and affiliated funds and entities. Those CSFB
affiliates own approximately 83.3% of DeCrane Holding's common stock, on a fully
diluted basis assuming exercise of all outstanding warrants and options. As a
result of their stock ownership, the CSFB affiliates control DeCrane Holdings
and DeCrane Aircraft and have the power to approve all matters requiring
approval of the common stockholders, including electing all of their directors,
appointing new management, and approving sales of all or substantially all of
the assets of the companies. The directors elected by the CSFB affiliates will
have the ability to control decisions affecting our capital structure, including
issuing additional capital stock, establishing stock purchase programs and
declaring dividends.
DLJ Capital Funding, Inc., which is an agent and lender under our bank
credit facility, DLJ Bridge Finance, Inc., which purchased the original bridge
notes refinanced by the old notes, and Credit Suisse First Boston Corporation
(formerly known as Donaldson, Lufkin & Jenrette Securities Corporation), which
was the initial purchaser of the old notes, are also CSFB affiliates, but they
do not own any equity securities of DeCrane Aircraft or DeCrane Holdings.
The interests of the principal stockholders could conflict with your
interests as a holder of the notes. For example, those stockholders may have an
interest in pursuing transactions that they believe enhance the value of their
equity investment in DeCrane Aircraft or DeCrane Holdings, even though the
transactions involve risks to your investment in the notes.
FRAUDULENT TRANSFERS--FEDERAL AND STATE "FRAUDULENT TRANSFER" STATUTES ALLOW
COURTS TO ORDER NOTEHOLDERS TO RETURN PAYMENTS ALREADY MADE, OR VOID GUARANTEES,
IF THE ISSUER'S OR GUARANTOR'S FINANCIAL CONDITION MEETS SPECIFIC TESTS.
Your rights to repayment of the notes, and to retain amounts already paid
under the notes, could be affected by the application of federal or state
"fraudulent transfer" laws. These statutes permit obligations to be undone or
rescinded if tests having to do with the obligation, the person's intent and the
person's financial condition are satisfied. Our repayment obligations to you
under the notes could be impaired by those laws if a court determined that, when
we issued or exchanged the notes, or, in some states, when payments become due
on the notes, we either:
- - had the actual intent to hinder, delay or defraud current or future
creditors, or
- - received less than fair consideration or reasonably equivalent value for
incurring the debt represented by the notes, and we either:
- were insolvent or were rendered insolvent by reason of the
incurrence, or
- were engaged, or about to engage, in a business or transaction for
which our remaining unencumbered assets were unreasonably small,
or
- intended to incur, or believed or should have believed we would
incur, debts beyond our ability to pay as such debts mature.
Based on such a finding, a court could void all or a portion of our
obligations to you, subordinate your right to repayment to our other existing
and future senior debt, in which case those other creditors would be paid in
full before any payment could be made on the notes, and take other action
detrimental to
10
your rights, including invalidating the notes. A court would likely find that we
received less than fair consideration or reasonably equivalent value for our
obligations under the notes to the extent that we used the proceeds from the
original issuance of the notes for the acquisition of DeCrane Aircraft by DLJ
Merchant Banking. We cannot assure you that, if that occurred, you would ever
recover any repayment on your notes.
In addition, the obligations of our subsidiary guarantors under their
subsidiary guarantees may be subject to review under the same laws. In that
event, if a court were to find that when a subsidiary guarantor issued its
subsidiary guarantee (or, in some jurisdictions, when it became obligated to
make payments thereunder), the factors set forth above applied to that
subsidiary guarantor, a court could avoid the subsidiary guarantee and the
subsidiary guarantor's obligations thereunder and direct the return of any
amount paid to you pursuant to that subsidiary guarantee. A court would likely
find that a subsidiary guarantor received less than fair consideration or
reasonably equivalent value for its obligations under the subsidiary guarantee
to the extent that it did not receive direct or indirect benefit from the
issuance of the notes. If a court were to avoid a subsidiary guarantee of any
subsidiary guarantor, holders of notes would retain their rights against us and
the other subsidiary guarantors, although those entities' assets may be
insufficient to pay the notes in full.
The definition of insolvency used in the foregoing tests varies among
jurisdictions, depending upon the court and the law that is being applied. A
given court might apply different standards in determining whether we were
insolvent on a particular date, or regarding other grounds that might lead it to
take the actions noted above. Generally, however, an entity would be considered
insolvent if:
- the sum of its debts, including contingent and unliquidated
liabilities, were greater than the fair saleable value of all of
its assets; or
- the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent and unliquidated liabilities,
as they become absolute and mature.
INDUSTRY AND MARKET DATA--WE CANNOT GUARANTEE THE ACCURACY AND COMPLETENESS OF
THE INDUSTRY AND MARKET DATA INCLUDED IN THIS PROSPECTUS.
Industry and market data used throughout this prospectus 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 aircraft 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.
TRADING MARKET FOR THE NOTES--WE CANNOT ASSURE YOU THAT A MARKET FOR THE NOTES
WILL CONTINUE.
We cannot assure you about your ability to sell the notes or the price at
which you may be able to sell them. The notes may trade at prices that may be
higher or lower, and have recently traded at prices lower than their initial
offering price. The trading price depends on many factors, including prevailing
interest rates, our operating results and the market for similar securities.
Credit Suisse First Boston Corporation currently makes a market in the notes.
However, CSFB Corporation is not obligated to do so and it may discontinue or
interrupt any such market-making at any time without notice.
Because CSFB Corporation may be deemed to be our "affiliate" (as defined
in the Securities Act), we maintain a registration statement that allows CSFB to
engage in market-making transactions in the notes and CSFB delivers a prospectus
in connection with its market-making activities. If at any time the
market-making prospectus is not in compliance with the disclosure obligations of
the Securities Act,
11
CSFB Corporation may be unable to engage in market-making activities until the
prospectus is brought into compliance. There are no other market-makers in the
notes.
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 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.
12
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for the periods indicated are set
forth below.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998
---------------------------
EIGHT MONTHS FOUR MONTHS
ENDED ENDED
AUGUST 31, DECEMBER 31,
1996 1997 1998 1998 1999 2000
--------- --------- --------- -------- -------- --------
(PREDECESSOR) (SUCCESSOR)
HISTORICAL RATIOS:
Ratio .................................... 1.0x 3.3x 3.0x -- -- 1.2 x
Deficiency (in thousands) ................ $ -- $ -- $ -- $ 2,910 $ 3,221 $ --
PRO FORMA RATIOS:
Ratio ..................................................................... ........ 1.0 x 1.3 x
Deficiency (in thousands) ................................................. ........ $ -- $ --
We compute the ratio of earnings to fixed charges by dividing earnings by
fixed charges. Earnings represent net income before income taxes, minority
interest 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 relating to any
indebtedness, whether expensed or capitalized;
- one-third of rental expense under operating leases which is
considered to be a reasonable approximation of the interest
portion of such expense.
13
THE NOTES
We have summarized the general features of the debt securities offered by
this prospectus. For a detailed description of the notes, see "Description of
Notes" beginning on page 17.
Maturity Date ............... September 30, 2008.
Interest Payment Dates ...... Each March 30 and September 30, beginning March
30, 1999.
Optional Redemption ......... We may redeem:
- all or some of the notes, on or after
September 30, 2003,
- up to 35% of the notes, on or before
September 30, 2001, with the net cash
proceeds of any public equity offerings, and
- 100% of the notes, before September 30, 2003,
if the change of control events that are
described herein occur, at the redemption
prices specified on pages 20 and 21.
Change of Control .......... You can require that we repurchase your notes, if
the change of control events that are described
herein occur, at 101% of the principal amount plus
accrued interest. See "Risk Factors--Repurchase
Upon Change of Control" and "Description of
Notes--Repurchase at the Option of Holders."
Ranking..................... The notes rank junior to all of our senior
indebtedness and secured debt, including the debt
owed under our bank credit facility. The notes
rank equally with any of our future unsecured,
senior subordinated debt. The terms of the
indenture do not fully prohibit us or our
subsidiaries from incurring substantial additional
indebtedness in the future. In addition to senior
debt that we might incur, we may issue an
unlimited amount of additional senior
subordinated notes under the indenture, so long
as the total amount of debt is permitted by our
financial covenants.
The notes also will effectively rank junior to
all liabilities of our subsidiaries that are not
guarantors. See "Description of Notes--Note
Guarantees." As of December 31, 2000, DeCrane
Aircraft and its subsidiary guarantors had
approximately $283.2 million of senior
indebtedness outstanding, and the non-guarantor
subsidiaries had approximately $1.9 million of
liabilities outstanding, including trade
payables.
Guarantors .................. The notes are fully and unconditionally guaranteed
jointly and severally by all of our existing
wholly-owned domestic subsidiaries. The notes are
senior subordinated obligations of the
guarantors, and rank junior to their senior and
unsecured debt and equally with their future
unsecured, senior debt.
Covenants ................... The indenture that governs the notes includes
covenants that, among other things, limit our
ability, and that of our subsidiaries defined as
"Restricted Subsidiaries," to:
- incur debt,
- issue preferred stock,
- repurchase capital stock or subordinated debt,
- enter into transactions with affiliates,
- enter into sale and leaseback transactions,
14
- create liens or allow them to exist,
- pay dividends or other distributions,
- make investments,
- sell assets, and
- enter into mergers or consolidations.
See "Description of Notes--Principal Covenants."
The Warrants; the Units ..... The old notes were originally sold as "units,"
paired with warrants for the common stock of
DeCrane Aircraft's parent company, DeCrane
Holdings. The warrants may trade separately from
the notes on and after the date of this
prospectus. The warrants are subject to a
separate "shelf" registration statement
previously filed.
15
WHERE YOU CAN FIND MORE INFORMATION
Any registered purchaser may request from us any information it wishes in
order to verify the information in this prospectus. Apart from this prospectus
and any responses we make to those requests, no one is authorized to give
information about the notes on our behalf.
We have filed with the Securities and Exchange Commission a registration
statement on the SEC's Form S-3, to register the notes, of which this prospectus
is a part. The registration statement has additional information that is not
included here, in accordance with SEC rules. Our descriptions and statements
about any contract or other document in this prospectus or incorporated herein
by reference are summaries only, and, in each instance, reference is made to a
copy of such contract or other document filed as an exhibit hereto or in a
document incorporated by reference, each such description or statement being
qualified in all respects by such reference.
We became a reporting company as a result of the registration of the
notes, and file annual, quarterly and current reports, proxy statements and
other information with the SEC. Our fiscal year ends on December 31st. You may
read and copy any reports, statements or other information we file with the SEC
at the SEC's reference room in Washington D.C. Please call the SEC at (202)
942-8090 for further information on the operation of the reference rooms. You
can also request copies of these documents, upon payment of a duplicating fee,
by writing to the SEC, or review our SEC filings on the SEC's EDGAR web site,
which can be found at http www.sec.gov. You may also write or call us at our
corporate headquarters at the address or telephone number indicated below.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents that are considered part of this prospectus.
Later information that we file with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings made by us with the SEC under Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 until this offering of
securities has been completed. This prospectus is part of a registration
statement filed with the SEC under the Securities Act. We are incorporating by
reference the following documents into this prospectus:
- Annual Report on Form 10-K for the year ended December 31, 2000;
- Current Reports on Form 8-K and 8-K/A filed with the SEC on
May 25, 2000, June 16, 2000, July 13, 2000 and August 2, 2000.
You may obtain a copy of these filings at no cost, by writing or
telephoning us at:
DeCrane Aircraft Holdings, Inc.
2361 Rosecrans Avenue, Suite 180
El Segundo, California 90245
(310) 725-9123
USE OF PROCEEDS
This prospectus is being delivered in connection with the sale of the
notes by Credit Suisse First Boston Corporation in market-making transactions.
We have not received and will not receive any of the proceeds from such
transactions.
16
DESCRIPTION OF NOTES
GENERAL
The notes have been issued pursuant to an indenture between DeCrane
Aircraft and State Street Bank and Trust Company, as Trustee. The terms of the
notes include those stated in the indenture, and those that are incorporated
into the indenture by reference to the Trust Indenture Act of 1939. The notes
are subject to all of those terms, and holders of notes are referred to the
indenture and the Trust Indenture Act for a statement thereof.
The terms of the new notes and the old notes are substantially the same
in all material respects, except that the new notes will not be subject to
liquidated damages penalties for failure to timely register the notes under the
Securities Act, and will be more freely transferable by the holders thereof by
reason of their registration thereunder.
You should read the entire indenture, and the registration rights
agreement described below, for a complete understanding of the rights and
obligations of the holders of notes. Copies of the indenture and registration
rights agreement are available as set forth under "Where You Can Find More
Information." Also, the terms of the indenture use many specially defined terms.
In this summary, we have used the key defined terms, which are shown here as
capitalized words. You should refer to the definitions listed in "--Key
Definitions" below for their complete scope and meaning.
The notes are:
- general unsecured obligations of DeCrane Aircraft;
- subordinated in right of payment to all existing and future Senior
Indebtedness of DeCrane Aircraft, including the bank credit
facility;
- ranking at the same level of payment priority, sometimes called
"PARI PASSU," with any future senior subordinated Indebtedness of
DeCrane Aircraft and senior in right of payment to all future
subordinated Indebtedness of DeCrane Aircraft;
- effectively subordinated to all liabilities of DeCrane Aircraft's
subsidiaries that are not Guarantors, including trade payables;
- fully and unconditionally guaranteed on a senior subordinated
basis by DeCrane Aircraft's existing wholly-owned domestic
subsidiaries, as their general unsecured obligations, subordinated
in right of payment to all existing and future Senior Indebtedness
of the Guarantors, including indebtedness under our bank credit
facility, and ranking senior in right of payment to any future
subordinated indebtedness of the Guarantors.
We may issue an unlimited amount of additional senior subordinated notes
under the indenture, so long as the total amount of debt is permitted by our
financial covenants.
As of December 31, 2000, DeCrane Aircraft and the Guarantors had
outstanding approximately $283.2 million of Senior Indebtedness and DeCrane
Aircraft's non-Guarantor subsidiaries had approximately $1.9 million of
outstanding liabilities, including trade payables but excluding guarantees under
the bank credit facility. The indenture will permit DeCrane Aircraft and its
Subsidiaries to incur additional Indebtedness, including Senior Indebtedness, in
the future. The risk of such indebtedness to you as an investor is described in
"Risk Factors--Subordination."
As of the date of the indenture, all of DeCrane Aircraft's Subsidiaries
were designated as Restricted Subsidiaries. However, under some circumstances,
DeCrane Aircraft will be permitted to designate
17
current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to the restrictive covenants set forth in the
indenture.
PRINCIPAL, MATURITY AND INTEREST
The notes will initially be limited in aggregate principal amount to
$100.0 million and will mature on September 30, 2008. Interest on the notes will
accrue at the rate of 12% per annum and will be payable semi-annually in arrears
on March 30 and September 30, commencing on March 30, 1999, to holders of record
on the immediately preceding March 15 and September 15. Interest on the notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the notes will be payable
at the office or agency of DeCrane Aircraft maintained for such purpose in New
York City or, at the option of DeCrane Aircraft, payment of interest may be made
by check mailed to the holders of the notes at their respective addresses set
forth in the register of holders of notes. However, all payments of principal,
premium and interest with respect to notes represented by one or more permanent
global notes will be paid by wire transfer of immediately available funds to the
account of the Depository Trust Company or any successor thereto. Until
otherwise designated by DeCrane Aircraft, DeCrane Aircraft's office or agency in
New York will be the office of the Trustee maintained for such purpose. The
notes will be issued in denominations of $1,000 and integral multiples thereof.
SUBORDINATION
The payment of Subordinated Note Obligations is subordinated in right of
payment, as set forth in the indenture, to the prior payment in full in cash or
cash equivalents of all Senior Indebtedness, whether outstanding on the date of
the indenture or thereafter incurred.
Upon any distribution to creditors of DeCrane Aircraft in a liquidation
or dissolution of DeCrane Aircraft or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to DeCrane Aircraft or
their property, an assignment for the benefit of creditors or any marshalling of
DeCrane Aircraft's assets and liabilities, the holders of Senior Indebtedness
will be entitled to receive payment in full in cash or cash equivalents of all
Obligations due in respect of such Senior Indebtedness, including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness, before the holders of notes will be entitled to receive any
payment with respect to the Subordinated Note Obligations. In that instance,
until all Obligations with respect to Senior Indebtedness are paid in full in
cash or cash equivalents, any distribution to which the holders of notes would
be entitled shall be made to the holders of Senior Indebtedness except Permitted
Junior Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance."
DeCrane Aircraft also may not make any payment upon or in respect of the
Subordinated Note Obligations, except in Permitted Junior Securities or from the
trust described under "--Legal Defeasance and Covenant Defeasance", if a default
in the payment of the principal of, premium, if any, or interest on or
commitment fees relating to, Designated Senior Indebtedness occurs and is
continuing beyond any applicable period of grace, or if any other default occurs
and is continuing with respect to Designated Senior Indebtedness that permits
holders of the Designated Senior Indebtedness as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such default
from the holders of any Designated Senior Indebtedness. This right of a senior
creditor is typically called "blockage." Payments on the notes may and shall be
resumed, in the case of a payment default, upon the date on which such default
is cured or waived, and otherwise, upon the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable blockage notice is received, unless the maturity of any Designated
Senior Indebtedness has been accelerated. No new period of payment
18
blockage may be commenced unless and until 360 days have elapsed since the
effectiveness of the immediately prior blockage notice. No nonpayment default
that existed or was continuing on the date of delivery of any blockage notice to
the Trustee shall be, or be made, the basis for a subsequent blockage notice
unless such default shall have been waived or cured for a period of not less
than 90 days.
"DESIGNATED SENIOR INDEBTEDNESS" means any Indebtedness outstanding under
the bank credit facility, and any other Senior Indebtedness permitted under the
indenture the principal amount of which is $25.0 million or more and that has
been designated by DeCrane Aircraft in writing to the Trustee as "Designated
Senior Indebtedness."
"PERMITTED JUNIOR SECURITIES" means Equity Interests in DeCrane Aircraft
or debt securities of DeCrane Aircraft that are subordinated to all Senior
Indebtedness, and any debt securities issued in exchange for Senior
Indebtedness, to substantially the same extent as, or to a greater extent than,
the notes are subordinated to Senior Indebtedness.
"SENIOR INDEBTEDNESS" means, with respect to any person,
- all Obligations of such person outstanding under the bank credit
facility and all Hedging Obligations payable to a lender or an
Affiliate thereof or to a person that was a lender or an Affiliate
thereof at the time the contract was entered into under the bank
credit facility or any of its Affiliates, including interest
accruing subsequent to the filing of, or which would have accrued
but for the filing of, a petition for bankruptcy, whether or not
such interest is an allowable claim in such bankruptcy proceeding,
- any other Indebtedness, unless the instrument under which such
Indebtedness is incurred expressly provides that it is
subordinated in right of payment to any other Senior Indebtedness
of such person and
- all Obligations with respect to the foregoing.
However, Senior Indebtedness does not include any liability for federal,
state, local or other taxes, any Indebtedness of such person, excluding that
arising under the bank credit facility, to any of its Subsidiaries or other
Affiliates, any trade payables or any Indebtedness that is incurred in violation
of the indenture.
"SUBORDINATED NOTE OBLIGATIONS" means all Obligations with respect to the
notes, including principal, premium if any and interest payable pursuant to the
terms of the notes, including upon the acceleration or redemption thereof,
together with and including any amounts received or receivable upon the exercise
of rights of rescission, claims for damages or other rights of action or
otherwise.
The indenture further requires that DeCrane Aircraft promptly notify
holders of Senior Indebtedness if payment of the notes is accelerated because of
an Event of Default. As a result of the subordination provisions described
above, in the event of a liquidation or insolvency, holders of notes may recover
less ratably than creditors of DeCrane Aircraft who are holders of Senior
Indebtedness.
NOTE GUARANTEES
DeCrane Aircraft's payment obligations under the notes are fully and
unconditionally guaranteed on a joint and several basis by the Guarantors. The
guarantee of each Guarantor is subordinated to the prior payment in full in cash
or cash equivalents of all Senior Indebtedness of such Guarantor, including such
Guarantor's guarantee of the bank credit facility, to the same extent that the
notes are subordinated to Senior Indebtedness of DeCrane Aircraft. The
obligations of each Guarantor under its guarantee are limited so as not to
constitute a fraudulent conveyance under applicable law.
19
The indenture provides that no Guarantor may consolidate or merge with or
into another corporation, person or entity whether or not affiliated with such
Guarantor unless:
- subject to the provisions of the following paragraph, the person
formed by or surviving any such consolidation or merger assumes
all the obligations of such Guarantor pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the
Trustee, under the notes, the indenture and the registration
rights agreement;
- immediately after giving effect to such transaction, no Default or
Event of Default exists; and
- Unless the consolidation or merger is with DeCrane Aircraft,
DeCrane Aircraft or another Guarantor would, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the covenant described in "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
The indenture provides that, in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, that Guarantor will be released and relieved of any obligations under
its guarantee, so long as the Net Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of the indenture, as
described in "--Repurchase at the Option of Holders."
OPTIONAL REDEMPTION
Except as provided below, the notes are not redeemable at DeCrane
Aircraft's option before September 30, 2003. Thereafter, the notes will be
subject to redemption at any time at the option of DeCrane Aircraft, in whole or
in part, on not less than 30 nor more than 60 days' notice, in cash at the
redemption prices set forth below, plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve months beginning
on September 30 of the years indicated below:
PERCENTAGE OF
YEAR PRINCIPAL AMOUNT
2003 ..................................................... 106.000%
2004 ..................................................... 104.000%
2005 ..................................................... 102.000%
2006 and thereafter ...................................... 100.000%
Notwithstanding the foregoing, on or prior to September 30, 2001, DeCrane
Aircraft may redeem up to 35% of the aggregate principal amount of notes ever
issued under the indenture in cash at a redemption price of 112% of the
principal amount thereof, plus accrued and unpaid interest thereon to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings. However, the foregoing redemption is only permitted if at least 65%
of the aggregate principal amount of notes ever issued under the indenture
remains outstanding immediately after the occurrence of the redemption, and the
redemption occurs within 90 days of the date of the closing of any such Public
Equity Offering.
In addition, at any time prior to September 30, 2003, DeCrane Aircraft
may, at its option upon the occurrence of a Change of Control, redeem the notes,
in whole but not in part, upon not less than 30 nor more than 60 days' prior
notice, and no more than 60 days after the occurrence of such Change of Control,
in cash at a redemption price equal to
(1) the present value of the sum of all the remaining interest,
excluding any accrued and unpaid interest, premium and principal
payments that would become due on the notes as if the notes were
to remain outstanding and be redeemed on September 30, 2003,
computed using a discount rate equal to the Treasury Rate plus 50
basis points, plus
20
(2) accrued and unpaid interest to the date of redemption.
"TREASURY RATE" means, as of any redemption date, the yield to maturity
as of such redemption date of United States Treasury securities with a constant
maturity most nearly equal to the period from the redemption date to September
30, 2003, as stated in the most recent Federal Reserve Statistical Release H.15
(519) that has become publicly available at least two Business Days prior to the
redemption date or, if such Statistical Release is no longer published, any
publicly available source of similar market data. However, if the period from
the redemption date to September 30, 2003 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, selection
of notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
notes are listed, or, if the notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate. However,
notes of $1,000 or less shall be redeemed in part. Notices of redemption shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any note is to be
redeemed in part only, the notice of redemption that relates to such note shall
state the portion of the principal amount thereof to be redeemed. A new note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on notes or portions of them called
for redemption.
MANDATORY REDEMPTION
DeCrane Aircraft is not required to make mandatory redemption of, or
sinking fund payments with respect to, the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, as specifically defined in
the indenture and summarized below, each holder of notes will have the right to
require DeCrane Aircraft to repurchase all or any part, equal to $1,000 or an
integral multiple thereof, of such holder's notes which the holder offers in the
manner described below at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon to the date
of repurchase. Within 60 days following any Change of Control, DeCrane Aircraft
will cause the mailing of a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
notes on the payment date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by the indenture and described in
such notice. DeCrane Aircraft will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of the Indenture relating to the foregoing offer and repurchase,
DeCrane Aircraft will comply with the applicable securities laws and regulations
and shall not be deemed to have breached their obligations described in the
Indenture by virtue thereof.
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On the foregoing payment date, DeCrane Aircraft will, to the extent
lawful, accept for payment all notes or portions thereof properly tendered
pursuant to its offer to repurchase, deposit with the paying agent an amount
equal to the foregoing payment in respect of all notes or portions thereof so
tendered, and deliver or cause to be delivered to the Trustee the notes so
accepted together with an officers' certificate stating the aggregate principal
amount of notes or portions thereof being purchased by DeCrane Aircraft. The
paying agent will promptly mail to each holder of notes so tendered the
foregoing payment for such notes, and the Trustee will promptly authenticate and
mail, or cause to be transferred by book-entry, to each holder a new Note equal
in principal amount to any unpurchased portion of the notes surrendered, if any.
However, each such new Note must be in a principal amount of $1,000 or an
integral multiple thereof. The indenture provides that, prior to complying with
the provisions of this covenant, but in any event within 90 days following a
Change of Control, DeCrane Aircraft will either repay all outstanding Senior
Indebtedness or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Indebtedness to permit the repurchase of notes
required by this covenant. DeCrane Aircraft will publicly announce the results
of its offer to repurchase on or as soon as practicable after the foregoing
payment date.
The change of control provisions described above will be applicable
whether or not any other provisions of the indenture are applicable. Except as
described above, the indenture does not contain provisions that permit the
holders of the notes to require that DeCrane Aircraft repurchase or redeem the
notes in the event of a takeover, recapitalization or similar transaction.
The bank credit facility prohibits DeCrane Aircraft from purchasing any
notes and also provides that change of control events, which may include events
not otherwise constituting a "change of control" as defined in the indenture,
with respect to DeCrane Aircraft would constitute a default thereunder. Any
future credit agreements or other agreements relating to Senior Indebtedness to
which DeCrane Aircraft becomes a party may contain similar restrictions and
provisions. In the event such a change of control occurs at a time when DeCrane
Aircraft is prohibited from purchasing notes, DeCrane Aircraft could seek the
consent of its lenders to the purchase of notes or could attempt to refinance
the borrowings that contain such prohibition. If DeCrane Aircraft does not
obtain such a consent or repay such borrowings, DeCrane Aircraft will remain
prohibited from purchasing notes. In such case, DeCrane Aircraft's failure to
purchase tendered notes would constitute an Event of Default under the
indenture, which would, in turn, constitute a default under the bank credit
facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the holders of notes.
DeCrane Aircraft will not be required to make an offer to repurchase upon
a change of control in the manner described above if a third party makes the
offer to repurchase in the manner, at the times and otherwise in compliance with
the requirements set forth in the indenture applicable to an offer to repurchase
made by DeCrane Aircraft and purchases all notes validly tendered and not
withdrawn under such offer.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition, other
than by way of merger or consolidation, in one or a series of
related transactions, of all or substantially all of the assets of
DeCrane Aircraft and its Subsidiaries, taken as a whole, to any
"person" or "group," as such terms are used in Section 13(d) of
the Exchange Act, other than the Principals and their Related
Parties;
(2) the adoption of a plan for the liquidation or dissolution of
DeCrane Aircraft;
(3) the consummation of any transaction, including, any merger or
consolidation the result of which is that any "person" or "group,"
as such terms are used in Section 13(d) of the Exchange Act, other
than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act),
22
directly or indirectly through one or more intermediaries, of 50%
or more of the voting power of the outstanding voting stock of
DeCrane Aircraft; or
(4) the first day on which a majority of the members of the board of
directors of DeCrane Aircraft are not Continuing Members.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of DeCrane Aircraft and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
DeCrane Aircraft to repurchase such notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of
DeCrane Aircraft and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
"CONTINUING MEMBERS" means, as of any date of determination, any member
of the board of directors of DeCrane Aircraft who was a member of such board of
directors immediately after consummation of the Acquisition, or was nominated
for election or elected to such board of directors with the approval of, or
whose election to the board of directors was ratified by, at least a majority of
the Continuing Members who were members of such board of directors at the time
of such nomination or election or any successor Continuing Directors appointed
by such Continuing Directors or their successors.
ASSET SALES
The indenture provides that DeCrane Aircraft will not, and will not
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless
(1) DeCrane Aircraft or such Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least
equal to the fair market value, evidenced by a resolution of the
board of directors set forth in an officers' certificate delivered
to the Trustee, of the assets or Equity Interests issued or sold
or otherwise disposed of, and
(2) at least 75% of the consideration therefore received by DeCrane
Aircraft or such Restricted Subsidiary is in the form of cash or
Cash Equivalents or property or assets that are used or useful in
a Permitted Business, or the Capital Stock of any person engaged
in a Permitted Business if, as a result of the acquisition by
DeCrane Aircraft or any Restricted Subsidiary thereof, such Person
becomes a Restricted Subsidiary The foregoing 75% requirement will
not apply to any Asset Sale in which the cash or Cash Equivalents
portion of the consideration received therefrom, determined in
accordance with the foregoing proviso, is equal to or greater than
what the after-tax proceeds would have been had such Asset Sale
complied with that 75% rule. The following types of assets will be
deemed cash in applying that 75% test:
(a) any liabilities as shown on DeCrane Aircraft's most recent
balance sheet or such Restricted Subsidiary's of DeCrane
Aircraft or any Restricted Subsidiary as shown on their most
recent balance sheet, other than contingent liabilities and
liabilities that are by their terms subordinated to the
notes or any guarantee thereof, that are assumed by the
transferee of any such assets pursuant to a customary
novation agreement that releases DeCrane Aircraft or such
Restricted Subsidiary from further liability,
(b) any securities, notes or other obligations received by
DeCrane Aircraft or any such Restricted Subsidiary from such
transferee that are contemporaneously converted by DeCrane
Aircraft or such Restricted Subsidiary into cash or Cash
Equivalents, to the extent of the cash or Cash Equivalents
received, and
23
(c) any Designated Noncash Consideration received by DeCrane
Aircraft or any of its Restricted Subsidiaries in such Asset
Sale having an aggregate fair market value, taken together
with all other Designated Noncash Consideration received
pursuant to this clause (c) that is at that time
outstanding, not to exceed 15% of Total Assets at the time
of the receipt of such Designated Noncash Consideration,
with the fair market value of each item of Designated
Noncash Consideration being measured at the time received
and without giving effect to subsequent changes in value.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
DeCrane Aircraft or any such Restricted Subsidiary shall apply such Net
Proceeds, at its option, or to the extent DeCrane Aircraft is required to apply
such Net Proceeds pursuant to the terms of the bank credit facility, to
(1) repay or purchase Senior Indebtedness or Pari Passu Indebtedness
of DeCrane Aircraft or any Indebtedness of any Restricted
Subsidiary, provided that, if DeCrane Aircraft shall so repay or
purchase Pari Passu Indebtedness of DeCrane Aircraft, it will
equally and ratably reduce Indebtedness under the notes if the
notes are then redeemable, or, if the notes may not then be
redeemed, DeCrane Aircraft shall make an offer in accordance with
the procedures set forth below for an Asset Sale Offer to all
holders of notes to purchase at a purchase price equal to 100% of
the principal amount of the notes, plus accrued and unpaid
interest thereon to the date of purchase, the notes that would
otherwise be redeemed, or
(2) an investment in property, the making of a capital expenditure or
the acquisition of assets that are used or useful in a Permitted
Business, or Capital Stock of any Person primarily engaged in a
Permitted Business if
(a) as a result of the acquisition by DeCrane Aircraft or any
Restricted Subsidiary thereof, such Person becomes a
Restricted Subsidiary or
(b) the Investment in such Capital Stock is permitted by clause
(f) of the definition of Permitted Investments. Pending the
final application of any such Net Proceeds, DeCrane Aircraft
may temporarily reduce Indebtedness or otherwise invest such
Net Proceeds in any manner that is not prohibited by the
Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds exceeds $10.0
million, DeCrane Aircraft will be required to make an offer to all holders of
notes, referred to as an "ASSET SALE OFFER," to purchase the maximum principal
amount of notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date of purchase, in accordance with
the procedures set forth in the indenture. To the extent that any Excess
Proceeds remain after consummation of an Asset Sale Offer, DeCrane Aircraft may
use such Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of notes surrendered by holders
thereof in connection with an Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the notes to be purchased as set forth under
"--Selection and Notice." Upon completion of such offer to purchase, the amount
of Excess Proceeds shall be reset at zero.
DeCrane Aircraft will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the indenture relating to such Asset Sale Offer, DeCrane Aircraft will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the indenture by virtue thereof.
24
PRINCIPAL COVENANTS
RESTRICTED PAYMENTS
The indenture provides that DeCrane Aircraft will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other payment or
distribution on account of DeCrane Aircraft's or any of its
Restricted Subsidiaries' Equity Interests, other than dividends or
distributions payable in Equity Interests other than Disqualified
Stock of DeCrane Aircraft or dividends or distributions payable to
DeCrane Aircraft or any Wholly Owned Restricted Subsidiary of
DeCrane Aircraft;
(b) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of DeCrane Aircraft, any of its Restricted
Subsidiaries or any other Affiliate of DeCrane Aircraft, other
than any such Equity Interests owned by DeCrane Aircraft or any
Restricted Subsidiary of DeCrane Aircraft;
(c) make any principal payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value, any
Indebtedness of DeCrane Aircraft that is subordinated in right of
payment to the notes, except in accordance with the mandatory
redemption or repayment provisions set forth in the original
documentation governing such Indebtedness, but not pursuant to any
mandatory offer to repurchase upon the occurrence of any event; or
(d) make any Restricted Investment;
all such payments and other actions set forth in clauses (a) through (d) above
are collectively referred to as "RESTRICTED PAYMENTS"; unless, at the time of
and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) DeCrane Aircraft would, immediately after giving pro forma effect
thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by DeCrane Aircraft and its
Restricted Subsidiaries after the date of the indenture, excluding
Restricted Payments permitted by clause (a) to the extent that the
declaration of any dividend referred to therein reduces amounts
available for Restricted Payments pursuant to this clause (3),
clauses (b) through (i), and clauses (k), (l), (o), (p) and (r) of
the next succeeding paragraph, is less than the sum, without
duplication, of
(A) 50% of the Consolidated Net Income of DeCrane Aircraft for
the period, taken as one accounting period, commencing
October 1, 1998 to the end of DeCrane Aircraft's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted
Payment or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit, plus
(B) 100% of the Qualified Proceeds received by DeCrane Aircraft
on or after the date of the Indenture from contributions to
DeCrane Aircraft's capital or from the issue or sale on or
after the date of the Indenture of Equity Interests of
DeCrane Aircraft or of Disqualified Stock or convertible
debt securities of DeCrane Aircraft to the extent that they
have been converted into such Equity Interests, other than
Equity Interests, Disqualified Stock or convertible debt
securities sold to a Subsidiary of DeCrane
25
Aircraft and other than Disqualified Stock or convertible
debt securities that have been converted into Disqualified
Stock, plus
(C) the amount equal to the net reduction in Investments in
Persons after the date of the Indenture who are not
Restricted Subsidiaries other than Permitted Investments
resulting from
(x) Qualified Proceeds received as a dividend, repayment
of a loan or advance or other transfer of assets,
valued at the fair market value thereof, to DeCrane
Aircraft or any Restricted Subsidiary from such
Persons,
(y) Qualified Proceeds received upon the sale or
liquidation of such Investment and
(z) the redesignation of Unrestricted Subsidiaries,
available for Restricted Payments pursuant to clause
(j) or (n) below arising from the redesignation of
such Restricted Subsidiary, whose assets are used or
useful in, or which is engaged in, one or more
Permitted Business as Restricted Subsidiaries valued,
proportionate to DeCrane Aircraft's equity interest
in such Subsidiary, at the fair market value of the
net assets of such Subsidiary at the time of such
redesignation.
The foregoing provisions will not prohibit:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the provisions of the Indenture;
(b) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests
of DeCrane Aircraft (the "RETIRED CAPITAL STOCK") in exchange for
or out of the net cash proceeds of the substantially concurrent
sale, other than to a Subsidiary of DeCrane Aircraft, of other
Equity Interests of DeCrane Aircraft other than any Disqualified
Stock (the "REFUNDING CAPITAL STOCK"), provided that the amount of
any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (3)(B) of the preceding
paragraph;
(c) the defeasance, redemption, repurchase, retirement or other
acquisition of subordinated Indebtedness of DeCrane Aircraft with
the net cash proceeds from an incurrence of, or in exchange for,
Permitted Refinancing Indebtedness;
(d) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of DeCrane Aircraft or DeCrane
Holdings held by any member of DeCrane Holdings' or DeCrane
Aircraft's or any of its Restricted Subsidiaries' management
pursuant to any management equity subscription agreement or stock
option agreement and any dividend to DeCrane Holdings to fund any
such repurchase, redemption, acquisition or retirement, provided
that
(1) the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not
exceed
(x) $4.0 million in any calendar year with unused amounts
in any calendar year being carried over to succeeding
calendar years subject to a maximum, without giving
effect to the following clause (y) of $7.0 million in
any calendar year, plus
(y) the aggregate cash proceeds received by DeCrane
Aircraft during such calendar year from any
reissuance of Equity Interests by DeCrane Aircraft or
DeCrane Holdings to members of management of DeCrane
Aircraft and its Restricted Subsidiaries and
(2) no Default or Event of Default shall have occurred and be
continuing immediately after such transaction;
26
(e) payments and transactions in connection with the Acquisition, the
Acquisition Financing, the Offering, the bank credit facility
including commitment, syndication and arrangement fees payable
thereunder, and the application of the proceeds thereof including
the purchase of shares of Common Stock of DeCrane Aircraft and any
payment therefore by way of dissenting rights or otherwise, and
the payment of fees and expenses with respect thereto;
(f) the payment of dividends or the making of loans or advances by
DeCrane Aircraft to DeCrane Holdings not to exceed $3.0 million in
any fiscal year for costs and expenses incurred by DeCrane
Holdings in its capacity as a holding company or for services
rendered by DeCrane Holdings on behalf of DeCrane Aircraft;
(g) payments or distributions to DeCrane Holdings pursuant to any Tax
Sharing Agreement;
(h) the payment of dividends by a Restricted Subsidiary on any class
of common stock of such Restricted Subsidiary if such dividend is
paid pro rata to all holders of such class of common stock, and at
least 51% of such class of common stock is held by DeCrane
Aircraft or one or more of its Restricted Subsidiaries;
(i) the repurchase of any class of common stock of a Restricted
Subsidiary if such repurchase is made pro rata with respect to
such class of common stock, and at least 51% of such class of
common stock is held by DeCrane Aircraft or one or more of its
Restricted Subsidiaries;
(j) any other Restricted Investment made in a Permitted Business
which, together with all other Restricted Investments made
pursuant to this clause (j) since the date of the Indenture, does
not exceed $25.0 million, in each case, after giving effect to all
subsequent reductions in the amount of any Restricted Investment
made pursuant to this clause (j), either as a result of
(1) the repayment or disposition thereof for cash or
(2) the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, valued proportionate to DeCrane
Aircraft's equity interest in such Subsidiary at the time of
such redesignation at the fair market value of the net
assets of such Subsidiary at the time of such redesignation,
in the case of clause (1) and (2), not to exceed the amount of
such Restricted Investment previously made pursuant to this clause
(j); provided that no Default or Event of Default shall have
occurred and be continuing immediately after making such
Restricted Investment;
(k) the declaration and payment of dividends to holders of any class
or series of Disqualified Stock of DeCrane Aircraft or any
Restricted Subsidiary issued on or after the date of the indenture
in accordance with the covenant described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; provided that no
Default or Event of Default shall have occurred and be continuing
immediately after making such Restricted Payment;
(l) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the
exercise price of such options;
(m) the payment of dividends or distributions on DeCrane Aircraft's
common stock, following the first public offering of DeCrane
Aircraft's common stock or DeCrane Holdings' common stock after
the date of the Indenture, of up to 6.0% per annum of
(1) the net proceeds received by DeCrane Aircraft from such
public offering of its common stock or
(2) the net proceeds received by DeCrane Aircraft from such
public offering of DeCrane Holdings' common stock as common
equity or preferred equity other than Disqualified Stock,
other than, in each case, with respect to public offerings
with respect to DeCrane Aircraft's common stock or DeCrane
Holdings' common stock registered on Form S-8;
27
provided that no Default or Event of Default shall have
occurred and be continuing immediately after any such
payment of dividends or distributions;
(n) any other Restricted Payment which, together with all other
Restricted Payments made pursuant to this clause (n) since the
date of the Indenture, does not exceed $10.0 million, in each
case, after giving effect to all subsequent reductions in the
amount of any Restricted Investment made pursuant to this clause
(n) either as a result of
(1) the repayment or disposition thereof for cash or
(2) the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary valued proportionate to DeCrane
Aircraft's equity interest in such Subsidiary at the time of
such redesignation at the fair market value of the net
assets of such Subsidiary at the time of such redesignation,
in the case of clause (1) and (2), not to exceed the amount of
such Restricted Investment previously made pursuant to this clause
(n); provided that no Default or Event of Default shall have
occurred and be continuing immediately after making such
Restricted Payment;
(o) the pledge by DeCrane Aircraft of the Capital Stock of an
Unrestricted Subsidiary of DeCrane Aircraft to secure Non-Recourse
Debt of such Unrestricted Subsidiary;
(p) the purchase, redemption or other acquisition or retirement for
value of any Equity Interests of any Restricted Subsidiary issued
after the date of the indenture, provided that the aggregate price
paid for any such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed the sum of
(1) the amount of cash and Cash Equivalents received by such
Restricted Subsidiary from the issue or sale thereof and
(2) any accrued dividends thereon the payment of which would be
permitted pursuant to clause (k) above;
(q) any Investment in an Unrestricted Subsidiary that is funded by
Qualified Proceeds received by DeCrane Aircraft on or after the
date of the Indenture from contributions to DeCrane Aircraft's
capital or from the issue and sale on or after the date of the
Indenture of Equity Interests of DeCrane Aircraft or of
Disqualified Stock or convertible debt securities to the extent
they have been converted into such Equity, other than Equity
Interests, Disqualified Stock or convertible debt securities sold
to a Subsidiary of DeCrane Aircraft and other than Disqualified
Stock or convertible debt securities that have been converted
into Disqualified Stock, in an amount measured at the time such
Investment is made and without giving effect to subsequent
changes in value that does not exceed the amount of such
Qualified Proceeds; and
(r) distributions or payments of Receivables Fees.
The board of directors of DeCrane Aircraft may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such designation, all outstanding Investments
by DeCrane Aircraft and its Restricted Subsidiaries, except to the extent repaid
in cash, in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Restricted Investments in
an amount equal to the greater of
- the net book value of such Investments at the time of such
designation and
- the fair market value of such Investments at the time of such
designation.
28
Such designation will only be permitted if such Restricted Investment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments other than cash shall be the fair
market value on the date of the Restricted Payment of the assets or securities
proposed to be transferred or issued by DeCrane Aircraft or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The amount
of all Qualified Proceeds other than cash shall be the fair market value on the
date of receipt thereof by DeCrane Aircraft of such Qualified Proceeds. The fair
market value of any non-cash Restricted Payment shall be determined by the board
of directors of DeCrane Aircraft whose resolution with respect thereto shall be
delivered to the Trustee. Not later than the date of making any Restricted
Payment, DeCrane Aircraft shall deliver to the Trustee an officers' certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments" were
computed.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The indenture provides that
- DeCrane Aircraft will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to any
Indebtedness, including Acquired Indebtedness,
- DeCrane Aircraft will not, and will not permit any of its
Restricted Subsidiaries to, issue any shares of Disqualified Stock
and
- DeCrane Aircraft will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock;
provided that DeCrane Aircraft or any Restricted Subsidiary may incur
Indebtedness, including Acquired Indebtedness, or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for DeCrane Aircraft's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock is issued would have been at least 2.0 to
1, determined on a consolidated pro forma basis including a pro forma
application of the net proceeds therefrom, as if the additional Indebtedness had
been incurred, or the Disqualified Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"PERMITTED INDEBTEDNESS"):
(1) the incurrence by DeCrane Aircraft and its Restricted Subsidiaries
of Indebtedness under the bank credit facility; provided that the
aggregate principal amount of all Indebtedness, with letters of
credit being deemed to have a principal amount equal to the
maximum potential liability of DeCrane Aircraft and such
Restricted Subsidiaries thereunder, then classified as having been
incurred in reliance upon this clause (1) that remains outstanding
under the bank credit facility after giving effect to such
incurrence does not exceed an amount equal to $150.0 million;
(2) the incurrence by DeCrane Aircraft and its Restricted
Subsidiaries of Existing Indebtedness;
(3) the incurrence by DeCrane Aircraft of Indebtedness represented by
the notes and the Indenture and by the Guarantors of Indebtedness
represented by their note guarantees;
(4) the incurrence by DeCrane Aircraft and its Restricted Subsidiaries
of Indebtedness denominated in Swiss francs or their successor
European common currency in an aggregate
29
principal amount, or accreted value, as applicable, not to exceed
$4.0 million outstanding after giving effect to such incurrence;
(5) the incurrence by DeCrane Aircraft or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Expenditure
Indebtedness, Capital Lease Obligations or purchase money
obligations, in each case, incurred for the purpose of financing
all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business
of DeCrane Aircraft or such Restricted Subsidiary, in an aggregate
principal amount or accreted value, as applicable not to exceed
$15.0 million outstanding after giving effect to such incurrence;
(6) Indebtedness arising from agreements of DeCrane Aircraft or any
Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or
assume in connection with the disposition of any business, assets
or a Subsidiary, other than guarantees of Indebtedness incurred by
any Person acquiring all or any portion of such business, assets
or Restricted Subsidiary for the purpose of financing such
acquisition; provided that
(A) such Indebtedness is not reflected on the balance sheet of
DeCrane Aircraft or any Restricted Subsidiary, other than in
the footnotes in the case of a contingent obligation; and
(B) the maximum assumable liability in respect of such
Indebtedness shall at no time exceed the gross proceeds
including non-cash proceeds actually received by DeCrane
Aircraft and/or such Restricted Subsidiary in connection
with such disposition, the fair market value of such
non-cash proceeds being measured at the time received and
without giving effect to any subsequent changes in value;
(7) the incurrence by DeCrane Aircraft or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance or
replace Indebtedness other than intercompany Indebtedness that was
permitted by the Indenture to be incurred;
(8) the incurrence by DeCrane Aircraft or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among DeCrane
Aircraft and/or any of its Restricted Subsidiaries; provided that
(1) if DeCrane Aircraft is the obligor on such Indebtedness,
such Indebtedness is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to
the notes and
(2) (A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person
other than DeCrane Aircraft or a Restricted Subsidiary
thereof and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either DeCrane Aircraft
or a Restricted Subsidiary thereof shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by
DeCrane Aircraft or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause (8);
(9) the incurrence by DeCrane Aircraft or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the
purpose of fixing or hedging
(A) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this
Indenture to be outstanding and
(B) exchange rate risk with respect to agreements or
Indebtedness of such Person payable denominated in a
currency other than U.S. dollars, provided that such
agreements do not increase the Indebtedness of the obligor
outstanding at any time other than as a
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result of fluctuations in foreign currency exchange rates
or interest rates or by reason of fees, indemnities and
compensation payable thereunder;
(10) the guarantee by DeCrane Aircraft or any of its Restricted
Subsidiaries of Indebtedness of DeCrane Aircraft or a Restricted
Subsidiary of DeCrane Aircraft that was permitted to be incurred
by another provision of this covenant;
(11) the incurrence by DeCrane Aircraft or any of its Restricted
Subsidiaries of Acquired Indebtedness in an aggregate principal
amount or accreted value, as applicable not to exceed $10.0
million outstanding after giving effect to such incurrence;
(12) obligations in respect of performance and surety bonds and
completion guarantees provided by DeCrane Aircraft or any
Restricted Subsidiary in the ordinary course of business; and
(13) the incurrence by DeCrane Aircraft or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal
amount or accreted value, as applicable outstanding after giving
effect to such incurrence, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (13), not to exceed
$20.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (13) above
or is entitled to be incurred pursuant to the first paragraph of this covenant,
DeCrane Aircraft shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. In addition, DeCrane
Aircraft may, at any time, change the classification of an item of Indebtedness
or any portion thereof to any other clause or to the first paragraph hereof,
provided that DeCrane Aircraft would be permitted to incur such item of
Indebtedness or such portion thereof pursuant to such other clause or the first
paragraph hereof, as the case may be, at such time of reclassification. Accrual
of interest, accretion or amortization of original issue discount will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
All Indebtedness under the bank credit facility outstanding on the date
of the indenture shall be deemed to have been incurred on such date in reliance
on the first paragraph of the covenant described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock." As a result, DeCrane Aircraft
will be permitted to incur significant additional secured indebtedness under
clause (1) of the definition above of "Permitted Indebtedness."
LIENS
The indenture provides that DeCrane Aircraft will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien, other than a Permitted Lien, that
secures obligations under any Pari Passu Indebtedness or subordinated
Indebtedness of DeCrane Aircraft on any asset or property now owned or hereafter
acquired by DeCrane Aircraft or any of its Restricted Subsidiaries, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, unless the notes are equally and ratably secured with the obligations
so secured until such time as such obligations are no longer secured by a Lien;
provided that, in any case involving a Lien securing subordinated Indebtedness
of DeCrane Aircraft, such Lien is subordinated to the Lien securing the notes to
the same extent that such subordinated Indebtedness is subordinated to the
notes.
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The indenture provides that DeCrane Aircraft will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to
(a) (1) pay dividends or make any other distributions to DeCrane
Aircraft or any of its Restricted Subsidiaries
(A) on its Capital Stock or
(B) with respect to any other interest or participation in,
or measured by, its profits, or
(2) pay any Indebtedness owed to DeCrane Aircraft or any of its
Restricted Subsidiaries,
(b) make loans or advances to DeCrane Aircraft or any of its
Restricted Subsidiaries or
(c) transfer any of its properties or assets to DeCrane Aircraft or
any of its Restricted Subsidiaries.
However, the foregoing restrictions will not apply to encumbrances or
restrictions existing under or by reason of
(a) Existing Indebtedness as in effect on the date of the indenture,
(b) the bank credit facility as in effect as of the date of the
indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings thereof,
(c) the indenture and the notes,
(d) applicable law and any applicable rule, regulation or order,
(e) any agreement or instrument of a Person acquired by DeCrane
Aircraft or any of its Restricted Subsidiaries as in effect at the
time of such acquisition, except to the extent created in
contemplation of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or
assets of any person, other than the person, or the property or
assets of the person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred,
(f) customary non-assignment provisions in leases and contracts
entered into in the ordinary course of business and consistent
with past practices,
(g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature
described in clause (e) above on the property so acquired,
(h) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of such
Subsidiary,
(i) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are, in the good faith judgment of DeCrane Aircraft's
board of directors, not materially less favorable, taken as a
whole, to the holders of the notes than those contained in the
agreements governing the Indebtedness being refinanced,
(j) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under "--Incurrence of Indebtedness and
Issuance of Preferred Stock" and "--Liens" that limit the right of
the debtor to dispose of the assets securing such Indebtedness,
32
(k) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business,
(l) other Indebtedness or Disqualified Stock of Restricted
Subsidiaries permitted to be incurred subsequent to the Issuance
Date pursuant to the provisions of the covenant described under
"--Incurrence of Indebtedness and Issuance of Preferred Stock",
(m) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business, and
(n) restrictions created in connection with any Receivables Facility
that, in the good faith determination of the board of directors of
DeCrane Aircraft, are necessary or advisable to effect such
Receivables Facility.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The indenture provides that DeCrane Aircraft may not consolidate or merge
with or into, whether or not DeCrane Aircraft is the surviving corporation, or
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
person unless
(a) DeCrane Aircraft is the surviving corporation, or the other person
formed by or surviving any such consolidation or merger or to
which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or
the District of Columbia,
(b) the person other than DeCrane Aircraft formed by or surviving any
such consolidation or merger or the person to which such sale,
assignment, transfer, conveyance or other disposition shall have
been made assumes all the obligations of DeCrane Aircraft under
the registration rights agreement, the notes and the indenture
pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee,
(c) immediately after such transaction no Default or Event of Default
exists, and
(d) DeCrane Aircraft or the other person formed by or surviving any
such consolidation or merger, or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made
(1) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth
in the first paragraph of the covenant described under
"--Incurrence of Indebtedness and Issuance of Preferred
Stock" or
(2) would together with its Restricted Subsidiaries have a
higher Fixed Charge Coverage Ratio immediately after such
transaction, after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the
applicable four-quarter period, than the Fixed Charge
Coverage Ratio of DeCrane Aircraft and its Restricted
Subsidiaries immediately prior to such transaction.
The foregoing clause (d) will not prohibit a merger between DeCrane
Aircraft and a Wholly Owned Subsidiary of DeCrane Holdings created for the
purpose of holding the Capital Stock of DeCrane Aircraft, a merger between
DeCrane Aircraft and a Wholly Owned Restricted Subsidiary or a merger between
DeCrane Aircraft and an Affiliate incorporated solely for the purpose of
reincorporating DeCrane Aircraft in another state of the United States so long
as, in each case, the amount of Indebtedness of DeCrane Aircraft and its
Restricted Subsidiaries is not increased thereby.
33
The indenture provides that DeCrane Aircraft will not lease all or
substantially all of its assets to any person.
TRANSACTIONS WITH AFFILIATES
The indenture provides that DeCrane Aircraft will not, and will not
permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate of DeCrane Aircraft each of which the
indenture refers to as an "Affiliate Transaction", unless
(a) such Affiliate Transaction is on terms that are no less favorable
to DeCrane Aircraft or such Restricted Subsidiary than those that
would have been obtained in a comparable transaction by DeCrane
Aircraft or such Restricted Subsidiary with an unrelated Person
and
(b) DeCrane Aircraft delivers to the Trustee, with respect to any
Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $7.5 million,
either
(1) a resolution of the board of directors set forth in an
Officers' Certificate certifying that such Affiliate
Transaction complies with clause (a) above and that such
Affiliate Transaction has been approved by a majority of the
disinterested members of the board of directors or
(2) an opinion as to the fairness to the holders of such
Affiliate Transaction from a financial point of view issued
by an accounting, appraisal or investment banking firm of
national standing.
Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions:
(a) customary directors' fees, indemnification or similar arrangements
or any employment agreement or other compensation plan or
arrangement entered into by DeCrane Aircraft or any of its
Restricted Subsidiaries in the ordinary course of business,
including ordinary course loans to employees not to exceed
(1) $5.0 million outstanding in the aggregate at any time and
(2) $2.0 million to any one employee, and consistent with the
past practice of DeCrane Aircraft or such Restricted
Subsidiary;
(b) transactions between or among DeCrane Aircraft and/or its
Restricted Subsidiaries;
(c) payments of customary fees by DeCrane Aircraft or any of its
Restricted Subsidiaries to DLJ Merchant Banking and its Affiliates
made for any financial advisory, financing, underwriting or
placement services or in respect of other investment banking
activities, including, without limitation, in connection with
acquisitions or divestitures which are approved by a majority of
the board of directors in good faith;
(d) any agreement as in effect on the date of the indenture or any
amendment thereto which such amendment is not disadvantageous to
the holders of the notes in any material respect, or any
transaction contemplated thereby;
(e) payments and transactions in connection with the Acquisition, the
bank credit facility and the bridge notes and the Offering and the
application of the proceeds thereof, and the payment of the fees
and expenses with respect thereto;
(f) Restricted Payments that are permitted by the provisions of the
indenture described under "--Restricted Payments" and any
Permitted Investments;
34
(g) payments and transactions in connection with the Global Technology
Investment, and the payment of fees and expenses with respect
thereto; and
(h) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
SALE AND LEASEBACK TRANSACTIONS
The indenture provides that DeCrane Aircraft will not, and will not
permit any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that DeCrane Aircraft or any Restricted Subsidiary may
enter into a sale and leaseback transaction if
(a) DeCrane Aircraft or such Restricted Subsidiary, as the case may
be, could have incurred Indebtedness in an amount equal to the
Attributable Indebtedness relating to such sale and leaseback
transaction pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described under
"--Incurrence of Indebtedness and Issuance of Preferred Stock,"
and incurred a Lien to secure such Indebtedness pursuant to the
covenant described under "--Liens,"
(b) the gross cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value, as determined in good
faith by the board of directors and set forth in an officers'
certificate delivered to the Trustee, of the property that is the
subject of such sale and leaseback transaction and
(c) the transfer of assets in such sale and leaseback transaction is
permitted by, and DeCrane Aircraft applies the proceeds of such
transaction in compliance with, the covenant described under
"--Repurchase at the Option of the Holder--Asset Sales."
NO SENIOR SUBORDINATED INDEBTEDNESS
The indenture provides that DeCrane Aircraft will not incur any
Indebtedness that is subordinate or junior in right of payment to any Senior
Indebtedness and senior in right of payment to the notes and no Guarantor will
incur any Indebtedness that is subordinate or junior in right of payment to any
Senior Indebtedness and senior in right of payment to the Note Guarantees.
ADDITIONAL NOTE GUARANTEES
The indenture provides that, if any Wholly-Owned Restricted Subsidiary of
DeCrane Aircraft that is a Domestic Subsidiary guarantees any Indebtedness under
the bank credit facility, then such Restricted Subsidiary shall become a
Guarantor and execute a supplemental indenture and deliver an opinion of
counsel, in accordance with the terms of the indenture.
ACCOUNTS RECEIVABLE FACILITY
The indenture provides that no Accounts Receivable Subsidiary will incur
any Indebtedness if immediately after giving effect to such incurrence the
aggregate outstanding Indebtedness of all Accounts Receivable Subsidiaries,
excluding any Indebtedness owed to DeCrane Aircraft or any Restricted
Subsidiary, would exceed $60.0 million.
REPORTS
The indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any notes are outstanding, DeCrane Aircraft
will furnish to the holders of notes
35
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if DeCrane Aircraft were required to file such forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by DeCrane Aircraft's
certified independent accountants and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if DeCrane Aircraft were required to file such
reports, in each case, within the time periods specified in the
SEC's rules and regulations.
In addition, following the consummation of the exchange offer
contemplated by the registration rights agreement, whether or not required by
the rules and regulations of the SEC, DeCrane Aircraft will file a copy of all
such information and reports with the SEC for public availability within the
time periods specified in the SEC's rules and regulations and make such
information available to securities analysts and prospective investors upon
request. In addition, DeCrane Aircraft and the Guarantors have agreed that, for
so long as any notes remain outstanding, they will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an Event of
Default:
(a) default for 30 days in the payment when due of interest on the
notes, whether or not prohibited by the subordination provisions
of the indenture;
(b) default in payment when due of the principal of or premium, if
any, on the notes, whether or not prohibited by the subordination
provisions of the indenture;
(c) failure by DeCrane Aircraft or any of its Restricted Subsidiaries
for 30 days after receipt of notice from the Trustee or holders of
at least 25% in principal amount of the notes then outstanding to
comply with the provisions described under "--Repurchase at the
Option of Holders--Change of Control and --Asset Sales,"
"--Principal Covenants--Restricted Payments," "--Incurrence of
Indebtedness and Issuance of Preferred Stock" or "--Merger,
Consolidation or Sale of Assets;"
(d) failure by DeCrane Aircraft for 60 days after notice from the
Trustee or the holders of at least 25% in principal amount of the
notes then outstanding to comply with any of its other agreements
in the Indenture or the notes;
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by DeCrane Aircraft or any of
its Restricted Subsidiaries, or the payment of which is guaranteed
by DeCrane Aircraft or any of its Restricted Subsidiaries, whether
such Indebtedness or guarantee now exists, or is created after the
date of the indenture, which default
(1) is caused by a failure to pay Indebtedness at its stated
final maturity after giving effect to any applicable grace
period provided in such Indebtedness (a "PAYMENT DEFAULT")
or
(2) results in the acceleration of such Indebtedness prior to
its stated final maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more;
(f) failure by DeCrane Aircraft or any of its Restricted Subsidiaries
to pay final judgments aggregating in excess of $10.0 million, net
of any amounts with respect to which a reputable
36
and creditworthy insurance company has acknowledged liability in
writing, which judgments are not paid, discharged or stayed for
a period of 60 days;
(g) except as permitted by the indenture, any note guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any
Guarantor, or any person acting of behalf of any Guarantor, shall
deny or disaffirm its obligations under its note guarantee; and
(h) events of bankruptcy or insolvency with respect to DeCrane
Aircraft or any of its Restricted Subsidiaries that is a
Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately; provided that, so long
as any Indebtedness permitted to be incurred pursuant to the bank credit
facility shall be outstanding, such acceleration shall not be effective until
the earlier of
(a) an acceleration of any such Indebtedness under the bank credit
facility or
(b) five business days after receipt by DeCrane Aircraft and the
administrative agent under the bank credit facility of written
notice of such acceleration.
Notwithstanding the foregoing, in the case of an Event of Default arising
from events of bankruptcy or insolvency with respect to DeCrane Aircraft or any
Significant Subsidiary, all outstanding notes will become due and payable
without further action or notice. holders of the notes may not enforce the
indenture or the notes except as provided in the indenture. In the event of a
declaration of acceleration of the notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (e) of the preceding paragraph, the declaration of
acceleration of the notes shall be automatically annulled if the holders of any
Indebtedness described in clause (e) have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of such
declaration, and if the annulment of the acceleration of the notes would not
conflict with any judgment or decree of a court of competent jurisdiction, and
all existing Events of Default, except non-payment of principal or interest on
the notes that became due solely because of the acceleration of the notes, have
been cured or waived.
Subject to limitations, holders of a majority in principal amount of the
then outstanding notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from holders of the notes notice of any
continuing Default or Event of Default, except a Default or Event of Default
relating to the payment of principal or interest, if it determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
DeCrane Aircraft is required to deliver to the Trustee annually a
statement regarding compliance with the indenture, and DeCrane Aircraft is
required upon becoming aware of any Default or Event of Default to deliver to
the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF MEMBER, DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No member, director, officer, employee, incorporator or stockholder of
DeCrane Aircraft, as such, shall have any liability for any obligations of
DeCrane Aircraft under the notes or the indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder of
notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the
37
consideration for issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal securities laws, and it is the view of the
SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
DeCrane Aircraft may, at its option and at any time, elect to have all of
its and the Guarantors' obligations discharged with respect to the outstanding
notes, the note guarantees and the indenture ("LEGAL DEFEASANCE") except for
(a) The rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such
notes when such payments are due from the trust referred to below,
(b) DeCrane Aircraft's obligations with respect to the notes
concerning issuing temporary notes, registration of notes,
mutilated, destroyed, lost or stolen notes and the maintenance of
an office or agency for payment and money for security payments
held in trust,
(c) the rights, powers, trusts, duties and immunities of the Trustee,
and DeCrane Aircraft's obligations in connection therewith and
(d) the Legal Defeasance provisions of the indenture.
In addition, DeCrane Aircraft may, at its option and at any time, elect
to have their obligations released with respect to some covenants that are
described in the indenture ("COVENANT DEFEASANCE") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the notes. In the event Covenant Defeasance occurs, some
of the events described under "--Events of Default and Remedies" other than
non-payment and bankruptcy will no longer constitute an Event of Default with
respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(a) DeCrane Aircraft must irrevocably deposit with the Trustee, in
trust, for the benefit of the holders of the notes, cash in U.S.
dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the
outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and DeCrane Aircraft must
specify whether the notes are being defeased to maturity or to a
particular redemption date,
(b) in the case of Legal Defeasance, DeCrane Aircraft shall have
delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that
DeCrane Aircraft has received from, or there has been published
by, the Internal Revenue Service a ruling, or since the date of
the indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, subject to
customary assumptions and exclusions, the holders of the
outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred,
(c) in the case of Covenant Defeasance, DeCrane Aircraft shall have
delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that,
subject to customary assumptions and exclusions, the holders of
the outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the
38
same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred,
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit, other than a Default or
Event of Default resulting from the borrowing of funds to be
applied to such deposit, or, insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 123rd day after the date of deposit,
(e) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any
material agreement or instrument other than the indenture to which
DeCrane Aircraft or any of its Subsidiaries is a party or by which
DeCrane Aircraft or any of its Subsidiaries is bound,
(f) DeCrane Aircraft must have delivered to the Trustee an opinion of
counsel to the effect that, subject to customary assumptions and
exclusions, after the 123rd day following the deposit, the trust
funds will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or any analogous New York State law
provision or any other applicable federal or New York bankruptcy,
insolvency, reorganization or similar laws affecting creditors'
rights generally,
(g) DeCrane Aircraft must deliver to the Trustee an officers'
certificate stating that the deposit was not made by DeCrane
Aircraft with the intent of preferring the holders of notes over
the other creditors of DeCrane Aircraft with the intent of
defeating, hindering, delaying or defrauding creditors of DeCrane
Aircraft or others, and
(h) DeCrane Aircraft must deliver to the Trustee an officers'
certificate and an opinion of counsel, subject to customary
assumptions and exclusions, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and DeCrane Aircraft may
require a holder to pay any taxes and fees required by law or permitted by the
indenture. DeCrane Aircraft are not required to transfer or exchange any note
selected for redemption. Also, DeCrane Aircraft is not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed. The registered holder of a note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture,
the note guarantees and the notes may be amended or supplemented with the
consent of the holders of at least a majority in principal amount of the notes
then outstanding, and any existing default or compliance with any provision of
the indenture, the note guarantees or the notes may be waived with the consent
of the holders of a majority in principal amount of the then outstanding notes.
Without the consent of each holder affected, an amendment or waiver may
not, with respect to any notes held by a non-consenting holder:
(a) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver,
39
(b) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the
notes, other than the provisions described under the caption
"--Repurchase at the Option of Holders,"
(c) reduce the rate of or extend the time for payment of interest on
any note,
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes, except a rescission
of acceleration of the notes by the holders of at least a majority
in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration,
(e) make any note payable in money other than that stated in the
notes,
(f) make any change in the provisions of the indenture relating to
waivers of past Defaults,
(g) waive a redemption payment with respect to any note, other than
the provisions described under the caption "--Repurchase at the
Option of Holders,"
(h) release any Guarantor from its obligations under its note
guarantee or the Indenture, except in accordance with the terms of
the indenture or
(i) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, any amendment to or waiver of the covenant
described under the caption "--Repurchase at the Option of Holders--Change of
Control," and any amendment to Article 10 of the indenture, which relates to
subordination, will require the consent of the holders of at least two-thirds in
aggregate principal amount of the notes then outstanding if such amendment would
materially adversely affect the rights of holders of notes.
Notwithstanding the foregoing, without the consent of any holder of
notes, DeCrane Aircraft, the Guarantors and the Trustee may amend or supplement
the indenture, the note guarantees or the notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated notes in addition to or in place of
certificated notes, to provide for the assumption of DeCrane Aircraft's
obligations to holders of notes in the case of a merger or consolidation or sale
of all or substantially all of DeCrane Aircraft's assets, to make any change
that would provide any additional rights or benefits to the holders of notes or
that does not materially adversely affect the legal rights under the indenture
of any such holder, or to comply with requirements of the SEC in order to effect
or maintain the qualification of the indenture under the Trust Indenture Act or
to provide for guarantees of the notes.
CONCERNING THE TRUSTEE
The indenture contains limitations on the rights of the Trustee, State
Street Bank & Trust Co., should it become a creditor of any Company, to obtain
payment of claims in some cases, or to realize on property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions. However, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
exceptions. The indenture provides that in case an Event of Default shall occur
and not be cured, the Trustee will be required, in the exercise of its power, to
use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the indenture at the request of any holder of
notes, unless such holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
40
KEY DEFINITIONS
Set forth below are key defined terms used in the indenture. Please refer
to the indenture for a full description of all such terms, and any other
capitalized terms used herein for which no definition is provided.
"ACCOUNTS RECEIVABLE SUBSIDIARY" means an Unrestricted Subsidiary of
DeCrane Aircraft to which DeCrane Aircraft or any of its Restricted Subsidiaries
sells any of its accounts receivable pursuant to a Receivables Facility.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified person,
(a) Indebtedness of any other person existing at the time such other
person is merged with or into or became a Subsidiary of such
specified person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other
person merging with or into or becoming a Subsidiary of such
specified person, and
(b) Indebtedness secured by a Lien encumbering an asset acquired by
such specified person at the time such asset is acquired by such
specified person.
"ACQUISITION" means the acquisition by an indirect subsidiary of DeCrane
Holdings of at least majority of the outstanding stock of DeCrane Aircraft, the
merger of such subsidiary into DeCrane Aircraft, the repayment of specified
indebtedness of DeCrane Aircraft, the payment of related fees and expenses and
the Finance Merger.
"ACQUISITION FINANCING" means the issuance and sale by DeCrane Aircraft
of the notes, the execution and delivery by DeCrane Aircraft and certain of its
subsidiaries of the bank credit facility and the borrowing thereunder and the
issuance and sale by DeCrane Aircraft of bridge notes to finance the Acquisition
and the issuance and sale by DeCrane Holdings of common stock and preferred
stock for consideration, the proceeds of each of which were used to fund the
purchase price for the Acquisition.
"AFFILIATE" of any specified person means any other person which,
directly or indirectly, controls, is controlled by or is under direct or
indirect common control with, such specified person. for purposes of this
definition, "control," when used with respect to any person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"ASSET SALE" means
(1) the sale, lease, conveyance, disposition or other transfer
referred to as a "disposition" of any properties, assets or
rights, provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of DeCrane
Aircraft and its Subsidiaries taken as a whole will be governed by
the provisions of the indenture described under the caption
"--Repurchase at the Option of Holders--Change of Control" and the
provisions described under the caption "--Merger, Consolidation or
Sale of Assets" and not by the provisions of the indenture's asset
sale covenant, and
(2) the issuance, sale or transfer by DeCrane Aircraft or any of its
Restricted Subsidiaries of Equity Interests of any of DeCrane
Aircraft's Restricted Subsidiaries, in either case, whether in a
single transaction or a series of related transactions that either
have a fair market value in excess of $5.0 million or are for net
proceeds in excess of $5.0 million.
However, the following items shall not be deemed to be Asset Sales:
41
- dispositions in the ordinary course of business;
- a disposition of assets by DeCrane Aircraft to a Restricted
Subsidiary or by a Restricted Subsidiary to DeCrane Aircraft or to
another Restricted Subsidiary;
- a disposition of Equity Interests by a Restricted Subsidiary to
DeCrane Aircraft or to another restricted subsidiary;
- the sale and leaseback of any assets within 90 days of the
acquisition hereof;
- foreclosures on assets;
- any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, for use in a Permitted Business;
- any sale of Equity Interests In, or Indebtedness or other
securities of, an Unrestricted Subsidiary;
- a Permitted Investment or a Restricted Payment that is permitted
by the Covenant described under the caption "--Restricted
Payments"; and
- sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a sale and leaseback
transaction means, at the time of determination, the present value, discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP, of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction,
including any period for which such lease has been extended or may, at the
option of the lessor, be extended.
"BANK CREDIT FACILITY" means that Credit Agreement dated as of August 28,
1998 among DeCrane Aircraft, various financial institutions party thereto, DLJ
Capital Funding, Inc., as syndication agent, and The First National Bank of
Chicago, as administrative agent, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and, in each case, as amended, modified, renewed, refunded, replaced
or refinanced from time to time, including any agreement
(1) extending or shortening the maturity of any Indebtedness incurred
thereunder or contemplated thereby,
(2) adding or deleting borrowers or guarantors thereunder,
(3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder, provided that on the date
such Indebtedness is incurred it would not be prohibited by clause
(1) of "--Incurrence of Indebtedness and Issuance of Preferred
Stock" or
(4) otherwise altering the terms and conditions thereof. Indebtedness
under the bank credit facility outstanding on the date of the
indenture shall be deemed to have been incurred on such date in
reliance on the first paragraph of the covenant described under
the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock."
"CAPITAL EXPENDITURE INDEBTEDNESS" means Indebtedness incurred by any
person to finance the purchase or construction or any property or assets
acquired or constructed by such person which have a useful life or more than one
year so long as
- the purchase or construction price for such property or assets is
included in "addition to property, plant or equipment" in
accordance with GAAP,
- the acquisition or construction of such property or assets is not
part of any acquisition of a person or line of business and
42
- such Indebtedness is incurred within 90 days of the acquisition or
completion of construction of such property or assets.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means
(1) in the case of a corporation, corporate stock,
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents,
however designated, of corporate stock,
(3) in the case of a partnership or limited liability company,
partnership or membership interests whether general or limited and
(4) any other interest or participation that confers on a person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing person.
"CASH EQUIVALENTS" means
(1) Government Securities,
(2) any certificate of deposit maturing not more than 365 days after
the date of acquisition issued by, or demand deposit or time
deposit of, an Eligible Institution or any lender under the bank
credit facility,
(3) commercial paper maturing not more than 365 days after the date of
acquisition of an issuer, other than an Affiliate of DeCrane
Aircraft, with a rating, at the time as of which any investment
therein is made, of "A-3" or higher according to Standard & Poor's
Rating Group or "P-2" or higher according to Moody's or carrying
an equivalent rating by a nationally recognized rating agency if
both of the two named rating agencies cease publishing ratings of
investments,
(4) any bankers acceptances of money market deposit accounts issued by
an Eligible Institution,
(5) any fund investing exclusively in investments of the types
described in clauses (1) through (4) above and
(6) in the case of any Subsidiary organized or having its principal
place of business outside the United States, investments
denominated in the currency of the jurisdiction in which such
Subsidiary is organized or has its principal place of business
which are similar to the items specified in clauses (1) through
(5) above, including without limitation any deposit with any bank
that is a lender to any such Subsidiary.
"CONSOLIDATED CASH FLOW" means, with respect to any person for any
period, the Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period plus, to the extent deducted in computing
Consolidated Net Income,
- an amount equal to any extraordinary or non-recurring loss plus
any net loss realized in connection with an Asset Sale,
- provision for taxes based on income or profits of such person and
its Restricted Subsidiaries for such period,
- Fixed Charges of such person for such period,
- depreciation, amortization, including amortization of goodwill and
other intangibles, and all other non-cash charges, excluding any
such non-cash charge to the extent that it represents an
43
accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior
period, including charges related to non-cash minority interests,
of such Person and its Restricted Subsidiaries for such period,
- net periodic post-retirement benefits,
- other income or expense net as set forth on the face of such
person's statement of operations,
- expenses and charges related to the Acquisition, the bank credit
facility and the application of the proceeds thereof which are
paid, taken or otherwise accounted for within 180 days of the
consummation of the Acquisition, and
- any non-capitalized transaction costs incurred in connection with
actual or proposed financings, acquisition or divestitures,
including, but not limited to, financing and refinancing fees and
costs incurred in connection with the Acquisition, in each case,
on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, the Fixed Charges of, and the depreciation and
amortization and other non-cash charges of, a Restricted Subsidiary of a person
shall be added to Consolidated Net Income to compute Consolidated Cash Flow only
to the extent and in the same proportion that Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
person.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any person for any
period, the sum of, without duplication,
- the interest expense of such person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined
in accordance with GAAP, including amortization of original issue
discount, non-cash interest payments, the interest component of
all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts
and other fees and charges incurred in respect of letter of credit
or bankers' acceptance financings, and net payments, if any,
pursuant to Hedging Obligations; provided that in no event shall
any amortization of deferred financing costs be included in
Consolidated Interest Expense; and
- the consolidated capitalized interest of such person and its
Restricted Subsidiaries for such period, whether paid or accrued;
provided, however, that Receivables Fees shall be deemed not to constitute
Consolidated Interest Expense. Notwithstanding the foregoing, the Consolidated
Interest Expense with respect to any Restricted Subsidiary that is not a Wholly
Owned Restricted Subsidiary shall be included only to the extent and in the same
proportion that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income.
"CONSOLIDATED NET INCOME" means, with respect to any person for any
period, the aggregate of the Net Income of such person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that
- the Net Income or loss of any person that is not a Restricted
Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent person or
a Restricted Subsidiary thereof,
- the Net Income or loss of any Restricted Subsidiary other than a
Subsidiary organized or having its principal place of business
outside the United States shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that Net Income or loss is not at
the date of determination permitted without any prior governmental
approval that has not been obtained or, directly or indirectly, by
operation of the
44
terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary,
- the Net Income or loss of any person acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition shall be excluded,
- the cumulative effect of a change in accounting principles shall
be excluded and
- expenses and charges related to the Acquisition, the bank credit
facility and the application of the proceeds thereof which are
paid, taken or otherwise accounted for within 180 days of the
consummation of the Acquisition shall be excluded.
"DECRANE HOLDINGS" means DeCrane Holdings Co., a Delaware corporation,
the corporate parent of DeCrane Aircraft, or its successors.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means the fair market value of
non-cash consideration received by DeCrane Aircraft or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an officers' certificate, setting
forth the basis of such valuation, executed by the principal executive officer
and the principal financial officer of DeCrane Aircraft, less the amount of cash
or Cash Equivalents received in connection with a sale of such Designated
Noncash Consideration.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms or by the
terms of any security into which it is convertible, or for which it is
exchangeable; or upon the happening of any event other than any event solely
within the control of the issuer thereof, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, is exchangeable for
Indebtedness, except to the extent exchangeable at the option of such Person
subject to the terms of any debt instrument to which such Person is a party, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date on which the notes mature. However, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require DeCrane Aircraft to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock, if the terms of such Capital Stock provide that DeCrane
Aircraft may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described under the caption "--Principal Covenants--Restricted Payments."
Further, if such Capital Stock is issued to any plan for the benefit of
employees of DeCrane Aircraft or its Subsidiaries or by any such plan to such
employees, such Capital Stock shall not constitute Disqualified Stock solely
because it may be required to be repurchased by DeCrane Aircraft in order to
satisfy applicable statutory or regulatory obligations.
"DOMESTIC SUBSIDIARY" means a Subsidiary that is organized under the laws
of the United States or any State, district or territory thereof other than
Audio International Sales, Inc., a U.S. Virgin Islands corporation.
"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus not less than $100.0 million or its equivalent in
foreign currency, whose short-term debt is rated "A-3" or higher according to
Standard & Poor's Ratings Group or "P-2" or higher according to Moody's Investor
Services, Inc. or carrying an equivalent rating by a nationally recognized
rating agency if both of the two named rating agencies cease publishing ratings
of investments.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
45
"EXISTING INDEBTEDNESS" means Indebtedness of DeCrane Aircraft and its
Restricted Subsidiaries other than in existence on the date of the Indenture,
excluding Indebtedness under the Bank Credit Facility, until such amounts are
repaid.
"FINANCE MERGER" means the merger of DeCrane Finance Co. with and into
DeCrane Aircraft.
"FIXED CHARGES" means, with respect to any person for any period, the
sum, without duplication, of the Consolidated Interest Expense of such person
for such period, and all dividend payments on any series of preferred stock of
such person other than dividends payable solely in Equity Interests that are not
Disqualified Stock, in each case, on a consolidated basis and in accordance with
GAAP.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such person for such period, in each case exclusive of
amounts attributable to discontinued operations, as determined in accordance
with GAAP, or operations and businesses disposed of prior to the date on which
the event for which the calculation of the Fixed Charge Coverage Ratio is made
referred to as the "CALCULATION DATE." In the event that the referent Person or
any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness
other than revolving credit borrowings or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the Calculation Date, then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock and the use of the proceeds therefrom,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, acquisitions that have been made by DeCrane Aircraft or any of its
Subsidiaries, including all mergers or consolidations and any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated to include the
Consolidated Cash Flow of the acquired entities on a pro forma basis after
giving effect to cost savings resulting from employee terminations, facilities
consolidations and closings, standardization of employee benefits and
compensation practices, consolidation of property, casualty and other insurance
coverage and policies, standardization of sales and distribution methods,
reductions in taxes other than income taxes and other cost savings reasonably
expected to be realized from such acquisition, as determined in good faith by
the principal financial officer of DeCrane Aircraft, regardless of whether such
cost savings could then be reflected in PRO FORMA financial statements under
GAAP, Regulation S-X promulgated by the SEC or any other regulation or policy of
the SEC, and without giving effect to the third clause of the proviso set forth
in the definition of Consolidated Net Income.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"GLOBAL TECHNOLOGY PARTNERS" means Global Technology Partners, LLC and
its Affiliates.
"GLOBAL TECHNOLOGY INVESTMENT" means the sale by DeCrane Holdings to
Global Technology Partners of its common stock, the purchase price of which will
be partially financed by Global Technology Loans, and the granting by DeCrane
Holdings to Global Technology Partners of options to purchase shares of its
common stock.
"GLOBAL TECHNOLOGY LOANS" means one or more loans by DeCrane Aircraft or
DeCrane Holdings to Global Technology Partners to finance Global Technology
Partners' purchase of common stock of
46
DeCrane Holdings; provided, however, that the aggregate principal amount of all
such Global Technology Loans outstanding at any time shall not exceed $2.0
million.
"GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including letters of credit or reimbursement agreements
in respect thereof, of all or any part of any Indebtedness.
"GUARANTORS" means each of the Domestic Subsidiaries of DeCrane Aircraft
that is a Wholly Owned Restricted Subsidiary on the date of the indenture, and
any other Subsidiary that executes a note Guarantee in accordance with the
provisions of the indenture.
"HEDGING OBLIGATIONS" means, with respect to any person, the obligations
of such person under
(a) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements and
(b) other agreements or arrangements designed to protect such person
against fluctuations in interest rates and
(c) agreements or arrangements designed to protect such person against
fluctuations in exchange rates.
"INDEBTEDNESS" means, with respect to any person, any indebtedness of
such Person in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit, or reimbursement
agreements in respect thereof, or banker's acceptances or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing Indebtedness, than letters of credit and Hedging Obligations
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all Indebtedness of others secured by a Lien on
any asset of such person whether or not such Indebtedness is assumed by such
person and, to the extent not otherwise included, the guarantee by such Person
of any Indebtedness of any other person, provided that Indebtedness shall not
include the pledge by DeCrane Aircraft of the Capital Stock of an Unrestricted
Subsidiary of DeCrane Aircraft to secure Non-Recourse Debt of such Unrestricted
Subsidiary. The amount of any Indebtedness outstanding as of any date shall be
- the accreted value thereof, together with any interest thereon
that is more than 30 days past due, in the case of any
Indebtedness that does not require current payments of interest,
and
- the principal amount thereof, in the case of any other
Indebtedness;
provided that the principal amount of any Indebtedness that is denominated in
any currency other than United States dollars shall be the amount thereof, as
determined pursuant to the foregoing provision, converted into United States
dollars at the Spot Rate in effect on the date that such Indebtedness was
incurred, or, if such indebtedness was incurred prior to the date of the
Indenture, the Spot Rate in effect on the date of the indenture.
"INVESTMENTS" means, with respect to any person, all investments by such
person in other persons including Affiliates in the forms of direct or indirect
loans, including guarantees by the referent person of, and Liens on any assets
of the referent person securing, Indebtedness or other obligations of other
persons, advances or capital contributions, excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business, purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. However, an investment by DeCrane Aircraft for consideration consisting of
common equity securities of DeCrane Aircraft shall not be deemed to be an
Investment. If DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft
47
sells or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of DeCrane Aircraft such that, after giving effect to any
such sale or disposition, such person is no longer a Subsidiary of DeCrane
Aircraft, DeCrane Aircraft shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
under "--Restricted Payments."
"LIEN" means, with respect to any asset, any mortgage, Lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code or equivalent statutes of any jurisdiction.
"MANAGEMENT LOANS" means one or more loans by DeCrane Aircraft or DeCrane
Holdings to officers and/or directors of DeCrane Aircraft and any of its
Restricted Subsidiaries to finance the purchase by such officers and directors
of common stock of DeCrane Holdings; provided, however, that the aggregate
principal amount of all such Management Loans outstanding at any time shall not
exceed $5.0 million.
"NET INCOME" means, with respect to any person, the net income or loss of
such person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however,
(a) any gain (or loss), together with any related provision for taxes
on such gain or loss, realized in connection with any Asset Sale,
including dispositions pursuant to Sale and Leaseback
Transactions, or the extinguishment of any Indebtedness of such
person or any of its Restricted Subsidiaries and
(b) any extraordinary or nonrecurring gain or loss, together with any
related provision for taxes on such extraordinary or nonrecurring
gain or loss.
"NET PROCEEDS" means the aggregate cash proceeds received by DeCrane
Aircraft or any of its Restricted Subsidiaries in respect of any Asset Sale,
including any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, net of, without duplication:
- the direct costs relating to such Asset Sale, including legal,
accounting and investment banking fees, and sales commissions,
recording fees, title transfer fees and appraiser fees and cost of
preparation of assets for sale, and any relocation expenses
incurred as a result thereof,
- taxes paid or payable as a result thereof after taking into
account any available tax credits or deductions and any tax
sharing arrangements,
- amounts required to be applied to the repayment of Indebtedness,
other than Revolving Credit Indebtedness incurred pursuant to the
Bank Credit Facility, secured by a Lien on the asset or assets
that were the subject of such Asset Sale and
- any reserve established in accordance with GAAP or any amount
placed in escrow, in either case for adjustment in respect of the
sale price of such asset or assets until such time as such reserve
is reversed or such escrow arrangement is terminated, in which
case Net Proceeds shall include only the amount of the reserve so
reversed or the amount returned to DeCrane Aircraft or its
Restricted Subsidiaries from such escrow arrangement, as the case
may be.
"NON-RECOURSE DEBT" means Indebtedness
48
- no default which, including any rights that the holders thereof
may have to take enforcement action against an Unrestricted
Subsidiary, would permit upon notice, lapse of time or both any
holder of any other Indebtedness of DeCrane Aircraft or any of its
Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and
- as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of DeCrane
Aircraft or any of its Restricted Subsidiaries, other than the
stock of an Unrestricted Subsidiary pledged by DeCrane Aircraft to
secure debt of such Unrestricted Subsidiary.
However, in no event shall Indebtedness of any Unrestricted Subsidiary
fail to be Non-Recourse Debt solely as a result of any default provisions
contained in a guarantee thereof by DeCrane Aircraft or any of its Restricted
Subsidiaries if DeCrane Aircraft or such Restricted Subsidiary was otherwise
permitted to incur such guarantee pursuant to the Indenture.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFERING" means the offering of the notes by DeCrane Aircraft.
"PARI PASSU INDEBTEDNESS" means Indebtedness of DeCrane Aircraft that
ranks PARI PASSU in right of payment to the notes.
"PERMITTED BUSINESS" means the avionics manufacturing industry and any
business in which DeCrane Aircraft and its Restricted Subsidiaries are engaged
on the date of the indenture or any business reasonably related, incidental or
ancillary thereto.
"PERMITTED INVESTMENTS" means
- any Investment in DeCrane Aircraft or in a Restricted Subsidiary
of DeCrane Aircraft,
- any Investment in cash or Cash Equivalents,
- any Investment by DeCrane Aircraft or any Restricted Subsidiary of
DeCrane Aircraft in a Person, if as a result of such Investment
such Person becomes a Restricted Subsidiary of DeCrane Aircraft,
or such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to,
or is liquidated into, DeCrane Aircraft or a Wholly Owned
Restricted Subsidiary of DeCrane Aircraft,
- any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described under the caption
"--Repurchase at the Option of Holders--Asset Sales,"
- any Investment acquired solely in exchange for Equity Interests
other than Disqualified Stock of DeCrane Aircraft,
- any Investment in a Person engaged in a Permitted Business, other
than an Investment in an Unrestricted Subsidiary, having an
aggregate fair market value, taken together with all other
Investments made pursuant to this clause that are at that time
outstanding, not to exceed 15% of Total Assets at the time of such
Investment, with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent
changes in value,
- Investments relating to any special purpose Wholly Owned
Subsidiary of DeCrane Aircraft organized in connection with a
Receivables Facility that, in the good faith determination of the
board of directors of DeCrane Aircraft, are necessary or advisable
to effect such Receivables Facility and
49
- the Management Loans and Global Technology Loans.
"PERMITTED LIENS" means:
- Liens on property of a person existing at the time such person is
merged into or consolidated with DeCrane Aircraft or any
Restricted Subsidiary, provided that such Liens were not incurred
in contemplation of such merger or consolidation and do not secure
any property or assets of DeCrane Aircraft or any Restricted
Subsidiary other than the property or assets subject to the Liens
prior to such merger or consolidation;
- Liens existing on the date of the indenture;
- Liens securing Indebtedness consisting of Capitalized Lease
Obligations, purchase money Indebtedness, mortgage financings,
industrial revenue bonds or other monetary obligations, in each
case incurred solely for the purpose of financing all or any part
of the purchase price or cost of construction or installation of
assets used in the business of DeCrane Aircraft or its Restricted
Subsidiaries, or repairs, additions or improvements to such
assets, provided that
- such Liens secure Indebtedness in an amount not in excess of the
original purchase price or the original cost of any such assets or
repair, additional or improvement thereto, plus an amount equal to
the reasonable fees and expenses in connection with the incurrence
of such Indebtedness,
- such Liens do not extend to any other assets of DeCrane Aircraft
or its Restricted Subsidiaries, and, in the case of repair,
addition or improvements to any such assets, such Lien extends
only to the assets and improvements thereto or thereon repaired,
added to or improved,
- the Incurrence of such Indebtedness is permitted by "--Principal
Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" and
- such Liens attach within 365 days of such purchase, construction,
installation, repair, addition or improvement;
- Liens to secure any refinancings, renewals, extensions,
modification or replacements, such events are collectively
referred to as "refinancing," or successive refinancings, in whole
or in part, of any Indebtedness secured by Liens referred to in
the clauses above so long as such Lien does not extend to any
other property other than improvements thereto;
- Liens securing letters of credit entered into in the ordinary
course of business and consistent with past business practice;
- Liens on and pledges of the capital stock of any Unrestricted
Subsidiary securing Non-Recourse Debt of such Unrestricted
Subsidiary;
- Liens securing Indebtedness and Obligations under the bank credit
facility; and
- other Liens securing indebtedness that is permitted by the terms
of the Indenture to be outstanding having an aggregate principal
amount at any one time outstanding not to exceed $50.0 million.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of DeCrane
Aircraft or any of its Restricted Subsidiaries issued within 60 days after
repayment of, in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund other Indebtedness of DeCrane
Aircraft or any of its Restricted Subsidiaries; provided that
- the principal amount accreted value, if applicable of such
Permitted Refinancing Indebtedness does not exceed the principal
amount of accreted value, if applicable, plus premium, if any, and
accrued interest on the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded, plus the amount of
reasonable expenses incurred in connection therewith,
50
- such Permitted Refinancing Indebtedness has a final maturity date
no earlier than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, and
- if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
notes, such Permitted Refinancing Indebtedness is subordinated in
right of payment to, the notes on terms at least as favorable,
taken as a whole, to the holders of notes as those contained in
the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"PRINCIPALS" means DLJ Merchant Banking Partners II, L.P. and its
Affiliates.
"PUBLIC EQUITY OFFERING" means any issuance of common stock by DeCrane
Aircraft, other than to DeCrane Holdings and other than Disqualified Stock, or
common stock or preferred stock by DeCrane Holdings, other than Disqualified
Stock, registered pursuant to the Securities Act, other than issuances
registered on Form S-8 and issuances registered on Form S-4, excluding issuances
of common stock pursuant to employee benefit plans of DeCrane Holdings or
DeCrane Aircraft or otherwise as compensation to employees of DeCrane Aircraft
or DeCrane Holdings.
"QUALIFIED PROCEEDS" means any of the following or any combination of the
following:
- cash;
- Cash Equivalents;
- assets that are used or useful in a Permitted Business; and
- the Capital Stock of any person engaged in a Permitted Business
if, in connection with the receipt by DeCrane Aircraft or any
Restricted Subsidiary of DeCrane Aircraft of such Capital Stock,
- such Person becomes a Restricted Subsidiary of DeCrane Aircraft or
any Restricted Subsidiary of DeCrane Aircraft or
- such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, DeCrane Aircraft or any Restricted Subsidiary of
DeCrane Aircraft.
"RECEIVABLES FACILITY" means one or more receivables financing
facilities, as amended from time to time, pursuant to which DeCrane Aircraft or
any of its Restricted Subsidiaries sells its accounts receivable to an Accounts
Receivable Subsidiary.
"RECEIVABLES FEES" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"RELATED PARTY" means, with respect to any Principal, any controlling
stockholder or partner of such Principal on the date of the indenture, or any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding directly or
through one or more Subsidiaries a 51% or more controlling interest of which
consist of the Principals and/or such other persons referred to in the
immediately preceding clauses.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
51
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such person
that is not an Unrestricted Subsidiary.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"SPOT RATE" means, for any currency, the spot rate at which such currency
is offered for sale against United States dollars as determined by reference to
the New York foreign exchange selling rates, as published in The Wall Street
Journal on such date of determination for the immediately preceding business day
or, if such rate is not available, as determined in any publicly available
source of similar market data.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any person,
- any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock
entitled without regard to the occurrence of any contingency to
vote in the election of directors, managers or trustees thereof is
at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person or
a combination thereof and
- any partnership or limited liability company
- the sole general partner or the managing general partner or
managing member of which is such Person or a Subsidiary of such
person or
- the only general partners or managing members of which are such
person or of one or more Subsidiaries of such Person or any
combination thereof.
"TAX SHARING AGREEMENT" means any tax sharing agreement or arrangement
between DeCrane Aircraft and DeCrane Holdings, as the same may be amended from
time to time; provided that in no event shall the amount permitted to be paid
pursuant to all such agreements and/or arrangements exceed the amount DeCrane
Aircraft would be required to pay for income taxes were it to file a
consolidated tax return for itself and its consolidated Restricted Subsidiaries
as if it were a corporation that was a parent of a consolidated group.
"TOTAL ASSETS" means the total consolidated assets of DeCrane Aircraft
and its Restricted Subsidiaries, as shown on the most recent balance sheet,
excluding the footnotes of DeCrane Aircraft prepared in accordance with GAAP.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
board of directors as an Unrestricted Subsidiary pursuant to a board resolution,
but only to the extent that such Subsidiary:
- has no Indebtedness other than Non-Recourse Debt;
- is not party to any agreement, contract, arrangement or
understanding with DeCrane Aircraft or any Restricted Subsidiary
of DeCrane Aircraft unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to
DeCrane Aircraft or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates
of DeCrane Aircraft;
52
- a person with respect to which neither DeCrane Aircraft nor any of
its Restricted Subsidiaries has any direct or indirect obligation
- to subscribe for additional Equity Interests other than
Investments described in clause (g) of the definition of Permitted
Investments or
- to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels, of operating
results; and
- has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of DeCrane Aircraft or any of
its Restricted Subsidiaries. Any such designation by the board of
directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the board resolution giving effect to
such designation and an officers' certificate certifying that such
designation complied with the foregoing conditions and was
permitted by the covenant described under "--Principal
Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by
a Restricted Subsidiary of DeCrane Aircraft as of such date and,
if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under "--Principal
Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," DeCrane Aircraft shall be in default of such covenant. The
board of directors of DeCrane Aircraft may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of DeCrane Aircraft of
any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if such Indebtedness is
permitted under the covenant described under "--Principal
Covenants--Incurrence of Indebtedness and Issuance Preferred of
Stock," and no Default or Event of Default would be in existence
following such designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing
(a) the sum of the products obtained by multiplying the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final
maturity, in respect thereof, by the number of years calculated to
the nearest one-twelfth that will elapse between such date and the
making of such payment, by
(b) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such person
all of the outstanding Capital Stock or other ownership interests of which other
than directors' qualifying shares shall at the time be owned by such person or
by one or more Wholly Owned Subsidiaries of such person.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any person means a Restricted
Subsidiary of such person all the outstanding Capital Stock or other ownership
interests of which other than directors' qualifying shares shall at the time be
owned by such person or by one or more Wholly Owned Restricted Subsidiaries of
such person or by such person and one or more Wholly Owned Restricted
Subsidiaries of such person.
53
PLAN OF DISTRIBUTION
This prospectus is to be used by CSFB Corporation in connection with
offers and sales of the notes in market-making transactions effected from time
to time. CSFB Corporation may act as a principal or agent for one party when
acting as principal or as agent for both parties, and may receive compensation
in the form of discounts and commissions, including from both parties when it
acts as agent for both. Those sales will be made at prevailing market prices at
the time of sale, at prices related thereto or at negotiated prices.
DLJ Merchant Banking Partners II, L.P. and several of its affiliates
beneficially own approximately 83.3% of the common stock of DeCrane Holdings, on
a fully diluted basis assuming exercise of all outstanding warrants and options.
Thompson Dean and Susan C. Schnabel, each of whom is a principal of DLJ Merchant
Banking, are members of the board of directors of DeCrane Holdings and DeCrane
Aircraft. DLJ Capital Funding, Inc. acted as syndication agent in connection
with our bank credit facility, for which it received customary fees and
expenses. DLJ Bridge Finance Inc. purchased the bridge notes which were
refinanced by the initial offering of DeCrane Aircraft's 12% Series A Senior
Subordinated Notes due 2008, for which it received customary fees and expenses.
DLJ Securities Corporation, renamed Credit Suisse First Boston Corporation in
2001, acted as dealer/manager in connection with the tender offer for our common
stock in the DLJ acquisition, as arranger in connection with our bank credit
facility, and as the initial purchaser of the Series A notes, and is the
financial advisor to DeCrane Holdings and DeCrane Aircraft. DLJ Merchant
Banking, DLJ Capital Funding, Inc. and DLJ Bridge Finance, Inc. are affiliates
of CSFB Corporation. On June 30, 2000, DLJ Investment Partners, L.P. and other
CSFB affiliates purchased our preferred stock and DeCrane Holding's Class B
warrants to purchase common stock for $25.0 million in connection with financing
our purchase of ERDA, Inc.
CSFB Corporation currently makes a market in the notes. However, CSFB
Corporation is not obligated to do so and it may discontinue or interrupt any
such market-making at any time without notice. Any such market-making activity
is also subject to the limits imposed by the Securities Act and the Securities
Exchange Act of 1934. We cannot assure you that any market for the notes will
continue, or about your ability to sell the notes or the price at which you may
be able to sell them.
CSFB Corporation has, from time to time, provided investment banking and
other financial advisory services to us, for which it has received customary
compensation, and will provide such services and financial advisory services to
us in the future. DLJ Securities Corporation, now named CSFB Corporation, was
the initial purchaser in the initial offering of the Series A notes and received
an underwriting discount of approximately $3.3 million in connection therewith.
We have entered into a registration rights agreement with CSFB
Corporation regarding its use of this prospectus. Pursuant to such agreement, we
have agreed to bear all registration expenses incurred under that agreement, and
to indemnify CSFB Corporation against some liabilities, including liabilities
under the Securities Act.
54
EXPERTS
The following financial statements, which are incorporated by reference
in this prospectus, have been incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting:
- the consolidated balance sheets as of December 31, 1999 and 2000
and the consolidated statements of operations, of stockholders'
equity and of cash flows for the eight months ended August 31,
1998, the four months ended December 31, 1998 and the years ended
December 31, 1999 and 2000 of DeCrane Aircraft Holdings, Inc.
(incorporated by reference to our Annual Report on Form 10-K for
the year ended December 31, 2000);
- the balance sheets as of December 31, 1998 and 1999 and the
statements of income, of stockholders' equity and of cash flows
for the years then ended of Carl F. Booth & Co., Inc.
(incorporated by reference to our Current Report on Form 8-K/A
filed on June 16, 2000).
The following financial statements, which are incorporated by reference
in this prospectus, have been incorporated in reliance on the reports of Grant
Thornton LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting:
- the consolidated balance sheets as of June 30, 1998 and 1999 and
the consolidated statements of income, of stockholders' equity and
of cash flows for the years then ended of ERDA, Inc. and
Subsidiary (incorporated by reference to our Current Report on
Form 8-K/A filed on August 2, 2000).
55
INDEX TO UNAUDITED PRO FORMA FINANCIAL DATA
PAGE
----
Basis of Presentation .................................................................................... P-2
Pro Forma Consolidated Statement of Operations for the years ended:
December 31, 1999 ..................................................................................... P-3
December 31, 2000 ..................................................................................... P-4
Notes to Unaudited Pro Forma Financial Data .............................................................. P-5
Computation of Pro Forma Earnings to Fixed Charges Ratios ................................................ P-12
P-1
UNAUDITED PRO FORMA FINANCIAL DATA
BASIS OF PRESENTATION
The following unaudited pro forma financial data for DeCrane Aircraft
Holdings, Inc. is based on our historical consolidated financial statements,
adjusted to reflect our acquisitions of Carl F. Booth & Co. and ERDA, Inc.
during the year ended December 31, 2000, as required by Securities and Exchange
Commission rules. In addition, the pro forma financial data is also adjusted to
reflect three other less significant acquisitions we completed during 2000.
Supplementally, we have also provided unaudited pro forma data for the
year ended December 31, 1999. The 1999 pro forma data is adjusted to reflect our
2000 acquisitions and our 1999 PATS, Precision Pattern, Custom Woodwork, PCI
NewCo., International Custom Interiors and Infinity acquisitions.
Our 1999 and 2000 acquisitions are described in the notes accompanying
our financial statements. Unaudited pro forma consolidated statements of
operations are presented for each of the years in the two-year period ended
December 31, 2000. The statements reflect our acquisitions as if they had
occurred as of January 1, 1999. All of our 1999 and 2000 acquisitions had
occurred by December 31, 2000 and are therefore reflected in our historical
balance sheet as of that date.
The pro forma adjustments are based upon available information and
assumptions management believes are reasonable under the circumstances. The
unaudited pro forma financial data and accompanying notes should be read in
conjunction with our historical audited financial statements and related notes
and the historical audited financial statements and related notes of the
companies we have acquired and filed with the Securities and Exchange Commission
on Forms 10-K and 8-K. The pro forma financial data does not purport to
represent what our actual results of operations or actual financial position
would have been if the transactions described above in fact occurred on such
dates or to project our results of operations or financial position for any
future period or date.
P-2
UNAUDITED PRO FORMA FINANCIAL DATA
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
HISTORICAL RESULTS
------------------------
DECRANE COMPANIES ACQUISITION
AIRCRAFT (1) ACQUIRED (2) ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Revenues .............................................. $ 244,048 $ 94,384 $ (2,890) (3) $ 335,542
Cost of sales ......................................... 165,871 66,091 (2,890) (4) 229,072
----------- ----------- ----------- -----------
Gross profit ....................................... 78,177 28,293 -- 106,470
Selling, general and administrative expenses .......... 40,157 11,692 (3,769) (5) 48,080
Amortization of intangible assets ..................... 13,073 363 4,404 (6) 17,840
----------- ----------- ----------- -----------
Operating income ................................... 24,947 16,238 (635) 40,550
Interest expense ...................................... 27,918 1,084 10,519 (7) 39,521
Other expenses (income), net........................... 447 (54) -- 393
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes ....... (3,418) 15,208 (11,154) 636
Provision for income taxes (benefit) .................. 952 (457) 2,162 (8) 2,657
----------- ----------- ----------- -----------
Net income (loss) ..................................... (4,370) 15,665 (13,316) (2,021)
Accrued preferred stock dividends and
redemption value accretion ......................... -- -- (4,714) (9) (4,714)
----------- ----------- ----------- -----------
Net income (loss) applicable to
common stockholder ................................. $ (4,370) $ 15,665 $ (18,030) $ (6,735)
=========== =========== =========== ===========
See accompanying Notes to Unaudited Pro Forma Financial Data.
P-3
UNAUDITED PRO FORMA FINANCIAL DATA
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
HISTORICAL RESULTS
------------------------
DECRANE COMPANIES ACQUISITION
AIRCRAFT (1) ACQUIRED (2) ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Revenues .............................................. $ 347,379 $ 25,512 $ (1,307) (3) $ 371,584
Cost of sales ......................................... 232,048 17,388 (1,936) (4) 247,500
----------- ----------- ----------- -----------
Gross profit .......................................... 115,331 8,124 629 124,084
Selling, general and administrative expenses .......... 45,394 4,994 (2,659) (5) 47,729
Amortization of intangible assets ..................... 17,948 171 1,237 (6) 19,356
----------- ----------- ----------- -----------
Operating income ...................................... 51,989 2,959 2,051 56,999
Interest expense ...................................... 41,623 608 617 (7) 42,848
Other expenses, net ................................... 482 -- -- 482
----------- ----------- ----------- -----------
Income before provision for income taxes .............. 9,884 2,351 1,434 13,669
Provision for income taxes (benefit) .................. 6,282 (308) 2,338 (8) 8,312
----------- ----------- ----------- -----------
Net income ............................................ 3,602 2,659 (904) 5,357
Accrued preferred stock dividends and
redemption value accretion ......................... (2,274) -- (3,162) (9) (5,436)
----------- ----------- ----------- -----------
Net income (loss) applicable to
common stockholder ................................. $ 1,328 $ 2,659 $ (4,066) $ (79)
=========== =========== =========== ===========
See accompanying Notes to Unaudited Pro Forma Financial Data.
P-4
UNAUDITED PRO FORMA FINANCIAL DATA
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
(1) Reflects our historical consolidated results of operations for the years
ended December 31, 1999 and 2000 derived from our historical audited
financial statements.
(2) Reflects the historical results of operations of companies we acquired
that are not included in our historical results. The results of
operations for the companies we acquired are for the periods from the
beginning of the period presented to the dates indicated below. For
periods subsequent to those dates, their respective results of operations
are included in our historical results.
COMPANY ACQUIRED REFLECTS PRO FORMA HISTORICAL RESULTS THROUGH
---------------------------------------------------- ----------------------------------------------------
1999 ACQUISITIONS
PATS January 21, 1999
Precision Pattern April 22, 1999
Custom Woodwork & Plastics August 4, 1999
PCI NewCo October 5, 1999
International Custom Interiors October 7, 1999
Infinity December 16, 1999
2000 ACQUISITION
Carl Booth May 1, 2000
ERDA June 30, 2000
Tables summarizing the acquired companies' results of operations for the
years ended December 31, 1999 and 2000 appear below.
TOTAL 2000 ACQUISITIONS
1999 CARL --------------------------------------
YEAR ENDED DECEMBER 31, 1999 ACQUISITIONS BOOTH ERDA (a) OTHERS (b) TOTAL
---------------------------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Revenues ................................. $ 52,834 $ 13,757 $ 21,476 $ 6,317 $ 94,384
Cost of sales ............................ 36,440 10,163 16,783 2,705 66,091
----------- ----------- ----------- ----------- -----------
Gross profit ............................. 16,394 3,594 4,693 3,612 28,293
Selling, general and administrative
Expenses ............................... 5,324 1,237 2,270 2,861 11,692
Amortization of intangible assets ........ 124 -- 239 -- 363
----------- ----------- ----------- ----------- -----------
Operating income ......................... 10,946 2,357 2,184 751 16,238
Interest expense (income) ................ 152 (65) 997 -- 1,084
Other income, net ........................ (29) (25) -- -- (54)
----------- ----------- ----------- ----------- -----------
Income before provision for
income taxes ........................... 10,823 2,447 1,187 751 15,208
Provision for income taxes (benefit) ..... (827) -- 389 (19) (457)
----------- ----------- ----------- ----------- -----------
Net income ............................... $ 11,650 $ 2,447 $ 798 $ 770 $ 15,665
=========== =========== =========== =========== ===========
- --------------------------
(a) Excludes the operating results of ERDA's majority owned subsidiary
not acquired.
(b) Reflects our acquisition of Coltech and two product lines during
2000.
P-5
UNAUDITED PRO FORMA FINANCIAL DATA
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED)
1999 ACQUISITIONS
---------------------------------------------------------------------------
CUSTOM INT'L
YEAR ENDED DECEMBER 31, 1999 PRECISION WOOD PCI CUSTOM
(CONTINUED) PATS PATTERN WORK NEWCO. INTERIORS INFINITY TOTAL
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Revenues ...................... $ 451 $ 12,757 $ 4,972 $ 6,692 $ 4,753 $ 23,209 $ 52,834
Cost of sales ................. 1,229 8,435 2,203 4,747 3,057 16,769 36,440
--------- --------- --------- --------- --------- --------- ---------
Gross profit (loss) ........... (778) 4,322 2,769 1,945 1,696 6,440 16,394
Selling, general and
administrative expenses ..... 611 944 262 520 492 2,495 5,324
Amortization of intangible
assets ...................... -- 124 -- -- -- -- 124
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss) ....... (1,389) 3,254 2,507 1,425 1,204 3,945 10,946
Interest expense (income) ..... 23 127 (11) (2) (19) 34 152
Other expenses (income), net .. 11 (33) -- (3) (4) -- (29)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
provision for income
taxes ....................... (1,423) 3,160 2,518 1,430 1,227 3,911 10,823
Provision for income
taxes (benefit) ............. (1,244) -- -- -- 417 -- (827)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) ............. $ (179) $ 3,160 $ 2,518 $ 1,430 $ 810 $ 3,911 $ 11,650
========= ========= ========= ========= ========= ========= =========
2000 ACQUISITIONS
---------------------------------------------------
CARL BOOTH ERDA (a) OTHERS (b) TOTAL
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Revenues .............................................. $ 5,983 $ 14,354 $ 5,175 $ 25,512
Cost of sale .......................................... 3,110 11,984 2,294 17,388
----------- ----------- ----------- -----------
Gross profit .......................................... 2,873 2,370 2,881 8,124
Selling, general and administrative expenses .......... 588 2,499 1,907 4,994
Amortization of intangible assets ..................... -- 171 -- 171
----------- ----------- ----------- -----------
Operating income (loss) ............................... 2,285 (300) 974 2,959
Interest expense (income) ............................. (33) 641 -- 608
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes ....... 2,318 (941) 974 2,351
Provision for income taxes (benefit) .................. -- (308) -- (308)
----------- ----------- ----------- -----------
Net income (loss) ..................................... $ 2,318 $ (633) $ 974 $ 2,659
=========== =========== =========== ===========
- ------------------------
(a) Excludes the operating results of ERDA's majority owned subsidiary
not acquired.
(b) Reflects our acquisition of Coltech and two product lines during
2000.
P-6
UNAUDITED PRO FORMA FINANCIAL DATA
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED)
(3) Reflects the elimination of intercompany sales.
(4) Reflects a net decrease in cost of sales attributable to the follow:
YEAR ENDED DECEMBER 31,
-------------------------
1999 2000
----------- -----------
(DOLLARS IN THOUSANDS)
Elimination of intercompany sales ............................................... $ (2,890) $ (1,307)
Reorganization of manufacturing process (a)...................................... -- (529)
Reversal of intercompany profit in inventory (b) ................................ -- (100)
----------- -----------
Decrease in cost of sales.................................................... $ (2,890) $ (1,936)
=========== ===========
- ------------------------
(a) Reflects costs incurred, subsequent to the acquisition date, for a
reorganization of the manufacturing process at ERDA. We planned for
the reorganization prior to acquisition and began implementing the
plan immediately after acquisition. The reorganization was completed
during 2000.
(b) Eliminated in our historical results.
(5) Reflects the net decrease in selling, general and administrative expenses
attributable to the following:
YEAR ENDED DECEMBER 31,
-------------------------
1999 2000
----------- -----------
(DOLLARS IN THOUSANDS)
Bonuses and employment contract termination expenses (a) ........................ $ (3,031) $ (1,708)
Acquisition related expenses (b) ................................................ (716) (951)
Other, net (c) .................................................................. (22) --
----------- -----------
Decrease in selling, general and administrative expenses ...................... $ (3,769) $ (2,659)
=========== ===========
- ----------------------------
(a) Reflects a reduction in expenses attributable to employment contract
termination expenses and nonrecurring bonuses awarded prior to, and
in anticipation of, our acquisitions of PATS, Infinity and Coltech.
(b) Reflects a reduction for non-capitalizable acquisition expenses
incurred by PATS, Infinity and ERDA on behalf of their stockholders
related to their respective acquisitions by us.
(c) Reflects cost savings attributable to employee benefit plans
implemented at the companies we acquired.
P-7
UNAUDITED PRO FORMA FINANCIAL DATA
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED)
(6) Reflects the net increase in amortization expense pertaining to the
amortization of goodwill and other intangible assets related to the
companies we have acquired as follows:
INTANGIBLE ESTIMATED YEAR ENDED DECEMBER 31,
ASSET USEFUL -------------------------
AMOUNT LIFE (a) 1999 2000
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Elimination of predecessor basis
amortization (b)..................................... $ (363) $ (171)
Amortization attributable to companies acquired (c):
Goodwill ............................................ $ 152,543 30 3,031 675
FAA certifications .................................. 15,425 15 906 448
Customer contracts .................................. 8,390 7 100 --
Engineering drawings ................................ 5,482 15 216 95
Assembled workforce ................................. 4,980 7 514 190
----------- -----------
Net increase in amortization expense .............. $ 4,404 $ 1,237
=========== ===========
- --------------------------
(a) Amortized on a straight-line basis over the respective estimated
useful lives.
(b) Reflects the elimination of amortization expense recorded by
Precision Pattern and ERDA for periods prior to their acquisition.
(c) Reflects adjustments for all of our 1999 and 2000 acquisitions from
the beginning of the period presented to their respective acquisition
dates; subsequent to those dates, amortization expense is included in
our historical results.
(7) Reflects the net increase in interest expense, including deferred
financing cost amortization and commitment fees, as a result of our 1999
and 2000 acquisitions as if they all had occurred on January 1, 1999.
The components of pro forma interest expense are summarized in a table on
the next page.
P-8
UNAUDITED PRO FORMA FINANCIAL DATA
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED)
The components of pro forma interest expense are summarized in the table
below.
YEAR ENDED DECEMBER 31,
-------------------------
RATE OR TERM AMOUNT 1999 2000
-------------------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Senior credit facility (a):
Revolving credit facilities .......... LIBOR (b) + 2.75% (c) $ 84 $ 28
Term facilities:
Term A ............................. LIBOR (b) + 2.75% (d) 3,345 3,526
Term B ............................. LIBOR (b) + 3.5% (e) 11,930 13,458
Term D ............................. LIBOR (b) + 4.0% (f) 8,668 9,717
Senior subordinated notes .............. 12.00% $ 100,000 12,000 12,000
Customer advance ....................... 7.50% (g) 380 247
Other long-term obligations ............ 4.7% to 25.7% (h) 251 1,042
Deferred financing cost amortization:
Senior revolving credit facilities ... 6 years (i) 1,277 213 213
Senior term facilities:
Term A ............................. 6 years (j) 1,141 343 314
Term B ............................. 7 years (j) 4,211 679 672
Term D ............................. 6 years (j) 3,100 481 477
Senior subordinated notes ............ 10 years (j) 6,317 632 632
Commitment fees and expenses ........... 515 522
----------- -----------
Pro forma interest expense (k) ..... $ 39,521 $ 42,848
=========== ===========
- ----------------------------
(a) Reflects our senior credit facility as amended for all of our 1999
and 2000 acquisitions, as if all events had occurred on January 1,
1999.
(b) Calculations based on the historical LIBOR rates charged during the
respective periods. The weighted average historical LIBOR rates were
as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1999 2000
--------- --------
Revolving credit facilities .............................................. 5.374% 6.709%
Term A facility .......................................................... 5.365% 6.582%
Term B facility .......................................................... 5.369% 6.603%
Term D facility .......................................................... 5.396% 6.636%
(c) Reflects revolving credit facility borrowings of $5.8 million at
December 31, 1998 plus $2.7 million pro forma additional borrowings
as of January 1, 1999 for our 1999 and 2000 acquisitions. The pro
forma weighted average borrowings outstanding under the revolving
credit facilities were $1.0 million for the year ended December 31,
1999 and $296,000 for the year ended December 31, 2000.
(d) Reflects Term A facility borrowings of $34.5 million at December 31,
1998 plus $7.5 million pro forma additional borrowings as of January
1, 1999 for our Infinity and Carl Booth acquisitions, reduced by
quarterly principal payments of $500,000 on March 31, 1999, $531,000
on June 30 and September 30, 1999 and $1.1 million commencing
December 31, 1999. The pro forma weighted average borrowings
outstanding under the Term A facility were $41.2 million for the year
ended December 31, 1999 and $37.8 million for the year ended December
31, 2000.
P-9
UNAUDITED PRO FORMA FINANCIAL DATA
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED)
(e) Reflects Term B facility borrowings of $44.9 million at December 31,
1998 plus $90.0 million pro forma additional borrowings as of January
1, 1999 for our PATS and Precision Pattern acquisition, reduced by
quarterly principal payments of $163,000 on March 31, 1999 and
$338,000 commencing June 30, 1999. The pro forma weighted average
borrowings outstanding under the Term B facility were $134.5 million
for the year ended December 31, 1999 and $133.2 million for the year
ended December 31, 2000.
(f) Reflects Term D facility pro forma additional borrowings of $92.5
million as of January 1, 1999 for our Infinity and Carl Booth
acquisitions and to repay then existing revolving credit facility
borrowings as of January 1, 1998, reduced by quarterly principal
payments of $100,000 on March 31, 1999 and $231,000 commencing June
30, 1999. The pro forma weighted average borrowings outstanding under
the Term D facility were $92.3 million for the year ended December
31, 1999 and $91.4 million for the year ended December 31, 2000.
(g) Reflects a $5.0 million customer advance related to our PATS
acquisition, pro forma as of January 1, 1999, reduced by principal
payments of $975,000 on November 30, 1999 and $1.2 million on May 31
and November 30, 2000. The pro forma weighted average advance
outstanding was $4.9 million for the year ended December 31, 1999 and
$3.2 million for the year ended December 31, 2000.
(h) Reflects historical interest expense related to capital lease
obligations and equipment term debt financing.
(i) Deferred financing costs are amortized on a straight-line basis over
the term of the agreement.
(j) Deferred financing costs are amortized using the effective interest
method.
(k) A 0.125% change in the interest rates charged on variable rate
borrowings would change interest expense and net income (loss) by:
YEAR ENDED DECEMBER 31,
-------------------------
1999 2000
----------- -----------
(DOLLARS IN THOUSANDS)
Interest expense......................................................... $ 341 $ 343
Net income (loss)........................................................ 207 208
(8) Represents an increase in the provision for income taxes as a result of
reflecting a pro forma provision for income taxes on the income of
Precision Pattern, Custom Woodwork, PCI NewCo, Infinity and Carl Booth
which were taxed as S Corporations or partnerships prior to their
acquisitions, partially offset by a decrease in pro forma taxable income.
The effective tax rate differs from the U.S. federal statutory rate
primarily due to goodwill amortization related to acquisitions not
deductible for income tax purposes and state and foreign income taxes.
The difference in effective tax rates between periods is mostly a result
the relationship of non-deductible expense to income before taxes.
(9) Reflects an increase in accrued preferred stock dividends and redemption
value accretion. We sold 16% mandatorily redeemable preferred stock and
used the proceeds to partially fund the ERDA acquisition.
P-10
UNAUDITED PRO FORMA FINANCIAL DATA
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED)
(10) Supplemental pro forma financial information is as follows:
YEAR ENDED DECEMBER 31,
-------------------------
1999 2000
----------- -----------
(DOLLARS IN THOUSANDS)
Net cash provided by (used for):
Operating activities .......................................................... $ 26,701 $ 20,725
Investing activities .......................................................... (214,882) (53,896)
Financing activities .......................................................... 187,693 33,549
EBITDA (a) ...................................................................... 78,455 89,160
Depreciation and amortization (b) ............................................... 25,512 29,212
Capital expenditures:
Paid in cash .................................................................. 9,283 23,492
Financed with capital lease obligations ....................................... 2,388 109
Cash interest expense ........................................................... 37,173 40,540
Ratio of earning to fixed charges (c) ........................................... 1.0x 1.3 x
- -------------------------
(a) EBITDA is defined as earnings before interest, income taxes,
depreciation and amortization, restructuring and asset impairment
charges, acquisition related charges 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.
EBITDA is not a measure of performance or financial condition under
generally accepted accounting principles. 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 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
liquidity 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.
(b) Reflects depreciation and amortization of plant and equipment,
goodwill and other intangible assets. Excludes amortization of
deferred financing costs, which are classified as a component of
interest expense.
(c) 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.
P-11
UNAUDITED PRO FORMA FINANCIAL DATA
COMPUTATION OF PRO FORMA EARNING TO FIXED CHARGES RATIOS
YEAR ENDED DECEMBER 31,
-------------------------
1999 2000
----------- -----------
(DOLLARS IN THOUSANDS)
EARNINGS:
Income before provision for income taxes ............................................... $ 636 $ 13,669
Minority interest in income of subsidiary with fixed charges ........................... 197 228
Fixed charges .......................................................................... 40,901 44,148
----------- -----------
Total earnings .................................................................... $ 41,734 $ 58,045
=========== ===========
FIXED CHARGES:
Interest expense, including amortization of debt discounts
and issuance costs (1) .............................................................. $ 39,521 $ 42,848
Interest component of rentals (2) ...................................................... 1,380 1,300
----------- -----------
Total fixed charges ............................................................... $ 40,901 $ 44,148
=========== ===========
RATIO OF EARNINGS TO FIXED CHARGES:
Ratio .................................................................................. 1.0x 1.3x
Deficiency ............................................................................. $ -- $ --
- ---------------------------
(1) None capitalized.
(2) Reflects one-third of rental expense under operating leases considered to
represent interest costs.
P-12
====================================================== =====================================================
YOU SHOULD ONLY RELY ON THE INFORMATION
CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE
REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE
ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD
NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS
OR ANY PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE ON THE FRONT OF THOSE
DOCUMENTS.
DECRANE AIRCRAFT
HOLDINGS, INC.
-------------------------------
12% SERIES B SENIOR SUBORDINATED DUE 2008
TABLE OF CONTENTS AND ARE REGISTERED UNDER THE
SECURITIES ACT OF 1933
-------------------------------
Summary ....................................... 1
----------------------
Our Company ................................... 1 PROSPECTUS
----------------------
----------------------
Risk Factors .................................. 4
----------------------
Ratio of Earning to Fixed Charges ............. 13
The Notes ..................................... 14 MARCH 29, 2001
Where You Can Find More Information ........... 16
Use of Proceeds ............................... 16
Description of Notes .......................... 17
Plan of Distribution .......................... 54
Experts ....................................... 55
Index to Unaudited Pro Forma
Financial Data ........................... P-1
====================================================== =====================================================