**Exhibit 10.13**

 

**EXCHANGE AGREEMENT**dated as of**July 23, 2004**among**DECRANE AIRCRAFT HOLDINGS, INC.,THE GUARANTORS SET FORTH ON THE SIGNATURE PAGES HERETO**and**THE HOLDERS SET FORTH ON THE SIGNATURE PAGES HERETO**

 

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**TABLE OF CONTENTS**

 
| Article  1                                                                                |   |
|-------------------------------------------------------------------------------------------|--------|
| ISSUANCE AND EXCHANGE                                                                     |   |
|                                                                                      |   |
| Section  1.01.  *Issuance, Exchange And Delivery*                                    |   |
| Section  1.02.  *Closing*                                                            |   |
| Article  2                                                                                |   |
| REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTORS                          |   |
|                                                                                      |   |
| Section 2.01.  *Incorporation Of Representations And Warranties In Credit Agreement* |   |
| Section 2.02.  *Authorizations*                                                      |   |
| Section 2.03.  *Governmental  Authorization*                                         |   |
| Section 2.04.  *Non-Contravention*                                                   |   |
| Section 2.05.  *No Registration*                                                     |   |
| Section  2.06.  *Litigation*                                                         |   |
| Section  2.07.  *Finder’s Fees*                                                 |   |
|                                                                                      |   |
| ARTICLE 3                                                                                 |   |
| REPRESENTATIONS AND WARRANTIES OF THE HOLDERS                                             |   |
|                                                                                      |   |
| Section 3.01.  *Ownership of Old Notes*                                              |   |
| Section 3.02.  *Authorization of Exchange Agreement*                                 |   |
| Section 3.03.  *Non-Contravention*                                                   |   |
| Section 3.04.  *Exchange for Investment*                                             |   |
| Section 3.05.  *Restricted Securities*                                               |   |
| Section  3.06.  *Inspections; No Other Representations*                              |   |
| Section  3.07.  *Finder’s Fees*                                                 |   |
| ARTICLE 4                                                                                 |   |
| COVENANTS                                                                                 |   |
| Section 4.01.  *Covenants of the Company*                                            |   |
| Section 4.02.  *Covenants of the Holders*                                            |   |
|                                                                                      |   |
| Article  5                                                                                |   |
| CONDITIONS  TO THE CLOSING                                                                |   |
|                                                                                      |   |
| Section 5.01.  *Conditions to Obligation of Each Party*                              |   |
| Section 5.02.  *Conditions to the Obligations  of the Holders*                       |   |
| Section 5.03.  *Conditions  to the Obligations of the Company*                       |   |
|                                                                                      |   |
| Article  6                                                                                |   |
| SURVIVAL; INDEMNIFICATION                                                                 |   |
|                                                                                      |   |
| Section  6.01.  *Survival*                                                           |   |

 

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| Section  6.02.  *Indemnification*               |   |
|------------------------------------------------------|--------|
|                                                 |   |
| ARTICLE 7                                            |   |
| MISCELLANEOUS                                        |   |
|                                                 |   |
| Section  7.01.  *Notices*                       |   |
| Section  7.02.  *No Waivers; Amendments*        |   |
| Section  7.03.  *Exclusivity*                   |   |
| Section  7.04.  *Termination*                   |   |
| Section  7.05.  *Successors And Assigns*        |   |
| Section  7.06.  *Governing Law*                 |   |
| Section  7.07.  *Jurisdiction*                  |   |
| Section 7.08.  *WAIVER OF JURY TRIAL*           |   |
| Section 7.09.  *Counterparts;  Effectiveness*   |   |
| Section  7.10.  *Expenses*                      |   |
| Section 7.11.  *Entire Agreement*               |   |
| Section 7.12.  *Captions;  Certain Definitions* |   |
|                                                 |   |
| Schedule  1.02                                       | -      | Amount of  Old Notes and New Notes; Taxpayer Identification Number |   |
|                                                 |   |   |   |
| Exhibit A                                            | -      | Form of  Indenture |   |
| Exhibit B                                            | -      | Form of  Registration Rights Agreement |   |

 

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**EXCHANGE AGREEMENT**

** **

AGREEMENTdated as of July 23, 2004, among DeCrane Aircraft Holdings, Inc., a Delawarecorporation (the “**Company**”), theaffiliates of the Company set forth on the signature pages hereto as Guarantors(the “**Guarantors**”),and certain holders of the Company’s 12% Senior Subordinated Notes due 2008(the “**Old Notes**”) set forth on thesignature pages hereto (together with their successors and assigns, the “**Holders**”).

 

**W I  T  N  E  S  S  E T  H :**

** **

WHEREAS, theHolders are holders of a portion the Old Notes;

 

WHEREAS, theHolders and the Company desire that the Holders exchange the Old Notes for new17% Senior Discount Notes due 2008 of the Company (the “**New Notes**”) guaranteed byeach of the Guarantors, to be issued pursuant to the provisions of anIndenture, substantially in the form attached hereto as Exhibit A, dated as ofthe Closing Date (as defined herein) (the “**Indenture**”)among the Company, the Guarantors named therein and U.S. Bank NationalAssociation, as Trustee  (the “**Trustee**”);

 

WHEREAS, in connection with the exchange of the Old Notes for the NewNotes, the Company will enter into an amendment (the “**Credit Agreement Amendment**”)to the Third Amended and Restated Credit Agreement dated May 11, 2000 among theCompany, the lenders party thereto and Credit Suisse First Boston, asadministrative agent and syndication agent for the lenders (as amended, the “**CreditAgreement**”);

 

WHEREAS, in connection with the exchange of the Old Notes for the NewNotes, the Company will enter into an amendment (the “**Second Lien Credit Agreement Amendment**”)to the Second Lien Credit Agreement dated December 22, 2003 among the Company,the lenders party thereto and Credit Suisse First Boston, acting through itsCayman Islands Branch, as administrative agent and syndication agent for thelenders (as amended, the “**Second Lien****Credit Agreement**”);

 

WHEREAS, concurrently with the exchange of the Old Notes for the NewNotes, the Company will amend the terms of its 16% Senior RedeemableExchangeable Preferred Stock due 2009 (the “**Senior Preferred Stock Amendment**”)and DeCrane Holdings Co. will amend the terms of substantially all of its 14%Senior Redeemable Exchangeable Preferred Stock due 2009, whether through anamendment of such securities or an exchange therefor (the “**Junior Preferred Stock Amendment**”);and

 

WHEREAS, the Holders, the Company and the Guarantors will enter into aRegistration Rights Agreement relating to the New Notes, substantially in theform attached hereto as Exhibit B, dated as of the Closing Date (the “**RegistrationRights Agreement**”).

 

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NOW THEREFORE,the parties hereto agree as follows:

 

 

ARTICLE 1

ISSUANCE ANDEXCHANGE

* *

*Section 1.01.  Issuance, Exchange AndDelivery.*Upon the terms and subject to the terms andconditions of this Agreement, the Company agrees to issue to each Holder, andeach Holder agrees, severally but not jointly, to accept from the Company atthe Closing, the New Notes in exchange for the surrender of the Old Notes, ineach case in the principal amounts set forth opposite such Holder’s name onSchedule 1.02 hereto.

* *

*Section 1.02.  Closing. *The closing (the “**Closing**”) of the issuance of the New Noteshereunder shall take place at the offices of Davis Polk & Wardwell, 450Lexington Avenue, New York, New York, as soon as possible, but in no eventlater than five (5) Business Days after satisfaction of the conditions setforth in Article 5, or at such other time or place as Company and the Holdersmay agree, such date is hereinafter referred to as the “**Closing Date**”.  At the Closing (a) each Holder shallsurrender to the Company the principal amount of the Old Notes set forthopposite such Holder’s name on Schedule 1.02 hereto; and (b) the Company shalldeliver to each Holder New Notes with an initial accreted value equal to theamount  set forth opposite such Holder’sname on Schedule 1.02 hereto, plus an amount in cash equal to the accrued andunpaid interest on the Old Notes being exchanged to the Closing Date.

 

 

ARTICLE 2

REPRESENTATIONSAND WARRANTIES OF THE COMPANY AND THE GUARANTORS

 

The Companyand each of the Guarantors represents and warrants to each Holder that:

* *

*Section 2.01.  NoDefault under the Credit Agreement. *As of the date hereof, (i) no Potential Eventof Default or Event of Default (each as defined in the Credit Agreement) underthe Credit Agreement has occurred and is continuing, and (ii) the Company isable to satisfy the conditions to borrowing thereunder to permit the Company toborrow at least $1 of additional debt thereunder pursuant to the terms theretoon the date hereof.

* *

*Section 2.02.  Authorizations. *The execution,delivery and performance by the Company and each of the Guarantors of thisAgreement have been duly authorized by all necessary corporate action on thepart of the Company and each of the Guarantors.  The New Notes have been duly authorized and, when executed andauthenticated in accordance with the provisions of the Indenture and issued tothe holders in exchange for the Old Notes in accordance with the  terms of this

 

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Agreement,will be valid and binding obligations of the Company, enforceable in accordancewith their terms, subject to applicable bankruptcy, insolvency, fraudulenttransfer and similar laws affecting creditors’ rights generally and equitableprinciples of general applicability, and will be entitled to the benefits ofthe Indenture; each of the Guarantors has duly authorized its guarantee of theNew Notes and, when the New Notes have been executed and authenticated inaccordance with the provisions of the Indenture and issued to the holders inexchange for the Old Notes in accordance with the terms of this Agreement andthe Indenture has been executed and delivered by each Guarantor, the guaranteeof the New Notes will be a valid and binding obligation of the each Guarantor,enforceable in accordance with its terms, subject to applicable bankruptcy,insolvency, fraudulent transfer and similar laws affecting creditors’ rightsgenerally and equitable principles of general applicability. Each of the Indenture and the Registration Rights Agreement hasbeen duly authorized by all necessary corporate action on the part of theCompany and each of the Guarantors, as applicable.  This Agreement is and, when executed and delivered on the ClosingDate, each of the Indenture and the Registration Rights Agreement will be, avalid and binding agreement of the Company and each of the Guarantors, asapplicable, enforceable in accordance with its terms, subject to applicable bankruptcy,insolvency, fraudulent transfer and similar laws affecting creditors’ rightsgenerally and equitable principles of general applicability and except asrights to indemnification and contribution under the Registration RightsAgreement may be limited under applicable law.

 

*Section 2.03.  GovernmentalAuthorization. *Assumingthe accuracy of the representations and warranties of the Holders and theircompliance with the covenants herein, the execution, delivery and performanceby the Company and each of the Guarantors of this Agreement, the Indenture, theRegistration Rights Agreement and the New Notes require no material order,license, consent, authorization, or approval of, or exemption by, or action byor in respect of, or notice to, or filing or registration with, anygovernmental body, agency or official, except as may be required by Federal andstate securities laws with respect to the Company’s obligations under theRegistration Rights Agreement and except as may be required by state securitieslaws.

 

*Section 2.04.  Non-Contravention. *The execution,delivery and performance by the Company and each of the Guarantors of thisAgreement, the Registration Rights Agreement, the Indenture and the New Notesdo not and will not (i) violate the certificate of incorporation or bylaws ofthe Company or any Guarantor or any material agreement or other instrumentbinding upon the Company or any Guarantor or (ii) violate any materialapplicable law, rule, regulation, judgment, injunction, order or decree.

 

*Section 2.05.  No Registration. *Assuming theaccuracy of the representations and warranties of the Holders and theircompliance with the covenants herein, it is not necessary in connection withthe issuance of the New Notes to the Holders in the manner contemplated by thisAgreement to register 

 

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the  New Notes under the Securities Act of 1933,as amended (the “**Securities Act**”) or to qualify the Indenture under the TrustIndenture Act of 1939, as amended.

 

*Section 2.06.  Litigation. *There is no action,suit, investigation or proceeding pending against, or to the knowledge of theCompany or any Guarantor, threatened in writing against or affecting theCompany or any Guarantor or any of their respective properties before any courtor arbitrator or any governmental body, agency or official which couldreasonably be expected to have a material adverse effect on the transactionscontemplated by this Agreement.

 

*Section 2.07.  Finder’s Fees. *Except for Credit Suisse First Boston LLC,whose compensation in connection with the exchange of the Old Notes for the NewNotes will be paid by the Company, there is no investment banker,broker, finder or other intermediary which has been retained by or isauthorized to act on behalf of the Company or any of its Affiliates (as definedin Rule 405 under the Securities Act) which might be entitled to any fee orcommission from any Holder, the Company or any of their respective Affiliatesupon consummation of the transactions contemplated by this Agreement.

 

ARTICLE 3

REPRESENTATIONSAND WARRANTIES OF THE HOLDERS

 

Each Holder,severally as to itself and not jointly, represents, warrants and agrees to theCompany and the Guarantors as follows:

 

*Section 3.01**.  Ownership of Old Notes. *Such Holder has, and on the Closing Date will have validtitle to, or a valid “security entitlement” within the meaning of Section 8-501of the New York Uniform Commercial Code in respect of, the Old Notes to beexchanged by such Holder free and clear of all security interests, claims,liens, equities or other encumbrances and the legal right and power, and allauthorization and approval required by law, to enter into this Agreement and totransfer and deliver the Old Notes to be exchanged by such Holder or a securityentitlement in respect of such Old Notes.

 

*Section 3.02.  Authorizationof Exchange Agreement. *Theexecution, delivery and performance of this Agreement are within such Holder’spowers and have been duly authorized by all requisite corporate action on thepart of such Holder.  This Agreementconstitutes a valid and binding agreement of such Holder enforceable inaccordance with its terms.  ThisAgreement has been duly executed and delivered by such Holder.

 

*Section 3.03.  Non-Contravention*. The execution and delivery by such Holder of, and the performance bysuch Holder of its obligations under, this Agreement will not contravene anyprovision of applicable law or the certificate 

 

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of incorporation,by-laws or other organizational document of such Holder or any materialagreement or other instrument binding upon such Holder, or any judgment, orderor decree of any governmental body, agency or court having jurisdiction oversuch Holder.

 

*Section 3.04.  Exchange forInvestment. *SuchHolder acknowledges that the New Notes have not been registered under theSecurities Act or any state securities laws and that the issuance of the NewNotes contemplated hereby is to be effected pursuant to an exemption from theregistration requirements imposed by such laws, including Section 4(2) underthe Securities Act.  Such Holder is an“accredited investor” within the meaning of Rule 501(a) under the SecuritiesAct and the New Notes to be received by it pursuant to this Agreement are beingreceived for its own account without a view toward distribution in violation ofthe Securities Act and such Holder will not offer, sell, transfer, pledge,hypothecate or otherwise dispose of the New Notes unless (i) pursuant to atransaction either registered under, or exempt from registration pursuant toRule 144A and Regulation S under, the Securities Act or (ii) to an accreditedinvestor, provided that such accredited investor accepts delivery of such NewNotes in the form of a definitive note registered in the name of suchaccredited investor.

 

*Section 3.05.  RestrictedSecurities. *SuchHolder acknowledges that the New Notes have not been registered under theSecurities Act and may not be offered, sold, pledged or otherwise transferredprior to the expiration of the applicable holding period of the New Notes underRule 144 (k) of the Securities Act, except (a) in accordance with Rule 144A orRegulation S under the Securities Act or pursuant to another exemption from theregistration requirements of the Securities Act or (b) pursuant to an effectiveregistration statement under the Securities Act.  The New Notes will bear a legend and will be subject to transferrestrictions as set forth in the Indenture.

 

*Section 3.06.  Inspections; NoOther Representations. *EachHolder is an informed and sophisticated purchaser, and has engaged expertadvisors experienced in the evaluation of the transactions contemplatedhereunder.  Each Holder has undertakensuch investigation and has been provided with and has evaluated such documentsand information as it has deemed necessary to enable it to make an informed andintelligent decision with respect to the execution, delivery and performance ofthis Agreement.  Each Holderacknowledges that the Company has given such Holder complete and open access(to the extent requested by such Holder) to the key employees, and documents ofthe Company and its subsidiaries.  EachHolder agrees to accept the New Notes on the Closing Date based upon its owninspection, examination and determination with respect thereto as to allmatters, and without reliance upon any express or implied representations orwarranties of any nature made by or on behalf of or imputed to the Company,except as expressly set forth in this Agreement.  Without limiting the generality of the foregoing, each Holderacknowledges that the Company makes no representation or warranty with respectto (i) any projections, estimates or budgets delivered to or made available tothe Holder of future revenues, future 

 

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results ofoperations (or any component thereof), future cash flows or future financialcondition (or any component thereof) of the Company and the Guarantors or thefuture business and operations of the Company and the Guarantors or (ii) anyother information or documents made available to such Holder or its  advisors with respect to the Company or theGuarantors or their respective businesses or operations, except as expressly setforth in this Agreement.

 

*Section 3.07.  Finder’s Fees. *There is no investment banker, broker,finder or other intermediary which has been retained by or is authorized to acton behalf of such Holder or any of its Affiliates which might be entitled to anyfee or commission from such Holder, the Company or any of their respectiveAffiliates upon consummation of the transactions contemplated by thisAgreement.

 

*Section 3.08.  TaxpayerIdentification Numbers. *The number set forth under “TaxpayerIdentification Number” on Schedule 1.02 hereto listed next to the name of suchHolder is such Holder’s federal taxpayer identification number.

 

ARTICLE 4COVENANTS

 

*Section 4.01.  Covenants ofthe Company. *Infurther consideration of the agreements of the Holders contained in thisAgreement, the Company covenants with each of the Holders as follows:

 

(a)        the Company will use its commerciallyreasonable efforts to take, or cause to be taken, all actions and to do, orcause to be done, all things necessary or desirable under applicable laws andregulations to consummate the transactions contemplated by this Agreement;

 

(b)        the Company will use its commerciallyreasonable efforts to obtain any consents, approvals or waivers that arerequired to be obtained from third parties to any material contracts, inconnection with the consummation of the transactions contemplated by thisAgreement; and

 

(c)        prior to the Closing Date, the Companyagrees that, except as the Company and its counsel reasonably determine to berequired by law, it will not disclose the identity of the Holders to any thirdparty without the prior written consent of such Holder, which consent shall notbe unreasonably withheld, except that the Company may disclose any Holder’sidentity to its advisors and counsel or to any other Holder that is a party tothis Agreement (it being understood that the Company will be required topublicly file this Agreement, the Indenture and the Registration RightsAgreement with the Securities and Exchange Commission, which documents willidentify each Holder).

 

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*Section 4.02.  Covenants ofthe Holders. *Infurther consideration of the agreements of the Company contained in thisAgreement, each Holder covenants with the Company as follows:

 

(a)        such Holder and its Affiliates (asdefined in Rule 405 under the Securities Act) will hold, and will use theircommercially reasonable efforts to cause their respective officers, directors,employees, accountants, counsel, consultants, advisors and agents to hold, inconfidence, (i) the existence of this Agreement or any facts relating to thetransaction contemplated by this Agreement and (ii) all confidential documentsand information concerning the Company or any Guarantor furnished to suchHolder or its Affiliates in connection with the transactions contemplated bythis Agreement, except to the extent that such information can be shown to havebeen (A) previously known on a non-confidential basis by such Holder, (B) inthe public domain through no fault of such Holder or (C) later lawfullyacquired by such Holder from sources other than the Company or any Guarantor;provided that such Holder may disclose such information to its officers,directors, employees, accountants, counsel, consultants, advisors and agents inconnection with the transactions contemplated by this Agreement  so long as such persons are informed by suchHolder of the confidential nature of such information and are directed by suchHolder to treat such information confidentially.  Each Holder shall be responsible for any failure to treat suchinformation confidentially by such persons. The obligation of each Holder and its Affiliates to hold any suchinformation in confidence shall be satisfied if they exercise the same carewith respect to such information as they would take to preserve theconfidentiality of their own similar information and shall in any event expiresix months from the Closing Date.  Ifthis Agreement is terminated, each Holder and its Affiliates will, and will usetheir commercially reasonable efforts to cause their respective officers,directors, employees, accountants, counsel, consultants, advisors and agentsto, destroy or deliver to the Company, upon request, all documents and othermaterials, and all copies thereof, obtained by such Holder or its Affiliates oron their behalf from the Company or any Guarantor in connection with thisAgreement that are subject to such confidentiality provisions;

 

(b)        unless this Agreement is terminated inaccordance with Section 7.04 hereof, such Holder will not pledge, sell,contract to sell, grant any option, right or warrant to purchase, lend orotherwise transfer or dispose of any of the Old Notes or any right or interest(voting or otherwise and including any participation interest) therein, exceptwith the consent of the Company or pursuant to Section 1.02 hereof; and

 

(c)        such Holder will use its commerciallyreasonable efforts to take, or cause to be taken, all actions and to do, orcause to be done, all things necessary or desirable under applicable laws andregulations to consummate the transactions contemplated by this Agreement.

 

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ARTICLE 5

CONDITIONS TOTHE CLOSING

 

*Section 5.01.  Conditions toObligation of Each Party. *Theobligations of each party hereto to consummate the issuance of the New Notes inexchange for the Old Notes is subject to the satisfaction (or, to the extentpermitted by law, waiver by such party), at or prior to the Closing Date, ofthe following conditions:

 

(a)        no provision of any applicable law orregulation and no judgment, injunction, order or decree shall prohibit theconsummation of the Closing and there shall not be threatened, instituted orpending any action, suit, investigation or proceeding which could reasonably beexpected to have a material adverse effect on the transactions contemplated bythis Agreement;

 

(b)        the Senior Preferred Stock Amendment andthe Junior Preferred Stock Amendment shall have been consummated or shall beconsummated concurrently with the Closing;

 

(c)        the Credit Agreement Amendment shall bein full force and effect; and

 

(d)        the Second Lien Credit AgreementAmendment shall be in full force and effect.

 

*Section 5.02.  Conditions to the Obligations of theHolders. *Theobligation of the Holders to exchange the Old Notes for the New Notes issubject to the satisfaction (or, to the extent permitted by law, waiver by eachHolder), at or prior to the Closing Date, of the following additionalconditions:

 

(a)        no more than $65,000,000 in principalamount of Old Notes shall be exchanged for New Notes or other securities of theCompany;

 

(b)        the representations and warranties ofthe Company contained in this Agreement shall be true and correct in allmaterial respects, the Company shall have performed and complied with allcovenants and agreements required by this Agreement to be performed by it at orprior to the Closing Date, and each Holder shall have received a certificate,dated the Closing Date, signed by an authorized officer of the Company to theforegoing effect;

 

(c)        the Company shall have delivered to eachHolder an opinion of  Davis Polk &Wardwell, special counsel to the Company, dated the Closing Date, in form andsubstance reasonably satisfactory to the Holders, to the effect that (subjectto appropriate assumptions and limitations):

 

(i)    the New Notes have been duly authorized bythe Company and, when executed and authenticated in accordance with theprovisions of the Indenture and issued to the Holders in exchange for the OldNotes in 

 

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accordance with the terms of this Agreement,will be entitled to the benefits of the Indenture and will be valid and bindingobligations of the Company, enforceable against the Company in accordance withtheir terms, except (x) as such enforcement may be limited by bankruptcy,insolvency, fraudulent conveyance or similar laws affecting creditors’ rightsgenerally, (y) as such enforcement is subject to general principles of equity(regardless of whether such enforceability is considered in a proceeding inequity or at law) and (z) to the extent that a waiver of the rights under anyusury or stay law may be unenforceable, we express no opinion, however, as tothe applicability (and, if applicable, the effect) of Section 548 of the UnitedStates Bankruptcy Code or any comparable provision of state law to thequestions addressed above or on the conclusions expressed with respect thereto;

 

(ii)   the Indenture has been duly authorized,executed and delivered by each of the Company and each of the Guarantorsorganized under the laws of Delaware (the “**Delaware Guarantors**”) and is a valid andbinding agreement of the Company, and (assuming due authorization, executionand delivery by each other Guarantor (the “**Non-Delaware Guarantors**”)) the Guarantors,enforceable in accordance with its terms; except (x) as such enforcementmay be limited by bankruptcy, insolvency, fraudulent conveyance or similar lawsaffecting creditors’ rights generally, (y) as such enforcement is subject togeneral principles of equity (regardless of whether such enforceability isconsidered in a proceeding in equity or at law) and (z) to the extent that awaiver of the rights under any usury or stay law may be unenforceable, weexpress no opinion, however, as to the applicability (and, if applicable, theeffect) of Section 548 of the United States Bankruptcy Code or any comparableprovision of state law to the questions addressed above or on the conclusions expressedwith respect thereto;

 

(iii)  thisAgreement has been duly authorized, executed and delivered by each of theCompany and the Delaware Guarantors;

 

(iv)  the Registration Rights Agreement has been dulyauthorized, executed and delivered by each of the Company and the DelawareGuarantors and is a valid and binding agreement of the Company and(assuming due authorization, execution and delivery by the Non-Delaware Guarantors) theGuarantors, enforceable against each of the Company and the Guarantors inaccordance with its terms, except (x) as such enforcement may be limited bybankruptcy, insolvency, fraudulent conveyance or similar laws affectingcreditors’ rights generally, (y) as such enforcement is subject to generalprinciples of equity (regardless of whether such enforceability is consideredin a proceeding in equity or at law) and (z) rights to indemnity andcontribution thereunder may be limited by applicable law;

 

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(v)   each of the Delaware Guarantors has dulyauthorized its Guarantee of the New Notes; assuming each of the Non-DelawareGuarantors has duly authorized its Guarantee of the New Notes, when the NewNotes and the Guarantee evidenced thereon have been executed and authenticatedin accordance with the terms of the Indenture and issued to the Holders inexchange for the Old Notes in accordance with the terms thereof, the Guaranteeof each Guarantor will be the legally valid and binding obligation of suchGuarantor, enforceable against such Guarantor in accordance with its terms,except (x) as such enforcement may be limited by bankruptcy, insolvency,fraudulent conveyance or similar laws affecting creditors’ rights generally,(y) as such enforcement is subject to general principles of equity (regardlessof whether such enforceability is considered in a proceeding in equity or atlaw) and (z) to the extent that a waiver of the rights under any usury or staylaw may be unenforceable, we express no opinion, however, as to theapplicability (and, if applicable, the effect) of Section 548 of the UnitedStates Bankruptcy Code or any comparable provision of state law to thequestions addressed above or on the conclusions expressed with respect thereto;and

 

(vi)  the Exchange will not contravene the CreditAgreement, the Second Lien Credit Agreement, or the indenture for the OldNotes.

 

(d)        the Company and the Guarantors shallhave executed and delivered the Indenture and the Registration RightsAgreement;

 

(e)        The Holders shall have received copiesof each of the Credit Agreement Amendment and the Second Lien Credit AgreementAmendment, each of which shall be in full force and effect and no term orcondition thereof shall have been amended, waived or otherwise modified withoutthe prior consent of the Holders;

 

(f)         all fees and expenses payable to theHolders on or prior to the Closing Date shall have been paid in full; and

 

(g)        each Holder shall have received alldocuments reasonably requested by it relating to the existence of the Companyand the corporate authority for entering into this Agreement and theconsummation of the transactions contemplated hereby, all in form and substancereasonably satisfactory to it.

 

*Section 5.03.  Conditionsto the Obligations of the Company. *Theobligations of the Company to issue the New Notes to the Holders pursuant tothis Agreement are subject to the satisfaction (or, to the extent permitted bylaw, waiver by each Holder), at or prior to the Closing Date, of the followingconditions:

 

(a)        the representations and warranties ofthe Holders contained in this Agreement shall be true and correct in allmaterial respects and the Holders shall 

 

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have performedand complied with all covenants and agreements required by this Agreement to beperformed by them at or prior to the Closing Date; and

 

(b)        the Holders shall have executed anddelivered the Registration Rights Agreement; and

 

(c)        the Company shall have received alldocuments reasonably requested by it relating to the existence of each Holderand the authority for entering into this Agreement and the consummation of thetransactions contemplated hereby, all in form and substance reasonablysatisfactory to it.

 

ARTICLE 6SURVIVAL; INDEMNIFICATION

 

*Section 6.01.  Survival. *The representationsand warranties of the parties hereto contained in this Agreement, shall survivethe execution and delivery of this Agreement. The covenants and agreements of the parties contained in this Agreementshall survive the Closing in accordance with their terms or, if no term isspecified, indefinitely.

 

*Section 6.02.  Indemnification. *(a) The Companyhereby indemnifies each of the Holders, each person, if any, who controls anyHolder within the meaning of either Section 15 of the Securities Act or Section20 of the Securities Exchange Act of 1934, and each affiliate of any Holderwithin the meaning of Rule 405 under the Securities Act against and agrees tohold each of them harmless from any and all losses, claims, damages, costs, liabilitiesor expenses (or actions, suits or proceedings in respect thereof), includingreasonable expenses of investigation and reasonable attorneys’ fees andexpenses, in each case, in connection with any action, suit or proceedinginvolving a third party (“**Damages**”)incurred or suffered by any of them, in each case arising out of anymisrepresentation or breach of warranty, covenant or agreement made or to beperformed by the Company pursuant to this Agreement.

 

(b)        The Company shall not be responsible for anyDamages to the extent a court of competent jurisdiction shall have finallydetermined that such Damages resulted primarily from (i) such indemnifiedperson’s bad faith or gross negligence; (ii) any claims made by one or more ofthe indemnified persons against another indemnified person or indemnifiedpersons in connection with the Transactions or (iii) any breach of therepresentations and warranties of any of the Holders set forth in thisAgreement (clauses (i) through (iii), collectively, “**Excluded Claims**”).  If for any reason (other than that such liability is an ExcludedClaim) the foregoing indemnity is unavailable or insufficient to hold anindemnified person harmless, then the Company shall contribute to amounts paidor payable by such indemnified person in respect of such Damages in suchproportion as appropriately reflects the relative benefits received by, andfault of, 

 

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the Companyand such indemnified person in connection with the matters as to which suchDamages relate and other equitable considerations.

 

(c)        The party seeking indemnification underthis Section (the “**Indemnified Party**”) agrees to give promptnotice to the party against whom indemnity is sought (the “**Indemnifying Party**”) of theassertion of any claim, or the commencement of any suit, action or proceeding(“**Claim**”)in respect of which indemnity may be sought under such Section and will providethe Indemnifying Party such information with respect thereto that theIndemnifying Party may reasonably request. The failure to so notify theIndemnifying Party shall not relieve the Indemnifying Party of its obligationshereunder, except to the extent such failure shall have adversely prejudicedthe Indemnifying Party.

 

(d)        The Indemnifying Party shall be entitledto participate in the defense of any Claim asserted by any third party (“**Third PartyClaim**”) and, subject to the limitations set forth in this Section,shall be entitled to control and appoint lead counsel for such defense, in eachcase at its expense.

 

(e)        If the Indemnifying Party shall assumethe control of the defense of any Third Party Claim in accordance with theprovisions of this Section the Indemnifying Party shall obtain the priorwritten consent of the Indemnified Party (which shall not be unreasonablywithheld) before entering into any settlement of such Third Party Claim and theIndemnified Party shall be entitled to participate in the defense of such ThirdParty Claim and to employ separate counsel of its choice for such purpose.  The fees and expenses of such separatecounsel shall be paid by the Indemnified Party.

 

(f)         Each party shall cooperate, and causetheir respective Affiliates to cooperate, in the defense or prosecution of anyThird Party Claim and shall furnish or cause to be furnished such records,information and testimony, and attend such conferences, discovery proceedings,hearings, trials or appeals, as may be reasonably requested in connectiontherewith.

 

ARTICLE 7MISCELLANEOUS

 

*Section 7.01.  Notices.  *All notices,requests and other communications to any party hereunder shall be in writing(including facsimile transmission) and shall be given,

 

if to the Holders, to:

 

Wayzata Investment Partners, LLC701 East Lake StreetSuite 300Wayzata, MN  55391

12

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Attention:  Joe DeignanFacsimile:  (952) 345-8900

 

and

 

Putnam Investment Management, LLCPutnam Fiduciary Trust CompanyOne Post Office SquareBoston , MA  02109Attention:  James P. MillerFacsimile:  (617) 760-8639

 

and

 

Deephaven Distressed Opportunities Trading Ltd130 Cheshire LaneSuite 102Minnetonka, MN 55305Attention:  Peter H. GlerumFacsimile:  (952) 249-5316

 

with a copy (which shall not constitute notice to any Holder) to:

 

Ropes & Gray LLPOne International PlaceBoston, MA  02110Attention:  Don De Amicis, Esq.Facsimile:  (617) 951-7050

 

if to the Company, to:

 

DeCrane Aircraft Holdings, Inc.2361 Rosecrans Avenue, Suite 180El Segundo, California  90245Attention:  Chief Financial OfficerFacsimile:  (310) 643-5106

 

with a copy (which shall not constitute notice to the Company) to:

 

Davis Polk & Wardwell450 Lexington AvenueNew York, New York 10017Attention:  Michael P. Kaplan, Esq.Facsimile:  (212) 450-3800

 

All suchnotices, requests and other communications shall be deemed received on the dateof receipt by the recipient thereof if received prior to 5 p.m. in the place ofreceipt and such day is a Business Day in the place of receipt.  Otherwise, any 

 

 

13

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such notice,request or communication shall be deemed not to have been received until thenext succeeding business day in the place of receipt.

 

*Section 7.02.  No Waivers;Amendments.*(a)**Nofailure or delay on the part of any party in exercising any right, power orprivilege hereunder shall operate as a waiver thereof, nor shall any single orpartial exercise thereof preclude any other or further exercise thereof or theexercise of any other right, power or privilege. The rights and remedies hereinprovided shall be cumulative and not exclusive of any rights or remediesprovided by law.

 

(b)   Any provision of thisAgreement may be amended or waived if, but only if, such amendment or waiver isin writing and is signed by all parties hereto.

 

*Section 7.03.  Exclusivity.*Afterthe Closing, Article 6 will provide the exclusive remedy for Holders for anymisrepresentation, breach of warranty, covenant or other agreement or otherclaim arising out of this Agreement or the transactions contemplatedhereby.  The Company shall retain allremedies available at law for any misrepresentation, breach of warranty,covenant or other agreement or other claim arising out of this Agreement or thetransactions contemplated hereby.

 

*Section 7.04.  Termination.*(a)** This Agreement shall terminate, prior to the Closing Date:

 

(i)    at any time by mutual written agreement ofthe Company and the Holders;

 

(ii)   if there shall be any law or regulation thatmakes consummation of the transactions contemplated by this Agreement illegalor otherwise prohibited or if consummation of the transactions contemplatedhereby would violate any non-appealable final order, decree or judgment of anycourt or governmental body having competent jurisdiction, if so determined bythe Company or the Holders; or

 

(iii)  on July 30, 2004, unless extended to a laterdate by an instrument executed by the Company and the Holders.

 

The partydesiring to terminate this Agreement pursuant to this Section 7.04 shall givenotice of such termination to the other parties.

 

(b)        If this Agreement is terminated aspermitted by Section 7.04, such termination shall be without liability of anyparty (or any stockholder, director, officer, employee, agent, consultant orrepresentative of such party) to the other parties to this Agreement; *provided* that if such termination shallresult from the (i) willful failure of any party to fulfill a condition to theperformance of the obligations of the other parties, (ii) failure to perform acovenant of this Agreement or (iii) breach by any party hereto of anyrepresentation or warranty or 

 

14

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agreementcontained herein, such party shall be fully liable for any and all damagesincurred or suffered by the other party as a result of such failure or breach.

 

*Section 7.05.  Successors AndAssigns.*The Company may not assign any of its rightsand obligations hereunder without the prior written consent of theHolders.  No Holder may assign itsrights or obligations hereunder without the prior written consent of theCompany.  This Agreement shall bebinding upon the Company and the Holders and their respective successors andassigns.

 

*Section 7.06.  Governing Law.*ThisAgreement shall be governed and construed in accordance with the laws of theState of New York, without regard to the choice of law rules of such state.

 

*Section 7.07.  Jurisdiction.*Exceptas otherwise expressly provided in this Agreement, the parties hereto agreethat any suit, action or proceeding seeking to enforce any provision of, orbased on any matter arising out of or in connection with, this Agreement or thetransactions contemplated hereby shall be brought in the United States DistrictCourt for the Southern District of New York or any New York State court sittingin New York City, so long as one of such courts shall have subject matterjurisdiction over such suit, action or proceeding, and that any cause of actionarising out of this Agreement shall be deemed to have arisen from a transactionof business in the State of New York, and each of the parties herebyirrevocably consents to the jurisdiction of such courts (and of the appropriateappellate courts therefrom) in any such suit, action or proceeding andirrevocably waives, to the fullest extent permitted by law, any objection thatit may now or hereafter have to the laying of the venue of any such suit,action or proceeding in any such court or that any such suit, action orproceeding which is brought in any such court has been brought in an inconvenientforum.  Process in any such suit, actionor proceeding may be served on any party anywhere in the world, whether withinor without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service ofprocess on such party as provided in this Section shall be deemed effectiveservice of process on such party.

 

*Section 7.08.  WAIVER OF JURYTRIAL.*EACH OF THE PARTIES HERETO HEREBYIRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATEDHEREBY.

 

*Section 7.09.  Counterparts;Effectiveness. *ThisAgreement may be executed in any number of counterparts each of which shall bean original with the same effect as if the signatures thereto and hereto wereupon the same instrument.  ThisAgreement shall become effective when each party hereto shall have received acounterpart hereof signed by the other parties hereto.  No 

 

15

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provision of this Agreement is intended to confer upon any Person otherthan the parties hereto any rights or remedies hereunder

 

*Section 7.10.  Expenses. *Except as otherwiseprovided in Article 6 herein, all costs and expenses incurred in connectionwith this Agreement shall be paid by the party incurring such cost or expense; *provided**however*,that the Company shall pay the fees and expenses of Ropes & Gray LLP,special counsel to the Holders incurred in connection with the negotiation,execution and delivery of this Agreement and the transactions contemplatedhereby; *provided**further*that such fees and expenses shall not exceed $75,000.

 

*Section 7.11.  Entire Agreement. *This Agreement, theIndenture, the Registration Rights Agreement and the New Notes constitute theentire agreement and understanding among the parties hereto and supersedes anyand all prior agreements and understandings, written or oral, relating to thesubject matter hereof.

 

*Section 7.12.  Captions;Certain Definitions.*The captions herein are includedfor convenience of reference only and shall be ignored in the construction orinterpretation hereof.  All referencesto “**$**” or “**dollars**” shall be to United States dollarsand all references to “**days**” shallbe to calendar days unless otherwise specified.  Whenever the words “**include**,”“**includes**” or “**including**” are used in this Agreement, theyshall be deemed to be followed by the words, “without limitation.”

 

**[Remainder of page intentionally left blank;next page is signature page]**

 

16

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**IN WITNESS WHEREOF**,the parties hereto have caused this Exchange Agreement to be duly executed by their respective authorizedofficers as of the day and year first above written.

 
|   | **DECRANE AIRCRAFT  HOLDINGS INC.** |
|--------|-------------------------------------|
|   |                                |   |
|   | By:                                 | /s/ R. JACK DECRANE |   |
|   |                                | Name: | R.Jack DeCrane |
|   |                                | Title: | Chief Executive Officer |
|   |                                |   |
|   |                                | **AUDIO  INTERNATIONAL, INC.** |
|   |                                | **CARL F. BOOTH &  CO., LLC** |
|   |                                | **CUSTOM WOODWORK  & PLASTICS, LLC** |
|   |                                | **DAH-IP HOLDINGS,  INC.** |
|   |                                | **DAH-IP INFINITY,  INC.** |
|   |                                | **DECRANE AIRCRAFT  SEATING COMPANY, INC.** |
|   |                                | **DECRANE CABIN  INTERIORS-CANADA, INC.** |
|   |                                | **DECRANE CABIN  INTERIORS, LLC** |
|   |                                | **HOLLINGSEAD  INTERNATIONAL, INC.** |
|   |                                | **PATS AIRCRAFT, LLC** |
|   |                                | **PCI NEWCO, INC.** |
|   |                                | **PPI HOLDINGS, INC.** |
|   |                                | **PRECISION PATTERN,  INC.** |
|   |                                | **THE INFINITY  PARTNERS, LTD.** |
|   |                                | as Guarantors |
|   |                                |   |
|   | By:                                 |   /s/ R. JACK  DECRANE |   |
|   |                                | Name: | R. Jack DeCrane |
|   |                                | Title: | Chief Executive Officer |
|        |                                     |  |  |  |  |  |  |

 

----

 
|   | **WAYZATA INVESTMENT  PARTNERS, LLC**                                                          |
|--------|------------------------------------------------------------------------------------------------|
|   | as Manager, on behalf of various funds                                                         |
|   |                                                                                           |   |
|   | By:                                                                                            |   /s/ JOSEPH M.  DEIGNAN |   |
|   |                                                                                           | Name: | Joseph M. Deignan |
|   |                                                                                           | Title: | Authorized Signatory |
|   |                                                                                           |   |
|   | **PUTNAM INVESTMENT  MANAGEMENT, LLC**on behalf of:                                            |
|   | **PUTNAM HIGH YIELD TRUST**                                                                    |
|   | **PUTNAM HIGH YIELD ADVANTAGE FUND**                                                           |
|   | **PUTNAM VARIABLE TRUST- PUTNAM VT HIGH YIELD  FUND**                                          |
|   | **PUTNAM MASTER INCOME TRUST**                                                                 |
|   | **PUTNAM PREMIER INCOME TRUST**                                                                |
|   | **PUTNAM MASTER INTERMEDIATE INCOME TRUST**                                                    |
|   | **PUTNAM DIVERSIFIED INCOME TRUST**                                                            |
|   | **PUTNAM VARIABLE TRUST - PUTNAM VT  DIVERSIFIED INCOME FUND**                                 |
|   | **PUTNAM ASSET ALLOCATION: CONSERVATIVE PORTFOLIO**                                            |
|   | **PUTNAM MANAGED HIGH YIELD TRUST**                                                            |
|   | **PUTNAM HIGH INCOME BOND FUND**                                                               |
|   | **PUTNAM HIGH INCOME OPPORTUNITIES TRUST**                                                     |
|   |                                                                                           |   |   |
|   |                                                                                           |   |   |
|   | By:                                                                                            | /s/ MICHAEL E. DEFAO |   |
|   |                                                                                           | Name: | Michael E. DeFao |
|   |                                                                                           | Title: | Senior Vice President |
|   |                                                                                           |   |
|   | **PUTNAM FIDUCIARY TRUST COMPANY**  on behalf of:**PUTNAM  HIGH YIELD FIXED INCOME FUND, LLC** |
|   |                                                                                           |   |
|   |                                                                                           |   |
|   | By:                                                                                            | /s/ MICHAEL E. DEFAO |   |
|   |                                                                                           | Name: | Michael E. DeFao |
|   |                                                                                           | Title: | Senior Vice President |
|   |                                                                                           |   |   |
|   | **DEEPHAVEN DISTRESSED OPPORTUNITIES TRADING  LTD.**                                           |
|   |                                                                                           |   |   |
|   |                                                                                           |   |   |
|   | By:                                                                                            |   /s/ Peter H. Glerum |   |
|   |                                                                                           | Name: | Peter H. Glerum |
|   |                                                                                           | Title: | Assistant Portfolio Manager |
|        |                                                                                                |  |  |  |  |  |  |  |  |

 

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**SCHEDULE 1.02**

 
| **Holder**                                                |   | **Taxpayer  Identification  Number** |   | **Principal  Amount of Old  Notes** |       | **Initial Accreted  Value of  New Notes** |   |
|-----------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|------------|-------------------------------------------|--------|
|                                                      |   |                                 |   |                                |       |                                      |   |
| Wayzata Investment Partners, LLC, as Manager for:         |   |                                 |   |                                |       |                                      |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Sapphire Special Opportunities Fund, LLC                  |   | 23-3895790                           |   | $                                   | 7,789,000  |                                      | $      | 7,789,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Wayland Recovery Fund, LLC                                |   | 22-3875940                           |   | $                                   | 8,708,000  |                                      | $      | 8,708,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Wayland Investment Fund II, LLC                           |   | 41-1982966                           |   | $                                   | 8,707,000  |                                      | $      | 8,707,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Wayland Distressed Opportunities Fund I-A, LLC            |   | 11-3693643                           |   | $                                   | 6,466,000  |                                      | $      | 6,466,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam High Yield Trust                                   |   | 04-6415410                           |   | $                                   | 11,600,000 |                                      | $      | 11,600,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam High Yield Advantage Fund                          |   | 06-6290063                           |   | $                                   | 5,000,000  |                                      | $      | 5,000,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam Variable Trust-Putnam VT High Yield Fund           |   | 04-2986135                           |   | $                                   | 2,155,000  |                                      | $      | 2,155,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam Master Income Trust                                |   | 04-2993219                           |   | $                                   | 500,000    |                                      | $      | 500,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam Premier Income Trust                               |   | 04-2995046                           |   | $                                   | 1,310,000  |                                      | $      | 1,310,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam Master Intermediate Income Trust                   |   | 04-6584465                           |   | $                                   | 1,000,000  |                                      | $      | 1,000,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam Diversified Income Trust                           |   | 04-3017475                           |   | $                                   | 4,290,000  |                                      | $      | 4,290,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam Variable Trust - Putnam VT Diversified Income Fund |   | 04-6737822                           |   | $                                   | 820,000    |                                      | $      | 820,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam Asset Allocation:   Conservative Portfolio    |   | 04-6746611                           |   | $                                   | 150,000    |                                      | $      | 150,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam Managed High Yield Trust                           |   | 04-6733967                           |   | $                                   | 240,000    |                                      | $      | 240,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam High Income Bond Fund                              |   | 04-6562068                           |   | $                                   | 60,000     |                                      | $      | 60,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam High Income Opportunities Trust                    |   | 04-6777185                           |   | $                                   | 60,000     |                                      | $      | 60,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Putnam High Yield Fixed Income Fund, LLC                  |   | 51-6190220                           |   | $                                   | 100,000    |                                      | $      | 100,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Deephaven Distressed Opportunities Trading Ltd            |   | 41-1963795                           |   | $                                   | 5,530,000  |                                      | $      | 5,530,000 |   |
|                                                      |   |                                 |   |                                |       |                                      |   |
| Total                                                     |   |                                 |   | $                                   | 64,485,000 |                                      | $      | 64,485,000 |   |

 

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