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Deloitte& Touche
3anuary 22, 1990

1000 Wdshire Boulevard Telex: 910 3214090 Los Angeles, CA 90017-2472 Telecopier: (213) 688-01(30 Telephone: (213}

Hr. Bryan R. Carmichael Basler Turbo Conversions, Inc. 7405 Mayvenhurst Place Van Nuys, California 91406

Dear Bryan:

Thank you for the time that you recently spent discussing your business with Azam Sher and myself. The mee=ing was very useful and forms the basis of our understanding of your requirements. This letter sets forth thao understanding along with the services ~e could render to fulfill =hose requlremen=s.
BACKGROUND Basler Turbo Conversions, Inc. (Basler Turbo Coqversions or Basler) and Innovair Aviation Ltd. (Innovair) are companies organized to manufacture, assemble and distribute conversion kits for the ~C-3 airplane. Basler Turbo Conversion will also provide the labor necessary to undertake the retrofit of the DC-3 if requested.

Basler Turbo Conversion and Innovalr (the Combined Companies) have common shareholders and have essentially similar rights to the DC-3 Conversion Kit. Baeler Turbo Conversion is set up to operate in the U.S. while Innovair..Is set up tomanufacture, assemble and distribute the Kits internationally. You own 49% "of Basler and 51% of Innovair, while Mr. Basler o~ns 51% of Basler and 49% of Innovair.
At the current time, the only manufacturing is done in the U.S. is an~iclpated that all U.S. operations will shortly be consolidated Ln Uisconsln. Basler Turbo Conversion is currently working on F.A:A. certification for its Kit. According to Management, this should be forth=omlng in the near future.

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Mr. Bryan R. Carmlohael January 22, 1990 Page 2,

The conversion Kit which costs approximately $1.15 million to manufacture / assemble is sold for approximately $~.9 million. The major cost components of the Kit are the Pratt &~nltney Engines which cost the Combined Companies $0.75 million for each pair. The Combined Companies have committed to purchasing 76 engines from Pratt &Whitney before the end of the year, They have currently taken delivery of 16 engines (for the existing orders for 8 Kits) and anticipate taking only another 40 engines from Pratt & Whitney before the end of the year. Flnanoing currently consists of approxima=ely $4.1 million made up as follows:
o $1.2 million in contributed capital and shareholder loans

o
o

$2.0 million secured financing from Valley Bank
$0.9 million other secured bank financing

~REA OF CONCERN The Combined Companies are at the start-up stage and lack operational, material m@nagement, cost accounting and other procedural systems. The Companies are short on operational management expertise and anticipate growing from essentially nothing to $50 million in sales durin~ 1990. You have informed us that you do not want to be involved in implementing the requisite operational and management systems to take the Combined Companies through the next stage of growth. Accordingly, you are looking for investors to buy the Combined Companies or at least your interest in them. You are unsure how Mr. Basler will view the sale. You feel that his initial reaction may not be favorable, hut that in the long run, he will share your views regarding the operational difficulties in properly managing the anticipated growth and will bo moro acoommodatlng towards selling.
You have approached us to provide you with a fair market value of the common shareholder e~uity of the Companies. More specifically, you are interes=ed in the value of your equity holdings.

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Hr. Bryan R. Carmichael January 22, 1990 Page 3,

SCOPE AND APPROACH

Given our understanding of the situation: o o o o o The developmental stage of the combined Companies. The lack of other comparable businesses whose' stocks are actively traded either on an exchange or over~the-counter. The u~ique product positioning of the combined Companies. The lack of a track record for the combined Co~panles or ~ndeed any other company addressing this market niche. The minority nature / lack of complete control which would result if only your interest were sold.

We feel that it would not be cost effective nor advantageous for you to have us develop a valuation of'your business. ~e feel that such a valuation ~ould be disadvantageous for the following reasons:

It would, of necessity, be a very conservative estimate weighted heavily towards the historical costs of acquiring the assets owned by the Company, versus the more desirable approach which would consider future cashflows.
A prospective buyer would typically wish to understand the CompaDy's business plan and review the resulting projected eashflows to determine for himself how realistic both were. A valuation would not necessarily provide him wit~ this understanding. Given the combined Companies unique niche, fair market v~luati~n could vary greatly from buyer to buyer. For.example a company with significant operational capability in airoraft maintenance / manufacture, with a cheap labor market, an abundance of DC-3 airframes and a need for cargo / passenger aircraft for short-haul Journeys would value your interest significantly more highly than another no= matching the profile quite so well.

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Mr. Bryan R. Carmiehael January 22, 1990 Page 4,

For all the reasons mentioned above, we feel that i= would be more advantageous to develop a five-year projection accompanied by a suitably prepared business plan which could ba used by a potential investor to develop his own conclusions about the value of the business and to aid him in the performance of his dus-dillgence investigations. The remainder of this letter discusses our preparation of the projected financial information. We would be available to consult with you regarding the preparation of your business plan should you so desire. Additionally, should different channels for marketing your business interests prove necessary, we would be available to

consult with you regarding the creation of an offering memorandum.
We will revisit the scope of cur services with you at that time and discuss what additional procedures would be required in order to include any projections reported on by us as part of such a document. At the ourre'nc time, we understand that you intend to be pursuing discussions with knowledgeable and sophisticated buyers who will be able to question you directly regarding any or all assumptions used in generating any projected informaulon. In this instance a detailed and professionally ~ seC of projections accompanied by a suitably prepared business plan should prove adequate.

Comnlled Prolections We will compile, in accordance with standards established by. the American Institute of Certified Public Accountants, from information management provides, the projected consolidated balance sheets and related statements of income, retained earnings, cashflows and summaries of significant assumptions and accounting policies of Basler Turbo Conversions, Inc. and Innovair Aviation Limited as of December 31, 1994, and for each one of the five years then ended. will not express any form of assurance on the achievabillty of the projection or reasonableness of the underlying assumptions. A compilation of a financial projection involves assembling the projection based on management's assumptions and performing certain other p~oced~res with respect to the projection without evaluating the support for, or expressing an opinion or any. ether'form of assurance on, ~he assumptions underlying it. If for any reason we are unable to complete our compilation of your financial projection, we will not issue a report on it as a result of this engagement.

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Mr. Bryan'R. Carmlehael January 22, 1990 Psge 5,

The financial projection presents, to the best of management's knowledge.and belief, the Combined Companies' expected financial position, results of operations, end cashflows for the projection period assuming certain financing and sales assumptions. It is based on managemenc's assumptions reflecting conditions ic expects ~ould exist and courses of actions it expectB would be taken during =he projection period assuming certain financing and sales assumptions.
Hanagement is responsible for representations about its plans and expectations and for disclosure of significant informs=ion that might affect the ultimate realization of the projected results.

Even if certain financing and sales assumptions were to occur as projected, there will usually be differences between projected and " actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. Our rpporr will contain a statement to that effect.

We have no responsibility to update our report for events and circumstances occurring after the date of such raper=.
At the conclusion of the engagement, management agrees'to supply us with a rep~esen=atlon letter which, among other things, will confirm management's responsibility for the underlying, assumptions and appropriateness of the financial projection and its presentation.
In order for us to complete this engagement, management must provide assumptions that are appropriate for the projection. If the assumptions'provided are inappropriate and have nob been revised to our satisfaction, we will be unable to complete the engagement and accordingly, we will not issue a report on the projection.

We understand that the projection and our reporh thereon will ba used only in negotiating the sale of the business to sophisticated third parties who wil! be able to question management directly and in psrson, about any and all assumptions. If management intends to reproduce the projection and our report thereon, they ~ust be reproduced in their entirety ~nd both the first and subsequent corrected drafts of the document containing the projection and any accompanying materials must hs submitted to us for approval.-

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Mr. Bryan R. Carmlchael January 22, 1990 Page 6,

STAFFING A~D PROFESSIONAL FEES

Mr. David Thompson, a Partner in our Los Angeles practice will serve as supervising partner on this engagement. Mr. Thompson is a Certified Public Accountant who combines over 15 years of business, accounting and consulting experience to growing enterprises such as yours. He has extensive experience in helping companies prepare projections, business plans and locate investors. Mr. Thompson will be responsible for all services provided to you. Mr.Azam Shot, a Senior Manager and Director of our ~Iddle Market Consulting practice will have day to day responslbili=y for this engagement and will be your primary contact. Mr. Sher is a Certified Public Accountant who has an undergraduate degree in Economics and holds an MBA degree from UCIA. Mr. Sher has over 12[years of business experience and has helped many companies prepare projections, business plans and budgets as well as manage growth through creation and implementation of management systems. Mr. Sher will be assisted by other consultants as needs dictate. In projects of this type our fees are based upon standard hourly rates for individuals assigned. We estimate tha~ the range of our professional £ees will be between $15,000 - $25,000 plus expenses, for the compiled projection work outlined above. We have significant expertise in projections and will draw upon that expertise and actively include your involvement t6 minimize our fees. Should we incur less £{me than anticipated we will, of course, bill you only for the time incurred. Azam and:l will be calling you in the near future to discuss this proposal with you; in the meantime, please do not hesitate =o contact either myself at (213) 499-8307 or Azam at (213) 688-5423 should you have any questions.

Thank you for allowing us this opportunity to assist ~ou. ~e look forward to helping you in this important endeavor.

~

vrytruly yo~=~,~

Eartner DTT:cl

CONFIDENTIAL ¯ DT 00735

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Deloitte & Touche

Memo
Date February 14, 1990 ~

To= File From: Long Beach Re: Basler TurDo Converslens

Recently, Azam Shsr, Senior Manager, and I met with Bryan Carmlchael, 50% owner of the above development stage company and its international affiliate, Innovalr. Bryan was referred, to me by Grant Mouton ahd Rose Marie Fazoolo, two individuals that have known for five years. Rose Marie acts as Sealer's controller on e pert-time basis. Further background on is described in the January 22, 1990 proposal attached. ~e were originally asked to prepare a valuation of the company -assuming either or both partners would sell. We declined this (as discussed in the attached), but suggested that wa compile a projection and consult on the various aspects'of selling or continuing the business. We have indicated that the projections can not be a part of a selling document to raise capital although they might bs used in discussion, the sale of the company with prospective, s~phlstlcated buyers. The COmpany will be audited by Price Waterhouse shortly. P.W. are the accountants for Basler~s other company locat&d in oshkosh, Wisconsin. The Company is subJeot to regulation by the TAA'aKd its conversion "kits" must be certified by that agency. It is expected that prior to the completion of our work, certification will bo received. The Company, although leveraged 2.4:1, has significant assets in the form of eight planes under conversion and under sales contracts at gross profits of $500K - $600K each. In addition, the company is negotiating with several -foreign companies for the conversion of a number of DC-3's. It is antlsipated that additional planes will be under contract prior to the completion of our work.

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Wa have submitted the prinoips1's names and affiliations tu Pinkerton's and have obtained a D&B which did not indicate any unusual matters of concern. Subject to discovering nsgatlve information from Pinkerton's, I reccmmsnd ~hat We accept Basler as a client to perform th~ work outllned in the a£tached proposal.

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DAVID T. THOMPSON - JUNE 28, 2007

1 2 3 4 6
VSo

UNITED STATES COERT OF FEDERAL CLAIMS

5 INNOVAIR AVIATION, LTD.,
Plaintiff,

8 THE UNITED STATES, Defendants. 9 I0
II 12 13 14 Deposition of

) ) ) ) ) )

No. 96-408C Volume I Pages 1 - 132

DAVID T. THOM~SON June 28, 2007

15
16 17

18"
19 Rep.orted by:

20 CLARE MACY, RPR, CSR # 5256
21
22 23 jAN BROWN & ASSOCIATES CERTIFIED SHORTHAND REPORTERS

24 701 Battery Street, 3rd Floor, San Francisco, CA 94111

25

(415) 981-3498
JAN BROWN & ASSOCIATES

(800) 522-7096
(800)522-7096 (415)981-3498

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DAVID T. THOMPSON - JUITE 28, 2007

1 Q

Do you recall whether those were set forth in any

2 professional responsibility documents? Was there

3 some -A There is some -- There has always been some sort of
do.

5 professional standards relating to what accountants 6 And I believe that that includes compilation. 7 Q

In the context of this particular matter, which is 8 dealing with Ryam Carmichael and Barry Wilson, do you

9 recall meeting with. those individuals?
l0 A

I recall -- I don't recall a specific meeting with II them. I recall that we had a meeting with them along 12 the way.
13 Q

Do you recall whether you met with them more than
.I d~n't recall. Do you recall how you were introduced to

14 once?
15 A Q

17 Mr. Carmichael and/or Mr. Wilson?

18 A
2~
in

From reading the working papers. I do not recall

19 how I was introduced to them. But I believe the memos the working papers refer to being referred by an

21 individual that I had known in the past.
22 Q And is that individual either Grant Moon or Rose 23 Marie Fazoolo? 24 A 25 I believe that's correct, according to the memo I think it's Grant
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that was written at the time.

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DAVID T. THOMPSON - J~NE 28, 2007

1

in

financial position for the projection period assuming

2 the achievement of the sales and production goals 3 detailed in note 3 to the projected financial statements." 5 6 That's what they are representing to us. MS. FLOYD: Q. So are they representing in

7 this particular paragraph, they being Messrs. Carmichael 8 and Wilson, that the projections are management's

9 projections?
I0 A Ii Q 12 A Yes, assuming that they are management. I'd like to have you look at paragraph no. Yes. Paragraph 3, have you had a chance to review that -. Yes. In paragraph 3, are Messrs. Carmichael and Wilson

.)

13 Q 14 yet? 15 A 16 Q 17

representing that the projections, the financial

18 projections they are providing, are in fact thei~
19 projections? 20 A 21 Q 22 Yes, as of that point in time. I'd like to have you go to DT00730 through 735.

Can you identify this document, please. I would call this a proposal letter. _.

23 A 24 Q

Can you explain what you mean by a proposal letter? This letter summarizes our discussions after a 52
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25 A

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DAVID T. THOMPSON - JU~ 28, 2007

1 meeting that occurred and proposed certain services and 2 explained what those services were and explained the 3 fees and the staffing around those services. Q And who prepared this letter? I don't know. i don't recall. And was this letter signed? Yes, it was. And that signature appears to be that of David

5
6 7 8 I0 A .Ii

9 Thompson.
That is not my signature. Was it penned by someone else? Yes, it was. .Was this signatureauthorized by you? Yes, it was. ¯ I would assume that it was. And do you recognize the initials that appear below

Q.

12 A 13 Q 14 A

15 Q

16 the signature that appears on page DT007357 I've seen those initials on other work papers, but A

18 Idon't know exactly whose initials they are.
19

Q

It appears to be an A and a Z, would you agree with

20 me? 21 A 22 Q 23 Could be, or an A and an S, or something like that. If it's an A and an S, would you conclude fr6m that

that this is Azam.Sher's initials?

24 A .. There is a high likelihood that they were probably
25 Azam Sher's initials..
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DAVID T. THOMPSON - JU~'E 28, 2007

1 Q 2 3

Why would they be Azam Sher"s initials? Because he.signed it on my behalf. I'd like to have you go to page DT00731. Yes. MR. COLE: Could I clarify something? Is it recollection that he signed this letter on your THE WITNESS: No, it's not my recollection

4
5 6 8
your

7 behalf?

9 that he signed. I don't remember. MS. FLOYD: Q. But you did say that your I0
Ii signature was authorized; is that. correct? 12 A I believe it would-have been authorized because we MR. COLE: I'm sorry. What page. now? MS. FLOYD: DT00731. THE WITNESS: Yes. MS~ FLOYD: Q. Can you explain wha~ the 13 would not have issued the letter without. .14

15
16 17

18 purpose of the Area-of Concern section of this letter
19 is~ please. Let me read it first. Sure. That paragraph explains concerns that we discussed, 20 A 21 Q 22 A 23

some of which, it appears, that Mr. Carmichael must have

24 brought up during our discussions.

25 Q

Why do you say you believe that Carmichael must
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DAVID T. THOMPSON - JU~E 28, 2007

1 have brought up some of these areas? Because I don't recall the meeting. 2 A 3 Q In the second paragraph you state, "You have informed us .that you do not want to be involved in 5 implementing the requisite operational and management 6 systems to take the combined companies through the next 7 stage of growth." 8 A Yes. In this letter, are you stating what Deloitte & 9 Q i0 Touche's impression is to Mr. Carmichael -Ii 12 MR. COLE: Wait. Let her finish: MS. FLOYD: Can I finish my question, please. THE.WITNESS: I'm sorry. MS. FLOYD: Q. -- that it's Deloitte &

,)

13

15 Touche's view that Mr. Carmichael does not want to be 16 involved in implementing the ~equisite operational and
17 management systems to take the combined companies

18 through the next stage of growth?
19 MR. COLE: Objection. The way in which you

2O phrased that was kind of confusing. Could you just make 21 it more simple and ask him if he recalls or believes
22 23 that Mr. Carmichael said what the letter says he said? MS. FLOYD: First of all, I'd like to have >im

24 answer my question.
25 THE WITNESS: You would have'to repeat the
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DAVID T.

THOMPSON - JU~E 28,

2007

1 question.
2 MR. COLE: You would have to repeat it. It If you could just repeat it, 3 was very verbose. MS. FLOYD: 5 please.

6
7

(Record read by the reporter.) THE WITNESS: This sentence states that he

8 informed us that he does not want to be involved in 9 that. it is not a view. MS. FLOYD: Q. Okay. So in reviewing this, I0
II your impression is that he is informing you that he does 12. not want to be involved in taking the combined companies 13 through the next stage of growth? I do not recall the meeting. I'm not asking if you recall it. But this sentence -MR. COLE: Objection. Let me just state o~jeciion because you've mischaracterized what he just said. He did not say this was his impression. keep saying, "So you're saying this was your 21 impression." 22 2g 2g MS. FLOYD: my question. .MR. COLE: MS. FLOYD: He did answer your question. I asked him what his impression
56 JAN BROWN & ASSOCIATES (800)522-7096 (415)981-3498

14 A 15 Q 16 A 17

And you

I'm telling him he didn't answer

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DAVID T. THOMPSON - JUNE 28, 2007

1 inconsiderate here. MS. FLOYD: I understand that, but as you 2 3 recall, I was expecting to be here at 8:30 this morning 4 with the witness present. And that didn' t happen. 5
6 7
MR. COLE: Yeah? MS. FLOYD: MR. COLE: And that was not my fault. What does that have to do with this

8 dialogue? MS. FLOYD: The dialogue is let's proceed and 9 I0 get this deposition over with.
Ii 12 13 14 15
in

MR. COLE: All right. Ask a question. MS. FLOYD: Q. Let's go to the next sentence this paragraph, "Accordingly, you are looking for investors to buy the combined companies or at least your interest in them." What is your understanding of what

16 this sentence is saying?
17 A It is saying that he is looking for investors to 18 bu~ t~e combined companies or at least your interest in 19 them. Was it your understanding in this period of time

2~ Q
22

21 that Mr. Carmichael was intending to sell his interest
or part of his interest in ~he combined companies? I don't recall the period. I don't recall the 23 A

discussions I've had with him. 25 Q In reviewing this document, is it your
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DAVID T. THOMPSON - JU~E 28, 2007

1 understanding that Mr. Carmichael was interested in
2 selling either part or all of his interest in the 3 combined companies? 4 5 6
A

That would be my impression. Let's go to the next sentence, "You are unsure how
Basler will view the sale." What is your

7 understanding of that sentence?

8 A That he is unsure how Mr. Basler, one of the other 9 shareholders, will view the sale of all or part of the
I0 company. Do you know who Mr. Basler was? He is one of the other shareholders. The next sentence says, "You feel that his initial II Q 12 A 13 Q

14 reaction may not be favorable, but in the long run, he

15 will share your views regarding the operational
16 difficulties in properly managing the anticipated growth 17 and will be more accommodating towards selling." o o. Do you recill from where you obtained this imp.ression? I don't recall. When you. say you feel that his initial reaction may

18
19

20 A 21 Q 23 24

22 not be favorable, are you stating this to Mr. Carmichael as if Mr. Carmichael believes that Mr. Basler's initial reaction may .not be favorable? That would be my impression.
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25 A

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DAVID T. THOMPSON -.JL~E 28, 2007

1 Q

In the next paragraph you state, "You have

2 approached us to provide you with a fair market value of 3 4 5 A 7 Q 9 A I0 Q II A 12 Q 14 A the common shareholder equity in the companies." What is your understanding of that sentence? That he approached us to provide him the fair was that something that you were capable of Myself personally? Yes. I'm not aovaluation expert. Were others ~t Deloitte capable of providing this Yes. Did you refer Mr. Carmichael to these other

6 market value of the equity. 8 providing in this period of time?

13 busine#s valuation?

15 Q
16

individuals if he were interested in a business valuation?
A

I would have.Under what circumstances would you have referred Carmichael to other individuals at Deloitte & Touche

19

20
22 A

21 if he were interested in a business valuation? If we determined that he was interested,-then we 23 would have him talk to a specialist in that area and _. 24 ascertain whether or not we would reach an agreement or
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25 enter an engagement.

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DAVID T. THOMPSON - JU~E 28, 2007

1 Q

Did you, in fact, so refer Mr. Carmichael to other

2 individuals who would have been capable of providing 3 business valuation? 4 A I don't recall. I'd like to have you go to the next page, please,

5 Q
7 A 8 Q

6 DT00732. Okay. It says under Business Valuation, "Given our

9 understanding of the situation." Can you explain what I0 this understanding is based upon? 11 A Our discussion -- It would have been based on our
12 discussions with Mr. Carmichael and anyone else at the 13 time. I don't know who that other person might or might Going to the next paragraph, the one. that begins 14 not be. 15 Q

16 "We feei," "We feel that it would not be cost effective 17 nor advantageous for you to have us develop a valuation of your business." .in that sentence, are you saying 19 that Deloitte & Touche did not want.to perform that kind of an evaluation? 21 A 22 23
A
it.

No. We're not saying we did not want to perform What are you saying there then? We're saying it would not be cost effective nor
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25 advantageous for him to develop that.

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DAVID T. THOMPSON - JU~E 28, 2007

When you say "would not be cost effective," what do 1 Q 2 you mean by that? 3 A 5 Q It could be very cost -- it could be a very Did you make any determination as to what you would

4 expensive process.
6 need to have done in order to have performed a business 7 valuation for Mr. Carntlchael?

8 9 I0 11 12 13
15

A Q

I don't recall. When you state further, "We feel that," and I'm

skipping what I previously read, "it would not have been advantageous.for you to have us develop a valuation for" -- "of your business," what did you mean by that? A Q i believe it's clarified in the paragraphs below. Okay. And that refers to the three bullet points

that follow from that?
A

16
17

That is correct. The first bullet point says, "It would of necessity

18 be a very conservative estimate weighted heavily towards
19 the historical costs of acquiring the assets owned by

2O the company versus the more desirable approach which
21 would consider future cash flows." 22 23 Can you explain why it would be weighted more heavily towards the historical cost approach? Because a development stage company, which these
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24 A

25

two companies were, are very hard to value when there's

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DAVID T. THOMPSON - JUNE 28,. 2007

1 many unknowns. 2 Q 4 A 5 Q 6 7 A 8 Q
And why do you state that it would be of necessity? I don't -- I don't recall why we used those terms. Is that by virtue of the fact that because it was a

3 Why do you use those terms, "of necessity"?

start-up business? Most likely that was the case.

Going to the next bullet, "A prospective buyer.

9 would typically wish to understand the company's I0 business plan and review the resulting projected cash
Ii flows to determine for himself how realistic both were. iz A valuation would not necessarily provide him.with this 13 understanding." Can you explain what you mean by this comment l&

15 here?
i think most buyers would want to understand their 16 A 17 plan and how they're going to execute against that plan a~w~at it means in" terms of income and cash flows, and 19 a valuation does not provide that information. But couldn't he, if he wanted to, if he had had a

20 Q
22 well? 23 A

21 business valuation also have provided a business plan as He could do whatever he wanted to do. I'm not quite sure why this is a reason for why it
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24

25 would not have been advantageous for him to have a

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1 business valuation. Can you explain that? 2 A. No. 3 Q
Did you have any question as to whether Innovair's, Mr. Carmichael's, business plan for the company

5 Innovair, whether its business plan or projections were
realistic? 7 A At this stage, I had had -- I didn't know anything

8 about his business plan or projections at that sta~e, or 9 very little.
Q ii A 12 13 Q You had had a meeting with him. I would assume.I knew very little at tha~ point in But by this time, you had had a meeting with him;

time on January -- early January -- mid January of 1990. is that correct?

15 A

I would assume that I would have had -- that I had

16 a meeting with him. I don't recall the meeting 17 specifically.

18 Q

Under the next-~ullet you state, "Given the

19 combined companies' unique niche, fair market valuation

2O could vary greatly from buyer" to buyer."
21 What did you mean by that statement? i think it's explained in the next paragraph -- in _.

22 A
23 24 Q

the next sentence.

it says, "For example, a company with significant

25 operational capability in aircraft
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1 maintenance/manufacture, with a cheap labor market, an 2 abundance of DC-3 airframes and a need for 3 cargo/passenger aircraft for short-haul journeys would 4 value your interest significantly more highly than 5 another not matching the profile quite so well." 6 So is that what you're saying, does that 7 describe the unique niche of the companies?

8 A No. That describes that -- that gives an exa~ple 9 of why the fair market valuation would vary greatly from I0 buyer to buyer.
ii Q 12 13 A 14 Q 16 17 But isn't it normal for the valuation of a company That's correct. So why are you saying that-it's related to the MR. COLE: Objection, argumentative. THE WITNESS: Some businesses are more understandable and e~sily explained than the nature of 19 their business. MS. FLOYD: Q. Do you think that that to vary from buyer to buyer?

15 unique niche of the company?

20
22 valuation? 23 A 24 Q 25

21 contributes to a greater variation in fair market

I'm not a valuation expert. In your opinion, as you sit here today, do you

think that contributes to it?
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DAVID T. THOMPSON - J~NE 28, 2007

1 3 4 5 A 6 7 8

MR. COLE:

Objection. He's here as a
to

2 percipient witness, not a witness who is retained
express opinions.

MS. FLOYD:

Q.

You can answer the question.

What was the question? I'll have her reread it. (Record read by the reporter.) THE WITNESS: I don't know how I can answer

9 that question. It's. not my area. MS. FLOYD: Q. How significant was this I0
Ii 13 14 16 17 A factor, this third factor, in your determination not engagement? MR. COLE: Objection, assumes facts not in
to

12 accept this as a business valuation assignment or

15 evidence, and I think mischaracterizes the evidence.
MS. FLOYD: Q. You can answer the question. I don't recall what impact this had on any decision Let's go to the next page. At the top of the page

18 we made. 19 Q 20 it states -- first paragraph on page 4, DT00733, "For

21 all the reasons mentioned above,.we feel that it would 22 23 24 25 be more advantageous to develop a five-year projection accompanied by a suitably prepared business plan which could be used by a potential investor to develop his own conclusions about the value of the business and to aid
66
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DAVID T. THOMPSON - J~E 28, 2007

1 him in the performance of his due diligence 2 investigations." 3 Would you agree that a potential investor 4 could use a business ~aluation from a third party as 5 part of his due diligence efforts?

6 A

A potential investor could use a number, many Other "information would b6 -Whatever they choose to use.

7 d~fferent things as part of their due diligence.

8 Valuation might be one. 9 would also be possible.
10 12 Q

Okay. Would you agree that the primary reason that

ii Deloitte & Touche proposed a. five-year projection accompanied by a suitably prepared bus~ness plan was 13 because Deloitte & Touche thought an approach using cash 14 flow projections.in this context wasn't appropriate?

15
16 17

MR. COLE:

"Was inappropriate?"

MS. FLOYD: "Wasn't appropriate," correct. THE WITNESS: Read the question again. (Record re~d by the reporter.)

19

THE WITNESS: I believe that the five-year

20 projections include cash flow projedtions, so I don't 21 understand the question.
22 23 24 MS. FLOYD: Q. Well, how is a business valuation different from the five-year projection. accompanied by a suitably prepared business plan? A valuation is one person's estimate of the fair
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25 A

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DAVID T.

THOMPSON - JU~-E 28,

2007

1 value, and a business plan and the five-year projection
2 would allow a buyer to evaluate on their own given their 3 particular circumstances, needs, and anything else they

4 consider.
.Q Is the business valuation one that's prepared and Is -- Read that again. (Record read by the reporter.) You mean if there had been
a

6 an expression of an opinion of Deloitte & Touche?
7 A 8

MR. COLE: 9 I0 business valuation? ii 12 13

MS. FLOYD: Yes. THE WITNESS: If we would have prepared a business valuation, engaged to do that and signed by Deloitte & Touche, then it would be our expression of

15 value based upon that. MS. FLOYD: Q. Based upon Deloitte & Touche's 16 17 review of the --

18 A

Based on Deloit~e & Touche's expertise.

And in the case of the five-year projection 19 Q would 20 accompanied by a suitably prepared business plan, 21 that have been Deloitte & Touche's review of the 22 business prospects of that company? 23
A

I don't understand what that means. These are the terms that you use here. MR. COLE: Deloitte & Touche's view of the
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25

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1 don't know if I've gone over this yet.
2 A 3 4 5 page. We didn ' t.
MR. COLE: MS. FLOYD: We're done with this prior one? Q. Let'~ start with the cover

First of all, it says, "Basler - Misc/Business

Plan Review" -- review or reviews. In your practice, 7 what does this mean to you if you saw this, a file with 8 that on it?

9 A

If I saw that, I would say that that probably was

I0 comments around a draft of a business.plan we got at ii some point..It's comments we gave back to them. 12 Q Okay. When you say "that we got at some point," 13 are you saying that that was provided to you by the

14 client? That is correct. 15 A
16 Q 17 695. Okay. In looking over these pages, can you identify which Can we -- Let's look at the pages 00675 through

18 A
19 Q

20 pages were drafted by Deloitte & Touche as opposed to
21 provided by the client? 22 A 23 Well, I can't determine because they are -Starting at 675? Q Yes. I can't determine whether or. not it was prepared by
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DAVID T. THOMPSON - J~E 28, 2007

1 us or them, but I would assume that it was prepared by 2 4 5 6 7 A I0 11 12 13 14 Q the client. It's a resume. The resume? And same with resume for Wilson. And Carmichael ? Yeah. And what about the pages 679 through -- I'll try to i -- It's not clear who prepared it. Would you have believed that these would have been 3 Q

8 get to the end of this -- 683?

prepared by Deloitte & Touche or by the client? A-. Q Probably -- By the nature of what it says, probably What's the basis o~ your belief that it was

Deloitte & Touche.

15 prepared by Deloitte & Touche?
16 A Because it provides some comments back relative to

17 the business plan, and most people wouldn't make 18 comments to themselves about their own business plan. 19 Q And put them.in Deloitte & Touche's files as well?
20 A 21 Q That is correct. Let's go to DT684 -Okay. -- through, I guess, 695. Yes. In reviewing this, can you determine whether these
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23 Q

24 A 25 Q

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DAVID T. THOMPSON - JU~E 28, 2007

1 pages were provided by the client or prepared by 2 Deloitte & Touche? 3 A Q They appear to be provided by the client, but I When you say "the nature of what it is," what do

4 can't tell for sure by the nature of what it is.
5 6 you mean? 7 A 8 Q It looks like it's a draft of a business plan. And was that typically what would have been

9 provided by the client in this.type of situation, I0 12 13 14 Deloitte & Touche's compilation and evaluation? They may have asked ms to read their business plan and provide our thoughts and if -- this looks like some type of a business plan. Q ii A

Is there anything on-pages 00684 through DT00695 15 which leads you to believe that these are a Deloitte & 16 Touche product?. There's nothing that leads me to believe that it's a ~loitte & Touche.product. 19 Q Going to pages DT00679 through 683, in the context that we've talked about earlier today that Azam Sher and 17 A

2O

21 Naj Alla- -- Allana -22 A 23 Q Allana. -- and yourself were involved in this projectr w_ho 24 would have likely provided these comments that appear on .25 these pages?

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(800)522-7096

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DAVID T.

THOMPSON - JUNE 28,

2007

1 compilation Of prospective financial statements, the 2 accountant should, where appiicable, ask how the 3 responsible party identifies the key factors and 4 develops its assumptions." 5 A 6 Q 7 A 8 Q That's c? Yes. Okay. In asking the responsible party how he identifies

9 the assumptions,-does this imply that Del0itte & Touche
I0 believed that theassumptions were achievable? II A 12 13 15 16 17 18 19 now. 20 21 22 MR. COLE: MS. FLOYD:
I

We -- I think we. complied with the professional

standards. And the professional standards, I believe, for a compilation.report sayspecifically that we -"Achievable"-I don't believe

14 very clear in our report. is a word that is used.-

COLE: I think thereJs.been testimony
about that.
¯ MS. FLOYD: Well, I'm asking him the question

know that.

We didn't have the ~tandards at.

the time I questioned the witness. So I'm asking him

23 now.

24
25

THE WITNESS:

I think it's very clear in

our

report on what we say-, and it's limited to the
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DAVID T. THOMPSON - JUNE 28, 2007

1 presenting in the form of a projection information that 2 is a representation of management to the company and 3 does not include evaluation of the support for the 4 assumptions underlying the projections. 5 MS. FLOYD: Q. So. it doesn't make any. 6 representation about whether or not the assumptions are 7 achievable? 8 A 9 Q I0 That is correct.~ Does ±~ make any -- draw any.conclusions about whether¯ the assumptions are realistic? No,it doesn,t say that. I'd like to have-you tuz~n to page 345,-please. MR. COLE: The DT page. MS. FLOYD: DT00345. THE WITNESS: Okay. Yes. MS.~FLOYD:¯ Q. Mr. Bartolomucci asked you about the sensitivity analysis that was performed? Yes. " And there was discussion about the use of That's correct~ ¯-

II A 12 Q ¯ 13 14

15
16 17 18 .A 19 Q A 22 Q 23

20 15 percent as the sensitivity factor; is that correct?
In the context of this kind of compilation, would

it have been typical for you-to have used a sensiti~lty

24 analysis based ona 25 percent sensitivity?
25 A
don't recall why the 15 percent was.chosgn, but 128
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Basler Turbo Conversions, LLC - Converted Aircraft in Service

05/07107

NO,

REGISTRATION

CUSTOMER NAME

ADVENTURE NE-r~NORK ¯ us N72BF / N200AN 1 Seized Ale"COLOMBIA / DENPNC #1 2 N8059P FMS EL SALVADOR #1 3 FAES 116 FMS EL SALVADOR #2 4 FAES 118 US UNITED TECHNOLOGY N96BF 5 U.S. FOREST SERVICE US N100Z/N142Z 6 US U.S. FORESTSERVICE 7 N146~/N115Z US BOLIVIAN AIR FORCE N387T I TAM 38 8 COLOMBIA POLICE #2 FMS N145ZA / PNC 212 9 US N21669 AERO CONTRACTORS ~0 AERIAL SURVEYS A2-ADL 11 GUATEMALAN AIR FORCE #1 N510NR / TG-FAC---1 12 GUATEMALAN AIR FORCE #2 13 N29DR/TC--FAG-2/560 FMS COLOMBIA POLICE #3 14 N95BF '/PNC211 GUATEMALAN AIR FORCE #3 15 TG-FAG-3 1 575 FMS EL SALVADOR #4 FAES 117 16 FMS EL SALVADOR #3 17 FAES 119 ROYAL THAI AIR FORCE #3 RTAF 883 18 GUATEMALAN AIR FORCE #4 TG-FAG-4 19 GUATEMALAN AIR FORCE #5 TG-FAG-555 20 MALl AIR FORCE #1(LOST) 21 TZ389 MALl AIR FORCE #1A 22 TZ390 FMS COLOMBIA AIR FORCE #1 FAC 1681 23 FMS COLOMBIA AIR FORCE #2 FAC1686 24 FMS GUA]EMALAN AIR FORCE ~6 25 TG-FAG-6 COLOMBIA AIR FORCE #3 FAC 1654 26 ROYAL THAI AIR FORCE #1 27 RTAF 106 MALl AIR FORCE #2 TZ391 28 FMS COLOMBIA AIR FORCE #4 29 FAC 1659 ROYAL THAI AiR FORCE #2 3O RTAF 021 ROYAL THAI AIR FORCE #4 RTAF 413 31 ROYAL THAI AIR FORCE #5 RTAF OO8 32 ROYAL THAI AIR FORCE #6 33 RTAF 254 34 N104BF MAURITANI,A US/USAF N40386 STOCK / FIREBOMBER 35 FMS COLOMBIA AIR FORCE #5 .36 N403591 FAC1670 COLOMBIA AIR FORCE#6 3.7 N91BFI FAC1658 COLOMBIA AIR FORCE #7 -FMS FAC~ 667 38 ROYAL THAI AIR FORCE #7 39 . N6898D/RTAF 882 FMS COLOMBIAN POLICE #4 ,40 N400BF / PNC0214 COLOMBIA REWORK 4~ FAC1670 REWORK ROYAL THAI AIR FORCE #9 42 N2685W/RTAF 46-159 FMS COLOMBIAN POLICE #5 43 N845MB / PNC 256 ROYAL THAI AIR FORCE #8 44 RTAF 46-158 FMS COLOMBIAN POLICE #6 45 N840MB/PNC 0257 FMS COLOMBIAN AIR FORCE #8 N472DK I FAC 1683 46 KENN BOREK 7 N57NA / C-FMKB FMS COLOMBIAN POLICE #7 48 N73CD / PNC 0258 Not Sold STOCK 49 N471DK X. X STOCK 50 N79017 Note: Partial proceeds from (2) Guatemala sales were claimed by USG as repayment for the Air Colombia seizure.

DATE DELIVERED 30-Jul-90 29-Sept.-99 30-Jul-90 31-Aug-90 31-Aug-90 17-Dec-90 10-Apr-91 18-Jun-91 3-Jul-91 10-Sep-91 5-Ma~,-92 29-Jun-92 5-Sep-92 6-Nov-92 12-Feb-93 16-Feb-93 31-Aug-93 5-Jul-93 21-Ma~/-98 17-Feb-94 13-Jun-94 10-Mar-97 10-Sep-97 17-Sep-94, 17-Sep-94 23-Jul-96 12-Aug-96 5-Feb-98 30-Jul-98 30-Jun-98 28-Apr-98 30-Oct-98 15-Jan-99 16-Mar-99 31-Dec-99 12-Feb-00 30-Jun-00 31-Jan-01 15-Jan-02 20-May-02 5-Sep-03 19-Se~02 18-Nov-04 20-Dec-04 27-Jun-04 1-May-0510-Jul-06 2-Sep-05 22-,Apt-06

NOTES

¯ BASLER000B6B C ONFIDENTIAL h:~ E) R N E-y~ LF=-¥ES-O ~11 Y

CONFiDENTiAL
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July 20, 2007

Basler Turbo Conversions 1991-1998 Sales and Marketing Personnel (From Memory)

Basler Employees:. Warren Basler: Patricia Basler: Tom Weigt: Dan Ried: Bob Clark: Paul Votava: Steve Yantz: Neil Hyerstay: Andrew Ferguson: Dave Schacherl: United Technologies Corporation: Hayes, Herb Johnson, Fred Miller, Donald Schickel, Brad Independent Representatives: Askins, Bill Bates, John Benton, Bob Bruker, Didier Chan, Leo DeCamp, Bob Florentine, Jorge Torrales Gibson, Bob Gopalakrishnan, V. Hechonova, Thelma Islam, Air Commodore King, Art (Bangladesh) (Poland) (Turkey) (Madagascar) (China) (United States) (Paraguay) (Special Markets). (India) (Philippines) (Bangladesh) (Sri Lanka) CEO Secretary President Demonstrator Captain Demonstrator Captain, Engineering Demonstrator Captain Chief Pilot Co-pilot, Classroom Trainer Demonstrator Captain Materials Manager

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Independent Representatives: Continued... Migeotte, Jacques Pafitis, Costa Paredes, Pabio Parian, Teresa Smart, Graham Stringham, Don Trudell, Phil Unkow, Dorsha Uphoff, Chauncey Valdes, Greforio Wertli, Beat Xenopoulos, Taki Yasadatt, Worapoj Young, James

(Africa / Middle East) (Zimbabwe) (Colombia) (Philippines) (Turkey) (Poland) (El Salvador) (Mongolia) (China) (Guatemala) (Switzerland) (South Africa) (Thailand) (Eastern Europe)

DX 320 / 2
BASLER000867 CONFIDENTIAL ATTORNEYS' EYES ONL~

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