Current Owner Decides Not To Abide by Sales Agreement

As tough as GA is these days, it comes as a mild shock to hear that there are people, smart people even, who actually still want to get into the GA airplane manufacturing business. Over the last three or so years, the GA industry has shrunk to a fraction of what it was in more glorious times -- and when combined with a tough economy, unfavorable politics, and ongoing scandals like the Cirrus Aircraft debacle; one wonders whether any sane person should have any interest in the GA game at all...

Over the past few months, former Eclipse Boss, Vern Raburn and his wife Susan have investigated the potential purchase of a small GA manufacturer. They looked at two companies and eventually entered into negotiations with American Champion Aircraft of Rochester, WI, several weeks ago. The result was a legal agreement on June 8th, whereby the Raburns would purchase all the assets of ACA and start life anew as the new owners of a promising but struggling aero-company.

ACA has great potential... but like all GA manufacturers, it has been hamstrung by the GA downturn, the economy, and the less than stellar marketing effort put forth by ACA to push a dual line of high wing aircraft that offer both aerobatic and STOL talents. Much of the industry considers ACA a 'diamond in the rough' but with great potential... especially in terms of their highly regarded Decathlon two place aerobatic trainer and the rugged STOL Scout.

For a number of years, the company has been run by the Mehlhaff family, with Jerry Mehlhaff, Sr., making the pivotal decisions and his former spouse, Char, a significant partner in the operation. It's not been the most efficient company anyone has ever seen and the family operation definitely had their ups and downs -- but the result is that they build solid little airplanes that the aviation world appreciated and bought with fairly impressive regularity.... even over the last few years. Still; it could obviously do better and a number of former dealers and associates indicate to ANN that the company has far more potential than that currently being realized by the Mehlhaffs, while those who had heard that the company was 'on the block' greeted the news quite positively.

But... the June 8th sales letter has apparently been cast aside and there now appears to be a unique but serious legal battle in the offing. According to public documents obtained by ANN, a legal action was filed on behalf of Vern and Susan Raburn, naming the Mehlhaffs, their associated company FRA Enterprises, and ACA. The suit starts out stating, "This is an action for specific performance and damages arising out of defendants’ failure to honor the terms of one or more agreements related to the transfer of the defendant companies."

The details outlined in the suit claim that, "On or about March 6, 2012 the Raburns and the Mehlhaffs commenced initial discussions related to the transfer of the defendant companies from the Mehlhaffs to the Raburns. Shortly thereafter, the Mehlhaffs repeatedly and unequivocally articulated their intention to sell the defendant companies to the Raburns, subject to agreement on the price term."

Further details reveal that, "In April 2012, the parties entered into a Proprietary Rights and Non-Disclosure Agreement in furtherance of the Raburns’ desire to purchase the defendant companies. (Ex. A, Proprietary Rights and Non-Disclosure Agreement). The Non-Disclosure Agreement states American Champion Aircraft’s desire to disclose technical information, ideas, and other business information to the Raburns and it describes the manner in which proprietary information is to be designated and treated. Immediately following the execution of the Non-Disclosure Agreement, the Raburns and Mehlhaffs met in person and discussed the concepts of what would and would not be included in the transaction. The Raburns stated that they would not be willing to purchase the real estate and buildings used by American Champion Aircraft, but could lease these items from the Mehlhaffs. The Mehlhaffs agreed and the parties further agreed that the Raburns would purchase the defendant companies absent the real estate and buildings for a price to be agreed upon. On June 8, 2012, the Mehlhaffs sent a Letter Agreement to the Raburns, titled, '“Sale of Equity of American Champion Aircraft Corporation and F.R.A. Enterprises, Inc. (Ex. B, Letter Agreement).' The Raburns agreed to and accepted the Mehlhaffs’ Letter Agreement on the same date it was sent. The Letter Agreement states an agreed upon purchase price of $7,000,000 for 100% of the equity of American Champion Aircraft and F.R.A. Enterprises."

So... Vern and Susan were to pay $7 Million and the signed sales letter confirms that, "The purpose of this letter is to set forth our intention to sell all of the issued and outstanding equity interests (the 'Equity') of American Champion Aircraft Corporation, a Wisconsin corporation and F.R.A. Enterprises, Inc., a Wisconsin corporation (the 'Companies') to a newly-formed entity ('NewCo') owned by you, Vern and Susan L. Raburn (the 'Buyers'). We intend for due diligence and negotiations to be completed and a definitive agreement to be executed by June 30, 2012 such that the closing of the transaction could occur no later than July 20, 2012 (the 'Closing')."

That, of course, is not happening.

According to the suit, "The Letter Agreement provides an aggressive deadline for due diligence of June 30, 2012, and a firm closing date of no later than July 20, 2012. This aggressive schedule was premised on the need to take advantage of the opportunity to announce the new ownership of American Champion Aircraft Company and to market its aircraft at the annual Experimental Aircraft Association trade-show known as 'Airventure' which takes place at the end of July in Oshkosh, Wisconsin. Failure to make the anticipated presentation at AirVenture was reasonably expected to dampen sales prospects over the course of the coming year."

Other details included the usual due diligence, non-compete agreements, release of certain liabilities and the like.... it seemed like a relatively clean and simple agreement whereby the Raburns would own an aircraft company and the Mehlhaffs would get to waltz off with $7 million as well as multi-year leases for their land and factory.

But, as previously noted, it all went wrong.

The Raburns' legal action explains that, "Subsequent to execution of the Letter Agreement, the Raburns devoted additional resources, time, and money to the evaluation of the purchase. Subsequent to the execution of the Letter Agreement, the Raburns traveled to defendants’ place of business and made numerous attempts to conduct the due diligence investigations contemplated in the Letter Agreement. Over the course of the following week, the Mehlhaffs repeatedly refused to participate in due diligence activities, in spite of repeated demands to move forward in accordance with the timetable set forth in the Letter Agreement. After less than five hours of superficial cooperation, conducted after business hours, the Mehlhaffs again refused to participate further in the due diligence process. The meeting was scheduled after business hours pursuant to the Mehlhaff's demands, contrary to the terms of the Letter Agreement. Following the Raburns attempt to resume due diligence the following day, the Mehlhaffs forced the Raburns off the premises, refused to answer the Raburns questions, refused to provide requested documentation and materials, refused to cooperate in an inventory of property, and informed the Raburns that due diligence would have to be postponed for six months. Over the next few days, as the Raburns attempted to persuade the Mehlhaffs to honor the Letter Agreement, the Mehlhaffs refused to cooperate unless and until the Raburns would agree to increase the purchase price to $11,500,000, to be paid in cash at closing, to remove all indemnification obligations by the defendants, and for plaintiffs to assume all transaction costs."

By all accounts, when the deal went bad, the deal went BAD... with measured disappointment expressed by the Raburns and heated accusations leveled by Jerry Mehlhaff, Sr., in on-the-record conversations with ANN.

With all the legal paperwork to go by, the situation up to this point had been fairly clear, but with the split now fully out of control between the two parties, the details get somewhat fuzzier.

ANN has talked with lawyers from both sides.... with the Mehlhaff team suggesting that what transpired between the two parties was "non-binding" (meaning that the Mehlhaffs had the right to renege on the deal), while the Raburn's counsel suggests that there are aspects of the agreement that are, in his opinion, "binding... otherwise we'd not have filed this action."

When contacted by ANN, Raburn spoke simply and (surprisingly) calmly in his official comments about the matter. Vern stated simply that the suit was brought, "NOT to punish the Mehlhaffs... but simply to get them to do as they agreed. At this point, all we're asking for is for them (ACA/FRA/Mehlhaffs) to honor their agreements and we'll do the same. We asked for no changes... just the terms of the June 8th agreement. Nothing more. I don't want to be mad.... I want to do this deal."

Mehlhaff, however, was not so restrained... and while he first wanted all his communication to go through this lawyer, he quickly reconsidered and opened up, fairly vehemently, on the matter.

Jerry says that, "we had a non-binding agreement with him to negotiate the thing… and he got ridiculous and uh, profanity, and just unbearable… so we just said we're not selling anymore. He's bound and determined to buy something… I know he was chased out of Aviat and TopCub and everybody else."

In other parts of the conversation, Mehlhaff also claimed that, "I don't know what happened to him and everybody else, you know, with Epic, with Eclipse Jet, and Icon and everybody else he's ever dealt with, he's left…"

While Raburn admits that the parting with the Mehlhaffs was not the most amicable conversation he'd ever been in, other details of Mehlhaff's attack on Raburn do not pan out. While Raburn was known to have been interested in Aviat, we've been told that the failure of that deal revolved around the inability of both parties to come to an agreement... while CubCrafters, the manufacturers of the above-named "TopCub" reported that Raburn did not negotiate with them at all... and that, "we don't really know him... we've never even had a conversation with the guy." As to the second statement, Raburn had no involvement in the Epic Aircraft program, the world knows all about his history with Eclipse and his parting with Icon was not only amicable, but necessary in order to maintain the appropriate ethical distance from that sport aviation company as he tried to acquire another. Further, conversation with Icon's Kirk Hawkins in the last few days reveal that Hawkins seems to hold Raburn in high regard (and indeed, the situation seems reciprocated).

While a number of the angry statements made by Mehlhaff didn't pass muster, this is apparently not unusual according to one industry insider... "that's just Jerry Mehlhaff being Jerry Mehlhaff," he noted.

At this point, the Raburns seem ready to do the deal they made with ACA and the Mehlhaff family... but there seems little inclination towards picking up the pieces by anyone at ACA. Raburn expresses disappointment and frustration about the matter, "That company has so much untapped potential... and I was really looking forward to making it all it could be. I hope we still get the chance."

ANN will keep its eyes and ears at the ready for additional detail... we have a feeling that the fat lady is still warming up. More info to follow.

FMI: www.amerchampionaircraft.com