Questions linger after Adam collapse

 - March 25, 2008, 6:51 AM

Among the bits of information flowing from the February 15 bankruptcy of Adam Aircraft Industries is a petition filed by Adam attorney Frances Cetrulo and acting secretary and CFO Christopher Naro warning of an “imminent danger” to the public resulting from the company’s sudden shutdown.

By all accounts, during the day that Adam Aircraft closed its doors pilots were flight testing, technicians were cutting and laying carbon fiber and everyone was waiting for word that funding was on the way to help the company reach its goal of certification of the A700 very light jet by the end of the year.

The FAA-certified A500 piston twin was on its way to faster production and quicker delivery to waiting customers. Adam Aircraft had finally completed all of the open items that were needed for the airplane to deliver its promised performance, with the exception of flight-into-known-icing certification, but that was planned for this year, a benefit from A700 ice-shape testing that was already showing great results.

All activity came to a halt early in the afternoon of February 11, when Adam president Duncan Koerbel called the more than 500 employees into a hangar at the company’s Centennial Airport facilities in Englewood, Colo., to give them the news that they were all out of a job.

Four days later, the same day that Adam Aircraft formally filed Chapter 7 bankruptcy, which essentially means that the company is being liquidated, Cetrulo and Naro filed a petition that warned the Centennial community (where Adam is headquartered) of the imminent danger. According to the petition, the rolls of carbon fiber used to build the Adam A500 piston twin and A700 jet “could spontaneously combust if they reach room temperature.” The rolls were left in freezers at two of Adam’s Centennial Airport facilities.

In a February 12 filing that preceded the formal bankruptcy filing, Naro signed a certificate attesting to the situation at Adam Aircraft. This filing noted that Adam Aircraft’s board of directors met and adopted the following resolutions:

• “…in the judgment of this board of directors, in the absence of additional funding for the company to continue operations, it is desirable and in the best interest of the company, its creditors, shareholders and other interested parties, that a petition be filed [for bankruptcy].”

• “…subject to the confirmation of the lack of any additional funding…Christopher M. Naro, the CFO of the company, hereby is authorized…to execute and file all petitions, schedules, lists and other pleadings and papers…”

• “…that the termination of all the employees of the company (other than Christopher M. Naro and certain limited payroll and IT personnel designated by Mr. Naro) as of the date hereof is hereby ratified and approved…” (This included president Duncan Koerbel; the termination date was February 11, the day the company shut down.)

• “…that the resignation of John D. Wolf as chairman and CEO effective as of the date hereof is hereby accepted.”

Lawsuits Stayed
Other actions that took place in February include a stay of a lawsuit filed by Leading Edge Aerospace, a Wichita provider of composite tooling and machine tools. On February 12, founder Rick Adam filed a lawsuit against Adam Aircraft, asking for relief from the company because of its failure to meet the terms of a contract it had to build a manufacturing facility in Pueblo, Colo. The bankruptcy filing means that Rick Adam’s lawsuit is also automatically stayed.

News reports have suggested that he made personal guarantees to the city of Pueblo and that he is protecting his interests by filing the lawsuit. Rick Adam has not responded to AIN’s request for an interview about Adam Aircraft, which he left on Aug. 3, 2007. Adam owned 23.75 percent of the company that he founded; he was the largest shareholder, followed by Goldman Sachs Entities, with 17.86 percent. The bankruptcy papers provide a list of all the Adam Aircraft shareholders and how much of the company they owned, as well as a list of officers and directors and former officers and directors and their termination dates.

One entry that has provoked questions among former Adam Aircraft employees is a withdrawal from the company’s funds on Nov. 19, 2007, in the amount of $300,000. The recipient is listed as Duncan Koerbel and the reason for the withdrawal is “for severance pay.”

That language raises the question of why a withdrawal for severance pay was made about three months before the company went bankrupt. The bankruptcy papers indicate that Koerbel received the $300,000 but don’t say exactly when. Koerbel also received $310,961.50 for salary and vacation pay from February 2007 through the bankruptcy in February 2008 as well as $176,497.27 for relocation expenses.

Assets for Sale
Whatever was left of Adam Aircraft was to be auctioned on April 9. Prospective bidders were to identify their interest by April 3, and the minimum bid was $10 million. The trustee overseeing the auction urged that a quick sale of the assets was important “because more of the Debtor’s employees were terminated prior to the Petition Date [and] every day that passes could increase the difficulty of re-hiring those employees and resuming operations. Therefore, the longer the delay the greater the risk that no bidder will buy the Debtor’s assets in bulk.”

It may already be too late; many Adam Aircraft employees were hired by financially healthier aircraft manufacturers that flocked to Denver after the bankruptcy filing to help fill their own big backlogs.

Insiders already know who the prospective bidders are as the trustee opened the “data room” for bidders on March 5. Anticipated closing date of the auction is April 15. According to information that AIN was able to obtain, as of the middle of last month, 10 non-disclosure agreements had been signed by parties interested in the Adam Aircraft assets, and one of those was likely to be the sole serious bidder.