-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VYHCDJ3WqVcgVZ/0oVPjyrwEJqho467DB4DAEqV20tl0CI73LrX/fr8YYDgeMKVu cNjHSwqejjkhyAho+warnQ== 0000861361-05-000011.txt : 20050805 0000861361-05-000011.hdr.sgml : 20050805 20050805172809 ACCESSION NUMBER: 0000861361-05-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050805 DATE AS OF CHANGE: 20050805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BE AEROSPACE INC CENTRAL INDEX KEY: 0000861361 STANDARD INDUSTRIAL CLASSIFICATION: PUBLIC BUILDING AND RELATED FURNITURE [2531] IRS NUMBER: 061209796 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18348 FILM NUMBER: 051003872 BUSINESS ADDRESS: STREET 1: 1400 CORPORATE CTR WY CITY: WELLINGTON STATE: FL ZIP: 33414 BUSINESS PHONE: 5617915000 MAIL ADDRESS: STREET 1: 1400 CORPORATE CENTER WAY STREET 2: 1400 CORPORATE CENTER WAY CITY: WELLINGTON STATE: FL ZIP: 33414 FORMER COMPANY: FORMER CONFORMED NAME: BE AVIONICS INC DATE OF NAME CHANGE: 19920608 10-Q 1 jun0510q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For The Quarterly Period Ended June 30, 2005 Commission File No. 0-18348 BE AEROSPACE, INC. (Exact name of registrant as specified in its charter) DELAWARE 06-1209796 (State of Incorporation) (I.R.S. Employer Identification No.) 1400 Corporate Center Way Wellington, Florida 33414 (Address of principal executive offices) (561) 791-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES[X] NO[ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES[X] NO[ ] The registrant has one class of common stock, $0.01 par value, of which 57,741,207 shares were outstanding as of August 3, 2005. 1 BE AEROSPACE, INC. Form 10-Q for the Quarter Ended June 30, 2005 Table of Contents Page Part I Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) a) Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004..........................3 b) Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2005 and June 30, 2004.........4 c) Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2005 and June 30, 2004.........5 d) Notes to Condensed Consolidated Financial Statements...............6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................11 Item 3. Quantitative and Qualitative Disclosures About Market Risk...........23 Item 4. Controls and Procedures..............................................23 Part II Other Information Item 1. Legal Proceedings....................................................24 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........24 Item 3. Defaults Upon Senior Securities......................................24 Item 4. Submission of Matters to a Vote of Security Holders..................24 Item 5. Other Information....................................................24 Item 6. Exhibits.............................................................26 Signatures...........................................................27 2 PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BE AEROSPACE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in millions, except share data)
June 30, 2005 December 31, 2004 ------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 75.0 $ 76.3 Accounts receivable - trade, less allowance for doubtful accounts ($3.2 at June 30, 2005 and $2.8 at December 31, 2004) 105.9 91.6 Inventories, net 220.2 197.8 Other current assets 14.8 13.4 -------- -------- Total current assets 415.9 379.1 Property and equipment, net 95.3 100.2 Goodwill 363.2 370.4 Identifiable intangible assets, net 145.1 151.4 Other assets, net 20.2 23.7 -------- -------- $1,039.7 $1,024.8 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 159.0 $ 152.6 Current maturities of long-term debt 1.5 1.5 -------- -------- Total current liabilities 160.5 154.1 Long-term debt, net of current maturities 678.3 678.6 Other non-current liabilities 8.0 9.3 Commitments, contingencies and off-balance sheet arrangements (Note 4) Stockholders' equity: Preferred stock, $0.01 par value; 1.0 million shares authorized; no shares outstanding -- -- Common stock, $0.01 par value; 100 million shares authorized; 57.7 million (June 30, 2005) and 56.6 million (December 31, 2004) shares issued and outstanding 0.6 0.6 Additional paid-in capital 585.5 578.2 Accumulated deficit (392.5) (405.0) Accumulated other comprehensive (loss) income (0.7) 9.0 -------- -------- Total stockholders' equity 192.9 182.8 -------- -------- $1,039.7 $1,024.8 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 BE AEROSPACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in millions, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------------- ------------------------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ---------------- ---------------- --------------- --------------- Net sales $207.6 $185.3 $404.1 $360.4 Cost of sales 134.8 123.5 263.3 245.0 ------ ------ ------ ------ Gross profit 72.8 61.8 140.8 115.4 Operating expenses: Selling, general and administrative 32.1 29.9 63.8 58.6 Research, development and engineering 16.6 14.0 33.0 26.2 ------ ------ ------ ------ Total operating expenses 48.7 43.9 96.8 84.8 ------ ------ ------ ------ Operating earnings 24.1 17.9 44.0 30.6 Interest expense, net 15.0 19.9 30.1 39.7 ------ ------ ------ ------ Earnings (loss) before income taxes 9.1 (2.0) 13.9 (9.1) Income taxes 0.7 0.4 1.4 0.9 ------ ------ ------ ------ Net earnings (loss) $ 8.4 $ (2.4) $ 12.5 $(10.0) ====== ====== ====== ====== Net earnings (loss) per common share: Basic $ 0.15 $(0.06) $ 0.22 $(0.27) ====== ====== ====== ====== Diluted $ 0.14 $(0.06) $ 0.21 $(0.27) ====== ====== ====== ====== Weighted average common shares: Basic 57.1 37.0 57.0 37.0 Diluted 60.1 37.0 59.8 37.0
See accompanying notes to condensed consolidated financial statements. 4 BE AEROSPACE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in millions)
SIX MONTHS ENDED --------------------------------------------- June 30, June 30, 2005 2004 -------------------- --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $12.5 $(10.0) Adjustments to reconcile net earnings (loss) to net cash flows (used in) provided by operating activities: Depreciation and amortization 14.4 13.8 Provision for doubtful accounts 0.4 0.5 Non-cash employee benefit plan contributions 1.4 1.1 Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable (18.6) (8.1) Inventories (24.5) (9.3) Other current assets and other assets 1.9 (2.7) Payables, accruals and other liabilities 10.1 17.9 ----- ------- Net cash flows (used in) provided by operating activities (2.4) 3.2 ----- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (7.1) (7.1) Proceeds from sale of property and equipment 0.8 0.2 Acquisitions, net of cash acquired -- (12.5) Other, net 3.0 0.1 ----- ------ Net cash flows used in investing activities (3.3) (19.3) ----- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuances of common stock 5.9 2.0 Repayment of long-term debt (0.2) (0.9) ----- ------ Net cash flows provided by financing activities 5.7 1.1 ----- ------ Effect of foreign exchange rate changes on cash and cash equivalents (1.3) (0.1) ----- ------ Net decrease in cash and cash equivalents (1.3) (15.1) Cash and cash equivalents, beginning of period 76.3 147.6 ----- ------ Cash and cash equivalents, end of period $75.0 $132.5 ===== ====== Supplemental disclosures of cash flow information: Cash paid during period for: Interest, net $28.9 $ 38.2 Income taxes, net $ 1.0 $ --
See accompanying notes to condensed consolidated financial statements. 5 BE AEROSPACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited - Dollars In Millions, Except Per Share Data) Note 1. Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and are unaudited pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. All adjustments which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown, are of a normal recurring nature and have been reflected in the condensed consolidated financial statements. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period. The information included in these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the BE Aerospace, Inc. (the "Company" or "B/E") Annual Report on Form 10-K for the fiscal year ended December 31, 2004. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates. Certain reclassifications have been made for consistent presentation. Accounting for Stock-Based Compensation - The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option and stock purchase plans. Accordingly, no compensation cost has been recognized for its stock option and stock purchase plans. If the compensation cost for the Company's stock option and stock purchase plans had been determined consistent with Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company's net earnings (loss) and net earnings (loss) per share for the three and six months ended June 30, 2005 and 2004, respectively, would have been the pro forma amounts indicated in the following table:
THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------- --------------------------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ----------------- ---------------- ---------------- ---------------- Net earnings (loss) as reported $ 8.4 $ (2.4) $12.5 $(10.0) Less: Expense per SFAS No. 123, fair value method, net of related tax effects 1.3 1.2 2.7 3.6 ----- ------ ----- ------ Pro forma net earnings (loss) $ 7.1 $ (3.6) $ 9.8 $(13.6) ===== ------ ===== ------ Basic net earnings (loss) per share: As reported $0.15 $(0.06) $0.22 $(0.27) ===== ====== ===== ====== Pro forma $0.12 $(0.10) $0.17 $(0.37) ===== ====== ===== ====== Diluted net earnings (loss) per share: As reported $0.14 $(0.06) $0.21 $(0.27) ===== ====== ===== ====== Pro forma $0.12 $(0.10) $0.16 $(0.37) ===== ====== ===== ======
6 BE AEROSPACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited - Dollars In Millions, Except Per Share Data) Note 2. Goodwill and Intangible Assets In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the Company has completed the fair value analysis for goodwill and other intangible assets as of December 31, 2004, and concluded that no impairment existed. As of June 30, 2005, the Company believed that no indicators of impairment existed. Aggregate amortization expense on identifiable intangible assets was approximately $2.4 and $2.3 for the three months ended June 30, 2005 and 2004, and $4.8 and $4.6 for the six months ended June 30, 2005 and 2004, respectively. Amortization expense is expected to be approximately $10 in each of the next five fiscal years. Note 3. Long-Term Debt The Company's $50.0 credit facility with JPMorgan Chase Bank (the "Amended Bank Credit Facility") has no maintenance financial covenants other than an Interest Coverage Ratio (as defined in the Amended Bank Credit Facility) that must be maintained at a level equal to or greater than 1.15:1 for the trailing 12-month period. The Amended Bank Credit Facility, which expires in February 2007, is collateralized by substantially all of the Company's assets and contains customary affirmative covenants, negative covenants and conditions precedent for borrowings, all of which were met as of June 30, 2005. At June 30, 2005, indebtedness under the Amended Bank Credit Facility consisted of letters of credit aggregating approximately $11.6. The Amended Bank Credit Facility bears interest ranging from 250 to 400 basis points over the Eurodollar rate. As of June 30, 2005, the interest rate on any outstanding borrowings was approximately 6.8%. The amount available for borrowing under the Amended Bank Credit Facility was $38.4 as of June 30, 2005. Long-term debt consists principally of the $175 8 1/2% senior notes, $250 8 7/8% senior subordinated notes and $250 8% senior subordinated notes. The $175 8 1/2% senior notes mature on October 1, 2010, the $250 8% notes mature on March 1, 2008, and the $250 8 7/8% notes mature on May 1, 2011. The senior subordinated notes are unsecured senior subordinated obligations and are subordinated to all senior indebtedness. The senior notes are unsecured obligations and are senior to all subordinated indebtedness, but subordinate to the Amended Bank Credit Facility. Each of the 8 1/2% senior notes, 8% senior subordinated notes and 8 7/8% senior subordinated notes contains restrictive covenants, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers and transfers of assets, all of which were met as of June 30, 2005. A breach of these covenants, or the covenants under the Company's current Amended Bank Credit Facility or any future bank credit facility, that continues beyond any grace period can constitute a default, which can limit the ability to borrow and can give rise to a right of the lenders to terminate the applicable facility and/or require immediate repayment of any outstanding debt. Note 4. Commitments, Contingencies and Off-Balance Sheet Arrangements Lease Commitments -- The Company finances its use of certain facilities and equipment under committed lease arrangements provided by various institutions. Since the terms of these arrangements meet the accounting definition of operating lease arrangements, the aggregate sum of future minimum lease payments is not reflected on the consolidated balance sheet. At June 30, 2005, future minimum lease payments under these arrangements, the majority of which related to the long-term real estate leases, totaled approximately $84.1. 7 BE AEROSPACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited - Dollars In Millions, Except Per Share Data) Indemnities, Commitments and Guarantees -- During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include non-infringement of patents and intellectual property indemnities to the Company's customers in connection with the delivery, design, manufacture and sale of its products, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to other parties to certain acquisition agreements. The duration of these indemnities, commitments and guarantees varies, and in certain cases is indefinite. The Company believes that substantially all of these indemnities, commitments and guarantees provide for limitations on the maximum potential future payments the Company could be obligated to make. However, the Company is unable to estimate the maximum amount of liability related to its indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events which are not reasonably determinable. Management believes that any liability for these indemnities, commitments and guarantees would not be material to the accompanying condensed consolidated financial statements. Accordingly, no expenses have been accrued for indemnities, commitments and guarantees. Product Warranty Costs - Estimated costs related to product warranties are accrued at the time products are sold. In estimating its future warranty obligations, the Company considers various relevant factors, including the Company's stated warranty policies and practices, the historical frequency of claims and the cost to replace or repair its products under warranty. The following table provides a reconciliation of the activity related to the Company's accrued warranty expense:
SIX MONTHS ENDED --------------------------------- June 30, June 30, 2005 2004 -------------- -------------- Beginning balance $13.2 $11.9 Acquisitions -- 1.0 Accruals for warranties issued during the period 4.3 4.3 Settlements made (4.1) (4.3) -------------- -------------- Ending balance $13.4 $ 12.9 ============== ==============
Note 5. Segment Reporting The Company is organized based on the products and services it offers. Under this organizational structure, the Company has three reportable segments: Commercial Aircraft, Distribution and Business Jet. The Company's Commercial Aircraft segment consists of eight principal operating units while the Distribution and Business Jet segments consist of one and two principal operating units, respectively. Such operating units have been aggregated for segment reporting purposes due to their similar nature. The Company evaluates segment performance based on segment operating earnings or loss. Each segment reports its results of operations and makes requests for capital expenditures and acquisition funding to the Company's chief operational decision-making group. This group is presently comprised of the Chairman, the President and Chief Executive Officer, and the Senior Vice President of Administration and Chief Financial Officer. Each operating segment has separate management teams and infrastructures dedicated to providing a full range of products and services to their customers. 8 BE AEROSPACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited - Dollars In Millions, Except Per Share Data) The following table presents net sales and other financial information by business segment:
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------- -------------------------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ---------------- --------------- --------------- ---------------- Net sales Commercial Aircraft $136.4 $128.4 $264.0 $254.6 Distribution 45.0 37.1 88.0 70.9 Business Jet 26.2 19.8 52.1 34.9 ---------------- --------------- --------------- ---------------- $207.6 $185.3 $404.1 $360.4 ================ =============== =============== ================ Operating earnings (loss) Commercial Aircraft $ 14.2 $ 10.5 $ 23.2 $ 18.9 Distribution 9.0 7.0 17.8 13.3 Business Jet 0.9 0.4 3.0 (1.6) ---------------- --------------- --------------- ---------------- $ 24.1 $ 17.9 $ 44.0 $ 30.6 ================ =============== =============== ================
Note 6. Net Earnings (Loss) Per Common Share Basic net earnings (loss) per common share is computed using the weighted average common shares outstanding during the period. Diluted net earnings (loss) per common share is computed by using the average share price during the period when calculating the dilutive effect of stock options. Shares outstanding for the periods presented were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED --------------- ------------ --------------- ------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 --------------- ------------ --------------- ------------- Net earnings (loss) $ 8.4 $ (2.4) $12.5 $(10.0) Basic weighted average common shares 57.1 37.0 57.0 37.0 Effect of dilutive stock options and stock purchases under the employee stock purchase plan 3.0 -- 2.8 -- ----- ------ ----- ------ Diluted weighted average common shares 60.1 37.0 59.8 37.0 ===== ====== ===== ====== Basic net earnings (loss) per share $0.15 $(0.06) $0.22 $(0.27) ===== ====== ===== ====== Diluted net earnings (loss) per share $0.14 $(0.06) $0.21 $(0.27) ===== ====== ===== ======
The Company excluded potentially dilutive securities of 1.0 and 0.9 shares from the calculation of loss per share for the three and six months ended June 30, 2004 as the effect of including these securities would have been anti-dilutive. Note 7. Comprehensive Earnings (Loss) Comprehensive earnings (loss) is defined as all changes in a company's net assets except changes resulting from transactions with shareholders. It differs from net earnings (loss) in that certain items currently recorded to equity would be a part of comprehensive earnings (loss). The following table sets forth the computation of comprehensive earnings (loss) for the periods presented:
THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------- ---------------------------------- June 30, June 30, June 30, June 30, 2005 2004 2005 2004 ----------------- ---------------- ----------------- ---------------- Net earnings (loss) $ 8.4 $(2.4) $12.5 $(10.0) Other comprehensive loss: Foreign exchange translation adjustment (6.3) (1.5) (9.7) (0.3) ----- ----- ----- ------ Comprehensive earnings (loss) $ 2.1 $(3.9) $ 2.8 $(10.3) ===== ===== ===== ======
9 BE AEROSPACE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited - Dollars In Millions, Except Per Share Data) Note 8. Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (Revised 2004) "Share-Based Payment" ("SFAS 123R"). The Securities and Exchange Commission has ruled that SFAS No. 123R is effective for publicly-traded companies for annual periods that begin after June 15, 2005. SFAS 123R sets accounting requirements for share-based compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and disallows the use of the intrinsic value method of accounting for stock compensation. The Company is currently evaluating the impact that this statement will have on its results of operations. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs" ("SFAS 151"), which requires abnormal amounts of inventory costs related to idle facility, freight handling and wasted material expenses to be recognized as current period charges. Additionally, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The standard is effective for fiscal years beginning after June 15, 2005. The Company believes the adoption of SFAS 151 will not have a material impact on its consolidated financial statements. In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements" ("SFAS 154"). SFAS 154 changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. The Company does not believe adoption of SFAS 154 will have a material impact on its consolidated financial statements. [Remainder of page intentionally left blank] 10 BE AEROSPACE, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars In Millions, Except Per Share Data) OVERVIEW The following discussion and analysis addresses the results of our operations for the three months ended June 30, 2005, as compared to our results of operations for the three months ended June 30, 2004. The discussion and analysis then addresses our results of operations for the six months ended June 30, 2005, as compared to our results of operations for the six months ended June 30, 2004. In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods. Based on our experience in the industry, we believe we are the world's largest manufacturer of cabin interior products for commercial aircraft and for business jets and a leading aftermarket distributor of aerospace fasteners. We sell our manufactured products directly to virtually all of the world's major airlines and airframe manufacturers and a wide variety of business jet customers. In addition, based on our experience, we believe that we have achieved leading global market positions in each of our major product categories, which include: o commercial aircraft seats, including an extensive line of first class, business class, tourist class and regional aircraft seats; o a full line of aircraft food and beverage preparation and storage equipment, including coffeemakers, water boilers, beverage containers, refrigerators, freezers, chillers and microwave, high heat convection and steam ovens; o both chemical and gaseous aircraft oxygen delivery systems; o business jet and general aviation interior products, including an extensive line of executive aircraft seats, direct and indirect overhead lighting systems, oxygen delivery systems, air valve systems, high-end furniture and cabinetry; and o a broad line of aftermarket fasteners, covering over 100,000 stock keeping units (SKUs). We also design, develop and manufacture a broad range of cabin interior structures and provide comprehensive aircraft cabin interior reconfiguration and passenger-to-freighter conversion engineering services and component kits. We conduct our operations through strategic business units that have been aggregated under three reportable segments: Commercial Aircraft, Distribution and Business Jet. Net sales by line of business for the three and six month periods ended June 30, 2005 and June 30, 2004 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------------------------- ------------------------------------------------- June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004 -------------------------- ------------------------- -------------------------- ---------------------- Net % of Net % of Net % of Net % of Sales Net Sales Sales Net Sales Sales Net Sales Sales Net Sales ----------- -------------- ---------- -------------- ---------- --------------- ---------- ----------- Commercial aircraft $136.4 65.7% $128.4 69.3% $264.0 65.3% $254.6 70.6% Distribution 45.0 21.7% 37.1 20.0% 88.0 21.8% 70.9 19.7% Business jet 26.2 12.6% 19.8 10.7% 52.1 12.9% 34.9 9.7% ----------- -------------- ---------- -------------- ---------- --------------- ---------- ----------- Net sales $207.6 100.0% $185.3 100.0% $404.1 100.0% $360.4 100.0% =========== ============== ========== ============== ========== =============== ========== ===========
11 Net sales by domestic and foreign operations for the three and six month periods ended June 30, 2005 and June 30, 2004 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------------------- ------------------------------------------- June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004 --------------------- --------------------- --------------------- --------------------- Domestic $144.0 $121.7 $284.3 $238.7 Foreign 63.6 63.6 119.8 121.7 --------------------- --------------------- --------------------- --------------------- Total $207.6 $185.3 $404.1 $360.4 ===================== ===================== ===================== =====================
Net sales by geographic segment (based on destination) for the three and six month periods ended June 30, 2005 and June 30, 2004 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------------------ ----------------------------------------------- June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004 --------------------- -------------------- ----------------------- ----------------------- Net % of Net % of Net % of Net % of Sales Net Sales Sales Net Sales Sales Net Sales Sales Net Sales --------------------- -------------------- ----------------------- ----------------------- United States $102.1 49.2% $ 93.8 50.6% $204.2 50.5% $187.2 51.9% Europe 52.7 25.4 31.4 16.9 97.3 24.1 77.7 21.6 Asia 41.2 19.8 42.4 22.9 81.5 20.2 71.1 19.7 Rest of World 11.6 5.6 17.7 9.6 21.1 5.2 24.4 6.8 -------- ----------- -------- ----------- ----------- ----------- ----------- ----------- $207.6 100.0% $185.3 100.0% $404.1 100.0% $360.4 100.0% ======== =========== ======== =========== =========== =========== =========== ===========
We have substantially expanded the size, scope and nature of our business through a number of acquisitions. Between 1989 and 2001, we completed 24 acquisitions for an aggregate purchase price of approximately $1 billion. Since 2001 we made two insignificant acquisitions. Essentially all of our revenue growth since 2001 has been organic. During the period from 1989 to 2000, we integrated the acquired businesses, closing 17 facilities, reducing our workforce by 3,000 positions and implementing common information technology platforms and lean manufacturing initiatives company-wide. This integration effort resulted in costs and charges totaling approximately $125. The rapid decline in industry conditions brought about by the terrorist attacks on September 11, 2001 caused us to implement a facility consolidation and integration plan designed to re-align our capacity and cost structure with changed conditions in the airline industry. The facility consolidation and integration plan included closing five facilities and reducing workforce by approximately 1,500 employees. We believe these initiatives will enable us to continue to expand profit margins as industry conditions and demand continue to improve, strengthen the global business management focus on our core product categories and more effectively leverage our resources. The total cost of this program was approximately $175, including approximately $74 of cash charges. New product development is a strategic initiative for our company. Our customers regularly request that we engage in new product development and enhancement activities. We believe that these activities, if properly focused and managed, will protect and enhance our leadership position. Research, development and engineering spending have been approximately 6%-8% of sales for the past several years, and is expected to remain at approximately that level for the foreseeable future. We also believe in providing our businesses with the tools required to remain competitive. In that regard, we have invested, and will continue to invest, in property and equipment that enhances our productivity. Over the past three years, annual capital expenditures ranged from $11-$17. Taking into consideration our recent capital expenditure investments and current industry conditions, we anticipate capital expenditures of approximately $20 for the coming year. 12 BE AEROSPACE, INC. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2005, AS COMPARED TO THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 (Dollars In Millions, Except Per Share Data) Sales for each of our segments are set forth in the following table:
NET SALES ------------------------------------------------------------------------------------ Three Months Ended June 30, ------------------------------------------------------------------------------------ Percent 2005 2004 Change Change ------------------- ------------------- --------------------- ---------------------- Commercial aircraft $136.4 $128.4 $ 8.0 6.2% Distribution 45.0 37.1 7.9 21.3 Business jet 26.2 19.8 6.4 32.3 ------------------- ------------------- --------------------- ---------------------- Total $207.6 $185.3 $22.3 12.0%
Net sales for the three months ended June 30, 2005 were $207.6, an increase of $22.3 or 12.0% as compared to the same period of the prior year. The commercial aircraft segment generated revenues of $136.4 in the second quarter of 2005, up 6.2% versus the same period in the prior year, primarily due to a higher level of shipments of seating products and food and beverage preparation and storage equipment. The distribution segment delivered strong revenue growth of 21.3% in the second quarter of 2005, driven by a broad based increase in aftermarket demand for aerospace fasteners and continued market share gains. In the business jet segment, revenues increased by 32.3% in the second quarter of 2005, reflecting the continuing recovery within the business jet industry and initial shipments of super first class products. Gross profit for the second quarter of 2005 of $72.8, or 35.1% of sales, increased by $11.0, or 17.8% on the 12.0% year over year increase in revenues. Second quarter 2005 gross margin expanded by 170 basis points as compared to the same period of the prior year. The increase in gross margin was primarily driven by an improved mix of products sold and ongoing manufacturing efficiencies. Selling, general and administrative expenses in the second quarter of 2005 of $32.1, or 15.5% of sales, were up $2.2 versus selling, general and administrative expenses in the same period in the prior year of $29.9, or 16.1% of sales, primarily due to the higher level of commissions and sales incentives in the current period, as well as costs associated with the 12.0% increase in revenues. In connection with the resolution of two legal matters during the quarter ended June 30, 2005, we received approximately $1.8 of net reimbursed legal fees; such amounts were reduced by increases in our allowance for doubtful accounts, incentive compensation and severance aggregating approximately $1.6. Research, development and engineering expenses of $16.6, or 8.0% of sales, were up $2.6 versus the same period in the prior year due to a higher level of spending associated with customer reimbursed engineering and spending associated with new product development activities. Operating earnings for the second quarter of 2005 of $24.1 increased by 34.6%, as compared to the same period last year. The operating margin of 11.6% in the current quarter was 190 basis points greater than the operating margin realized in the second quarter of 2004, and 150 basis points greater as compared to the immediately preceding quarter. The substantial increase in operating earnings was driven primarily by significant margin expansion at the commercial aircraft segment, as well as continued growth in revenues and earnings at both the business jet and distribution segments. 13 The following is a summary of the change in operating earnings by segment:
OPERATING EARNINGS ----------------------------------------------------------------------------------- Three Months Ended June 30, ----------------------------------------------------------------------------------- Percent 2005 2004 Change Change --------------------- ----------------- --------------------- --------------------- Commercial aircraft $14.2 $10.5 $3.7 35.2% Distribution 9.0 7.0 2.0 28.6% Business jet 0.9 0.4 0.5 125.0% --------------------- ----------------- --------------------- --------------------- Total $24.1 $17.9 $6.2 34.6%
The commercial aircraft segment's ("CAS") operating results and order book continued to improve during the second quarter of 2005. Compared to the second quarter of 2004, CAS operating earnings of $14.2 increased by 35.2% on a 6.2% increase in sales, driven by a 220 basis point expansion in operating margin to 10.4% of sales. The margin expansion was primarily a result of an improved mix of products sold and ongoing manufacturing efficiencies. The distribution segment generated record revenues of $45.0 in the second quarter of 2005, which were 21.3% greater than the same period in the prior year. Operating earnings at the distribution segment in the second quarter of 2005 were $9.0 million, 28.6% higher than the same period last year and represented a 20.0% operating margin. The business jet segment generated second quarter revenues of $26.2, up 32.3% over sales of $19.8 in the second quarter of 2004. Operating earnings at the business jet segment during the quarter of $0.9 were $0.5, or 125%, higher than operating earnings reported in the same period last year. The increase in operating earnings reflects the higher level of revenues associated with an improving business jet industry and initial shipments of super first class products. Operating earnings, although improved versus the second quarter of the prior year, reflected lower than normal earnings on the initial shipments of super first class products. Interest expense for the second quarter of 2005 of $15.0 was $4.9 lower than interest expense recorded in the same period in the prior year. Interest expense decreased in the second quarter of 2005 as a result of the early retirement of $200 of senior subordinated notes during the fourth quarter of 2004. Income tax expense of $0.7 during the second quarter of 2005 increased from income tax expense of $0.4 in the same period in the prior year. Income taxes arise from earnings of foreign subsidiaries for which no net operating loss carryforwards are available. Net earnings for the second quarter of 2005 were $8.4 or $0.14 per diluted share, a $10.8 or $0.20 per diluted share improvement as compared to the same period of the prior year. [Remainder of page intentionally left blank] 14 RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2005, AS COMPARED TO THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 (Dollars In Millions, Except Per Share Data) Sales for each of our segments are set forth in the following table:
NET SALES ------------------------------------------------------------------------------------ Six Months Ended June 30, ------------------------------------------------------------------------------------ Percent 2005 2004 Change Change ------------------- ------------------- --------------------- ---------------------- Commercial Aircraft $264.0 $254.6 $ 9.4 3.7% Distribution 88.0 70.9 17.1 24.1 Business Jet 52.1 34.9 17.2 49.3 ------------------------- ------------------------ ---------------- ----------------- Total Sales $404.1 $360.4 $43.7 12.1% ========================= ======================== ================ =================
Net sales for the six months ended June 30, 2005 were $404.1, an increase of $43.7 or 12.1% as compared to the same period of the prior year. Sales during the six months ended June 30, 2005 at the commercial aircraft segment of $264.0 were up 3.7% versus the same period in the prior year, primarily due to a higher level of shipments of seating products and food and beverage preparation and storage equipment. The distribution segment delivered strong revenue growth of 24.1%, driven by a broad based increase in aftermarket demand for aerospace fasteners and continued market share gains. In the business jet segment, revenues increased by 49.3%, reflecting the continuing recovery within the business jet industry and initial shipments of super first class products. Gross profit for the six months ended June 30, 2005 of $140.8, or 34.8% of sales, increased by $25.4 compared to the same period in the prior year, or 22.0% on the 12.1% increase in revenues. Gross margin for the six months ended June 30, 2005 expanded by 280 basis points as compared to the same period of the prior year. The increase in gross margin was primarily driven by an improved mix of products sold and ongoing manufacturing efficiencies. Selling, general and administrative expenses during the six months ended June 30, 2005 of $63.8, or 15.8% of sales, were up $5.2 versus selling, general and administrative expenses in the same period in the prior year of $58.6, or 16.3% of sales, primarily due to the higher level of commissions and sales incentives in the current period, as well as costs associated with the 12.1% increase in revenues. Research, development and engineering expenses during the six months ended June 30, 2005 of $33.0, or 8.2% of sales, were up $6.8 versus the prior year due to a higher level of spending associated with customer reimbursed engineering and spending associated with new product development activities. Operating earnings for the six months ended June 30, 2005 of $44.0 increased by 43.8%, as compared to the same period last year. The operating margin of 10.9% for the six months ended June 30, 2005 was 240 basis points greater than the operating margin realized in the same period of 2004. The substantial increase in operating earnings was driven by significant margin expansion at the commercial aircraft segment, as well as continued growth in revenues and earnings at both the business jet and distribution segments. 15 The following is a summary of the change in operating earnings by segment:
OPERATING EARNINGS ----------------------------------------------------------------------------------- Six Months Ended June 30, ----------------------------------------------------------------------------------- Percent 2005 2004 Change Change -------------------- ------------------ --------------------- --------------------- Commercial aircraft $23.2 $18.9 $ 4.3 22.8% Distribution 17.8 13.3 4.5 33.8 Business jet 3.0 (1.6) 4.6 NM -------------------- ------------------ --------------------- --------------------- Total $44.0 $30.6 $13.4 43.8% ==================== ================== ===================== =====================
CAS's operating results and order book continued to improve during the six months ended June 30, 2005. Compared to the same period of 2004, CAS operating earnings of $23.2 increased by 22.8% on a 3.7% increase in sales, driven by a 140 basis point expansion in operating margin to 8.8% of sales. The margin expansion was primarily a result of an improved mix of products sold and ongoing manufacturing efficiencies. The distribution segment generated record revenues of $88.0 for the six months ended June 30, 2005, which were 24.1% greater than the same period in the prior year. Operating earnings at the distribution segment were $17.8 million for the six month period, 33.8% higher than the same period last year and represented a 20.2% operating margin, as compared to an 18.8% operating margin in the same period in the prior year. The expansion of the operating margin reflects the operating efficiencies at the higher revenue level. The business jet segment generated revenues of $52.1 for the six month period ended June 30, 2005, up 49.3% over sales of $34.9 in the same period of 2004. Operating earnings at the business jet segment for the six months ended June 30, 2005 of $3.0 represent a $4.6 improvement over the operating loss reported in the same period last year. The increase in operating earnings reflects the higher level of revenues associated with an improving business jet industry and initial shipments of super first class products. Operating earnings, although improved versus the same period of the prior year, reflected lower than normal earnings on the initial shipments of super first class products. Interest expense for the six month period ended June 30, 2005 of $30.1 was $9.6 lower than interest expense recorded in the same period in the prior year. Interest expense decreased for the six months ended June 30, 2005 as a result of the early retirement of $200 of senior subordinated notes during the fourth quarter of 2004. Income tax expense of $1.4 during the six month period ended June 30, 2005 increased from income tax expense of $0.9 in the same period in the prior year. Income taxes arise from earnings of foreign subsidiaries for which no net operating loss carryforwards are available. Net earnings for the six months ended June 30, 2005 were $12.5 or $0.21 per diluted share, a $22.5 or $0.48 per diluted share improvement as compared to the same period of the prior year. [Remainder of page intentionally left blank] 16 BE AEROSPACE, INC. LIQUIDITY AND CAPITAL RESOURCES Current Financial Condition Our liquidity requirements consist of working capital needs, ongoing capital expenditures and payments of interest and principal on our indebtedness. Our primary requirements for working capital are directly related to the level of our operations. Working capital primarily consists of accounts receivable and inventories, which fluctuate with the sales of our products. Our working capital was $255.4 as of June 30, 2005, as compared to $225.0 as of December 31, 2004. The increase in working capital from December 31, 2004 to June 30, 2005 was primarily due to an increased level of accounts receivable related to our recent revenue growth, a higher level of inventories to support expected further increases in revenues, offset somewhat by a higher level of accounts payable and accrued liabilities arising from the higher revenue volume. We currently have no bank borrowings outstanding and no debt principal payments due until 2008. At June 30, 2005, our cash and cash equivalents were $75.0, as compared to $76.3 at December 31, 2004. The decrease in cash and cash equivalents from December 31, 2004 to June 30, 2005 was primarily due to an increased level of accounts receivable related to our recent revenue growth, a higher level of inventories to support expected further increases in revenues, offset somewhat by a higher level of accounts payable and accrued liabilities arising from the higher revenue volume. Cash Flows At June 30, 2005, our cash and bank credit available under our Amended Bank Credit Facility was $113.4 compared to $114.7 at December 31, 2004. Cash used by operating activities was $2.4 for the six months ended June 30, 2005, as compared to cash provided by operating activities of $3.2 in the same period in the prior year. The primary use of cash during the six months ended June 30, 2005 was due to an increased level of accounts receivable ($18.6) related to our recent revenue growth and a higher level of inventories ($24.5) to support expected further increases in revenues. This use of cash was offset somewhat by net earnings of $12.5, non-cash charges of $16.2 primarily related to amortization and depreciation and a higher level of accounts payable and accrued liabilities arising from the higher revenue volume and the timing of interest payments. Capital Spending Our capital expenditures were $7.1 during the six months ended June 30, 2005 and 2004. We anticipate capital expenditures of approximately $20 for the coming year. We have no material commitments for capital expenditures. We have, in the past, generally funded our capital expenditures from cash from operations and funds available to us under bank credit facilities. We expect to fund future capital expenditures from cash on hand, from operations and from funds available to us under our Amended Bank Credit Facility or any future bank credit facility, although there can be no assurance that future bank credit facilities will be available. Between 1989 and 2001, we completed 24 acquisitions for an aggregate purchase price of approximately $1 billion. Following these acquisitions, we rationalized the businesses, reduced headcount by approximately 4,500 employees and eliminated 22 facilities. We have financed these acquisitions primarily through issuances of debt and equity securities, including our outstanding 8 1/2% senior notes, 8% senior subordinated notes and 8 7/8% senior subordinated notes and bank credit facilities. Outstanding Debt and Other Financing Arrangements Our $50.0 bank credit facility with JPMorgan Chase Bank ("Amended Bank Credit Facility") has no maintenance financial covenants, other than maintaining an Interest Coverage Ratio (as defined) of at least 1.15:1 for the trailing 12-month period. The Amended Bank Credit Facility expires in February 2007, is collateralized by substantially all of our assets and bears interest at rates ranging from 250 to 400 basis points over the Eurodollar rate as defined in the Amended Bank Credit Facility. At June 30, 2005, indebtedness under the Amended Bank Credit Facility consisted of letters of credit aggregating approximately $11.6. The amount available under the Amended Bank Credit Facility was $38.4 as of June 30, 2005. The Amended Bank Credit Facility contains customary affirmative covenants, negative covenants and conditions of borrowings, all of which were met as of June 30, 2005. 17 Long-term debt consists principally of our $175 8 1/2% senior notes, $250 8 7/8% senior subordinated notes and $250 8% senior subordinated notes. The $175 8 1/2% senior notes mature on October 1, 2010, $250 8% notes mature on March 1, 2008, and the $250 8 7/8% notes mature on May 1, 2011. The senior subordinated notes are unsecured senior subordinated obligations and are subordinated to all of our senior indebtedness. The senior notes are unsecured obligations and are senior to all of our subordinated indebtedness, but subordinate to our Amended Bank Credit Facility. Each of the $175 8 1/2% senior notes, $250 8% senior subordinated notes and $250 8 7/8% senior subordinated notes contains restrictive covenants, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers and transfers of assets, all of which we met as of June 30, 2005. A breach of these covenants, or the covenants under our Amended Bank Credit Facility or any future bank credit facility, that continues beyond any grace period can constitute a default, which can limit the ability to borrow and can give rise to a right of the lenders to terminate the applicable facility and/or require immediate repayment of any outstanding debt. Contractual Obligations During the six month period ended June 30, 2005, there were no material changes in the contractual obligations specified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. We believe that our cash flows, together with cash on hand and availability under our Amended Bank Credit Facility, provide us with the ability to fund our operations, make planned capital expenditures and make scheduled debt service payments for at least the next twelve months. However, such cash flows are dependent upon our future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors, including the conditions of our markets, some of which are beyond our control. If, in the future, we cannot generate sufficient cash from operations to meet our debt service obligations, we will need to refinance such debt obligations, obtain additional financing or sell assets. We cannot offer assurance that our business will generate cash from operations, or that we will be able to obtain financing from other sources, sufficient to satisfy our debt service or other requirements. Off-Balance Sheet Arrangements Lease Arrangements We finance our use of certain facilities and equipment under committed lease arrangements provided by various institutions. Since the terms of these arrangements meet the accounting definition of operating lease arrangements, the aggregate sum of future minimum lease payments is not reflected on our consolidated balance sheet. At June 30, 2005, future minimum lease payments under these arrangements, the majority of which related to the long-term real estate leases, was approximately $84.1. Indemnities, Commitments and Guarantees During the normal course of business, we made certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These indemnities include non-infringement of patents and intellectual property indemnities to our customers in connection with the delivery, design, manufacture and sale of our products, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to other parties to certain acquisition agreements. The duration of these indemnities, commitments and guarantees varies, and in certain cases is indefinite. We believe that substantially all of our indemnities, commitments and guarantees provide for limitations on the maximum potential future payments we could be obligated to make. However, we are unable to estimate the maximum amount of liability related to our indemnities, commitments and guarantees because such liabilities are contingent upon the occurrence of events which are not reasonably determinable. Management believes that any liability for these indemnities, commitments and guarantees would not be material to our accompanying condensed consolidated financial statements. Accordingly, no expenses have been accrued for indemnities, commitments and guarantees. 18 Product Warranty Costs For discussion of Product Warranty Costs, refer to Note 4 of our Condensed Consolidated Financial Statements included in Part 1, Item 1, of this report. Deferred Tax Assets We established a valuation allowance related to the utilization of our deferred tax assets because of uncertainties that preclude us from determining that it is more likely than not that we will be able to generate taxable income to realize such assets during the federal operating loss carryforward period, which begins to expire in 2012. Such uncertainties include recent cumulative losses, the highly cyclical nature of the industry in which we operate, risks associated with our facility consolidation plan, our high degree of financial leverage, risks associated with new product introductions, recent substantial increases in the cost of fuel and its impact on our airline customers, and risks associated with the integration of acquired businesses. We monitor these uncertainties, as well as other positive and negative factors that may arise in the future, as we assess the necessity for a valuation allowance for our deferred tax assets. RECENT ACCOUNTING PRONOUNCEMENTS For discussion of Recent Accounting Pronouncements, refer to Note 8 of our Condensed Consolidated Financial Statements included in Part 1, Item 1, of this report. CRITICAL ACCOUNTING POLICIES The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies, see Note 1 in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. Revenue Recognition Sales of products are recorded when the earnings process is complete. This generally occurs when the products are shipped to the customer in accordance with the contract or purchase order, risk of loss and title has passed to the customer, collectibility is reasonably assured and pricing is fixed and determinable. In instances where title does not pass to the customer upon shipment, we recognize revenue upon delivery or customer acceptance, depending on the terms of the sales contract. Service revenues primarily consist of engineering activities and are recorded when services are performed. Historically, revenues and costs under certain long-term contracts are recognized using contract accounting under the percentage-of-completion method. The percentage-of-completion method requires the use of estimates of costs to complete long-term contracts. The estimation of these costs requires judgment on the part of management due to the duration of these contracts as well as the technical nature of the products involved. Adjustments to these estimated costs are made on a consistent basis. A provision for contract losses is recorded when such facts are determinable. Revenues recognized under contract accounting during the three and six months ended June 30, 2005 and 2004 were not significant to our financial statements. 19 We sell our products primarily to airlines and aircraft manufacturers worldwide, including occasional sales collateralized by letters of credit. We apply judgment to ensure that the criteria for recognizing sales are consistently applied and achieved for all recognized sales transactions. Accounts Receivable We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current creditworthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain an allowance for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. If the actual uncollected amounts significantly exceed the estimated allowance, our operating results would be significantly adversely affected. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Inventories We value our inventories at the lower of cost to purchase or manufacture the inventory or the current estimated market value of the inventory. Cost is determined using the standard cost method for our manufacturing businesses and the weighted average cost method for our distribution businesses. The inventory balance, which includes the cost of raw material, purchased parts, manufactured parts, labor and production overhead costs, is recorded net of a reserve for excess, obsolete or unmarketable inventories. We regularly review inventory quantities on hand and record a reserve for excess and obsolete inventories based primarily on historical usage and on our estimated forecast of product demand and production requirements. As demonstrated since the events of September 11, 2001, demand for our products can fluctuate significantly. Our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventories. In the future, if our inventories are determined to be overvalued, we would be required to recognize such costs in our cost of goods sold at the time of such determination. Likewise, if our inventories are determined to be undervalued, we may have over-reported our costs of goods sold in previous periods and would be required to recognize such additional operating income at the time of sale. Long-Lived Assets (including Tangible and Intangible Assets and Goodwill) To conduct our global business operations and execute our strategy, we acquire tangible and intangible assets, which affect the amount of future period amortization expense and possible impairment expense that we may incur. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements. We assess potential impairment to goodwill of a reporting unit and other intangible assets on an annual basis or when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. Our judgment regarding the existence of impairment indicators and future cash flows related to intangible assets are based on operational performance of our acquired businesses, expected changes in the global economy, aerospace industry projections, discount rates and other factors. Future events could cause us to conclude that impairment indicators exist and that goodwill or other acquired tangible or intangible assets associated with our acquired businesses is impaired. Any resulting impairment loss could have an adverse impact on our results of operations. Accounting for Income Taxes As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the consolidated statements of operations. 20 Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a full valuation allowance of $129.3 as of December 31, 2004, due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating income losses carried forward, before they expire. The valuation allowance is based on our estimates of taxable income by jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we revise these estimates in future periods, we may need to adjust the valuation allowance which could materially impact our financial position and results of operations. DEPENDENCE UPON CONDITIONS IN THE AIRLINE INDUSTRY The September 11, 2001 terrorist attacks severely impacted conditions in the airline industry. According to industry sources, in the aftermath of the attacks most major U.S. carriers and a number of international carriers substantially reduced their flight schedules, parked or retired portions of their fleets, reduced their workforces and implemented other cost reduction initiatives. U.S. airlines further responded by decreasing domestic airfares. As a result of the decline in both traffic and airfares following the September 11, 2001 terrorist attacks, and their aftermath, as well as other factors, such as increases in fuel costs and heightened competition from low-cost carriers, the world airline industry lost a total of $35 billion in calendar years 2002 through 2004, including $5 billion in 2004. The airline industry crisis also caused 21 airlines worldwide to declare bankruptcy or cease operations in the past three years. The business jet industry has also been experiencing a severe downturn, driven by weak economic conditions and poor corporate profits. During 2003, three business jet manufacturers reduced or temporarily halted production of a number of aircraft types. While deliveries of new business jets increased in 2004 as compared to 2003, deliveries were down 33% during 2003 as compared to 2001. Business jet deliveries are expected to slowly increase over the next several years, reaching 712 by 2007. The rate at which the business jet industry recovers is dependent on corporate profits, the number of used jets on the market and other factors which could slow the rate of recovery. As a result of the foregoing factors, the airlines have been seeking to conserve cash in part by deferring or eliminating cabin interior refurbishment programs and deferring or canceling aircraft purchases. This, together with the reduction of new business jet production, caused a substantial contraction in our business during the period from 2001 through 2003. Although the global airline industry began to recover in late 2003 and our industry continues to be in the early stages of a recovery, additional events similar to those above could delay any sustained recovery in the industry. While management has developed and implemented what it believes is an aggressive cost reduction plan to counter these difficult conditions, it cannot guarantee that the plans are adequate or will be successful. [Remainder of page intentionally left blank] 21 FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding implementation and expected benefits of lean manufacturing and continuous improvement programs, our dealings with customers and partners, the consolidation of facilities, reduction of our workforce, integration of acquired businesses, ongoing capital expenditures, the impact of the large number of indefinitely grounded aircraft on demand for our products and our underlying assets, the adequacy of funds to meet our capital requirements, the ability to refinance our indebtedness, if necessary, the reduction of debt, the potential impact of new accounting pronouncements and the impact on our business from the September 11, 2001 terrorist attacks, the SARS outbreak and war in Iraq. These forward-looking statements include risks and uncertainties, and our actual experience may differ materially from that anticipated in such statements. Factors that might cause such a difference include those discussed in our filings with the Securities and Exchange Commission, including our most recent proxy statement and Form 10-K, as well as future events that may have the effect of reducing our available operating income and cash balances, such as unexpected operating losses, the impact of rising fuel prices on our airline customers, outbreaks or escalations of national or international hostilities, terrorist attacks, prolonged health issues which reduce air travel demand (e.g. SARS), delays in, or unexpected costs associated with, the integration of our acquired or recently consolidated businesses, conditions in the airline industry, changing conditions in the business jet industry, problems meeting customer delivery requirements, our success in winning new or expected refurbishment contracts from customers, capital expenditures, cash expenditures related to possible future acquisitions, facility closures, product transition costs, labor disputes involving us, our significant customers or airframe manufacturers, the possibility of a write-down of intangible assets, delays or inefficiencies in the introduction of new products or fluctuations in currency exchange rates. The forward-looking statements included in this report are made only as of the date of this report and, except as required by federal securities laws, we do not have any obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances. [Remainder of page intentionally left blank] 22 BE AEROSPACE, INC. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to a variety of risks, including foreign currency fluctuations and changes in interest rates affecting the cost of our variable-rate debt. Foreign currency - We have direct operations in Europe that receive revenues from customers primarily in U.S. dollars and purchase raw materials and component parts from foreign vendors primarily in British pounds or euros. Accordingly, we are exposed to transaction gains and losses that could result from fluctuations in foreign currency exchange rates relative to the U.S. dollar. The largest foreign currency exposure results from activity in British pounds and euros. From time to time, we and our foreign subsidiaries may enter into foreign currency exchange contracts to manage risk on transactions conducted in foreign currencies. At June 30, 2005, we had no outstanding forward currency exchange contracts. We did not enter into any other derivative financial instruments. Interest rates - At June 30, 2005, we had no adjustable rate debt and fixed rate debt of $679.8. The weighted average interest rate for the fixed rate debt was approximately 8.5% at June 30, 2005. If interest rates were to increase by 10% above current rates, there would be no impact on our financial statements due to the absence of variable rate debt. We do not engage in transactions to hedge our exposure to changes in interest rates. As of June 30, 2005, we maintained a portfolio of securities consisting mainly of taxable, interest-bearing deposits with maturities of less than three months. If short-term interest rates were to increase or decrease by 10%, we estimate interest income would increase or decrease by approximately $0.2. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our principal executive officer and our principal financial officer, after evaluating, together with management, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2005, the end of the period covered by this report, have concluded that, as of such date, our disclosure controls and procedures were adequate and effective to ensure that material information relating to our company and our consolidated subsidiaries would be made known to them by others within those entities. Internal Control over Financial Reporting There were no changes in our company's internal control over financial reporting that occurred during the second quarter of 2005 that have materially affected, or are reasonably likely to materially affect, our company's internal control over financial reporting. [Remainder of page intentionally left blank] 23 BE AEROSPACE, INC. PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Annual meeting took place on July 21, 2005 1. Class II Directors elected - Robert J. Khoury, David C. Hurley and Jonathan M. Schofield. Directors whose term of office continued after meeting (Class I and III) - Jim C. Cowart, Brian H. Rowe, Richard G. Hamermesh, Amin J. Khoury and Wesley W. Marple, Jr. 2. Amended the 1994 Employee Stock Purchase Plan 3. Adopted the 2005 Long-Term Incentive Plan The number of shares voted for, against and abstained/withheld were as follows:
Abstain/ For Against Withheld Unvoted -------------- -------------- --------------- --------------- 1. Election of Class II Directors Robert J. Khoury 51,656,969 1,972,446 David C. Hurley 51,317,516 2,311,899 Jonathan M. Schofield 50,885,784 2,743,631 2. Proposal to amend the 1994 Employee Stock Purchase Plan 37,572,971 1,934,295 595,460 13,526,689 3. Proposal to adopt the 2005 Long-Term Incentive Plan 23,031,494 16,246,681 824,551 13,526,689
Item 5. Other Information Amendments to Employment Agreements On August 1, 2005, the Stock Option and Compensation Committee of the Company's board of directors (the "Committee") approved amendments to the employment agreements with each of Amin J. Khoury (the "AK Agreement"), Robert J. Khoury (the "RK Agreement") and Thomas P. McCaffrey (the "TM Agreement"). Each of these agreements is described in detail in the Company's Proxy Statement dated June 1, 2005 (the "Proxy Statement"). AK Agreement. The AK Agreement currently provides for the payment of certain compensation and benefits in connection with a Change of Control of the Company (as defined in the AK Agreement), which are only paid if Mr. Khoury's employment is terminated for specified reasons within three years following the Change of Control. The amendments approved by the Committee remove the condition that Mr. Khoury's employment be terminated following a Change of Control in order to receive certain of the specified benefits. As a result, upon a Change of Control of the Company, Mr. Khoury will be entitled to receive the following benefits: o A lump sum payment equal to two times the base salary payable to Mr. Khoury through the third anniversary of the Change of Control. o A lump sum payment of Mr. Khoury's "Retirement Compensation," as defined in the AK Agreement and as described in detail in the Proxy Statement. In addition, upon a termination of his employment with the Company for any reason other than death or disability within three years following a Change of Control, Mr. Khoury will continue to be entitled to certain additional benefits as provided in the AK Agreement. 24 The AK Agreement has also been modified to provide that in the event of a dispute regarding the Change of Control provisions, Mr. Khoury will be entitled to reimbursement of related legal expenses by the Company. In consideration of the amendments to the Change of Control provisions described above, Mr. Khoury has agreed that if, following a Change of Control of the Company, he enters into a new employment agreement with a successor entity, such agreement will not contain a provision regarding payments upon a subsequent change of control of the successor entity. In addition, in connection with the amendments, Mr. Khoury has agreed to reduce the number of hours of corporate jet usage he is entitled to upon a termination of employment for any reason other than death or incapacity from 200 hours to 150 hours. In all other respects, the AK Agreement remains unchanged. RK Agreement. The RK Agreement has been modified in substantially the same manner as the AK Agreement. In all other respects, the RK Agreement remains unchanged. TM Agreement. The TM Agreement currently provides for the payment of certain compensation and benefits in connection with a Change of Control of the Company (as defined in the TM Agreement), some of which are only paid if Mr. McCaffrey's employment is terminated for specified reasons within three years following the Change of Control. The amendments approved by the Committee remove the condition that Mr. McCaffrey's employment be terminated following a Change of Control in order to receive certain of the specified benefits. As a result, upon a Change of Control of the Company, Mr. McCaffrey will be entitled to the following benefits: o A lump sum payment equal to two times the base salary payable to Mr. McCaffrey through the third anniversary of the Change of Control. o A lump sum payment of Mr. McCaffrey's "Retirement Compensation," as defined in the TM Agreement and as described in detail in the Proxy Statement. In addition, upon a termination of his employment with the Company for any reason other than death or incapacity within three years following a Change of Control, Mr. McCaffrey will continue to be entitled to certain additional benefits as provided in the TM Agreement, except Mr. McCaffrey in this case will be entitled to benefit continuation for a period of eight years rather than five years following such termination. The TM Agreement has also been modified to provide that in the event of a dispute regarding the Change of Control provisions, Mr. McCaffrey will be entitled to reimbursement of related legal expenses by the Company. In consideration of the amendments to the Change of Control provisions, Mr. McCaffrey has agreed that if, following a Change of Control of the Company, his employment pursuant to the TM Agreement continues or he enters into a new employment agreement with a successor entity, he will not be entitled to receive additional Change of Control benefits. Employment Agreement with Advanced Thermal Sciences As described in the Proxy Statement, Mr. Amin Khoury is currently party to an employment agreement with Advanced Thermal Sciences ("ATS"), a wholly owned subsidiary of the Company. Effective as of August 1, 2005, the agreement with ATS, which provides for an annual salary of $100,000, will be terminated and Mr. Khoury will no longer have any rights thereunder. The agreement with ATS is described in detail in the Proxy Statement. In connection with the termination of Mr. Khoury's employment agreement with ATS, which reduced his annual compensation by $100,000, the Committee has increased Mr. Khoury's base salary pursuant to the AK Agreement by $20,000. Adoption of Death Benefit Program On July 20, 2005, the Committee approved a program to provide the following death benefits to the estates of each of Mssrs. A. Khoury, R. Khoury and McCaffrey:
----------------------------------- ---------------------------------- Name Amount of Benefit ----------------------------------- ---------------------------------- Amin J. Khoury $3 million ----------------------------------- ---------------------------------- Robert J. Khoury $2 million ----------------------------------- ---------------------------------- Thomas P. McCaffrey $1 million ----------------------------------- ----------------------------------
25 The death benefits are unfunded arrangements, however the Company may purchase whole life insurance policies, in which case he Company would own the life insurance policies including the cash surrender value and the death benefit payments. Item 6. Exhibits Exhibit 10(iii) Management Contracts and Executive Compensation Plans, Contracts and Arrangements 10.1 Amended and Restated Employment Agreement dated August 1, 2005 between the Registrant and Thomas P. McCaffrey* 10.2 Amended and Restated Employment Agreement dated August 1, 2005 between the Registrant and Amin J. Khoury* 10.3 Amended and Restated Employment Agreement dated August 1, 2005 between the Registrant and Robert J. Khoury* Exhibit 31 Rule 13a-14(a)/15d-14(a) Certifications 31.1 Certification of Chief Executive Officer* 31.2 Certification of Chief Financial Officer* Exhibit 32 Section 1350 Certifications 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350* 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350* - --------------- *Filed herewith. 26 BE AEROSPACE, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BE AEROSPACE, INC. Date: August 5, 2005 By: /s/ Robert J. Khoury -------------------- Robert J. Khoury President and Chief Executive Officer Date: August 5, 2005 By: /s/ Thomas P. McCaffrey ----------------------- Thomas P. McCaffrey Senior Vice President of Administration and Chief Financial Officer 27 EX-31 2 ex311.txt EXHIBIT 31.1 CERTIFICATIONS I, Robert J. Khoury, certify that: 1. I have reviewed this quarterly report on Form 10-Q of BE Aerospace, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 5, 2005 By: /s/ Robert J. Khoury ---------------------------------------- Robert J. Khoury President and Chief Executive Officer EX-31 3 ex312.txt EXHIBIT 31.2 CERTIFICATIONS I, Thomas P. McCaffrey, certify that: 1. I have reviewed this quarterly report on Form 10-Q of BE Aerospace, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 5, 2005 By: /s/ Thomas P. McCaffrey ---------------------------------------- Thomas P. McCaffrey Senior Vice President of Administration and Chief Financial Officer EX-32 4 ex321.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of BE Aerospace, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert J. Khoury, President and Chief Executive Officer of the Company, certify that to the best of my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 5, 2005 By: /s/ Robert J. Khoury ------------------------------ Robert J. Khoury President and Chief Executive Officer EX-10 5 ex102.txt Exhibit 10.2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Agreement (this "Agreement") dated as of August 1, 2005, is between BE Aerospace, Inc., a Delaware corporation (the "Company") and Amin J. Khoury ("Executive"). WHEREAS, Executive and the Company entered into that certain Employment Agreement dated as of September 14, 2001 and thereafter amended said agreement by two amendments (said Employment Agreement and amendments hereinafter collectively the "Employment Agreement"); and WHEREAS, Executive, having provided services to the Company since August 1, 1987, agrees to provide services for an additional period as provided herein, and the Company wishes to procure such services; and WHEREAS, Executive and the Company wish to further amend and restate the Employment Agreement in its entirety; NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, the parties agree as follows: 1. REFERENCE TO EMPLOYMENT AGREEMENT. The Employment Agreement is hereby restated, superseded and replaced in its entirety by this Agreement. 2. ARRANGEMENT. Executive shall provide to the Company, and the Company shall accept from Executive, the services set forth in Section 4.2 below, subject to the terms and conditions set forth in this Agreement. 3. TERM. Executive shall provide to the Company services hereunder during the term of this Agreement which, unless otherwise terminated pursuant to the provisions of Article 7 hereof, shall be the period ending three (3) years from any date as of which the term is being determined (the "Employment Term"). The date on which the Employment Term ends, including any extensions thereof, is sometimes hereinafter referred to as the "Expiration Date." 4. CAPACITY, SERVICES AND PERFORMANCE. 4.1 Capacity. Executive shall serve the Company as its Chairman of the Board of Directors (the "Board"), or in such other Board or executive capacity as the Board may designate from time to time, but only upon agreement with Executive. 1 4.2 Services.In the capacity set forth in Section 4.1 above, Executive shall be retained by the Company and shall perform such duties and responsibilities on behalf of the Company as Executive and the Board shall by mutual agreement from time to time determine. 4.3 Performance.During the Employment Term, Executive shall use his business judgment, skill and knowledge to the advancement of the Company's interests and to the discharge of his duties and responsibilities hereunder; provided that Executive shall be required only to devote so much time as Executive determines is reasonably necessary to discharge his duties as Chairman of the Board, and, subject to the provisions of Section 6 below, Executive may engage in other business activities during the Employment Term. 5. COMPENSATION AND BENEFITS. 5.1 Salary. Effective as of August 1, 2005 Executive shall receive an annual salary (the "Salary") of $874,000 during each year of the Employment Term. Such Salary shall be subject to adjustment from time to time by the Board; provided, however, that it shall at no time be adjusted below the Salary for the preceding year. Commencing on January 1, 2006, and on March 1 of each year thereafter during the Employment Term, the Salary then in effect shall be increased by an amount not less than the amount determined by applying to the Salary then in effect the percentage increase in the U.S. Bureau of Labor Statistics Consumer Price Index Revised - Urban Wage Earners and Clerical Workers - National - All Items (1982-84 = 100) (the "Index") for the consecutive twelve (12) month period (March through February) immediately preceding such March 1. If the Index is no longer issued, the Board and Executive shall agree upon a substitute index issued by such agency which most reasonably reflects the criteria utilized in the most recent issue of the Index. Except as otherwise provided in this Agreement, the Salary shall be payable biweekly or in accordance with the Company's current payroll practices, and shall be pro-rated for any period of service less than a full year. 5.2 Bonuses. Executive may receive bonuses from the Company when, as and if determined from time to time by the Board. Any such bonuses paid to Executive shall be in addition to the Salary then in effect. 2 5.3 Benefits. Executive shall be entitled to participate in all employee benefit plans, life insurance plans, disability income plans, incentive compensation plans and other benefit plans, other than retirement plans, as may be from time to time in effect for executives of the Company generally. In addition, Executive and his spouse, for as long as they each may live, shall be entitled to all medical, dental and health benefits available from time to time to the Company's executive officers and their spouses, respectively, and Executive and his spouse, for as long as they each may live, shall be entitled to the benefits available under the Company's executive medical reimbursement plan in effect as of January 1, 2005. 5.4 Business Expenses. The Company shall pay or reimburse Executive during the Employment Term for all reasonable business expenses incurred or paid by him in the performance of his services, subject to reasonable substantiation and documentation. 5.5 Automobile. During the Employment Term, Executive shall be furnished either, as determined by the Company, an automobile owned or leased by the Company or an automobile allowance, which automobile or allowance shall be at least equivalent to that which the Company is providing to Executive as of January 1, 2005. 5.6 Equity Incentive Compensation.Through the Employment Period, Executive shall be entitled to participate in any applicable equity incentive compensation program of the Company. 6. PROPRIETARY RIGHTS AND NON-COMPETITION. Executive acknowledges that the Company is engaged in a continuous program of research, development and production in connection with its business, present and future, and hereby covenants as follows: 6.1 Confidentiality. Executive will maintain in confidence and will not disclose or use, either during or after the Employment Term, any proprietary or confidential information or know-how belonging to the Company ("Proprietary Information" hereinafter defined), whether or not in written form, except to the extent required to perform duties on behalf of the Company. For purposes of this Agreement, "Proprietary Information" shall mean any information, not generally known to the relevant trade or industry, which was obtained from the Company, or which was learned, discovered, developed, conceived, originated or prepared by Executive in connection with this Agreement. Such Proprietary Information includes, without limitation, software, technical and business information relating to the Company's inventions or products, research and development, production processes, manufacturing and engineering processes, machines and equipment, finances, customers, marketing and production and future business plans, information belonging to customers or suppliers of the Company disclosed incidental to Executive's performance under this Agreement, and any other information which is identified as confidential by the Company, but only so long as the same is not generally known in the relevant trade or industry. 6.2 Inventions. 6.2.1 Definition of Inventions. For purposes of this Agreement, "Inventions" shall mean any new or useful art, discovery, 3 contribution, finding or improvement, whether or not patentable, and all related know-how. Inventions shall include, without limitation, all designs, discoveries, formulae, processes, manufacturing techniques, semiconductor designs, computer software, inventions, improvements and ideas. 6.2.2 Disclosure and Assignment of Inventions. Executive will promptly disclose and describe to the Company all Inventions which he may solely or jointly conceive, develop, or reduce to practice during the Employment Term (i) which relate at the time of conception, development, or reduction to practice of the Invention to the Company's business or actual or demonstrably anticipated research or development, (ii) which were developed, in whole or in part, on the Company's time or with the use of any of the Company's equipment, supplies, facilities or trade secret information, or (iii) which resulted from any work performed by Executive for the Company (the "Company's Inventions"). Executive hereby assigns to the Company all of his right, title and interest world-wide in and to the Company's Inventions and in all intellectual property rights based upon the Company's Inventions; provided, however, that Executive does not assign or agree to assign any Inventions, whether or not relating in any way to the Company's business or demonstrably anticipated research and development, which were made by him prior to the date of this Agreement, or which were developed by him independently during the Employment Term and not under the conditions stated in subparagraph (ii) above. 6.3 Documents and Materials. Upon termination of this Agreement or at any other time upon the Company's request, Executive will promptly deliver to the Company, without retaining any copies, all documents and other materials furnished to him by the Company, prepared by him for the Company or otherwise relating to the Company's business, including, without limitation, all written and tangible material in his possession incorporating any Proprietary Information. 6.4 Competitive Employment. During the Employment Term and for a period of two (2) years thereafter (collectively, the "Extended Term"), Executive will not engage in any employment, consulting, or other activity in any business competitive with the Company without the Company's written consent, which consent shall not be unreasonably withheld; provided, however, that nothing in this Section 6.4 shall preclude Executive from serving as a director of any other corporation. 4 6.5 Non-Solicitation. During the Extended Term, Executive will not solicit or encourage, or cause others to solicit or encourage, any employees of the Company to terminate their employment with the Company. 6.6 Acts to Secure Proprietary Rights. 6.6.1 Further Acts. Executive agrees to perform, during and after the Employment Term, all acts deemed necessary or desirable by the Company to permit and assist it, at its expense, in perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the Company's Inventions. Such acts may include, without limitation, execution of documents and assistance or co-operation in the registration and enforcement of applicable patents and copyrights or other legal proceedings. 6.6.2 Appointment of Attorney-In-Fact. In the event that the Company is unable, for any reason whatsoever, to secure Executive's signature to any lawful and necessary document required to apply for or execute any patent, copyright or other applications with respect to any of the Company's Inventions (including improvements, renewals, extensions, continuations, divisions or continuations in part thereof), Executive hereby irrevocably appoints the Company and its duly authorized officers and agents as his agents and attorneys-in-fact to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by him, intending hereby to create a so-called "durable power" which will survive any subsequent disability. 6.7 No Conflicting Obligations. Executive's performance of this Agreement does not breach and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him. 6.8 Corporate Opportunities. Executive agrees that he will first present to the Board, for its acceptance or rejection on behalf of the Company, any opportunity to create or invest in any company which is or will be involved in equipping or furnishing airplane cabin interiors, which comes to his attention and in which he, or any of his affiliates, might desire to participate. If the Board rejects the same or fails to act thereon in a reasonable time, Executive shall be free to invest in, participate or present such opportunity to any other person or entity. 5 6.9 Specific Performance. Executive acknowledges that a breach of any of the promises or agreements contained herein could result in irreparable and continuing damage to the Company for which there may be no adequate remedy at law, and the Company shall be entitled to seek injunctive relief and/or a decree for specific performance. 7. TERMINATION AND CHANGE OF CONTROL. 7.1 Termination Date; Termination Prior to Change of Control or Following Change of Control. 7.1.1 Termination Date. The term "Termination Date" shall mean the date on which Executive's employment with the Company terminates for any reason prior to the Expiration Date. 7.1.2 Termination by Executive Prior to or Following a Change of Control. If Executive resigns prior to or more than three years following the occurrence of a Change of Control, then on the Termination Date, Executive shall receive payment of (i) his unpaid Salary through the Termination Date, (ii) the Retirement Compensation pursuant to Section 7.6 hereof, determined as of the Termination Date, to the extent not already paid pursuant to Section 7.4.1(i)(B), (iii) the other retirement benefits pursuant to Section 7.6 hereof, and (iv) the Severance Pay pursuant to Section 7.5 hereof. In addition, Executive and his spouse shall be entitled to a continuation of their medical, dental and health benefits pursuant to Section 5.3 hereof. 7.1.3 Termination by Company Prior to or Following a Change of Control. If the Company terminates the Executive's employment hereunder prior to or more than three years after the occurrence of a Change of Control for any reason other than death pursuant to Section 7.2 or incapacity pursuant to Section 7.3, then on the Termination Date, Executive shall receive payment of (i) any accrued and unpaid Salary through the Termination Date, (ii) bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date, (iii) a lump sum equal to his Salary from the Termination Date through the Expiration Date, (iv) the Retirement Compensation pursuant to Section 7.6 hereof, determined as of the Expiration Date, to the extent not already paid pursuant to Section 7.4.1(i)(B), (v) the other retirement benefits pursuant to Section 7.6 hereof, and (vi) the Severance Pay pursuant to Section 7.5 hereof. In addition, (A) Executive and his spouse shall be entitled to a continuation of their medical, dental and health benefits pursuant to Section 5.3 hereof, (B) any stock options (or other equity awards) granted to Executive that would not vest on or prior to the Termination Date shall vest and be exercise immediately, and such stock options shall continue to be exercisable until the later of their expiration date or the date on which shares of the Company are no longer traded as such and (C) for the period from Executive's actual Termination Date until the Expiration Date, the Company shall: 6 (1) provide Executive with continued life insurance and disability insurance coverage in the same amounts and upon the same terms and conditions as in effect on his Termination Date; (2) reimburse Executive for business expenses in the same manner and to the same extent required pursuant to Section 5.4 hereof prior to the Termination Date; and (3) continue to provide Executive with the automobile allowance provided pursuant to Section 5.5 hereof as of the Termination Date. If a Change of Control should occur prior to the Expiration Date, the Company shall, in addition, make the payment specified in Section 7.4.1(i)(A)(2). 7.2 Death. 7.2.1 Executive's employment hereunder shall terminate upon his death. In such event, the Company shall, within thirty (30) days following the Termination Date, pay to such person as Executive shall, have designated in a notice filed with the Company, or if no such person shall have been designated, to his estate, a lump sum payment equal to the (i) Salary that would have been due to Executive had this Agreement been in effect from the date of his death until the Expiration Date and the (ii) Retirement Compensation as provided in Section 7.6 below. 7.2.2 Upon Executive's death, the Company shall, within thirty (30) days following the Termination Date, also pay to such person as Executive shall have designated in a notice filed with the Company, or if no such person shall have been designated, to his estate, a lump-sum death benefit in the amount of $3 million. 7.2.3 Upon Executive's death, The Company shall, within thirty (30) days following the Termination Date, also pay to such person as Executive shall have designated in a notice filed with the Company, or if no such person shall have been designated, to his estate, a lump-sum equal to (A) any accrued and unpaid Salary through the Termination Date, and (B) any bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date. Executive's spouse shall be entitled to continuation of medical, dental and health benefits pursuant to Section 5.3 hereof. 7 7.3 Incapacity. If, in the reasonable judgment of the Board, as a result of Executive's incapacity due to physical or mental illness or otherwise, Executive shall for at least six (6) consecutive months during the Employment Term have been unable to perform his duties under this Agreement on a full-time basis, the Company may terminate Executive's employment as provided in this Section 7.3. If the Company desires to so terminate Executive's employment, the Company shall: (i) give prompt notice to Executive of any such termination; and (ii) until the Expiration Date, (a) pay to Executive or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or if no such person shall have been designated, to Executive's estate, two (2) times the highest annual Salary paid to Executive prior to the Termination Date, (b) continue to provide Executive with the disability insurance and life insurance coverage, in the same amounts and upon the same terms and conditions provided pursuant to Section 5.3 hereof immediately prior to the Termination Date, (c) reimburse Executive for business expenses in the same manner and to the same extent required pursuant to Section 5.4 hereof prior to the Termination Date, including without limitation the reimbursement of travel expenses and other travel benefits as were afforded to Executive under the Company's Aircraft Travel Policy Authorization and Limitation on Officer Travel as in effect on May 31, 2001, and (d) continue to provide Executive with the automobile allowance provided pursuant to Section 5.5 hereof immediately prior to the Termination Date; and (iii) pay to Executive (or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to his estate) the entire Retirement Compensation, or the remaining unpaid balance thereof if payments of such Retirement Compensation have commenced, as provided in Section 7.6 and below; and (iv) pay to Executive a lump-sum equal to (A) any accrued and unpaid Salary through the Termination Date, and (B) any bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date; and (v) continue to provide medical, dental and health benefits as provided in Section 5.3 hereof. Any dispute between the Board and Executive with respect to Executive's incapacity shall be settled by reference to a competent medical authority mutually agreed to by the Board and Executive or his personal representative, whose decision shall be binding on all parties. 8 7.4 Change of Control; Definitions. 7.4.1 Change of Control. If a "Change of Control" of the Company occurs, the Company will be obligated as provided in this Section 7.4.1. For purposes of determining the Company's obligations under this Section 7.4.1, the date on which a Change of Control occurs shall be referred to as the "Change of Control Date." If a "Change of Control" occurs during the Employment Term, the Company or its successor in interest shall: (i) within five (5) business days after the Change of Control Date, pay to Executive, (or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, Executive's estate): (A) a lump sum payment equal to the sum of: (1) the unpaid amount of any bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Change of Control Date, and (2) an amount equal to two (2) times the Salary, at the rate in effect on the Change of Control Date, that would have been payable to Executive through the third anniversary of the Change of Control Date; (B) in a single lump sum payment, the aggregate amount of Retirement Compensation payable to Executive pursuant to Section 7.6 hereof determined as if Executive had continued to be employed by the Company until the third anniversary of the Change of Control Date; and (C) the amount of any Gross-Up Payment payable by the Company to Executive under Section 7.8 hereof; (ii) if, within three years following the Change of Control Date, Executive's employment with the Company is terminated by the Company for any reason other than death pursuant to Section 7.2 or incapacity pursuant to Section 7.3, or if Executive resigns during this period, the Company or its successor shall pay to Executive (A) any accrued and unpaid Salary through the Termination Date, (B) bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date and (C) for the period from Executive's actual Termination Date until the Expiration Date, the Company shall: 9 (1) provide Executive with continued life insurance and disability insurance coverage in the same amounts and upon the same terms and conditions as in effect on his Termination Date, or if greater, as those provided immediately prior to the Change of Control Date; (2) reimburse Executive for business expenses in the same manner and to the same extent required pursuant to Section 5.4 hereof prior to the Termination Date, or if greater, to the extent provided immediately prior to the Change of Control Date; and (3) continue to provide Executive with the automobile allowance provided pursuant to Section 5.5 hereof as of the Termination Date, or if greater, as provided immediately prior to the Change of Control Date; (iii) continue to provide to Executive and his spouse, for their respective lifetimes, medical, dental and health benefits as provided in Section 5.3 hereof; provided, however, that the terms and level of such benefits shall be substantially similar as Executive and his spouse were receiving as of the Termination Date, or if greater, as they were receiving immediately prior to the Change of Control Date; and (iv) provide that any stock options (or other equity awards) granted to Executive that would not vest on or prior to the Change of Control Date shall vest and, if applicable, be exercisable immediately upon the execution of any agreement that would constitute a Change of Control (regardless of whether such agreement is consummated), and such stock options shall continue to be exercisable until the later of their expiration date or the date on which shares of the Company are no longer traded as such. 7.4.2 Executive agrees that if, following a Change of Control of the Company, his employment pursuant to this Agreement continues or he enters into a new employment agreement with a successor entity, he will not be entitled to receive any additional change of control payments or benefits in addition to those described herein. 7.4.3 Definitions. For purposes of this Agreement, a "Change of Control" means: (i) The effective time of any transaction or completion of a series of transactions involving the ownership of the Company that requires a shareholder vote for the consummation of such transaction(s); 10 (ii) Individuals who, as of January 1, 2005 (the "Effective Date") constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any person becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; (iii) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of 25% or more of either the then outstanding shares of the Company's Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors (hereinafter referred to as the ownership of a "Controlling Interest") excluding, for this purpose, any acquisitions by (1) the Company or its subsidiaries, (2) any person, entity or "group" that as of the Effective Date owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of a Controlling Interest or (3) any employee benefit plan of the Company or its subsidiaries; or (iv) The sale or other disposition by the Company of 25% or more of the value of its assets to any person or entity that is not controlled by the Company. 7.5 Severance Pay. If Executive's employment with the Company is terminated for any reason, other than due to (i) Executive's death pursuant to Section 7.2 hereof, or (ii) Executive's incapacity pursuant to Section 7.3 hereof, then within five (5) days after Executive's Termination Date, the Company shall pay to Executive (or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to Executive's estate), a lump sum amount equal to Executive's annual Salary in effect as of the Termination Date, which lump sum shall not be pro-rated. The obligations of the Company pursuant to this Section 7.5 is in addition to any other obligations under Section 7 hereof. 11 7.6 Retirement Compensation. 7.6.1 Amount of Retirement Compensation. In recognition that Executive founded the Company and will not be eligible for any retirement plan to be offered by the Company to its executives (as provided in Section 5.3 above), Executive shall be entitled to retirement compensation ("Retirement Compensation") equal to the product of (i) 150% times (ii) the highest annual Salary paid to Executive during the Employment Period (the "Highest Annual Salary") multiplied by (iii) the number of years of service provided by Executive to the Company, such service having commenced as of August 1, 1987 ("Commencement Date"), with a ratable adjustment should Executive's final period of service be less than a full year. The Retirement Compensation as so determined shall be paid to Executive (or in the event of Executive's subsequent death, to such person as Executive shall have designated in a notice filed with the Company or, if no such person shall have been designated, to his estate) at the times specified in Section 7.6.2 below, or contributed to the Retirement Trust described in Section 7.6.3 below in accordance with that Section. The amount of the Retirement Compensation so due and payable shall not be present-valued or otherwise reduced by use of any other discount or discounting method. 7.6.2 Payment of Retirement Compensation. (i) Within five business days after the date on which the BE Aerospace, Inc. Executive Compensation Trust II dated April 21, 1999, as amended, is terminated (the "Distribution Date"), the Company will distribute the amount of Retirement Compensation that would have been payable to Executive under Section 7.6.1 as of the Distribution Date, based on his years of service through the Distribution Date and his then Highest Annual Salary. (ii) Within five (5) business days after Executive's actual Termination Date, the Company shall pay to Executive an amount equal to (x) the Retirement Compensation payable to Executive as determined in Section 7.6.1 hereof less (y) the sum of (1) the amount of Retirement Compensation previously distributed to Executive pursuant to Section 7.6.2(i) and 7.4.1(ii) hereof, and (2) the amounts previously distributed pursuant to Section 7.6.3(i) or 7.6.3(ii). 7.6.3 Retirement Trust. (i) Within ninety days after the Distribution Date, the Company shall establish a trust for the duration of the Employment Term, and, commencing on such date and on a quarterly basis thereafter, each a "Contribution Date" the Company shall contribute to the trust (the "Retirement Trust") for the benefit of Executive an amount equal to (a) the Retirement Compensation that would be payable to Executive under Section 7.6.2(ii) if the Contribution Date was his Termination Date minus (b) the total of all contributions made to the Retirement Trust by the Company as of such Contribution Date. The Retirement Trust to which the Company shall make these contributions shall be irrevocable. The Retirement Trust shall provide that 12 Executive may withdraw from the Retirement Trust, within the 30 day period beginning on the date on which he receives notice from the Company that the Company has made a contribution pursuant to this Section 7.6.3(i) an amount up to but not to exceed the amount of that contribution. If and to the extent that Executive fails to exercise this withdrawal right within the 30 day period, such withdrawal right shall lapse. The Retirement Trust also shall contain such other provisions as the Company and Executive reasonably agree are necessary in order for the Retirement Trust to qualify as a grantor trust under Section 671 of the Code with Executive as the grantor. The trust agreement for the Retirement Trust shall provide that any assets remaining in the Retirement Trust, after payment of all the Retirement Compensation payable pursuant to this Section 7.6, shall be paid to Executive, and that the Retirement Trust shall be exempt from the claims of the Company's creditors. (ii) As of the last day of each calendar quarter ending on or after the Distribution Date, during the Employment Term, the trustee of the Retirement Trust shall be required to distribute to Executive 25% of the amount by which (x) the Assumed Taxes that the Company reasonably estimates will be assessed upon Executive for the calendar year for which the distribution is being made as a result of his beneficial interest in the Retirement Trust, exceeds (y) the amount withdrawn by Executive in such calendar year pursuant to Section 7.6.3(i). For this purpose, the term "Assumed Taxes" shall mean the Federal, State and local income and employment taxes that would be payable by Executive for the year in question, assuming that the amount taxable would be subject to the highest Federal and applicable State and local income and employment taxes. 7.7 Other Retirement Benefits. In the event that Executive's employment terminates for any reason other than death pursuant to Section 7.2 or incapacity pursuant to Section 7.3, then for the period from the Termination Date until the 5th anniversary after the Termination Date, the Company shall: (a) reimburse Executive for the reasonable costs of leasing and operating an office at a location selected by Executive that is outside of the Company's office, including without limitation, the cost of a full-time assistant, and (b) provide Executive with up to 150 hours per year of corporate jet usage consistent with the Company's Aircraft Travel Policy, "Authorization and Limitation on Officer Travel", as in effect on May 31, 2001, or, in the event that the Company does not own or control an aircraft of the type specified in such policy, or, at the Company's option, the Company may provide Executive a quarter share of the same aircraft type specified in such policy under a five year, executive jet party share program. In the event the Company provides Executive with use of its corporate jet, the corporate jet shall be available for use by Executive given seventy-two hours advance notice by Executive to the Company of his intent to use the aircraft. If and to the extent that the Company is required to withhold any amounts for taxes with regard to the foregoing, then the provision of the foregoing benefits shall be conditioned upon the Company and Executive's making appropriate arrangements to ensure that those withholding requirements are satisfied. 13 7.8 Certain Additional Payments by the Company. 7.8.1 Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, distribution, benefit, equity-based or other compensation or other transfer or action by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise and including without limitation any additional payments required under this Section 7.8) (a "Payment") would be subject to an excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Executive with respect to any such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall make a payment to Executive (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Executive retains (or has had paid to the Internal Revenue Service on his behalf) an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Executive's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local. 7.8.2 Subject to the provisions of Section 7.8.3, all determinations required to be made under this Section 7.8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up 14 Payment, as determined pursuant to this Section 7.8, shall be paid by the Company to Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 7.8 and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive. 7.8.3 Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 7.8.3, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and 15 conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. 7.8.4 If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 7.8.3, Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 7.8.3 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 7.8.3, a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 8. WITHHOLDING. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 16 9. INDEMNIFICATION. To the maximum extent permitted under Florida law as from time to time in effect, and subject to any mandatory exclusion of indemnification under Delaware law applicable to the indemnification of Executive under this Section 9, the Company hereby agrees to indemnify Executive and hold him harmless from, against and in respect of any and all damages, deficiencies, actions, suits, proceedings, demands, assessments, judgments, claims, losses, costs, expenses, obligations and liabilities arising from or related to the performance of the services under this Agreement by Executive. 10. LEGAL FEES. In the event of a dispute between the parties with respect to any payments due hereunder in connection with a Change of Control, the Company will pay the costs of any legal fees and related expenses incurred in connection with such dispute. Such costs and expenses shall be advanced to Executive currently as reasonably required to continue such action or proceeding. 11. UNFUNDED STATUS This Agreement is intended to constitute an unfunded plan for incentive compensation. Except with respect to the Retirement Compensation, nothing contained herein shall give any Participant any rights that are greater than those of a general unsecured creditor of the Company. In its sole discretion, the Stock Option and Compensation Committee of the Board may authorize the creation of trusts, acquisition of life insurance policies or other arrangements to meet the obligations created under this Agreement. 12. SECTION 409A. 12.1 Notwithstanding any provision of this Agreement to the contrary, if Executive is a "specified employee" as defined in Section 409A of the Code he shall not be entitled to any payments upon a termination of his employment until the earlier of (i) the date which is six months after Executive's termination of employment for any reason other than death or (ii) Executive's date of death. The provisions of this Section 12.1 shall only apply if required to comply with Section 409A of the Code. 12.2 If any provision of this Agreement contravenes any regulations or Treasury guidance promulgated under Section 409A of the Code, or if any tax is imposed under such Section 409A on any payment to be received by Executive hereunder, this Agreement or any provision hereof may be reformed by Executive, subject to the consent of the Company which consent shall not be unreasonably withheld, to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A of the Code. Executive agrees in good faith to consider any such reformation proposed by the Company. 17 12.3 The provisions of Section 7.8 of this Agreement, mutatis mutandis, shall apply to any imposition of taxes on Executive under Section 409A of the Code so that Executive shall be fully grossed up for the amount of, and shall not be adversely affected by, such taxes. 13. WAIVER. Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right that Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Similarly, the waiver by any party hereto of a breach of any provision of this Agreement by the other party will not operate or be construed as a waiver of any other or subsequent breach by such other party. 14. SEVERABILITY. If any part of this Agreement is found to be invalid or unenforceable, that part will be deemed amended to achieve as nearly as possible the same economic effect as the original provision, and the remainder of this Agreement will remain in full force and effect. 15. NOTICES. Any notice or other communication in connection with this Agreement shall be deemed to be delivered if in writing, addressed as provided below (or to such other person or address as to which either party may notify the other in accordance with this Section 15) and actually delivered at said address: If to Executive, to him at: Amin J. Khoury 149 South Beach Road Hobe Sound, FL 33455 If to the Company, to it at: BE Aerospace, Inc. 1400 Corporate Center Drive Wellington, Florida 33414 Attention: General Counsel 16. SURVIVAL. The provisions of Sections 5.3 and 6 through 17 inclusive hereof shall each survive any termination or expiration of this Agreement. 18 17. MISCELLANEOUS. This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof, and supersedes all prior and contemporaneous understandings and agreements, whether oral or written, regarding such subject matter. This Agreement may be amended or modified only by a written instrument signed by Executive and by a duly authorized representative of the Company. This Agreement may be executed in any number of counterparts, which together shall constitute one and the same instrument. Except as otherwise provided in this Agreement, this Agreement shall be governed by and construed in accordance with the laws (other than the conflicts of law rules) of the State of Florida. 19 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. EXECUTIVE BE AEROSPACE, INC. /s/ Amin J. Khoury By: /s/ Thomas P. McCaffrey -------------- ------------------------ Chairman of the Board Senior Vice President of Administration and Chief Financial Officer 20 EX-10 6 ex103.txt Exhibit 10.3 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Agreement (this "Agreement") dated as of August 1, 2005, is between BE Aerospace, Inc., a Delaware corporation (the "Company") and Robert J. Khoury ("Executive"). WHEREAS, Executive and the Company entered into that certain Employment Agreement dated as of September 14, 2001 and thereafter amended said agreement by two amendments (said Employment Agreement and amendments hereinafter collectively the "Employment Agreement"); and WHEREAS, Executive, having provided services to the Company since August 1, 1987, agrees to provide services for an additional period as provided herein, and the Company wishes to procure such services; and WHEREAS, Executive and the Company wish to further amend and restate the Employment Agreement in its entirety; NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, the parties agree as follows: 1. REFERENCE TO EMPLOYMENT AGREEMENT. The Employment Agreement is hereby restated, superseded and replaced in its entirety by this Agreement. 2. ARRANGEMENT. Executive shall provide to the Company, and the Company shall accept from Executive, the services set forth in Section 4.2 below, subject to the terms and conditions set forth in this Agreement. 3. TERM. Executive shall provide to the Company services hereunder during the term of this Agreement which, unless otherwise terminated pursuant to the provisions of Article 7 hereof, shall be the period ending three (3) years from any date as of which the term is being determined (the "Employment Term"). The date on which the Employment Term ends, including any extensions thereof, is sometimes hereinafter referred to as the "Expiration Date." 4. CAPACITY, SERVICES AND PERFORMANCE. 4.1 Capacity. Executive shall serve the Company as its President and Chief Executive Officer, or in such other executive capacity as the Board of Directors (the "Board") may designate from time to time, but only upon agreement with Executive. 1 4.2 Services.In the capacity set forth in Section 4.1 above, Executive shall be retained by the Company and shall perform such duties and responsibilities on behalf of the Company as Executive and the Board shall by mutual agreement from time to time determine. 4.3 Performance.During the Employment Term, Executive shall use his business judgment, skill and knowledge to the advancement of the Company's interests and to the discharge of his duties and responsibilities hereunder; provided that Executive shall be required only to devote so much time as Executive determines is reasonably necessary to discharge his duties as Chairman of the Board, and, subject to the provisions of Section 6 below, Executive may engage in other business activities during the Employment Term. 5. COMPENSATION AND BENEFITS. 5.1 Salary. Effective as of January 1, 2005 Executive shall receive an annual salary (the "Salary") of $792,500 during each year of the Employment Term. Such Salary shall be subject to adjustment from time to time by the Board; provided, however, that it shall at no time be adjusted below the Salary for the preceding year. Commencing on January 1, 2006, and on March 1 of each year thereafter during the Employment Term, the Salary then in effect shall be increased by an amount not less than the amount determined by applying to the Salary then in effect the percentage increase in the U.S. Bureau of Labor Statistics Consumer Price Index Revised - Urban Wage Earners and Clerical Workers - National - All Items (1982-84 = 100) (the "Index") for the consecutive twelve (12) month period (March through February) immediately preceding such March 1. If the Index is no longer issued, the Board and Executive shall agree upon a substitute index issued by such agency which most reasonably reflects the criteria utilized in the most recent issue of the Index. Except as otherwise provided in this Agreement, the Salary shall be payable biweekly or in accordance with the Company's current payroll practices, and shall be pro-rated for any period of service less than a full year. 5.2 Bonuses. Executive may receive bonuses from the Company when, as and if determined from time to time by the Board. Any such bonuses paid to Executive shall be in addition to the Salary then in effect. 2 5.3 Benefits. Executive shall be entitled to participate in all employee benefit plans, life insurance plans, disability income plans, incentive compensation plans and other benefit plans, other than retirement plans, as may be from time to time in effect for executives of the Company generally. In addition, Executive and his spouse, for as long as they each may live, shall be entitled to all medical, dental and health benefits available from time to time to the Company's executive officers and their spouses, respectively, and Executive and his spouse, for as long as they each may live, shall be entitled to the benefits available under the Company's executive medical reimbursement plan in effect as of January 1, 2005. 5.4 Business Expenses. The Company shall pay or reimburse Executive during the Employment Term for all reasonable business expenses incurred or paid by him in the performance of his services, subject to reasonable substantiation and documentation. 5.5 Automobile. During the Employment Term, Executive shall be furnished either, as determined by the Company, an automobile owned or leased by the Company or an automobile allowance, which automobile or allowance shall be at least equivalent to that which the Company is providing to Executive as of January 1, 2005. 5.6 Equity Incentive Compensation. Through the Employment Period, Executive shall be entitled to participate in any applicable equity incentive compensation program of the Company. 6. PROPRIETARY RIGHTS AND NON-COMPETITION. Executive acknowledges that the Company is engaged in a continuous program of research, development and production in connection with its business, present and future, and hereby covenants as follows: 6.1 Confidentiality. Executive will maintain in confidence and will not disclose or use, either during or after the Employment Term, any proprietary or confidential information or know-how belonging to the Company ("Proprietary Information" hereinafter defined), whether or not in written form, except to the extent required to perform duties on behalf of the Company. For purposes of this Agreement, "Proprietary Information" shall mean any information, not generally known to the relevant trade or industry, which was obtained from the Company, or which was learned, discovered, developed, conceived, originated or prepared by Executive in connection with this Agreement. Such Proprietary Information includes, without limitation, software, technical and business information relating to the Company's inventions or products, research and development, production processes, manufacturing and engineering processes, machines and equipment, finances, customers, marketing and production and future business plans, information belonging to customers or suppliers of the Company disclosed incidental to Executive's performance under this Agreement, and any other information which is identified as confidential by the Company, but only so long as the same is not generally known in the relevant trade or industry. 6.2 Inventions. 6.2.1 Definition of Inventions. For purposes of this Agreement, "Inventions" shall mean any new or useful art, discovery, contribution, finding or improvement, whether or not 3 patentable, and all related know-how. Inventions shall include, without limitation, all designs, discoveries, formulae, processes, manufacturing techniques, semiconductor designs, computer software, inventions, improvements and ideas. 6.2.2 Disclosure and Assignment of Inventions. Executive will promptly disclose and describe to the Company all Inventions which he may solely or jointly conceive, develop, or reduce to practice during the Employment Term (i) which relate at the time of conception, development, or reduction to practice of the Invention to the Company's business or actual or demonstrably anticipated research or development, (ii) which were developed, in whole or in part, on the Company's time or with the use of any of the Company's equipment, supplies, facilities or trade secret information, or (iii) which resulted from any work performed by Executive for the Company (the "Company's Inventions"). Executive hereby assigns to the Company all of his right, title and interest world-wide in and to the Company's Inventions and in all intellectual property rights based upon the Company's Inventions; provided, however, that Executive does not assign or agree to assign any Inventions, whether or not relating in any way to the Company's business or demonstrably anticipated research and development, which were made by him prior to the date of this Agreement, or which were developed by him independently during the Employment Term and not under the conditions stated in subparagraph (ii) above. 6.3 Documents and Materials. Upon termination of this Agreement or at any other time upon the Company's request, Executive will promptly deliver to the Company, without retaining any copies, all documents and other materials furnished to him by the Company, prepared by him for the Company or otherwise relating to the Company's business, including, without limitation, all written and tangible material in his possession incorporating any Proprietary Information. 6.4 Competitive Employment. During the Employment Term and for a period of two (2) years thereafter (collectively, the "Extended Term"), Executive will not engage in any employment, consulting, or other activity in any business competitive with the Company without the Company's written consent, which consent shall not be unreasonably withheld; provided, however, that nothing in this Section 6.4 shall preclude Executive from serving as a director of any other corporation. 4 6.5 Non-Solicitation. During the Extended Term, Executive will not solicit or encourage, or cause others to solicit or encourage, any employees of the Company to terminate their employment with the Company. 6.6 Acts to Secure Proprietary Rights. 6.6.1 Further Acts. Executive agrees to perform, during and after the Employment Term, all acts deemed necessary or desirable by the Company to permit and assist it, at its expense, in perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the Company's Inventions. Such acts may include, without limitation, execution of documents and assistance or co-operation in the registration and enforcement of applicable patents and copyrights or other legal proceedings. 6.6.2 Appointment of Attorney-In-Fact. In the event that the Company is unable, for any reason whatsoever, to secure Executive's signature to any lawful and necessary document required to apply for or execute any patent, copyright or other applications with respect to any of the Company's Inventions (including improvements, renewals, extensions, continuations, divisions or continuations in part thereof), Executive hereby irrevocably appoints the Company and its duly authorized officers and agents as his agents and attorneys-in-fact to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by him, intending hereby to create a so-called "durable power" which will survive any subsequent disability. 6.7 No Conflicting Obligations. Executive's performance of this Agreement does not breach and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him. 6.8 Corporate Opportunities. Executive agrees that he will first present to the Board, for its acceptance or rejection on behalf of the Company, any opportunity to create or invest in any company which is or will be involved in equipping or furnishing airplane cabin interiors, which comes to his attention and in which he, or any of his affiliates, might desire to participate. If the Board rejects the same or fails to act thereon in a reasonable time, Executive shall be free to invest in, participate or present such opportunity to any other person or entity. 5 6.9 Specific Performance. Executive acknowledges that a breach of any of the promises or agreements contained herein could result in irreparable and continuing damage to the Company for which there may be no adequate remedy at law, and the Company shall be entitled to seek injunctive relief and/or a decree for specific performance. 7. TERMINATION AND CHANGE OF CONTROL. 7.1 Termination Date; Termination Prior to Change of Control or Following Change of Control. 7.1.1 Termination Date. The term "Termination Date" shall mean the date on which Executive's employment with the Company terminates for any reason prior to the Expiration Date. 7.1.2 Termination by Executive Prior to or Following a Change of Control. If Executive resigns prior to or more than three years following the occurrence of a Change of Control, then on the Termination Date, Executive shall receive payment of (i) his unpaid Salary through the Termination Date, (ii) the Retirement Compensation pursuant to Section 7.6 hereof, determined as of the Termination Date, to the extent not already paid pursuant to Section 7.4.1(i)(B), (iii) the other retirement benefits pursuant to Section 7.6 hereof, and (iv) the Severance Pay pursuant to Section 7.5 hereof. In addition, Executive and his spouse shall be entitled to a continuation of their medical, dental and health benefits pursuant to Section 5.3 hereof. 7.1.3 Termination by Company Prior to or Following a Change of Control. If the Company terminates the Executive's employment hereunder prior to or more than three years after the occurrence of a Change of Control for any reason other than death pursuant to Section 7.2 or incapacity pursuant to Section 7.3, then on the Termination Date, Executive shall receive payment of (i) any accrued and unpaid Salary through the Termination Date, (ii) bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date, (iii) a lump sum equal to his Salary from the Termination Date through the Expiration Date, (iv) the Retirement Compensation pursuant to Section 7.6 hereof, determined as of the Expiration Date, to the extent not already paid pursuant to Section 7.4.1(i)(B), (v) the other retirement benefits pursuant to Section 7.6 hereof, and (vi) the Severance Pay pursuant to Section 7.5 hereof. In addition, (A) Executive and his spouse shall be entitled to a continuation of their medical, dental and health benefits pursuant to Section 5.3 hereof, (B) any stock options (or other equity awards) granted to Executive that would not vest on or prior to the Termination Date shall vest and be exercise immediately, and such stock options shall continue to be exercisable until the later of their expiration date or the date on which shares of the Company are no longer traded as such and (C) for the period from Executive's actual Termination Date until the Expiration Date, the Company shall: 6 (1) provide Executive with continued life insurance and disability insurance coverage in the same amounts and upon the same terms and conditions as in effect on his Termination Date; (2) reimburse Executive for business expenses in the same manner and to the same extent required pursuant to Section 5.4 hereof prior to the Termination Date; and (3) continue to provide Executive with the automobile allowance provided pursuant to Section 5.5 hereof as of the Termination Date. If a Change of Control should occur prior to the Expiration Date, the Company shall, in addition, make the payment specified in Section 7.4.1(i)(A)(2). 7.2 Death. 7.2.1 Executive's employment hereunder shall terminate upon his death. In such event, the Company shall, within thirty (30) days following the Termination Date, pay to such person as Executive shall, have designated in a notice filed with the Company, or if no such person shall have been designated, to his estate, a lump sum payment equal to the (i) Salary that would have been due to Executive had this Agreement been in effect from the date of his death until the Expiration Date and the (ii) Retirement Compensation as provided in Section 7.6 below. 7.2.2 Upon Executive's death, the Company shall, within thirty (30) days following the Termination Date, also pay to such person as Executive shall have designated in a notice filed with the Company, or if no such person shall have been designated, to his estate, a lump-sum death benefit in the amount of $2 million. 7.2.3 Upon Executive's death, The Company shall, within thirty (30) days following the Termination Date, also pay to such person as Executive shall have designated in a notice filed with the Company, or if no such person shall have been designated, to his estate, a lump-sum equal to (A) any accrued and unpaid Salary through the Termination Date, and (B) any bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date. Executive's spouse shall be entitled to continuation of medical, dental and health benefits pursuant to Section 5.3 hereof. 7 7.3 Incapacity. If, in the reasonable judgment of the Board, as a result of Executive's incapacity due to physical or mental illness or otherwise, Executive shall for at least six (6) consecutive months during the Employment Term have been unable to perform his duties under this Agreement on a full-time basis, the Company may terminate Executive's employment as provided in this Section 7.3. If the Company desires to so terminate Executive's employment, the Company shall: (i) give prompt notice to Executive of any such termination; and (ii) until the Expiration Date, (a) pay to Executive or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or if no such person shall have been designated, to Executive's estate, two (2) times the highest annual Salary paid to Executive prior to the Termination Date, (b) continue to provide Executive with the disability insurance and life insurance coverage, in the same amounts and upon the same terms and conditions provided pursuant to Section 5.3 hereof immediately prior to the Termination Date, (c) reimburse Executive for business expenses in the same manner and to the same extent required pursuant to Section 5.4 hereof prior to the Termination Date, including without limitation the reimbursement of travel expenses and other travel benefits as were afforded to Executive under the Company's Aircraft Travel Policy Authorization and Limitation on Officer Travel as in effect on May 31, 2001, and (d) continue to provide Executive with the automobile allowance provided pursuant to Section 5.5 hereof immediately prior to the Termination Date; and (iii) pay to Executive (or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to his estate) the entire Retirement Compensation, or the remaining unpaid balance thereof if payments of such Retirement Compensation have commenced, as provided in Section 7.6 and below; and (iv) pay to Executive a lump-sum equal to (A) any accrued and unpaid Salary through the Termination Date, and (B) any bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date; and (v) continue to provide medical, dental and health benefits as provided in Section 5.3 hereof. Any dispute between the Board and Executive with respect to Executive's incapacity shall be settled by reference to a competent medical authority mutually agreed to by the Board and Executive or his personal representative, whose decision shall be binding on all parties. 8 7.4 Change of Control; Definitions. 7.4.1 Change of Control. If a "Change of Control" of the Company occurs, the Company will be obligated as provided in this Section 7.4.1. For purposes of determining the Company's obligations under this Section 7.4.1, the date on which a Change of Control occurs shall be referred to as the "Change of Control Date." If a "Change of Control" occurs during the Employment Term, the Company or its successor in interest shall: (i) within five (5) business days after the Change of Control Date, pay to Executive, (or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, Executive's estate): (A) a lump sum payment equal to the sum of: (1) the unpaid amount of any bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Change of Control Date, and (2) an amount equal to two (2) times the Salary, at the rate in effect on the Change of Control Date, that would have been payable to Executive through the third anniversary of the Change of Control Date; (B) in a single lump sum payment, the aggregate amount of Retirement Compensation payable to Executive pursuant to Section 7.6 hereof determined as if Executive had continued to be employed by the Company until the third anniversary of the Change of Control Date; and (C) the amount of any Gross-Up Payment payable by the Company to Executive under Section 7.8 hereof; (ii) if, within three years following the Change of Control Date, Executive's employment with the Company is terminated by the Company for any reason other than death pursuant to Section 7.2 or incapacity pursuant to Section 7.3, or if Executive resigns during this period, the Company or its successor shall pay to Executive (A) any accrued and unpaid Salary through the Termination Date, (B) bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date and (C) for the period from Executive's actual Termination Date until the Expiration Date the Company shall: 9 (1) provide Executive with continued life insurance and disability insurance coverage in the same amounts and upon the same terms and conditions as in effect on his Termination Date, or if greater, as those provided immediately prior to the Change of Control Date; (2) reimburse Executive for business expenses in the same manner and to the same extent required pursuant to Section 5.4 hereof prior to the Termination Date, or if greater, to the extent provided immediately prior to the Change of Control Date; and (3) continue to provide Executive with the automobile allowance provided pursuant to Section 5.5 hereof as of the Termination Date, or if greater, as provided immediately prior to the Change of Control Date; (iii) continue to provide to Executive and his spouse, for their respective lifetimes, medical, dental and health benefits as provided in Section 5.3 hereof; provided, however, that the terms and level of such benefits shall be substantially similar as Executive and his spouse were receiving as of the Termination Date, or if greater, as they were receiving immediately prior to the Change of Control Date; and (iv) provide that any stock options (or other equity awards) granted to Executive that would not vest on or prior to the Change of Control Date shall vest and, if applicable, be exercisable immediately upon the execution of any agreement that would constitute a Change of Control (regardless of whether such agreement is consummated), and such stock options shall continue to be exercisable until the later of their expiration date or the date on which shares of the Company are no longer traded as such. 7.4.2 Executive agrees that if, following a Change of Control of the Company, his employment pursuant to this Agreement continues or he enters into a new employment agreement with a successor entity, he will not be entitled to receive any additional change of control payments or benefits in addition to those described herein. 7.4.3 Definitions. For purposes of this Agreement, a "Change of Control" means: (i) The effective time of any transaction or completion of a series of transactions involving the ownership of the Company that requires a shareholder vote for the consummation of such transaction(s); 10 (ii) Individuals who, as of January 1, 2005 (the "Effective Date") constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any person becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; (iii) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of 25% or more of either the then outstanding shares of the Company's Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors (hereinafter referred to as the ownership of a "Controlling Interest") excluding, for this purpose, any acquisitions by (1) the Company or its subsidiaries, (2) any person, entity or "group" that as of the Effective Date owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of a Controlling Interest or (3) any employee benefit plan of the Company or its subsidiaries; or (iv) The sale or other disposition by the Company of 25% or more of the value of its assets to any person or entity that is not controlled by the Company. 7.5 Severance Pay. If Executive's employment with the Company is terminated for any reason, other than due to (i) Executive's death pursuant to Section 7.2 hereof, or (ii) Executive's incapacity pursuant to Section 7.3 hereof, then within five (5) days after Executive's Termination Date, the Company shall pay to Executive (or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to Executive's estate), a lump sum amount equal to Executive's annual Salary in effect as of the Termination Date, which lump sum shall not be pro-rated. The obligations of the Company pursuant to this Section 7.5 is in addition to any other obligations under Section 7 hereof. 11 7.6 Retirement Compensation. 7.6.1 Amount of Retirement Compensation. In recognition that Executive will not be eligible for any retirement plan to be offered by the Company to its executives (as provided in Section 5.3 above), Executive shall be entitled to retirement compensation ("Retirement Compensation") equal to the product of (i) 100% times (ii) the highest annual Salary paid to Executive during the Employment Period (the "Highest Annual Salary") multiplied by (iii) the number of years of service provided by Executive to the Company, such service having commenced as of August 1, 1987 ("Commencement Date"), with a ratable adjustment should Executive's final period of service be less than a full year. The Retirement Compensation as so determined shall be paid to Executive (or in the event of Executive's subsequent death, to such person as Executive shall have designated in a notice filed with the Company or, if no such person shall have been designated, to his estate) at the times specified in Section 7.6.2 below, or contributed to the Retirement Trust described in Section 7.6.3 below in accordance with that Section. The amount of the Retirement Compensation so due and payable shall not be present-valued or otherwise reduced by use of any other discount or discounting method. 7.6.2 Payment of Retirement Compensation. (i) Within five business days after the date on which the BE Aerospace, Inc. Executive Compensation Trust II dated April April 21, 1999, as amended, is terminated (the "Distribution Date"), the Company will distribute the amount of Retirement Compensation that would have been payable to Executive under Section 7.6.1 as of the Distribution Date, based on his years of service through the Distribution Date and his then Highest Annual Salary. (ii) Within five (5) business days after Executive's actual Termination Date, the Company shall pay to Executive an amount equal to (x) the Retirement Compensation payable to Executive as determined in Section 7.6.1 hereof less (y) the sum of (1) the amount of Retirement Compensation previously distributed to Executive pursuant to Section 7.6.2(i) and 7.4.1(ii) hereof, and (2) the amounts previously distributed pursuant to Section 7.6.3(i) or 7.6.3(ii). 7.6.3 Retirement Trust. (i) Within ninety days after the Distribution Date, the Company shall establish a trust for the duration of the Employment Term, and, commencing on such date and on a quarterly basis thereafter, each a "Contribution Date" the Company shall contribute to the trust (the "Retirement Trust") for the benefit of Executive an amount equal to (a) the Retirement Compensation that would be payable to Executive under Section 7.6.2(ii) if the Contribution Date was his Termination Date minus (b) the total of all contributions made to the Retirement Trust by the Company as of such Contribution Date. The Retirement Trust to which the Company shall make these contributions shall be irrevocable. The Retirement Trust shall provide that 12 Executive may withdraw from the Retirement Trust, within the 30 day period beginning on the date on which he receives notice from the Company that the Company has made a contribution pursuant to this Section 7.6.3(i) an amount up to but not to exceed the amount of that contribution. If and to the extent that Executive fails to exercise this withdrawal right within the 30 day period, such withdrawal right shall lapse. The Retirement Trust also shall contain such other provisions as the Company and Executive reasonably agree are necessary in order for the Retirement Trust to qualify as a grantor trust under Section 671 of the Code with Executive as the grantor. The trust agreement for the Retirement Trust shall provide that any assets remaining in the Retirement Trust, after payment of all the Retirement Compensation payable pursuant to this Section 7.6, shall be paid to Executive, and that the Retirement Trust shall be exempt from the claims of the Company's creditors. (ii) As of the last day of each calendar quarter ending on or after the Distribution Date, during the Employment Term, the trustee of the Retirement Trust shall be required to distribute to Executive 25% of the amount by which (x) the Assumed Taxes that the Company reasonably estimates will be assessed upon Executive for the calendar year for which the distribution is being made as a result of his beneficial interest in the Retirement Trust, exceeds (y) the amount withdrawn by Executive in such calendar year pursuant to Section 7.6.3(i). For this purpose, the term "Assumed Taxes" shall mean the Federal, State and local income and employment taxes that would be payable by Executive for the year in question, assuming that the amount taxable would be subject to the highest Federal and applicable State and local income and employment taxes. 7.7 Other Retirement Benefits. In the event that Executive's employment terminates for any reason other than death pursuant to Section 7.2 or incapacity pursuant to Section 7.3, then for the period from the Termination Date until the 5th anniversary after the Termination Date, the Company shall: (a) reimburse Executive for the reasonable costs of leasing and operating an office at a location selected by Executive that is outside of the Company's office, including without limitation, the cost of a full-time assistant, and (b) provide Executive with up to 150 hours per year of corporate jet usage consistent with the Company's Aircraft Travel Policy, "Authorization and Limitation on Officer Travel", as in effect on May 31, 2001, or, in the event that the Company does not own or control an aircraft of the type specified in such policy, or, at the Company's option, the Company may provide Executive a quarter share of the same aircraft type specified in such policy under a five year, executive jet party share program. In the event the Company provides Executive with use of its corporate jet, the corporate jet shall be available for use by Executive given seventy-two hours advance notice by Executive to the Company of his intent to use the aircraft. If and to the extent that the Company is required to withhold any amounts for taxes with regard to the foregoing, then the provision of the foregoing benefits shall be conditioned upon the Company and Executive's making appropriate arrangements to ensure that those withholding requirements are satisfied. 13 7.8 Certain Additional Payments by the Company. 7.8.1 Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, distribution, benefit, equity-based or other compensation or other transfer or action by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise and including without limitation any additional payments required under this Section 7.8) (a "Payment") would be subject to an excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Executive with respect to any such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall make a payment to Executive (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Executive retains (or has had paid to the Internal Revenue Service on his behalf) an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Executive's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local. 7.8.2 Subject to the provisions of Section 7.8.3, all determinations required to be made under this Section 7.8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 7.8, shall be paid by the Company to Executive within five days of the 14 receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 7.8 and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive. 7.8.3 Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on 15 the foregoing provisions of this Section 7.8.3, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. 7.8.4 If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 7.8.3, Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 7.8.3 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 7.8.3, a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 8. WITHHOLDING. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 16 9. INDEMNIFICATION. To the maximum extent permitted under Florida law as from time to time in effect, and subject to any mandatory exclusion of indemnification under Delaware law applicable to the indemnification of Executive under this Section 9, the Company hereby agrees to indemnify Executive and hold him harmless from, against and in respect of any and all damages, deficiencies, actions, suits, proceedings, demands, assessments, judgments, claims, losses, costs, expenses, obligations and liabilities arising from or related to the performance of the services under this Agreement by Executive. 10. LEGAL FEES. In the event of a dispute between the parties with respect to any payments due hereunder in connection with a Change of Control, the Company will pay the costs of any legal fees and related expenses incurred in connection with such dispute. Such costs and expenses shall be advanced to Executive currently as reasonably required to continue such action or proceeding. 11. UNFUNDED STATUS This Agreement is intended to constitute an unfunded plan for incentive compensation. Except with respect to the Retirement Compensation, nothing contained herein shall give any Participant any rights that are greater than those of a general unsecured creditor of the Company. In its sole discretion, the Stock Option and Compensation Committee of the Board may authorize the creation of trusts, acquisition of life insurance policies or other arrangements to meet the obligations created under this Agreement. 12. SECTION 409A. 12.1 Notwithstanding any provision of this Agreement to the contrary, if Executive is a "specified employee" as defined in Section 409A of the Code he shall not be entitled to any payments upon a termination of his employment until the earlier of (i) the date which is six months after Executive's termination of employment for any reason other than death or (ii) Executive's date of death. The provisions of this Section 12.1 shall only apply if required to comply with Section 409A of the Code. 12.2 If any provision of this Agreement contravenes any regulations or Treasury guidance promulgated under Section 409A of the Code, or if any tax is imposed under such Section 409A on any payment to be received by Executive hereunder, this Agreement or any provision hereof may be reformed by Executive, subject to the consent of the Company which consent shall not be unreasonably withheld, to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A of the Code. Executive agrees in good faith to consider any such reformation proposed by the Company. 17 12.3 The provisions of Section 7.8 of this Agreement, mutatis mutandis, shall apply to any imposition of taxes on Executive under Section 409A of the Code so that Executive shall be fully grossed up for the amount of, and shall not be adversely affected by, such taxes. 13. WAIVER. Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right that Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Similarly, the waiver by any party hereto of a breach of any provision of this Agreement by the other party will not operate or be construed as a waiver of any other or subsequent breach by such other party. 14. SEVERABILITY. If any part of this Agreement is found to be invalid or unenforceable, that part will be deemed amended to achieve as nearly as possible the same economic effect as the original provision, and the remainder of this Agreement will remain in full force and effect. 15. NOTICES. Any notice or other communication in connection with this Agreement shall be deemed to be delivered if in writing, addressed as provided below (or to such other person or address as to which either party may notify the other in accordance with this Section 15) and actually delivered at said address: If to Executive, to him at: Robert J. Khoury 889 Cutler Road Longwood, FL 32779 If to the Company, to it at: BE Aerospace, Inc. 1400 Corporate Center Drive Wellington, Florida 33414 Attention: General Counsel 16. SURVIVAL. The provisions of Sections 5.3 and 6 through 17 inclusive hereof shall each survive any termination or expiration of this Agreement. 18 17. MISCELLANEOUS. This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof, and supersedes all prior and contemporaneous understandings and agreements, whether oral or written, regarding such subject matter. This Agreement may be amended or modified only by a written instrument signed by Executive and by a duly authorized representative of the Company. This Agreement may be executed in any number of counterparts, which together shall constitute one and the same instrument. Except as otherwise provided in this Agreement, this Agreement shall be governed by and construed in accordance with the laws (other than the conflicts of law rules) of the State of Florida. 19 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. EXECUTIVE BE AEROSPACE, INC. /s/ Robert J. Khoury By: /s/ Thomas P. McCaffrey ---------------- ----------------------- President and Senior Vice President of Chief Executive Officer Administration and Chief Financial Officer 20 EX-10 7 ex101.txt Exhibit 10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement (this "Agreement") is made as of August 1, 2005 by and between BE Aerospace, Inc., a Delaware corporation (the "Company"), and Thomas P. McCaffrey (the "Executive"). RECITALS WHEREAS, Executive and the Company entered into that certain Employment Agreement dated as of September 14, 2001 and thereafter amended said Employment Agreement by five amendments (said Employment Agreement and amendments hereinafter collectively the "Employment Agreement"); and WHEREAS, Executive, having provided services to the Company since May 1, 1993, agrees to provide services for an additional period as provided herein and the Company wishes to procure such services; and WHEREAS, Executive and the Company wish to further amend and restate the Employment Agreement in its entirety; NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, the parties agree as follows: 1. Reference to Employment Agreement. The Employment Agreement is hereby restated, superseded and replaced in its entirety by this Agreement. 2. Term. Unless otherwise terminated pursuant to the provisions of Section 5 hereof, Executive shall provide to the Company services hereunder during the term of his employment under this Agreement, which shall be the period ending three (3) years from any date as of which the term is being determined (the "Employment Term"). The date, on which the Employment Term ends, including any extensions thereof, is sometimes hereinafter referred to as the "Expiration Date." 3. Position and Duties. Executive shall serve the Company in the capacity of Senior Vice President of Administration and Chief Financial Officer, or in such other position as the Chief Executive Officer of the Company, his designee or the Board of Directors of the Company may designate from time to time, and shall be accountable to, and shall have such other powers, duties and responsibilities, consistent with this capacity, as the Chief Executive Officer of the Company, his designee or the Board of Directors of the Company shall determine. Executive shall perform and discharge, faithfully, diligently and to the best of his ability, such duties and responsibilities. Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company. 1 4. Compensation. (a) Salary. Effective as of January 1, 2005, Executive shall receive an annual salary (the "Salary") payable at the rate of $415,000 per annum. Such rate shall be subject to adjustment from time to time by the Board of Directors as hereinafter provided; provided, however, that it shall at no time be adjusted below the Salary for the preceding year. On January 1st of each year during the Employment Term, the Salary shall be increased by an amount not less than the amount determined by applying to the Salary then in effect the percentage increase in the U.S. Bureau of Labor Statistics Consumer Price Index Revised - Urban Wage Earners and Clerical Workers - National - All Items (1982-84=100) (the "Index") for the twelve month period (January through December) immediately preceding such January 1. If the Index is no longer issued, the Board of Directors and Executive shall agree upon a substitute adjustment index issued by such agency that most reasonably reflects the criteria utilized in the most recent issue of the Index. Except as otherwise provided in this Agreement, the Salary shall be payable biweekly or in accordance with the Company's current payroll practices, less all required deductions. (b) Incentive Bonus. During the Employment Term, Executive may receive an incentive bonus for each fiscal year or portion thereof during which Executive has been employed hereunder as determined by the Board of Directors of the Company at the end of the applicable fiscal year. (c) Expenses. During the Employment Term, Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by him on behalf of the Company in accordance with the Company policy. (d) Benefits. Executive shall be entitled to participate in all employee benefit plans, life insurance plans, disability income plans, incentive compensation plans and other benefit plans, other than retirement plans, as may be from time to time in effect for executives of the Company generally. In accordance with the Company policy, Executive shall also be entitled to paid vacation in any fiscal year during the Employment Term as well as all paid holidays given by the Company to its employees. In addition, for a period of five (5) years commencing on the Expiration Date, Executive and/or his spouse, should she survive him, shall be entitled to participate in all medical, dental, and health benefit plans available to the Company's executive officers on similar terms and conditions as any actively employed executive. (e) Automobile. During the Employment Term, Executive shall be furnished with an automobile either owned or leased by the Company or an automobile allowance of $900 per month, at the discretion of the Company. (f) Equity Compensation. During the Employment Term Executive shall be entitled to participate in any applicable equity compensation program of the Company in effect from time to time. 2 5. Termination and Compensation Thereon. (a) Termination Date. The term "Termination Date" shall mean the date on which Executive's employment with the Company is terminated for any reason. (b) Death. (i) Executive's employment hereunder shall terminate upon his death. In such event, the Company shall, within thirty (30) days following the Termination Date, pay to such person as Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to his estate, (A) the Retirement Compensation as provided in Section 5(g) below, and (B) a lump sum payment amount equal to the Salary that would have been due to Executive had this Agreement been in effect from the date of his death until the Expiration Date. (ii) Upon Executive's death, the Company shall, within thirty (30) days following the Termination Date, also pay to such person as Executive shall have designated in a notice filed with the Company, or if no such person shall have been designated, to his estate, a lump-sum death benefit in the amount of $1 million. (iii) Upon Executive's death, The Company shall, within thirty (30) days following the Termination Date, also pay to such person as Executive shall have designated in a notice filed with the Company, or if no such person shall have been designated, to his estate, a lump-sum equal to (A) any accrued and unpaid Salary through the Termination Date, and (B) any bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date. Executive's spouse shall be entitled to continuation of medical, dental and health benefits pursuant to Section 4(d) hereof. (c) Incapacity. If, in the reasonable judgment of the Board of Directors of the Company, as a result of Executive's incapacity due to physical or mental illness or otherwise, Executive shall for at least six (6) consecutive months during the Employment Term have been unable to perform his duties under this Agreement on a full-time basis, the Company may terminate Executive's employment as provided in this Section 5(c). If the Company desires to so terminate Executive's employment with the Company, the Company shall: (i) give prompt notice to Executive of any such termination; (ii) until the Expiration Date, (A) pay to Executive or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to Executive's estate, the highest Salary paid to Executive prior to the Termination Date, (B) continue to provide Executive and/or Executive's spouse with the medical, dental, disability and life insurance coverage, in the same amounts and upon the same terms and conditions provided pursuant to Section 4(d) hereof immediately prior to the Termination Date, and (C) continue to provide Executive with the automobile allowance provided pursuant to Section 4(e) hereof immediately prior to the Termination Date; and 3 (iii) pay to Executive or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or, if no such person has been designated, to Executive's estate the Retirement Compensation as provided in Section 5(g) below. (d) Termination by the Company or Executive. (i) The Company may terminate Executive's employment hereunder with "Cause." For purposes of this Agreement, "Cause" shall mean (i) Executive's material failure, refusal or neglect to perform and discharge his duties and responsibilities hereunder, any other material breach of the terms hereof, or breach of any fiduciary duties he may have because of any position he holds with the Company or any subsidiary or affiliate thereof; or (ii) a felony conviction or a conviction for any crime involving Executive's personal dishonesty or moral turpitude. If Executive's employment is terminated by the Company for Cause pursuant to this Section 5(d), the Company shall have no further obligations to Executive hereunder after the Termination Date, except for the payment of any unpaid Salary and benefits accrued through the Termination Date. (ii) The Company may terminate Executive's employment hereunder without Cause and the Executive may terminate Executive's employment hereunder with "Sufficient Reason" (as defined below). If Executive's employment is terminated by the Company without Cause or by the Executive with Sufficient Reason prior to or more than three years after the occurrence of a Change of Control, then on the Termination Date, Executive shall receive payment of (A) any accrued and unpaid Salary through the Termination Date, (B) bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date, (C) a lump sum equal to his Salary from the Termination Date through the Expiration Date, (D) the Retirement Compensation pursuant to Section 5(g) hereof, determined as of the Expiration Date, (E) the other retirement benefits pursuant to Section 5(g) hereof, and (F) the Severance Pay pursuant to Section 5(f) hereof. In addition, (x) any stock options (or other equity awards) granted to Executive that would not vest on or prior to the Termination Date shall vest and be exercisable immediately, and such stock options shall continue to be exercisable until the later of their expiration date or the date on which shares of the Company are no longer traded as such, and (y) the Company shall (I) provide Executive and or his spouse, should she survive him, with continued life, disability, medical and dental insurance coverage in the same amounts and upon the same terms and conditions as in effect on the Termination Date, or if greater, as those provided immediately prior to the Change of Control Date for a period of eight (8) years from the Termination Date; and (II) until the Expiration Date continue to provide Executive with the automobile allowance provided pursuant to Section 4(e) hereof as of the Termination Date. If a Change of Control should occur prior to the Expiration Date, the Company shall, in addition, make the payment specified in Section 5(e)(A)(2). For purposes of this provision, "Sufficient Reason" means: (v) a decrease in Executive's Salary or a failure by the Company to pay material compensation due and payable to Executive in connection with his employment; (w) a change in Executive's responsibilities, positions, duties, status, title or reporting relationships; (x) Executive ceasing to be the Senior Vice President of Administration and Chief Financial Officer (or such other positions Executive holds thirty (30) days prior to the Termination Date) of a publicly traded company pursuant to this Agreement; (y) the Company's requiring Executive to be based at any office or location that is anywhere other than Executive's 4 principal place of employment thirty (30) days prior to the Termination Date; or (z) a material breach by the Company of any term or provisions of this Agreement; in each case if Executive has given notice thereof to the Company and the Company has not cured the Sufficient Reason within 30 days after receiving such notice. (iii) The Executive may terminate his employment hereunder without Sufficient Reason. If Executive's employment is terminated by the Executive without Sufficient Reason, then, on the Termination Date, Executive shall receive (A) any accrued and unpaid Salary through the Termination Date, (B) bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date and (C) the Retirement Compensation pursuant to Section 5(g) hereof, determined as of the Termination Date. (e) Change of Control. (i) If a "Change of Control" (as defined in Section 5(e)(iii)) of the Company occurs, the Company will be obligated as provided in this Section 5(e). For purposes of determining the Company's obligations under this Section 5(e), the date on which a Change of Control occurs shall be referred to as the "Change of Control Date." If a "Change of Control" occurs during the Employment Term, the Company or its successor in interest shall: (A) within five (5) business days after the Change of Control Date, pay to Executive, (or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, Executive's estate) a lump sum payment equal to the sum of: (1) the unpaid amount of any bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Change of Control Date; (2) an amount equal to two (2) times the Salary, (at the rate in effect on the Change of Control Date), that would have been payable to Executive through the Expiration Date; and (3) the amount of any Gross-Up Payment payable by the Company to Executive under Section 5(h) hereof. (B) if, within three (3) years following the Change of Control Date, Executive's employment with the Company is terminated by the Company without Cause or by Executive for "Good Reason" (as defined in Section 5(e)(iv)), the Company or its successor shall pay to Executive (1) any accrued and unpaid Salary through the Termination Date, (2) bonuses declared to be payable to Executive for any fiscal periods of the Company ending prior to the Termination Date and (3) the Company shall: (I) provide Executive and or his spouse, should she survive him, with continued life, disability, medical and dental insurance coverage in the same amounts and upon the same terms and conditions as in effect on the Termination Date, or if greater, as those provided immediately prior to the Change of Control Date for a period of eight (8) years from the Termination Date; and (II) until the Expiration Date continue to provide Executive with the automobile allowance provided pursuant to Section 4(e) hereof as of the Termination Date, or if greater, as provided immediately prior to the Change of Control Date; and 5 (C) provide that any stock options (or other equity awards) granted to Executive that would not vest on or prior to the Change of Control Date shall vest and, if applicable, be exercisable immediately upon the execution of any agreement that would constitute a Change of Control (regardless of whether such agreement is consummated), and such stock options shall continue to be exercisable until their expiration date. (ii) Executive agrees that if, following a Change of Control of the Company, his employment pursuant to this Agreement continues, or he enters into a new employment agreement with a successor entity, he will not be entitled to receive any additional change of control payments or benefits in addition to those described herein. (iii) For purposes of this provision, a "Change of Control" means: (A) The effective time of any transaction or completion of a series of transactions involving the ownership of the Company that requires a shareholder vote for the consummation of such transaction(s); (B) individuals who, as of January 1, 2005 (the "Effective Date"), constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any person becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; (C) the acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of 25% or more of either the then outstanding shares of the Company's Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors (hereinafter referred to as the ownership of a "Controlling Interest") excluding, for this purpose, any acquisitions by (1) the Company or its subsidiaries, (2) any person, entity or "group" that as of the Effective Date owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of a Controlling Interest, or (3) any employee benefit plan of the Company or its subsidiaries; or (D) the sale or other disposition by the Company of 25% or more of the value of its assets to any person or entity that is not controlled by the Company. 6 (iv) For purposes of this provision, "Good Reason" means: (A) a decrease in Executive's Salary or a failure by the Company to pay material compensation due and payable to Executive in connection with his employment; (B) a change in Executive's responsibilities, positions, duties, status, title or reporting relationships; (C) Executive ceasing to be the Senior Vice President of Administration and Chief Financial Officer (or such other positions Executive holds immediately prior to the Change of Control Date) of a publicly traded company pursuant to this Agreement; (D) the Company's requiring Executive to be based at any office or location that is anywhere other than Executive's principal place of employment immediately prior to the Change of Control Date; or (E) a material breach by the Company of any term or provisions of this Agreement. (f) Severance Pay. If Executive's employment hereunder is terminated for any reason, other than (i) for Cause, (ii) due to Executive's death pursuant to Section 5(b) hereof, (iii) for Executive's incapacity pursuant to Section 5(c) hereof, or (iv) by the Executive without Good Reason or Sufficient Reason (as applicable), then within five (5) business days after Executive's Termination Date, the Company shall pay to Executive (or in the event of Executive's subsequent death, such person as Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to Executive's estate), a lump sum amount equal to Executive's Salary in effect as of the Termination Date, which lump sum shall not be pro-rated. The obligations of the Company pursuant to this Section 5(f) shall be in addition to any amounts payable to Executive pursuant to Section 5 hereof in the event of a Change of Control of the Company. (g) Retirement Compensation. (i) If Executive's employment is terminated for any reason except Cause as defined in Section 5(d) above, the Company shall pay to Executive (or in the event of Executive's death after such termination, to such person as Executive has designated in a notice filed with the Company, or if no such person shall have been designated, to his estate), a lump sum amount equal to the amount by which (A) the product of (1) one-half multiplied by Executive's average annual salary for the three (3) year period preceding the Termination Date times (2) the number of years (including any partial year) since May 1, 1993 (the "Retirement Compensation") exceeds (B) the sum of any amounts previously distributed to Executive pursuant to Sections 5(g)(ii), 5(g)(iii) and 5(g)(iv). The lump sum amount to be paid shall not be present-valued or otherwise reduced by use of any other discount or discounting method. The payment will be made to Executive within five (5) business days of the Termination Date. 7 (ii) Within five (5) business days after the date on which the BE Aerospace, Inc. Executive Compensation Trust II dated April 21, 1999, as amended is terminated (the "Distribution Date"), the Company will distribute in a lump sum the amount of Retirement Compensation that would have been payable to Executive under Section 5(g)(i) as of the Distribution Date. (iii) Within ninety (90) business days of the Distribution Date, the Company shall establish a trust for the duration of the Employment Term, and, commencing on the Distribution Date and on a quarterly basis, thereafter, each a "Contribution Date" the Company shall contribute to the trust (the "Retirement Trust") for the benefit of Executive an amount equal to (A) the Retirement Compensation that would be payable to Executive under Section 5(g)(ii) if the Contribution Date was his Termination Date minus (B) the assets in the Retirement Trust as of the Contribution Date. The Retirement Trust to which the Company shall make these contributions shall be irrevocable. The Retirement Trust shall provide that Executive may withdraw from the Retirement Trust, within the thirty (30)-day period beginning on the date on which he receives notice from the Company that the Company has made a contribution pursuant to this Section 5(g)(iii) an amount up to but not to exceed the amount of that contribution. If and to the extent that Executive fails to exercise this withdrawal right within the thirty (30) -day periods, such withdrawal right shall lapse. The Retirement Trust also shall contain such other provisions as the Company and Executive reasonably agree are necessary in order for the Retirement Trust to qualify as a grantor trust under Section 671 of the Internal Revenue Code of 1986, as amended (the "Code") with Executive as the grantor. The trust agreement for the Retirement Trust shall provide that any assets remaining in the Retirement Trust, after payment of all the retirement compensation payable pursuant to this Section 5g(iii), shall be payable to Executive, and that prior to payment of such retirement compensation, the assets of the Retirement Trust shall be exempt from the claims of the Company's creditors. (iv) As of the last day of each calendar quarter ending on or after the Distribution Date, during the Employment Term, the trustee of the Retirement Trust shall be required to distribute to Executive 25% of the amount of the Assumed Taxes that the Company reasonably estimates will be payable by Executive for the calendar year for which the distribution is being made and as a result of his beneficial interest in the Retirement Trust. For this purpose, the term "Assumed Taxes" shall mean the Federal, State and local income and employment taxes that would be payable by Executive for the year in question, assuming that the amount taxable would be subject to the highest Federal and applicable State and local income and employment tax rates. (h) Certain Additional Payments by the Company. (i) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, distribution, benefit, equity-based or other compensation or other transfer or action by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise and including, without limitation any additional payments required under this Section 5(h)) (a "Payment") would be subject to an excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive with respect to any such excise tax (such excise tax, together with any such interest 8 and penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall make a payment to Executive (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Executive retains (or has had paid to the Internal Revenue Service on his behalf) an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Executive's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to (i) pay federal income taxes at the at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rates of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local. (ii) Subject to the provisions of paragraph (iii) of this Section 5(h) all determinations required to be made under this Section 5(h), including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 5(h), shall be paid by the Company to Executive within five (5) days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 5(h) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive. 9 (iii) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the thirty (30)-day period following the date on which Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall: (A) give the Company any information reasonably requested by the Company relating to such claim, (B) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (C) cooperate with the Company in good faith in order effectively to contest such claim, and (D) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 5(h)(iii), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. 10 (iv) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 5(h)(iii), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company's complying with the requirements of Section 5(h)(iii)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 5(h)(iii), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 6. Amendments. No amendment to this Agreement or any schedule hereto shall be effective unless it shall be in writing and signed by each party hereto. 7. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally or sent by telecopy or three (3) days after being mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to the Company, to it at: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, FL 33414 Attention: President with a copy to: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, FL 33414 Attention: General Counsel If to Executive, to him at: Thomas P. McCaffrey 4821 South Flagler Drive West Palm Beach Fl 33405 11 8. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties; provided, however, that this Agreement shall not supersede the Proprietary Rights Agreement dated as of the date hereof between Executive and the Company attached as Exhibit A which is incorporated herein by reference. 9. Withholding. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 10. Legal Fees. In the event of a dispute between the parties with respect to any payments due hereunder in connection with a Change of Control, the Company will pay the costs of any legal fees and related expenses incurred in connection with such dispute. Such costs and expenses shall be advanced to Executive currently as reasonably required to continue such action or proceeding. 11. Unfunded Status. This Agreement is intended to constitute an unfunded plan for incentive compensation. Except with respect to the Retirement Compensation, nothing contained herein shall give any Participant any rights that are greater than those of a general unsecured creditor of the Company. In its sole discretion, the Stock Option and Compensation Committee of the Board may authorize the creation of trusts, acquisition of life insurance policies or other arrangements to meet the obligations created under this Agreement. 12. Section 409A. (a) Notwithstanding any provision of this Agreement to the contrary, if Executive is a "specified employee" as defined in Section 409A of the Code he shall not be entitled to any payments upon a termination of his employment until the earlier of (i) the date which is six months after Executive's termination of employment for any reason other than death or (ii) Executive's date of death. The provisions of this Section 12 shall only apply if required to comply with Section 409A of the Code. (b) If any provision of this Agreement contravenes any regulations or Treasury guidance promulgated under Section 409A of the Code, or if any tax is imposed under such Section 409A on any payment to be received by Executive hereunder, this Agreement or any provision hereof may be reformed by Executive, subject to the consent of the Company which consent shall not be unreasonably withheld, to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A of the Code. Executive agrees in good faith to consider any such reformation proposed by the Company. (c) The provisions of Section 5(h) of this Agreement, mutatis mutandis, shall apply to any imposition of taxes on Executive under said Section 409A so that Executive shall be fully grossed up for the amount of, and shall not be adversely affected by, such taxes. 12 13. Miscellaneous. (a) Enforceability. The invalidity and unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. This Agreement may be executed in any number of counterparts which together shall constitute one instrument and shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the State of Florida. (b) Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. This Agreement may be assigned by the Company. Executive may not assign or delegate Executive's duties under this Agreement without the Company's prior written approval. (c) Waiver. Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right that Executive or the Company may have hereunder, including, without limitation, the right of Executive to terminate employment for Good Reason pursuant to Section 5(e) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Similarly, the waiver by any party hereto of a breach of any provision of this Agreement by the other party will not operate or be construed as a waiver of any other or subsequent breach by such other party. (d) Survival. The provisions of Sections 4, 5 and 7 through 13 inclusive hereof shall each survive any termination or expiration of this Agreement. 13 IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first written above. EXECUTIVE BE AEROSPACE, INC. /s/ Thomas P. McCaffrey By: /s/ Amin J. Khoury ------------------- ------------------ Senior Vice President of Chairman of the Board Administration and Chief Financial Officer 14 EX-32 8 ex322.txt EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of BE Aerospace, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas P. McCaffrey, Senior Vice President of Administration and Chief Financial Officer of the Company, certify that to the best of my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 5, 2005 By: /s/ Thomas P. McCaffrey ---------------------------------------- Thomas P. McCaffrey Senior Vice President of Administration and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----