-----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, RVtHLSwq68l+rk/Tq0eY7sI8uQsxScAFQLsxz9Q5lkDFDw9HpAEuR5tjx3XxeecV AWATI2JSD0STYuFn3d9L8w== 0000947871-01-000138.txt : 20010319 0000947871-01-000138.hdr.sgml : 20010319 ACCESSION NUMBER: 0000947871-01-000138 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20010316 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: 0222 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-57114 FILM NUMBER: 1569816 BUSINESS ADDRESS: STREET 1: 1400 CORPORATE CTR WY CITY: WELLINGTON STATE: FL ZIP: 33414 BUSINESS PHONE: 5617915000 MAIL ADDRESS: STREET 1: 1300 CORPORATE CENTER WAY STREET 2: 1300 CORPORATE CENTER WAY CITY: WELLINGTON STATE: FL ZIP: 33414 FORMER COMPANY: FORMER CONFORMED NAME: BE AVIONICS INC DATE OF NAME CHANGE: 19920608 S-3 1 0001.txt FORM S-3 As filed with the Securities and Exchange Commission on March 15, 2001 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------- BE AEROSPACE, INC. (Exact name of registrant as specified in its charter) Delaware 06-1209796 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) BE Aerospace, Inc. 1400 Corporate Center Way Wellington, Florida 33414 (561) 791-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------- Edmund J. Moriarty, Esq. BE Aerospace, Inc. General Counsel 1400 Corporate Center Way Wellington, Florida 33414 (561) 791-5000 / (561) 791-3966 (fax) (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------- Copies to: Rohan S. Weerasinghe, Esq. William J. Whelan, III, Esq. Shearman & Sterling Cravath, Swaine & Moore 599 Lexington Avenue Worldwide Plaza New York, New York 10022 825 Eighth Avenue (212) 848-4000 New York, New York 10019 (212) 474-1000 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / --------------------- CALCULATION OF REGISTRATION FEE
=========================================================================================================================== Proposed maximum Proposed maximum Title of each class Amount to be offering price aggregate Amount of of securities to be registered registered (1) per share (2) offering price (2) registration fee - --------------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value 4,025,000 shares $22.875 $92,071,875 $23,018 ===========================================================================================================================
(1) Includes 525,000 shares of common stock which the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of calculating the registration fee; computed in accordance with Rule 457(c) on the basis of the average of the high and low sales prices for the Common Stock on March 14, 2001. --------------- The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ Subject to Completion, dated March 15, 2001 3,500,000 Shares BE AEROSPACE, INC. Common Stock ------------------- The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell the securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. We are selling 1,089,793 shares of common stock and the selling stockholders are selling 2,410,207 shares of common stock. Our common stock is quoted on The Nasdaq National Market under the symbol "BEAV." The last reported sale price on March 14, 2001, was $22 7/8 per share. The underwriters have an option to purchase a maximum of ___ additional shares to cover over-allotments of shares. Investing in our common stock involves risks. See "Risk Factors" on page 9.
Underwriting Proceeds to Price to Discounts and Proceeds to Selling Public Commissions BE Aerospace Stockholders ------ ----------- ------------ ------------ Per Share............................................ $ $ $ $ Total................................................ $ $ $ $
Delivery of the shares of common stock will be made on or about , 2001. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Credit Suisse First Boston Dresdner Kleinwort Wasserstein The date of this prospectus is , 2001. TABLE OF CONTENTS Page ---- FORWARD-LOOKING STATEMENTS...........................................2 SUMMARY..............................................................3 RISK FACTORS.........................................................9 USE OF PROCEEDS.....................................................14 PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY.....................14 CAPITALIZATION......................................................15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................16 BUSINESS............................................................24 SELLING STOCKHOLDERS................................................37 DESCRIPTION OF CAPITAL STOCK........................................41 UNDERWRITING........................................................45 NOTICE TO CANADIAN RESIDENTS........................................48 LEGAL MATTERS.......................................................49 EXPERTS.............................................................49 WHERE YOU CAN FIND ADDITIONAL INFORMATION...........................49 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...................49 ------------------ You should rely only on the information contained in this document or to which we refer you. We have not authorized any one to provide you with information that is different. This document may ony be used where it is legal to sell these securities. The information in this document may only be accurate only on the date of this document. Our business, financial condition, results of operations and prospects may have changed since that date. FORWARD-LOOKING STATEMENTS This prospectus and other materials we have filed or may file with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made, or to be made, by us, contain, or will contain, disclosures which are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "could," "may," "believe," "will," "expect," "project," "estimate," "intend," "anticipate," "plan," "continue," "predict," or other similar words. These statements are only present expectations. Actual events or results may differ materially. Factors that might cause such a difference include those discussed in our filings with the Securities and Exchange Commission, including but not limited to our most recent proxy statement, Form 10-K and Form 10-Q's and under the heading "Risk Factors" in this prospectus. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented herein. 2 SUMMARY This summary highlights selected information incorporated by reference or appearing elsewhere in this prospectus and may not contain all of the information that is important to you. You should carefully read this prospectus in its entirety, including the documents incorporated by reference. Our fiscal year ends on the last Saturday in February of each year, and references to fiscal 2000 and the like are to the year ended on the last Saturday in February of the referenced year (for example, fiscal 2000 refers to the fiscal year ended February 26, 2000). Our Company General We are the world's largest manufacturer of cabin interior products for commercial and general aviation aircraft and for business jets. We serve virtually all major airlines and a wide variety of general aviation customers and airframe manufacturers. 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 commuter aircraft seats; o a full line of airline food and beverage preparation and storage equipment, including coffeemakers, water boilers, beverage containers, refrigerators, freezers, chillers and ovens; o both chemical and gaseous commercial aircraft oxygen delivery systems; and o business jet and general aviation interior products, including an extensive line of executive aircraft seats, indirect overhead lighting systems, oxygen, safety and air valve products. In addition, our cabin interior structures and engineering and services group designs, develops and manufactures a broad range of cabin interior structures such as galleys and crew rests, and provides comprehensive aircraft cabin interior reconfiguration and passenger to freighter conversion engineering services and related component kits. Competitive Strengths We believe that we have a strong, competitive position attributable to a number of factors, including the following: Combination of Manufacturing and Cabin Interior Design Services. We believe that we are the only manufacturer of a broad technologically-advanced line of cabin interior products with interior design capabilities. We believe that this positions us to provide "one-stop shopping" to our customers. Technological Leadership/New Product Development. We believe that we are a technological leader in our industry. We believe our research and development effort and our on-site engineers at both the airlines and airframe manufacturers enable us to play a leading role in developing and introducing innovative products to meet emerging industry trends and needs and thereby gain early entrant advantages. Proven Track Record of Acquisition Integration. We have demonstrated the ability to make strategic acquisitions and successfully integrate such acquired businesses by identifying opportunities to consolidate facilities and personnel, including engineering, manufacturing and marketing activities, as well as rationalizing product lines. Business Strategy Our business strategy is to maintain a leadership position and to best serve our customers by: o offering the broadest, most technologically advanced and most integrated product lines and services in the industry, including not only new product and follow-on product sales, but also design, integration, installation and certification services as well as maintenance, upgrade and repair services; 3 o pursuing the highest level of quality in every facet of our operations, from the factory floor to customer support; o aggressively pursuing initiatives of continuous improvement of our manufacturing operations to reduce cycle time, lower cost, improve quality and expand our margins; o pursuing a worldwide marketing and product support approach focused by airline and general aviation airframe manufacturers and encompassing our entire product line; and o pursuing selective strategic acquisitions. In addition, due to our recent acquisitions, we have expanded our business strategies to better position ourselves to participate in the large and rapidly growing business of aircraft reconfiguration and passenger to freighter conversion; and also to capitalize on two significant trends in the aerospace industry: o major original equipment manufacturers are shrinking their supplier base; o major original equipment manufacturers are accelerating the outsourcing of components and sub-assemblies. Recent Acquisitions Effective February 24, 2001 we completed the acquisition of three companies that specialize in manufacturing precision-machined components and assemblies for the aerospace industry. We acquired these businesses, Alson Industries, Inc., T.L. Windust Machine, Inc. and DMGI, Inc., by issuing to the former stockholders a total of approximately 2.4 million shares of our common stock, paying them a total of $4.35 million in cash and assuming or repaying indebtedness of the acquired companies totaling approximately $9.1 million. This consideration represents an aggregate purchase price of approximately $65.0 million. The aggregate purchase price includes approximately $3.5 million of consideration, represented by 187,500 shares of our common stock that were funded into an escrow account. The payment of this consideration is contingent upon the business of one of the companies achieving specified operating targets during the year ending February 2002. Any proceeds from the sale of these escrow shares in excess of the earnings incentive of approximately $3.5 million will be paid to us. Each of these transactions will be accounted for using the purchase method of accounting. We believe that these acquisitions will enable us to achieve a number of important strategic objectives, including: Positioning the company to become the outsourcing partner of choice in the rapidly-growing business of converting passenger airliners to freighters. Industry experts indicate that the size of the worldwide freighter fleet will nearly double over the next twenty years, adding almost 2,600 aircraft. Industry sources also estimate that almost 70 percent of that increase is expected to come from converting commercial passenger jets to use as freighters. We have a highly skilled engineering services group which is focused on engineering design, certification and program management of aircraft reconfiguration and passenger to freighter conversions. As a result of our recent acquisitions, we now also have the capability to manufacture a broad range of structural components, connectors and fasteners. We believe that these acquisitions, coupled with our existing capabilities in the reconfiguration and passenger to freighter conversion business, will position us to become the outsourcing partner of choice in this important growth area. Broadening and improving our manufacturing capabilities company-wide. We believe these acquisitions are a significant step in establishing manufacturing as a point of differentiation from our competitors. Each of the newly-acquired businesses have earned very high ratings for quality and on-time delivery. One of the acquired companies is the only precision machining company in the world which holds The Boeing Company's Gold supplier performance rating, while another of the acquired businesses has earned Boeing's Silver supplier performance rating. Among the approximately 20,000 suppliers to Boeing, only one percent have ratings of Silver or better. Less than one tenth of one percent have Gold ratings. We intend to adopt the best practices from these new businesses throughout our company. We believe that the adoption of the best practices of these acquired businesses will assist us in more efficiently designing products for manufacturing, reducing our total manufacturing cycle times, improving quality and lowering costs. Participating in the growth opportunity created by major airframe manufacturers; outsourcing strategies. The major aerospace manufacturers are increasingly focusing on their areas of core competency -- design, assembly, marketing and finance. As a result, the industry is in the beginning stages of a widespread and accelerating movement toward outsourcing the manufacturing 4 of components and subassemblies. Original equipment manufacturers are concentrating this outsourcing with a smaller group of larger suppliers, aggressively paring down their supplier bases and demanding from them superb quality and advanced manufacturing practices. These industry trends, coupled with the performance rating systems in place at Boeing and Airbus Industrie, are placing significant pressure on smaller suppliers to team up with larger entities. We believe there is a significant growth opportunity for properly positioned and larger, well-capitalized suppliers, like us, to capture increasingly larger amounts of manufacturing and assembly work that will be outsourced to a shrinking supplier base. As a result of these outsourcing and consolidation trends, we expect the component manufacturing and assembly business to grow at a faster rate than the overall aerospace industry, and we plan to be one of the companies that benefits from this growth opportunity. This offering is intended, in part, to register for sale the shares of common stock issued to the former stockholders of the three businesses we acquired. The terms of the acquisition agreements together provide that the selling stockholders will receive net proceeds from the resale of their shares equal to a total of approximately $39.4 million. Any proceeds in excess of the approximately $39.4 million will be for our benefit and if the net proceeds to the selling stockholders are less than approximately $39.4 million, we will pay the selling stockholders the difference from our available funds. In the event that the shares are not sold within 180 days of the closing of the acquisitions, we are obligated to repurchase these shares and pay approximately $39.4 million in cash to the selling stockholders. We may also repurchase these shares at any time from the selling stockholders for an amount equal to approximately $39.4 million in cash. The acquisition agreements are described more fully under the heading "Selling Stockholders." Principal Executive Offices Our principal executive offices are located at 1400 Corporate Center Way, Wellington, Florida 33414. Our telephone number at that location is (561) 791-5000. You may also obtain additional information about us from our website, www.beaerospace.com. Information on our website is not part of this prospectus. 5 The Offering Common stock offered in this offering: By us.................................... 1,089,793 shares By the selling stockholders.............. 2,410,207 shares Total............................. 3,500,000 shares Common stock to be outstanding after this offering..................... 29,733,930 shares Use of proceeds............................ The net proceeds from the sale of shares of our common stock by the selling stockholders will be paid to them. In the event their net proceeds exceed approximately $39.4 million, the selling stockholders will pay us such excess. If the net proceeds to the selling stockholders are less than approximately $39.4 million, we will pay the selling stockholders the difference from our available funds. We estimate that the net proceeds to us from our sale of shares of our common stock in this offering, based on the last reported sales prices of our common stock on March 14, 2001, without exercise of the over-allotment option, will be approximately $35.3 million, including the estimated net proceeds to the selling stockholders in excess of $39.4 million. We intend to use the net proceeds we receive from the sale of our shares of common stock or from the resale by the selling stockholders of the shares of our common stock in excess of approximately $39.4 million to repay a portion of our outstanding indebtedness under our existing revolving credit facility. Risk Factors............................... See "Risk Factors" and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock. Nasdaq National Market symbol.............. BEAV The number of shares of our common stock to be outstanding immediately after the offering does not take into account 468,847 shares reserved for issuance under our non-employee directors option, deferred stock and compensation plans and a total of 6,338,945 shares reserved for issuance under our employee stock option and benefit plans as of March 12, 2001. The number of shares of our common stock to be outstanding after the offering also assumes that the underwriters' over-allotment option is not exercised. If the over-allotment option is exercised in full, we will issue and sell an additional ___ shares. 6 Summary Financial Data This summary financial data is intended only as a convenient reference. Our annual report on Form 10-K for the fiscal year ended February 26, 2000 includes, among other things, the audited consolidated financial statements and notes thereto from which we derived the summary financial data (excluding backlog) for fiscal 1998, 1999 and 2000 and the independent auditors' report. The Form 10-K Annual Report and the information herein should be read together for a complete understanding of our financial position, results of operations, cash flows and changes in shareholders' equity. We derived the summary financial data below, excluding backlog, as of November 25, 2000 and for the nine months ended November 25, 2000 and November 27, 1999 from our unaudited financial statements included in our quarterly report on Form 10-Q, which financial information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results for such periods. The results for the nine months ended November 25, 2000 are not necessarily indicative of the results to be expected for the entire year. You should read this data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 18.
Nine Months Ended Fiscal Year Ended --------------------------- ----------------------------------------- November 25, November 27, February 26, February 27, February 28, ------------ -------------- ------------ ------------ ------------ 2000 1999 (a) 2000 (a) 1999 (b) 1998(c) ------------ -------------- ------------ ------------ ------------ (Dollars in thousands, except per share data) Statement of Operations Data : Net sales ................................. $ 500,651 $ 541,505 $ 723,349 $ 701,325 $ 487,999 Cost of sales ............................. 314,792 406,589 543,682 522,875 309,094 --------- --------- --------- --------- --------- Gross profit ........................... 185,859 134,916 179,667 178,450 178,905 Operating expenses: Selling, general and administrative .... 71,159 70,576 94,891 83,648 58,622 Research, development and engineering .. 37,263 40,265 54,004 56,207 45,685 Transaction gain, expenses and other expenses .............................. -- -- -- 53,854 4,664 Amortization of intangible assets ...... 17,535 17,699 24,076 22,498 11,265 --------- --------- --------- --------- --------- Total operating expenses ............... 125,957 128,540 172,971 216,207 120,236 --------- --------- --------- --------- --------- Operating earnings (loss) .............. 59,902 6,376 6,696 (37,757) 58,669 Equity in losses of unconsolidated subsidiary ................................ -- 1,289 1,289 -- -- Interest expense, net ..................... 40,917 39,707 52,921 41,696 22,765 --------- --------- --------- --------- --------- Earnings (loss) before income taxes and extraordinary item ..................... 18,985 (34,620) (47,514) (79,453) 35,904 Income taxes .............................. 1,899 6,283 3,283 3,900 5,386 --------- --------- --------- --------- --------- Earnings (loss) before extraordinary item . 17,086 (40,903) (50,797) (83,353) 30,518 Extraordinary item ........................ -- -- -- -- 8,956 --------- --------- --------- --------- --------- Net earnings (loss) ....................... $ 17,086 $ (40,903) $ (50,797) $ (83,353) $ 21,562 ========= ========= ========= ========= ========= Diluted net earnings (loss) per common share Earnings (loss) before extraordinary item .................................. $ .67 $ (1.65) $ (2.05) $ (3.36) $ 1.30 Extraordinary item .................... -- -- -- -- (.38) --------- --------- --------- --------- --------- Net earnings (loss) ................... $ .67 $ (1.65) $ (2.05) $ (3.36) $ .92 ========= ========= ========= ========= ========= Weighted average shares of common stock ................................. 25,588 24,757 24,764 24,814 23,430 ========= ========= ========= ========= ========= Other Data: Depreciation and amortization ............. $ 32,078 $ 31,863 $ 42,237 $ 40,690 $ 24,160 Capital expenditures ...................... 15,399 27,457 33,169 37,465 28,923 Backlog ................................... 500,000 530,000 470,000 640,000 560,000
As of November 25, 2000 Balance Sheet Data: Actual As Adjusted (d) ------ ----------- Working capital............................. $ 162,389 $ 156,399 Total assets................................ 837,021 892,840 Long-term debt.............................. 602,469 572,885 Stockholders' equity........................ 68,502 143,161 (footnotes on following page) 7 The following table sets forth our adjusted gross profit, adjusted gross margin, adjusted operating earnings and adjusted net earnings excluding the costs associated with the seating manufacturing problems which we encountered during fiscal 2000, restructuring costs to reduce facilities and personnel costs, and acquisition and other costs as described in the notes to summary financial data. Adjusted gross profit, adjusted operating earnings and adjusted net earnings are not in accordance with, or an alternative for, generally accepted accounting principles and may not be consistent with similarly titled measures used by other companies. However, we believe these measures of earnings provide a better understanding of our underlying operating results and we use these measures internally to evaluate our underlying operating performance.
Nine Months Ended Fiscal Year Ended -------------------------------- ------------------------------------------------- November 25, November 27, February 26, February 27, February 28, 2000 1999 (a) 2000 (a) 1999 (b) 1998 (c) ------------ ------------ ------------ ------------ ------------ (Dollars in thousands except per share data) Adjusted gross profit...................... $ 185,859 $ 199,816 $ 263,340 $ 266,275 $ 178,905 Adjusted gross margin...................... 37.1% 36.9% 36.4% 38.0% 36.6% Adjusted operating earnings................ 59,902 78,676 101,071 103,992 63,333 Adjusted net earnings...................... 17,086 31,397 40,578 50,817 35,182 - ----------------
(a) Our operating results during fiscal 2000 were negatively impacted due to operational problems in our seating operations. These problems, which have since been resolved, arose due to a misalignment between our manufacturing processes and our newly installed Enterprise Resource Planning, or ERP, system. The aggregate impact of these problems on our results was $72,300 for the nine months ended November 27, 1999 and $94,375 for the year ended February 26, 2000. Substantially all of these costs have been included as a component of cost of sales. Excluding such costs and charges for the nine months ended November 27, 1999 our adjusted gross profit was $199,816, our adjusted gross margin was 36.9%, our adjusted operating earnings were $78,676 and our adjusted net earnings were $31,397 and for the year ended February 26, 2000, our adjusted gross profit was $263,340, our adjusted gross margin was 36.4%, our adjusted operating earnings were $101,071 and our adjusted net earnings were $40,578. (b) As a result of acquisitions in 1999, we recorded a charge of $79,155 for the write-off of acquired in-process research and development and acquisition-related expenses. We also sold a 51% interest in our in-flight entertainment business as a result of which we recorded a gain of $25,301. Transaction gain, expenses and other expenses for the year ended February 27, 1999 consist of the in-process research and development and other acquisition expenses, offset by the gain attributable to the sale of our in-flight entertainment business. During fiscal 1999, we implemented a restructuring plan. In connection therewith we closed 7 plants and we reduced the size of our workforce by approximately 1000. As a result, we incurred $87 million of cost which included both the restructuring referred to above and the rationalization of related product lines and the introduction of new products. Excluding such costs and expenses for the year ended February 27, 1999, our adjusted gross profit was $266,275, our adjusted gross margin was 36.4%, our adjusted operating earnings were $103,922 and our adjusted net earnings were $50,817. (c) In fiscal 1998, we resolved a long-running dispute with the U.S. Government over export sales between 1992 and 1995 to Iran Air. We recorded a charge of $4,664 in fiscal 1998 related to fines, civil penalties and associated legal fees arising from the settlement. We incurred an extraordinary charge of $8,956 during fiscal 1998 for unamortized debt issue costs, tender and redemption premiums and fees and expenses related to the repurchase of our 9 3/4% senior notes. (d) Adjusted to reflect the acquisitions we made in 2001 and the sale of the shares of our common stock in this offering and the application of the proceeds. 8 RISK FACTORS You should carefully consider the risks described below, in addition to the other information in this prospectus, including the documents incorporated by reference, before making a decision to invest in our common stock. Our business, financial condition or results of operations could be materially adversely affected and the trading price of our common stock could decline due to any of these risks. As a result, you may lose all or part of your investment. RISKS RELATING TO OUR BUSINESS We are directly dependent upon the conditions in the airline industry Our principal customers are the world's commercial airlines. As a result, our business is directly dependent upon the conditions in the highly cyclical and competitive commercial airline industry. In the late 1980s and early 1990s, the world airline industry suffered a severe downturn, which resulted in record losses and several air carriers seeking protection under bankruptcy laws. As a consequence, during such period, airlines sought to conserve cash by reducing or deferring scheduled cabin interior refurbishment and upgrade programs and by delaying purchases of new aircraft. This led to a significant contraction in the commercial aircraft cabin interior products industry and a decline in our business and profitability. Since early 1994, the airlines have experienced a turnaround in operating results, leading the domestic airline industry to strong aggregate operating earnings for the last six years. This financial turnaround has, in part, been driven by record load factors and rising fare prices. Recently, however, increases in fuel prices, the softening of the global economy and labor unrest have negatively impacted airline profitability. Should the airline industry suffer a severe and prolonged downturn which adversely affects their profitability, discretionary airline spending, including for new aircraft and cabin interior refurbishments and upgrades, would be more closely monitored or even reduced, which could have a material adverse effect on our business results and financial condition. In addition, any prolonged labor unrest experienced by any of our major customers could lead to a delay in their scheduled refurbishment and upgrade programs which could have a material adverse effect on our business and financial condition. Our substantial indebtedness could limit our ability to obtain additional financing and will require that a significant portion of our cash flow be used for debt service We have substantial indebtedness and, as a result, significant debt service obligations. As of November 25, 2000, we had approximately $607 million aggregate amount of indebtedness outstanding, representing approximately 90% of total capitalization. Giving pro forma effect to the three recent acquisitions described above as of November 25, 2000, and to this offering, our indebtedness would have aggregated approximately $581 million, representing approximately 80% of total capitalization. We could incur substantial additional indebtedness in the future. The degree of our leverage could have significant consequences to purchasers or holders of our shares of common stock, including: o limiting our ability to obtain additional financing to fund our growth strategy, working capital requirements, capital expenditures, acquisitions, debt service requirements or other general corporate requirements; o limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of those funds to fund debt service obligations; o increasing our vulnerability to adverse economic and industry conditions; and o increasing our exposure to interest rate increases because borrowings under our bank credit facilities are at variable interest rates. Our ability to satisfy our debt service obligations will depend upon, among things, our future operating performance and our ability to refinance indebtedness when necessary. Each of these factors is to a large extent 9 dependent on economic, financial, competitive and other factors, 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, obtain additional financing or sell assets. We cannot assure you that our business will generate cash flow, or that we will be able to obtain funding, sufficient to satisfy our debt service requirements. We have significant financial and operating restrictions in our debt instruments that may have an adverse affect on our operations Our bank credit facilities and the indentures governing our outstanding 9 7/8% notes, 8% notes and our 9 1/2% notes contain numerous financial and operating covenants that limit our ability to incur additional indebtedness, to create liens or other encumbrances, to make certain payments and investments, including dividend payments and to sell or otherwise dispose of assets and merge or consolidate with other entities. Our bank credit facilities also require us to meet certain financial ratios and tests. Agreements governing future indebtedness could also contain significant financial and operating restrictions. A failure to comply with the obligations contained in our current or future bank credit facilities or our indentures could result in an event of default under our bank credit facilities, or such indentures, which could permit acceleration of the related debt and acceleration of debt under other instruments that may contain cross-acceleration or cross-default provisions. We are not certain whether we would have, or be able to obtain, sufficient funds to make these accelerated payments. The airline industry is heavily regulated and failure to comply with applicable laws could reduce our results of operations The Federal Aviation Administration prescribes standards and licensing requirements for aircraft components, including virtually all commercial airline and general aviation cabin interior products, and licenses component repair stations within the United States. Comparable agencies, such as the U.K. Civil Aviation Authority and the Japanese Aeronautics Authority, regulate these matters in other countries. If we fail to obtain a required license for one of our products or services or lose a license previously granted, the sale of the subject product or service would be prohibited by law until such license is obtained or renewed. In addition, designing new products to meet existing regulatory requirements and retrofitting installed products to comply with new regulatory requirements can be both expensive and time consuming. We compete with a number of established companies, some of which have significantly greater financial, technological and marketing resources than we do We compete with a number of established companies. Some of these companies, particularly in the passenger to freighter conversion business, have significantly greater financial, technological and marketing resources than we do. Although we have achieved a leading position in a number of our commercial airline cabin interior products, there can be no assurance that we will be able to maintain these positions. Our ability to maintain our leadership position will depend on our ability to remain the supplier of retrofit and refurbishment products and spare parts on the commercial fleets on which our products are currently in service. It will also depend on our success in causing our products to be selected for installation in new aircraft, including next-generation aircraft, and in avoiding product obsolescence. Our ability to maintain or expand our market position in the rapidly growing passenger to freighter conversion business will depend on our success in being selected to convert specific aircraft, our ability to maintain and enhance our engineering design, our certification and program management capabilities and our ability to effectively use our recent acquisitions to manufacture a broader range of structural components, connectors and fasteners used in this business. Our future success depends on our ability to manufacture quality products and to deliver our products on time During the latter part of fiscal 1999 and throughout fiscal 2000, we experienced significant operating inefficiencies in our seating programs which resulted in delayed deliveries to customers, increased re-work of seating products, claims for warranty, penalties, out of sequence charges, substantial increases in air freight and other expedite-related costs. As a result of our late customer deliveries, certain airlines diverted their seating programs to other manufacturers. 10 While we have experienced a turnaround in our manufacturing productivity and efficiencies, we cannot assure you that the rate of these improvements will continue or that we will not discover other inefficiencies in our business that would make us unable to manufacture quality products or deliver our products on time. Our acquisition strategy may be less successful than we expect and therefore, our growth may be limited We have significantly grown our business through acquisitions. During fiscal 2001, we acquired three companies, Alson Industries, Inc., T.L. Windust Machine, Inc. and DMGI, Inc. We cannot assure you we will be successful in integrating these businesses into our company. We intend to consider future strategic acquisitions in the commercial airline and general aviation cabin interior industries, some of which could be material to us. We are in discussions from time to time with one or more third parties regarding possible acquisitions, including from time to time with companies that are substantially equivalent in size to us. As of the date of this prospectus, except as disclosed herein, we have no agreements with any material prospective acquisition candidates in respect of a specific transaction. Our ability to continue to achieve our goals may depend upon our ability to identify and successfully acquire attractive companies, to effectively integrate such companies, achieve cost efficiencies and to manage these businesses as part of our company. The difficulties of combining the operations, technologies and personnel of companies we acquire, including those we just acquired in fiscal 2001, into our company include: o coordinating and integrating geographically separated organizations; and o integrating personnel with diverse business backgrounds. We cannot assure you that we will be able to effectively manage or integrate the acquired companies. Further, we may not be successful in implementing appropriate operational, financial and management systems and controls to achieve the benefits expected to result from these acquisitions. Our efforts to integrate these businesses could be affected by a number of factors beyond our control, such as regulatory developments, general economic conditions, increased competition and the loss of certain customers resulting from the acquisitions. In addition, the process of integrating these businesses could cause an interruption of, or loss of momentum in, the activities of our existing business and the loss of key personnel and customers. The diversion of management's attention and any delays or difficulties encountered in connection with the transition and integration of these businesses could have a material adverse effect on our business and results of operations. Depending upon the acquisition opportunities available, we may need to raise additional funds. We may seek such additional funds through public offerings or private placements of debt or equity securities or bank loans. Issuance of additional equity securities by us could result in substantial dilution to stockholders. In the absence of such financing, our ability to make future acquisitions in accordance with our business strategy, to absorb adverse operating results, to fund capital expenditures or to respond to changing business and economic conditions may be adversely affected, all of which may have a material adverse effect on our business, results of operations and financial condition. There are risks inherent in international operations that could have a material adverse effect on our business operations Our foreign operations accounted for 29% of total sales during fiscal 2000, as compared to 27% during fiscal 1999. We have direct investments in a number of subsidiaries in foreign countries (primarily in Europe). Fluctuations in the value of foreign currencies affect the dollar value of our net investment in foreign subsidiaries, with these fluctuations being included in a separate component of stockholders' equity. Operating results of foreign subsidiaries are translated into U.S. dollars at average monthly exchange rates. At November 25, 2000, we reported a cumulative foreign currency translation amount of $(28.4) million in stockholders' equity as a result of foreign currency adjustments, and there can be no assurance that we will not incur additional adjustments in future periods. In addition, the U.S. dollar value of transactions based in foreign currency (collections on foreign sales or payments for foreign purchases) also fluctuates with exchange rates. Historically, foreign currency risk has not been material because a substantial majority of our sales have been denominated in the currency of the country of product origin and no repatriation of earnings has occurred, or is anticipated. There can be no assurance that a substantial majority of sales will continue to be denominated in the currency of the country of product origin or as to the impact of 11 changes in the value of the United States dollar or other currencies. The largest foreign currency exposure results from activity in Dutch guilders and British pounds. We have not hedged net foreign investments in the past, although we may engage in hedging transactions in the future to manage or reduce our foreign exchange risk. There can be no assurance that our attempts to manage our foreign currency exchange risk will be successful. Our foreign operations could also be subject to unexpected changes in regulatory requirements, tariffs and other market barriers and political and economic instability in the countries where we operate. There can be no assurance as to the impact of any such events that may occur in the future. The airline industry is subject to extensive health and environmental regulation, any violation of which could subject us to significant liabilities and penalties We are subject to extensive and changing federal, state and foreign laws and regulations establishing health and environmental quality standards, and may be subject to liability or penalties for violations of those standards. We are also subject to laws and regulations governing remediation of contamination at facilities currently or formerly owned or operated by us or to which we have sent hazardous substances or wastes for treatment, recycling or disposal. We may be subject to future liabilities or obligations as a result of new or more stringent interpretations of existing laws and regulations. In addition, we may have liabilities or obligations in the future if we discover any environmental contamination or liability at any of our facilities, or at facilities we may acquire. RISKS ASSOCIATED WITH OUR CAPITAL STOCK Provisions in our charter documents may discourage potential acquisitions of our company, even those which the holders of a majority of our common stock may favor Our restated certificate of incorporation and by-laws contain provisions that may have the effect of discouraging a third party from making an acquisition of us by means of a tender offer, proxy contest or otherwise. Our restated certificate of incorporation and by-laws: o classify the board of directors into three classes, with directors of each class serving for a staggered three-year period; o provide that directors may be removed only for cause and only upon the approval of the holders of at least two-thirds of the voting power of our shares entitled to vote generally in the election of such directors; o require at least two-thirds of the voting power of our shares entitled to vote generally in the election of directors to alter, amend or repeal the provisions relating to the classified board and removal of directors described above; o permit the board of directors to fill vacancies and newly created directorships on the board; o restrict the ability of stockholders to call special meetings; and o contain advance notice requirements for stockholder proposals. Such provisions would make the removal of incumbent directors more difficult and time-consuming and may have the effect of discouraging a tender offer or other takeover attempt not previously approved by the board of directors. Our board of directors has declared a dividend of one preferred share purchase right for each share of common stock outstanding. A right will also be attached to each share of common stock subsequently issued. The rights will have certain anti-takeover effects. If triggered, the rights would cause substantial dilution to a person or 12 group of persons that acquires more than 15.0% of our common stock on terms not approved by our board of directors. The rights could discourage or make more difficult a merger, tender offer or other similar transaction. Under our restated certificate of incorporation, our board of directors also has the authority to issue preferred stock in one or more series and to fix the powers, preferences and rights of any such series without stockholder approval. The board of directors could, therefore, issue, without stockholder approval, preferred stock with voting and other rights that could adversely affect the voting power of the holders of common stock and could make it more difficult for a third party to gain control of us. In addition, under certain circumstances, Section 203 of the Delaware General Corporation Law makes it more difficult for an "interested stockholder", or generally a 15% stockholder, to effect various business combinations with a corporation for a three-year period. You may not receive cash dividends on our shares We have never paid a cash dividend and do not plan to pay cash dividends on our common stock in the foreseeable future. We intend to retain our earnings to finance the development and expansion of our business and to repay indebtedness. Also, our ability to declare and pay cash dividends on our common stock is restricted by covenants in our credit facilities and in our outstanding notes. If the price of our common stock continues to fluctuate significantly, you could lose all or a part of your investment In the past 12 months, the closing price of our common stock has ranged from a low of $5.875 to a high of $25.875. The price of our common stock is subject to sudden and material increases and decreases, and decreases could adversely affect investments in our common stock. The price of our common stock could fluctuate widely in response to: o our quarterly operating results; o changes in earnings estimates by securities analysts; o changes in our business; o changes in the market's perception of our business; o changes in the businesses, earnings estimates or market perceptions of our competitors or customers; o changes in general market or economic conditions; and o changes in the legislative or regulatory environment. In addition, the stock market has experienced extreme price and volume fluctuations in recent years that have significantly affected the quoted prices of the securities of many companies, including companies in our industry. The changes often appear to occur without regard to specific operating performance. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company and these fluctuations could materially reduce our stock price. 13 USE OF PROCEEDS We estimate that the net proceeds to us from our sale of shares of our common stock in this offering, based on the last reported sales price of our common stock on March 14, 2001, without exercise of the over-allotment option, will be approximately $35.3 million, including the estimated net proceeds to the selling stockholders in excess of approximately $39.4 million. The net proceeds from the sale of shares of our common stock by the selling stockholders will be paid to them. In the event their net proceeds exceed approximately $39.4 million, the selling stockholders will pay us such excess. If the net proceeds to the selling stockholders are less than approximately $39.4 million, we will pay the selling stockholders the difference from our available funds. We intend to use the net proceeds we receive from the sale of our shares of common stock or from the resale by the selling stockholders of shares of our common stock in excess of approximately $39.4 million to repay a portion of our outstanding revolving credit indebtedness under our existing credit facilities with The Chase Manhattan Bank, which amounts may be immediately re-borrowed. As of November 25, 2000, we had borrowed an aggregate of approximately $57.6 million under these credit facilities to fund working capital. The credit facilities bear interest at a weighted average rate of approximately 9.4% per year and are repayable in August 2004. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY Our common stock is quoted on the Nasdaq National Market under the symbol "BEAV." The following table indicates the high and low sales prices of our common stock as reported by Nasdaq National Market for the periods indicated. High Low ---- --- Fiscal year ended February 26, 2000 First Quarter...................................$21 1/8 $13 1/2 Second Quarter...................................22 1/4 16 1/2 Third Quarter....................................18 3/16 5 3/4 Fourth Quarter................................... 9 7/8 6 3/8 Fiscal year ended February 24, 2001 First Quarter.................................... 9 5 7/8 Second Quarter...................................16 3/8 6 3/8 Third Quarter....................................17 1/4 11 13/16 Fourth Quarter...................................23 15/16 13 1/16 Fiscal year ended February 23, 2002 First Quarter (through March 14, 2001) ..........25 7/8 20 3/8 The last reported sales price of our common stock on the Nasdaq National Market as of March 14, 2001 is set forth on the cover page of this prospectus. As of February 24, 2001, we had approximately 800 record holders of our common stock. We have never paid cash dividends on our common stock, and we do not expect to pay cash dividends on our common stock in the foreseeable future. The indentures relating to our 9 7/8% senior subordinated notes, our 8% senior subordinated notes and our 9 1/2% senior subordinated notes and our bank credit facilities restrict our ability to pay cash dividends based primarily on a percentage of our earnings. 14 CAPITALIZATION The following table sets forth our capitalization as of November 25, 2000: o On an actual basis; and o on a pro forma as adjusted basis to reflect the three acquisitions described under "Summary--Recent Acquisitions", as if these transactions had occurred as of November 25, 2000; and o on a pro forma as adjusted basis to reflect the sale of 3,500,000 shares of common stock in this offering at a public offering price of $22 7/8 per share, with approximately $39.4 million of the net proceeds for the account of the selling stockholders and the balance of $35.3 million used to reduce our bank indebtedness, as described under "Use of Proceeds," as if these transactions had occurred as of November 25, 2000. This table should be read in conjunction with our consolidated financial statements and related notes thereto and incorporated by reference in this prospectus.
As of November 25, 2000 ----------------------- Pro Forma Actual Pro Forma As Adjusted ------ --------- ----------- (Dollars in thousands) Cash and cash equivalents................................................. $ 44,230 $ 40,273 $ 40,273 ========== ========== ========== Short-term debt, including current maturities of long-term debt........... $ 4,771 $ 8,116 $ 8,116 ========== ========== ========== Long-term debt, excluding current maturities: 9 7/8% Senior Subordinated Notes due 2006.............................. $ 100,000 $ 100,000 $ 100,000 8% Senior Subordinated Notes due 2008.................................. 249,549 249,549 249,549 9 1/2% Senior Subordinated Notes due 2008.............................. 200,000 200,000 200,000 Bank Credit Facility................................................... 52,920 52,920 17,626 Other long-term debt................................................... -- 5,710 5,710 ---------- ---------- ---------- Total long-term debt.............................................. 602,469 608,179 572,885 ========== ========== ========== Stockholders' equity Preferred Stock, $.01 par value, 1,000,000 shares authorized; no shares issued and outstanding......................... Common Stock, $.01 par value, 50,000,000 shares authorized; 25,480,441 shares issued and outstanding (28,980,441 shares, as adjusted) .................................... 255 272 290 Additional paid-in capital............................................. 254,421 293,769 392,045 Accumulated deficit.................................................... (157,788) (157,788) (157,788) Accumulated other comprehensive loss................................... (28,386) (28,386) (28,386) ---------- ---------- ---------- Total stockholders' equity............................................. 68,502 107,867 143,161 ---------- ---------- ---------- Total capitalization.............................................. $ 675,742 $ 724,162 $ 724,162 ========== ========== ==========
15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We are the world's largest manufacturer of cabin interior products for commercial and general aviation aircraft and for business jets. We serve virtually all major airlines and a wide variety of general aviation customers and airframe manufacturers. 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 commuter aircraft seats; o a full line of airline food and beverage preparation and storage equipment, including coffeemakers, water boilers, beverage containers, refrigerators, freezers, chillers and ovens; o both chemical and gaseous commercial aircraft oxygen delivery systems; and o business jet and general aviation interior products, including an extensive line of executive aircraft seats, indirect overhead lighting systems, oxygen, safety and air valve products. In addition, our cabin interior structures and engineering and services group designs, develops and manufactures a broad range of cabin interior structures such as galleys and crew rests, and provides comprehensive aircraft cabin interior reconfiguration and passenger to freighter conversion engineering services and related component kits. Our revenues are generally derived from two primary sources: refurbishment or upgrade programs for the existing worldwide fleets of commercial and general aviation aircraft and new aircraft deliveries. We believe our large installed base of products, estimated to be approximately $6.3 billion as of November 25, 2000 (valued at replacement prices), gives us a significant advantage over our competitors in obtaining orders both for spare parts and for refurbishment programs, principally due to the tendency of the airlines to purchase equipment for such programs from the original supplier. We have substantially expanded the size, scope and nature of our business as a result of a number of acquisitions. Since 1989, we have completed 18 acquisitions, including three acquisitions during fiscal 2001, for an aggregate purchase price of approximately $742 million in order to position ourselves as the preferred global supplier to our customers. During the period from 1989 to 1996, we acquired nine commercial aircraft cabin interior products manufacturers for approximately $290 million. Through these acquisitions we built worldwide market leadership positions and became the number one manufacturer for a large number of product offerings. At the same time, we rationalized our businesses and began re-engineering our operations. We integrated the acquisitions by eliminating 11 operating facilities and consolidating personnel at the acquired businesses, resulting in headcount reductions of approximately 1,300 employees through January 1998. During fiscal 1999 we completed six acquisitions for approximately $387 million. Through these acquisitions we extended our product offerings into oxygen systems and we entered three new markets. These markets include the structural reconfiguration of passenger cabins, the conversion of passenger aircraft to freighters and the business jet cabin interiors market. During the fourth quarter of fiscal 1999, we launched a series of initiatives directed towards expanding our profit margins by consolidating these operations, improving productivity, reducing costs and inventory levels and speeding production of finished products. These actions included eliminating seven principal facilities, reducing our employment base by over 1,000 employees during fiscal 2000 and rationalizing our product offerings. The plan also included initiatives to install company-wide information technology and engineering design systems and implement lean manufacturing techniques in our remaining factories. We recognized a charge in the fourth quarter of fiscal 1999 of $87.8 million to provide for the entire amount of the restructuring, along with costs associated with new product introductions, all of which was charged to cost of sales. 16 During fiscal 2000, we restructured our seating products operations and decided to discontinue certain product and service offerings. This product line rationalization eliminated two additional facilities bringing the total number of facilities down to 14 from 31. It also resulted in a headcount reduction of approximately 700. The total cost of this product and service line rationalization was approximately $34 million. All of the aforementioned initiatives to integrate, rationalize and restructure the businesses acquired prior to fiscal 2001 had an aggregate cost of approximately $180 million. These initiatives enabled us to eliminate 17 facilities and reduce headcount by over 3,000 employees. We believe these initiatives have enabled us to substantially expand profit margins, strengthen the global business management focus on our core product categories, achieve a more effective leveraging of our resources and improve our ability to rapidly react to changing business conditions. In conjunction with these efforts, we have also implemented a company-wide information technology system, a company-wide engineering system and initiated lean manufacturing techniques in our remaining facilities. Common management information and engineering systems and lean manufacturing processes across all operations, coupled with a rationalized product offering are expected to provide us with the ongoing benefit of a generally lower cost structure, and expanding gross and operating margins. Effective February 24, 2001 we completed the acquisition of three companies that specialize in manufacturing precision-machined components and assemblies for the aerospace industry. We acquired these businesses, Alson Industries, Inc., T.L. Windust Machine, Inc. and DMGI, Inc., by issuing to the former stockholders a total of approximately 2.4 million shares of our common stock, paying them a total of $4.35 million in cash and assuming or repaying indebtedness of the acquired companies totaling approximately $11 million. This consideration represents an aggregate purchase price of approximately $65.0 million. The aggregate purchase price includes approximately $3.5 million of consideration, for which 187,500 shares of our common stock was funded into an escrow account. The payment of the approximately $3.5 million is contingent upon the business of one of the companies achieving specified operating targets during the year ending February 2002. Any proceeds from the sale of these shares in excess of the earned incentive will be paid to us. Each of these transactions will be accounted for using the purchase method of accounting. Since early 1994, the airlines have experienced a turnaround in operating results, leading the domestic airline industry to strong aggregate operating earnings for the last six years. Airline company balance sheets have been substantially strengthened and their liquidity enhanced as a result of this profitability, debt and equity financings and a closely managed fleet expansion. Recently, however, increases in fuel prices, the softening of the global economy and labor unrest have negatively impacted airline profitability. During the latter part of fiscal 1999 and throughout fiscal 2000, our seating operations negatively impacted our operating results. The operating inefficiencies resulted in delayed deliveries to customers, increased re-work of seating products, claims for warranty, penalties, out of sequence charges, substantial increases in air freight and other expedite-related costs. These problems also resulted in certain airlines diverting seating programs to other manufacturers and the deferrals of other seating programs. We believe we have now resolved the problems we encountered in our seating operations. New product development is a strategic tool 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. Engineering, research and development spending as a percentage of sales have been approximately 7% for the past several years, and is expected to remain at 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, and will continue to invest in property and equipment that enhances our productivity. Over the past several years, annual capital expenditures, exclusive of our new information technology system, were approximately $19 million. Going forward and taking into consideration the recent acquisitions, we expect that annual spending for capital expenditures will be approximately $24 million. 17 All dollar amounts in the following discussion and analysis are presented in thousands of dollars, except per share amounts. Nine Months Ended November 25, 2000, as Compared to the Nine Months Ended November 27, 1999 Net sales for the fiscal 2000 nine-month period were $500,651, a decrease of $40,854 or 7.5% over the comparable period in the prior year. The year over year decrease in sales is primarily attributable to lower shipments of seating products, galley structures and discontinued product and service revenues. The lower level of seating and galley structures revenues is due to both a lower level of new aircraft deliveries this year vs. last year and last year's problems in our seating business, which have since been resolved. Over the six months ended November 25, 2000 we received significant new orders which has increased our backlog by $50,000 to approximately $500,000. Gross profit was $185,859 or 37.1% of net sales for the nine months ended November 25, 2000, which was $50,943 or 37.8%, higher than the comparable period in the prior year of $134,916 or 24.9% of net sales. Our gross margin increased by 1,220 basis points over the gross margin we recorded in the prior nine month period which was negatively impacted by manufacturing problems in our seating operations. The current period gross margin improvement was due to the turnaround in the seating business together with the positive impact of our lean manufacturing and continuous improvement programs, which have been substantially aided by information technology investments. Lean manufacturing and continuous improvement programs are enabling us to reduce costs, improve quality and productivity and accelerate the order fulfillment cycle. Selling, general and administrative expenses were $71,159 or 14.2% of net sales for the nine months ended November 25, 2000, as compared to $70,576 or 13.0% of net sales in the prior year. The year over year increase in selling, general and administrative expenses was primarily attributable to costs associated with the implementation of lean manufacturing at our principal manufacturing facilities and increased costs, including depreciation expense, associated with our new Enterprise Resource Planning, or ERP, system offset by substantial headcount reductions and elimination of expenses associated with last year's problems in the seating business. Research, development and engineering expenses for the current nine month period were $37,263 or 7.4% of net sales or $3,002 lower than the prior year of $40,265 or 7.4% of net sales. The year over year decrease is primarily due to substantial headcount reductions in our seating and galley operations. Amortization expense for the nine months ended November 25, 2000 was $17,535 as compared to $17,699 in the prior year. We generated operating earnings of $59,902 or 12% of net sales in the current period, as compared to operating earnings of $6,376 or 1.2% of net sales in the prior year. Interest expense for the nine months ended November 25, 2000 was $40,917 or $1,210 greater than interest expense of $39,707 in the prior year. The increase is primarily due to higher interest rates on our bank borrowings. Earnings before income taxes in the current nine month period were $18,985, as compared to a loss of $34,620 in the comparable period in the prior year. Income tax expense in the current period was $1,899 as compared to $6,283 in the prior year. Net earnings were $17,086 or $.67 per share (diluted) for the nine months ended November 25, 2000, as compared to a net loss of $40,903 or $1.65 per share (diluted) for the comparable period in the prior year. Year Ended February 26, 2000 Compared with Year Ended February 27, 1999 Net sales for fiscal 2000 were $723,349, an increase of approximately $22,024, or 3.1% over the prior year. Organic revenue growth, exclusive of revenues from our in-flight entertainment business, in fiscal 2000 and fiscal 1999 was approximately 5.6% and 13.7%, respectively, whereas revenue growth on a pro forma basis for fiscal 2000 and 1999, giving effect to our acquisitions in fiscal 1999 and excluding revenues from our in-flight entertainment business for both periods, was approximately 4.1% in 2000 and 15.5% in 1999. Of our backlog of approximately 18 $470,000 as of February 26, 1999, approximately $279,000 is deliverable by the end of fiscal 2001. Our backlog at February 26, 1999 aggregated approximately $640,000. During the latter part of fiscal 1999 and throughout fiscal 2000, our operating results were negatively impacted by our seating operations. These operating problems resulted in delayed deliveries to customers, increased re-work of seating products, claims for warranty, penalties, out of sequence charges, substantial increases in air freight and other expedite-related costs. Late customer deliveries resulted in certain airlines diverting seating programs to other manufacturers and the deferral of other seating programs. We have now resolved the operating problems in our seating business. Gross profit for fiscal 2000 was $179,667. Gross profit for fiscal 2000 before the special costs and charges described below was $263,340 (36.4% of net sales). This was 1% less than the prior year of $266,275 (calculated on a comparable basis), which represented 38% of net sales. The decrease in gross profit before special costs and charges is primarily attributable to the mix of product sales during the year. During fiscal 2000, we incurred $36,076 of costs in our seating operations associated with claims for penalties, out of sequence charges, warranties and substantial increases in air freight and other expedite-related costs. In addition, we incurred approximately $24,000 of manufacturing and engineering inefficiencies, of which $16,300 has been included as a component of cost of sales, $3,700 has been included as a component of selling, general and administrative expenses and $4,000 has been included as a component of research, development and engineering expenses. Also, during fiscal 2000, we completed a review of our businesses and decided to discontinue certain product and service offerings. This product line rationalization will reduce the number of facilities by two and is expected to result in a headcount reduction of approximately 700. The total cost of this product and service line rationalization was $34,299. Approximately $31,297 of the rationalization costs are included in cost of sales, with the balance of $3,002 charged to operating expenses. The aggregate impact of these operating inefficiencies, penalties, and product line rationalization costs was to increase cost of sales and operating expenses by $94,375 during fiscal 2000. Future margin expansion will largely depend upon the success of our seating business in four areas: achieving planned efficiencies for recently-introduced products, optimizing manufacturing processes with the new management information system, successfully implementing lean manufacturing techniques and rationalizing facilities and personnel. While our manufacturing productivity and efficiency has improved recently, there can be no assurance that the rate of these improvements will continue. Selling, general and administrative expenses were $94,891 (13.1% of net sales) for fiscal 2000, which was $11,243, or 13.0%, greater than the comparable period in the prior year of $83,648 (11.9% of net sales). Severance and other facility consolidation costs associated with the charges described above, together with increased operating expenses at our seating products operations and increased management information system training costs and related expenses were the principal reasons for the increase. Research, development and engineering expenses were $54,004 (7.5% of net sales) during fiscal 2000, a decrease of $2,203 over the prior year. Amortization expense for fiscal 2000 of $24,076 was $1,578 greater than the amount recorded in the prior year, and is due to our acquisitions in 1999. Based on management's assumptions, a portion of the purchase price for our acquisitions in 1999 was allocated to purchased in-process research and development that had not reached technological feasibility and had no future alternative use. During fiscal 1999, we recorded a charge of $79,155 for the write-off of acquired in-process research and development and other acquisition-related expenses. We generated operating earnings of $6,696 (0.9% of net sales) during fiscal 2000, as compared to an operating loss of $37,757 in the prior year. 19 Equity in losses of unconsolidated subsidiary of $1,289 represents our share of the losses generated by Sextant In-Flight Systems through October 5, 1999, at which time we sold our remaining 49% interest. Interest expense, net was $52,921 during fiscal 2000, or $11,225 greater than interest expense of $41,696 for the prior year, and is due to the increase in our long-term debt used, in part, to finance our acquisitions in 1999. The loss before income taxes in the current year was $47,514 (which includes $94,375 of costs and charges primarily related to our seating products operations) as compared to the loss before income taxes in the prior year of $79,453 (which includes restructuring and new product introduction costs of $87,825, acquisition-related expenses of $79,155 and the transaction gain of $25,301). Earnings before income taxes excluding the above-mentioned costs and expenses were $46,861 for fiscal 2000 compared to $62,226 in the prior year. Income tax expense for fiscal 2000 was $3,283 as compared to $3,900 in the prior year. The net loss for fiscal 2000 was $50,797, or $2.05 per share (basic and diluted), as compared to a net loss of $83,353, or $3.36 per share (basic and diluted), in fiscal 1999. Year Ended February 27, 1999 Compared to Year Ended February 28, 1998 Net sales for fiscal 1999 were $701,325, an increase of approximately $213,326, or 44% over the prior year. Organic revenue growth during fiscal 2000 was approximately 10.6%; organic revenue growth, exclusive of revenues from our in-flight entertainment business in both fiscal 2000 and fiscal 1999 was approximately 13%, whereas revenue growth on a pro forma basis for both fiscal 1999 and 1998 giving effect to our acquisitions in 1999 and excluding revenues from our in-flight entertainment business for both periods was approximately 15.5%. The second half of fiscal 1999 reflected substantially greater internal growth than the first half of the year, primarily driven by our seating products operations. Gross profit for fiscal 1999 before the special costs and charges described above was $266,275 (38.0% of net sales). This was $97,370, or 49%, greater than the comparable period in the prior year of $178,905, which represented 36.7% of net sales. The primary reasons for the improvement in gross margins include: (1) a company-wide re-engineering program that has resulted in higher employee productivity and better manufacturing efficiency, (2) higher unit volumes and (3) improvement in product mix. As described above, during fiscal 1999 we commenced a restructuring plan designed to lower our cost structure and improve our long-term competitive position. The cost of the restructuring, along with costs associated with new product introductions, was $87,825. We recorded such amount as an increase in cost of sales during fiscal 1999; reflecting such costs and charges, gross profit for the year was $178,450 or 25.4% of net sales. Selling, general and administrative expenses were $83,648 (11.9% of net sales) for fiscal 1999, which was $25,026, or 43%, greater than the comparable period in the prior year of $58,622 (12% of net sales). The increase in selling, general and administrative expenses was primarily due to our acquisitions in 1999 along with increases associated with internal growth. Research, development and engineering expenses were $56,207 (8.0% of net sales) during fiscal 1999, an increase of $10,522 over the prior year. The increase in research, development and engineering expense is primarily attributable to on-going new product development activities and our acquisitions in 1999. Amortization expense for fiscal 1999 of $22,498 was $11,233 greater than the amount recorded in the prior year and is due to our acquisitions in 1999. Based on management's assumptions, a portion of the purchase price for our acquisitions in 1999 was allocated to purchased in-process research and development that had not reached technological feasibility and had no future alternative use. During fiscal 1999, we recorded a charge of $79,155 for the write-off of acquired in-process research and development and other acquisition-related expenses. Such amount has been presented as a component of transaction gain, expenses and other expenses in the accompanying financial statements. Management estimates that the research and development cost to complete the in-process research and development related to projects will aggregate approximately $11,000, which will be incurred over a five-year period. 20 In February 1999, we sold a 51% interest in in-flight entertainment to Sextant for an initial cash purchase price of $62,000. The final purchase price will be determined on the basis of the operating results for the joint venture over its initial two years of operations and could range from $47,000 to $87,000; accordingly, $15,000 of the proceeds were deferred as of February 25, 1999, and are included in other liabilities in the accompanying financial statements as of February 27, 1999. We recorded a gain on this transaction of approximately $25,301, which has been reflected as a component of transaction gain, expenses and other expenses in the financial statements incorporated by reference. We incurred an operating loss of $37,757, which includes restructuring and new product introduction costs of $87,825, acquisition-related expenses of $79,155 and the transaction gain of $25,301, during fiscal 1999, as compared to operating earnings of $58,669 in the prior year. Operating earnings during fiscal 1999 excluding such costs, expenses and the transaction gain were $103,922, or 14.8% of net sales. Interest expense, net was $41,696 during fiscal 1999, or $18,931 greater than interest expense of $22,765 for the prior year, and is due to the increase in our long-term debt incurred in connection with our acquisitions in 1999. The loss before income taxes in the current year was $79,453 (which includes restructuring and new product introduction costs of $87,825, acquisition-related expenses of $79,155 and the transaction gain of $25,301) as compared to earnings before income taxes of $35,904 in the prior year. Earnings before income taxes excluding the above-mentioned costs and expenses were $62,226. Income tax expense for fiscal 1999 was $3,900 as compared to $5,386 in the prior year. The loss before extraordinary items for fiscal 1999 was $83,353, or $3.36 per share (basic and diluted), as compared to earnings before extraordinary items of $30,518, or $1.30 per share (diluted), for the comparable period in the prior year. We incurred an extraordinary loss of $8,956 during fiscal 1998 for unamortized debt issue costs, tender and redemption premiums and costs and expenses associated with the repurchase of our 9 3/4% Notes. The net loss for fiscal 1999 was $83,353, or $3.36 per share (basic and diluted), as compared to net earnings of $21,562, or $92 per share (diluted), in fiscal 1998. Quarterly Operating Results The following data summarizes our unaudited quarterly operating results for each quarter in the nine months periods ended November 2000 and November 1999:
Three Months Ended ------------------------------------------------------------------------------------ November August May November August May 25, 2000 26, 2000 27, 000 27, 1999 28, 1999 29, 1999 --------- --------- --------- --------- --------- --------- Sales ................................. $ 167,410 $ 164,116 $ 169,125 $ 164,578 $ 191,895 $ 185,032 Gross profit .......................... 63,548 60,758 61,553 (2,008) 70,337 66,587 Gross margin .......................... 38.0% 37.0% 36.4% -1.2% 36.7% 36.0% Operating earnings .................... 22,497 18,742 18,663 (52,148) 30,906 27,618 Operating margin ...................... 13.4% 11.4% 11.0% -31.7% 16.1% 14.9% Net earnings (loss) ................... 7,919 4,729 4,438 (66,038) 13,720 11,415 Diluted earnings (loss) per share ................................. $ 0.30 $ 0.19 $ 0.18 ($ 2.66) $ 0.55 $ 0.46
21 Liquidity and Capital Resources Our liquidity requirements consist of working capital needs, on-going capital expenditures and debt payments of interest and principal on indebtedness. Our primary requirements for working capital have been related to the reduction of accrued liabilities, including interest, accrued penalties incurred in connection with the fiscal 2000 seating manufacturing problems, incentive compensation, warranty obligations and accrued severance. Our working capital was $162,389 as of November 25, 2000, as compared to $129,913 as of February 26, 2000. Our working capital was $129,913 as of February 26, 2000, as compared to $143,423 as of February 27, 1999. At November 25, 2000, our cash and cash equivalents were $44,230, as compared to $37,363 at February 26, 2000. At February 26, 2000 our cash and cash equivalents were $37,363, as compared to $39,500 at February 27, 1999. Cash provided from operating activities was $28,758 for the nine months ended November 25, 2000 and was $16,886 for fiscal 2000. The primary source of cash during the nine months ended November 25, 2000 was net earnings, depreciation and amortization of $49,164, a $10,754 decrease in accounts receivable and inventories, a $4,469 increase in accounts payable offset by a $12,487 increase in other current assets and a $24,677 decrease in accrued liabilities. The primary source of cash during fiscal 1999 was non-cash charges for depreciation and amortization of $42,237, a decrease in accounts receivable of $36,448 and an increase in payables, accruals and current taxes of $4,756, offset by a use of case of $18,910 related to increases in inventories and other current assets. Our capital expenditures were $15,399 and $27,457 during the nine months ended November 25, 2000 and November 27, 1999, respectively. Our capital expenditures were $33,169 and $37,465 during fiscal 2000 and fiscal 1999. The year over year decrease in capital expenditures is primarily attributable to significant expenditures in the prior year for management information system enhancements, expenditures for plant modernization and for acquisitions completed during fiscal 1999. We anticipate on-going annual capital expenditures of approximately $24,000 for the next several years. In addition, since 1989, we have completed 18 acquisitions for an aggregate purchase price of $742,000. We have financed these acquisitions primarily through issuances of debt and equity securities, including our 9 7/8% notes, our 8% notes and our 9 1/2% notes. We have credit facilities with The Chase Manhattan Bank. Our bank credit facilities consist of a $100,000 revolving credit facility (of which $50,000 may be utilized for acquisitions) and an acquisition facility of $30,600. The revolving credit facility expires in April 2004 and the acquisition facility is amortizable over five years beginning in August 1999. Our bank credit facilities are collateralized by our accounts receivable, inventories and by substantially all of our other personal property. Indebtedness under our existing bank credit facilities consisted of revolving credit facility outstanding borrowings of $27,000 (bearing interest at LIBOR plus 2.50%, or approximately 9.5%), letters of credit aggregating approximately $4,619 and outstanding borrowings under the acquisition facility aggregating $30,600 (bearing interest at LIBOR plus 2.50%, or approximately 9.3%) as of November 25, 2000. Our bank credit facilities were amended on December 21, 1999 and contain customary affirmative covenants, negative covenants and conditions of borrowing, all of which were met as of November 25, 2000. Long-term debt consists principally of our bank credit facilities and our 9 7/8% senior subordinated notes, our 8% senior subordinated notes and 9 1/2% senior subordinated notes. The $100,000 of 9 7/8% notes mature on February 1, 2006, the $250,000 of 8% notes mature on March 1, 2008 and the $200,000 of 9 1/2% notes mature on November 1, 2008. Each of the 9 7/8% notes, 8% notes and 9 1/2% notes contain restrictive covenants, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers and transfers of assets, all of which were met by us as of November 25, 2000. The maturities of our long term debt are as follows: Year ending November, --------------------- 2001 ................... $ 4,771 2002 ................... 7,858 2003 ................... 11,458 2004 ................... 33,418 2005 ................... -- Thereafter ............. 544,964 ---------- ------- 22 Total $602,469 ===== ======== We believe that the cash flow from operations and availability under our bank credit facilities will provide adequate funds for our working capital needs, planned capital expenditures and debt service requirements through the term of our bank credit facilities. We believe that we will be able to refinance our bank credit facilities prior to their termination, although there can be no assurance that we will be able to do so. Our ability to fund our operations, make planned capital expenditures, make scheduled payments and refinance our indebtedness depends on our future operating performance and cash flow, which, in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. Deferred Tax Assets We have 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 2011. These uncertainties include recent cumulative losses incurred by us, the highly cyclical nature of the industry in which we operate, economic conditions in Asia which has impacted the airframe manufacturers and the airlines, the impact of rising fuel prices on our airline customers, the impact of labor disputes involving our airline customers, our high degree of financial leverage, risks associated with the implementation of our integrated management information system, risks associated with our seat manufacturing operations and risks associated with the integration of acquisitions. 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. New Accounting Pronouncement In March 2000, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of Accounting Principles Board ("APB") Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. FIN 44 did not have a material impact on our financial position or results of operations. In December 1999, the SEC staff issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. SAB 101 summarizes the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 will be effective for our fourth quarter beginning November 26, 2000. We do not expect the implementation of SAB 101 to have an effect on our revenue recognition policy. In September 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is required to be adopted in years beginning after June 15, 2000. Because of our minimal use of derivatives, we do not anticipate that the adoption of the new statement will have a material effect on our financial position or results of operations. 23 BUSINESS General We are the world's largest manufacturer of cabin interior products for commercial and general aviation aircraft and for business jets. We serve virtually all major airlines and a wide variety of general aviation customers and airframe manufacturers. 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 commuter aircraft seats; o a full line of airline food and beverage preparation and storage equipment, including coffeemakers, water boilers, beverage containers, refrigerators, freezers, chillers and ovens; o both chemical and gaseous commercial aircraft oxygen delivery systems; and o business jet and general aviation interior products, including an extensive line of executive aircraft seats, indirect overhead lighting systems, oxygen, safety and air valve products. In addition, our cabin interior structures and engineering and services group designs, develops and manufactures a broad range of cabin interior structures such as galleys and crew rests, and provides comprehensive aircraft cabin interior reconfiguration and passenger to freighter conversion engineering services and component kits. We have substantially expanded the size, scope and nature of our business as a result of a number of acquisitions. Since 1989, we have completed 18 acquisitions, including three acquisitions during fiscal 2001, for an aggregate purchase price of approximately $742 million in order to position ourselves as the preferred global supplier to our customers. During the period from 1989 to 1996, we acquired nine commercial aircraft cabin interior products manufacturers for approximately $290 million. Through these acquisitions we built worldwide market leadership positions and became the number one manufacturer for a large number of product offerings. At the same time, we rationalized our businesses and began re-engineering our operations. We integrated the acquisitions by eliminating 11 operating facilities and consolidating personnel at the acquired businesses, resulting in headcount reductions of approximately 1,300 employees through January 1998. During fiscal 1999 we completed six acquisitions for approximately $387 million. Through these acquisitions we extended our product offerings into oxygen systems and we entered three new markets. These markets include the structural reconfiguration of passenger cabins, the conversion of passenger aircraft to freighters and the business jet cabin interiors market. During the fourth quarter of fiscal 1999, we launched a series of initiatives directed towards expanding our profit margins by improving productivity, reducing costs and inventory levels and speeding production of finished products. These actions included eliminating seven principal facilities, reducing our employment base by over 1,000 employees during fiscal 2000 and rationalizing our product offerings. The plan also included initiatives to install company-wide information technology and engineering design systems and implement lean manufacturing techniques in our remaining factories. We recognized a charge in the fourth quarter of fiscal 1999 of $87.8 million to provide for the entire amount of the restructuring, along with costs associated with new product introductions, all of which was charged to cost of sales. During fiscal 2000, we restructured our seating products operations and decided to discontinue certain product and service offerings. This product line rationalization eliminated two additional facilities bringing the total number of facilities down to 14 from 31. It also resulted in a headcount reduction of approximately 700. The total cost of this product and service line rationalization was approximately $34 million. 24 All of the aforementioned initiatives to integrate, rationalize and restructure the businesses acquired prior to fiscal 2001 had an aggregate cost of approximately $180 million. These initiatives enabled us to eliminate 17 facilities and reduce headcount by over 3,000 employees. We believe these initiatives will enable us to substantially expand profit margins, strengthen the global business management focus on our core product categories, achieve a more effective leveraging of our resources and improve our ability to rapidly react to changing business conditions. In conjunction with these efforts, we have also implemented a company-wide information technology system, a company-wide engineering system and initiated lean manufacturing in our remaining facilities. Common management information and engineering systems and lean manufacturing processes across all operations, coupled with a rationalized product offering are expected to provide us with the ongoing benefit of a generally lower cost structure, and expanding gross and operating margins. Competitive Strengths We believe that we have a strong, competitive position attributable to a number of factors, including the following: Combination of Manufacturing and Cabin Interior Design Services. We have continued to expand our products and services, believing that the airline industry increasingly will seek an integrated approach to the design, development, integration, installation, testing and sourcing of aircraft cabin interiors. We believe that we are the only manufacturer of a broad technologically-advanced line of cabin interior products with interior design capabilities. Based on our established reputation for quality, service and product innovation among the world's commercial airlines, we believe that we are well positioned to provide "one-stop shopping" to these customers, thereby maximizing our sales opportunities and increasing the convenience and value of the service provided to our customers. Technological Leadership/New Product Development. We believe that we are a technological leader in our industry, with what we believe is the largest research and development organization in the cabin interior products industry, currently comprised of approximately 618 engineers. We believe our research and development effort and our on-site engineers at both the airlines and airframe manufacturers enable us to play a leading role in developing and introducing innovative products to meet emerging industry trends and needs and thereby gain early entrant advantages. Proven Track Record of Acquisition Integration. We have demonstrated the ability to make strategic acquisitions and successfully integrate such acquired businesses by identifying opportunities to consolidate facilities and personnel, including engineering, manufacturing and marketing activities, as well as rationalizing product lines. Business Strategy Our business strategy is to maintain a leadership position and to best serve our customers by: o offering the broadest and most integrated product lines and services in the industry, including not only new product and follow-on product sales, but also design, integration, installation and certification services as well as maintenance, upgrade and repair services; o pursuing the highest level of quality in every facet of our operations, from the factory floor to customer support; o aggressively pursuing initiatives of continuous improvement of our manufacturing operations to reduce cycle time, lower cost, improve quality and expand our margins; o pursuing a worldwide marketing and product support approach focused by airline and general aviation airframe manufacturers and encompassing our entire product line; and 25 o pursuing selective strategic acquisitions. In addition, due to our recent acquisitions, we have expanded our business strategies to better position ourselves to participate in the large and rapidly growing business of aircraft reconfiguration and passenger to freighter conversion and also to capitalize on two significant trends in the aerospace industry: o major original equipment manufacturers are shrinking their supplier base, and o major original equipment manufacturers are accelerating the outsourcing of components and sub-assemblies. Recent Acquisitions Effective February 24, 2001 we completed the acquisition of three companies that specialize in manufacturing precision-machined components and assemblies for the aerospace industry. We acquired these businesses, Alson Industries, Inc., T.L. Windust Machine, Inc. and DMGI, Inc. by issuing to the former stockholders approximately 2.4 million shares of our common stock, and paying them $4.35 million in cash. We also assumed or repaid indebtedness of the acquired companies of approximately $9.1 million, for an aggregate purchase price of approximately $65 million. Together, these three businesses had revenues of approximately $40 million for the year ended December 31, 2000. We believe that these acquisitions will enable us to achieve a number of important strategic objectives, including: Positioning the company to become the outsourcing partner of choice in the rapidly-growing business of converting passenger airliners to freighters. We have a highly skilled engineering services group which is focused on engineering design, certification and program management of aircraft reconfiguration and passenger to freighter conversions. As a result of our recent acquisitions, we now also have the capability to manufacture a broad range of structural components, connectors and fasteners. We believe that these acquisitions, coupled with our existing capabilities in the reconfiguration and passenger to freighter conversion business, will position us to become the outsourcing partner of choice in this important growth area. Broadening and improving our manufacturing capabilities company-wide. We believe these acquisitions are a significant step in establishing manufacturing as a point of differentiation from our competitors. Each of the newly-acquired businesses have earned very high ratings for quality and on-time delivery. One of the acquired companies is the only precision machining company in the world holds The Boeing Company's Gold supplier performance rating, while another of the acquired businesses has earned Boeing's Silver supplier performance rating. Among the approximately 20,000 suppliers to Boeing, only one percent have ratings of Silver or better. Less than one tenth of one percent have Gold ratings. We believe that companies with these ratings have competitive advantages dealing with original equipment manufacturers. We intend to adopt the best practices from these new businesses throughout our company. We believe that the adoption of the best practices of these acquired businesses will assist us in more efficiently designing products for manufacturing, reducing our total manufacturing cycle times, improving quality and lowering costs. Participating in the growth opportunity created by major airframe manufacturers, outsourcing strategies. The major aerospace manufacturers are increasingly focusing on their areas of core competency -- design, assembly, marketing and finance. As a result, the industry is in the beginning stages of a widespread and accelerating movement toward outsourcing the manufacturing of components and subassemblies. Original equipment manufacturers are concentrating this outsourcing with a smaller group of larger suppliers, aggressively paring down their supplier bases and demanding from them superb quality and advanced 26 manufacturing practices. These industry trends, coupled with the performance rating systems in place at Boeing and Airbus Industries, are placing significant pressure on smaller suppliers to team up with larger entities. We believe there is a significant growth opportunity for properly positioned and larger, well-capitalized suppliers, like us, to capture the vast amount of manufacturing and assembly work that will be outsourced to a shrinking supplier base. As a result of these outsourcing and consolidation trends, we expect the component manufacturing and assembly business to grow at a faster rate than the overall aerospace industry, and we plan to be one of the companies that benefits from this growth opportunity. Industry Overview The commercial and business jet aircraft cabin interior products industries encompass a broad range of products and services, including aircraft seating products, passenger entertainment and service systems, food and beverage preparation and storage systems, oxygen delivery systems, lavatories, lighting systems, evacuation equipment, overhead bins, as well as a wide variety of engineering design, integration, installation and certification services and maintenance, upgrade and repair services. We estimate that the industry had annual sales in excess of $2.8 billion during fiscal 2001. Historically, revenues in the airline cabin interior products industry have been derived from five sources: o retrofit programs in which airlines purchase new interior furnishings to overhaul the interiors of aircraft already in service; o refurbishment programs in which airlines purchase components and services to improve the appearance and functionality of certain cabin interior equipment; o new installation programs in which airlines purchase new equipment to outfit a newly delivered aircraft; o spare parts; and o equipment to upgrade the functionality or appearance of the aircraft interior. The retrofit and refurbishment cycles for commercial aircraft cabin interior products differ by product category. Aircraft seating typically has a refurbishment cycle of one to two years and a retrofit cycle of four to eight years. Galley and lavatory structures as well as food and beverage preparation and storage equipment are periodically upgraded or repaired, and require a continual flow of spare parts, but may be retrofitted only once or twice during the useful life of an aircraft. The various product and service categories in which we currently participate include: Seating Products. This is the largest single product category in the industry and includes first class, business class, tourist class and commuter seats. We estimate that the aggregate size of the worldwide aircraft seat market (including spare parts) during fiscal 2001 was in excess of $715 million. Including us, there are approximately ten companies worldwide that supply aircraft seats. Interior Systems Products. This product category includes interior systems for both narrow-body and wide-body commercial aircraft and business jet/VIP aircraft, including a wide selection of coffee and beverage makers, water boilers, ovens, liquid containers, air chillers, wine coolers and other refrigeration equipment, oxygen delivery systems, air valves, lighting and switches, and other interior systems and components. We believe that we are the only manufacturer with a complete line of interior systems products and the only supplier with the capability to fully integrate overhead passenger service units with either chemical or gaseous oxygen equipment. 27 Business Jet and VIP Products. We are the industry's leading manufacturer with a broad product line, including a complete line of executive aircraft seating products, lighting, air valves and oxygen delivery systems as well as sidewalls, bulkheads, credenzas, closets, galley structures, lavatories, tables and sofas. We have the capability to provide complete interior packages, including all design services, all interior components and program management services for executive aircraft interiors. We are the preferred supplier of seating products, interior lighting systems and WEMAC(TM) components for essentially every business jet manufacturer. Flight Structures and Engineering Services. We provide engineering design, integration, installation and certification services to the airline industry. These services include project management of aircraft, including reconfigurations and passenger to freighter conversions. Historically, the airlines have relied on in-house engineering resources or consultants to provide such services. As cabin interiors have become increasingly sophisticated and the airline industry increasingly differentiated, the airlines have begun to outsource such services in order to increase speed to market and to improve productivity and reduce costs. We provide engineering and structural components for the conversion of passenger aircraft to freighters, as well as the manufacture of other structural components such as crew rest compartments, lavatories and galleys. We also provide design, integration, installation and certification services for commercial aircraft passenger cabin interiors, offering customers a broad range of capabilities including design, project management, integration, test and certification of reconfigurations for commercial aircraft passenger cabin interiors. Through February 27, 1999, we operated in the (1) aircraft cabin interior products and services and (2) in-flight entertainment segments of the commercial airline and general aviation industry. Following the sale of our controlling interest in the in-flight entertainment business, we operated a single segment -- aircraft cabin interior products and services. Revenues for similar classes of products or services within these business segments for the nine months ended November 25, 2000 and November 24, 1999 and the fiscal years ended February 2001, 2000 and 1999 are presented below (dollars in millions):
Nine months ended Year ended --------------------------- ----------------------------------------- Nov 25, 2000 Nov 24, 1999 Feb 26, 2000 Feb 27, 1999 Feb 28, 1998 ------------ ------------ ------------ ------------ ------------ Seating products $ 218 $ 249 $ 325 $ 296 $252 Interior system products 113 109 145 138 93 Flight structures and engineering services 101 119 172 123 62 Business jet and VIP products 69 65 81 65 - In-flight entertainment products* _ _ - 79 81 ------------ ------------ ------------ ------------ ------------ Total revenues $ 501 $ 542 $ 723 $ 701 $ 488 =========== ============ ============ ============ ============
*We sold a 51% interest in our in-flight entertainment business during fiscal 1999 and the remaining 49% interest in fiscal 2000. Recent Industry Conditions Our principal customers are the world's commercial airlines. Airline company balance sheets have been substantially strengthened and their liquidity significantly enhanced over the past several years as a result of strong profitability, debt and equity financings and a closely managed fleet expansion. Recently, however, increases in fuel prices and the softening of the global economy have negatively impacted airline profitability. Should the airline industry suffer a severe downturn, discretionary airline spending, including for new aircraft and cabin interior refurbishments and upgrades, would be more closely monitored or even reduced, which could have a material adverse effect on our business results of operations and financial condition. Other factors expected to affect the cabin interior products industry are the following: 28 Large Existing Installed Base. Our existing installed product base is expected to generate continued retrofit, refurbishment and spare parts revenue as airlines continue to maintain their aircraft cabin interiors. According to industry sources, the world commercial passenger aircraft fleet consisted of approximately 12,500 aircraft as of January 2001, including 3,470 aircraft with fewer than 120 seats, 6,470 aircraft with between 120 and 240 seats and 2,540 aircraft with more than 240 seats. Further, based on industry sources, we estimate that there are currently over 10,600 business jets currently in service. Based on such fleet numbers, we estimate that the total worldwide installed base of commercial and general aviation aircraft cabin interior products, valued at replacement prices, was approximately $23 billion as of February 28, 2001. Expanding Worldwide Fleet. The expanding worldwide aircraft fleet is expected to generate additional revenues from new installation programs, while the increase in the size of the installed base is expected to generate additional and continual retrofit, refurbishment and spare parts revenue. Worldwide air traffic has grown every year since 1946 (except in 1990) and, according to the 2000 Current Market Outlook published by the Boeing Commercial Airplane Group, or the Boeing Report, is projected to grow at a compounded average rate of 4.8% per year by 2019, increasing annual revenue passenger miles from approximately 2.0 trillion in 1999 to approximately 5.0 trillion by 2019, according to the Boeing Report. According to the Airbus Industrie Global Market Forecast published in July 2000, the worldwide installed seat base, which we consider a good indicator for potential growth in the aircraft cabin interior products industry, is expected to increase from approximately 1.85 million passenger seats at the end of 1999 to approximately 4.17 million passenger seats at the end of 2019. Rapidly Growing Passenger to Freighter Conversion Business. Industry sources project that air cargo traffic will grow by six percent to seven percent annually over the next twenty years, approximately double the forecasted economic growth rate. Industry experts indicate that the size of the worldwide freighter fleet will nearly double over the next twenty years, taking retirements into account more than 2,600 aircraft will be added. Industry sources also estimate that almost 70 percent of that increase is expected to come from converting commercial passenger jets to use as freighters. New Aircraft Deliveries. The number of new aircraft delivered each year is an important determinant of fleet expansion and is generally regarded as cyclical in nature. New aircraft deliveries peaked at 857 during calendar 1999, exclusive of 216 regional jet deliveries. New aircraft deliveries (including regional jets) declined to 1043 aircraft in 2000. Industry sources project new deliveries (including regional jets) to increase to 1259 aircraft in 2001, with average annual new aircraft deliveries (including regional jets) of 1110 during 2002 through 2005. However, annual deliveries over the five-year period ending calendar 2005 are expected to be 1.4 times to 2.5 times greater than the lowest level during the last cycle, which ended in 1995. Business Jet and VIP Aircraft Fleet Expansion and Related Retrofit Opportunities. General aviation and VIP airframe manufacturers have experienced growth in new aircraft deliveries similar to that which recently occurred in the commercial aircraft industry. According to industry sources, executive jet aircraft deliveries amounted to 661 units in calendar 1999 and 758 units in calendar 2000. Industry sources indicate that executive jet aircraft deliveries should be approximately 655 in calendar 2001. Wide-body Aircraft Deliveries. The trend towards wide-body aircraft is significant to us because wide-body aircraft require almost five times the dollar value content for our products as compared to narrow-body aircraft. Deliveries of wide-body, long-haul aircraft constitute an increasing share of total new aircraft deliveries and are an increasing percentage of the worldwide fleet. Wide-body aircraft represented 17% of all new commercial aircraft delivered in 2000, and are expected to increase to 18% of new deliveries in 2003 and 21% of new deliveries in 2004. In addition, according to the Airline Monitor average annual deliveries of wide-body aircraft during calendar 2001 to 2004 are expected to be approximately 23% greater than actual deliveries of such aircraft during calendar 2000. Wide-body aircraft currently carry up to three or four times the number of seats as narrow-body aircraft, and because of 29 multiple classes of service, including large first class and business class configurations, our average revenue per seat on wide-body aircraft is substantially higher. Aircraft cabin crews on wide-body aircraft may make and serve between 300 and 900 meals and may brew and serve more than 2000 cups of coffee and 400 glasses of wine on a single flight. Original Equipment Manufacturers Outsourcing Opportunity. The industry is in the beginning stages of a widespread and accelerating movement toward outsourcing the manufacturing of components and subassemblies. Original equipment manufacturers are concentrating this outsourcing with a smaller group of larger suppliers, aggressively paring down their supplier bases and demanding from them superb quality and advanced manufacturing practices. As a result of these outsourcing and consolidation trends, we expect the component manufacturing and assembly business to grow at a faster rate than the overall aerospace industry. New Product Development. The aircraft cabin interior products companies are engaged in intensive development and marketing efforts. Such products include full electric "sleeper seats," convertible seats, full face crew masks, advanced telecommunications equipment, protective breathing equipment, oxygen- generating systems, new food and beverage preparation and storage equipment, kevlar barrier nets, de-icing systems, crew rests and cabin management systems. Growing Engineering Services Markets. Historically, the airlines have relied primarily on their own in-house engineering resources to provide engineering, design, integration and installation services, as well as services related to repairing or replacing cabin interior products that have become damaged or otherwise non-functional. As cabin interior product configurations have become increasingly sophisticated and the airline industry increasingly competitive, the airlines have begun to outsource such services in order to increase productivity and reduce costs and overhead. Outsourced services include: o engineering design, integration, project management, installation and certification services; o modifications and reconfigurations for commercial aircraft; and o services related to the support of product upgrades. Products and Services Seating Products Our company is the world's leading manufacturer of aircraft seats, offering a wide selection of first class, business class, tourist class and commuter seats. A typical seat manufactured and sold by our company includes the seat frame, cushions, armrests and tray table, together with a variety of optional features such as adjustable lumbar supports, footrests, reading lights, head/neck supports, oxygen masks and telephones. We estimate that as of November 25, 2000 we had an aggregate installed base of approximately 1.2 million aircraft seats valued at replacement prices of approximately $2.7 billion. First and Business Classes. Based upon major airlines' program selection and orders on hand, we are the leading worldwide manufacturer of premium-class seats. Our new line of international first class sleeper seats incorporate full electric actuation, electric ottoman, privacy panels and side-wall mounted tables. Our recently released business class seats incorporate features from over 25 years of seating design. The premium business class seats include electrical or mechanical actuation, PC power ports, telephones, translating leg rests, adjustable lumbar cushions, 4-way adjustable headrests and fiber-optic reading lights. The first and business class products are substantially more expensive than tourist class seats due to these luxury appointments. Convertible Seats. We have developed two types of seats that can be converted from tourist class triple-row seats to business class double-row seats with minimal conversion complexity. Convertible seats allow airline customers the flexibility to adjust the ratio of business class to tourist class seats for a given aircraft configuration. This seat is increasing in popularity in the European market. Tourist Class. We are a leading worldwide manufacturer of tourist class seats and believe we offer the broadest such product line in the industry. We have designed tourist class seats which incorporate features not previously utilized in that class, such as laptop power ports and a number of premium comfort features such as footrests, headrests and adjustable lumbar systems. 30 Commuter (Regional Jet) Seats. We are the leading manufacturer of regional aircraft seating in both the United States and worldwide markets. Our Silhouette(TM) Composite seats are similar to commercial jet seats in comfort and performance but typically do not have as many added comfort features. Consequently, they are lighter weight and require less maintenance. Spares. Aircraft seats require regularly scheduled maintenance in the course of normal passenger use. Airlines depend on seat manufacturers and secondary suppliers to provide spare parts and kit upgrade programs. As a result, a significant market exists for spare parts. Interior Systems Products We are the leading manufacturer of interior systems products for both narrow- and wide-body aircraft, offering a wide selection of coffee and beverage makers, water boilers, ovens, liquid containers, refrigeration equipment, oxygen delivery systems and a variety of other interior components. We estimate that as of November 25, 2000 we have an aggregate installed base of such equipment, valued at replacement prices, in excess of $970 million. Coffee Makers. We are the leading manufacturer of aircraft coffee makers. We manufacture a broad line of coffee makers, coffee warmers and water boilers, including the Flash Brew Coffee Maker, with the capability to brew 54 ounces of coffee in one minute, and a Combi(TM) unit which will both brew coffee and boil water for tea while utilizing 25% less electrical power than traditional 5,000-watt water boilers. We also manufacture a cappuccino/espresso maker. Ovens. We are the leading supplier of a broad line of specialized ovens, including high-heat efficiency ovens, high-heat convection ovens and warming ovens. Our newest offering, the DS Steam Oven, represents a new method of preparing food in-flight by maintaining constant temperature and moisture in the food. It addresses the airlines' need to provide a wider range of foods than can be prepared by convection ovens. Refrigeration Equipment. We are the worldwide industry leader in the design, manufacture and supply of commercial aircraft refrigeration equipment. We manufacture a self-contained wine and beverage chiller, the first unit specifically designed to rapidly chill wine and beverage on-board an aircraft. Oxygen Delivery Systems. We are a leading manufacturer of oxygen delivery systems for both commercial and general aviation aircraft. We are the only manufacturer with the capability to fully integrate overhead passenger service units with either chemical or gaseous oxygen equipment. Our oxygen equipment has been approved for use on all Boeing and Airbus aircraft and is also found on essentially all general aviation and VIP aircraft. General Aviation We entered the market for general aviation and VIP aircraft products with the acquisition of Aircraft Modular Products, Inc., or AMP, in April 1998. By combining AMP's presence in the general aviation and VIP aircraft cabin interior products industry with that of our Puritan-Bennett Aero Systems Co., or PBASCO, and Aircraft Lighting Corporation, or ALC, product lines, which we acquired during fiscal 1999, we are now the leading manufacturer of a broad product line including a complete line of executive aircraft seating products, fluorescent lighting, air valves and oxygen delivery systems as well as sidewalls, bulkheads, credenzas, closets, galley structures, lavatories, tables and sofas. We have the capability to provide complete interior packages, including all design services, all interior components and program management services for executive aircraft interiors. We are the preferred supplier of seating products and direct and indirect lighting systems of essentially every general aviation airframe manufacturer. We estimate that as of November 25, 2000 we have an aggregate installed base of such equipment, valued at replacement prices, of approximately $1.4 billion. 31 Flight Structures and Engineering Services Our flight structures and engineering services operation is a leader in providing design, integration, installation and certification services associated with the reconfiguration of commercial aircraft cabin interiors, converting commercial aircraft to freighters and designing and manufacturing galley structures and crew rest compartments. We estimate that as of November 25, 2000, we had an installed base of such equipment, valued at replacement prices, of approximately $1.2 billion. Passenger to Freighter Conversions. We are a leading supplier of structural design and integration services, including airframe modifications for passenger-to-freighter conversions. We are the leading provider of Boeing 767 passenger to freighter conversions and have performed conversions for Boeing 747-200 Combi, Boeing 747-200 (door only) and Airbus A300 B4 aircraft. Freighter conversions require sophisticated engineering capabilities and very large and complex proprietary parts kits. Engineering Design, Integration, Installation and Certification Services. Through our acquisition of SMR Aerospace, Inc. in August 1998, we became a leader in providing engineering design, integration, installation and certification services for commercial aircraft passenger cabin interiors, offering our customers in-house capabilities to design, project manage, integrate, test and certify reconfigurations and modifications for commercial aircraft and to manufacture related products, including engineering kits and interface components. We provide a broad range of interior reconfiguration services which allow airlines to change the size of certain classes of service, modify and upgrade the seating, install telecommunications or entertainment options, relocate galleys, lavatories and overhead bins, and install crew rest compartments. Crew Rest Compartments. We are the worldwide leader in the design, certification and manufacture of crew rest compartments. Crew rest compartments are utilized by the flight crew during long-haul international flights. A crew rest compartment is constructed utilizing lightweight cabin interior technology and incorporating electrical, heating, ventilation and air conditioning and lavatory and sleep compartments. Galley Structures. Galley structures are generally custom designed to accommodate the unique product specifications and features required by a particular carrier. Galley structures require intensive design and engineering work and are among the most sophisticated and expensive of the aircraft's cabin interior products. We provide a variety of galley structures, closets and class dividers, emphasizing sophisticated and higher value-added galleys for wide-body aircraft. We also manufacture lavatories for commercial and freighter aircraft. Research, Development and Engineering We work closely with commercial airlines to improve existing products and identify customers' emerging needs. Our expenditures in research, development and engineering totaled $37 million for the nine months ended November 25, 2000, $40 million for the nine months ended November 27, 1999, $54 million for the fiscal year ended February 26, 2000 and $56 million for the fiscal year ended February 27, 1999. We employed approximately 618 professionals in the engineering and product development areas. We believe that we have the largest engineering organization in the cabin interior products industry, with not only software, electronic, electrical and mechanical design skills, but also substantial expertise in materials composition and custom cabin interior layout design and certification. Marketing and Customers We market and sell our products directly to virtually all of the world's major airlines and commercial and general aviation aircraft manufacturers. We market our general aviation products directly to all of the world's business jet airframe manufacturers, modification centers and operators. As of February 24, 2001, our sales and marketing organization consisted of 110 persons, along with 31independent sales representatives. Our sales to non-U.S. airlines were approximately $200 million for the nine months ended November 25, 2000, $311 million for the 32 fiscal year ended February 26, 2000 and $298 million for the fiscal year ended February 27, 1999, or approximately 40%, 43% and 42%, respectively, of net sales during such periods. Airlines select manufacturers of cabin interior products primarily on the basis of custom design capabilities, product quality and performance, on-time delivery, after-sales customer service, product support and price. We believe that our large installed base, our timely responsiveness in connection with the custom design, manufacture, delivery and after-sales customer service and product support of our products and our broad product line and stringent customer and regulatory requirements all present barriers to entry for potential new competitors in the cabin interior products market. We believe that our integrated worldwide marketing approach, focused by airline and encompassing our entire product line, is preferred by airlines. Led by a senior executive, teams representing each product line serve designated airlines that together accounted for almost 68% of the purchases of products manufactured by our company during the nine months ended November 25, 2000. These airline customer teams have developed customer specific strategies to meet each airline's product and service needs. We also staff "on-site" customer engineers at major airlines and airframe manufacturers to represent our entire product line and work closely with the customers to develop specifications for each successive generation of products required by the airlines. These engineers help customers integrate our wide range of cabin interior products and assist in obtaining the applicable regulatory certification for each particular product or cabin configuration. Through our on-site customer engineers, we expect to be able to more efficiently design and integrate products which address the requirements of our customers. We provide program management services, integrating all on-board cabin interior equipment and systems, including installation and Federal Aviation Administration certification, allowing airlines to substantially reduce costs. We believe that we are one of the only suppliers in the commercial aircraft cabin interior products industry with the size, resources, breadth of product line and global product support capability to operate in this manner. We market our general aviation products directly to all of the world's general aviation airframe manufacturers, modification centers and operators. Our program management approach requires that a program manager is assigned to each significant contract. The program manager is responsible for all aspects of the specific contract, including management of change orders and negotiation of related non-recurring engineering charges, monitoring the progress of the contract through its scheduled delivery dates and overall contract profitability. We believe that our customers derive substantial benefits from our program management approach, including better on-time delivery and higher service levels. We also believe our program management approach results in better customer satisfaction and higher profitability over the in-flight entertainment of a contract. During the nine months ended November 25, 2000, approximately 86% of our total revenues were derived from the airlines compared with 87% in fiscal 2000. Approximately 60% of our revenues during the nine months ended November 25, 2000 and 61% of our revenues during fiscal 2000 were from refurbishment, spares and upgrade programs. During the nine months ended November 25, 2000 and for the year ended February 26, 2000, no single customer accounted for 10% of total revenues. During the year ended February 27, 1999, one customer accounted for approximately 13% of our total revenues, and no other customer accounted for more than 10% of such revenues. The portion of our revenues attributable to particular airlines varies from year to year because of airlines' scheduled purchases of new aircraft and for retrofit and refurbishment programs for their existing aircraft. Backlog We estimate that our backlog at November 25, 2000 was approximately $500 million, as compared with a backlog of $470 million on February 26, 2000 and $640 million on February 27, 1999 (as adjusted to exclude backlog from our in-flight entertainment business in which we sold a 51% interest in February 1999 and the remaining 49% interest in October 1999). Of our backlog at November 25, 2000, approximately 63% is deliverable by the end of fiscal 2002; 64% of our total backlog is with North American carriers, approximately 11% is with European carriers and approximately 17%, or $85 million, is with Asian carriers. 33 Customer Service We believe that our customers place a high value on customer service and product support and that such service is a critical factor in our industry. The key elements of such service include: o rapid response to requests for engineering designs, proposal requests and technical specifications; o flexibility with respect to customized features; o on-time delivery; o immediate availability of spare parts for a broad range of products; and o prompt attention to customer problems, including on-site customer training. Customer service is particularly important to airlines due to the high cost to the airlines of late delivery, malfunctions and other problems. Warranty and Product Liability We warrant our products, or specific components thereof, for periods ranging from one to ten years, depending upon product type and component. We generally establish reserves for product warranty expense on the basis of the ratio of warranty costs incurred by the product over the warranty period to sales of the product. Actual warranty costs reduce the warranty reserve as they are incurred. We periodically review the adequacy of accrued product warranty reserves and revisions of such reserves are recognized in the period in which such revisions are determined. We also carry product liability insurance. We believe that our insurance is generally sufficient to cover product liability claims. Competition The commercial aircraft cabin interior products market is relatively fragmented with a number of competitors in each of the individual product categories. Due to the global nature of the commercial industry, competition in product categories comes from both U.S. and foreign manufacturers. However, as aircraft cabin interiors have become increasingly sophisticated and technically complex, airlines have demanded higher levels of engineering support and customer service than many smaller cabin interior products suppliers can provide. At the same time, airlines have recognized that cabin interior product suppliers must be able to integrate a wide range of products, including sophisticated electronic components, particularly in wide-body aircraft. We believe that the airlines' increasing demands on their suppliers will result in a consolidation of those suppliers that remain. We have participated in this consolidation through strategic acquisitions and internal growth and we intend to continue to participate in the consolidation. Our principal competitors for seating products are Group Zodiac S.A. and Keiper Recaro GmbH. Our primary competitors for interior systems products are Britax PLC, JAMCO, Scott Aviation and Intertechnique. Our principal competitors in the rapidly growing passenger to freighter conversion business include Boeing Airplane Services, Elbe Flugzeugwerko GMBH, a division of EADS, Israel Aircraft Industries, Pemco World Air Services and Aeronavili. Our principal competitors for other product and service offerings in our flight services and engineering services include TIMCO, JAMCO, Britax PLC, and Driessen Aircraft Interior Systems. The market for general aviation products and services is highly fragmented, consisting of numerous competitors, the largest of which is Decrane Aircraft Holdings. 34 Manufacturing and Raw Materials Our manufacturing operations consist of both the in-house manufacturing of component parts and sub-assemblies and the assembly of our specified and designed component parts that are purchased from outside vendors. We maintain state-of-the-art facilities, and we have an on-going strategic manufacturing improvement plan utilizing lean manufacturing processes. We expect that continuous improvement from implementation of this plan for each of our product lines will occur over the next several years and should lower production costs, cycle times and inventory requirements and at the same time improve product quality, customer response and profitability. Government Regulation The Federal Aviation Administration prescribes standards and licensing requirements for aircraft components, and licenses component repair stations within the United States. Comparable agencies regulate such matters in other countries. We hold several Federal Aviation Administration component certificates and perform component repairs at a number of our U.S. facilities under Federal Aviation Administration repair station licenses. We also hold an approval issued by the UK Civil Aviation Authority to design, manufacture, inspect and test aircraft seating products in Leighton Buzzard, England and in Kilkeel, Northern Ireland and to design, manufacture, inspect and test our flight structures and engineering services products in Dafen, Wales and the necessary approvals to design, manufacture, inspect, test and repair our interior systems products in Nieuwegein, Netherlands and to inspect, test and repair products at our service centers throughout the world. In March 1992, the Federal Aviation Administration adopted Technical Standard Order C127, or TSO C127, requiring that all seats on certain new generation commercial aircraft installed after such date be certified to meet a number of new safety requirements, including an ability to withstand a 16G force. We understand that the Federal Aviation Administration plans to adopt in the near future additional regulations which will require that within the next five years all seats, including those on existing older commercial aircraft which are subject to the Federal Aviation Administration's jurisdiction, will have to comply with similar seat safety requirements. We have developed 32 different seat models that meet these new seat safety regulations, have successfully completed thousands of tests to comply with TSO C127 and, based on our installed base of 16G seats, are the recognized industry leader in this area. Environmental Matters We are subject to extensive and changing federal, state and foreign laws and regulations establishing health and environmental quality standards, and may be subject to liability or penalties for violations of those standards. We are also subject to laws and regulations governing remediation of contamination at facilities that we currently or formerly owned or operated or to which we send hazardous substances or wastes for treatment, recycling or disposal. We believe that we are currently in compliance, in all material respects, with all such laws and regulations. However, we can offer no assurances that we will not be subject to future liabilities or obligations as a result of new or more stringent interpretations of existing laws and regulations. In addition, we may have liabilities or obligations in the future if we discover any environmental contamination or liability at any of our facilities. Patents We currently hold 88 United States patents and 45 international patents, covering a variety of products. We believe that the termination, expiration or infringement of one or more of such patents would not have a material adverse effect on our company. Employees As of February 24, 2001, we had approximately 4300 employees. Approximately 69.2% of these employees are engaged in manufacturing, 14.4% in engineering, research and development and 16.4% in sales, marketing, product support and general administration. Approximately 9% of our worldwide employees are represented by unions. A labor contract representing 301 U.S. Employees expires on May 4, 2003. The labor contract with the only other domestic 35 union, which represents approximately 2% of our employees, also runs through the year 2003. We consider our employee relations to be good. 36 SELLING STOCKHOLDERS We have recently made several acquisitions and, pursuant to the provisions of the agreements governing the acquisitions, we agreed to register shares of our common stock issued as consideration for the acquisitions. Each of the selling stockholders received the shares of our common stock being sold in this offering by the selling stockholders in connection with our acquisition of either Alson Industries, T.L. Windust Machine or DMGI. The shares being sold by the selling stockholders in this offering are for the account of the selling stockholders. We will not receive any proceeds from the sale of the shares of common stock offered by the selling stockholders unless the proceeds are in the aggregate in excess of $39.4 million. The following is a brief summary of some of the provisions of the agreements governing our recent acquisitions. We have not described every aspect of the agreements. You should refer to such agreements, which will be filed as exhibits to the registration statement of which this prospectus is a part, for a complete description of their provisions and the definition of terms used in them. The Alson Industries, Inc. Acquisition Effective February 24, 2001, pursuant to the terms of a share purchase and sale agreement dated as of February 24, 2001 by and among BE Aerospace, Alson Industries, Inc. and the stockholders of Alson Industries, we acquired from the selling stockholders all of the outstanding stock of Alson Industries, for a total purchase price of approximately $17.2 million. We issued 919,107 of our shares to the selling stockholders. Alson Industries is a company based in California that manufactures large structural components, including wing boxes and fuselage elements, for commercial aircraft. Under the terms of our share purchase and sale agreement with the former stockholders of Alson Industries, if the net proceeds of the sales of their shares in the offering (net of underwriting commissions and other expenses) are less than $22.40 per share, we will reimburse them for the difference between the net proceeds and such amount, multiplied by the number of shares sold in the offering. If the net proceeds received by the former stockholders of Alson Industries are greater than $22.40 per share, the excess over such amount, multiplied by the number of shares sold, shall be refunded to us by the former Alson Industries stockholders. If the number of shares sold is less than the 919,107 shares held by the former stockholders of Alson Industries, we have the right to repurchase the remaining unsold shares for a price of $22.40 per share. If the shares are not sold prior to August 26, 2001, the former stockholders of Alson Industries have the right to require us to repurchase such shares for a price of $22.40 per share. The T.L. Windust Machine, Inc. Acquisition Effective February 24, 2001, pursuant to the terms of a share purchase and sale agreement dated as of February 24, 2001 by and among BE Aerospace, T.L. Windust Machine, Inc. and the stockholders of T.L. Windust Machine, we acquired from the selling stockholders all of the outstanding stock of T.L. Windust, for a maximum total purchase price of approximately $7.8 million. We issued 406,339 shares of our common stock to the selling stockholders, which includes an additional approximately 187,500 shares of our common stock issued to an escrow holder, the payment of which is contingent upon certain earnings criteria. T.L. Windust Machine is a company based in California and manufactures structural parts primarily for aerospace and military platforms. Under the terms of our share purchase and sale agreement with the former stockholders of T.L. Windust, if the net proceeds of the sales of their shares in the offering (net of underwriting commissions and other expenses) are less than $22.40 per share, we will reimburse them for the difference between the net proceeds and such amount, multiplied by the number of shares sold in the offering. If the net proceeds received by the former stockholders of DMGI, Inc. are greater than $22.40 per share, the excess over such amount, multiplied by the number of shares sold, shall be refunded to us by the former T.L. Windust stockholders. If the number of shares sold is less than the 406,339 shares held by the former stockholders of T.L. Windust, we have the right to repurchase the remaining unsold shares for a price of $22.40 per share. If the shares 37 are not sold prior to August 23, 2001, the former stockholders of Alson Industries have the right to require us to repurchase such shares for a price of $22.40 per share. The DMGI, Inc. Acquisition Effective February 24, 2001, pursuant to the terms of a share purchase and sale agreement dated as of February 24, 2001 by and among BE Aerospace, DMGI, Inc., Nick Campanelli, trustee of a trust entitled the Delco Machine and Gear Employee Stock Ownership Plan and Trust Agreement, and the other stockholders of DMGI, we acquired from the selling stockholders all of the outstanding stock of DMGI, for a total purchase price of approximately $23 million. We issued 1,084,761 of our shares to the selling stockholders, plus $4.35 million in cash. DMGI is a company based in California that manufactures precision aerospace gears and gear-box assemblies and other aerospace related components. Under the terms of our share purchase and sale agreement with the former stockholders of DMGI, Inc., if the net proceeds of the sales of their shares in the offering (net of underwriting commissions and other expenses) are less than $21.7375 per share, we will reimburse them for the difference between the net proceeds and such amount multiplied by the number of shares sold in the offering. If the net proceeds received by the former stockholders of DMGI, Inc. are greater than $21.7375 per share, the excess over such amount, multiplied by the number of shares sold, shall be refunded to us by the former DMGI, Inc. stockholders. If the number of shares sold is less than the 1,084,761 shares held by the former stockholders of DMGI, Inc., we have the right to repurchase the remaining unsold shares for a price of $21.7375 per share. If the shares are not sold prior to August 23, 2001, the former stockholders of DMGI, Inc. have the right to require us to repurchase such shares for a price of $21.7375 per share. Registration Rights Pursuant to the terms of each of the share purchase and sale agreements, we agreed to file a registration statement with the Securities and Exchange Commission and to use commercially reasonable efforts to cause the registration statement to become and continue to be effective until the earlier of (i) all of the selling stockholders shares of our common stock have been sold in a registered offering or (ii) 180 days after the closing date of the acquisitions. Selling Stockholder Table Set forth below are the names of each selling stockholder, the number of shares of common stock beneficially owned as of March 15, 2001 by each selling stockholder, the number of shares that will be offered and sold by or on behalf of each selling stockholder hereunder and the amount of common stock to be owned by each selling stockholder upon the completion of this offering. As of March 15, 2001, none of our selling stockholders beneficially owns more than 1% of our outstanding common stock based on the number of shares of our common stock outstanding on January 31, 2001, and to our knowledge, except for Carter L. Collins and Terry L. Windust, who are employees of our company, and Phil Jakobi and Don Schoellerman, who have consulting agreements with us, none of the selling stockholders has had any material relationships with us subsequent to the closing of the respective acquisitions of Alson Industries, T.L. Windust Machine and DMGI.
Shares Beneficially Owned Shares Beneficially Prior to Offering Owned After Offering ------------------- Shares ---------------------- Selling Stockholders** Number Percent Offered Number Percent -------------------- ------ ------- ------- ------ ------- Alson Industries Inc. stockholders: Donald L. Schoellerman ........................ 212,102 * 212,102 -- --
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Shares Beneficially Owned Shares Beneficially Prior to Offering Owned After Offering ------------------- Shares ---------------------- Selling Stockholders** Number Percent Offered Number Percent -------------------- ------ ------- ------- ------ ------- Jack L. Shoellerman, Trustee of the Donald Shoellerman Trust No. 1, U/D/T dated June 30, 1999 ........................................... 88,376 * 88,376 -- -- Jack L. Schoellerman, Trustee of the Jack L. Schoellerman Trust No. 1, U/D/T dated June 30, 1999 ....................................... 88,376 * 88,376 -- -- Jack L. Schoellerman, Trustee of the Patricia A. Schoellerman Trust No. 1, U/D/T dated June 30, 1999 ....................................... 88,376 * 88,376 -- -- Jack L. Schoellerman, Trustee of the Cheryl A. Schoellerman Trust No. 1,U/D/T dated June 30, dated June 30, 1999 ........................ 88,376 * 88,376 -- -- Jack L. Shoellerman, Trustee of the Patricia A. Schoellerman Trust No. 2, U/D/T dated June 30, 1999 ....................................... 88,376 * 88,376 -- -- Jack L. Schoellerman, Trustee of the Jack L. Jack L. Schoellerman Trust No. 2, U/D/T dated June 30, 1999 ............................ 88,375 * 88,375 -- -- Jack L. Schoellerman, Trustee of the Donald L.Schoellerman Trust No. 2, U/D/T dated June 30, 1999 ....................................... 88,375 * 88,375 -- -- Jack L. Schoellerman, Trustee of the Cheryl A. Schoellerman Trust No. 2, U/D/T dated June 30, 1999 ....................................... 88,375 * 88,375 -- -- DMGI, Inc. stockholders: Delco Machine and Gear ESOP .................... 374,188 * 374,188 -- -- Lydia Jakobi ................................... 37,493 * 37,493 -- -- Felix Jakobi ................................... 424,606 * 424,606 -- -- Gil Varon ...................................... 11,253 * 11,253 -- -- Firestone Family Trust ......................... 22,563 * 22,563 -- -- Barry B. Langberg .............................. 10,226 * 10,226 -- -- Dan Firestone .................................. 11,253 Frank Tobe ..................................... 18,830 * 18,830 -- -- Steven Firestone ............................... 11,253 * 11,253 -- -- Allan Cohen .................................... 9,582 9,582 -- -- Campanelli Family Trust dated October 1999 ............................. 67,162 * 67,162 -- --
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Shares Beneficially Owned Shares Beneficially Prior to Offering Owned After Offering ------------------- Shares ---------------------- Selling Stockholders** Number Percent Offered Number Percent -------------------- ------ ------- ------- ------ ------- Del Warren ..................................... 9,595 * 9,595 -- -- Nick Campanelli ................................ 28,784 * 28,784 -- -- David Timmerman ................................ 47,973 * 47,973 -- -- T.L. Windust Machine, Inc. stockholders Terry L. Windust ............................... 99,553 * 99,553 -- -- Dorothy Windust ................................ 103,617 * 103,617 -- -- Carter Collins ................................. 99,553 * 99,553 -- -- Kathleen Collins ............................... 103,616 * 103,616 -- -- --------- Total .......................................... 2,410,207 =========
- ----------------------- * Less than 1% ** The address for all of the members of the Alson Industries Inc. stockholders is Jack Schoellerman, Stockholders' Representative, 2030 Main Street, Suite 1600, Irvine, California 92614-7240. The address for all of the members of the T.L. Windust Machine, Inc. stockholders is Terry L. Collins, Stockholders' Representative, 1307 Summitridge Drive, Diamond Bar, Ca. 91765. The address for all of the members of the DMGI, Inc. stockholders except for the Trustee or the ESOP is Mr. Felix Jakobi, Anthem Country Club, 2 Panther Creek Courts, Henderson, Nevada 89052. The address for the Trust and the ESOP is Manatt Phelps & Phillips, LLP, 11355 West Olympic Boulevard, Los Angeles, CA 90067 40 DESCRIPTION OF CAPITAL STOCK Common Stock We are authorized to issue 50,000,000 shares of common stock, $0.01 par value, of which 26,003,203 shares were outstanding as of February 24, 2001. Holders of our common stock are entitled to one vote per share on all matters to be voted upon by the stockholders and to receive such dividends as may be declared by the board of directors out of funds legally available to pay dividends. The indentures relating to our 9 7/8% notes, 8% notes and 9 1/2% of notes and our credit facilities restrict dividend payments by us to our stockholders. In the event of a liquidation, dissolution or winding up of our company, holders of our common stock have the right to a ratable portion of the assets remaining after payment of liabilities. Holders of common stock do not have cumulative voting, preemptive, redemption or conversion rights. All outstanding shares of our common stock are, and the shares to be sold in this offering will be, fully paid and non-assessable. Preferred Stock Our restated certificate of incorporation provides for the authorization of 1,000,000 shares of preferred stock, $0.01 par value. The shares of preferred stock may be issued from time to time at the discretion of the board of directors without stockholder approval. The board of directors is authorized to issue these shares in different classes and series and, with respect to each class or series, to determine the dividend rate, the redemption provisions, conversion provisions, liquidation preference and other rights and privileges not in conflict with our restated certificate of incorporation. No shares of our preferred stock are outstanding, and we have no immediate plans to issue any preferred stock. The issuance of any of our preferred stock could provide needed flexibility in connection with possible acquisitions and other corporate purposes, however, the issuance could also make it more difficult for a third party to acquire a majority of our outstanding voting stock or discourage an attempt to gain control of us. In addition, the board of directors, without stockholder approval, can issue shares of preferred stock with voting and conversion rights which could adversely affect the voting power and other rights of the holders of common stock. Directors' Exculpation and Indemnification Our restated certificate provides that none of our directors shall be liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except to the extent otherwise required by the Delaware General Corporation Law, or the DGCL. The effect of this provision is to eliminate our rights, and our stockholders' rights, to recover monetary damages against a director for breach of a fiduciary duty of care as a director. This provision does not limit or eliminate our right, or the right of any stockholder, to seek non-monetary relief, such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the restated certificate provides that, if the DGCL is amended to authorize the further elimination or limitation of the liability of a director, then the liability of the directors shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. These provisions will not alter the liability of directors under federal or state securities laws. The restated certificate also includes provisions for the indemnification of our directors and officers to the fullest extent permitted by Section 145 of the DGCL. Election and Removal of Directors The restated certificate classifies our board of directors into three classes, as nearly equal in number as possible, so that each director will serve for three years, with one class of directors being elected each year. The restated certificate also provides that directors may be removed for cause only with the approval of the holders of at least two-thirds of the voting power of our shares entitled to vote generally in the election of directors at an annual meeting or special meeting called for such purpose. In addition, the restated certificate requires at least two-thirds of the voting power of our shares entitled to vote generally in the election of directors at an annual meeting or special meeting called for such purpose to alter, amend or repeal the provisions relating to the classified board and removal of directors described above. We believe that the provisions described in the preceding paragraph, taken together, reduce the possibility that a third party could effect a change in the composition of our board of directors without the support of the 41 incumbent board. The provisions may have significant effects on the ability of our stockholders to change the composition of the incumbent board, to benefit from transactions which are opposed by the incumbent board, to assume control of us or effect a fundamental corporate transaction such as a merger. Nevertheless, although we have not experienced any problems in the past with the continuity or stability of the board, management believes that the provisions help assure the continuity and stability of our policies in the future, since the majority of the directors at any time will have prior experience as directors. Section 203 of the Delaware General Corporation Law We are subject to the provisions of Section 203 of the DGCL. That section provides, with certain exceptions, that a Delaware corporation may not engage in any of a broad range of business combinations with a person or affiliate, or associate of such person, who is an "interested stockholder" for a period of three years from the date that such person became an interested stockholder unless: (i) the transaction resulting in a person becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder, (ii) the interested stockholder acquires 85% or more of the outstanding voting stock of the corporation in the same transaction that makes it an interested stockholder (excluding shares owned by persons who are both officers and directors of the corporation, and shares held by certain employee stock ownership plans); or (iii) on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by the holders of at least 66 2/3% of the corporation's outstanding voting stock at an annual or special meeting, excluding shares owned by the interested stockholder. An "interested stockholder" is defined as any person that is (i) the owner of 15% or more of the outstanding voting stock of the corporation or (ii) an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. Rights Agreement On November 12, 1998, our board of directors declared a distribution of one right for each outstanding share of common stock to stockholders of record at the close of business on November 23, 1998 and for each share of common stock issued (including shares distributed from treasury stock) by us thereafter and prior to the distribution date, which will occur on the date described below. Each right entitles the registered holder, subject to the terms of the rights agreement dated as of November 12, 1998, to purchase from us one one-thousandth of a share, or a unit, of series A junior preferred stock, par value $0.01 per share, at a purchase price of $100.00 per unit, subject to adjustment. Initially, the rights will attach to all certificates representing shares of outstanding common stock, and no separate rights certificates will be distributed. The rights will separate from the common stock and the distribution date will occur upon the earlier of (i) 10 days following a public announcement (the date of such announcement being the "stock acquisition date") that a person or group of affiliated or associated persons, other than us, any subsidiaries or any or our or our subsidiaries employee benefit plans (an "acquiring person") has acquired, obtained the right to acquire, or otherwise obtained beneficial ownership of 15% or more of the then outstanding shares of common stock, or (ii) 10 days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 15% or more of the then outstanding shares of common stock. Until the distribution date, (i) the rights will be evidenced by common stock certificates and will be transferred with and only with such common stock certificates, (ii) new common stock certificates issued after November 23, 1998 (also including shares distributed from treasury stock) will contain a notation incorporating the rights agreement by reference and (iii) the surrender for transfer of any certificates representing outstanding common stock will also constitute the transfer of the rights associated with the common stock represented by such certificates. The rights are not exercisable until the distribution date and will expire at the close of business on the tenth anniversary of the rights agreement unless earlier redeemed by us. As soon as practicable after the distribution date, rights certificates will be mailed to holders of record of common stock as of the close of business on the distribution date and, thereafter, the separate rights certificates alone will represent the rights. 42 In the event that (i) we are the surviving corporation in a merger with an acquiring person and shares of our common stock shall remain outstanding, (ii) a person becomes the beneficial owner of 15% or more of the then outstanding shares of our common stock, (iii) an acquiring person engages in one or more "self-dealing" transactions as set forth in the rights agreement, or (iv) during such time as there is an acquiring person, an event occurs which results in such acquiring person's ownership interest being increased by more than 1% (e.g., by means of a reverse stock split or recapitalization), then, in each such case, each holder of a right will thereafter have the right to receive, upon exercise, units of series A junior preferred stock (or, in certain circumstances, common stock, cash, property or other of our securities) having a value equal to two times the exercise price of the right. The exercise price is the purchase price multiplied by the number of units of series A junior preferred stock issuable upon exercise of a right prior to the events described in this paragraph. Notwithstanding any of the foregoing, following the occurrence of any of the events set forth in this paragraph, all rights that are, or (under certain circumstances specified in the rights agreement) were, beneficially owned by any acquiring person will be null and void. In the event that, at any time following the stock acquisition date, (i) we are acquired in a merger or other business combination transaction and we are not the surviving corporation (other than a merger described in the preceding paragraph), (ii) any person consolidates or merges with us and all or part of our common stock is converted or exchanged for securities, cash or property of any other person or (iii) 50% or more of our assets or earning power is sold or transferred, each holder of a right (except rights which previously have been voided as described above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring person having a value equal to two times the exercise price of the right. The purchase price payable, and the number of units of series A junior preferred stock issuable, upon exercise of the rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the series A junior preferred stock, (ii) if holders of the series A junior preferred stock are granted certain rights or warrants to subscribe for series A junior preferred stock or convertible securities at less than the current market price of the series A junior preferred stock, or (iii) upon the distribution to the holders of the series A junior preferred stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the purchase price will be required until cumulative adjustments amount to at least 1% of the purchase price. We are not required to issue fractional units. In lieu thereof, an adjustment in cash may be made based on the market price of the series A junior preferred stock prior to the date of exercise. At any time until ten days following the stock acquisition date, a majority of the board of directors may redeem the rights in whole, but not in part, at the redemption price of $0.01 per right, payable, at the election of such majority of the board of directors, in cash or shares of our common stock. Immediately upon the action of a majority of the board of directors ordering the redemption of the rights, the rights will terminate and the only right of the holders of rights will be to receive the redemption price. Until a right is exercised, the holder thereof, as such, will have no rights as a stockholder of our company, including, without limitation, the right to vote or to receive dividends. While the distribution of the rights will not be taxable to stockholders or to us, stockholders may, depending upon the circumstances, recognize taxable income in the event that the rights become exercisable for units of series A junior preferred stock, or other consideration. Any of the provisions of the rights agreement may be amended at any time prior to the distribution date. After the distribution date, the provisions of the rights agreement may be amended in order to cure any ambiguity, defect or inconsistency, to make changes which do not adversely affect the interests of holders of rights, excluding the interests of any acquiring person, or to shorten or lengthen any time period under the rights agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made at such time as the rights are not redeemable. The units of series A junior preferred stock that may be acquired upon exercise of the rights will be nonredeemable and subordinate to any other shares of preferred stock that may be issued by us. 43 Each unit of series A junior preferred stock will have a minimum preferential quarterly dividend rate of $0.01 per unit but will, in any event, be entitled to a dividend equal to the per share dividend declared on our common stock. In the event of liquidation, the holder of a unit of series A junior preferred stock will receive a series A junior preferred liquidation payment equal to the greater of $0.01 per unit or the per share amount paid in respect of a share of our common stock. Each unit of series A junior preferred stock will have one vote, voting together with the common stock. The holders of units of series A junior preferred stock, voting as a separate class, shall be entitled to elect two directors if dividends on the preferred stock are in arrears for six fiscal quarters. In the event of any merger, consolidation or other transaction in which shares of our common stock are exchanged, each unit of series A junior preferred stock will be entitled to receive the per share amount paid in respect of each share of common stock. The rights of holders of the series A junior preferred stock to dividends, liquidation and voting, and in the event of mergers and consolidations, are protected by customary antidilution provisions. Because of the nature of the series A junior preferred stock's dividend, liquidation and voting rights, the economic value of one unit of series A junior preferred stock that may be acquired upon the exercise of each right should approximate the economic value of one share of our common stock. Transfer Agent and Registrar The transfer agent and registrar for our common stock is American Stock Transfer and Trust Co. of Brooklyn, New York. 44 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated , we and the selling stockholders have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation and Dresdner Kleinwort Benson North America, L.L.C. are acting as representatives, the following respective numbers of shares of common stock: Number Underwriter of Shares ----------- --------- Credit Suisse First BostonCorporation.................... Dresdner Kleinwort Benson North America, L.L.C. ......... ------------ Total.................................................. 3,500,000 ============ The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. We and the selling stockholders have granted to the underwriters a 30-day option to purchase on a pro rata basis up to ________ additional shares from us and an aggregate of ________ additional outstanding shares from the selling stockholders at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offerings the representatives may change the public offering price and concession and discount to broker/dealers. The following table summarizes the compensation and estimated expenses we and the selling stockholders will pay:
Per Share Total ----------------------------- --------------------------------- Without With Without With Over-allotment Over-allotment Over-allotment Over-allotment -------------- -------------- -------------- -------------- Underwriting Discounts and Commissions paid by us . . . . . . . . . . . . . . $ $ $ $ Expenses payable by us . . . . . . . . $ $ $ $ Underwriting Discounts and Commissions paid by selling stockholders . . . . . . $ $ $ $ Expenses payable by the selling stockholders. . . . . . . . . . . . . . $ $ $ $
We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 90 days after the date of this prospectus. Our executive officers, directors and the selling shareholders have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled 45 by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston Corporation for a period of 90 days after the date of this prospectus. The restrictions described in the immediately two preceding paragraphs do not apply to: o the sale of shares to the underwriters; o the issuance by us of shares of common stock as consideration for the purchase by us of any business or assets to parties that agree to be bound by the restrictions above; o transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of this offering; o certain permitted transfers by our stockholders to related parties that agree to be bound by the restrictions above; or o issuances of shares of our common stock or options to purchase shares of our common stock pursuant to our employee benefit plans in existence on the date of this prospectus. We and the selling stockholders have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect. In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the Exchange Act. o Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. o Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option and/or purchasing shares in the open market. o Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. o Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. o In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made. These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in 46 the open market. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. A prospectus in electronic form may be made available on the web sites maintained by one or more of the underwriters participating in this offering. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters that will make internet distributions on the same basis as other allocations. Credit Suisse First Boston Corporation may effect an on-line distribution through its affiliate, CSFBdirect Inc., an on-line broker/dealer, as a selling group member. 47 NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we and the selling shareholders prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of the common stock in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. Representations of Purchasers By purchasing common stock in Canada and accepting a purchase confirmation a purchaser is representing to us, the selling shareholders and the dealer from whom the purchase confirmation is received that o the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under those securities laws, o where required by law, that the purchaser is purchasing as principal and not as agent, and o the purchaser has reviewed the text above under Resale Restrictions. Rights of Action (Ontario Purchasers) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. Enforcement of Legal Rights All of the issuer's directors and officers as well as the experts named herein and the selling shareholders may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against such issuer or persons outside of Canada. Notice to British Columbia Residents A purchaser of common stock to whom the Securities Act (British Columbia) applies is advised that the purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common stock acquired by the purchaser in this offering. The report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one report must be filed for common stock acquired on the same date and under the same prospectus exemption. Taxation and Eligibility for Investment Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and about the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. 48 LEGAL MATTERS The validity of the shares of common stock offered by us will be passed upon for us by Shearman & Sterling, New York, New York. The validity of the shares of common stock offered by the selling stockholders will be passed upon by Good, Wildman, Hegness & Walley, Newport Beach, California. The underwriters have been represented by Cravath, Swaine & Moore, New York, New York. EXPERTS The consolidated financial statements and the related financial statement schedules incorporated in this prospectus by reference from our Annual Report on Form 10-K for the fiscal year ended February 26, 2000, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. WHERE YOU CAN FIND ADDITIONAL INFORMATION We file reports, proxy statements, and other information with the Securities and Exchange Commission and the Nasdaq National Market. You may also read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information on the public reference rooms and their copy charges. Our SEC filings are also available to the public from the SEC's website at http://www.sec.gov. Reports and other information concerning us can also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. We have filed with the SEC a registration statement on Form S-3 under the Securities Act covering the shares of common stock offered hereby. As permitted by the SEC, this prospectus, which constitutes a part of the registration statement, does not contain all the information included in the registration statement. Such additional information may be obtained form the locations described above. Statements contained in this prospectus as to the contents of any document are not necessarily complete. You should refer to the document for all the details. You should rely only on the information contained and incorporated by reference in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus, as well as information we previously filed with the SEC and incorporated by reference herein, is accurate only as of the respective dates of these documents. Our business, financial condition, results of operations and prospects may have changed since those dates. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The SEC allows us to "incorporate by reference" the information we file with the SEC, which means: o incorporated documents are considered part of the prospectus; o we can disclose important information to you by referring you to those documents; and o information that we file later with the SEC will automatically update and supercede this information. We incorporate by reference the documents listed below which we filed with the SEC under the Securities and Exchange Act of 1934: o our annual report on Form 10-K for the fiscal year ended February 26, 2000; and 49 o our quarterly reports on Form 10-Q for the fiscal quarterly periods ended May 27, 2000, August 26, 2000 and November 25, 2000; You may request a copy of these filings, at no cost, by writing or telephoning our General Counsel at the following address: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, Florida 33414 Attention: General Counsel (561) 791-5000 We also incorporate by reference each of the following documents that we will file with the SEC after the date of the initial registration statement and prior to the effectiveness of the registration statement and any filings thereafter and prior to the termination of this offering: o reports filed under Sections 13(a) and (c) of the Securities Exchange Act of 1934; o definitive proxy or information statements filed under Section 14 of the Securities Exchange Act of 1934 in connection with any subsequent stockholders' meeting; and o any reports filed under Section 15(d) of the Securities Exchange Act of 1934. Such documents will become a part of this prospectus from the date such documents are filed. Any statement contained in this prospectus or in a document incorporated by reference is modified or superseded for purposes of this prospectus to the extent that a statement contained in any such document modifies or supersedes such statement. Any such statement so modified or superseded shall be deemed, as so modified or superseded, to constitute a part of this prospectus. 50 [logo] PART II Information Not Required in Prospectus Item 14. Other Expenses of Issuance and Distribution. The following table sets forth all fees and expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered hereby (other than underwriting discounts and commissions). All of such expenses, except the Securities and Exchange Commission registration fee, the National Association of Securities Dealers fee and the NASDAQ Listing Fee are estimated. Securities and Exchange Commission registration fee.... $ 23,018 NASD filing fee........................................ 9,708 NASDAQ listing fee..................................... * Legal fees and expenses ............................... * Transfer Agent and Registrar fees and expenses ........ * Accounting fees and expenses........................... * Blue Sky fees and expenses (including counsel fees).... * Printing expenses...................................... * Miscellaneous.......................................... * -------------- Total................................. $ * ============== - ----------------------- * To be provided by amendment. Item 15. Indemnification of Directors and Officers. Limitation on Liability of Directors Pursuant to authority conferred by Section 102 of the Delaware General Corporation Law (the "DGCL"), Paragraph 11 of BE Aerospace ` certificate of incorporation (the "Certificate") eliminates the personal liability of BE Aerospace ` directors to BE Aerospace or its stockholders for monetary damages for breach of fiduciary duty, including, without limitation, directors serving on committees of BE Aerospace's board of directors (the "Board"). Directors remain liable for (1) any breach of the duty of loyalty to BE Aerospace or its stockholders, (2) any act or omission not in good faith or which involves intentional misconduct or a knowing violation of law, (3) any violation of Section 174 of the DGCL, which proscribes the payment of dividends and stock purchases or redemptions under certain circumstances, and (4) any transaction from which directors derive an improper personal benefit. Indemnification and Insurance In accordance with Section 145 of the DGCL, which provides for the indemnification of directors, officers and employees under certain circumstances, Paragraph 11 grants BE Aerospace ` directors and officers a right to indemnification for all expenses, liabilities and losses relating to civil, criminal, administrative or investigative proceedings to which they are a party (1) by reason of the fact that they are or were directors or officers of BE Aerospace or (2) by reason of the fact that, while they are or were directors or officers of BE Aerospace , they are or were serving at the request of BE Aerospace as directors or officers of another corporation, partnership, joint venture, trust or enterprise. Paragraph 11 further provides for the mandatory advancement of expenses incurred by officers and directors in defending such proceedings in advance of their final disposition upon delivery to BE Aerospace by the indemnitee of an undertaking to repay all amounts so advanced if it is ultimately determined that such indemnitee is not entitled to be indemnified under Paragraph 11. BE Aerospace may not indemnify or make advance payments to any person in connection with proceedings initiated against BE Aerospace by such person without the authorization of the Board. II-1 In addition, Paragraph 11 provides that directors and officers therein described shall be indemnified to the fullest extent permitted by Section 145 of the DGCL, or any successor provisions or amendments thereunder. In the event that any such successor provisions or amendments provide indemnification rights broader than permitted prior thereto, Paragraph 11 allows such broader indemnification rights to apply retroactively with respect to any predating alleged action or inaction and also allows the indemnification to continue after an indemnitee has ceased to be a director or officer of BE Aerospace and to inure to the benefit of the indemnitee's heirs, executors and administrators. Paragraph 11 further provides that the right to indemnification is not exclusive of any other right that any indemnitee may have or thereafter acquire under any statute, the Certificate, any agreement or vote of stockholders or disinterested directors or otherwise, and allows BE Aerospace to indemnify and advance expenses to any person whom the corporation has the power to indemnify under the DGCL or otherwise. The form of Purchase Agreement filed as Exhibit 1.1 hereto provides for the indemnification of the registrant, its controlling persons, its directors and certain of its officers by the underwriters against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors and officers and controlling persons pursuant to the foregoing provisions, BE Aerospace has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. The Certificate authorizes BE Aerospace to purchase insurance for directors and officers of BE Aerospace and persons who serve at the request of BE Aerospace as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or enterprise against any expense, liability or loss incurred in such capacity, whether or not BE Aerospace would have the power to indemnify such persons against such expense or liability under the DGCL. BE Aerospace intends to maintain insurance coverage of its officers and directors as well as insurance coverage to reimburse BE Aerospace for potential costs of its corporate indemnification of directors and officers. Item 16. Exhibits and Financial Statements Schedules. The exhibits to this registration statement are listed in the Exhibit Index to this registration statement, which Exhibit Index is hereby incorporated by reference. Item 17. Undertakings. We undertake that, for the purposes of determining any liability under the Securities Act, each filing of our annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-2 We undertake that: (1) For the purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, we certify that we have reasonable grounds to believe that we meet all of the requirements for filing on Form S-3 and have duly caused this registration statement to be signed on our behalf by the undersigned, thereunto duly authorized, in The City of New York, State of New York, on March 15, 2001. BE AEROSPACE, INC. By: /s/ Amin J. Khoury -------------------------------------- Amin J. Khoury, Chairman of the Board POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Amin J. Khoury and Thomas P. McCaffrey, and each of them singly, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this registration statement and any and all amendments thereto, including post-effective amendments, and to file the same, with all exhibits thereto, any related registration filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all the said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated on March 15, 2001. Signature Title - --------- ----- /s/Amin J. Khoury Chairman of the Board - ------------------------------------- Amin J. Khoury /s/Robert J. Khoury Vice Chairman of the Board - ------------------------------------- and Chief Executive Officer Robert J. Khoury (principal executive officer) /s/Thomas P. McCaffrey Corporate Senior Vice President - ------------------------------------- of Administration and Thomas P. McCaffrey Chief Financial Officer (principal financial and accounting officer) /s/Jim C. Cowart Director - ------------------------------------- Jim C. Cowart /s/Richard G. Hamermesh Director - ------------------------------------- Richard G. Hamermesh /s/Brian H. Rowe Director - ------------------------------------- Brian H. Rowe II-4 EXHIBIT INDEX Sequentially Numbered Exhibit No. Description Page - ----------- ----------- ---- 1.1** Form of Underwriting Agreement 3.1 Amended and Restated Certificate of Incorporation (1) 3.2 Certificate of Amendment of the Restated Certificate of Incorporation (2) 3.3 Certificate of Amendment of the Restated Certificate of Incorporation (3) 3.4 Amended and Restated By-Laws (4) 4.1 Specimen Common Stock Certificate (1) 4.2 Rights Agreement between the Company and BankBoston, N.A., as rights agent, dated as of November 12, 1998 (4) 5.1** Opinion of Shearman & Sterling 23.1** Consent of Shearman & Sterling (included in Exhibit 5.1) 23.2* Consent of Deloitte & Touche L.L.P., as independent accountants for BE Aerospace, Inc. 24.1 Powers of Attorney (included in signature pages of this Registration Statement) 99.1* Share Purchase and Sale Agreement dated effective as of February 24, 2001 among BE Aerospace Inc., Alson Industries Inc., and the stockholders of Alson 99.2* Share Purchase and Sale Agreement dated as of effective as of February 24, 2001 among BE Aerospace Inc., DMGI Inc., and the stockholders of DMGI 99.3* Share Purchase and Sale Agreement dated effective as of February 24, 2001 among BE Aerospace Inc., T.L. Windust Machine, Inc. and the stockholders of Windust - ---------------------------------------------- * Filed herewith. ** To be filed by amendment. (1) Incorporated by reference to the Company's Registration Statement on Form S-1, as amended (No. 33- 33689), filed with the Commission on March 7, 1990. (2) Incorporated by reference to the Company's Registration statement on Form S-1, as amended (No. 33- 54146), filed with the Commission on November 3, 1992. (3) Incorporated by reference to the Company's Registration Statement on Form S-3, as amended (No. 333- 60209), filed with the Commission on July 30, 1998. (4) Incorporated by reference to the Company's Current Report on Form 8-K dated November 12, 1998, filed with the Commission on November 18, 1998. EX-99.1 2 0002.txt SHARE PURCHASE AND SALE AGREEMENT - ALSON SHARE PURCHASE AND SALE AGREEMENT This SHARE PURCHASE AND SALE AGREEMENT effective as of February 24, 2001, is entered into by and among BE Aerospace, Inc., a Delaware corporation (the "Company"), Alson Industries, Inc., a California corporation ("Alson"), and the shareholders of Alson, set forth on Schedule 1 hereto (collectively, the "Shareholders"). RECITALS A. The Shareholders are the record and beneficial holders of all the issued and outstanding capital stock (collectively, the "Alson Shares") of Alson. B. The Company desires to acquire the Alson Shares from the Shareholders, and the Shareholders desire to transfer the Alson Shares to the Company in exchange for shares of BE Stock (as defined in Section 1). NOW, THEREFORE, in consideration of the foregoing, and the mutual promises and agreements of the parties herein contained, the parties hereby agree as follows: Terms and Conditions -------------------- Section 1. DEFINITIONS. For purposes of this Agreement, the following terms have the meanings set forth below: "Actual Knowledge" means Knowledge without the requirement of reasonable due inquiry. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended. "Agreement" means this SHARE PURCHASE AND SALE AGREEMENT, as the same may be amended from time to time in accordance with the terms hereof. "Alson" has the meaning set forth in the preamble to this Agreement. "Ancillary Agreements" means the Consulting Agreement and the Shareholders' Ancillary Agreements. "Arbiter" has the meaning set forth in Section 2.3(b). "BE Closing Price" means the amount that is equal to the arithmetic average of the quoted closing sale prices of a share of BE Stock for the five (5) NASDAQ National Market trading days ending on the fourth (4th) business day prior to the Closing Date. "BE Stock" means common stock of the Company presently trading under the symbol "BEAV" on the NASDAQ National Market. "Closing" has the meaning set forth in Section 3.1. "Closing Date" has the meaning set forth in Section 3.2. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the preamble to this Agreement. "Company Indemnified Parties" has the meaning set forth in Section 11.2. "Company's Accounting Firm" means Deloitte & Touche, LLP or any successor organization. "Confidential Information" includes all information, in whatever form or medium, concerning the operations or affairs of Alson, but does not include information that (i) was in the public domain before the date of this Agreement or subsequently came into the public domain other than as a direct or consequential result of disclosure by any Shareholder or, before the Closing Date, Alson; or (ii) was lawfully received by a Shareholder from a third party, other than Alson, prior to the Closing Date, free of any obligation of confidence to or through such third party, or (iii) is independently developed by any Shareholder as of the Closing Date without the use of any information from Alson. "Consulting Agreement" means a consulting agreement between Alson and Mr. Don Schoellerman substantially in the form attached hereto as Exhibit A. "Contracts" means, collectively, all written or oral contracts, agreements, commitments, leases, licenses, instruments, bids and proposals to which Alson is a party as of the Closing Date, including, without limitation, those listed on Schedule 4.11, all unfilled orders outstanding as of the Closing Date for the purchase of goods or services by Alson and all unfilled orders outstanding as of the Closing Date for the sale of goods or services by Alson. "Custody Agreement" has the meaning set forth in Section 8.5(a). "Disclosure Schedules" has the meaning set forth in Section 4. "DTC" means the Depository Trust Company. "Effective Date" has the meaning set forth in Section 3.1. "Employee Benefit Plan" means an Employee Pension Benefit Plan or an Employee Welfare Benefit Plan, where no distinction is intended by the context in which the term is used. "Employee Pension Benefit Plan" has the meaning set forth in Section 3(2) of ERISA. "Employee Welfare Benefit Plan" has the meaning set forth in Section 3(1) of ERISA. "Environment" means soil, land surface or subsurface strata, real property, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), groundwater, water body sediments, drinking water supply, stream sediments, ambient air -2- (including indoor air), plant and animal life and any other environmental medium or natural resource. "Environmental Liabilities and Costs" and similar phrases mean all Losses incurred: (i) to comply with any Environmental Law; (ii) as a result of a Release of any Hazardous Materials; or, (iii) as a result of any condition of the Environment present at, created by or arising out of the past or present operations of Shareholders or Alson through the Closing Date or of any prior owner or operator of a facility or site at which Alson now operates or has previously operated. "Environmental Permits" means any Permit or authorization from any Governmental Entity required under, issued pursuant to, or authorized by any Environmental Law. "Environmental Law" means any Law with respect to the preservation of the environment or the promotion of worker health and safety, including but not limited to any Law whatsoever relating to Hazardous Materials, drinking water, surface water, groundwater, wetlands, landfills, open dumps, storage tanks, underground storage tanks, solid waste, waste water, storm water run-off, noises, odors, air quality, air emissions, waste emissions or wells. Without limiting the generality of the foregoing, the term will encompass each of the following statutes and the regulations promulgated thereunder, and any similar applicable state, local or foreign Law, each as amended: (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980; (b) the Solid Waste Disposal Act; (c) the Hazardous Materials Transportation Act; (d) the Toxic Substances Control Act; (e) the Clean Water Act; (f) the Clean Air Act; (g) the Safe Drinking Water Act; (h) the National Environmental Policy Act of 1969; (i) the Superfund Amendments and Reauthorization Act of 1986; (j) Title III of the Superfund Amendments and Reauthorization Act; (k) the Federal Insecticide, Fungicide and Rodenticide Act; (l) the provisions of the Occupational Safety and Health Act of 1970 relating to the handling of and exposure to Hazardous Materials and similar substances; and (m) the California Environmental Quality Act. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow" has the meaning set forth in Section 2.4. "Escrow Agent" has the meaning set forth in Section 2.4. "Escrow Agreement" has the meaning set forth in Section 2.4. "Escrowed Shares" has the meaning set forth in Section 2.4. "GAAP" means United States generally accepted accounting principles, as in effect as of the date of this Agreement. "Governmental Entity" or "Governmental Entities" mean any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "Government Subcontract" means any Contract that is a subcontract between Alson and any third party relating to a contract between such third party and any Governmental Entity. -3- "Hazardous Materials" means each and every element, compound, chemical mixture, contaminant, pollutant, material, waste or other substance that is defined, determined or identified as hazardous, toxic or controlled under any Environmental Law or the Release of which is prohibited under any Environmental Law. Without limiting the generality of the foregoing, the term will include, without limitation, (a) "hazardous substances" as defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, or Title III of the Superfund Amendments and Reauthorization Act and regulations promulgated thereunder, each as amended, (b) "hazardous waste" as defined in the Solid Waste Disposal Act and regulations promulgated thereunder, each as amended, (c) "hazardous materials" as defined in the Hazardous Materials Transportation Act and the regulations promulgated thereunder, each as amended, (d) "chemical substance or mixture" as defined in the Toxic Substances Control Act and regulation promulgated thereunder, each as amended, (e) petroleum and petroleum products and byproducts and (f) asbestos. "Indemnitee" has the meaning set forth in Section 11.5. "Indemnitor" has the meaning set forth in Section 11.5. "Intellectual Property" means the entire right, title and interest in and to all proprietary rights of every kind and nature, including without limitation patents, patent disclosures, copyrights, Trademarks, mask works, trade secrets and proprietary information, all applications for any of the foregoing, and any license or agreements granting rights related to any of the foregoing (i) subsisting in, covering, relying on, directly applicable to or existing in the Products or the Technology, (ii) that are owned, licensed or controlled in whole or in part by Alson or any Subsidiary of Alson and relate to the business of Alson or any Subsidiary of Alson, or (iii) that are used in or necessary to the development, manufacture, sale, marketing or testing of, the Products collectively, and all registrations, applications, re-issuances, continuations, continuations-in-part, revisions, extensions, re-examinations and associated good will with respect to each of the foregoing, computer software (including source and object codes), computer programs, computer data bases and related documentation and materials, data, other documentation, trade secrets, all confidential business information (including ideas, formulas, compositions, inventions, know-how, manufacturing and production processes and techniques, research and development information, drawings, designs, plans, proposals and technical data, financial, marketing and business data and pricing and cost information) and all other intellectual property rights (in whatever form or medium). "Interim Financial Statements" has the meaning set forth in Section 4.5. "IRS" means the Internal Revenue Service of the United States Department of the Treasury. "Knowledge" of Alson and/or the Shareholders means actual knowledge of the Management Group after reasonable due inquiry with respect to the matter represented. "Law" means any constitutional provision, statute, law, rule, regulation, Permit, decree, injunction, judgment, order, ruling, determination, finding or writ of any Governmental Entity. -4- "Liability" or "Liabilities" mean any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated), including without limitation any liability for Taxes. "Lien" or "Liens" mean any mortgage, pledge, security interest, charge, claim or other encumbrance, other than (a) liens for Taxes not yet due and payable or that are being contested in good faith by appropriate proceedings, (b) statutory or common law liens to secure obligations to landlords, lessors or renters under leases or rental agreements confined to the premises rented, (c) deposits or pledges made in connection with, or to secure payment of, workers' compensation, unemployment insurance, old age pension or other social security programs mandated under Law; (d) statutory or common law liens in favor of carriers, warehousemen, mechanics and materialmen to secure claims for labor, materials or supplies and other like liens that are not material, (e) as to real property, recorded easements, rights of way, restrictions, encroachments, and also any minor title defects that do not, singly or in the aggregate, interfere with the use of such property, (f) restrictions on transfer of securities imposed by Law, and (g) liens securing rental payments under capital lease arrangements. Nothing herein limits the Shareholders' obligations to discharge and release all Liens for Taxes and all Taxes to the extent described elsewhere in this Agreement. "Losses" has the meaning set forth in Section 11.2. "Management Group" means Mr. Don Schoellerman, Mr. Jack Schoellerman, Mr. Al Schoellerman, and Mr. Ted Valmassei. "Material Adverse Effect" means any adverse effect on the business, operations, assets, prospects or condition, financial or otherwise, of Alson which, when considered singly or in the aggregate together with all other such effects constitutes a material adverse effect on the business, assets, operations, prospects or condition, financial or otherwise, of Alson taken as a whole. "Multi-employer Plan" has the meaning set forth in Section 3(37) of ERISA. "Net Cash" means net cash on the Alson balance sheet as of the close of business on the day prior to the Closing Date plus deposits in transit, less checks, drafts or notes made payable by Alson not cleared, in transit or not paid as of the day prior to the Closing Date. "Net Consideration" means (I) Reference Price, plus (II) Net Cash, less (III) Net Debt, and less (IV) Taxes of Alson accrued prior to the Closing Date that are neither (A) previously paid or provided for by Shareholders from sources outside the Alson bank accounts or cash equivalents nor (B) the Tax described in Section 6.3(f)(i). "Net Debt" means: (a) any debt owed by Alson for money borrowed, including all capitalized leases, loans from Shareholders, bank lines of credit, equipment installment notes or other bank notes payable, prior to the Closing Date; plus (b) an amount equal to the discounted net present value of all operating leases (excluding real estate leases) calculated on a monthly basis using a monthly discount rate of 0.875% per month; plus (c) any accounts payable that, prior to the Effective Date, are unpaid more than 30 days past their due dates. -5- "Net Proceeds" has the meaning given in Section 2.5. "Non-Compete and Non-Solicitation Agreement" shall mean, as to each shareholder set forth on Schedule 2.1 hereof, a Non-Compete and Non-Solicitation Agreement among the Company, Alson and such Shareholder in substantially the form of Exhibit B attached hereto. "Offering Termination Date" shall have the meaning given in Section 8.5(c)(i). "Ordinary Course of Business" means the ordinary course of business of Alson consistent with past custom and practice (including with respect to quantity and frequency). "PBGC" means the Pension Benefit Guaranty Corporation. "Permit" or "Permits" mean any license, permit, franchise, certificate of authority or order, or any waiver of the foregoing, issued by any Governmental Entity. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a Governmental Entity. "Product" or "Products" mean all past and current products and services of Alson and, to the extent that they are currently being developed by Alson, (i) any subsequent versions of such products or services, (ii) any products or services which are designed to supersede, replace or function as a component of such products or services, (iii) any upgrades, enhancements, improvements and modifications to the foregoing, and (iv) any data or information associated with the foregoing that is either provided to the Customer, or required by the Customer to be delivered. "Product Recall" means a request in writing from Alson to any person for the return of any Products for reasons of health, safety or compliance with any Law. "Prohibited Transactions" has the meaning set forth in Section 406 of ERISA and Section 4975 of the Code. "Public Offering" has the meaning given in Section 8.5. "Reference Price" means the amount of Seventeen Million One Hundred Sixty-Six Thousand Six Hundred Sixty Seven dollars ($17,166,667). "Registrable Securities" has the meaning set forth in Section 8.5(a). "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, storing, escaping, leaching, dumping, discarding, burying, abandoning or disposing into the Environment. "Reportable Event" has the meaning set forth in Section 4043 of ERISA. -6- "Safety Liabilities and Costs" and similar phrases mean all Losses incurred to comply with any Safety Law or as a result of any health or safety conditions present at, created by or arising out of the past or present operations of Alson through the Closing Date "Safety Laws" means any Law or legal requirement relating to health or safety, including the Occupational Safety and Health Act, as amended, as now or hereinafter in effect relating to (a) exposure of employees to any Hazardous Materials or (b) the physical structure, use or condition of a building, facility, fixture or other structure, including, without limitation, those relating to equipment or manufacturing processes, or the management, Release, cleanup or removal of any Hazardous Materials. "Schedule" means, unless the context otherwise requires, the referenced Schedule included in the Disclosure Schedules. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Shareholders" has the meaning set forth in the Preamble to this Agreement. "Shareholder" means each person set forth on Schedule 1 to this Agreement. "Shareholder Indemnified Parties" has the meaning set forth in Section 11.3. "Shareholders' Ancillary Agreements" shall mean, as to each Shareholder set forth on Schedule 1 hereof, a Non-Compete and Non-Solicitation Agreement among the Company, Alson and such Shareholder in substantially the form of Exhibit B attached hereto. "Shareholders' Representative" means Jack Schoellerman, or in the event Jack Schoellerman is unable to continue, the Shareholder's Representative shall be, in the event of the death of Jack Schoellerman while he is the Shareholder's Representative, the personal representative of Jack Schoellerman, and during his life, Jack Schoellerman may elect to name in writing a successor specifically as Shareholder's Representative, which this definition also shall include. "Subsidiary" means with respect to any Person, (i) any entity (including any partnership) a majority of whose outstanding voting securities (however designated, including all equivalent or similar interests) are owned or controlled, directly or indirectly, by such Person or by one or more of such person's Subsidiaries, or collectively by such Person and one or more of its Subsidiaries. "Tax" or "Taxes" mean taxes, fees, levies, duties, tariffs, imposts and governmental impositions, assessments or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local, or foreign taxing authority, including, without limitation, income, gross receipts, license, lease, service, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code ss. 59A), customs duties, -7- capital stock, franchise, profits, withholding, social security (or similar, including FICA), unemployment, disability, real property, personal property, sales, use, ad valorem, transfer, registration, value added, alternative or add-on minimum, estimated, or of any other kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" or "Tax Returns" shall mean any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Technology" means all inventions, copyrightable works, discoveries, innovations, know-how, ideas, research and development, formulae, compositions, processes and techniques, technical data, designs, drawings, specifications, customer and supplier information, pricing and cost information, business and marketing plans, proposals, documentation, manuals, software, firmware, hardware, integrated circuits and integrated circuit masks, electronic, electrical or mechanical equipment, machinery and tools, and all other forms and embodiments of technology of all kinds whatsoever, including without limitation improvements, modifications, derivatives or changes, whether tangible or intangible, embodied in any form, whether or not protectible or protected by patent, copyright, mask work right, trade secret law or otherwise. "Trademarks" means any trademarks, service marks, trade dress, logos and trade names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith. "Warranties" shall mean all Product return policies, service, repair, replacement and other obligations based upon or arising out of express warranties made in connection with the sale of goods or the performance of services by Alson. "Year-End Financial Statements" has the meaning set forth in Section 4.5. Section 2. EXCHANGE OF SHARES. 2.1 Sale and Transfer of Alson Shares. On the terms and subject to the conditions set forth in this Agreement, at the Closing the Shareholders shall transfer and convey to the Company, and the Company shall acquire, all right, title and interest in and to the Alson Shares, free and clear of all Liens, claims, encumbrances, pledges, options, security interests and any other adverse claims or interests. At the Closing, each Shareholder shall deliver to the Company all certificates evidencing the Alson Shares owned by him, her or it, properly endorsed for transfer or accompanied by properly executed stock powers. 2.2 Consideration from Company for the Alson Shares. On the terms and subject to the conditions set forth in this Agreement, the Company covenants and agrees that in exchange for the transfer of the Alson Shares to Company by the Shareholders, the Company shall: (i) deliver to a DTC account of each of the Shareholders (or their designee or custodian), at Closing, in proportion to the ownership of the capital stock of Alson as set forth on Schedule 1, an aggregate number of shares of BE Stock valued at the BE Closing Price equal to Fourteen Million Five Hundred Ninety Thousand Dollars ($14,590,000) plus an amount in cash of Ten Thousand Dollars ($10,000); and (ii) deliver to the Escrow Agent at Closing an aggregate number of shares of BE Stock valued at the BE Closing Price equal to the Reference Price -8- multiplied by One Hundred and Twenty percent (120%) minus Fourteen Million Six Hundred Thousand Dollars ($14,600,000). The Escrow Agent, pursuant to the Escrow Agreement, will be instructed to release the Escrowed Shares or proceeds from the sale thereof as follows: (a) Within thirty (30) days after the Closing Date, and after the Company and any Arbiter, if applicable, renders its confirmation of the Net Consideration pursuant to Section 2.3(a) and Section 2.3(b), Escrowed Shares valued at the BE Closing Price, or proceeds therefrom, shall be released from Escrow, subject to the terms of the Escrow Agreement, (i) to the Shareholders, in proportion to the ownership of capital stock of Alson as set forth on Schedule 1, such that the total amount, if any, that shall be distributed to the Shareholders is equal to any positive result of (A) Ninety percent (90%) of Net Consideration minus (B) Fourteen Million Six Hundred Thousand Dollars ($14,600,000), and (ii) to the Company, such that the total amount, if any, that shall be distributed to the Company is equal to the total value of the Escrowed Shares (based on the BE Closing Price) minus (A) the total amount distributed to the Shareholders pursuant to Section 2.2(a)(i) above, and minus (B) ten percent (10%) of Net Consideration. The remaining 10% of Net Consideration shall thereafter remain in the Escrow until distributed as provided below; (b) (i) If Ninety percent (90%) of the Net Consideration is less than Fourteen Million Six Hundred Thousand Dollars ($14,600,000), then the Shareholders shall, within three business days after the Company and any Arbiter, if applicable, renders its confirmation of the Net Consideration, remit to the Escrow any positive result of Fourteen Million Six Hundred Thousand Dollars ($14,600,000), minus Ninety percent (90%) of the Net Consideration (the "Net Consideration Pay Back"); and (ii) If the Net Proceeds exceed the Net Consideration, then the Shareholders shall remit or cause to be remitted to the Company the excess as provided in Section 2.5; (c) Subject to adjustments described in Sections 2.3 and 11.2, Escrowed Shares valued at the BE Closing Price, or proceeds from the sale thereof, in an amount equal to five (5%) percent of the Net Consideration will be distributed from Escrow, subject to the Escrow Agreement, to the Shareholders fifteen (15) days after receipt from the Company's Accounting Firm of the audit for the Company's fiscal year ending February 2002, but in no case later than June 1, 2002; and (d) Subject to adjustments described in Sections 2.3 and 11.2, and after payment of all Escrow Account fees then due, the balance of the Escrowed Shares, or proceeds from the sale thereof, will be disbursed from Escrow, subject to the Escrow Agreement, to Shareholders within fifteen (15) days after the receipt from the Company's Accounting Firm of the audit for the Company's fiscal year ending February 2003, but in no case later than June 1, 2003. 2.3 Adjustments of Reference Price. (a) Within thirty (30) days after the Closing Date, and after the Company renders its confirmation of the Net Consideration, the Company will deliver to Shareholders' -9- Representative, the calculation with respect to the Net Cash and Net Debt, along with any associated work papers (the "Closing Date Net Consideration Calculation"). (b) Within fifteen (15) days after the delivery of the Closing Date Net Consideration Calculation, the Shareholders' Representative will deliver written notice to the Company of any objections thereto, and will attempt in good faith to reach an agreement with the Company as to any matters in dispute. If Shareholders' Representative does not give such notice within such fifteen (15) days, then Shareholders shall be deemed to have waived the right to dispute the Closing Date Net Consideration Calculation. If Shareholders' Representative gives such notice within such fifteen (15) days, and if the Company and the Shareholders' Representative, notwithstanding such good faith effort at resolution, fail to resolve all matters in dispute within fifteen (15) days after Company's receipt of Shareholders' objections, then any remaining disputed matters will be finally and conclusively determined by an independent auditing firm of recognized national standing (the "Arbiter") selected by the Company and the Shareholders' Representative, which firm will not be the regular auditing firm of the Company, Alson, Shareholders, or any Affiliate thereof. Promptly, but not later than forty-five (45) days after acceptance of its appointment, the Arbiter will determine (based solely on presentations by the Shareholders' Representative and the Company and not by independent review) only those matters in dispute and will render a written report as to the disputed matters and the resulting calculation of the Net Consideration under Section 2.2(a), which report will be conclusive and final as to the Net Consideration for purposes of Section 2.2(a), but shall not detract from the parties' remedies under Section 11. In resolving the dispute the Arbiter shall be limited to choosing the final proposal of either the Company or Shareholders' Representative. The fees and expenses of the Arbiter will be paid by the non-prevailing party with respect to the determination of the Arbiter as set forth in the Arbiter's report. The Arbiter's final report shall be submitted to the Escrow Agent within ten (10) days after it has been delivered to Shareholders' Representative and the Company. (c) For purposes of complying with the terms set forth in Section 2.3(b), each party will cooperate with and make available to the other party and its auditors and representatives all information, records, data and auditors' working papers, as may be reasonably required in connection with the preparation and analysis of the Closing Date Net Consideration Calculation. (d) In addition to all other rights and remedies under Section 11 of this Agreement, the Company shall have recourse, subject to the Escrow Agreement, to withhold and set off any unpaid portions of the Escrowed Shares or proceeds from the sale thereof held in Escrow, in partial satisfaction of Shareholders' obligations to the Company Indemnified Parties under Section 11 on a dollar-for-dollar basis. No failure to withhold by Escrow Agent or the Company any amount held in Escrow from Shareholders shall constitute a waiver or release of any kind whatsoever. 2.4 Escrow. At the Closing, the Company shall cause to be deposited, cash and shares of BE Stock valued at the BE Closing Price in an aggregate amount equal to One Hundred and Twenty (120%) percent multiplied by the Reference Price, less Fourteen Million Six Hundred Thousand Dollars ($14,600,000) ("the Escrowed Shares"), into an escrow account ("Escrow") to be established with an escrow agent (the "Escrow Agent") selected by the -10- Company, reasonably acceptable to the Shareholders, pursuant to an escrow agreement, dated the Effective Date, substantially in the form of Exhibit C-1 (the "Escrow Agreement"). The Escrow Agent will hold the cash and Escrowed Shares as provided by the Escrow Agreement as security for the obligations of the Shareholders under Sections 2.2 and 11.2 hereof. The Escrow Agreement shall provide for the distribution of the cash and Escrowed Shares (or proceeds from the sale thereof) from the Escrow pursuant to Sections 2.2(a), (b), (c) and (d), subject to claims of the Company under Section 11.2. Following the initial distribution from Escrow of cash and Escrowed Shares, or proceeds from the sale thereof, pursuant to Section 2.2(a), the Escrow Agent shall hold the remaining Escrowed Shares, or proceeds therefrom, equal to ten (10%) of the Net Consideration, subject to further distribution in accordance with Sections 2.2(b), (c) and (d). All interest, dividends or other amounts earned with respect to the proceeds from the Escrowed Shares (excluding the Escrowed Shares that are to be distributed to the Company under Section 2.2(a)(ii)) shall accrue to the benefit of the Shareholders. The Shareholder Representative shall have the right to direct the Escrow Agent with respect to the investment of all cash proceeds in the Escrow as and to the extent permitted in the Escrow Agreement. Any fees from and after the Effective Date for maintaining the Escrow shall be paid from earnings on all amounts in the Escrow, and if either is not practical or if necessary, paid directly by the Shareholders. After payment or provision for all Escrow expenses, the investment earnings may be, from time to time, withdrawn from the Escrow by the Shareholder's Representative for the benefit of the Shareholders. The Shareholder's Representative shall give prompt notice to the Company of its intent to make any withdrawal from the Escrow Account and the Company agrees that it shall issue any joint instruction that may be necessary to authorize the Escrow Agent to release such amounts to the Shareholders. No Escrowed Shares, or proceeds from the sale thereof, shall be distributed to Shareholders' Representative or any Shareholder except pursuant to the Escrow Agreement in compliance with the terms and conditions of this Agreement. With respect to any Escrowed Shares released from the Escrow to either the Shareholders, Shareholders' Representative or the Company, such shares shall be valued at the BE Closing Price without reference to the stock's then actual market price. The Shareholders shall be responsible for, and without using any assets in the Escrow (other than interest, dividends and other earnings) shall pay when due, any and all Taxes imposed upon or arising from the Escrowed Shares. The Shareholders and Company agree that all Escrowed Shares shall be sold by the Escrow Agent at the earliest opportunity and the proceeds from the sale thereof shall be substituted in place of the Escrowed Shares. Accordingly, the Shareholders hereby irrevocably authorize and direct the Escrow Agent and any agents or representatives of the Company to take any and all actions necessary or appropriate, in such Person's sole and absolute discretion, to effect sales of Escrowed Shares on such terms and conditions (and only on such terms and conditions), and at such times and utilizing such underwriters and brokers, as shall be directed and approved by the Company in a written notice (a "Sale Notice") to be delivered to the Escrow Agent. 2.5 Guaranteed Proceeds; Mandatory and Optional Cash Payments. (a) In the event that the aggregate Net Proceeds (as defined below) received by the Shareholders or the Escrow Agent from sales in the Public Offering of the BE Stock divided by the number of shares of BE Stock sold are less than the BE Closing Price, then, within five (5) days after the earlier of the closing of the Public Offering or the Offering Termination Date, the Company shall pay to the Shareholders (or their designee or custodian), -11- or, in regard to Escrowed Shares, to the Escrow Agent, an aggregate amount equal to the Net Consideration minus the sum of the Net Proceeds received on account of the sales of BE Stock by the Shareholders or the Escrow Agent, allocated according to actual amounts of the deficiency for each. In the event that the aggregate Net Proceeds received by the Shareholders and the Escrow Agent from the sale of BE Stock exceeds the Net Consideration, the Company shall have no obligation to make any payment pursuant to this Section 2.5 and the Shareholders and the Escrow Agent shall remit or cause to be remitted to the Company such excess amount within the five-day period described above in this Section 2.5(a). As used herein, "Net Proceeds" means (x) in the case of an underwritten sale of BE Stock, the gross proceeds received by the Shareholders and the Escrow Agent in such sale, net of underwriter's discounts, commissions and other expenses paid by the Shareholders (whether incurred by the Shareholders, the Company, the underwriters or any advisors) in connection with such sale and (y) in the case of any other sale of such shares, the gross proceeds received by the Shareholders and the Escrow Agent, net of selling commissions paid in connection with such sale and all other expenses paid by the Shareholders (whether incurred by the Shareholders, the Company, placement agents or any broker dealers, in connection with such sale). (b) Optional Cash Payment. As to all of the BE Stock received by the Shareholders or held in Escrow not theretofore sold in the Public Offering, the Company shall have the right at any time to terminate or withdraw any registration initiated by it and to elect, at its sole option by giving written notice to the Shareholders and the Escrow Agent, to repurchase all unsold shares of BE Stock held by any Shareholder or the Escrow Agent. The Company shall pay to each Shareholder and the Escrow Agent in cash an amount per each share of unsold BE Stock held by the Shareholders and the Escrow Agent, respectively, equal to the BE Closing Price, and in exchange for such payment, the Shareholders and the Escrow Agent shall transfer to the Company all right and interest in and to the shares of BE Stock so repurchased. (c) Mandatory Cash Payment. If all shares of BE Stock held by the Shareholders and the Escrow Agent are not sold within 180 days of the Closing Date or repurchased by the Company pursuant to Section 2.5(b), then on the 180th day after the Closing Date, the Company shall purchase all the shares of BE Stock then held by each Shareholder and the Escrow Agent for an amount per share equal to the BE Closing Price. In exchange for such payment, the Shareholders and the Escrow Agent shall transfer to the Company all right and interest in and to the shares of BE Stock so repurchased. (d) Payment of Interest. If the BE Stock received by the Shareholders or held in Escrow is not sold or repurchased by the Company pursuant to Section 2.5(b) on or prior to the 91st day after the Closing Date, then the Company shall pay the Shareholders and the Escrow Agent, monthly, in cash, the first payment due on the 91st day following the Closing Date, an amount equal to the amount of interest on the Net Consideration that would accrue at a rate of 10% per annum if the Shareholders and the Escrow Agent had made a loan to the Company, on the Closing Date, in the aggregate amount of the Net Consideration. Such interest shall continue to accrue until the earlier of the date all shares of BE Stock held by the Shareholders and the Escrow Agent are sold to the public or are repurchased by the Company pursuant to Sections 2.5(b) or (c). Section 3. CLOSING AND CLOSING DATE. -12- 3.1 Closing. Subject to the provisions of Section 10, the consummation of the transactions contemplated by this Agreement (the "Closing") will take place at the offices of Yocca Patch & Yocca, LLP, 19900 MacArthur Boulevard, Suite 650, Irvine, California, on February 28, 2001, or at such other place or on such other date as the Company and the Shareholders may mutually agree, until fully concluded. Notwithstanding the foregoing, the parties agree that the Company intends, for financial reporting purposes, to treat the Closing as if it had occurred on February 24, 2001 (the "Effective Date"). 3.2 Closing Date. The date on which the Closing actually takes place is referred to in this Agreement as the "Closing Date." Except as provided in Section 3.1 for financial reporting purposes, the Closing will be deemed for all other purposes under this Agreement to have occurred as of 12:01 A.M., California time, on the Closing Date. 3.3 Deliveries at the Closing. At the Closing, (a) the Shareholders will deliver to the Company the various certificates, instruments, documents and agreements referred to in Section 10.1, and (b) the Company will deliver to the Shareholders the various certificates, instruments, documents and agreements referred to in Section 10.2. 3.4 Bank Signature Cards. At closing, Alson and the Shareholders, as applicable, will deliver to the Company signature cards for all Alson Bank Accounts. Section 4. REPRESENTATIONS AND WARRANTIES OF ALSON AND SHAREHOLDERS. Each representation and warranty contained in this Section 4 is qualified by the disclosures made in the disclosure schedule attached hereto as Schedule 4 (the "Disclosure Schedule"). Each part of the Disclosure Schedule is numbered to correspond to the subsections of this Section 4. The Shareholders, severally and jointly, and Alson represent and warrant to the Company that the statements contained in this Section 4 are correct and complete (except to the extent that the aggregate of all Losses that could arise from the inaccuracy or incompleteness of any statements, individually or in the aggregate, contained in this Section 4 do not exceed One Hundred Thousand Dollars ($100,000)) as of the date of this Agreement and will be correct and complete (except to the extent that the aggregate of all Losses that could arise from the inaccuracy or incompleteness of any statements, individually or in the aggregate, contained in this Section 4 do not exceed One Hundred Thousand Dollars ($100,000)) as of the Closing Date. 4.1 Organization. Alson is a corporation duly organized, validly existing and in good standing under the laws of the State of California, with full corporate power and authority to carry on the business in which it is presently engaged, and to own and use the properties owned and used by it and to consummate the transactions contemplated hereby. Alson is duly qualified to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required, except where failure to be so qualified would not have a Material Adverse Effect. All trusts and other organizations or entities that are Shareholders are duly organized, validly existing and in good standing in the state where organized. 4.2 Authorization of Transaction. Each of the Shareholders has the capacity and full power and authority (including full trustee power and authority) to execute and deliver this Agreement and to perform their respective obligations hereunder and to consummate the transactions contemplated hereby. This Agreement, and the other agreements required to be -13- executed and delivered by Alson or the Shareholders pursuant hereto, have been or at the Closing Date shall have been duly executed and delivered by Alson or the Shareholders, as the case may be, and constitute, or at the time of delivery shall constitute the valid and legally binding obligation of Alson or the Shareholders, enforceable in accordance with its terms and conditions, except as such enforceability may be limited by general principles of equity and bankruptcy, insolvency, reorganization and moratorium and other similar laws relating to creditors' rights. All trusts or similar proceedings needed for each of the Shareholders to authorize this Agreement and the transactions contemplated hereby have been duly and validly taken. 4.3 Noncontravention; Consents. (a) Neither the execution and delivery of this Agreement, nor the consummation by Alson and the Shareholders of the transactions contemplated hereby, will violate any Law to which Alson or the Shareholders are subject or any provision of the articles of incorporation or bylaws of Alson. Except as set forth on Schedule 4.3(a), neither the execution and delivery of this Agreement by the Shareholders, nor the consummation by Alson or the Shareholders of the transactions contemplated hereby, will constitute a violation of, be in conflict with, constitute or create a default under or result in the creation or imposition of any Lien upon any property of Alson pursuant to any agreement or commitment to which Alson or any of the Shareholders is a party or by which Alson, the Shareholders or any of their respective properties (including Alson Shares) is bound or to which Alson, the Shareholders or any of such properties is subject. (b) Except as set forth on Schedule 4.3(b), Alson and the Shareholders have given all required notices and obtained all licenses, Permits, consents, approvals, authorizations, qualifications and orders of Governmental Entities as are required in order to enable the Shareholders to perform their obligations under this Agreement, including all consents and approvals required to permit the Shareholders to transfer all of the Alson Shares to the Company. No Contract relating to Alson has been amended to increase the amount payable thereunder or otherwise modify the terms thereof in order to obtain any such consent, approval or authorization. 4.4 Capitalization. Schedule 4.4 sets forth for Alson (i) the number of shares of authorized capital stock of each class of its capital stock, (ii) the number of issued and outstanding shares of each class of its capital stock, (iii) the names of its directors and elected officers, and (iv) the owners of its capital stock. The Shareholders have delivered to the Company correct and complete copies of the articles of incorporation and bylaws of Alson as amended to date. All of the issued and outstanding shares of capital stock of Alson have been duly authorized and are validly issued, fully paid and nonassessable. As of immediately prior to the Closing the Shareholders hold of record and own beneficially, and upon the Closing the Shareholders shall transfer, assign and convey to Company, all right, title and interest in and to all of the outstanding shares of stock of Alson, free and clear of any restrictions on transfer (other than restrictions under the Securities Act, and applicable state securities laws), Taxes, Liens, options, warrants, purchase rights, contracts, commitments, claims or demands. Except as set forth on Schedule 4.4, there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other contracts or commitments that could require the Shareholders or Alson to sell, transfer or otherwise dispose of any capital stock -14- of Alson or that could require Alson to issue, sell or otherwise cause to become outstanding any of its own capital stock. There are no outstanding stock appreciation, phantom stock, profit participation or similar rights with respect to Alson. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of Alson. Alson is not in default under or in violation of any provision of its articles of incorporation or bylaws. Except as set forth on Schedule 4.4, Alson neither controls directly or indirectly, nor has any direct or indirect equity participation in, any Person. 4.5 Financial Statements. Set forth in Schedule 4.5(a-1) are correct and complete copies of the unaudited balance sheets of Alson as of December 31, 1998, December 31, 1999 and December 31, 2000 and the related statements of income and cash flow for the years then ended (the "Year-End Financial Statements"). The Year-End Financial Statements were prepared consistent with past accounting practices and present fairly the financial condition and the results of operations of Alson on a consolidated basis as of the dates and for the periods indicated therein in accordance with GAAP (except as set forth in Schedule 4.5(a-2)). Set forth in Schedule 4.5(a-3) are correct and complete copies of the unaudited balance sheet of Alson as of January 31, 2001 and the related statements of income and cash flow for the one month then ended (the "Interim Financial Statements"). The Interim Financial Statements were prepared consistent with past accounting practices and present fairly the financial condition and the results of operations of Alson on a consolidated basis as of the date and for the period indicated in accordance with GAAP (except as set forth in Schedule 4.5(a-2)), except for normal year-end adjustments. 4.6 Undisclosed Liabilities. Alson has no Liabilities that exceed, individually or in the aggregate, One Hundred Thousand Dollars ($100,000), except for liabilities and obligations (i) reflected or reserved for on the Interim Financial Statements, (ii) that have arisen since the date of the Interim Financial Statements in the ordinary course of the operation of Alson (none of which results from, arises out of, relates to, any breach of contract, breach of warranty, tort, infringement or violation of Law) or (iii) as set forth on Schedule 4.6. 4.7 Customers and Suppliers. Except as set forth in Schedule 4.7(a-1), since December 31, 2000, no event or condition has arisen that would reasonably be expected to result in any of the major customers or sole-source or key suppliers of Alson to cease doing business with Alson or to curtail its business with Alson in any material respect. Alson and Shareholders have received no notice from any major customers or major suppliers that the transactions contemplated by this Agreement will result in a material change in the manner of conducting business with Alson. Listed in Schedule 4.7(a-2) are the names and addresses of Alson's customers for 1999 and for 2000. Listed in Schedule 4.7(a-3) are the names and addresses of all major suppliers and all sole source suppliers to Alson for 1999 and for 2000, and the amount for which each supplier invoiced Alson during such period(s). 4.8 Events Subsequent to Most Recent Fiscal Year End. Since December 31, 2000, there has not been any material adverse change in the business, financial condition, operations, results of operations or future prospects of Alson except as disclosed on Schedule 4.8. 4.9 Accounts Receivable. The accounts receivable reflected on the Interim Financial Statements, including any associated reserves, are bona fide receivables, accounted for on a basis -15- consistent with that used in the preparation of the Interim Financial Statements, representing amounts due with respect to actual transactions in the ordinary course of the operation of Alson. 4.10 Tax Matters. (a) Except as set forth in Schedule 4.10, (i) all Tax Returns that are required to be filed by or with respect to Alson, have been duly filed, and Alson is not the beneficiary of any extension of time within which to file any Tax Return, (ii) the Shareholders have delivered to the Company correct and complete copies of all federal income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by Alson for the last three taxable years, (iii) such Tax Returns are true, complete and correct in all material respects, (iv) all Taxes due and payable by Alson have been paid in full, (v) no waivers of statutes of limitation have been given by or requested with respect to any Taxes of Alson, (vi) there is no claim or assessment threatened by any taxing authority against Alson, (vii) Alson has withheld and timely paid to the appropriate taxing authority the required amounts in compliance with all Tax withholding provisions of applicable Laws, (viii) no written claim has ever been made by an authority in a jurisdiction where Alson does not file Tax Returns that Alson may be subject to taxation by that jurisdiction, and (ix) there are no Liens (other than Liens attributable to Taxes not yet due and payable) on any of the assets of Alson that arose in connection with any failure (or alleged failure) to pay any Tax. (b) No Shareholder, director or officer (or employee responsible for Tax matters) of Alson expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute, audit, investigation, proceeding or claim concerning any Liability with respect to Taxes of Alson either (i) claimed or raised by any authority in writing or (ii) as to which any of Alson or the Shareholders have Knowledge based upon contact with any such authority. No federal, state, local, and foreign income Tax Returns filed with respect to Alson have been audited. Except as set forth in Schedule 4.10, no federal, state, local or foreign income Tax Returns are currently the subject of audit. (c) Alson does not have any Liability for the Taxes of any Person other than Alson under Treasury Regulation ss. 1.1502-6 (or any similar provision of Law), as a transferee or successor, by contract, or otherwise. (d) Alson has not filed a consent under Code ss. 341(f) concerning collapsible corporations. Alson has not to its Knowledge made any payments that were treated as deductible that should be nondeductible under Code ss. 162 or Code ss. 404. Alson has not made any payments, nor is it obligated to make any payments, nor is it a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code ss. 280G. Alson has not been a United States real property holding corporation within the meaning of Code ss. 897(c)(2) during the applicable period specified in Code ss. 897(c)(1)(A)(ii). Alson has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of the Code ss. 6662. (e) No Alson asset is property which Alson is required to treat as being owned by any other person pursuant to the so-called "safe harbor lease" provisions of former Section -16- 168(f)(8) of the Code. None of the Alson assets is "Tax-exempt use property" within the meaning of Section 168(h) of the Code. Alson has not agreed to make, nor is it required to make, any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. Alson has not participated in (and will not participate in) an international boycott within the meaning of Section 999 of the Code. Alson is not a person other than a United States person within the meaning of the Code. The payments contemplated in Section 2, other than as to investment earnings, are not subject to the Tax withholding provisions of Code Section 3406, or of subchapter A of Chapter 3, of the Code or of any other provision of Law. Alson does not have and has not had a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country. Alson is not a party to any joint venture, partnership, or other arrangement or contract that could be treated as a partnership for federal income Tax purposes. (f) Except as disclosed on Schedule 4.10(f), Alson has duly and timely paid all Taxes relating to the business of Alson (whether or not shown on any Tax Return) due to any Governmental Entity prior to the Closing, and all such Taxes have been taken into account, as applicable, in determining Net Taxes or Net Consideration calculation. (g) At all times since January 1, 1987, Alson has had in effect a valid election under Section 1362(a) of the Code to be taxed as an S corporation for federal income tax purposes (an "S Election") and, except as set forth in Schedule 4.10(g), (i) a comparable election in each state in which it conducts business or is subject to Tax, and (ii) a comparable election in each locality in which it both conducts business and is subject to a local Tax. Alson has not received written notice of and is not aware of any proposal from the IRS or any Tax authority to disallow such S Election or such comparable election for any taxable year. 4.11 Contracts. (a) Schedule 4.11 contains a list of all material Contracts, including a description of the terms of any material Contracts not in writing. Without limiting the foregoing, all Contracts involving consideration in excess of $100,000 shall be deemed material. (b) The Shareholders have made available to the Company correct and complete copies of all items, as amended, listed on Schedule 4.11 that are in writing, and the descriptions contained on Schedule 4.11 of all items listed therein that are not in writing are complete and correct in all respects. Each Contract listed on Schedule 4.11 is a valid, binding and enforceable obligation of Alson and the other party or parties thereto and is in full force and effect. Except as set forth on Schedule 4.11, (i) neither Alson nor, to Alson's Knowledge, any other party thereto, is in material breach of any term of any Contract listed on Schedule 4.11 or has repudiated any term of any Contract listed on Schedule 4.11, (ii) no event, occurrence or condition exists that, with the lapse of time, the giving of notice, or both, would become a material default under any Contract listed on Schedule 4.11 by Alson, or, to Alson's Knowledge, any other party thereto, (iii) Alson has neither waived nor released any of its material rights under any Contract listed on Schedule 4.11, and (iv) neither Alson, nor the Shareholders, have received any communication questioning the validity or enforceability of any Contract listed on Schedule 4.11. The execution, delivery and consummation of the transactions contemplated by this Agreement shall not constitute a breach or default under, or give rise to a right of termination -17- under or otherwise adversely affect any provision of any of the Contracts listed on Schedule 4.11. 4.12 Real Property. (a) Schedule 4.12(a-1) lists all lease and sublease agreements relating to real property leased or subleased by Alson. Except as set forth on Schedule 4.12(a-2), with respect to each such lease and sublease: (i) such lease or sublease constitutes the entire agreement to which Alson is a party with respect to the real property leased thereunder; (ii) Alson has not assigned, sublet, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold; (iii) all facilities leased or subleased thereunder have received all material approvals of Governmental Entities (including all material Permits) required in connection with the operation thereof and have been operated and maintained in all material respects in accordance with all applicable Laws; and (iv) there is no action, suit or proceeding pending against Alson or, to Shareholders' Knowledge, any action, suit or proceeding pending or threatened against Alson or any third party that would interfere with the quiet enjoyment of such leased real property after the Closing Date. (b) All of the real property and facilities currently used by Alson, and all components of all improvements included within such property, are in good working order and repair, reasonable wear and tear excepted, and do not require material repair or replacement in order to serve their intended purposes in all material respects, including use and operation consistent with their present use and operation, except for scheduled maintenance, repairs and replacements conducted or required in the ordinary course of the operation of such real property or improvements. (c) Other than options, rights of first refusal or other similar arrangements in favor of Alson under the leases and subleases relating to the real property leased by Alson, Alson has not entered into any contract, arrangement or understanding with respect to the future ownership, development, use, occupancy or operation of any parcel of real property. (d) There are no pending or threatened or contemplated condemnation or eminent domain proceedings that affect the real property leased by Alson, and Alson has not received any notice, oral or written, of the intention of any Governmental Entity or other Person to take or use all or any part thereof. (e) Since Alson's leasing of the real property currently leased or subleased by Alson, none of such property or any part thereof has suffered any material damage by fire or other casualty that has not been completely restored. -18- (f) Alson has not received any written notice from any insurance company that has issued a policy to Alson with respect to any of its leased real property requiring the performance of any structural or other repairs or alterations to such property. (g) Alson does not currently own any real property. All real property previously leased by Alson, to Alson's Knowledge, is identified, to Alson's Knowledge, as such in Schedule 4.12(g). 4.13 Title and Related Matters. Except as set forth on Schedule 4.13, Alson now has, and on the Closing Date will have, good and marketable title to (or a valid leasehold interest in) all the properties and assets used by Alson in its business or as shown on the Interim Financial Statements, free and clear of all Liens, except for properties and assets disposed of in the Ordinary Course of Business. 4.14 Intellectual Property. (a) Alson owns or has the right to use pursuant to a valid license, sublicense, agreement or permission all Intellectual Property necessary for the operations of Alson as presently conducted. (b) Alson has neither interfered with, nor infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of third parties. Alson has not received any charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation or violation (including any claim that it must license or refrain from using any Intellectual Property rights of any third party). To Alson's Actual Knowledge, no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of Alson. (c) Schedule 4.14(c) identifies each patent and each registered Trademark, and copyright owned by Alson and identifies each pending patent application or application for registration that has been filed by Alson. The Shareholders have made available to the Company correct and complete copies of all such patents, registrations and applications, each as amended to date, and correct and complete copies of all other written documentation evidencing ownership and prosecution of each such item. With respect to each such item of Intellectual Property required to be identified in Schedule 4.14(c): (i) Alson possesses all right, title and interest in and to such item, free and clear of any Lien, license or other restriction; (ii) such item is not subject to any outstanding injunction, judgment, order, decree, ruling or charge; (iii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to Alson's Knowledge, threatened that challenges the legality, validity, enforceability, use or ownership of such item; and -19- (iv) Alson has not agreed to indemnify any Person for or against any interference, infringement, misappropriation or other conflict with respect to such item except to the extent specifically disclosed in Schedule 4.14(c). (d) Schedule 4.14(d) identifies each license, sublicense, agreement or permission pursuant to which Alson uses any item of Intellectual Property. With respect to each such license, sublicense, agreement or permission: (i) to Alson's Actual Knowledge, the underlying item of Intellectual Property is not subject to any outstanding injunction, judgment, order, decree, ruling or charge; (ii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to Alson's Actual Knowledge, threatened that challenges the legality, validity or enforceability of the underlying item of Intellectual Property; (iii) the execution, delivery and consummation of transactions contemplated by this Agreement shall not constitute a breach or default or, give rise to a right of termination thereunder, or otherwise adversely affect the ability of Alson, Company or its Affiliates to use the Intellectual Property in conducting the business of Alson after the Closing Date; and (iv) Alson has not granted any sublicense or similar right with respect to such license, sublicense, agreement or permission. 4.15 Litigation. Schedule 4.15 sets forth each instance in which Alson is (a) subject to any unsatisfied judgment order, decree, stipulation, injunction or charge or (b) a party to or, to Alson's Knowledge, is threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing or investigation of or in any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction, or (c) subject to any Product Recall relating to Alson Products since Alson's incorporation. There are no judicial or administrative actions, proceedings or investigations pending or, to Alson's Knowledge, threatened that question the validity of this Agreement or any action taken or to be taken by Alson or the Shareholders in connection with this Agreement or that, if adversely determined, would have a material adverse effect upon Alson or the Shareholders' ability to enter into or perform their respective obligations under or contemplated by this Agreement to which any of them is a party. 4.16 Employee Benefits. (a) Schedule 4.16(a) lists each Employee Benefit Plan that Alson maintains with respect to the current or former employees of Alson or to which Alson contributes with respect to any of the current or former employees of Alson. With respect to each such Employee Benefit Plan: (i) such Employee Benefit Plan (and each related trust, insurance contract or fund) complies in form and in operation in all respects with the applicable requirements of ERISA, the Code and other applicable Laws; -20- (ii) all required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports and Summary Plan Descriptions) have been filed or distributed appropriately with respect to such Employee Benefit Plan and the requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code have been met with respect to each such Employee Benefit Plan which is a "group health plan" as such term is defined in Section 5000(b)(1) of the Code; (iii) all contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan and all contributions for any period ending before the Closing Date which are not yet due have been paid to each such Employee Pension Benefit Plan. All premiums or other payments for all periods ending before the Closing Date have been paid with respect to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan. Nothing has occurred or is expected to occur which would cause a material increase in the cost of providing benefits under such Employee Benefit Plan; (iv) each such Employee Benefit Plan which is an Employee Pension Benefit Plan was at all times in its existence intended to satisfy the requirements of a "qualified plan" under Section 401(a) of the Code, has at all such times met such requirements in all material respects to Alson's Knowledge and has received, within the last two years, a favorable determination letter from the IRS, and its related trust has been determined to be exempt from taxation under Section 501(a) of the Code. Nothing has occurred since the date of such favorable determination letter that would adversely affect such qualification or exemption, and the Company and Alson will not incur costs or expenses, including any Taxes, as a result of an Employee Benefit Plan failing of any condition of such qualification or exemption for Pre-Closing Periods or by reason of pre-closing actions or omissions; and (v) the Shareholders have made available to the Company correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the IRS, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts and other funding agreements which implement such Employee Benefit Plan. (b) With respect to each Employee Benefit Plan that Alson maintains or ever has maintained, or to which it contributes, ever has contributed or ever has been required to contribute, there have been no Prohibited Transactions with respect to such Employee Benefit Plan, no fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of such Employee Benefit Plan, and no action, suit, proceeding, hearing or investigation with respect to the administration or the investment of the assets of such Employee Benefit Plan (other than routine claims for benefits) is pending or, to Alson's Knowledge, threatened. (c) Except as set forth on Schedule 4.16(c), Alson neither contributes to, nor has ever contributed to or has ever been required to contribute to any Multi-employer Plan or has any liability (including withdrawal liability) under any Multi-employer Plan. None of the transactions contemplated by this Agreement or any Ancillary Agreement will trigger any withdrawal or termination liability under any Multi-employer Plan set forth on Schedule 4.16(c). -21- 4.17 Environmental Matters. (a) Except as set forth on Schedule 4.17(a): (i) Alson is and has been in compliance with all applicable Environmental Laws and Safety Laws, the violation of which could have a Material Adverse Effect; (ii) Alson has obtained, and is and has been in compliance in all material respects with the conditions of, all applicable Environmental Permits required heretofore and all required continuations or renewals thereof through the Closing Date; (iii) there are no past or present events, conditions or circumstances related to environmental or health and safety matters that are likely to have a Material Adverse Effect or which would interfere with compliance with any Environmental Law or Permit or Safety Law is likely to have a Material Adverse Effect; (iv) there are no circumstances or conditions present at or arising out of the present or, to the Knowledge of the Shareholders, the former, assets, properties, leaseholds, businesses or operations of Alson in respect of off-site storage, transportation or disposal of, or any off-site Release of, Hazardous Materials which reasonably may be expected to give rise to any Environmental Liabilities and Costs which could have a Material Adverse Effect; (v) there are no circumstances or conditions present at or arising out of the present or, to the Knowledge of the Shareholders, the former, assets, properties, leaseholds, businesses or operations of Alson, including but not limited to any on-site storage, use, disposal or Release of Hazardous Materials, which reasonably may be expected to give rise to any Environmental Liabilities and Costs or Safety Liability and Costs which could have a Material Adverse Effect; (vi) none of Alson or the Shareholders or the present or, to the Knowledge of the Shareholders, the past, assets, properties, business, leaseholds or operations of Alson has received or is subject to, or within the past three years has been subject to, any outstanding order, decree, judgment, complaint, agreement, claim, citation, or notice or is subject to any ongoing judicial or administrative proceeding indicating that Alson, or any of the past assets, properties, real property business, leaseholds or operations of Alson of which Alson has Knowledge or any of the present such property and assets of Alson are or may be: (A) in violation of any Environmental Laws; (B) in violation of any Safety Laws; (C) responsible for the on-site or off-site storage or Release of any Hazardous Materials; or (D) liable for any Environmental Liabilities and Costs or Safety Liabilities and Costs; (vii) no investigation or review with respect to such matters is pending or, to the Knowledge of Alson or the Shareholders, is threatened; (viii) neither the business of Alson nor any of its properties or assets is subject to, or as a result of the transactions contemplated by this Agreement will be subject to, the requirements of any Environmental Laws which require notice, disclosure, cleanup or approval prior to transfer of the shares or the business of Alson or which will impose Liens on any such asset or property or otherwise interfere with or affect the business of Alson; -22- (ix) Schedule 4.17(a)(ix) lists all off-site locations, including, without limitation, commercial waste disposal facilities or municipal landfills, to which or at which Hazardous Materials originating from Alson, or its assets, properties or business have been sent (or otherwise have come to be located) in amounts that would require a waste manifest under the Resource Conservation and Recovery Act of 1976 as now in effect for treatment, storage, disposal, reuse or recycling; (x) Schedule 4.17(a)(x) of the Disclosure Schedule sets forth a list of all underground storage tanks owned or operated by Alson to its Actual Knowledge and except as disclosed in Schedule 4.17(x) of the Disclosure Schedule, no such tank is leaking or has leaked at any time in the past, and there is no pollution or contamination of the Environment caused by or contributed to or threatened by a Release of a Hazardous Materials from any such tank; (xi) Schedule 4.17(a)(xi) lists all environmental audits, inspections, assessments, investigations or similar reports in Alson's possession relating to the assets, properties, or business of Alson currently or to the Knowledge of Alson, the past assets, properties or business of Alson, or the compliance of the same with applicable Environmental Laws and Safety Laws; (xii) Schedule 4.17(a)(xii) sets forth to Alson's Knowledge the nature and quantities of any Hazardous Materials (as defined below) generated, transported or disposed of by Alson during the past three years (other than raw material awaiting manufacturing, work-in-process or finished goods and through the sale of products in the ordinary course of business), together with a description of the location of each such activity; and (xiii) Schedule 4.17(a)(xiii) sets forth to Alson's Knowledge a summary of the nature and quantities of any Hazardous Materials that have been disposed of or found at any site or facility owned or operated presently or at any previous time by Alson (other than raw material awaiting manufacturing, work-in-process or finished goods and through the sale of products in the ordinary course of business). For purposes of this Section 4.17 only, all references to "Alson" are intended to include any and all other entities to which, to the Knowledge of the Shareholders, Alson may be considered a successor under applicable Environmental Laws. 4.18 Legal Compliance. Except as set forth on Schedule 4.18, Alson has complied in all material respects with all applicable Laws and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has been filed or commenced against or, to Alson's Knowledge, has been threatened against Alson alleging any failure to so comply, and Alson has neither been debarred from bidding on any project for any Governmental Entity nor subject to any debarment proceedings involving any Governmental Entity. 4.19 Insurance. Schedule 4.19 contains a correct and complete list of all insurance policies pursuant to which Alson is insured as of the date of this Agreement, and no such policies subject Alson to any obligations for retrospective claims or adjustments. -23- 4.20 Bank Accounts and Powers. Schedule 4.20 lists by name, address and account number each bank, trust company, savings institution, brokerage firm, mutual fund or other financial institution with which Alson has an account or safe deposit box and the names and identification of all Persons authorized to draw thereon or to have access thereto. Schedule 4.20 lists the names of each Person holding powers of attorney or agency authority from Alson and a summary of the terms thereof. 4.21 Brokers' Fees. Neither Alson nor the Shareholders have any liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Company could become liable or obligated or for which Alson, after the Closing Date, will have any continuing obligation. 4.22 RESERVED. 4.23 Equipment. (a) Schedule 4.23(a-1) lists all lease agreements relating to equipment, furniture or trade fixtures leased by Alson with an annual cost in excess of $100,000. Except as set forth on Schedule 4.23, all equipment, furniture or trade fixtures used or located in the business or operations of Alson is in good working order and repair, reasonable wear and tear excepted, have been operated and maintained in all material respects in accordance with all applicable Laws; and do not require material repair or replacement in order to serve their intended purposes in all material respects, including use and operation consistent with their present use and operation, except for scheduled maintenance, repairs and replacements conducted or required in the ordinary course of the operation thereof. Alson has not received any written notice from any insurance company that has issued a policy to Alson with respect to any of its equipment, including trade fixtures, requiring the performance of any structural or other repairs or alterations to such property. (b) Schedule 4.23(b-1) lists all material personal property owned by Alson. Except as listed on Schedule 4.23(b-2), all personal property used in connection with, or in furtherance of Alson's business or operations is listed on Schedule 4.23(b-1) and is the property of Alson subject to any leases identified in Schedule 4.23 (a-1). 4.24 Product Warranties and Liabilities. Schedule 4.24 sets forth all Warranties given or made by Alson. Alson has not extended or granted any return rights or given or made any Warranties with respect to any Products sold or services performed by it, except for those set forth in Schedule 4.24. None of the customers of Alson has claimed to Alson or to Alson suppliers, that Alson's Products are defective. None of the Shareholders nor any of the employees of Alson has any actual knowledge of any Products which have been shipped by Alson in a condition that such products might reasonably be expected to be returned by the customer, or of any intention on the part of any customer to return any of Alson's Products, except returns by customers in the ordinary course of business and consistent with the return policies and which, in any event, are not expected to be material in amount. Alson has never received nor been subject to any claim, and none of the Shareholders has any actual knowledge of any fact or of the ocurrence of any event forming the basis of any present or future claim -24- against Alson, whether or not fully covered by insurance, for liability on account of negligence or product liability or on account of any Warranties. 4.25 Aerospace Records. Alson has maintained complete and accurate records relating to all products in accordance with industry standards and as required by all applicable laws or regulations, including the Federal Aviation Administration 14 CFR 21.607. 4.26 Securities Law Compliance. (a) In connection with the issuance of the BE Stock as of the Closing, the Shareholders have been advised and understand and agree that the issuance by the Company to the Shareholders of the BE Stock will not be registered under the Securities Act, nor qualified under any state securities laws before the Closing, on the ground (among others) that no distribution or public offering of the BE Stock is to be effected in connection with the issuance to such Shareholder as contemplated herein and, in issuing the BE Stock to such Shareholder hereunder, the Company is relying on the accuracy and completeness of the representations of the Shareholder set forth in this Section 4.26(a). (b) The Shareholder is acquiring the BE Stock for the Shareholder's own account, for investment and not with a view to distribution or resale thereof. The Shareholder will immediately notify the Company if such intent changes prior to the Closing. The Shareholder's only present intention to sell the BE Stock would be pursuant to an effective registration and qualification under applicable federal and states securities law. (c) The Shareholder acknowledges that the Shareholder has been informed and understands that the BE Stock may not be sold or transferred except in compliance with the Securities Act or any exemption thereunder, and there is no assurance that any exemption from registration, including Rule 144, under the Securities Act will become available to permit resales of the BE Stock. This acknowledgement does not limit or constitute a waiver of the Company's obligation set forth in Section 8.5. (d) The Shareholder (i) is familiar with the business of the Company, (ii) has had an opportunity to discuss with representatives of the Company the condition of and prospects for the continued operation of the Company and such other matters as the Shareholder deemed appropriate in considering whether to invest in the BE Stock, and (iii) has been provided access to publicly available information about the Company requested by the Shareholder. (e) The Shareholder has made the Shareholder's own investigation whether or not to exchange the Alson Shares for the BE Stock and the Shareholder has sufficient business and financial experience so as to enable the Shareholder to evaluate the merits and risks associated with the BE Stock and the transactions contemplated by this Agreement. (f) The Shareholder is able to bear the economic risk of a total loss of the investment in the Company, and the Shareholder has adequate means of providing for the current needs and foreseeable personal contingencies and has no need for the Shareholder's investment in the BE Stock to be liquid. -25- (g) The Shareholder acknowledges and agrees that the certificates representing the BE Stock shall contain a restrictive legend substantially in the form below: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. (h) The Shareholder's investor representations made in any separately signed writing are true and were true when made. (i) The Shareholder acknowledges that he has been fully informed of, and has had full opportunity to discuss with the Company's management, the status of the Company and its operating, investment, financial and strategic plans. 4.27 Permits and Licenses. Set forth in Schedule 4.27(a-1) are the Material Permits, licenses, franchises and other authorizations necessary for the conduct of Alson's business as currently conducted. Except as set forth in Schedule 4.27(a-2), all such Permits, licenses, franchises and authorizations identified on Schedule 4.27(a-1), are valid and in full force and effect and the business is in compliance with the terms and conditions of such Permits. 4.28 Experience Matters. Schedule 4.28 contains a list of the experience during the two (2) years ending on the date hereof of Alson with respect to (i) any product liability claims (excluding among other things express warranties and ordinary returns), (ii) any general liability claims exceeding $100,000, and (iii) all workers' compensation claims. 4.29 Related Party Transactions. Except as described on Schedule 4.29, neither the Shareholders nor any officer, director or employee of Alson, and none of their relatives or Affiliates, owns any interest in any competitor, lessor, lessee or customer or supplier of Alson; and Alson is not a party to any transaction or arrangement with any of the Shareholders or with any of its respective officers, directors or employees, or any relative or Affiliate of any of them, which relates to or affects the ownership, lease or use or disposition of any assets, properties or the operations of Alson or the sale, lease or use of goods or services, or the loan of money or any extension of credit or guaranty, by or to Alson, other than the payment of wages, salaries and bonuses to employees of Alson for services performed in the ordinary course of business. Except as disclosed in the Financial Statements or described on Schedule 4.29, none of the assets or properties of Alson include any receivables or contract rights from, or notes payable or evidences of indebtedness of, either of the Shareholders or any of the officers, directors or employees of Alson or any relative or Affiliate of any of them. -26- 4.30 Full Disclosure. No representation or warranty of the Shareholders contained in this Agreement contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein not misleading. 4.31 Minute Books. Alson's minute books contain complete and accurate records in all material respects of all meetings and other corporate actions of its Shareholders and boards of directors and committees thereof. 4.32 Government Contracts. Except as set forth on Schedule 4.32, Alson has not been and is not a party to any Contract with a Governmental Entity. Section 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Shareholders that the statements contained in this Section 5 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though then made and as though the Closing Date were substituted for the date of this Agreement throughout this Section 5). 5.1 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so duly qualified or licensed and in good standing would not have a Material Adverse Effect on the Company. 5.2 Authorization of Transaction. The Company has full power and authority (including full corporate power and authority) to execute and deliver this Agreement, to perform its respective obligations hereunder and to consummate the transactions contemplated hereby. All corporate and other actions or proceedings to be taken by or on the part of the Company to authorize and permit the execution and delivery by the Company of this Agreement and the other agreements required to be executed and delivered by the Company pursuant hereto, the performance by the Company of its obligations hereunder, and the consummation by the Company of the transactions contemplated herein, have been duly and properly taken. This Agreement has been duly executed and delivered by the Company and constitutes the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms and conditions, except to the extent that enforceability hereof may be limited by bankruptcy, insolvency and other similar Laws affecting the enforcement of creditors' rights generally. 5.3 Noncontravention; Consents. (a) Neither the execution and the delivery of this Agreement, nor the consummation by the Company of the transactions contemplated hereby will (i) violate any Law or other restriction of any Governmental Entity to which the Company is subject or violate any provision of the Company's charter or bylaws or (ii) conflict with, result in a breach of, -27- constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement to which the Company is a party or by which it is bound or to which any of their assets are subject. The Company does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Entity in order for the parties to consummate the transactions contemplated by this Agreement, except for such filings as may be required to comply with all applicable securities laws. 5.4 Brokers' Fees. The Company has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Shareholders could become liable or obligated. 5.5 Investment Intent. The Company is acquiring the Alson Shares for its own account and not with a view to their distribution within the meaning of ss.2(11) of the Securities Act. 5.6 Information Concerning Company. The Company's Annual Report on Form 10-K for its fiscal year ended February 2000 (the "10-K"), the Company's Quarterly Report on Form 10-Q for the quarter ended November 25, 2000 (the "10-Q"), each as filed with the SEC, copies of which have been furnished to the Shareholders, as of its respective filing dates did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein under the circumstances in which they were made, not misleading. The Company timely filed the 10-K and the 10-Q. 5.7 Capitalization of Company. The authorized capital stock of the Company consists of 50,000,000 shares of common stock, $0.01 par value per share, of which, as of February 23, 2001, 26,003,203 shares were issued and outstanding, and 1,000,000 shares of preferred stock, par value $0.01 per share, none of which are outstanding. All of the outstanding shares are duly authorized, validly issued, fully paid and nonassessable and are not subject to preemptive rights created by statute, the Certificate of Incorporation or Bylaws of the Company or any agreement or document to which the Company is a party or by which it is bound. When issued to the Shareholders, the shares of BE Stock so issued will be duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. 5.8 Full Disclosure. No representation or warranty of the Company contained in this Agreement contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein not misleading. Section 6. TAXES. 6.1 Tax Returns; Audits. (a) (i) The Shareholders shall be responsible for preparing or causing to be prepared, at Shareholders' expense, Alson's federal income tax return on Form 1120S and comparable state and local income and franchise tax returns (each, an "S Period Return"), for Alson's taxable year ending on the day preceding the Closing Date or on the Closing Date if an election is made under Section 338(h)(10) of the Code (collectively, the "Final S Period Tax Returns") and all other income Tax Returns of Alson for the taxable periods ending on or prior to the Closing Date. Such Tax Returns shall be prepared in a manner -28- consistent with applicable Tax laws consistent with prior practice. The Company shall cause Alson to cooperate in the preparation and filing of such Tax Returns (including providing Shareholders with access to all information reasonably requested by the Shareholders in connection with the preparation of such Tax Returns). The Shareholders shall be jointly and severally responsible for payment of all Taxes due or to become due from Alson in respect of taxable periods ending, on or before the Closing Date and the share of Taxes due or to become due for the portion of any taxable period that is prior to the Closing Date except only the Tax described in Section 6.3(f)(i). Unless paid separately by Alson prior to the Closing Date, any such Taxes shall be payable and reportable by or at the direction of the Shareholders from sources outside of Alson's bank accounts or cash equivalents. Tax liabilities, if any, assumed by the Shareholders under this Agreement either will be treated as a reduction from the Net Consideration in the manner described in Section 2.2 or otherwise be the financial obligation of the Shareholders. The Shareholders shall provide the Company with a copy of such Tax Returns together with the schedules thereto, and a statement setting forth the amount of Tax shown due on such Tax Return for which the Shareholders are liable, at least 30 days prior to the due date (including any extensions thereof) for the filing of such Final S Period Tax Returns, and the Company shall have the right to review such Final S Period Tax Returns prior to the filing of such Final S Period Tax Returns. At the direction of the Shareholders' Representative, the Company shall cause Alson to execute and file the Final S Period Tax Returns after the review period and on or prior to their due date. Filing these returns is not an assumption by the Company or Alson of any responsibilities the Shareholders have for such Taxes or the accuracy of the Final S Period Tax Returns or any S Period Return. (ii) The Company will, to the extent permitted by applicable Law, elect with the relevant Taxing authority to close the taxable period of Alson on the day preceding the Closing Date. In any case where applicable Law does not permit Alson to close its taxable year on the day preceding the Closing Date, then Taxes, if any, attributable to the taxable period of Alson beginning before and ending on or after the Closing Date shall be allocated between (A) the period up to but not including the Closing Date, and (B) the period on and subsequent to the Closing Date by means of a closing of the books and records of Alson as of prior to the opening of business on the Closing Date. (b) Except as provided in Section 6.1, following the Closing, Alson or its Affiliates shall be responsible for preparing or causing to be prepared all Tax Returns required to be filed by Alson for taxable periods beginning on or after the Closing Date. (c) In the event that, following the Closing Date, any Governmental Entity notifies the Company or Alson or any Affiliate thereof of its intention to audit, assess, examine or otherwise review (collectively, "Audit") an S Period Return of Alson relating to a taxable period ending on or before the Closing Date, the Company shall promptly notify the Shareholders of the receipt of such notice. Upon receipt of notice of the Audit from the Company, the Shareholders may, at the Shareholders' option and sole expense, control all further determinations with respect to the conduct of such Audit or any administrative or judicial proceeding arising in respect thereof, including but not limited to all negotiation and correspondence with such Governmental Entity and the compromise or settlement of such matter; provided, however, that if and to the extent that the Audit involves an adjustment or issue which will produce a Tax for which the Company will be liable, the Company shall be entitled to -29- jointly control with the Shareholders such adjustment or issue, and the Shareholders shall not enter into a settlement or closing or other agreement with respect to such issue or adjustment without the consent of the Company, which consent shall not be unreasonably withheld. The Company shall cooperate and provide or cause Alson to cooperate and provide the Shareholders with access to such records and personnel of Alson as the Shareholders determine may be necessary in connection with the conduct of such Audit or any administrative or judicial proceeding in respect thereof. Each of the parties shall provide the others concerning any audit with copies of all correspondence, notices and other written materials received from any Governmental Entity. (d) (i) On and after the Closing Date, the Company or Alson will promptly notify the Shareholders in writing of the commencement of any claim, Audit, or other proposed change or adjustment by any taxing authority concerning any Tax period ending on or prior to the Closing Date. (ii) The Shareholders shall have the right to represent Alson's interests in any Tax Audit or administrative or court proceeding relating to taxable periods of Alson ending on or prior to the Closing Date and to employ counsel of its choice at its sole expense; provided that (A) if the results of such Audit or proceeding (i) involves an issue that recurs for a taxable period of Alson beginning on or after the Closing Date (whether or not such subsequent taxable period is the subject of such Audit or proceeding at such time), (ii) would be binding on the Company or Alson for any taxable period beginning on or after the Closing Date, and (iii) would materially and detrimentally affect the Tax liability of Alson for a taxable period beginning on or after the Closing Date, then the Shareholders shall not enter into a settlement or closing or other agreement with respect thereto without the consent of the Company, which consent shall not be unreasonably withheld and (B) if the Tax Claim involves an adjustment or issue which will produce a Tax for which the Company or Alson will be liable, the Company shall be entitled to jointly control with the Shareholders such adjustment or issue in the Audit or proceeding, and neither the Shareholders nor the Company shall enter into a settlement or closing or other agreement with respect to such issue or adjustment without the consent of the other party, which consent shall not be unreasonably withheld. (iii) With respect to any taxable period of Alson beginning before and ending after the Closing Date, the Company and the Shareholders shall jointly control the defense and settlement of any Tax audit or administrative or court proceeding and each party shall cooperate with the other party at their own expense and there shall be no settlement or closing or other agreement with respect thereto without the consent of the other party, which consent will not be unreasonably withheld. (e) Any Taxes, except the Tax described in Section 6.3(f)(i), imposed upon or incurred by any of the Shareholders in connection with the sale of BE Stock pursuant to this Agreement, and any Taxes in connection with pre-closing distributions to any Shareholder or any payment to or for the Shareholders contemplated by this Agreement, and any legal or other expenses incurred by the Shareholders in connection with such Taxes, shall be borne solely by the Shareholders. -30- 6.2 Cooperation and Exchange of Information. The Shareholders and the Company will provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return, amended Tax Return or claim for refund, determining a liability for Taxes or a right to a refund of Taxes, participating in or conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of relevant Tax Returns of Alson or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by Tax authorities. No amended Tax Return shall be filed for Alson for any taxable period ending on or before the Closing Date without the prior written consent of the Shareholder's Representative, which may not be withheld or delayed unreasonably The Company shall retain all Tax Returns, schedules and work papers, records and other documents ("Tax Materials") of Alson for each taxable period ending on or before the Closing Date and for all prior taxable periods until the later of (i) the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, (ii) 6 years following the due date (without extension) for such Tax Returns, or (iii) the completion of all legal proceedings (if any) relating to any such Tax Return. 6.3. Exchange of Shares and Related Taxes. (a) Except for the Tax described in Section 6.3(f)(i), each Shareholder hereby waives and releases Alson, the Company, and their respective Affiliates from any claims or Liabilities relating to or arising from, any and all Taxes imposed upon such Shareholder or any of its Affiliates as a result of the consummation of the transactions contemplated hereby. (b) The obligations of the parties set forth in this Agreement relating to Taxes shall, except as otherwise agreed in writing, be unconditional and absolute and shall remain in effect without limitation as to time or amount of recovery by the Company, Alson and the Shareholders. (c) There shall be withheld by Company, Alson and/or Escrow Agent from any amount payable to Shareholders hereunder such amounts as may be required to be withheld under applicable Law. (d) The Shareholders shall be liable for, shall hold Alson and the Company harmless against, and agree to pay on a timely basis all income, sales, transfer, stamp, value added, use, real property transfer and similar Taxes incurred by Shareholders or Alson in connection with the transactions contemplated by this Agreement, for all tax periods ending on the day before the Closing Date or, if the Election is made, ending on the Closing Date, and for the portion of any tax period prior to the Closing Date, except for the Tax, if any, described in Section 6.3(f)(i). (e) The Company shall elect to file an election under Section 338(h)(10) of the Code and under any comparable provisions of state or local law with respect to the purchase of the Alson Shares (the "Election"). The Company and the Shareholder's Representative, on behalf of the Shareholders, will agree upon an allocation schedule, which will allocate the purchase price and the Liabilities of Alson (plus any other relevant items) among the assets of Alson. Tax returns and amendments thereof concerning such allocation filed by the Company, -31- Alson or the Shareholders shall be consistent with that agreed allocation. A reputable valuation firm's appraisal of fair market value shall be used to establish the allocation. The Shareholders and the Company shall report, in connection with the determination of income, franchise or other Taxes measured by net income, the transactions being undertaken pursuant to this Agreement in a manner consistent with the Election. The Company shall be responsible for the preparation and filing of all forms and documents required in connection with the Election. In connection with the Election, the Company shall provide the Shareholders with copies of (i) Form 8023 as reasonably agreed to by the Company and Alson, (ii) all attachments required to be filed therewith pursuant to applicable Treasury Regulations, and (iii) any comparable forms and attachments with respect to any applicable state or local elections being made pursuant to the Election. The Shareholders shall execute and deliver to the Company within 60 days of the Company's written request such documents or forms as are required by any Tax laws to complete properly the Election and to jointly file such Election on a timely basis. The Shareholders and the Company shall cooperate fully with each other and make available to each other such Tax data and other information as may be reasonably required by the Shareholders or the Company in order to timely file the Election and any other required statements or schedules. The Shareholders shall promptly execute and deliver to the Company any amendments subsequent to the filing of the Election, to Form 8023 (and any comparable state and local forms) and attachments which are required to be filed under applicable law and are reasonably agreed to by the Company, Alson and the Shareholders' Representative. (f) If the Election is made, then (i) the Net Consideration shall not be reduced by any California income tax of Alson that results solely from making the Election and (ii) notwithstanding anything in this Agreement to the contrary, the Company agrees to indemnify Shareholders for any Taxes (including Taxes on any indemnity paid pursuant to this Section 6.3(f)) incurred by Shareholders that arise directly or indirectly from the sale of Shareholder's stock in Alson accompanied by the Election, and that would not have been incurred upon a sale of Shareholder's stock in Alson but for the making of the Election, with such indemnification obligation based on the difference between (A) the Tax liability of Shareholders with respect to the sale of Shareholders' stock in Alson pursuant to the Election and (B) the deemed Tax liability of Shareholders with respect to a deemed sale of Shareholders' stock in Alson unaccompanied by the Election. The Company shall indemnify the Shareholders for reasonable attorneys' fees and other costs reasonably incurred by Shareholders in successfully enforcing the indemnification obligation of this Section 6.3(f). At least 60 days prior to the time when the first of Form 8023 or any comparable form under state and local law is required to be filed, Shareholders shall propose the amount of the initial indemnification pursuant to this Section 6.3(f) to the Company based upon the allocation schedule agreed to between the parties, for the Company's approval. If the Company does not approve the proposed amount, the Company must notify Shareholders of the disagreement within 20 days of the delivery of the proposed amount. If the Company provides timely notice of disagreement to Shareholders, the Company and Shareholders shall promptly negotiate in good faith to reconcile the differences. If no agreement is reached within 15 days of the Company's notice of disagreement, the Company will within the next 15 days obtain and deliver to Shareholders a calculation of the amount of indemnification pursuant to this Section 6.3(f) prepared by a nationally known firm of certified public accountants. The Company shall bear the cost of any such calculation. Without limiting the indemnification agreed to in this Section, Shareholders shall have no obligation to join in, and the Company shall not file the Election, unless prior to the time for filing the Company has paid to Shareholders the -32- Shareholder's initial indemnification amount, as calculated in this Section. In the event of any subsequent adjustment of the Taxes incurred by Shareholders, or by Alson for the account of Shareholders, that arise directly or indirectly from the making of the Election, the amount of the Company's indemnity obligation pursuant to Section 6.3(f) shall be recomputed and appropriate payments made between Shareholders and the Company as appropriate. (g) At the Closing, Alson shall distribute in liquidation to the Shareholders its right to receive payments under a split-dollar life insurance agreement. The Company agrees to indemnify Shareholders for any increase in Taxes (including Taxes on any indemnity paid pursuant to this Section 6.3(g)) resulting from the treatment of any portion of the distribution as ordinary rather than capital gain income. Section 7. PRE-CLOSING COVENANTS. The parties agree as follows with respect to the period prior to the Closing Date. 7.1 General. Each of the parties will use its reasonable efforts to take all action and to do all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Section 10). 7.2 Notices and Consents. The Shareholders prior to the Closing Date will give, or cause Alson to give, all notices to third parties and will use their reasonable efforts at their expense to obtain all third party consents that are required of the Shareholders or Alson in connection with the transactions contemplated by this Agreement, and will make all further filings pursuant thereto that may be necessary, proper or advisable. 7.3 Conduct Business in Regular Course. The Shareholders will cause Alson to maintain its owned and leased properties used or held for use in its business in good operating condition and repair and make all necessary renewals, additions and replacements thereto, reasonable wear and tear excepted, and will cause Alson to carry on its operations substantially in the Ordinary Course of Business. 7.4 No General Increases. (a) Without prior written consent of the Company, the Shareholders will not cause or permit Alson to grant any general or uniform increase in the rates of pay of employees of Alson outside the Ordinary Course of Business, nor grant any general or uniform increase in the benefits under any bonus or pension plan or other contract or commitment outside the Ordinary Course of Business, and (b) the Shareholders will not cause or permit Alson to increase the compensation payable or to become payable to officers, salaried employees or agents of Alson, or increase any bonus, insurance, pension or other benefit plan, payment or arrangement made to, for or with any such officers, salaried employees or agents outside the Ordinary Course of Business. 7.5 Contracts and Commitments. Without prior written consent of the Company the Shareholders will not cause or permit Alson to tender any bid, enter into any contract or commitment or engage in any transaction, including any contract, commitment or engagement with the Shareholders or any division, unit or Affiliate of the Shareholders or effect any change to any program, not in the Ordinary Course of Business. -33- 7.6 Dividends and Distributions. Without prior written consent of the Company the Shareholders will not cause or permit Alson to declare or otherwise commit to repurchase, redeem or otherwise acquire for value any shares of its capital stock from and after the Effective Date. 7.7 Sale of Capital Assets. Except as otherwise contemplated by this Agreement, without prior written consent of the Company, the Shareholders will not cause or permit Alson to sell or otherwise dispose of any of its capital assets. 7.8 Preservation of Organization. The Shareholders will cause Alson to use its commercially reasonable efforts to preserve its business organization intact, to keep available to Alson after the Closing Date the present officers and employees of Alson and, subject to Section 7.9 below, to preserve for the benefit of the Company the present relationships and goodwill of Alson with its suppliers, customers, landlords and others having business relations with Alson. 7.9 No Default. Except as otherwise contemplated by this Agreement, the Shareholders will not cause or permit Alson to commit or omit to take any act which will cause a termination of or breach or default under any contract, commitment or obligation to which Alson is a party or by which its assets are bound, except to the extent that such termination, breach or default will not result in a Material Adverse Effect to Alson. 7.10 Compliance with Laws. The Shareholders will cause Alson to comply in its operations in all material respects with all applicable Laws and to perform such further actions as may be required for the valid and effective transfer to the Company of the Alson Shares. 7.11 Full Access. The Shareholders will cause Alson to permit representatives of the Company to have full access at all reasonable times to all premises, properties, personnel, books, records (including Tax Records), contracts and documents of or pertaining to Alson, and access, at the request of Company with Alson's prior approval, which will not be unreasonably denied, to customers and vendors of or pertaining to Alson. 7.12 Notice of Developments. The Shareholders will give prompt written notice to the Company of any material development affecting Alson. Each party hereto will give prompt written notice to the other of any material development affecting the ability of such party or its Affiliates to consummate the transactions contemplated by this Agreement. No disclosure by any party hereto pursuant to this Section 7.12, however, shall be deemed to amend or supplement the Disclosure Schedule or to prevent or cure any misrepresentations, breach of warranty, or breach of covenant. 7.13 Exclusivity. Neither Alson nor the Shareholders will (and Alson will not cause or permit any of its officers, directors, agents or Affiliates to) (i) solicit, initiate, or encourage the submission of any proposal or offer from, or enter into or consummate any transaction with any Person, relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets (other than sales of inventory for a fair value in the Ordinary Course of Business), including any acquisition structured as a merger, consolidation, or share exchange or (ii) participate in any discussions or negotiations regarding, furnish any information -34- with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. Alson will notify the Company as soon as is reasonably practicable if any Person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing, and such notice shall describe such proposal in detail. 7.14 RESERVED. 7.15 Tax Matters. Alson shall, and the Shareholders shall cause Alson to, accrue, incur and pay all deductible expenses of this transaction or otherwise incurred by Alson before the Closing Date to the maximum extent permitted by Law. No new elections with respect to Taxes, or any changes in current elections with respect to Taxes, relating to or affecting Alson will be made by Alson or the Shareholders after the Effective Date without the prior written consent of the Company. The Shareholders will provide the Company, at the Company's request, with all clearance certificates or similar documents that may be required by any state, local or other Taxing authority in order to relieve the Company of any obligation to withhold or escrow any portion of the amount payable in connection with this Agreement and to evidence compliance by Shareholders and Alson with the obligations under Section 6. 7.16 Title Insurance. The Shareholders will deliver to the Company the most recent title insurance policies and all riders and endorsements thereto for each parcel of real estate that Alson owns. 7.17 Confidentiality. Neither the Company, Alson, nor the Shareholders shall issue any press release or otherwise make public statements or other statements except on a need to know basis to its employees, agents or representatives with an obligation of confidentiality with respect to the transactions contemplated by this Agreement, without the prior consent of Alson and the Shareholders (in the case of the Company) or the Company (in the case of Alson or the Shareholders), which consent may be given or withheld in any party's sole discretion, except (i) as contemplated by this Agreement or in furtherance of the purposes hereof and (ii) as may be required by Law, or by the rules and regulations of, or pursuant to any agreement with, the Nasdaq National Market. The Shareholders, Alson, and the Company shall immediately notify the other parties hereto of any actual, anticipated or suspected disclosure of the negotiation, existence, terms or provisions of this Agreement to any Person who is not bound by an obligation to keep the information confidential. Section 8. POST-CLOSING COVENANTS. The parties agree as follows with respect to the period following the Closing Date. 8.1 General. In case at any time after the Closing Date any further action is necessary or desirable to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as the other party reasonably may request, at the sole cost and expense of the requesting party (unless the requesting party is entitled to indemnification therefor under Section 11). -35- 8.2 Litigation Support. In the event and for so long as any party is actively contesting or defending against any charge, complaint, action, audit, suit, proceeding, hearing, investigation, claim or demand in connection with (i) any third party transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction on or prior to the Closing Date involving Alson that is not related to the transactions contemplated by this Agreement, the other party will provide its reasonable cooperation to the contesting or defending party and its counsel in the contest or defense, make available its personnel and provide such testimony and access to its books and records as may be necessary in connection with the contest or defense, at the sole cost and expense of the contesting or defending party (unless the contesting or defending party is entitled to indemnification therefor under Section 11). 8.3 Confidential Information and Non-Competition. (a) Confidential Information. From the date hereof until the Closing Date and for a period of five years thereafter commencing on the Closing Date, the Shareholders will treat and hold as such, and will not use for the benefit of themselves or others, any Confidential Information. In the event the Shareholders or any of their respective Affiliates are requested or required (by oral request or written request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, then the relevant Shareholder(s) will notify the Company promptly in writing of the request or requirement so that the Company may seek an appropriate protective order or waive compliance with this Section 8.3. If, in the absence of a protective order or receipt of a waiver hereunder, the Shareholders are, on the advice of outside counsel, compelled to disclose any Confidential Information to any Governmental Entity or else stand liable for contempt, then the Shareholders may disclose such Confidential Information to such Governmental Entity, provided, that the Shareholders will use its reasonable best efforts to obtain at the request of the Company an order or other assurance that confidential treatment will be accorded to such Confidential Information. (b) Non-Competition. On the Closing Date, each Shareholder shall enter into a Non-Compete and Non-Solicitation Agreement substantially in the form attached hereto as Exhibit "B" and incorporated herein by reference. (c) In the event of a breach, or facts indicating the likelihood of a breach, by any Shareholder of the provisions of this Section 8.3, Company and Alson shall be entitled to a temporary restraining order and an injunction restraining such Shareholder from such breach. Nothing herein, however, shall be construed as prohibiting Company or Alson from pursuing any other remedies available to it for such actual or threatened breach, including, without limitation, the recovery of damages. If it is determined that any Shareholder has violated any of the covenants in this Section 8.3, the term of any such covenant violated shall be automatically extended for the period of time of the violation either from the date on which such Shareholder ceases such violation or from the date of the entry by a court of competent jurisdiction of an order or judgment enforcing such covenants, whichever period is later. -36- 8.4 Post-Closing Receipts. In the event that either party after the Closing Date receives any funds properly belonging to the other party in accordance with the terms of this Agreement, the receiving party will promptly so advise such other party, will segregate and hold such funds in trust for the benefit of such other party and will promptly deliver such funds, together with any interest earned thereon, to an account or accounts designated in writing by such other party. 8.5 Registration Rights. (a) General. On or prior to the Closing, holders of Registrable Shares, including the Escrow Agent, shall execute and deliver a custody agreement (the "Custody Agreement"), in substantially the form attached hereto as Exhibit C-2, and perform or deliver each of the acts or things therein required of such holders. Within 15 business days of the Closing, the Company shall file (and shall use its commercially reasonable efforts to cause to become effective as soon as practicable thereafter) a registration statement on Form S-3 under the Securities Act, covering the Registrable Securities, which registration statement shall be kept in effect in the manner and for the period specified in Section 8.5(c)(i). The Company shall use its best efforts to enter into an underwriting agreement with an underwriter of national reputation to distribute the Registrable Securities (the "Public Offering"). The Shareholders and the Escrow Agent shall be required (on the terms of the Custody Agreement) to sell as many shares of BE Stock in the Public Offering as the underwriter(s) and the Company shall request, up to the entire amount of BE Stock received by them in connection with the transactions contemplated hereby (including shares held in escrow pursuant to the arrangements described in Section 2.4 hereof). As used herein, the term "Registrable Securities" shall mean (i) all BE Stock owned by any of the Shareholders or by other Persons granted similar rights as provided in this Section 8.5. (ii) any shares of common stock or other securities issued as (or issuable upon the conversion or exercise of any warrant, right, class of common stock or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Company generally for, or in replacement by the Company generally of, such BE Stock, and (iii) any securities issued in exchange for such BE Stock in any merger or reorganization of the Company; provided, however, that once issued, such BE Stock and other securities shall cease to be Registrable Securities when (x) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, or (y) such securities they shall have been sold pursuant to Rule 144 or shall no longer be subject to restriction on resale due to the termination of the holding period requirements (as in effect from time to time) of Rule 144 or satisfaction of the requirements for resale under Rule 144(d) as evidenced by a legal opinion delivered to the Company and its transfer agent, or (z) they shall have ceased to be outstanding. Each Shareholder covenants that he will comply with the prospectus delivery requirements of the Securities Act with respect to any registration statement filed pursuant to this Agreement. Each Shareholder agrees to make customary representations and warranties to the Company and the underwriters or distributors, if any, in form, substance and scope as are customarily made as to ownership of stock by selling stockholders in underwritten public offerings, but each Shareholder shall not be required to make any representation or warranty as to the accuracy or completeness of the registration statement (except as to written information furnished to the Company by such Shareholder expressly for use therein). The Company shall deliver a copy to -37- the Shareholders' Representative of legal opinions and accountants' comfort letters in the forms delivered to the underwriters in the Public Offering. (b) Expenses. The Company shall pay all expenses incident to the Company's performance of or compliance with its obligations under Section 8.5 to effect the registration of Registrable Securities required hereunder, including, without limitation, all registration, filing, securities exchange listing and NASDAQ fees, all registration, filing, qualification and other fees and expenses of complying with federal, state and other securities or blue sky Laws, all word processing, duplicating and printing expenses, messenger, shipping, telephone and delivery expenses, the fees and disbursement of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, and fees and expenses of other Persons retained by the Company in connection with the registration of the Registrable Securities, underwriting discounts and commissions and transfer taxes, if any, in respect of Registrable Securities, but excluding any legal fees and expenses of counsel retained by the holders of the Registrable Securities being registered (with the sole exception of the fees of one special counsel to the holders of all Registrable Securities, selected by a majority in interest thereof, up to a maximum of $10,000. (c) Further Obligations. The Company will: (i) within 15 days of the Closing Date, prepare, and file with the SEC, the registration statement on Form S-3 to effect such registration (including such audited financial statements as may be required by the Securities Act) and use commercially reasonable efforts to cause such registration statement to become and continue to be effective until the earlier of (A) such time as all Registrable Securities have been disposed of in accordance with the intended methods of disposition by the Shareholders set forth in such registration statement or (B) the date that is 180 days after the Closing Date (the "Offering Termination Date"). (ii) prepare, and file with the SEC, such amendments and supplements to the registration statement referred to above and any prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply in all material respects with the requirements of the Securities Act with respect to the disposition of all Registrable Securities included in such registration statement, in accordance with the intended methods of disposition thereof, until the earlier of (A) such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the Shareholders set forth in such registration statement or (B) the Offering Termination Date. (iii) promptly notify in writing each holder of Registrable Securities and the underwriter or underwriters, if any: (A) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with respect to such registration statement or any post-effective amendment thereto, when the same has become effective; -38- (B) of any written request by the SEC or any other regulatory body or other body having jurisdiction over the securities for amendments or supplements to such registration statement or prospectus or for supplemental information; (C) of the notification to the Company by the SEC of its initiation of any proceeding with respect to the issuance by the SEC of any stop order suspending the effectiveness of such registration statement; and (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction; (iv) furnish to each holder of Registrable Securities included in the registration statement such number of conformed copies of the registration statement and of each amendment and supplement thereto (in each case including all exhibits and documents incorporated by reference), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any prospectus supplement) and any other prospectus filed under Rule 424 promulgated under the Securities Act relating to such holder's Registrable Securities, and such other documents, as such seller may reasonably request to facilitate the disposition of such holder's Registrable Securities; (v) use commercially reasonable efforts to register or qualify all Registrable Securities included in the registration statement under such other securities or blue sky laws of such jurisdictions as each holder thereof shall reasonably request which request is made within ten (10) days following the original filing of the registration statement and to keep such registration or qualification in effect for so long as the registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holder, except that the Company shall not for any such purpose be required (a) to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this paragraph (v) to be obligated to be so qualified, (b) to consent to general service of process in any such jurisdiction or (c) to subject itself to taxation in any such jurisdiction by reason of such registration or qualification; and (vi) use its commercially reasonable efforts to obtain withdrawal of any order suspending the effectiveness of a registration statement, or the lifting any suspension of qualification (or exemption from qualification) of the offer and sale of any of the Registrable Securities in any jurisdiction. Each Shareholder whose Registrable Securities are being registered shall, furnish the Company and any underwriters with such information and affidavits regarding such holder and the distribution of such securities as the Company and such underwriters may from time to time reasonably request in writing and to otherwise cooperate in connection with such registration. At any time during the effectiveness of the registration statement covering Registrable Securities offered by a holder, if such holder becomes aware of any change materially affecting the accuracy of the information contained in such registration statement or -39- the prospectus (as then amended or supplemented) relating to such holder, such holder will promptly notify in writing the Company of such change. Upon receipt of any notice from the Company of the happening of any event as a result of which any prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, each holder of Registrable Securities will forthwith discontinue such holder's disposition of Registrable Securities pursuant to the registration statement until such holder receives copies of a supplemented or amended prospectus from the Company and, if so directed by the Company, shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period referred to in paragraph (ii) of this Section 8.5(c) shall be extended by a number of days equal to the number of days during the period from the giving of such notice from the Company to stop trading to the date when the copies of the supplemented or amended prospectus are sent to holders whose Registrable Securities are included in such registration statement. In the event that the SEC issues a stop order suspending the effectiveness of any registration statement filed under this Section 8.5(c), the period referred to in paragraph (ii) of this Section 8.5(c) shall also be extended by a number of days equal to the number of days during which such stop order is in effect. Each Shareholder agrees in connection with any registration of the Company's securities that, upon request of the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in such registration), without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters. Notwithstanding anything to the contrary contained herein, the Company may, upon written notice to the Shareholders whose Registrable Securities are included in any registration statement filed pursuant to this Agreement, suspend the use of a prospectus which is a part of such registration statement if, in the reasonable judgment of the Company, the Company possesses material nonpublic information and the Company determines in good faith that the disclosure of such information would have a material adverse effect on the Company or would materially and adversely affect the ability of the Company to consummate any pending strategic transaction; provided that the Company may not suspend any use of a prospectus for more than an aggregate of 90 consecutive days or for more than an aggregate of 180 days in any period of twelve consecutive months. This paragraph shall not in any way impair or limit the rights of the Shareholders to require the Company to purchase any or all of the unsold shares of BE Stock pursuant to Section 2.5. (d) Indemnification. (i) The Company shall, to the full extent permitted by Law, indemnify and hold harmless each seller of Registrable Securities included in any registration statement -40- filed pursuant to this Section 8.5, its directors, officers, and partners, and each other Person, if any, who controls any such seller within the meaning of the Securities Act, against any Losses to which such seller or any such director, officer, partner or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or claims, actions, suits, proceedings, arbitration or investigations in respect thereof) arise out of or are based upon any untrue statement of any material fact contained in such registration statement, any preliminary prospectus, final prospectus or prospectus supplement contained therein or filed with the SEC, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading; provided, that the Company shall not be liable in any such case to the extent that any such Loss (or any claim, action, suit, proceeding, arbitration or investigation in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such registration statement, preliminary prospectus, final prospectus, amendment or supplement in reliance upon and in conformity with information furnished in writing to the Company for inclusion in such registration statement by the holder of the securities. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the holders of the securities or any such director, officer, partner or controlling Person, and shall survive the transfer of such securities by such holder. (ii) Each Person and Shareholder whose Registrable Securities are included or are to be included in any registration statement filed pursuant to this Section 8.5, as a condition to including such holder's Registrable Securities in each registration statement, shall to the full extent permitted by Law, indemnify and hold harmless the Company, its directors and officers, and each other Person, if any, who controls the Company within the meaning of the Securities Act, against any Losses to which the Company or any such director or officer or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or claims, actions, suits, proceedings, arbitrations or investigations in respect thereof) arise out of or are based upon any untrue statement of any material fact contained in any such registration statement, any preliminary prospectus, final prospectus or prospectus supplement contained therein or filed with the SEC, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, if such untrue statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company for inclusion in such registration statement by such seller. Notwithstanding any contrary provision of Section 11, the indemnification obligation of the Shareholders and holders of said Registrable Securities under this Section 8.5(d) shall in no way be limited to (and the Company shall not be constrained to seek in response to any failure to provide indemnity pursuant to this Section 8.5(d)) recourse against Escrowed Shares. The foregoing indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such seller. Such holders shall also indemnify each other Person who participates (including as an underwriter) in the offering or sale of Registrable Securities, their officers and directors and each other Person, if any, who controls any such participating Person within the meaning of the Securities Act to the same extent as provided above with respect to the Company. -41- (iii) Promptly after receipt by any party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding paragraphs (i) or (ii) of this Section 8.5(d), such party shall, if a claim in respect thereof is to be made against another party pursuant to such paragraphs, give written notice to the latter of the commencement of such action, provided that any failure of any Person to give notice as provided herein shall not relieve any other Person of its obligations under the preceding paragraph of this Section 8.5(d), except to the extent that such other Person is actually prejudiced by such failure. In case any such action is brought, the party obligated to indemnify pursuant to the foregoing provisions of this Section 8.5(d) shall be entitled to participate in and, unless, in the reasonable judgment of any indemnified party, a conflict of interest between such indemnified party and any indemnifying party exists with respect to such claim, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; provided that the indemnified party may participate in such defense at the indemnified party's expense. No indemnifying party shall consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to each indemnified party of a release from all liability in respect to such claim or litigation without the consent of the indemnified party. No indemnifying party shall be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. (iv) If the indemnity and reimbursement obligation provided for in any paragraph of this Section 8.5 is unavailable or insufficient to hold harmless a party entitled to indemnification hereunder in respect of any Losses (or claims, actions, suits, proceedings, arbitrations or investigations with respect thereto) for which indemnification is provided therein, the party obligated to indemnify hereunder shall contribute to the amount paid or payable by the indemnified party as a result of such Losses (or claims, actions, suits, proceedings, arbitration or investigations) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this paragraph. Notwithstanding anything herein to the contrary, no participating holder of Registrable Securities shall be required to contribute any amount in excess of the amount by which the net proceeds of the offering (before deducting expenses, if any) received by such participating holder exceeds the amount of any damages that such participating holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person -42- guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person not guilty of such fraudulent misrepresentation. Section 9. EMPLOYEES. 9.1 As of immediately prior to the Closing Date, Alson shall have responsibility to pay in full any otherwise eligible claims of any Shareholders or their respective Affiliates under the Employee Benefit Plans prior to the Closing Date but which have not been paid prior to the Effective Date. Section 10. CLOSING CONDITIONS. 10.1 Conditions to Obligation of the Company. The obligation of the Company to consummate the transactions to be performed by it in connection with the Closing is subject to fulfillment, prior to or at the Closing, of each of the following conditions (any or all of which may be waived by the Company in writing at or prior to the Closing): (a) all representations and warranties of the Shareholders set forth in Section 4 shall be correct and complete (except to the extent that the aggregate of all Losses that could arise from the inaccuracy or incompleteness of any statements, individually or collectively, contained in Section 4 do not exceed One Hundred Thousand Dollars ($100,000)) at and as of the Closing Date; (b) the Shareholders shall have performed and complied with all of their covenants hereunder in all material respects prior to or at the Closing; (c) there will not be any action, suit or proceeding pending or threatened before any Governmental Entity or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent the consummation of any of the transactions contemplated by this Agreement or any Company Ancillary Agreement, (ii) cause any of the transactions contemplated by this Agreement or any Company Ancillary Agreement to be rescinded following consummation, (iii) affect materially and adversely the right of the Company following the Closing to own Alson Shares or to control Alson, or (iv) affect materially and adversely, the right of Alson to own its assets or to operate its businesses as presently operated (and no such injunction, judgment, order, decree, ruling or charge will be in effect); (d) the Shareholders will have obtained all consents, releases, waivers and other documentation required in order for the Shareholders to transfer and deliver all of the Alson Shares to the Company and to fulfill their other obligations hereunder; (e) the Shareholders' Representative shall have delivered to the Company a certificate to the effect that each of the conditions specified in Section 10.1 above are satisfied in all respects; -43- (f) Don Schoellerman shall have delivered to the Company an executed counterpart of the Consulting Agreement; (g) the Company shall have received the resignations, effective as of the Closing, of each of the directors, officers, signing agents and attorneys-in-fact of Alson, other than those whom the Company has specified in writing at least five business days prior to the Closing to continue in such capacities; (h) the Company shall have received consents, to the extent requested by Company, substantially in the form attached hereto as Exhibit D, executed by the respective spouse of each Shareholder; (i) Alson shall have, in all material respects, taken and accomplished all actions that Shareholders are required to cause Alson to take; (j) each of the Shareholders shall have executed and delivered to the Company a counterpart executed by such Shareholder of the Non-Compete and Non-Solicitation Agreement; (k) all actions to be taken by the Shareholders or Alson in connection with the consummation of the transactions contemplated hereby and all certificates, instruments and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Company; (l) the Shareholders shall have delivered to the Company a good standing certificate for Alson from the Secretary of State of the State of California dated within thirty (30) days of the Closing Date; (m) the Shareholders' Representative shall have executed and delivered to the Company the Escrow Agreement; (n) the Shareholders' Representative shall have delivered an opinion by Alson's counsel, in the form and substance as set forth in Exhibit E attached hereto, addressed to the Company, and dated as of the Closing Date; and (o) the Shareholders shall have delivered a signatory card in blank for all Alson bank accounts acceptable to each bank where Alson maintains an account. 10.2 Conditions to Obligation of the Shareholders. The obligation of the Shareholders to consummate the transactions to be performed by them in connection with the Closing is subject to fulfillment, prior to or at the Closing, of each of the following conditions (any or all of which may be waived by the Shareholders in writing prior to the Closing): (a) all representations and warranties of the Company set forth in Section 5 shall be true and correct in all material respects at and as of the Closing Date; (b) the Company will have performed and complied with all of its covenants hereunder in all material respects prior to or at the Closing; -44- (c) there will not be any action, suit or proceeding pending or threatened before any Governmental Entity or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent the consummation of any of the transactions contemplated by this Agreement or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; (d) There will not be any adverse effect on the business, operations, assets, prospects or condition, financial or otherwise, of the Company, which, when considered singly or in the aggregate together with all other such effects, constitutes a material adverse effect on the business, assets, operations, prospects or condition, financial or otherwise, of the Company taken as a whole; (e) the Company shall have delivered to the Shareholders' Representative a certificate to the effect that each of the conditions specified above in Section 10.2 is satisfied in all respects; (f) all actions to be taken by the Company in connection with the consummation of the transactions contemplated hereby and all certificates, instruments and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Shareholders' Representative; (g) the Company shall have executed and delivered to the Shareholders' Representative the following documents which shall be dated the Effective Date: (i) the Consulting Agreement; (ii) the Escrow Agreement; (iii) a real property lease in such form as may be agreed upon between each of Alson's landlords and the Company with respect to each location at which Alson is conducting business as of the Closing Date; and (iv) evidence of wire transfers to DTC accounts of the Shareholders (or their custodian) of that portion of the BE Stock which represents $14,600,000 of the Net Consideration. (h) the Company shall have executed and delivered to the Escrow Agent the following documents which shall be dated the Effective Date: (i) evidence of a wire transfer to a DTC account of the Escrow Agent representing that portion of the BE Stock which is to be delivered to the Escrow Agent at the Closing; and (ii) the Escrow Agreement. -45- (i) the Company shall have delivered an opinion of the Company's counsel, in the form and substance as set forth in Exhibit F attached hereto, addressed to the Shareholders in care of the Shareholder's Representative, and dated as of the Closing Date. Section 11. REMEDIES FOR BREACHES OF THIS AGREEMENT. 11.1 Survival of Representations and Warranties. All of the representations and warranties of the Shareholders contained in Section 4 of this Agreement or in any certificate delivered by the Shareholders pursuant to this Agreement and all of the representations and warranties of the Company contained in Section 5 of this Agreement or in any certificate delivered by the Company pursuant to this Agreement will survive the Closing and continue in full force and effect until the third anniversary of the Closing Date; provided, however, that (a) the representations and warranties contained in Sections 4.2 (Authorization of Transaction), 4.4 (Capitalization), 4.13 (Title and Related Matters), shall continue in full force and effect after the expiration of the applicable statute of limitations; and (b) the representations and warranties contained in Sections 4.10 (Tax Matters) and 4.17 (Environmental Matters), or contained in any certificate delivered by the Shareholders relating thereto, and any Tax-related liabilities pursuant to Section 6 hereof shall remain in full force and effect until 30 days after the expiration of the applicable statute of limitations with respect to the matter to which the claim relates, as such limitation period may be extended from time to time. Notwithstanding the foregoing, as to any matter or claim which is based upon fraud, the representations and warranties set forth in this Agreement shall expire not earlier than upon expiration of the applicable statute of limitations. No party will be liable to another under any representation or warranty after the applicable expiration of such warranty or representation; provided, however, if a claim or notice is given under this Section 11 with respect to any representation or warranty prior to the applicable expiration date, such claim may be pursued to resolution notwithstanding expiration of the representation or warranty under which the claim was brought. Any investigations made by or on behalf of any of the parties prior to the date hereof shall not affect any of the parties' obligations hereunder. 11.2 Indemnification Provisions for Benefit of the Company. The Shareholders shall indemnify, defend and hold harmless the Company and Alson from and against the entirety of any and all Liabilities, obligations, judgments, Liens, injunctions, charges, orders, decrees, rulings, damages, dues, assessments, Taxes, losses, fines, penalties, expenses, fees, costs, amounts paid in settlement, including reasonable attorneys' and expert witness fees and disbursements in connection with investigating, defending or settling any action or threatened action (collectively, "Losses") that the Company, Alson, or any of their Affiliates, or any of their respective stockholders, directors, officers, employees and agents (collectively, the "Company Indemnified Parties"), have or reasonably shall have incurred resulting from or arising out of (a) the inaccuracy or breach of any representation or warranty made by the Shareholders, herein or in any schedule or certificate delivered in connection herewith, or (b) nonfulfillment of any agreement or covenant of the Shareholders contained herein, or (c) any Taxes (excluding the Tax described in Section 6.3(f)(i)) imposed on or accrued by Alson for taxable periods (or portions thereof) prior to the Closing Date or on or prior to the Closing Date if the Election shall have been made by the Company, including all such Taxes as may be imposed after the Closing for -46- periods prior to the Closing. The liability of the Shareholders hereunder shall be joint and several. Subject to Section 11.4, the liability of Shareholders pursuant to this Section 11.2 shall be limited, in the aggregate, to 25% of the Net Consideration. Subject to Section 11.4, the Shareholders will be obligated to indemnify, defend and hold harmless the Company Indemnified Parties from and against (I) all Losses inclusive of any Environmental Liabilities and Costs if the amount of Losses arising from Environmental Liabilities and Costs exceeds $250,000, notwithstanding any disclosure in the Disclosure Schedules, or (II) all Losses excluding any Environmental Liabilities and Costs if the amount of Losses other than Environmental Liabilities and Costs exceeds $100,000, in which cases the Shareholders shall be obligated to indemnify, defend and hold harmless the Company Indemnified Parties from and against 100% of such Losses (in the former case inclusive of Environmental Liabilities and Costs and including the initial $250,000, and in the latter case the indemnity being exclusive of Environmental Liabilities and Costs, but including, without limitation, the initial $100,000 of all Losses aside from Environmental Liabilities and Costs). 11.3 Indemnification Provisions for Benefit of the Shareholders. The Company shall indemnify, defend and hold harmless the Shareholders from and against the entirety of any and all Losses that the Shareholders or their Affiliates, or any of their directors, officers, employees or agents (collectively, the "Shareholder Indemnified Parties") have or reasonably shall have incurred resulting from or arising out of (a) the inaccuracy or breath of any representation or warranty made by the Company herein or in any schedule or certificate delivered in connection herewith or (b) nonfulfillment of any agreement or covenant of the Company contained herein. The Company will be obligated to indemnify, defend and hold harmless the Shareholders from and against Losses only if the aggregate amount of such Losses exceeds $100,000 (in which case the Company shall be obligated to indemnify, defend and hold harmless the Shareholders from and against 100% of such Losses, including, without limitation, the initial $100,000). 11.4 Exception to Limits on Indemnification. The maximum limits and the minimum threshold on the liability of Shareholders to Company Indemnified Parties set forth in Section 11.2 above shall not apply to the representations and warranties in Sections 4.2 (Authorization of Transaction), 4.4 (Capitalization), 4.13 (Title and Related Matters), 4.17 (Environmental Matters), or 4.10 (Tax Matters), any Tax-related liabilities pursuant to Section 6 hereof, and any costs or expenses, including but not limited to attorney's fees and costs, incurred by Company Indemnified Parties to enforce their rights under Section 11. The maximum limit on the liability of all of the Shareholders to Company Indemnified Parties under Section 11, when the limits in Section 11.2 are inapplicable by virtue of this Section 11.4, shall be 100% of either the Net Consideration or the Shareholders' aggregate Net Proceeds, whichever is greater. Nothing agreed between the parties shall limit or affect any rights of third parties. 11.5 Indemnification Procedures. Except for claims for indemnification made pursuant to Section 6 hereof, to which the procedures set forth in such Section shall be applicable to the extent of any conflict herewith, if any third party notifies any party hereto (the "Indemnitee") with respect to any matter that may give rise to a claim for indemnification against the other party hereto (the "Indemnitor") under this Section 11, then the Indemnitee will notify the Indemnitor thereof promptly and in any event within 30 days after receiving any written notice from a third party; provided, that no delay on the part of the Indemnitee in notifying the Indemnitor will relieve the Indemnitor from any obligation hereunder unless, and then solely to -47- the extent that, the Indemnitor is prejudiced thereby. Once the Indemnitee has given notice of the matter to the Indemnitor, the Indemnitee may defend against the matter in any manner it reasonably may deem appropriate. In the event the Indemnitor notifies the Indemnitee within 30 days after the date the Indemnitee has given notice of the matter that the Indemnitor is assuming the defense of such matter (a) the Indemnitor will defend the Indemnitee against the matter with counsel of its choice reasonably satisfactory to the Indemnitee, (b) the Indemnitee may retain separate counsel at its sole cost and expense (except that the Indemnitor will be responsible for the fees and expenses of such separate co-counsel as and when incurred to the extent the Indemnitee concludes in good faith that the counsel the Indemnitor has selected has a conflict of interests), (c) the Indemnitee will not consent to the entry of a judgment or enter into any settlement with respect to the matter without the written consent of the Indemnitor (not to be withheld or delayed unreasonably) and (d) the Indemnitor will not consent to the entry of a judgment with respect to the matter or enter into any settlement that does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnitee from all liability with respect thereto, without the written consent of the Indemnitee (not to be withheld or delayed unreasonably). Should the Indemnitee reasonably incur Losses in advance of the conclusion of a matter, the Indemnitor shall pay or provide compensation to the Indemnitees for their Losses as and when incurred from time to time promptly after notice of an indemnified Loss if the Indemnitees undertake in writing to repay any such advances in the event that it is ultimately determined that the Indemnitee is not entitled to indemnification under the terms of this Agreement. 11.6 Specific Performance. Each of the parties acknowledges and agrees that the other party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other party shall be entitled to an injunction or injunctions to prevent breaches of Sections 8.3(a), (b) (c) and (d), and 11.8 of this Agreement and to enforce specifically those sections of this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity. 11.7 Exclusive Remedy. Except for fraud and intentional misrepresentation, and except for equitable remedies, including injunctive relief, the parties hereto hereby acknowledge and agree that the sole and exclusive remedy of any Indemnitee from and after the Closing with respect to Losses and any and all claims for any breach or liability arising under, or in connection with, this Agreement, or otherwise relating to the subject matter of this Agreement, and the transactions contemplated hereby and thereby, shall be in accordance with, and limited by, the indemnification limiting provisions set forth in this Section 11; including the maximum limits of indemnification set forth in Section 11. The parties hereto hereby waive on behalf of each applicable Indemnitee who is a party to this Agreement, to the fullest extent permitted under applicable law, any and all rights, claims and causes of action it or they have or may have against the other party(ies) to this Agreement, as the case may be, arising under or based upon any Law but only to the extent that such Law provides for greater recoveries than are permitted to an Indemnittee by Section 11 or provides for other procedural matters so long as the Indemnitor has submitted to the procedures described in this Agreement (including without limitation, (i) any such rights, claims or causes of action arising under or based upon common law or otherwise and -48- (ii) any and all claims for Losses or contribution arising under any environmental law). Except to the extent necessary to maintain the express limits on indemnification, claims based upon or arising under any Law are not waived. Nothing herein constitutes any waiver not expressly and specifically set forth immediately above. Notwithstanding anything to the contrary in this Agreement, no breach of any representation, warranty, covenant or agreement contained herein shall give rise to any right on the part of any party hereto to rescind this Agreement other then rescission predicated upon fraud. 11.8 Arbitration. (a) Generally. Except solely as set forth in Sections 8.3(a), (b), (c) and (d), the parties agree that when any claim or controversy that arises out of or relates to this Agreement, or the breach thereof arises, in lieu of litigation, they shall submit such claim, dispute or controversy, or difference or question to be finally settled under the Commercial Arbitration Rules ("Rules") of the Judicial Arbitration and Mediation Service (the "JAMS") by an arbitral tribunal composed of one arbitrator, who must be experienced in relevant corporate transactions, appointed by agreement of the parties in accordance with said Rules. In the event the Parties fail to agree upon an arbitrator from the first list of potential arbitrators proposed by the JAMS, the JAMS will submit a second list in accordance with said Rules. In the event the parties shall have failed to agree upon an arbitrator from said second list, the arbitrator to be selected shall be appointed by the JAMS in accordance with said Rules. If, at the time of the arbitration, the parties agree in writing to submit the dispute to a single arbitrator, said single arbitrator shall be appointed by agreement of the parties in accordance with the foregoing procedure, or, failing such agreement, by the JAMS in accordance with said Rules. Any party may commence the foregoing arbitration proceedings by notice to all other parties. (b) Place of Arbitration. The venue of such arbitration shall be Orange County, California, or any other place mutually agreed to by Company and Shareholders' Representative. (c) Recourse to Courts. Subject to Section 11.6, the parties hereby exclude any right of appeal to any court on the merits of the dispute. The provisions of this Section 11.8 may be enforced in any court having jurisdiction over the award or any of the parties or any of their respective assets, and judgment on the award (including without limitation equitable remedies) granted in any arbitration hereunder may be entered in any such court. Nothing contained in this Section 11.8 shall prevent any party from seeking interim measures of protection in the form of pre-award attachment of assets or preliminary or temporary equitable relief. (d) Decision of Arbitral Tribunal. In the event of a dispute between the parties hereunder, the Shareholders' Representative and the Company's representative shall each present an offer of settlement, which shall address all issues in dispute such that adoption of such offer of settlement would conclusively settle all items then in dispute. The arbitral tribunal shall not be limited in its decision to choosing one of the two offers of settlement presented to it. The decision of the arbitral tribunal shall be final and binding on the parties and non-appealable. The party whose offer of settlement is determined to have been the less fair by the arbitral tribunal shall pay all of the expenses of the arbitration, which, in the event the Shareholders are held -49- responsible for any such expenses prior to the Escrow Termination Date, shall be subject to satisfaction by application of the Escrowed Shares pursuant to Sections 2.2 and 11.2 and Article 4 of the Escrow Agreement. Notwithstanding the above, each party shall bear his, her, its own attorney fees and costs related to any arbitration proceeding. 11.8 Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE SHAREHOLDERS, ALSON AND THE COMPANY HEREBY WAIVE, AND COVENANT THAT HE, SHE OR IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR PASSED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE. Section 12. TERMINATION. 12.1 Termination of Agreement. The parties may terminate this Agreement as provided below: (a) the Company and the Shareholders may terminate this Agreement by mutual written consent at any time prior to the Closing; (b) either the Shareholders or the Company may terminate this Agreement by giving written notice to the other at any time prior to the Closing if the Closing has not occurred on or before March 15, 2001. 12.2 Effect of Termination. If any party terminates this Agreement pursuant to Section 12.1, all obligations of the parties hereunder will terminate without liability of any party to the other party; provided, that the expense allocation provisions contained in Section 13.2 will survive termination and remain in full force and effect thereafter. Section 13. MISCELLANEOUS. 13.1 Press Releases and Announcements. No party will issue any press release or announcement relating to the subject matter of this Agreement prior to the Closing Date without the prior approval of the other party; provided, that either party may make any public disclosure it believes in good faith is required by Law or by the rules and regulations of any stock exchange on which the securities of such party are listed. 13.2 Expenses; Transfer Taxes. Each of the parties hereto will bear all legal, accounting, investment banking and other expenses incurred by it or on its behalf in connection with the transactions contemplated by this Agreement, whether or not such transactions are consummated. The Shareholders will each be responsible for the payment of all income, sales, use, transfer, documentary or stamp taxes and recording and filing fees applicable to the assignment of Alson Shares to the Company, any distributions or payments to the Shareholders -50- in any capacity, or to any other transaction contemplated by this Agreement or any of the Ancillary Agreements. 13.3 Consent to Amendments. The provisions of this Agreement may be amended or waived only by a written agreement executed and delivered by the Shareholders' Representative (on behalf of all Shareholders) and the Company, or by the Shareholder to be bound and benefited thereby and the Company. No other course of dealing between the parties to this Agreement or any delay in exercising any rights hereunder will operate as a waiver of any rights of such parties. 13.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties that are signatories hereto and their respective successors and permitted assigns. No party hereto may assign or delegate any of such party's rights or obligations under or in connection with this Agreement or any Ancillary Agreement without the written consent of the other parties hereto provided, however, that the Company may without the written consent of Alson or the Shareholders assign its rights under this Agreement or any of the Ancillary Agreements to one or more Affiliates of the Company or to any Person acquiring all or substantially all of the stock or assets of Alson from the Company, provided that the Company shall not be relieved of any obligation assigned and assumed. 13.5 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable Law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 13.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Any signature page delivered by facsimile or telecopy shall be binding to the same extent as an original signature page, with regard to any agreement subject to the terms hereof or any amendment thereto. Any party who delivers such a signature page agrees to later deliver an original counterpart to any party who requests it. 13.7 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 13.8 Notices. All notices, demands, requests, consents, approvals, or other communications required or permitted to be given or delivered with respect to this Agreement shall be delivered charges prepaid, receipt confirmed or return receipt requested (if available) by hand, by internationally and nationally recognized air courier service or by facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Notice shall be deemed given and effective (i) if delivered by hand or by internationally or nationally recognized air courier service, when delivered to the address specified in this Section 13.8 (or in accordance with the latest unrevoked written direction from such party) or (ii) if given by facsimile when such facsimile is transmitted to the facsimile number specified in this Section 13.8. (or in accordance with the latest unrevoked written -51- direction from such party); provided, that, appropriate confirmation is received and that any such facsimile is promptly followed by delivery of written notice delivered by hand or by internationally or nationally recognized air courier service. If to the Company: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, FL 33414 Fax no. (561) 791-3966 Attn: Thomas P. McCaffrey or Edmund J. Moriarty With a copy (which will not constitute notice) to: Yocca, Patch & Yocca 19900 MacArthur Blvd., Suite 650 Irvine, California 92612 Fax no. (949) 253-0870 Attn: Ryan M. Patch/ Nicholas J. Yocca If to Alson or the Shareholders: Jack Schoellerman Shareholders' Representative 2030 Main Street, Suite 1600 Irvine, California 92614-7240 Facsimile Number: (949) 660-6096 With a copy (which will not constitute notice) in either case to: Gibson, Dunn & Crutcher LLP 4 Park Plaza Irvine, California 92614-8557 Facsimile Number: (949) 451-4220 Attn: Thomas D. Magill or to such other address or to the attention of such other party as the recipient party has specified by prior written notice to the sending party. 13.9 No Third-Party Beneficiaries. This Agreement will not confer any rights or remedies upon any Person other than the Shareholders and the Company and their respective successors and permitted assigns. 13.10 Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the parties and supersedes any prior understandings, agreements or representations by or among the parties (whether written or oral) that may have related in any way to the subject matter hereof. -52- 13.12 Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rule of strict construction will be applied against any party. The use of the word "including" in this Agreement means "including" without limitations and is intended by the parties to be by way of example rather than limitation. 13.13 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 13.14 Shareholders' Representative. Each Shareholder hereby irrevocably constitutes and appoints the Shareholder Representative as the Shareholder's attorney in fact and agent, with full power of substitution, to act in the Shareholders' name, place and stead and do any and all things that the Shareholder could do if present including, but not limited to, executing, delivering, and performing this Agreement, the Escrow Agreement, the Custody Agreement, and any and all documents ancillary to this Agreement or any amendment or supplement to this Agreement, to give receipts on behalf of the Shareholder, and to execute and deliver share certificates and stock powers or assignments. All persons dealing with the Attorney-in-Fact in such capacity may rely and act upon any writing believed by them in good faith to be genuine and to have been signed by the Attorney-in-Fact. 13.15 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUC- TION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF CALIFORNIA. -53- IN WITNESS WHEREOF, the parties hereto have executed and deliver this Agreement on the date first written above. BE AEROSPACE, INC. By: /s/ Jeffrey Holtzman ---------------------------------------- Name: Jeffrey Holtzman -------------------------------------- Title: Vice President ------------------------------------- ALSON INDUSTRIES, INC. By: /s/ A.L. Schoellerman ---------------------------------------- Name: A.L. Schoellerman -------------------------------------- Title: President ------------------------------------- -54- SHAREHOLDERS: /s/ Donald L. Schoellerman /s/ Jack L. Schoellerman - ----------------------------------- ------------------------------------------- Name: Donald L. Schoellerman, an Name: Jack L. Schoellerman 1999 Children's individual Trust No. 2 Trustee: Jack L. Schoellerman /s/ Jack L. Schoellerman /s/ Jack L. Schoellerman - ----------------------------------- ------------------------------------------- Name: Jack L. Schoellerman 1999 Name: Donald L. Schoellerman 1999 Children's Trust No. 1 Children's Trust No. 2 Trustee: Jack L. Schoellerman Trustee: Jack L. Schoellerman /s/ Jack L. Schoellerman /s/ Jack L. Schoellerman - ----------------------------------- ------------------------------------------- Name: Donald L. Schoellerman 1999 Name: Patricia A. Schoellerman 1999 Children's Trust No. 1 Children's Trust No. 2 Trustee: Jack L. Schoellerman Trustee: Jack L. Schoellerman /s/ Jack L. Schoellerman /s/ Jack L. Schoellerman - ----------------------------------- ------------------------------------------- Name: Patricia A. Schoellerman 1999 Name: Cheryl A. Schoellerman 1999 Children's Trust No. 1 Children's Trust No. 2 Trustee: Jack L. Schoellerman Trustee: Jack L. Schoellerman /s/ Jack L. Schoellerman - ----------------------------------- Name: Cheryl A. Schoellerman 1999 Children's Trust No. 1 Trustee: Jack L. Schoellerman -55- EX-99.2 3 0003.txt SHARE PURCHASE AND SALE AGREEMENT - DMGI SHARE PURCHASE AND SALE AGREEMENT This SHARE PURCHASE AND SALE AGREEMENT dated effective as of 12:01 a.m., February 24, 2001, is entered into by and among BE Aerospace, Inc., a Delaware corporation ("BE" or the "Company"), DMGI, Inc., a California corporation ("Delco"), Nick Campanelli, Trustee of the Delco Machine and Gear Employee Stock Ownership Plan and Trust Agreement, a trust organized under the laws of the State of California (in such capacity the "Trustee") and the shareholders of Delco, set forth on Schedule 1 hereof (collectively, the "Shareholders"). RECITALS A. The Trustee is the record and beneficial holder of 3,900 shares (the "ESOP Shares") of issued and outstanding shares of common stock of Delco, and the Shareholders are the record and beneficial holders of all of the issued and outstanding capital stock (collectively, the "Delco Shares") of Delco (including the remaining 7,406 shares (the "Non-ESOP Shares") of common stock of Delco held by all of the Shareholders other than the ESOP). B. The Company desires to acquire the Delco Shares from the Trustee and the Shareholders, respectively, and the Trustee and the Shareholders desire to transfer the Delco Shares to the Company in exchange for shares of BE Stock (as defined in Section 1). NOW, THEREFORE, for good and valuable consideration, including the mutual promises and agreements of the parties herein contained, the parties hereby agree as follows: Section 1. DEFINITIONS. For purposes of this Agreement, the following terms have the meanings set forth below: "Actual Knowledge" means actual conscious awareness of any member of the Management Group or Administrative Committee, as applicable. "Administrative Committee" means the Administrator determined under Section 2.4 of the ESOP possessing all of the powers described in Section 2.6 of the ESOP. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended. "Agreement" means this SHARE PURCHASE AND SALE AGREEMENT, as the same may be amended from time to time in accordance with the terms hereof and shall include the Exhibits hereto and any Disclosure Schedule attached hereto. -1- "Arbiter" has the meaning set forth in Section 2.3(b). "BE Closing Price" means $21.7375 per share of BE Stock. "BE Stock" means common stock of the Company presently trading under the symbol "BEAV" on the NASDAQ National Market. "Beneficiary" means each person described in Section 3(8) of ERISA who is a beneficiary in the ESOP. "Closing" has the meaning set forth in Section 3.1. "Closing Date" has the meaning set forth in Section 3.2. "Closing Date Net Consideration Calculation" means 92.5% of Net Consideration. "Closing Shares" has the meaning set forth in Section 2.2. "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the Preamble to this Agreement. "Company Ancillary Agreements" mean a consulting agreement between Delco and Mr. Felix Jakobi in standard form used by the Company's Affiliates, on terms consistent with the Consulting Agreement attached hereto as Exhibit A-1; and Non-Compete and Non-Solicitation Agreements, in form and substance acceptable to the Company, among Delco, the Company and each of David Timmerman, Nick Campanelli, Del Warren and Felix Jakobi, on substantially the terms of Exhibit B-1 as to Mr. Jakobi and B-2 as to Mr. Timmerman and B-3 as to Mr. Campanelli and B-4 as to Mr. Warren (each a "Non-Compete Agreement"). "Company's Accounting Firm" means Deloitte & Touche, LLP or any successor organization. "Company Indemnified Parties" has the meaning set forth in Section 10.2. "Confidential Information" means with respect to the operations or affairs of Delco, any or all of the following: (a) trade secrets of Delco; (b) inventions, technology, processes, know-how and research and development of Delco; (c) customers and clients and customer and client lists of Delco; (d) products (including products under development) and services of Delco and related costs and pricing structures and manufacturing techniques; (e) accounting and business methods, marketing plans, strategies and practices of Delco; and (f) other confidential information and trade secrets of Delco similar or related to any of the foregoing, in each case in whatever form or medium it or they may be contained. -2- "Contracts" means, collectively, all written or oral contracts, agreements, commitments, leases, licenses, instruments, bids and proposals to which Delco is a party as of the Closing Date, including, without limitation, those listed on Schedule 4.11, all unfilled orders outstanding as of the Closing Date for the purchase of goods or services by Delco and all unfilled orders outstanding as of the Closing Date for the sale of goods or services by Delco. "Delco" has the meaning set forth in the Preamble to this Agreement. "Delco Shares" has the meaning set forth in the Recitals to this Agreement. "Disclosure Schedules" means, collectively, the various Schedules referred to in this Agreement. "Effective Date" has the meaning set forth in Section 3.1. "Employee Benefit Plan" means an Employee Pension Benefit Plan or an Employee Welfare Benefit Plan, where no distinction is intended by the context in which the term is used. "Employee Pension Benefit Plan" has the meaning set forth in Section 3(2) of ERISA. "Employee Welfare Benefit Plan" has the meaning set forth in Section 3(1) of ERISA. "Environment" means soil, land surface or subsurface strata, real property, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), groundwater, water body sediments, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life and any other environmental medium or natural resource. "Environmental Law" means any Law with respect to the preservation of the Environment, including but not limited to any Law whatsoever relating to Hazardous Materials, drinking water, surface water, groundwater, wetlands, landfills, open dumps, storage tanks, underground storage tanks, solid waste, waste water, storm water run-off, noises, odors, air quality, air emissions, waste emissions or wells. Without limiting the generality of the foregoing, the term will encompass each of the following statutes and the regulations promulgated thereunder, and any similar applicable state, local or foreign Law, each as amended: (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980; (b) the Solid Waste Disposal Act; (c) the Hazardous Materials Transportation Act; (d) the Toxic Substances Control Act; (e) the Clean Water Act, (f) the Clean Air Act; (g) the Safe Drinking Water Act; (h) the National Environmental Policy Act of 1969; (i) the Superfund Amendments and Reauthorization Act of 1986; (j) Title III of the Superfund Amendments and Reauthorization Act; (k) the Federal Insecticide, Fungicide and Rodenticide Act; (l) the provisions of the Occupational Safety -3- and Health Act of 1970 relating to the handling of and exposure to Hazardous Materials and similar substances; (m) California Environmental Quality Act; and (n) National Environmental Policy Act. "Environmental Liabilities and Costs" means all Losses incurred: (a) to comply with any Environmental Law; (b) as a result of a Release of any Hazardous Materials; or, (c) as a result of any environmental conditions present at, created by or arising out of the past or present operations of Delco through the Closing Date, or of any prior owner or operator of a facility or site at which Delco now operates or has previously operated. "Environmental Permits" means any Permit or authorization from any Governmental Entity required under, issued pursuant to, or authorized by any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow" has the meaning set forth in Section 2.4. "Escrow Agent" means a nationally recognized financial institution selected by the Company and reasonably acceptable to Shareholders. "Escrow Agreement" has the meaning set forth in Section 2.4. "Escrowed Shares" has the meaning set forth in Section 2.4. "ESOP" means the Delco Machine and Gear Employee Stock Ownership Plan. "ESOP Shares" has the meaning set forth in the Recitals to this Agreement. "Financial Statements" has the meaning set forth in Section 4.5. "GAAP" means United States generally accepted accounting principles, as in effect as of the date of this Agreement. "Governmental Entity" or "Governmental Entities" mean any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "Hazardous Materials" means each and every element, compound, chemical mixture, contaminant, pollutant, material, waste or other substance that is defined, determined or identified as hazardous, toxic or controlled under any Environmental Law or the Release of which is prohibited under any Environmental Law. Without limiting the generality of the foregoing, the term will include, without limitation: (a) "hazardous substances" as defined in the Comprehensive Environmental Response, Compensation, -4- and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, or Title III of the Superfund Amendments and Reauthorization Act and regulations promulgated thereunder, each as amended; (b) "hazardous waste" as defined in the Solid Waste Disposal Act and regulations promulgated thereunder, each as amended; (c) "hazardous materials" as defined in the Hazardous Materials Transportation Act and the regulations promulgated thereunder, each as amended; (d) "chemical substance or mixture" as defined in the Toxic Substances Control Act and regulation promulgated thereunder, each as amended; (e) petroleum and petroleum products and byproducts and; (f) asbestos. "Indemnified Party" has the meaning set forth in Section 10.5. "Indemnifying Party" has the meaning set forth in Section 10.5. "Intellectual Property" means the entire right, title and interest in and to all proprietary rights of every kind and nature, including without limitation patents, patent disclosures, copyrights, Trademarks, mask works, trade secrets and proprietary information, all applications for any of the foregoing, all registrations, applications, re-issuances, continuations, continuations-in-part, revisions, extensions, re-examinations and associated goodwill with respect to each of the foregoing, computer software (including source and object codes), computer programs, computer data bases and related documentation and materials, data, other documentation, trade secrets, all confidential business information (including ideas, formulas, compositions, inventions, know-how, manufacturing and production processes and techniques, research and development information, drawings, designs, plans, proposals and technical data, financial, marketing and business data and pricing and cost information) and all other intellectual property rights (in whatever form or medium it or they may be contained) and any license or agreements granting rights related to any of the foregoing (i) subsisting in, covering, relying on, directly applicable to or existing in the Products or the Technology, (ii) that are owned, licensed or controlled in whole or in part by Delco or any Subsidiary of Delco and relate to the business of Delco or any Subsidiary of Delco, or (iii) that are used in or necessary to the development, manufacture, sale, marketing or testing of, the Products collectively. "Interim Financial Statements" has the meaning set forth in Section 4.5. "Inventory" or "Inventories" mean all inventory, merchandise, finished goods, raw materials, packaging, supplies and other personal property related to the business of Delco that is maintained, held or stored by or for Delco. "IRS" means the Internal Revenue Service of the United States Department of the Treasury. "Knowledge" means the knowledge of Delco and/or the Management Group and includes all information existing in the books, records and files of such party or its -5- Affiliates, as well as the knowledge of any individual member of the Management Group, after reasonable due inquiry with respect to the matter. "Law" means any constitutional provision, statute, law, rule, regulation, Permit, decree, injunction, judgment, order, ruling determination, finding or writ of any Governmental Entity. "Liability" or "Liabilities" mean any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether due or to become due), including without limitation any liability for Taxes. "Lien" or "Liens" mean any mortgage, pledge, security interest, charge, claim or other encumbrance, other than (a) mechanics', materialmen's and similar liens with respect to amounts not yet due and payable; (b) liens for Taxes not yet due and payable; and (c) liens securing rental payments under capital lease arrangements. "Losses" has the meaning set forth in Section 10.2. "Management Group" means Mr. Felix Jakobi, Mr. Dave Timmerman, Mr. Nick Campanelli and Mr. Del Warren. "Material" or "Materially" means, when used with respect to any matter, any adverse effect on the business, operations, assets or conditions, financial or otherwise, of Delco, which when (a) considered singly could result in Losses of $3,750 or more or (b) considered in the aggregate together with all other such effects, events, occurrences or group of events or occurrences related by or to a single customer, single supplier, single event or single action could result in Losses of $7,500 or more, and it being understood that with respect to such representations as to which such phrase is used in the Agreement, Losses shall include the initial amount below such threshold if either threshold is reached. "Material Adverse Effect" means, when used with respect to any matter, any adverse effect on the business, operations, assets, or conditions, financial or otherwise, of Delco which, when considered singly or in the aggregate together with all other such effects, constitutes a material adverse effect on the business, assets, operations, or conditions, financial or otherwise, of Delco taken as a whole. "Multi-employer Plan" has the meaning set forth in Section 3(37) of ERISA. "Net Cash" means net cash on Delco's balance sheet as of 12:01 a.m. on the Closing Date plus deposits in transit, less checks, drafts or notes made payable by Delco not cleared, in transit or not paid as of 12:01 a.m. on the Closing Date. "Net Consideration" means Reference Price, plus Net Cash, less Net Debt, less Taxes of Delco accrued prior to the Closing Date that are not previously paid or provided -6- for by Shareholders from sources outside the Delco bank accounts or cash equivalents, and less the Weighted Average DPO Excess. "Net Debt" means the amount, if any, by which (a) Total Debt exceeds (b) the Transaction Debt Limit. "Net Proceeds" has the meaning set forth in Section 2.5. "Non-Compete Agreement" has the meaning given in the definition of Company Ancillary Agreements. "Non-ESOP Shares" has the meaning given in the Recitals of this Agreement. "Ordinary Course of Business" means the ordinary course of business of Delco consistent with past custom and practice (including with respect to quantity and frequency). "Participant" means each person described in Section 3(7) of ERISA who is a participant in the ESOP. "PBGC" means the Pension Benefit Guaranty Corporation. "Permit" or "Permits" mean any license, permit, franchise, certificate of authority or order, or any waiver of the foregoing, issued by any Governmental Entity. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a Governmental Entity. "Product" or "Products" mean all past and current products and services of Delco and, to the extent that they are currently being developed by Delco, (a) any subsequent versions of such products or services, (b) any products or services which are designed to supersede, replace or function as a component of such products or services, and (c) any upgrades, enhancements, improvements and modifications to the foregoing, and (d) any data or information associated with the foregoing that is required by the customer to be delivered. "Product Recall" means a request in writing from Delco to any person for the return of any Products for reasons of health, safety or compliance with any Law. "Prohibited Transactions" has the meaning set forth in Section 406 of ERISA and Section 4975 of the Code. "Public Offering" has the meaning set forth in Section 7.5. -7- "Reference Price" means the amount of Nineteen Million Six Hundred Fifty Thousand dollars ($19,650,000.00). "Registrable Securities" has the meaning set forth in Section 7.5. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, storing, escaping, leaching, dumping, discarding, burying, abandoning or disposing into the Environment. "Reportable Event" has the meaning set forth in Section 4043 of ERISA. "Safety Laws" means any Law or legal requirement relating to health or safety, including the Occupational Safety and Health Act, as amended, as now or hereinafter in effect relating to (a) exposure of employees to any Hazardous Materials or (b) the physical structure, use or condition of a building, facility, fixture or other structure, including, without limitation, those relating to equipment or manufacturing processes, or the management, Release, cleanup or removal of any Hazardous Materials. "Safety Liabilities and Costs" means all Losses incurred to comply with any Safety Law or as a result of any health or safety conditions present at, created by or arising out of the past or present operations of Delco through the Closing Date. "Sale Notice" has the meaning set forth in Section 2.4. "Schedule" means, unless the context otherwise requires, the referenced Schedule included in the Disclosure Schedules. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Shareholder" means each Person set forth on Schedule 1 to this Agreement. "Shareholder Indemnified Parties" has the meaning set forth in Section 10.3. "Shareholders" has the meaning set forth in the Preamble to this Agreement. "Shareholders' Representative" means Felix Jakobi for the Non-ESOP Shares, or in the event he is unable to continue, any successor appointed by a plurality in interest of the Shareholders and their successors and assigns in and to the Escrowed Shares, or the proceeds thereof, and effective upon notice to the Company pursuant to Section 11.9, and the Trustee for the ESOP Shares. -8- "Subsidiary" means with respect to any Person, (a) any corporation, a majority of whose outstanding voting stock is owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries, or collectively by such Person and one or more of its Subsidiaries; (b) any general partnership, joint venture or similar entity, a majority of whose outstanding partnership or similar interests is owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries, or collectively by such Person and one or more of its Subsidiaries; (c) any limited partnership of which such Person or any of its Subsidiaries is a general partner or a majority of whose ownership interests is owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries, or collectively by such Person and one or more of its Subsidiaries; and (d) any limited liability company of which such Person or any of its Subsidiaries is a manager or a majority of whose ownership interests is owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries, or collectively by such Person and one or more of its Subsidiaries. For the purposes of this definition, "voting stock" or "ownership interests" means shares, interests, participations or other equity interests (however designated) in such Person having voting power in the election of directors (or the equivalents) of such Person (whether existing at the time or arising upon any known or contingent event or circumstance). "Takisawa CNC Lathes" means those certain lathes with the serial numbers THXS0459, THXS0460, TLSS04534, TLS0455, TLS0453, TLNR2001 and accessories thereto. "Tax" or "Taxes" mean, whether or not shown on any Tax return, taxes, fees, levies, duties, tariffs, imposts and governmental impositions, assessments or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local, or foreign taxing authority, including, without limitation, income, gross receipts, license, lease, service, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code ss. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar, including FICA), unemployment, disability, real property, personal property, sales, use, ad valorem, transfer, registration, value added, alternative or add-on minimum, estimated, or of any other kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" or "Tax Returns" shall mean any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Technology" means all inventions, copyrightable works, discoveries, innovations, know-how, ideas, research and development, formulae, compositions, processes and techniques, technical data, designs, drawings, specifications, customer and supplier information, pricing and cost information, business and marketing plans, proposals, documentation, manuals, software, firmware, hardware, integrated circuits and integrated circuit masks, electronic, electrical or mechanical equipment, machinery and tools, and all other forms and embodiments of technology of all kinds whatsoever, -9- including without limitation improvements, modifications, derivatives or changes, whether tangible or intangible, embodied in any form, whether or not protectible or protected by patent, copyright, mask work right, trade secret law or otherwise. "Total Debt" means (a) any debt owed by Delco for money borrowed, including all capitalized leases, loans from Shareholders, bank lines of credit, equipment installment notes or other notes payable as of 12:01 a.m. on the Closing Date, plus (b) all of the transaction expenses of the Shareholders', or their Affiliates, for which Delco becomes liable or assumes, plus (c) any payable related to the acquisition of Takisawa CNC Lathes. "Trademarks" means any trademarks, service marks, trade dress, logos and trade names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith. "Transaction Debt Limit" means $8,373,488; provided, however, that if any of the Takisawa CNC Lathes have been returned to their original seller, the Transaction Debt Limit will be reduced by an amount equal to 50 percent (50%) of the invoice cost of such returned Takisawa CNC Lathes. Such reduction is not to exceed, in any event, the aggregate of $373,488. "Trust" means the Trust created by the Trust Agreement for the ESOP. "Trustee" has the meaning set forth in the Preamble to this Agreement. "Warranties" shall mean all Product return policies, service, repair, replacement and other obligations based upon or arising out of express or implied warranties made or deemed applicable in connection with the sale of goods or the performance of services by Delco. "Wash Custodian" means the Bank of New York. "Weighted Average DPO" means the sum, across all accounts payable outstanding as of the measurement date, excluding any payable related to the acquisition of the Takisawa CNC Lathes, of a calculation for each account payable equal to (a) the dollar amount of the account payable, times (b) the number of days from the account payable invoice dated to the measurement date, divided by (c) 365. "Weighted Average DPO Excess" means the amount by which Weighted Average DPO, as of the Closing Date, exceeds 110 percent (110%) of the Weighted Average DPO as of February 2, 2001. "Year-End Financial Statements" has the meaning set forth in Section 4.5. -10- Section 2. EXCHANGE OF DELCO SHARES. 2.1 Sale and Transfer of Delco Shares. On the terms and subject to the conditions set forth in this Agreement, at the Closing the Shareholders shall transfer and convey to the Company, and the Company shall acquire, all right, title and interest in and to the Delco Shares, free and clear of all Liens, claims, encumbrances, pledges, options, security interests and any other adverse claims or interests. At the Closing, each Shareholder shall deliver to the Company all certificates evidencing the Delco Shares owned by him, her or it, properly endorsed for transfer or accompanied by properly executed stock powers. 2.2 Consideration from Company for the Delco Shares. On the terms and subject to the conditions set forth in this Agreement, the Company covenants and agrees that in exchange for the transfer of the Delco Shares to Company by the Shareholders, Company shall deliver to the Wash Custodian for the benefit of the Shareholders at Closing for the account of the Shareholders, in proportion to the ownership of the Delco Shares set forth on Schedule 1, an aggregate number of Shares of BE Stock having a value (determined at the BE Closing Price) equal to $17,500,000 (the "Closing Shares") and the Company shall deliver to the Escrow Agent at the Closing (i) a transaction reserve comprised of an aggregate number of shares of BE Stock having a value (determined at the BE Closing Price) equal to one hundred twenty percent (120%) of the Reference Price, less $17,500,000 (collectively the "Escrowed Shares"). The Escrow Agent, pursuant to the Escrow Agreement, will establish an escrow account (the "Escrow"), and will be instructed to release the Escrowed Shares or proceeds from the sale thereof, as follows: (a) Within ten (10) business days after the Closing Date, and after the Company and any Arbiter, if applicable, renders its confirmation of the Net Consideration pursuant to Sections 2.3(a) and 2.3(b), Escrowed Shares valued at the BE Closing Price, or proceeds from the sale thereof, shall be disbursed from the Escrow, subject to the terms of the Escrow Agreement, to (i) the Wash Custodian for the benefit of the Shareholders, in proportion to the ownership of the Delco Shares as set forth on Schedule 1, equal to ninety-two and one-half percent (92.5%) of the Net Consideration less $17,500,000, if any, and to (ii) the Company the amount of Escrowed Shares in excess of seven and one-half percent (7.5%) of the Net Consideration; (b) (i) If the Net Consideration amount is less than $17,500,000, then the Shareholders shall pay to the Company within five (5) days of the closing of the Public Offering directly from the proceeds of the sale of the Shareholder's Closing Shares sold in the Public Offering, or if no Public Offering takes place, then from any funds substituted for the Closing Shares, the lesser amount of (A) the Net Proceeds from the Public Offering for the Closing Shares less the Net Consideration or (B) $17,500,000 less the Net Consideration (the "Net Consideration Pay Back"). (ii) If the aggregate Net Proceeds received by the Shareholders and the Escrow Agent from the sales in the Public Offering of the BE Stock divided by the number of Shares of BE Stock sold is greater than the BE Closing Price (the greater -11- amount defined as the "Excess"), then within five (5) days after the closing of the Public Offering the Shareholders and the Escrow Agent shall remit and pay to the Company the Excess. (c) Subject to adjustments described in Sections 2.3 and 10.2, Escrowed Shares valued at the BE Closing Price, or proceeds from the sale thereof, in an amount equal to 47% of the amount then in Escrow that is not subject to any claim of Company Indemnified Parties, will be disbursed from Escrow, subject to the Escrow Agreement, to the Shareholders fifteen (15) days after the receipt from the Company's Accounting Firm of the audit for the Company's fiscal year ending February 2002, but in no case later than June 1, 2002; and (d) Subject to adjustments described in Sections 2.3 and 10.2, and after payment of all Escrow fees then due, the balance of the Escrowed Shares will be disbursed from the Escrow, subject to the Escrow Agreement, to Shareholders within fifteen (15) days after the receipt from the Company's Accounting Firm of the audit for the Company's fiscal year ending February 2003, but in no case later than June 1, 2003. 2.3 Adjustments of Reference Price (a) Within ten (10) days after the Closing Date, and after the Company renders its confirmation of Net Consideration, the Company will deliver to Shareholders' Representative the calculation with respect to the Net Consideration, along with any associated work papers (the "Closing Date Net Consideration Calculation"). (b) Within fifteen (15) days after the delivery of the Closing Date Net Consideration Calculation, the Shareholders' Representative will deliver written notice to the Company of any objections thereto, and will attempt in good faith to reach an agreement with the Company as to any matters in dispute. If Shareholders' Representative does not give such notice within such fifteen (15) days, then Shareholders shall be deemed to have waived the right to dispute the Closing Date Net Consideration Calculation. If Shareholders' Representative gives such notice within such fifteen (15) days, and if the Company and the Shareholders' Representative, notwithstanding such good faith effort at resolution, fail to resolve all matters in dispute within fifteen (15) days after Company's receipt of Shareholders' objections, then any remaining disputed matters will be finally and conclusively determined by an independent auditing firm of recognized national standing (the "Arbiter") selected by the Company and the Shareholders' Representative, which firm will not be the regular auditing firm of the Company, Delco, Shareholders, or any Affiliate thereof. Promptly, but not later than forty-five (45) days after acceptance of its appointment, the Arbiter will determine (based solely on presentations by the Shareholders' Representative and the Company and not by independent review) only those matters in dispute and will render a written report as to the disputed matters and the resulting calculation of the Net Consideration under Section 2.2(a), which report will be conclusive and final as to the Net Consideration for purposes of Section 2.2(a), but shall not detract from the parties' remedies under Section 10. In resolving the dispute the Arbiter shall be limited to choosing the final proposal of either -12- the Company or Shareholders' Representative. The fees and expenses of the Arbiter will be paid by the non-prevailing party with respect to the determination of the Arbiter as set forth in the Arbiter's report. The Arbiter's final report shall be submitted to the Escrow Agent within ten (10) days after it has been delivered to Shareholders' Representative and the Company. For purposes of complying with the terms set forth in Section 2.3(b), each party will cooperate with and make available to the other party and its auditors and representatives all information, records, data and auditors' working papers, as may be reasonably required in connection with the preparation and analysis of the Closing Date Net Consideration Calculation. In addition to all other rights and remedies under Section 10 of this Agreement, the Company shall have recourse, subject to the Escrow Agreement, to receive and set off any undistributed portions of the Escrowed Shares, or proceeds from the sale thereof, held in Escrow, in partial satisfaction of any Shareholders' obligations to the Company Indemnified Parties under Section 10 on a dollar-for-dollar basis with Escrowed Shares valued at the BE Closing Price. No failure by Escrow Agent or the Company to withhold any amount held in Escrow from Shareholders shall constitute a waiver or release of any kind whatsoever. 2.4 Escrow. The Escrowed Shares will be deposited into Escrow, pursuant to an escrow agreement, dated the Closing Date, substantially in the form of Exhibit C (the "Escrow Agreement"). The Escrow Agent will hold the Escrowed Shares as provided by the Escrow Agreement as security for the obligations of the Shareholders under Sections 2.2 and 10.2 hereof. The Escrow Agreement shall provide for the distribution of the Escrowed Shares (or proceeds from the sale thereof) from the Escrow pursuant to Sections 2.2(a), (b)(ii), (which shall not be subject to claims of the Company under Section 10.2), and Section 2.2(c) and (d), which shall be subject to claims of the Company under Section 10.2, or reduction in the Net Consideration under Section 2.3. Investment earnings on any balances in the Escrow shall accrue to the benefit of the Shareholders and shall constitute additional security for the Company, and any fees for maintaining the Escrow shall be paid from the balances in the Escrow, or if impractical, then paid directly by the Shareholders. No Escrowed Shares, or proceeds from the sale thereof, shall be distributed to Shareholders' Representative or any Shareholder except pursuant to the Escrow Agreement in compliance with the terms and conditions of this Agreement. Any Escrowed Shares released from the Escrow to either the Shareholders, Shareholders' Representative or the Company shall be valued for purposes of satisfying any amounts owing under this Agreement at the BE Closing Price without reference to the Escrowed Shares' then actual market price. The Shareholders shall be responsible for, and without using any assets in Escrow shall pay when due, any and all Taxes imposed upon or arising from the transfer of the Escrowed Shares. Any fees and costs of Escrow Agent for maintaining the Escrow shall be the responsibility of the Shareholders and may be paid from the Shareholders' proceeds from the sale of Escrowed Shares, or directly by the Shareholders. The Shareholders and Company agree that all Escrowed Shares shall be sold by the Escrow Agent at the earliest opportunity and the proceeds from the sale thereof shall be substituted in place of the Escrowed Shares. Accordingly, the Shareholders hereby irrevocably authorize and direct the Escrow Agent and any -13- agents or representatives of the Company to take any and all actions necessary or appropriate, in such Person's sole and absolute discretion, to effect sales of Escrowed Shares on such terms and conditions (and only on such terms and conditions), and at such times and utilizing such underwriters and brokers, as shall be directed and approved by the Company in a written notice (a "Sale Notice") to be delivered to the Escrow Agent. 2.5 Guarantied Proceeds; Mandatory and Optional Cash Payments. In the event that the aggregate Net Proceeds (as defined below) received by the Shareholders or the Escrow Agent from sales in the Public Offering of the BE Stock divided by the number of shares of BE Stock sold are less than the BE Closing Price, then, within five (5) days after closing of the Public Offering, the Company shall pay to the Shareholders (or their designee or custodian), or, in regard to Escrowed Shares, to the Escrow Agent, an amount by wire transfer of next day available funds equal to the Net Consideration minus the sum of the Net Proceeds received on account of the sales of BE Stock by the Shareholders or the Escrow Agent, allocated pro rata per Delco Share to each Shareholder as set forth on Schedule 1 and to the Escrow in proportion to the respective amounts of the Net Consideration for each in Section 2.2(a). In the event that the aggregate Net Proceeds received by the Shareholders and the Escrow Agent from the sale of BE Stock exceeds the Net Consideration, the Company shall have no obligation to make any payment pursuant to this Section 2.5, and the Shareholders and the Escrow Agent shall remit or cause to be remitted to the Company such excess amounts within the five (5) day period described in the first sentence of this Section 2.5. As used herein, "Net Proceeds" means (x) in the case of an underwritten sale of BE Stock, the gross proceeds received by the Shareholders and the Escrow Agent in such sale, net of underwriter's discounts, commissions and other expenses paid by the Shareholders (whether incurred by the Shareholders, the Company, the underwriters or any advisors) in connection with such sale and (y) in the case of any other sale of such shares, the gross proceeds received by the Shareholders and the Escrow Agent, net of selling commissions paid in connection with such sale and all other expenses paid by the Shareholders (whether incurred by the Shareholders, the Company, placement agents or any broker dealers, in connection with such sale). In the event that not all of the BE Stock received by the Shareholders or held in Escrow is sold in the Public Offering prior to the Offering Termination Date, the Company shall have the right to terminate or withdraw any registration initiated by it and to elect, at its sole option by giving written notice to the Shareholders and the Escrow Agent, to pay the Shareholders or the Escrow Agent in cash an amount per share of unsold BE Stock equal to the BE Closing Price, and in exchange for such payment, the Shareholders and the Escrow Agent shall transfer to the Company all right and interest in and to the shares of BE Stock that they have not previously sold. Under the Circumstances set forth on the preceding sentence, if any shares of BE Stock remain unsold, then on the 180th day after the Closing Date, and on or before that day only, each Shareholder or the Shareholder Representative may Notice the Company to require it to purchase on the 180th day after the Closing Date, any or all of the unsold shares of BE Stock for an amount equal to the BE Closing Price multiplied by the number of shares that the Shareholder or Shareholders Representative requires that the Company purchase. -14- 2.6 Application of Maximum Liability and Minimum Threshold. The minimum thresholds of $200,000 set forth in Sections 10.2, 10.3 and 10.4 of this Agreement and the $4,350,000 cap of liability set forth in Section 10.3 shall not apply to Section 2.5, which shall, however, be capped at a maximum liability equal to the Net Consideration. Section 3. CLOSING AND CLOSING DATE. 3.1 Closing. Subject to the provisions of Section 9, the consummation of the transactions contemplated by this Agreement (the "Closing") will take place at the offices of Yocca Patch & Yocca, LLP, 19900 MacArthur Boulevard, Suite 650, Irvine, California, on March 2, 2001, or at such other place or on such other date as the Company and the Shareholders may mutually agree. Notwithstanding the foregoing, the parties agree that the Company intends, for financial reporting purposes, to treat the Closing and transfer of effective control of Delco as if it had occurred at 12:01 a.m. on February 24, 2001 (the "Effective Date"). 3.2 Closing Date. The date on which the Closing actually takes place is referred to in this Agreement as the "Closing Date." Except as provided in Section 3.1 for financial reporting purposes, the Closing will be deemed for all other purposes under this Agreement to have occurred as of 12:01 A.M., California time, on the Closing Date. 3.3 Deliveries at the Closing. At the Closing, (a) the Shareholders will deliver to the Company the various certificates, instruments, documents and agreements referred to in Section 9.1, (b) the Trustee will deliver to the Company the various certificates, instruments, documents and agreements referred to in Section 9.3, (c) the Company will deliver to the Shareholders the various certificates, instruments, documents and agreements referred to in Section 9.2, (d) the Shareholders will deliver to the Company stock certificates evidencing all of the Delco Shares, endorsed in blank or accompanied by duly executed assignment documents, (e) the Company will deliver to the Escrow Agent an aggregate number of shares of BE Stock having a value (determined at the BE Closing Price) equal to one hundred twenty percent (120%) of the Reference Price, less $17,500,000, and (f) the Company will deliver the Closing Shares to the Wash Custodian designated for such receipt. Section 4. REPRESENTATIONS AND WARRANTIES OF DELCO AND SHAREHOLDERS. The Shareholders, severally and jointly, and Delco represent and warrant to the Company that the statements contained in this Section 4 are correct and complete as of the Closing Date. 4.1 Organization. Delco is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Delco is duly qualified to conduct business and in good standing under the laws of each additional jurisdiction where such qualification is required. Delco has full corporate power and authority and all Material Permits and authorizations necessary to carry on the businesses in which they -15- are engaged and in which they presently propose to engage and to own and use the properties owned and used by them. 4.2 Authorization of Transaction. Each of the Shareholders has the capacity and authority to execute and deliver this Agreement and to perform its respective obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Shareholders, enforceable in accordance with its terms and conditions. 4.3 Noncontravention; Consents. (a) Neither the execution and delivery of this Agreement, nor the consummation by Delco and the Shareholders of the transactions contemplated hereby, will violate in any Material respect any Law to which Delco or the Shareholders are subject or any provision of the articles of incorporation or bylaws of Delco. Except as set forth on Schedule 4.3(a), neither the execution and delivery of this Agreement by the Shareholders, nor the consummation by Delco or the Shareholders of the transactions contemplated hereby, will, in any Material respect constitute a violation of, be in conflict with, constitute or create a default under or result in the creation or imposition of any Lien upon any property of Delco or the Shareholders pursuant to, any agreement or commitment to which Delco or any of the Shareholders is a party or by which Delco, the Shareholders or any of their respective properties (including Delco Shares) is bound or to which Delco, the Shareholders or any of such properties is subject. (b) Except as set forth on Schedule 4.3(b), Delco and the Shareholders have given all required Material notices and obtained all Material licenses, Permits, consents, approvals, authorizations, qualifications and orders of Governmental Entities as are required in order to enable the Shareholders to perform their obligations under this Agreement, including all consents and approvals required to permit the Shareholders to transfer all of the Delco Shares to the Company. No Contract relating to Delco has been amended to increase the amount payable thereunder or otherwise modify the terms thereof in order to obtain any such consent, approval or authorization. 4.4 Capitalization. Schedule 4.4 sets forth for Delco (a) the number of shares of authorized capital stock of each class of its capital stock, (b) the number of issued and outstanding shares of each class of its capital stock, (c) the names of its directors and elected officers, and (d) the owners of its capital stock. The Shareholders have delivered to the Company correct and complete copies of the articles of incorporation and bylaws of Delco as amended to date. All of the issued and outstanding shares of capital stock of Delco have been duly authorized and are validly issued, fully paid and nonassessable. As of immediately prior to the Closing the Shareholders hold of record and own beneficially, and upon the Closing the Shareholders shall transfer, assign and convey to Company, all right, title and interest in and to all of the outstanding shares of stock of Delco, free and clear of any restrictions on transfer (other than restrictions under the Securities Act, and applicable state securities laws), Taxes, Liens, options, warrants, purchase rights, contracts, commitments, equities, claims or demands. Except as set forth on Schedule 4.4, there are no outstanding or authorized options, warrants, purchase rights, -16- subscription rights, conversion rights, exchange rights or other contracts or commitments that could require the Shareholders or Delco to sell, transfer or otherwise dispose of any capital stock of Delco or that could require Delco to issue, sell or otherwise cause to become outstanding any of its own capital stock. There are no outstanding stock appreciation, phantom stock, profit participation or similar rights with respect to Delco. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of Delco. Delco is not in default under or in violation of any provision of its articles of incorporation or bylaws. Except as set forth on Schedule 4.4, Delco neither controls directly or indirectly, nor has any direct or indirect equity participation in, any Person. 4.5 Financial Statements. Set forth in Schedule 4.5(a-1) are correct and complete copies of the unaudited balance sheets of Delco as of December 31, 1998, December 31, 1999 and December 31, 2000 and the related statements of income and cash flow for the years then ended (the "Year-End Financial Statements"). The Year-End Financial Statements were prepared consistent with past accounting practices and present fairly the financial condition and the results of operations of Delco on a consolidated basis as of the dates and for the periods indicated therein in accordance with GAAP (except as set forth in Schedule 4.5(a-2)). Set forth in Schedule 4.5(a-3) are correct and complete copies of the unaudited balance sheet of Delco as of January 31, 2001 and the related statements of income and cash flow for the one (1) month then ended (the "Interim Financial Statements"). The Interim Financial Statements were prepared consistent with past accounting practices and present fairly the financial condition and the results of operations of Delco on a consolidated basis as of the date and for the period indicated in accordance with GAAP (except as set forth in Schedule 4.5(a-2)), except for normal year-end adjustments. 4.6 Undisclosed Liabilities. Delco has no Liabilities that exceed, individually or in the aggregate, Twenty-Five Thousand Dollars ($25,000), except for liabilities and obligations (a) reflected or reserved for on the Interim Financial Statements, (b) that have arisen since the date of the Interim Financial Statements in the ordinary course of the operation of Delco (none of which results from, arises out of, relates to, any breach of contract, breach of warranty, tort, infringement or violation of Law) or (c) as set forth on Schedule 4.6. 4.7 Customers and Suppliers. Except as set forth in Schedule 4.7(a-1), since December 31, 2000, no event or condition has arisen that would reasonably be expected to result in any of the major customers or sole-source or key suppliers of Delco to cease doing business with Delco or to curtail its business with Delco in any Material respect. Delco has received no written notice, and has no Actual Knowledge of receipt of oral notice, from any major customers or major suppliers that any of them contemplate making a Material change adverse to Delco in their business relations with Delco. Listed in Schedule 4.7(a-2) are the names and addresses of Delco's customers for 1999 and for 2000. Listed in Schedule 4.7(a-3) are the names and addresses of all suppliers to Delco for 1999 and for 2000. -17- 4.8 Events Subsequent to Most Recent Fiscal Year End. Since December 31, 2000, there has not been any Material Adverse Effect, except as disclosed on Schedule 4.8. 4.9 Accounts Receivable. The accounts receivable reflected on the Interim Financial Statements, including any associated reserves, are bona fide receivables, accounted for on a basis consistent with that used in the preparation of the Interim Financial Statements, representing amounts due with respect to actual transactions in the ordinary course of the operation of Delco. 4.10 Tax Matters. (a) Except as set forth in Schedule 4.10, (i) all Tax Returns that are required to be filed by or with respect to Delco other than those Tax Returns the failure of which to file would not be Material to Delco, have been duly filed, and Delco is not the beneficiary of any extension of time within which to file any Tax Return other than the six-month statutory extension that results from the filing of federal Tax Returns by the extended due date, (ii) the Shareholders have delivered to the Company correct and complete copies of all federal income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by Delco for the last three taxable years, (iii) such Tax Returns are true, complete and correct in all Material respects when filed, (iv) all Taxes due and payable by Delco have been paid in full in all Material respects, (v) no waivers of statutes of limitation have been given by or requested with respect to any Taxes of Delco, (vi) there is no claim or assessment threatened by any taxing authority against Delco, (vii) Delco has withheld and timely paid to the appropriate taxing authority all Taxes in compliance with all Tax withholding provisions of applicable Laws in all Material respects, and (viii) no jurisdiction has notified Delco of any inquiry as to whether Delco should be required to pay any Taxes or file any Tax Returns except for any inquiry resolved favorably to Delco and no longer considered outstanding to Delco's Knowledge, and (b) there are no Liens on any of the assets of Delco that arose in connection with any failure (or alleged failure) to pay any Tax, except liens for Taxes not yet due and payable. (c) To Delco's Knowledge, no Tax authority should assess any additional Taxes on Delco for any period for which Tax Returns have been filed. There is no dispute, audit, investigation, proceeding or claim concerning any Liability with respect to Taxes of Delco either (i) claimed or raised by any authority in writing or (ii) as to which any of Delco or the Shareholders have Knowledge based upon contact with any such authority. No federal, state, local, and foreign income Tax Returns filed with respect to Delco have been audited or the subject of audit. (d) Delco does not have any Liability for the Taxes of any Person other than Delco under Treasury Regulation ss. 1.1502-6 (or any similar provision of Law), as a transferee or successor, by contract, or otherwise. -18- (e) Delco has not filed a consent under Code Section 341(f) concerning collapsible corporations. Delco has not made any payments, nor is it obligated to make any payments, nor is it a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Sections 162(m), 280G or 404. Delco has not been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). (f) No Delco asset is property which Delco is required to treat as being owned by any other person pursuant to the so-called "safe harbor lease" provisions of former Section 168(f)(8) of the Code. None of the Delco assets is "Tax-exempt use property" within the meaning of Section 168(h) of the Code. Delco has not agreed to make, nor is it required to make, any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. Delco has not participated in (and will not participate in) an international boycott within the meaning of Section 999 of the Code. Delco is not a person other than a United States person within the meaning of the Code. To Delco's Knowledge, no transactions contemplated by this Agreement are subject to the Tax backup withholding provisions of Code Section 3406, or of subchapter A of Chapter 3, of the Code, except payments, if any, provided under certain Non-Compete Agreements. Delco does not have and has not had a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country. (g) Except as disclosed on Schedule 4.10(g), Delco has duly and timely paid all Taxes required to be paid by Delco (whether or not shown on any Tax Return) on or before the Closing except Taxes in an amount that is not Material as of the Closing Date. Delco has no liability in any Material respect for any Taxes that has not been accrued for or reserved on its financial statements as of the day preceding the Closing. (h) At all times since January 1, 1999, Delco has had in effect a valid election under Section 1362(a) of the Code to be taxed as an S corporation for federal income tax purposes (an "S Election") and, except as set forth in Schedule 4.10(h), (i) a comparable election in each state in which it conducts business or is subject to Tax, and (ii) a comparable election in each locality in which it both conducts business and is subject to a local Tax. Delco has not received written notice of and is not aware of any proposal from the IRS or any Tax authority to disallow such S Election or such comparable election for any taxable year since January 1, 1999. Delco has had no Subsidiary at any time since the first day of its first taxable year as an S corporation. 4.11 Contracts. (a) Schedule 4.11 contains a list of all Contracts, including a description of the terms of all material Contracts not in writing. For purposes of this Section 4.11, the following Contracts are deemed material (the "Material Contracts"): -19- (i) each Contract for the purchase or lease of personal property or for furnishing of services to Delco or otherwise related to the business of Delco having a stated value or consideration of $25,000 or more or having a term of one year or more; (ii) each Contract for the sale or lease of personal property or for the furnishing of services by Delco, and any outstanding, binding proposals to customers or prospective customers of Delco, in each case involving payments aggregating $25,000 or more or having a term of one year or more; (iii) all broker, exclusive dealing or exclusivity, distributor, dealer, manufacturer's representative, franchise, sales agency, sales promotion, market research, marketing consulting and advertising contracts and agreements to which Delco is a party or any other contract that compensates any person based on any sales by Delco except if terminable within 30 days without Material penalty; (iv) all Contracts evidencing indebtedness, other than trade indebtedness of Delco, including, without limitation, all guarantees and similar obligations by Delco in respect of any such indebtedness; (v) all Contracts with any Governmental Entity to which Delco is a direct party; (vi) all Contracts that limit or purport to limit the ability of Delco or any Person of the Management Group to compete in any line of business or with any Person or in any geographic area or during any period of time; (vii) any Contract of Delco that is terminable upon or prohibits a change of ownership or control of Delco; (viii) any Contract with any employee of, or Consultant to, Delco that has a term of one year or more or involves compensation of $80,000 or more per year. (b) The Shareholders have made available to the Company correct and complete copies of all items, as amended, listed on Schedule 4.11 that are in writing, and the descriptions contained on Schedule 4.11 of all items listed therein that are not in writing. Each Material Contract is a valid, binding and enforceable obligation of Delco, and to Delco's Actual Knowledge, of the other party or parties thereto and is in full force and effect. Except as set forth on Schedule 4.11, (i) neither Delco nor, to Delco's Actual Knowledge, any other party thereto, is in breach of any term of any Material Contract or has repudiated any term of any Material Contract; (ii) no event, occurrence or condition exists that, with the lapse of time, the giving of notice, or both, would become a Material default under any Material Contract by Delco, or, to Delco's Actual Knowledge, any other party thereto; (iii) Delco has neither waived nor released any of its Material rights under any Material Contract; and (iv) neither Delco, nor the Shareholders, have received any communication questioning the validity or enforceability of any Material Contract. Except as set forth on Schedule 4.11, the execution, delivery and consummation of the transactions contemplated by this Agreement shall not constitute a breach or default -20- under, or give rise to a right of termination under or, to the Actual Knowledge of Delco otherwise Materially adversely affect any provision of any of the Material Contracts. 4.12 Real Property. (a) Schedule 4.12(a-1) lists all lease and sublease agreements relating to real property leased or subleased by Delco. Except as set forth on Schedule 4.12(a-2), with respect to each such lease and sublease: (i) such lease or sublease (together with any amendment or supplement thereto listed on Schedule 4.12(a-1) constitutes the entire agreement to which Delco is a party with respect to the real property leased thereunder; (ii) Delco has not assigned, sublet, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold; (iii) all facilities leased or subleased thereunder have received all material approvals of Governmental Entities (including all Permits) required in connection with the operation thereof and have been operated and maintained in all material respects in accordance with all applicable Laws; and (iv) there is no action, suit or proceeding pending against Delco or, to Delco's Actual Knowledge, any action, suit or proceeding threatened against Delco or any third party that would interfere with the quiet enjoyment of such leased real property after the Closing Date. (b) All of the real property and facilities used by Delco, and all components of all improvements included within such property, are in good working order and repair, reasonable wear and tear excepted, and do not require Material repair or replacement in order to serve their intended purposes in all material respects, including use and operation consistent with their present use and operation, except for scheduled maintenance, repairs and replacements conducted or required in the ordinary course of the operation of such real property or improvements. (c) Other than options, rights of first refusal or other similar arrangements in favor of Delco under the leases and subleases relating to the real property leased by Delco, Delco has not entered into any Contract, arrangement or understanding with respect to the future ownership, development, use, occupancy or operation of any parcel of real property. (d) There are no pending or threatened or contemplated condemnation or eminent domain proceedings that affect the real property leased by Delco, and Delco has not received any notice, oral or written, of the intention of any Governmental Entity or other Person to take or use all or any part thereof. (e) Since Delco's leasing of the real property leased by Delco, none of such property or any part thereof has suffered any Material damage by fire or other casualty that has not been completely restored. (f) Delco has not received any written notice from any insurance company that has issued a policy to Delco with respect to any of its leased real property -21- requiring the performance of any structural or other repairs or alterations to such property. (g) Delco does not now own, and has never owned any real property. All real property previously leased by Delco is identified as such in Schedule 4.12(g). (h) Each lease and sublease listed on Schedule 4.12(a-1) is a valid, binding and enforceable obligation of Delco, and to Delco's Actual Knowledge of the other party or parties thereto, and is in full force and effect. Except as set forth on Schedule 4.12(a-2), (i) neither Delco nor, to Delco's Actual Knowledge, any other party thereto, is in Material breach of any term of any such lease and sublease or has repudiated any term of any such lease and sublease; (ii) no event, occurrence or condition exists that, with the lapse of time, the giving of notice, or both, would become a Material default under any such lease or sublease by Delco, or, to Delco's Actual Knowledge, any other party thereto; (iii) Delco has neither waived nor released any of its Material rights under any such lease and sublease; and (iv) neither Delco, nor the Shareholders, have received any communication questioning the validity or enforceability of any such lease or sublease. Except as set forth on Schedule 4.12(a-2), the execution, delivery and consummation of the transactions contemplated by this Agreement shall not constitute a breach or default under, or give rise to a right of termination under or, to the Actual Knowledge of Delco otherwise Materially adversely affect any provision of any of such leases and subleases. 4.13 Title and Related Matters. Except as set forth on Schedule 4.13, Delco has, as of the Closing Date, and on the Closing Date will have, good and marketable title to all the properties and assets used by Delco in its business or as shown on the Interim Financial Statements, free and clear of all Liens, except for properties and assets disposed of in the Ordinary Course of Business. 4.14 Intellectual Property. (a) Delco owns or has the right to use pursuant to valid license, sublicense, agreement or permission all Intellectual Property necessary or desirable for the operations of Delco as presently conducted. Delco owns common law Trademark rights to the DMGI, Inc. and Delco Machine and Gear names and marks. (b) To Delco's Knowledge, for this purpose only, excluding all requirements for inquiry other than among the members of the Management Group, Delco has neither interfered with, nor infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of third parties. Delco has not received any written, or to Delco's Knowledge any oral, charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation or violation (including any claim that it must license or refrain from using any Intellectual Property rights of any third party). To Delco's Actual Knowledge, no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of Delco. -22- (c) Schedule 4.14(c) identifies each registered patent and each registered Trademark, and copyright owned by Delco and identifies each pending patent application or application for registration that has been filed by Delco. The Shareholders have made available to the Company correct and complete copies of all such patents, registrations and applications, each as amended to date, and correct and complete copies of all other written documentation evidencing ownership and prosecution of each such item. With respect to each such item of Intellectual Property required to be identified in Schedule 4.14(c): (i) Delco possesses all right, title and interest in and to such item, free and clear of any Lien, license or other restriction; (ii) such item is not subject to any outstanding injunction, judgment, order, decree, ruling or charge; (iii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to Delco's Actual Knowledge, threatened that challenges the legality, validity, enforceability, use or ownership of such item; and (iv) Delco has not agreed to indemnify any Person for or against any interference, infringement, misappropriation or other conflict with respect to such item except to the extent specifically disclosed in Schedule 4.14(c). (d) Schedule 4.14(d) identifies each license, sublicense, agreement or permission pursuant to which Delco uses any item of Intellectual Property. With respect to each such license, sublicense, agreement or permission (other than commercial software with a retail price of less than $600): (i) to Delco's Knowledge, Delco is not subject to any outstanding injunction, judgment, order, decree, ruling or charge; (ii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to Delco's Actual Knowledge, threatened against Delco with respect to Delco's use of the underlying item of Intellectual Property that challenges the legality, validity or enforceability of Delco rights with respect to the underlying item of Intellectual Property; (iii) the execution, delivery and consummation of transactions contemplated by this Agreement shall not constitute a breach or default or, give rise to a right of termination thereunder, or otherwise adversely affect the ability of Delco, Company or its Affiliates to use the Intellectual Property in conducting the business of Delco after the Closing Date; and (iv) Delco has not granted any sublicense or similar right with respect to such license, sublicense, agreement or permission; and (v) Each such license, sublicense and permission listed in Schedule 4.14(d) is a valid, binding and enforceable obligation of Delco, and to Delco's Actual Knowledge of the other party or parties thereto, and is in full force and effect. Except as set forth on Schedule 4.14(d), (A) neither Delco nor, to Delco's Actual -23- Knowledge, any other party thereto, is in Material breach of any term of any license, sublicense and permission, and has repudiated any term of any Material license, sublease or permission; (B) no event, occurrence or condition exists that, with the lapse of time, the giving of notice, or both, would become a Material default under any license, sublease, or permission by Delco, or, to Delco's Actual Knowledge any other party thereto; (C) Delco has neither waived nor released any of its Material rights under any license, sublease or permission; and (D) neither Delco, nor the Shareholders, have received any communication questioning the validity or enforceability of any license, sublicense, or permission. Except as set forth on Schedule 4.14(d), the execution, delivery and consummation of the transactions contemplated by this Agreement shall not constitute a breach or default under, or give rise to a right of termination under or, to the Actual Knowledge of Delco otherwise Materially adversely affect any provision of any of the license, sublicense or permission. 4.15 Litigation. Schedule 4.15 sets forth each instance in which Delco is (a) subject to any unsatisfied judgment order, decree, stipulation, injunction or charge or (b) a party to or, to Delco's Actual Knowledge, is threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing or investigation of or in any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction, or (c) subject to any Product Recall relating to Delco Products since Delco's incorporation. There are no judicial or administrative actions, proceedings or investigations pending or, to Delco's Knowledge excluding for this purpose only all requirements for inquiry other than among the members of the Management Group, the Shareholders and the Trustee, threatened that question the validity of this Agreement or any action taken or to be taken by Delco or the Shareholders in connection with this Agreement or that, if adversely determined, would have a Material adverse effect upon Delco, or the Shareholders' ability to enter into or perform their respective obligations under or contemplated by this Agreement to which any of them is a party. 4.16 Employee Benefits. (a) Schedule 4.16(a) lists each Employee Benefit Plan that Delco maintains with respect to the current or former employees of Delco or to which Delco contributes with respect to any of the current or former employees of Delco. With respect to each such Employee Benefit Plan: (i) such Employee Benefit Plan (and each related trust, insurance contract or fund) complies in form and in operation in all Material respects with the applicable requirements of ERISA, the Code and other applicable Laws; (ii) all required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports and Summary Plan Descriptions) have been filed or distributed appropriately with respect to such Employee Benefit Plan and the requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code have been met with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan; (iii) all contributions (including all employer contributions and employee salary reduction contributions) which are accrued have been paid to each such -24- Employee Benefit Plan which is an Employee Pension Benefit Plan and all contributions for which an accrual is required by GAAP have been made on the books and records of Delco for any period ending on or before the Closing Date which are not yet due have been paid to each such Employee Pension Benefit Plan. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan. There exists no "accumulated funding deficiency," as defined in Code Section 412 and, no funding waiver has been granted by the IRS and no application for a funding waiver exists or is pending. Nothing has occurred or is expected to occur which would cause a Material increase in the cost of providing benefits to each such Employee Benefit Plan; (iv) each such Employee Benefit Plan which is an Employee Pension Benefit Plan meets the requirements of a "qualified plan" under Section 401(a) of the Code or can be amended retroactively to meet such requirements within an applicable remedial amendment period available under the Code and regulations thereunder and has received, within the last five years, a favorable determination letter from the IRS, its related trust has been determined to be exempt from taxation under Section 501(a) of the Code. Nothing has occurred since the date of such favorable determination letter that would have a Material Adverse Effect upon such qualification or exemption that cannot be corrected either by a retroactively effective amendment as to form adopted within the currently available remedial amendment period or pursuant to an Internal Revenue Service program for correction of operational defects; and (v) the Shareholders have made available to the Company correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the IRS, the most recent Form 5500 Annual Reports, the most recent valuation of the ESOP Shares and all related trust agreements, insurance contracts and other funding agreements which implement such Employee Benefit Plan. No Welfare Benefit Plan is self-funded. (b) With respect to each Employee Benefit Plan that Delco maintains or ever has maintained, or to which it contributes, ever has contributed or ever has been required to contribute, there have been any Prohibited Transactions with respect to such Employee Benefit Plan, no fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of such Employee Benefit Plan, and no action, suit, proceeding, hearing or investigation with respect to the administration or the investment of the assets of such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the Actual Knowledge of Delco and the Administrative Committee has been threatened. (c) Except as set forth on Schedule 4.16(c), Delco does not contribute to, has not ever contributed to, or has not ever been required to contribute to any Multi-Employer Plan and does not have any liability (including withdrawal liability) under any Multi-Employer Plan. None of the transactions contemplated by this Agreement or any Company Ancillary Agreement will trigger any withdrawal or termination liability under any Multi-employer Plan set forth on Schedule 4.16(c). Delco has no actual or potential Material liabilities under Title IV of ERISA, including Section 4201 of ERISA for any complete or partial withdrawal from a Multi-Employer Plan. -25- (d) There are no trades or businesses, whether or not incorporated, which, together with Delco, would be deemed to be a "single employer" within the meaning of Section 414(b), (c) or (m) of the Code. There are no "leased employees," as defined in Code Section 414(n) providing services to Delco that must be taken into account with respect to the requirements of Code Section 414(n)(3). (e) Each Employee Benefit Plan, including, but not limited to the ESOP, may be terminated directly or indirectly by Delco, in its sole discretion, at any time before or after the Closing Date in accordance with its terms, without causing Delco to incur any liability to any Person, entity or Government Agency for any conduct, practice or omission of Delco which occurred prior to the Closing Date, or if later, the time of termination. (f) The Administrative Committee is the Administrator described in Section 2.4 of the ESOP and has been duly authorized by Delco to have the full power and authority to administer and operate the ESOP as described in Section 2.6 of the ESOP. The board of directors for Delco has taken all actions it considers necessary or appropriate under the ESOP and the Trust Agreement in order to duly vest the Administrative Committee with the exclusive fiduciary authority and responsibility to enter into the sale hereunder of the ESOP Shares. The Administrative Committee has engaged independent legal and financial advice on behalf of the ESOP in connection with the sale hereunder of the ESOP Shares, completed all actions it considers necessary or appropriate under the ESOP and the Trust Agreement to empower it to bind the ESOP and the Trust to enter into the sale hereunder and upon its consideration of such advice and its taking such actions, and due deliberation, to direct the Trustee to enter into this Agreement and take all actions necessary to consummate the transactions contemplated thereby on behalf of the ESOP. The Trustee, as such, is merely a ministerial and directed Trustee with respect to this Agreement, and the Trustee's representations, covenants, agreements and actions as the ESOP Shareholder under this Agreement are solely as the custodial representative of the ESOP and made under the substantive direction of the Administrative Committee. 4.17 Environmental Matters. (a) At all times on and prior to the Closing Date: (i) Delco and any predecessor entity as so construed under any applicable Environmental Law, is and has been in compliance in all Material respects with all applicable Environmental Laws and Safety Laws; (ii) Delco has obtained, and is and has been in Material compliance with the conditions of, all Environmental Permits required for the continued conduct of the business of Delco in the manner now conducted; (iii) Delco has filed all required applications, notices and other documents necessary to effect the timely renewal or issuance of all Environmental Permits for the continued conduct of the business of Delco in the manner now conducted except where the failure to do so would not be Material; -26- (iv) there are no past or present events, conditions or circumstances related to environmental or health and safety matters that reasonably could be expected to interfere in any Material respect with any Environmental Law or Permit or Safety Law; (v) there are no circumstances or conditions present at or arising out of the present or, to the Knowledge of Delco, former assets, properties, leaseholds, businesses or operations of Delco in respect of off-site storage, transportation or disposal of, or any off-site Release of Hazardous Materials which reasonably could be expected to give rise to any Material Environmental Liabilities and Costs as to Delco; (vi) there are no circumstances or conditions present at or arising out of the present or, to the Knowledge of Delco, former assets, properties, leaseholds, businesses or operations of Delco, including but not limited to any on-site storage, use, disposal or Release of Hazardous Materials, which reasonably may be expected to give rise to any Material Environmental Liabilities and Costs or Material Safety Liability and Costs; (vii) none of Delco, or the Shareholders or the present or past assets, properties, business, leaseholds or operations of Delco has received or been subject to any outstanding order, decree, judgment, complaint, agreement, claim, citation, or notice or is subject to any ongoing judicial or administrative proceeding indicating that Delco or the past and present assets, properties, business, leasehold or operations of Delco are or may be: (A) in Material violation of any Environmental Laws; (B) in Material violation of any Safety Laws; (C) responsible in any Material respect for the on-site or off-site storage or Release of any Hazardous Materials; or, (D) liable for any Material Environmental Liabilities and Costs or Safety Liabilities and Costs; (viii) none of Delco, or the Shareholders have any reason to believe that Delco will become subject to a matter identified in Section 4.17(a)(vii); and, no investigation or review with respect to such matters has been made by Delco or for Delco, and none is pending or, to the Knowledge of Delco, or the Shareholders, threatened, nor has any authority or other third-party indicated an intention to conduct the same; (ix) neither the business of Delco nor any of its properties or assets is subject to, or as a result of the transactions contemplated by this Agreement will be subject to, the requirements of any Environmental Laws which require notice, disclosure, cleanup or approval prior to transfer of the Delco Shares or the business of Delco or which will impose Liens on any such asset or property or otherwise interfere with or in any Material respect affect the business of Delco; (x) Schedule 4.17(a)(x) lists all property presently or previously leased, owned or operated by Delco and identifies all such property (and the area within that property) that has been used by Delco or, to the Knowledge of Delco, by any other Person (including a prior owner or operator) for the storage or disposal of Hazardous Materials); (xi) Schedule 4.17(a)(xi) lists all off-site locations, including, without limitation, commercial waste disposal facilities or municipal landfills, to which -27- or at which Hazardous Materials originating from Delco, or its assets, properties or business have been sent (or otherwise have come to be located) in amounts that would require a waste manifest under the Resource Conservation and Recovery Act of 1976 as now in effect for treatment, storage, disposal, reuse or recycling; (xii) Schedule 4.17(a)(xii) of the Disclosure Schedule sets forth a list of all underground storage tanks owned or operated at any time by Delco and except as disclosed in Schedule 5.17(xii) of the Disclosure Schedule, no such tank is leaking or has leaked at any time in the past, and there is no pollution or contamination of the Environment caused by or contributed to or threatened by a Release of a Hazardous Materials from any such tank; and (xiii) Schedule 4.17(a)(xiii) lists all environmental audits, inspections, assessments, investigations or similar reports in Delco's possession or of which Delco has Actual Knowledge relating to the assets, properties, or business of Delco or the compliance of the same with applicable Environmental Law and Safety Laws. (xiv) Schedule 4.17(a)(xiv) sets forth the nature and quantities of any Hazardous Materials (as defined below) generated, transported or disposed of by Delco during the past three years (other than raw material awaiting manufacturing, work-in-process or finished goods and through the sale of products in the ordinary course of business), together with a description of the location of each such activity; and (xv) Schedule 4.17(a)(xv) sets forth a summary of the nature and quantities of any Hazardous Materials that have been disposed of or found at any site or facility owned or operated presently or at any previous time by Delco (other than raw material awaiting manufacturing, work-in-process or finished goods and through the sale of products in the ordinary course of business). 4.18 Legal Compliance. Except as set forth on Schedule 4.18, Delco has complied in all Material respects with all applicable Laws, and Delco has neither been debarred from bidding on any project for any Governmental Entity nor subject to any debarrment proceedings involving any Governmental Entity. 4.19 Insurance. Schedule 4.19 contains a correct and complete list of all insurance policies pursuant to which Delco is insured as of the Closing Date of this Agreement or, to Delco's knowledge, were insured prior to the date hereof, and no such policies subject Delco to any obligations for retrospective claims or adjustments. 4.20 Bank Accounts and Powers. Schedule 4.20 lists by name, address and account number each bank, trust company, savings institution, brokerage firm, mutual fund or other financial institution with which Delco has an account or safe deposit box and the names and identification of all Persons authorized to draw thereon or to have access thereto. Schedule 4.20 lists the names of each Person holding powers of attorney or agency authority from Delco and a summary of the terms thereof. 4.21 Brokers' Fees. Neither Delco nor the Shareholders have any liability or obligation to pay any fees or commissions to any broker, finder or agent, other than -28- Houlihan Lokey Howard & Zukin Capital, with respect to the transactions contemplated by this Agreement. The full amount specified on Schedule 4.21 due to Houlihan Lokey Howard & Zukin Capital is required to be paid by Delco within three (3) business days following the Closing Date, and there are no other similar obligations for which the Company could become liable or obligated to any Person or for which Delco, after the Closing Date, will have any continuing obligation. The obligation for such fees and commissions, other than reimbursement for documented expenses incurred, is entirely contingent upon the consummation and Closing of the transactions evidenced by this Agreement. 4.22 Equipment. (a) Schedule 4.22(a-1) lists all lease agreements relating to equipment, furniture or trade fixtures leased by Delco. Except as set forth on Schedule 4.22, all equipment, furniture or trade fixtures used or located in the business or operations of Delco is in good working order and repair, reasonable wear and tear excepted, have been operated and maintained in all material respects in accordance with all applicable Laws; and do not require Material repair or replacement in order to serve their intended purposes in all material respects, including use and operation consistent with their present use and operation, except for scheduled maintenance, repairs and replacements conducted or required in the ordinary course of the operation thereof. Delco has not received any written notice from any insurance company that has issued a policy to Delco with respect to any of its equipment, including trade fixtures, requiring the performance of any structural or other repairs or alterations to such property. (b) Schedule 4.22(b-1) lists all personal property owned by Delco. Except as listed on Schedule 4.22(b-2) all personal property used in connection with or in furtherance of Delco's business or operations is listed on Schedule 4.22(b-1) and is the property of Delco subject to any leases identified in Schedule 4.22(a-1). 4.23 Product Warranties and Liabilities. Schedule 4.23 sets forth all Warranties given or made by Delco. Delco has not extended or granted any return rights or given or made any Warranties with respect to any Products sold or services performed by it, except for those set forth in Schedule 4.23. None of the customers of Delco has claimed to Delco or to any of Delco's suppliers, that Delco's Products are defective. To Delco's Knowledge, no Products have been shipped by Delco in a condition that such products might reasonably be expected to be returned by the customer, or of any intention on the part of any customer to return any of Delco's Products, except returns by customers in the ordinary course of business and consistent with the return policies and which, in any event, are not expected to be Material in amount. Delco has never received nor been subject to any claim, and to Delco's Knowledge, Delco has no knowledge of any fact or of the ocurrence of any event forming the basis of any present or future claim against Delco, whether or not fully covered by insurance, for liability on account of negligence or product liability or on account of any Warranties. 4.24 Aerospace Records. Delco has maintained complete and accurate records relating to all Products as required by all applicable Contracts or applicable Laws. -29- 4.25 Securities Law Compliance. (a) In connection with the issuance of the BE Stock as of the Closing, the Shareholders have been advised and understand and agree that the issuance by the Company to the Shareholders of the BE Stock will not be registered under the Securities Act, nor qualified under any state securities laws before the Closing, on the ground (among others) that no distribution or public offering of the BE Stock is to be effected in connection with the issuance to such Shareholder as contemplated herein and, in issuing the BE Stock to such Shareholders hereunder, the Company is relying on the accuracy and completeness of the representations of the Shareholders set forth in this Section 4.25(a). (b) Each Shareholder is acquiring the BE Stock for the Shareholder's own accounts, for investment and not with a view to distribution or resale thereof except as might be required by ERISA, the Shareholder's only present intention to sell the BE Stock would be pursuant to an effective registration and qualification under applicable federal and states securities law. (c) Each Shareholder acknowledges that he, she or it has been informed and understands that the BE Stock may not be sold or transferred except in compliance with the Securities Act or any exemption thereunder, and there is no assurance that any exemption from registration, including Rule 144, under the Securities Act will become available to permit resales of the BE Stock. This acknowledgement does not limit or constitute a waiver of the Company's obligation set forth in Section 7.5. (d) Each Shareholder (i) is familiar with the business of the Company, (ii) has had an opportunity to discuss with representatives of the Company the conditions of and prospects for the continued operation of the Company and such other matters as the Shareholder deemed appropriate in considering whether to invest in the BE Stock, and (iii) have been provided access to all publicly available information about the Company requested by the Shareholder. (e) Each Shareholder has made his, her, or its own investigation whether or not to respectively exchange the Delco Shares for the BE Stock and each Shareholder has sufficient business and financial experience so as to enable him, her or it to evaluate the merits and risks associated with the BE Stock and the transactions contemplated by this Agreement. (f) Except as may be required by ERISA, each Shareholder is able to bear the economic risk of a total loss of the investment in the Company. (g) Each Shareholder acknowledges and agrees that the certificates representing the BE Stock shall contain a restrictive legend substantially in the form below: -30- THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. (h) Each Shareholder is an accredited investor, and sophisticated, as defined under Section 501(a) of Regulation D promulgated under the Securities Act, except as set forth in Schedule 4.25(h). (i) Nothing herein is intended to limit or contravene the registration rights of the Shareholders pursuant to Sections 2 and 7.5 in this Agreement. 4.26 Permits and Licenses. Set forth in Schedule 4.26(a-1) are the Permits, licenses, franchises and other authorizations Materially necessary for the conduct of Delco's business as currently conducted. Except as set forth in Schedule 4.26(a-2), all such Permits, licenses, franchises and authorizations identified on Schedule 4.26(a-1), are valid and in full force and effect in all Material respects and the business is in compliance in all Material respects with the terms and conditions of such Permits. 4.27 Claims Matters. Schedule 4.27 contains a reasonably detailed description of the history of the experience of Delco's business during the two (2) years ending on the date hereof with respect to (i) product liability claims and general liability claims exceeding $25,000, and (ii) all workers' compensation claims. 4.28 Related Party Transactions. Except as set forth and described on Schedule 4.28, none of the Shareholders, and none of their relatives who reside with or are dependents of either Shareholder or any Affiliates thereof, has outstanding any indebtedness to Delco or to any director, officer or employee of Delco or the ESOP. Except as set forth and described on Schedule 4.28, neither Delco nor any director, officer or employee of Delco nor the ESOP has outstanding any indebtedness to a Shareholder, any relative of a Shareholder or any Affiliates thereof. Except as described on Schedule 4.28, neither the Shareholders nor any officer, director or employee of Delco, and none of their relatives or Affiliates, owns any interest in any competitor, lessor, lessee or customer or supplier of Delco; and each of Delco and the ESOP is not a party to any transaction or arrangement with any of the Shareholders or with any of Delco's respective officers, directors, employees, Shareholders, or any relative or Affiliate of any of them, which relates to or affects the ownership, lease or use or disposition of any assets, properties or the operations of Delco or the sale, lease or use of goods or services, or the loan of money or any extension of credit or guaranty, by or to Delco, other than the payment of wages, salaries and normal bonuses to employees of Delco for services performed in the ordinary course of business. Except as disclosed in the Financial Statements or described on Schedule 4.28, none of the assets or properties -31- of Delco include any receivables or contract rights from, or notes payable to or evidences of indebtedness of any of the Shareholders or any of the officers, directors or employees of Delco or any relative or Affiliate of any of them. Each item listed on Schedule 4.28 is a valid, binding and enforceable obligation of Delco, and to Delco's Actual Knowledge, of the other party or parties thereto and is in full force and effect. Except as set forth on Schedule 4.28(a), (i) neither Delco nor, to Delco's Actual Knowledge any other party thereto, is in Material breach of any term of any such item or has repudiated any term of any such item; (ii) no event, occurrence or condition exists that, with the lapse of time, the giving of notice, or both, would become a Material default under any item by Delco, or, to Delco's Actual Knowledge, any other party thereto; (iii) Delco has neither waived nor released any of its Material rights under any such item; and (iv) neither Delco, nor the Shareholders, have received any communication questioning the validity or enforceability of any such item. Except as set forth on Schedule 4.28(a), the execution, delivery and consummation of the transactions contemplated by this Agreement shall not constitute a breach or default under, or give rise to a right of termination under or, to the Actual Knowledge of Delco otherwise Materially adversely affect any provision of any such item. 4.29 Full Disclosure. The representations and warranties of the Shareholders contained in this Agreement do not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein, taken as a whole, not materially misleading. There is no fact that the Shareholders have not disclosed to the Company in writing that the Shareholders believe has or will have a Material Adverse Effect on Delco or a Material Adverse Effect on the ability of Delco, or the Shareholders to perform this Agreement. 4.30 Minute Books. Delco's minute books contain complete and accurate records in all material respects of all meetings and other corporate actions of its shareholders and board of directors and committees thereof. 4.31 Government Contracts. Except as set forth on Schedule 4.31, Delco has not been and is not a party to any Contract with a Governmental Entity. 4.32 Inventory. Except as set forth on Schedule 4.32, all Inventories are stored at the principal manufacturing facility of Delco. Except as set forth on Schedule 4.32, as of the Closing Date Delco owns free of any Liens all Inventory at its manufacturing facility, and all Inventory in process at third parties' facilities. 4.33 Organization, Authority and Qualification of the ESOP. The ESOP has full power and authority under the terms of the ESOP and the Trust Agreement signed August 28, 1996 (the "Trust Agreement"), to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the ESOP and constitutes the legal, valid and binding obligation of the ESOP, enforceable against the ESOP in accordance with its terms, except as the same may be limited by ERISA. Except as set forth in the preceding sentence, the ESOP constitutes in all material respects an "eligible individual account plan" within the -32- meaning of Section 407(d)(3) of ERISA and is, in form, an "employee stock ownership plan" within the meaning of Section 4975(e)(7) of the Code and Section 407(d)(6) of ERISA and, in form, qualifies under Section 401(a) of the Code, except as such form may be retroactively amended to so qualify without Material Adverse Effect upon such qualification. The Trust has been duly constituted in accordance with valid and binding trust instruments, is validly existing and, in form, qualifies under Section 501(a) of the Code, except as such form may be retroactively amended to so qualify without Material Adverse Effect upon such qualifications. Except as set forth in the preceding two sentences, the execution, delivery and performance of this Agreement and the Escrow Agreement and the consummation of the transactions contemplated by the parties hereto do not require the consent or approval of, or filing with, any person or public authority, constitute or result in the breach of any provision of, or constitute a default under the ESOP, the Trust Agreement or any agreement indenture or other instrument to which the ESOP is a party or by which it or its assets may be bound, or will not constitute a violation of, or give rise to any liability under any law, regulation, judgment or order binding upon the ESOP, including, but not limited to Title I of ERISA or Section 4975 of the Code. 4.34 Ownership of the Shares. The ESOP Delco Shares are owned of record and beneficially solely by the ESOP free and clear of all Encumbrances. Upon consummation of the transactions contemplated by this Agreement and registration of the ESOP Shares in the name of the Company in the stock records of Delco, the Company, assuming it shall have purchased the ESOP Shares for value in good faith and without notice of any adverse claim, will own the ESOP Shares free and clear of all encumbrances. Neither the ESOP nor the Trustee is a party to any voting trust, stockholder agreement, proxy or other agreement or understanding in effect with respect to the voting or transfer of any shares of Common Stock. The Administrative Committee for the ESOP represents and warrants that Delco has waived its right of first refusal in accordance with the legend on the ESOP Shares in accordance with the laws of the State of Delaware, ERISA, the Code and any other applicable federal or state statute, and such waiver is valid and binding upon the Trustee, the Participants, the Beneficiaries, the ESOP, the Trust and Delco, and is in accordance with the terms and conditions of the ESOP and the Trust Agreement and such waiver is consistent with the execution, delivery and performance of this Agreement and the Escrow Agreement and the consummation of the transactions contemplated by the parties hereto. The Administrative Committee further represents and warrants that it has obtained any and all approvals necessary or appropriate for the execution, delivery and performance of this Agreement and the Escrow Agreement and the consummation of the transactions contemplated by the parties hereto, of the Participants and Beneficiaries. 4.35 Fairness Determination. The ESOP, the Administrative Committee and the Trustee have received an opinion (the "Opinion") from Willamette Management Associates, the independent financial advisor for the fiduciaries of the ESOP, as of the Closing Date, that the Purchase Price is not less than the fair market value of the ESOP Shares, as fair market value would be determined by arm's length negotiations between independent parties, and that the transactions contemplated hereby are fair to the ESOP -33- from a financial point of view. The Administrative Committee has determined to its satisfaction that its financial advisor is independent and has rendered the Opinion in good faith. It has further consulted its own legal counsel and considered the basis and reasoning set forth in the Opinion and all other facts and circumstances it deems relevant. Upon due deliberation and based upon the Opinion, the Administrative Committee has determined that the transactions contemplated by this Agreement are in the best interests of the Participants and Beneficiaries, and consequently, in accordance with the applicable ESOP documents, as amended. Based upon the foregoing, the Administrative Committee has authorized and directed the Trustee to enter into this Agreement. 4.36 Conduct of Business. (a) Notices and Consents. The Shareholders have given, or caused Delco to give, all notices to third parties that are required by the Shareholders or Delco as contemplated by this Agreement, and have made all further filings pursuant thereto that may be necessary, proper or advisable. (b) Conduct Business in Regular Course. Since February 2, 2001, the Shareholders have caused Delco to maintain its owned and leased properties used or held for use in its business in good operating condition and repair in the ordinary course of Business and to make all necessary renewals, additions and replacements thereto, reasonable wear and tear excepted, and Delco has carried on its operations substantially in the same manner as heretofore conducted and Delco has not made or instituted any unusual or novel methods of purchase, sale, lease, management, accounting or operation. (c) No General Increases. Since February 2, 2001, (i) Delco has not granted any general or uniform increase in the rates of pay of employees of Delco, nor granted any general or uniform increase in the benefits under any bonus or pension plan or other contract or commitment, and (ii) Delco has not increased the compensation payable or to become payable to officers, salaried employees or agents of Delco, or increased any bonus, insurance, pension or other benefit plan, payment or arrangement made to, for or with any such officers, salaried employees or agents. (d) Contracts and Commitments. Since February 2, 2001, Delco has not tendered any bid, entered into any Contract or commitment or engaged in any transaction, including any Contract, commitment or engagement with the Shareholders or any division, unit or Affiliate of the Shareholders, or effected any change to any program, except in the Ordinary Course of Business. (e) Dividends and Distributions. Except as set forth in Schedule 4.36(e), Delco has not declared or paid any dividend or distribution with respect to its capital stock or to repurchase, redeem or otherwise acquire for value any shares of its capital stock from and after December 31, 2000. (f) Sale of Capital Assets. Since February 2, 2001, Delco has not sold or otherwise disposed of any of its capital assets. (g) Debt Obligations.All amounts of indebtedness of Felix Jakobi to Delco have been forgiven prior to the Closing Date. Delco and Felix Jakobi shall treat -34- this forgiveness as consulting compensation or bonus for tax purposes. Delco has complied with any applicable withholding obligations in respect thereof. There is no indebtedness owed to Delco by any Shareholder, other than members in the Management Group. (h) Trade Name. Delco Machine & Gear, Inc. has sold, assigned and transferred to Delco all right, title and interest in the mark and name "Delco Machine and Gear," and all derivations thereof, and any right, claim or interest in any contract or arrangement related to Delco's business entered into in the name Delco Machine & Gear or any similar or derivative name. (i) Freeze of Benefits under ESOP. Delco has taken all action necessary or appropriate to effect a freeze of the accrual of all benefits under the ESOP in accordance with the terms of the ESOP and Delco has contributed all amounts, if any, that represent accrued benefits under Code Section 412 through the date benefits under the ESOP are frozen. Delco has provided the Participants and Beneficiaries any and all notice it deems required or appropriate to effect such freeze. 4.37 Reimbursements. Delco employees have been requested to submit substantially all expense reimbursement requests for purposes of payment in the ordinary course and within a reasonable time, prior to the Closing Date, and Delco shall pay or accrue amounts due, applying standards of documentation and approval consistent with past practice prior to Closing. 4.38 Funding Plans in Full. As of immediately prior to the Closing Date, Delco shall have responsibility to pay in full any otherwise eligible claims of Delco, its employees or its Affiliates under the Employee Benefit Plans owed prior to the Closing Date but which have not been paid prior to the Closing Date. Section 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Shareholders that the statements contained in this Section 5 are correct and complete as of the Closing Date of this Agreement. 5.1 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 5.2 Authorization of Transaction. The Company has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. All corporate and other actions or proceedings to be taken by or on the part of the Company to authorize and permit the execution and delivery by the Company of this Agreement and the respective instruments required to be executed and delivered by the Company pursuant hereto, the performance by the Company of their respective obligations hereunder, and the consummation by the Company of the transactions contemplated herein, have been duly and properly taken. This Agreement has been duly executed and delivered by the Company and constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms and conditions, except to the extent that enforceability may be limited by -35- bankruptcy, insolvency and other similar Laws affecting the enforcement of creditors' rights generally. 5.3 Noncontravention: Consents. Neither the execution and the delivery of this Agreement, nor the consummation by the Company of the transactions contemplated hereby will (i) violate any Law or other restriction of any Governmental Entity to which the Company is subject or any provision of its charter or bylaws or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement to which the Company is a party or by which it is bound or to which any of their assets are subject. The Company does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Entity in order for the parties to consummate the transactions contemplated by this Agreement, except for such filings as may be required to comply with all applicable securities laws. 5.4 Brokers' Fees. The Company has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Shareholders could become liable or obligated, except to the extent the Company is obligated to pay underwriter discounts and commission with respect to sale of BE Stock for certain Persons. 5.5 Investment Intent. The Company is acquiring the Delco Shares for its own account and not with a view to their distribution within the meaning of ss. 2(11) of the Securities Act. 5.6 Status of BE Stock. When issued to the Shareholders, the shares of BE Stock, so issued will be duly authorized, validly issued, fully paid and nonassessable and free and clear of any Liens other than normal restrictions under federal or state securities law. 5.7 Information Concerning Company. The Company's Annual Report on Form 10-K for its fiscal year ended February 2000 (the "10-K"), the Company's Quarterly Report on Form 10-Q for the quarter ended November 25, 2000 (the "10-Q"), each as filed with the SEC, copies of which have been furnished to the Shareholders, as of its respective filing dates did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, under the circumstances in which they were made, not misleading. 5.8 Capitalization of Company. The authorized BE Stock consists of 50,000,000 authorized shares at $.01 par value per share. Each holder of BE Stock is entitled to one vote per share of BE Stock owned by such holder. As of February 23, 2001, there were issued and outstanding 26,003,203 shares of BE Stock. The authorized Preferred Stock of the Company consists of 1,000,000 shares, all of which is unissued. Section 6. TAXES. -36- 6.1 Tax Returns; Audits. (a) (i) The Shareholders' Representative shall be responsible for preparing or causing to be prepared, at the Shareholders' expense, Delco's federal income tax return on Form 1120S and comparable state and local income and franchise tax returns (each, an "S Period Return") for Delco's taxable year ending on the day preceding the Closing Date (collectively, the "Final S Period Tax Returns") and all other income Tax Returns (together with the Final S Period Returns, the "Pre-Closing Period Returns") of Delco for any taxable period ending on or before the day preceding the Closing Date (the "Pre-Closing Periods"). Such Tax Returns shall be prepared in a manner consistent with applicable Tax Laws consistent with prior practice. Following the Closing Date, the Company shall cause Delco to cooperate in the preparation and filing of such Tax Returns (including providing Shareholders with access to all information reasonably requested by the Shareholders in connection with the preparation of such Tax Returns). (ii) The Shareholders shall be jointly and severally responsible for the payment of all Taxes imposed on Delco in respect of the Pre-Closing Periods, and in respect of any Taxes that are not subject to the "closing-the-books" method. The Shareholders shall jointly and severally be responsible for such Taxes on a prorated basis for the portion of any taxable period commencing on or before the day preceding the Closing Date and ending after the day preceding the Closing Date determined in accordance with subsection (a)(iv) below. (iii) In connection with the preparation of the Final S Period Tax Returns, the Shareholders' Representative shall use his best efforts to cause the accountants selected by him to deliver a draft of each Final S Period Tax Return to the Company within a reasonable period of time, at least 30 days before its due date (considering valid extensions), so that the Company may be able to review and comment on each Final S Period Tax Return prior to the due date (including extension, if any) for filing such Tax Returns. If the Company agrees with the information in the Final S Period Tax Returns, the Company will cause the appropriate officers of Delco to sign and file such returns with the applicable taxing authority as prepared by the accountants selected by the Shareholders' Representative within ten (10) business days, if reasonably practicable. In the event that the Company disputes or questions any item in a Final S Period Tax Return, the Company shall use its commercially reasonable efforts to provide to the Shareholders' Representative and the accountant its comments on, and proposed changes to, the draft of each disputed Final S Period Tax Return within a reasonable period of time, for this purpose ten (10) days being deemed reasonable, so that the Shareholders' Representative may be able to review and comment on such proposed changes prior to the due date (including extensions, if any) of such Tax Return. If any aspect of any Final S Period Tax Return remains in dispute within 20 days before the due date (including extensions, if any) for filing such Tax Return, the matter in dispute shall be submitted to a mutually acceptable accounting firm for resolution. The decision of the accounting firm concerning any disputed item shall be final and binding on the parties and the fees and expenses of the accounting firm shall be paid by the non-prevailing party. After any dispute is resolved by the mutually acceptable accounting firm, the -37- Company will cause the appropriate officers of Delco to sign and file the Final S Period Tax Returns (as resolved) with the applicable taxing authority. (iv) Items to be taken into account for the taxable year beginning on January 1, 2001 and ending on the date immediately preceding the Closing Date shall be determined using the "closing-the-books" method as described in Section 1362(e)(3) of the Code and the regulations thereunder, and the Company and the Shareholders agree to make an election, if necessary, under Section 1362(e)(3) of the Code. In any case where applicable Law does not permit Delco to close its taxable year on the day preceding the Closing Date, then Taxes, if any, attributable to the taxable period of Delco beginning on or before the day preceding the Closing Date and ending after the day preceding the Closing Date shall be allocated between (A) the period up to and including the day preceding the Closing Date, and (B) the period on and subsequent to the Closing Date by a method that is consistent with the "closing-the-books" method under Section 1362(e)(3) of the Code and the regulations thereunder. (v) The Company shall not amend, re-file or otherwise modify any Pre-Closing Period Return of Delco without the consent of the Shareholders' Representative, which shall not be withheld or delayed unreasonably. To the extent that a Pre-Closing Period Return of Delco needs to be amended, the Shareholders' Representative shall use his best efforts to cause the accounting firm that prepared the original return on behalf of Delco to prepare such amendment. In connection with the preparation of such amendment, the Shareholders' Representative shall use his best efforts to cause the accountants selected by him to deliver a draft of the amendment to the Company within a reasonable period of time so that the Company may be able to review and comment on the amendment prior to the intended date for filing (or due date, if any, including extensions, if any) such Tax Returns. If the Company agrees with the information in the amendment, the Company will within ten (10) business days cause the appropriate officers of Delco to sign and file such amendment with the applicable taxing authority as prepared by the accountants selected by the Shareholders' Representative. In the event that the Company disputes or questions any item in the amendment, the Company shall use its commercially reasonable efforts to provide to the Shareholders' Representative and the accountant its comments on, and proposed changes to, the draft of the amendment within a reasonable period of time, for this purpose ten (10) days being deemed reasonable, and the Shareholders' Representative may review and comment on such proposed changes prior to the due date (including extensions, if any) of such Tax Return. If any aspect of the amendment remains in dispute within 20 days before the due date (including extensions, if any) for filing such amendment, the matter in dispute shall be submitted to a mutually acceptable accounting firm for resolution. The decision of the accounting firm concerning any disputed item shall be final and binding on the parties and the fees and expenses of the accounting firm shall be paid by the non-prevailing party. After any dispute is resolved by the mutually acceptable accounting firm, the Company will cause the appropriate officers of Delco to sign and file the amendment (as resolved) with the applicable taxing authority. -38- (vi) If the Company or Delco receives a refund, credit or reduction of Taxes on Delco attributable to a Pre-Closing Period, the recipient promptly shall reimburse the Shareholders for such refund, credit or reduction of Tax. If the Shareholders receive a refund, credit or reduction of Taxes attributable to a Pre-Closing Period, the Shareholders shall hold in trust for the benefit of the Company, and shall promptly reimburse the Company for, such refund, credit or reduction or Tax if, and only to the extent that, the receipt thereof is a direct or indirect result of any additional Taxes on Delco attributable to invalidating Delco's S election in a Pre-Closing Period or any additional Taxes on Delco attributable to a post-Closing period, and such amount reimbursed shall be applied to reduce Losses incurred by the Company on a dollar for dollar basis. (b) Except as provided in Section 6.1, following the Closing Date, Delco or its Affiliates shall be responsible for preparing or causing to be prepared all Tax Returns required to be filed by Delco for taxable periods beginning on or after the Closing Date. (c) In the event that, following the Closing Date, any Governmental Entity notifies the Company or Delco or any Affiliate thereof of its intention to audit, assess, examine or otherwise review (collectively, "Audit") an S Period Return of Delco, the Company shall promptly notify the Shareholder's Representative of the receipt of such notice. The Company shall cooperate and provide or cause Delco to cooperate and provide the Shareholder's Representative with access to such records and personnel of Delco as the Shareholder's Representative determine may be necessary in connection with the conduct of such Audit or any administrative or judicial proceeding in respect thereof. Each of the parties promptly shall provide the others concerning any audit with copies of all correspondence, notices and other written materials received from any Governmental Entity. (d) (i) The Company or Delco will promptly notify the Shareholder's Representative in writing of the commencement of any claim, Audit, or other proposed change or adjustment by any taxing authority concerning any Tax period ending on or prior to the Closing Date. (ii) The Shareholders, through the Shareholder's Representative, shall have the right to represent Delco's interests in any Tax Audit or administrative or court proceeding relating to any Pre-Closing Periods and to employ counsel of its choice at its sole expense; provided that (A) if the results of such Audit or proceeding (i) involves an issue that recurs for a taxable period of Delco beginning after the Closing Date (whether or not such subsequent taxable period is the subject of such Audit or proceeding at such time), (ii) would be binding on the Company or Delco for any taxable period beginning on or after the Closing Date, or (iii) would Materially and detrimentally affect the Tax liability of Delco for a taxable period beginning on or after the Closing Date, then the Shareholder's Representative, on behalf of the Shareholders, shall not enter into a settlement or closing or other agreement with respect thereto without the consent of the Company, which consent shall not be unreasonably withheld, and (B) -39- if the Tax Claim involves an adjustment or issue which will produce a Tax for which the Company or Delco will be liable, the Company shall be entitled to jointly control with the Shareholder's Representative such adjustment or issue in the Audit or proceeding, and neither the Shareholder's Representative nor the Company shall enter into a settlement or closing or other agreement with respect to such issue or adjustment without the consent of the other party, which consent shall not be unreasonably withheld. (iii) With respect to any taxable period of Delco beginning before and ending after the Closing Date, the Company and the Shareholder's Representative shall jointly control the defense and settlement of any Tax audit or administrative or court proceeding and each party shall cooperate with the other party at their own expense and there shall be no settlement or closing or other agreement with respect thereto without the consent of the other party, which consent will not be unreasonably withheld. 6.2 Cooperation and Exchange of Information. The Shareholders and the Company will provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return, amended Tax Return or claim for refund, determining a liability for Taxes or a right to a refund of Taxes, participating in or conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of relevant Tax Returns of Delco or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by Tax authorities. The Company shall retain all Tax Returns, schedules and work papers, records and other documents ("Tax Materials") of Delco for each taxable period ending before the Closing Date and for all prior taxable periods until the later of (i) the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, (ii) 6 years following the due date (without extension) for such Tax Returns, or (iii) the completion of all legal proceedings (if any) relating to any such Tax Return. 6.3. Exchange of Shares and Related Taxes. (a) The Shareholders and the Company shall reflect the sale of the Delco Shares for all Tax and other filing and reporting purposes as a taxable sale consistent with the terms of this Agreement without any disclosure pursuant to Section 6662 or 6111 of the Code. Each of the Shareholders has had an opportunity to seek and obtain its own legal and tax advice, and whether or not such advice was sought, has determined the tax treatment of the transactions without reliance upon anything that the Company or its representatives may have said or done. None of the Shareholders shall make any claim against the Company or Delco on account of the Shareholder's Tax treatment of the transactions contemplated by this Agreement or the Taxes on the Shareholders or other Persons that may arise from such transactions. (b) The obligations of the parties set forth in this Agreement relating to Taxes shall, except as otherwise agreed in writing, be unconditional and absolute and shall remain in effect without limitation as to time or amount of recovery by the Company, Delco and the Shareholders. -40- (c) There shall be withheld by Company, Delco and/or Escrow Agent from any amount payable to Shareholders hereunder such amounts as may be required to be withheld under applicable Law. (d) The Shareholders shall be liable for, shall hold Delco and the Company harmless against, and agree to pay on a timely basis all income, sales, transfer, stamp, value added, use, real property transfer and similar Taxes incurred by Shareholders or Delco in connection with the transactions contemplated by this Agreement, for all tax periods ending on the day before the Closing, and for the portion of any tax period prior to the Closing. 6.4 Timely Filing of Tax Returns. The Shareholders' Representative and Delco shall use commercially reasonable efforts to expedite the preparation of the Final S Corporation Returns, as well as any other Pre-Closing Period Returns, and cause the filing thereof at the earliest practicable date, which in no event shall be later than 113 days after the Closing Date. Section 7. POST-CLOSING COVENANTS. The parties agree as follows with respect to the period following the Closing Date. 7.1 General. In case at any time after the Closing Date any further action is necessary or desirable to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as the other party reasonably may request, at the sole cost and expense of the requesting party (unless the requesting party is entitled to indemnification therefor under Section 10). Upon the Closing Date, and except for this Agreement, the customary accruals of benefits due employees, other matters specifically disclosed in the Disclosure Schedule as a Delco obligation, the Non-Compete Agreements and the Employee Offers dated March 2, 2001, between Delco and certain members of the Management Group, the Shareholders and each of them, hereby waive and release all rights, claims, debts, contracts, actions or causes of action, known or unknown, which such party has or might have against Delco, its related entities and its officers, directors, employees, agents, insurers, representatives, successors and assigns, including, without limitation, any that arise from any relationship as shareholder, director, officer, employee, agent or otherwise. It is the clear and unequivocal intention of each of the Shareholders in executing this Agreement that it shall be effective as a full and final accord and satisfaction, release, and discharge of each and every claim specifically or generally referred to in the preceding sentence. In furtherance of said intention, each releasing Shareholder hereto hereby acknowledges that it understands Section 1542 of the Civil Code of the State of California, which provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR -41- SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED THE SETTLEMENT WITH THE DEBTOR." Each releasing Shareholder hereby waives and relinquishes any and all rights and benefits which it has or may have under Section 1542 of the Civil Code of the State of California, and under any and all similar provisions contained in the law of any and all other jurisdictions, within and without the United States, to the full extent that it may lawfully so waive all such rights and benefits pertaining to the subject matter of the releases contained in this Agreement. 7.2 Litigation Support. In the event and for so long as any party is actively contesting or defending against any charge, complaint, action, audit, suit, proceeding, hearing, investigation, claim or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction on or prior to the Closing Date involving Delco, the other party will provide its reasonable cooperation to the contesting or defending party and its counsel in the contest or defense, make available its personnel, and provide such testimony and access to its books and records as may be necessary in connection with the contest or defense, at the sole cost and expense of the contesting or defending party (unless the contesting or defending party is entitled to indemnification therefor under Section 10). 7.3 Confidential Information and Non-Competition. (a) Confidential Information. From the date hereof until the Closing Date and for a period of five years thereafter, commencing on the Closing Date, the Shareholders and the Trustee will treat and hold as such, and will not use for the benefit of themselves or others, any Confidential Information. In the event the Shareholders or any of their respective Affiliates are requested or required (by oral request or written request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, then the relevant Shareholder(s) will notify the Company promptly in writing of the request or requirement so that the Company may seek an appropriate protective order or waive compliance with this Section 7.3. If, in the absence of a protective order or receipt of a waiver hereunder, the Shareholders are, on the advice of outside counsel, compelled to disclose any Confidential Information to any Governmental Entity or else stand liable for contempt, then the Shareholders may disclose such Confidential Information to such Governmental Entity, provided, that the Shareholders will use its reasonable best efforts to obtain at the request of the Company an order or other assurance that confidential treatment will be accorded to such Confidential Information. (b) Non-Competition. Each member of the Management Group agrees, for the period of time following the Closing Date set forth in their respective Non-Compete Agreements, he shall not, after the Closing Date, compete with, or make -42- preparations to compete as provided in the applicable Non-Compete Agreement, each of which is incorporated herein by reference. (c) Except as provided otherwise with respect to Felix Jakobi, David Timmerman, Nick Campanelli, and Del Warren in the applicable Non-Compete Agreement, each of the Shareholders further agrees that for a period of five (5) years after the Closing Date, each such Shareholder will not directly or indirectly, without the prior written consent of Company, recruit, offer employment, employ, engage as a consultant, lure or entice away or in any other manner persuade or attempt to persuade any person who is an employee of Delco to leave such employment. (d) In the event of a breach, or facts indicating the likelihood of a breach, by any Shareholder of the provisions of this Section 7.3, Company and Delco shall be entitled to a temporary restraining order and an injunction restraining such Shareholder from committing any such breach. Nothing herein shall be construed as prohibiting the Company or Delco from pursuing any other remedies available to it for such actual or threatened breach, including, without limitation, the recovery of damages. If it is determined that any Shareholder has violated any of the covenants in this Section 7.3, the term of any such covenant violated shall be automatically extended for the period of time of the violation either from the date on which such Shareholder ceases such violation or from the date of the entry by a court of competent jurisdiction of an order or judgment enforcing such covenant, whichever period is later. 7.4 Post-Closing Receipts. In the event that either party after the Closing Date receives any funds properly belonging to the other party in accordance with the terms of this Agreement, the receiving party will promptly so advise such other party, will segregate and hold such funds in trust for the benefit of such other party and will promptly deliver such funds, together with any interest earned thereon, to an account or accounts designated in writing by such other party. 7.5 Registration Rights. (a) General. Within 15 days of the Closing, the Company shall file (and shall use its commercially reasonable efforts to cause to become effective as soon as practicable thereafter) a registration statement on Form S-3 under the Securities Act, covering the Registrable Securities, which registration statement shall be kept in effect in the manner and for the period specified in Section 7.5(c)(ii). As used herein, the term "Registrable Securities" shall mean (a) the BE Stock at any time outstanding and that are owned by any of the Shareholders or by other Persons granted similar rights as provided in this Section 7.5, (b) any shares of common stock or other securities issued as (or issuable upon the conversion or exercise of any warrant, right, class of common stock or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Company generally for, or in replacement by the Company generally of, such BE Stock, and (c) any securities issued in exchange for such BE Stock in any merger or reorganization of the Company; provided, however, that once issued, such BE Stock and other securities shall cease to be -43- Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been sold pursuant to Rule 144 or shall no longer be subject to restriction on resale due to the termination of the holding period requirements (as in effect from time to time) of Rule 144, or (iii) they shall have ceased to be outstanding. The Shareholders and the Escrow Agent shall be required to sell as many shares of BE Stock in the Public Offering (defined as the Company's registering any BE Stock for its own or others' account under the Securities Act for a public offering as the underwriter(s) and the Company shall request, up to the entire amount of BE Stock received by them in connection with the transactions contemplated hereby (including shares held in escrow pursuant to the arrangements described in Section 2.4 hereof). The Public Offering will comply with the prospectus delivery requirements of the Securities Act with respect to any registration statement filed pursuant to this Agreement. Each Shareholder agrees to make customary representations and warranties to the Company and the underwriters or distributors, if any, in form, substance and scope as are customarily made as to ownership of stock by selling stockholders in underwritten public offerings, but each Shareholder shall not be required to make any representation or warranty as to the accuracy or completeness of the registration statement (except as to written information furnished to the Company by such Shareholder expressly for use therein). (b) Expenses. The Company shall pay all expenses incident to the Company's performance of or compliance with its obligations under this Section 7.5 to effect the registration of Registrable Securities required hereunder, including, without limitation, all registration, filing, securities exchange listing and NASDAQ fees, all registration, filing, qualification and other fees and expenses of complying with federal, state and other securities or blue sky laws, all word processing, duplicating and printing expenses, messenger, shipping, telephone and delivery expenses, the fees and disbursement of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, and fees and expenses of other Persons retained by the Company in connection with the registration of the Registrable Securities but excluding any legal fees and expenses of counsel retained by the holders of the Registrable Securities being registered (with the sole exception of the fees for special counsel to the holders of all Registrable Securities selected by a majority in interest thereof, up to a maximum of $10,000), and further excluding any underwriting discounts and commissions and transfer taxes, if any, in respect of Registrable Securities, which discounts, commissions and taxes in respect of Registrable Securities shall be payable by the holders thereof (in the case of an underwritten offering and the underwriter's discounts, commissions, or re-allowances pro rata among such holders in proportion to the number of Registrable Securities being sold by them). -44- (c) Further Obligations. The Company shall: (i) prepare, and file with the SEC, the registration statement on Form S-3 to effect such registration (including such audited financial statements as may be required by the Securities Act) and use commercially reasonable efforts to cause such registration statement to become effective in the time frame outlined in Section 7.5(a). (ii) prepare, and file with the SEC, such amendments and supplements to the registration statement referred to above and any prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply in all material respects with the requirements of the Securities Act with respect to the disposition of all Registrable Securities included in such registration statement, in accordance with the intended methods of disposition thereof, until the earlier of (A) such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or Shareholders thereof set forth in such registration statement or (B) with respect to any registration statement filed pursuant to Section 7.5, the date one hundred twenty (120) days from the Closing Date. (iii) enter into an underwriting agreement in customary form and on customary terms with an underwriter of national stature selected by the Company and promptly notify in writing each holder of Registrable Securities and the underwriter or underwriters, if any: (A) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with respect to such registration statement or any post-effective amendment thereto, when the same has become effective; (B) of any written request by the SEC or any other regulatory body or other body having jurisdiction over the securities for amendments or supplements to such registration statement or prospectus or for supplemental information; (C) of the notification to the Company by the SEC of its initiation of any proceeding with respect to the issuance by the SEC of any stop order suspending the effectiveness of such registration statement; and (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction; (iv) furnish to each holder of Registrable Securities included in the registration statement such number of conformed copies of the registration statement and of each amendment and supplement thereto (in each case including all exhibits and documents incorporated by reference), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any prospectus supplement) and any other prospectus filed under Rule 424 promulgated under the Securities Act relating to such holder's Registrable Securities, and such other documents, as such seller may reasonably request to facilitate the disposition of such holder's Registrable Securities; -45- (v) use commercially reasonable efforts to register or qualify all Registrable Securities included in the registration statement under such other securities or blue sky laws of such jurisdictions as each holder thereof shall reasonably request which request is made within ten (10) days following the original filing of the registration statement and to keep such registration or qualification in effect for so long as the registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holder, except that the Company shall not for any such purpose be required (a) to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this paragraph (v) to be obligated to be so qualified, (b) to consent to general service of process in any such jurisdiction or (c) to subject itself to taxation in any such jurisdiction by reason of such registration or qualification; and (vi) use its commercially reasonable efforts to obtain withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of qualification (or exemption from qualification) of the offer and sale of any of the Registrable Securities in any jurisdiction. The Company may require each Person whose Registrable Securities are being registered to, and each such holder, as a condition to including Registrable Securities in such registration, shall, furnish the Company and any underwriters with such information and affidavits regarding such holder and the distribution of such securities as the Company and such underwriters may from time to time reasonably request in writing and to otherwise cooperate in connection with such registration. At any time during the effectiveness of the registration statement covering Registrable Securities offered by a holder, if such holder becomes aware of any change materially affecting the accuracy of the information contained in such registration statement or the prospectus (as then amended or supplemented) relating to such holder, such holder will promptly notify in writing the Company of such change. Upon receipt of any notice from the Company of the happening of any event as a result of which any prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, each holder of Registrable Securities will forthwith discontinue such holder's disposition of Registrable Securities pursuant to the registration statement until such holder receives copies of a supplemented or amended prospectus from the Company and, if so directed by the Company, shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period referred to in paragraph (ii) of this Section 7.5(c) shall be extended by a number of days equal to the number of days during the period from the giving of such notice from the Company to stop trading to the date when the copies of the supplemented or amended prospectus are sent to holders whose Registrable Securities are included in such registration statement. In the event that the SEC issues a stop order -46- suspending the effectiveness of any registration statement filed under this Section 7.5, the period referred to in paragraph (ii) of this Section 7.5(c) shall also be extended by a number of days equal to the number of days during which such stop order is in effect. Each Shareholder agrees in connection with any registration of the Company's securities that, upon request of the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in such registration), without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters. Notwithstanding anything to the contrary contained herein, the Company may, upon written notice to the Shareholders whose Registrable Securities are included in any registration statement filed pursuant to this Agreement, suspend the use of a prospectus which is a part of such registration statement if, in the reasonable judgment of the Company, the Company possesses material nonpublic information and the Company determines in good faith that the disclosure of such information would have a material adverse effect on the Company to consummate any pending strategic transaction; provided that the Company may not suspend any use of a prospectus for more than an aggregate of 90 consecutive days or for an aggregate of 180 days in any period of twelve consecutive months. This paragraph shall not in any way impair or limit the rights of the Shareholders to require the Company to purchase any or all of the unsold shares of BE Stock pursuant to Section 2.5. (d) Indemnification. (i) The Company shall, to the full extent permitted by Law, indemnify and hold harmless each seller of Registrable Securities included in any registration statement filed pursuant to this Section 7.5, its directors, officers, and partners, and each other Person, if any, who controls any such seller within the meaning of the Securities Act, against any Losses to which such seller or any such director, officer, partner or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or claims, actions, suits, proceedings, arbitration or investigations in respect thereof) arise out of or are based upon any untrue statement of any material fact contained in such registration statement, any preliminary prospectus, final prospectus or prospectus supplement contained therein or filed with the SEC, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading; provided, that the Company shall not be liable in any such case to the extent that any such Loss (or any claim, action, suit, proceeding, arbitration or investigation in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such registration statement, preliminary prospectus, final prospectus, amendment or supplement in reliance upon and in conformity with information furnished in writing to the Company for inclusion in such registration statement by the holder of the securities. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf -47- of the holders of the securities or any such director, officer, partner or controlling Person, and shall survive the transfer of such securities by such holder. (ii) Each Person and Shareholder whose Registrable Securities are included or are to be included in any registration statement filed pursuant to this Section 7.5, as a condition to including such holder's Registrable Securities in each registration statement, shall to the full extent permitted by Law, indemnify and hold harmless the Company, its directors and officers, and each other Person, if any, who controls the Company within the meaning of the Securities Act, against any Losses to which the Company or any such director or officer or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or claims, actions, suits, proceedings, arbitrations or investigations in respect thereof) arise out of or are based upon any untrue statement of any material fact contained in any such registration statement, any preliminary prospectus, final prospectus or prospectus supplement contained therein or filed with the SEC, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, if such untrue statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company for inclusion in such registration statement by such seller. Notwithstanding any contrary provision of Section 10, the indemnification obligation of the Shareholders and holders of said Registrable Securities under this Section 7.5(d) shall in no way be limited to (and the Company shall not be constrained to seek in response to any failure to provide indemnity pursuant to this Section 7.5(d)) recourse against Escrowed Shares. The foregoing indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such seller. Such holders shall also indemnify each other Person who participates (including as an underwriter) in the offering or sale of Registrable Securities, their officers and directors and each other Person, if any, who controls any such participating Person within the meaning of the Securities Act to the same extent as provided above with respect to the Company. (iii) Promptly after receipt by any party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding paragraphs (i) or (ii) of this Section 7.5(d), such party shall, if a claim in respect thereof is to be made against another party pursuant to such paragraphs, give written notice to the latter of the commencement of such action, provided that any failure of any Person to give notice as provided herein shall not relieve any other Person of its obligations under the preceding paragraph of this Section 7.5(d), except to the extent that such other Person is actually prejudiced by such failure. In case any such action is brought, the party obligated to indemnify pursuant to the foregoing provisions of this Section 7.5(d) shall be entitled to participate in and, unless, in the reasonable judgment of any indemnified party, a conflict of interest between such indemnified party and any indemnifying party exists with respect to such claim, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the -48- indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; provided that the indemnified party may participate in such defense at the indemnified party's expense. No indemnifying party shall consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to each indemnified party of a release from all liability in respect to such claim or litigation without the consent of the indemnified party. No indemnifying party shall be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. (iv) If the indemnity and reimbursement obligation provided for in any paragraph of this Section 7.5(d) is unavailable or insufficient to hold harmless a party entitled to indemnification hereunder in respect of any Losses (or claims, actions, suits, proceedings, arbitrations or investigations with respect thereto) for which indemnification is provided therein, the party obligated to indemnify hereunder shall contribute to the amount paid or payable by the indemnified party as a result of such Losses (or claims, actions, suits, proceedings, arbitration or investigations) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this paragraph. Notwithstanding anything herein to the contrary, no participating holder of Registrable Securities shall be required to contribute any amount in excess of the amount by which the net proceeds of the offering (before deducting expenses, if any) received by such participating holder exceeds the amount of any damages that such participating holder has otherwise been required to pay by reason of such untrue or allegedly untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person not guilty of such fraudulent misrepresentation. 7.6 Release or Indemnity for Personal Guarantee. The Company and Delco shall use commercially reasonable efforts to obtain releases of any personal guarantees by Felix Jakobi of any capitalized leases or other Liabilities of Delco that the Company shall assume or that continue unpaid on and after the Closing Date. The Company shall indemnify such guarantor from any Losses incurred pursuant to such personal guaranties after the Closing Date unless otherwise provided in this Agreement. -49- 7.7 Tax Matters. Delco shall, and the Shareholders shall cause Delco to, accrue no transaction expenses of Delco before the Closing Date to the extent permitted by Law. To the extent that a Shareholder receives any tax benefit on account of the accrual before the Closing Date of transaction expenses, then the Shareholder shall be obligated to pay over to the Company immediately the amount of such tax benefit, determined based on the Shareholder's marginal tax rates, and until such payment is delivered to the Company, such Shareholder shall hold any proceeds of such tax benefit in trust for the benefit of the Company. No new elections with respect to Taxes, or any changes in current elections with respect to Taxes, relating to or affecting Delco will be made by Delco or the Shareholders after December 31, 2000 without the prior written consent of the Company. On or prior to the Closing Date, the Shareholders will provide the Company, at the Company's request, with all clearance certificates or similar documents that may be required by any state, local or other Taxing authority in order to relieve the Company of any obligation to withhold or escrow any portion of the Reference Price and to evidence compliance by Shareholders and Delco with the obligations under Section 6. On or prior to the Closing Date, the Shareholders will furnish to the Company an affidavit stating, under penalty of perjury, Delco's and each of the Shareholders' United States tax identification numbers and that no Shareholder is a foreign person, pursuant to Section 1445(b)(2) of the Code. 7.8 Confidentiality. The existence of this Agreement or its negotiation, terms or provisions, shall be kept confidential by the Shareholders, Delco, and each of their representatives except to the extent that the existence of this Agreement or its terms and provisions, as the case may be, shall have been previously publicly disseminated by the Company or filed with the SEC as a public document. Any publicity or announcements concerning this transaction shall be effected only by or with the prior written consent of the Company and its legal counsel and at such times and in such manner as the Company deems necessary or appropriate under applicable law provided, however, the parties hereby consent to publication or dissemination of the names of the parties and the kind and amount of the transaction in tombstone advertising by the other parties or representatives thereof. 7.9 Employees. The Secured Promissory Notes issued by Messrs. David Timmerman and Del Warren in favor of Delco shall be rewritten in form and substance as acceptable to the Company on substantially the terms and conditions stated on Exhibit D-1 (a) and (b) and D-2 (a) and (b), respectively. 7.10 ERISA Compliance. The Shareholders shall be responsible for the timely administration, operation, preparation, delivery and filing with the appropriate recipient(s) of any and all returns, notices, statements, valuations, allocations, forms and testing for all Employee Benefit Plans and shall be responsible for the payment of all fees, expenses, and costs, including, but not limited to, attorneys' fees, accountants' fees and consulting fees, incurred in connection with the preparation of the annual administration of the ESOP and all Employee Benefit Plans for all plan years ending before the Closing Date. The minimum $200,000 threshold for liability of the -50- Shareholders to Company Indemnified Parties provided for in Section 10 of this Agreement shall not apply to this Section 7.10. Section 8. ACKNOWLEDGEMENT REGARDING EMPLOYEE BENEFIT PLAN; THIRD PARTIES. 8.1 Nothing in this Agreement will limit or restrict in any way the Company's right to cause Delco to modify, amend, terminate or establish Employee Benefit Plans or arrangements in whole or in part at any time after the Closing Date and this Agreement will not, in any way or at any time, create any third party beneficiary rights for or on behalf of any Person. The agreements contemplated by this Agreement and referred to herein, constitute independent and separate obligations of the parties thereto and are not merged herein. No party to such other agreements, and no Person except in his or its capacity as a party hereto is in any way intended to benefit herefrom, and no implication thereof is intended. Section 9. CONCURRENT DELIVERIES. 9.1 Deliveries by Delco or the Shareholder's Representative. The Shareholders shall deliver to the Company documents concurrently with the execution and delivery of this Agreement each of the following: (a) all consents, releases, waivers and other documentation required in order for the Shareholders and the Trustee to transfer and deliver all of the Delco Shares to the Company and to fulfill their other obligations hereunder and the Administrative Committee shall have obtained the waiver by Delco of its right of first refusal to purchase the ESOP Shares and the Trustee shall have obtained all consents determined by the Administrative Committee necessary or appropriate to accomplish the transactions contemplated by this Agreement and the Escrow Agreement and other assurances of the truth of the matters in representations and warranties; (b) any relevant Shareholder shall deliver to the Company an executed counterpart of each of the Company Ancillary Agreements to which such Shareholder is a signatory; (c) the resignations, effective as of the Closing, of each of the directors, officers, signing agents and attorneys-in-fact of Delco on the Closing Date other than those whom the Company has specified in writing at least five business days prior to the Closing to continue in such capacities; (d) spousal consents substantially in the form attached hereto as Exhibit A, executed by the respective spouse, if any, of each Shareholder; (e) a good standing certificate for Delco from the Secretary of State of the State of its incorporation or formation dated a reasonable time before the Closing Date; -51- (f) the Escrow Agreement, dated the Effective Date, executed by the Shareholders, together with any counterparts signed by the Escrow Agent and blank stock powers executed by such Shareholder with respect to the Escrowed Shares; (g) an opinion by Delco's counsel, in the form and substance as set forth in Exhibit E attached hereto, addressed to the Company, and dated as of the Closing Date; and (h) signature cards executed in blank for all Delco bank accounts acceptable to each bank where Delco maintains an account; (i) certified copies of all Delco Board of Director resolutions authorizing and approving a freeze of benefits accruals under the ESOP, together with executed amendments and notices approved in those resolutions that effectuate a freeze of benefit accruals under the ESOP as of a date prior to the Closing Date and provide that employer contributions after such date shall be wholly in the discretion of Delco; (j) certified copies of all Administrative Committee minutes documenting the Administrative Committee's approval of this Agreement and the transactions contemplated by this Agreement, together will all documents the Administrative Committee relied upon in such approval, which shall include, but not be limited to, a copy of the Opinion, the Administrative Committee's determination that a pass through of the voting rights to Participants and Beneficiaries under Article IX of the ESOP was not necessary and a confirmation that the Administrative Committee has satisfied itself that Delco has made all accrued contributions to the ESOP through the Closing Date. (k) Forms W-9 signed and completed by each individual party to a Non-Compete Agreement. 9.2 Deliveries to the Shareholders. The Company shall deliver to the Shareholders each of the following documents concurrently with the execution and delivery of this Agreement: (a) the Escrow Agreement, dated effective February 24, 2001, executed by the Company; and (b) a copy of the certificate or certificates or book entry records representing the BE Stock to be delivered to Escrow Agent pursuant to Section 2.2 or an irrevocable instruction to the transfer agent to issue such shares. (c) forward to each of Mr. Jakobi and Mr. Campanelli by wire transfer next day available funds, the monetary consideration enumerated in each of their Non-Compete Agreements 9.3 Deliveries to or by others. The ESOP and the Administrative Committee shall deliver to the Company, Delco and the Shareholder's Representative written confirmation that the ESOP and the Administrative Committee have received the Opinion set forth in Section 4.36 above and that the Administrative Committee has made the independent confirmation described in Section 4.16. The Administrative Committee -52- and the Management Group shall deliver to the Company, Delco and the Shareholder's Representative a certificate signed by the Management Group and the Administrative Committee stating that all Employee Benefit Plans have been administered and operated in accordance with the terms of such Plans and the Law at all times prior to the Closing Date. Section 10. REMEDIES FOR BREACHES OF THIS AGREEMENT. 10.1 Survival of Representations and Warranties. All of the representations and warranties of the Parties contained in Section 4 and Section 5 of this Agreement or in any certificate delivered by the Shareholders pursuant to this Agreement will survive the Closing and continue in full force and effect until the third anniversary of the Closing Date; provided, however, that (a) the representations and warranties contained in Sections 4.2 (Authorization of Transaction), 4.4 (Capitalization), 4.13 (Title and Related Matters), shall continue in full force and effect forever; and (b) the representations and warranties contained in Sections 4.10 (Tax Matters), 4.16 (Employee Benefits), 4.17 (Environmental Matters), and 7.3 (Non-Compete), or contained in any certificate delivered by the Shareholders relating thereto, and any Tax-related liabilities pursuant to Section 6 hereof shall remain in full force and effect until 30 days after the expiration of the applicable statute of limitations with respect to the matter to which the claim relates, as such limitation period may be extended from time to time. Notwithstanding anything to the contrary in Section 10, any alleged breach or actual breach of Section 7.3 and/or of the Non-Compete Agreements are not subject to any of the provisions of this Section 10. 10.2 Indemnification Provisions for Benefit of the Company. (a) Notwithstanding any investigation at any time made by or on behalf of the Company or any knowledge or information the Company may have or be deemed to have, in the event the Shareholders breach (or in the event a third party alleges facts that, if true, would mean the Shareholders have breached) any of their representations, warranties or covenants contained in this Agreement or any certificate delivered by the Shareholders pursuant to this Agreement, and provided that the Company makes a written claim for indemnification against the Shareholders Representative prior to the expiration of any applicable survival period, then the Shareholders shall indemnify, defend and hold harmless the Company and Delco from and against the entirety of any and all Liabilities, obligations, judgments, Liens, injunctions, charges, orders, decrees, rulings, damages, dues, assessments, Taxes, losses, fines, penalties, expenses, fees, costs, amounts paid in settlement (including reasonable attorneys' and expert witness fees and disbursements in connection with investigating, defending or settling any action or threatened action (collectively, "Losses") suffered or incurred by the Company, Delco, or any of their Affiliates, or any of their respective stockholders, directors, officers, employees and agents (collectively, the "Company Indemnified Parties"), resulting from or arising out of (i) the inaccuracy or breach of any representation or warranty made by Shareholders, or resulting from any misrepresentation or breach of warranty, or from any misrepresentation in or omission -53- from any schedule, document, certificate or other instrument required to be furnished by Shareholders hereunder; (ii) nonfulfillment of any agreement or covenant of Shareholders contained herein or in any agreement or instrument required to be entered into in connection herewith; (iii) notwithstanding anything to the contrary in this Agreement or in any other document, including the ESOP and any amendments thereto, any claim brought against the Company, Delco, or Affiliates of either Delco or the Company, or any fiduciary of Delco for which the fiduciary seeks indemnification from Delco under the ESOP or any other Employee Benefit Plan, for actions or failures to act with respect to the ESOP or Employee Benefit Plan prior to the Closing Date, alleging either (A) that the consideration payable to the ESOP (or any Participant or Beneficiary) is unfair or inadequate or that the ESOP (or such Participant or Beneficiary) was damaged or suffered any Losses in connection with this Agreement or any transaction contemplated hereby, or (B) that the ESOP, any Employee Benefit Plan of Delco or any Participant or Beneficiary of the ESOP or any Employee Benefit Plan of Delco was damaged or suffered any Losses in connection with the administration or operation of the ESOP or any Employee Benefit Plan of Delco arising out of actions or failures to act occurring prior to the Closing Date; and (iv) any Taxes imposed on or accrued by Delco for taxable periods (or portions thereof) prior to the Closing Date. (b) The liability of the Shareholders hereunder shall be joint and several provided however, notwithstanding any other provision of this Section 10 to the contrary, the aggregate liability of any Shareholder to the Company Indemnified Parties under this Section 10 shall not exceed the aggregate Net Proceeds received by each Shareholder upon resale of their BE Stock as such Net Proceeds may be adjusted for any payment made pursuant to Sections 2.2(b)(ii) and 2.5; provided however as to Mr. Jakobi, his limit of liability shall be the sum of $4,200,000, plus his Net Proceeds as adjusted, and as to Mr. Campanelli, his limit of liability shall be the sum of $150,000 plus his Net Proceeds as adjusted. Subject to Section 10.4, the liability of Shareholders pursuant to this Section 10.2 shall be limited, in the aggregate, to $4,350,000. Subject to Section 10.4, the Shareholders will be obligated to indemnify, defend and hold harmless the Company Indemnified Parties from and against Losses only if the aggregate amount of such Losses exceeds $200,000 (in which case Shareholders shall be obligated to indemnify, defend and hold harmless the Company Indemnified Parties from and against 100% of such Losses, including, without limitation, the initial $200,000). The Company Indemnified Parties' reimbursement under an indemnity by Shareholders (excluding insurance proceeds) will not be greater than the Company Indemnified Parties' after tax Losses. (c) In the event Company Indemnified Parties assert any claim against the Shareholders under this Agreement, such claim will be first made against the Escrowed Shares or proceeds from the sale thereof to the extent such assets are still existing in the Escrow. To the extent such claim exceeds the amount held in Escrow at anytime during the pendency of said claim, Company Indemnified Parties shall not be prevented or restrained by this Section 10.2(c) from pursuing and/or satisfying such claim to the extent said claim exceeds the amount held in Escrow from the assets of the Shareholders outside of Escrow. Nothing stated in the preceding sentence shall prevent or inhibit Company Indemnified Parties from seeking or enforcing against the -54- Shareholders Company Indemnified Parties' rights for specific performance or equity, as well as for actions based in fraud. 10.3 Indemnification Provisions for Benefit of the Shareholders. Notwithstanding any investigation at any time made by or on behalf of the Shareholders or any knowledge or information the Shareholders may have or be deemed to have, in the event the Company breaches (or in the event any third party alleges facts that, if true, would mean the Company has breached) any of its representations, warranties or covenants contained in this Agreement, and provided that the Shareholders make a written claim for indemnification against the Company, then the Company will indemnify the Shareholders or the Trustee and against the entirety of any Losses the Shareholders (collectively, the "Shareholder Indemnified Parties") may suffer or incur resulting from, arising out of, relating to, in the nature of or caused by such breach. Subject to Section 10.4, the liability of the Company pursuant to this Section 10.3 shall be limited, in the aggregate, to $4,350,000. Company will be obligated to indemnify, defend and hold harmless the Shareholder Indemnified Parties from and against Losses only if the aggregate amount of such Losses exceeds $200,000 (in which case Company shall be obligated to indemnify, defend and hold harmless the Shareholder Indemnified Parties from and against 100% of such Losses, including, without limitation, the initial $200,000). Notwithstanding the above, any alleged breach of the employment offer letters to any member of the Management Group are not subject to the Provisions of Section 10. 10.4 Exception to Limits on Indemnification. (a) Shareholders' Liability to Company Indemnified Parties. The maximum limits on the liability of Shareholders to Company Indemnified Parties set forth in Section 10.2 above shall not apply to the representations and warranties in Sections 4.2 (Authorization of Transaction), 4.4 (Capitalization), 4.13 (Title and Related Matters) which shall be capped at $19,650,000, 4.17 (Environmental Matters) which shall be capped at $15,000,000, or 4.10 (Tax Matters), and any Tax-related liabilities pursuant to Section 6 hereof which shall be capped at $19,650,000, and any costs or expenses related to the foregoing matters, including but not limited to attorneys' fees and costs, incurred by Company Indemnified Parties to enforce their rights under Section 10. The minimum threshold on the liability of the Shareholders to Company Indemnified Parties set forth in Section 10.2 above shall not apply to Shareholders indemnity and defense obligations to Company Indemnified Parties provided for in Section 10.2(a)(iii), and in Section 10.2(iv) for Losses resulting from the audit of Delco's Tax Returns for the fiscal year 1998 (as described on Schedule 4.10(g)) and forward. (b) Shareholders Indemnity for Environmental Matters and Environmental Insurance. Shareholders may secure insurance coverage for Losses and defense costs arising from Environmental Matters. If said insurance coverage specifically identifies the Company and Delco as insureds or additional named insureds, any insurance proceeds actually received by the Company and/or Delco under said insurance coverage, less any expenses incurred in obtaining the benefits of coverage, will -55- serve as an offset against the liability of the Shareholders to Company Indemnified Parties for Losses under Section 4.17 (Environmental Matters), but only at the time and to the extent such insurance proceeds are actually received. Notwithstanding the foregoing, Shareholders will remain responsible for all indemnifiable Losses incurred by the Company and/or Delco, and any failure or delay of any insurer to provide the benefits of coverage shall in no way limit, reduce or otherwise affect Shareholders' liability hereunder. The Company and Delco will have the right, but not the obligation, to file suit or otherwise enforce any rights it or they may have under any such insurance. Shareholders will promptly provide to the Company and Delco proof of any insurance, if and when obtained. Notwithstanding the $15,000,000 cap for Shareholders indemnity liability for Environmental Matters, Company Indemnified Parties shall be entitled to received and keep all proceeds from insurance for such matters even if such Company Indemnified Parties' actual receipt of monies exceeds the aggregate of the $15,000,000 Shareholder liability cap. (c) The maximum limits on the liability of the Company to Shareholder Indemnified Parties set forth in Section 10.3 shall not apply to the representations and warranties in Sections 5.2 (Authorization of Transaction), 5.4 (Broker's Fees), 5.6 (Status of BE Stock), 2.5 (Guarantied Proceeds; Mandatory and Optional Cash Payments) (which should be capped in the aggregate at the Net Consideration), 7.5 (Registration Rights) and any costs or expenses related to the foregoing matters, including but not limited to attorneys' fees and costs, incurred by Shareholder Indemnified Parties to enforce their rights under Section 10. 10.5 Indemnification Procedures. Except for claims for indemnification made pursuant to Section 7.5(d) hereof, which claims shall follow the procedures set forth in such Section, if any third party notifies any party hereto (the "Indemnified Party") with respect to any matter that may give rise to a claim for indemnification against the other party hereto (the "Indemnifying Party") under this Section 10, then the Indemnified Party will notify the Indemnifying Party thereof promptly and in any event within 30 days after receiving any written notice from a third party; provided, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party will relieve the Indemnifying Party from any obligation hereunder unless, and then solely to the extent that, the Indemnifying Party is prejudiced thereby. Once the Indemnified Party has given notice of the matter to the Indemnifying Party, the Indemnified Party may defend against the matter in any manner it reasonably may deem appropriate; provided that in the event the Indemnifying Party notifies the Indemnified Party within 30 days after the date the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense of such matter (a) the Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party; (b) the Indemnified Party may retain separate counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of such separate co-counsel to the extent the Indemnified Party concludes in good faith that the counsel the Indemnifying Party has selected has a conflict of interest); (c) the Indemnified Party will not consent to the entry of a judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to -56- be withheld or delayed unreasonably); and (d) the Indemnifying Party will not consent to the entry of a judgment with respect to the matter or enter into any settlement that does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld or delayed unreasonably). 10.6 Specific Performance. Each of the parties acknowledges and agrees that the other party would be damaged irreparably in the event any of the provisions in Sections 7.3 and 10.7 of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other party shall be entitled to an injunction or injunctions to prevent breaches of Sections 7.3 and 10.7 of this Agreement and to enforce specifically those sections of this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity. 10.7 Arbitration. (a) Generally. Except solely as set forth in Sections 2.3 and 7.3, the parties agree that when any claim or controversy that arises out of or relates to this Agreement, or the breach thereof arises, in lieu of litigation, they shall submit such claim, dispute or controversy, or difference or question to be finally settled under the Commercial Arbitration Rules ("Rules") of the American Arbitration Association (the "AAA") by an arbitral tribunal composed of three arbitrators, at least one of whom shall be an attorney experienced in corporate transactions, appointed by agreement of the parties in accordance with said Rules. In the event the Parties fail to agree upon a panel of arbitrators from the first list of potential arbitrators proposed by the AAA, the AAA will submit a second list in accordance with said Rules. In the event the parties shall have failed to agree upon a full panel of arbitrators from said second list, any remaining arbitrators to be selected shall be appointed by the AAA in accordance with said Rules. If, at the time of the arbitration, the parties agree in writing to submit the dispute to a single arbitrator, said single arbitrator shall be appointed by agreement of the parties in accordance with the foregoing procedure, or, failing such agreement, by the AAA in accordance with said Rules. Any party may commence the foregoing arbitration proceedings by notice to all other parties. (b) Place of Arbitration. The venue of such arbitration shall be either Orange County or Los Angeles County, California, or any other place mutually agreed to by the Company and Shareholders' Representative, provided however if the party initiating arbitration is a Shareholder or a successor or assign, the venue shall be Orange County. If the party initiating the arbitration is Delco or the Company or their successors and assigns, the venue shall be Los Angeles County. (c) Recourse to Courts. Subject to Section 10.6, the parties hereby waive any right of appeal to any court on the merits of the dispute. The provisions of this Section 10.7 may be enforced in any court having jurisdiction over the award or any of the parties or any of their respective assets, and judgment on the award (including -57- without limitation equitable remedies) granted in any arbitration hereunder may be entered in any such court. Nothing contained in this Section 10.7 shall prevent any party from seeking interim measures of protection in the form of pre-award attachment of assets or preliminary or temporary equitable relief. (d) Decision of Arbitral Tribunal. In the event of a dispute between the parties hereunder, the Shareholders' Representative and the Company's representative shall each present an offer of settlement, which shall address all issues in dispute such that adoption of such offer of settlement would conclusively settle all items then in dispute. The arbitral tribunal shall be limited in its decision to choosing one of the two offers of settlement presented to it that the arbitral tribunal determines to be most fair, and that offer of settlement shall constitute the settlement of the claims, dispute and other matters. The decision of the arbitral tribunal shall be final and binding on the parties and non-appealable. The party whose offer of settlement is not chosen by the arbitral tribunal shall pay all of the expenses of the arbitration, including reasonable attorney fees and costs of the prevailing party related thereto, which, in the event the Shareholders are held responsible for any such expenses prior to the Escrow termination date, shall be subject to satisfaction by application of the Escrowed Shares pursuant to Sections 2.2 and 10.2 and Article 4 of the Escrow Agreement. Subject to Section 10.10, the non-prevailing Party shall pay the Arbitration award within seven business days of their receipt of said award. 10.8 Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE SHAREHOLDERS, DELCO AND THE COMPANY HEREBY WAIVE, AND COVENANT THAT HE, SHE OR IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR PASSED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE. 10.9 Exclusive Remedy. Except as otherwise provided in this Agreement, the indemnification provisions under this Section 10 shall provide the sole and exclusive remedy for any and all Losses sustained or incurred by the Company, the Shareholders, Delco or their respective successors and assigns other than for specific performance, equitable actions and fraud. Notwithstanding anything to the contrary in this Agreement, no breach of any representation, warranty, covenant or agreement contained herein shall give rise to any right on the part of any party hereto to rescind this Agreement other than rescission predicated upon fraud. 10.10 Time for Indemnity Payments. Any payment obligation of any Shareholders to Company Indemnified Parties under Section 10 shall be paid to Company Indemnified Parties upon demand as follows: -58- (a) except as to Mr. Jakobi, seventy percent (70%) of Company Indemnified Parties' Losses shall be paid by Shareholders within seven (7) business days of delivery of said demand to Shareholders Representative, unless Shareholders Representative has submitted said demand, as applicable, to arbitration pursuant to Section 10.7, in which case payment by each of the Shareholders to Company Indemnified Parties shall be made within seven (7) business days of the date of any applicable arbitration award; (b) except as to Mr. Jakobi, thirty percent (30%) of Company Indemnified Parties' Losses shall be paid by Shareholders within ninety (90) days of delivery of said demand to Shareholders Representative, unless Shareholders Representative has submitted said demand, as applicable, to arbitration pursuant to Section 10.7, in which case payment by each of the Shareholders to Company Indemnified Parties shall be made within ninety (90) days of the date of any applicable arbitration award; (c) as to Mr. Jakobi, eighty percent (80%) of Company Indemnified Parties' Losses shall be paid by Mr. Jakobi within seven (7) business days of delivery of said demand to Shareholders Representative, unless Shareholders Representative has submitted said demand, as applicable, to arbitration pursuant to Section 10.7 in which case payment by each of the Shareholders to Company Indemnified Parties shall be made within seven (7) business days of the date of any applicable arbitration award; and (d) as to Mr. Jakobi, twenty percent (20%) of Company Indemnified Parties' Losses shall be paid by Mr. Jakobi within ninety (90) days of delivery of said demand to Shareholders Representative, unless Shareholders Representative has submitted said demand, as applicable, to arbitration pursuant to Section 10.7, in which case payment by each of the Shareholders to Company Indemnified Parties shall be made within ninety (90) days of any applicable arbitration award; Section 11. MISCELLANEOUS. 11.1 Press Releases and Announcements. No party will issue any press release or announcement relating to the subject matter of this Agreement without the prior approval of the other party, not to be unreasonably withheld; provided, that the Company may make any public disclosure it believes in good faith is required by Law or by the rules and regulations of any stock exchange on which the securities of such party are listed. 11.2 Expenses; Transfer Taxes. Subject to all of the representations, warranties and obligations of the Shareholders under this Agreement, expenses of Delco, including expenses and costs of legal counsel, related to the transactions contemplated by this Agreement and the Ancillary Agreements on the part of the Shareholders or Delco will be accrued on Delco's balance sheet as of Closing and paid by Delco post-Closing. The approximate amount thereof is set forth on Schedule 11.2. The Shareholders will be responsible for the payment of all sales, use, transfer, documentary or stamp taxes and -59- recording and filing fees applicable to the assignment of Delco Shares to the Company, and the Company assumes no obligation for, and the Shareholders shall be solely liable for, any costs related to Taxes on any distributions or payments to the Shareholders in any capacity, or to any other Taxes on any payment made to or for the benefit of any Shareholder or Delco in any capacity in connection with the transaction contemplated by this Agreement or any of the Ancillary Agreements. Notwithstanding the above, the Company shall have no liability or obligation to pay any transaction expense not set forth on Schedule 11.2. 11.3 Remedies. Any party having any rights under any provision of this Agreement will have all rights and remedies set forth in this Agreement and all rights and remedies that such party may have been granted at any time under any other agreement or contract and all of the rights that such party may have under any Law. Any such party will be entitled to enforce such rights specifically, without posting a bond or other security, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by Law. 11.4 Consent to Amendments. The provisions of this Agreement may be amended or waived only by a written agreement executed and delivered by the Shareholders' Representative (on behalf of all Shareholders) and the Company, or by the Shareholder to be bound and benefited thereby and the Company. No other course of dealing between the parties to this Agreement or any delay in exercising any rights hereunder will operate as a waiver of any rights of such parties. 11.5 Successors and Assigns. No Shareholder, Participant or Beneficiary may assign or delegate any of such party's rights or obligations under or in connection with this Agreement or any Ancillary Agreement without the written consent of the Company, and no assignment by a Shareholder, Participant or Beneficiary shall release the Shareholder, Participant or Beneficiary from his, her or its obligations and liabilities under this Agreement and Ancillary Agreement to which it is a party. The Company may without the written consent of Delco or the Shareholders assign its rights under this Agreement or any of the Company Ancillary Agreements to one or more Affiliates of the Company or to any Person acquiring all or substantially all of the stock or assets of Delco from the Company, without relieving the Company from any obligation hereunder assigned and assumed. All covenants and agreements contained in this Agreement or in any Ancillary Agreement by or on behalf of any of the parties hereto or thereto will be binding upon and enforceable against the respective successors and assigns of such party and will be enforceable by and will inure to the benefit of the respective successors and permitted assigns of such party. 11.6 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable Law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. -60- 11.7 Counterparts. This Agreement may be executed simultaneously in two (2) or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement. 11.8 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 11.9 Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally to the recipient or when sent to the recipient by telecopy (receipt confirmed), one business day after the date when sent to the recipient by reputable express courier service (charges prepaid) or three business days after the date when mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications will be sent to the Company and the Shareholders at the addresses indicated below: -61- If to BE or the Company: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, FL 33414 Fax no. (561) 791-3966 Attn: Thomas P. McCaffrey or Edmund J. Moriarty With a copy (which will not constitute notice) to: Yocca, Patch & Yocca 19900 MacArthur Blvd., Suite 650 Irvine, California 92612 Fax no. (949) 253-0870 Attn: Ryan M. Patch/Nicholas J. Yocca If to Delco or the Shareholders: Mr. Felix Jakobi Anthem Country Club 2 Panther Creek Courts Henderson, Nevada 89052 Fax no. (702) 614-8324 If to the Trustee or the ESOP: Manatt Phelps & Phillips, LLP 11355 West Olympic Boulevard Los Angeles, CA 90067 Fax No. (310) 312-4224 Attn: Monte M. Lemann II With a copy (which will not constitute notice) or to such other address or to the attention of such other party as the recipient party has specified by prior written notice to the sending party. 11.10 No Third-Party Beneficiaries. This Agreement will not confer any rights or remedies upon any Person other than the Shareholders and the Company and their respective successors and permitted assigns. -62- 11.11 Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the parties and supersedes any prior understandings, agreements or representations by or among the parties (whether written or oral) that may have related in any way to the subject matter hereof. 11.12 Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rule of strict construction will be applied against any party. The use of the word "including" in this Agreement means "including" without limitations and is intended by the parties to be by way of example rather than limitation. 11.13 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 11.14 Shareholders' Representative. Each Shareholder hereby irrevocably constitutes and appoints the Shareholder Representative as the Shareholder's attorney in fact and agent, with full power of substitution, to act in the Shareholders name, place and stead and do any and all things that the Shareholder could do if present including, but not limited to, delivering, and performing this Agreement, and executing, delivering and performing the Escrow Agreement, and any and all documents ancillary to this Agreement or any amendment or supplement to this Agreement, to give receipts on behalf of the Shareholder, and to execute and deliver share certificates and stock powers or assignments; provided, however, this power shall be limited to such actions as are contemplated in the express provisions of this Agreement. All persons dealing with the Attorney-in-Fact in such capacity may rely and act upon any writing believed by them in good faith to be genuine and to have been signed by the Attorney-in-Fact. 11.15 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF CALIFORNIA. -63- IN WITNESS WHEREOF, the parties hereto have executed and deliver this Agreement on the date first written above. BE AEROSPACE, INC. By: /s/ J. Holtzman -------------------------------- Name: Jeffrey P. Holtzman ------------------------------ Title: Vice President ------------------------------ DMGI, INC. By: /s/ Felix Jacobi -------------------------------- Name: Felix Jacobi ------------------------------ Title: Chairman ------------------------------ DELCO MACHINE AND GEAR EMPLOYEE STOCK OWNERSHIP PLAN By: /s/ Nick Campanelli -------------------------------- Name: Nick Campanelli ------------------------------ Title: Trustee ------------------------------ -64- SHAREHOLDERS: Delco Machine and Gear ESOP By: /s/ Nick Campanelli /s/ Barry B. Langberg ---------------------------------- ---------------------------------- Name: Nick Campanelli Barry B. Langberg ------------------------------- /s/ Lydia Jakobi /s/ Frank Tobe - ------------------------------------- ---------------------------------- Lydia Jakobi Frank Tobe /s/ Felix Jakobi /s/ Steven Firestone - ------------------------------------- ---------------------------------- Felix Jakobi Steven Firestone /s/ Gil Varon /s/ Allan Cohen - ------------------------------------- ---------------------------------- Gil Varon Allan Cohen Firestone Family Trust Campanelli Family Trust Dated October 13, 1999 /s/ Robert W. Firestone /s/ Nick Campanelli - ------------------------------------- ---------------------------------- Trustee: Robert W. Firestone Trustee: Nick Campanelli /s/ Tamsen Firestone /s/ Ana Campanelli - ------------------------------------- ---------------------------------- Trustee: Tamsen Firestone Trustee: Ana Campanelli /s/ Dan Firestone /s/ Del Warren - ------------------------------------- ---------------------------------- Dan Firestone Del Warren /s/ David Timmerman - ------------------------------------- David Timmerman -65- EX-99.3 4 0004.txt SHARE PURCHASE AND SALE AGREEMENT - TLW SHARE PURCHASE AND SALE AGREEMENT --------------------------------- This SHARE PURCHASE AND SALE AGREEMENT dated effective as of February 24, 2001, is entered into by and among BE Aerospace, Inc., a Delaware corporation ("BE"), (the "Company"), and T.L. Windust Machine, Inc., a California corporation ("TLW"), and the shareholders of TLW, set forth on Schedule 1 hereof (collectively, the "Shareholders"). RECITALS A. The Shareholders are the record and beneficial holders of all the issued and outstanding capital stock (collectively, the "TLW Shares") of TLW. B. The Company desires to acquire the TLW Shares from the Shareholders, and the Shareholders desire to transfer the TLW Shares to the Company in exchange for shares of BE Stock (as defined in Section 1). NOW, THEREFORE, in consideration of the mutual promises and agreements of the parties herein contained, the parties hereby agree as follows: Terms and Conditions Section 1. DEFINITIONS. For purposes of this Agreement, the following terms have the meanings set forth below: "Additional Consideration" has the meaning set forth in Section 2.2(b). "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended. "Agreement" means this SHARE PURCHASE AND SALE AGREEMENT, as the same may be amended from time to time in accordance with the terms hereof. "Ancillary Agreements" means Company Ancillary Agreements and the Shareholders' Ancillary Agreements. "Arbiter" has the meaning set forth in Section 2.3(b). "BE Closing Price" means Twenty-two Dollars and Forty Cents ($22.40). "BE Stock" means common stock of the Company presently trading under the symbol "BEAV" on the NASDAQ National Market. "Change of Control" means the occurrence of either of the following events: (a) Any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as defined in 1 Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company's then outstanding voting securities; or (b) Consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) a majority of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approving a plan of complete liquidation of the Company or a consummation of the sale or disposition by the Company of all or substantially all of the Company's assets. "Closing" has the meaning set forth in Section 3.1. "Closing Date" has the meaning set forth in Section 3.2. "Closing Date Initial Consideration Calculation" has the meaning set forth in Section 2.3(a). "Code" means the Internal Revenue Code of 1986, as amended. "Company" has the meaning set forth in the Preamble to this Agreement. "Company Ancillary Agreements" mean (a) an employment agreement between TLW and Mr. Carter Collins and (b) an employment agreement between TLW and Mr. Terry Windust, both in standard form used by the Company's Affiliates, on terms consistent with the Employment Term Sheets attached hereto as Exhibit A-1 and A-2 respectively. "Company Indemnified Parties" has the meaning set forth in Section 11.2. "Company's Accounting Firm" means Deloitte & Touche, LLP or any successor organization. "Confidential Information" means any information, in whatever form or medium, concerning the operations or affairs of TLW. "Contracts" means, collectively, all written or oral contracts, agreements, commitments, leases, licenses, instruments, bids and proposals to which TLW is a party as of the Closing Date, including, without limitation, those listed on Schedule 4.11, all unfilled orders outstanding as of the Closing Date for the purchase of goods or services by TLW and all unfilled orders outstanding as of the Closing Date for the sale of goods or services by TLW. "Contribution Margin" means net revenues (defined as gross revenues less discounts, less product returns, less freight), less material costs, less direct labor costs, less the cost of outside processing 2 "Disclosure Schedules" means, collectively, the various Schedules referred to in this Agreement. "EBITDA" means earnings before interest, tax, depreciation, and amortization calculated in a manner substantially similar to past practices of TLW and specifically excluding any costs relating to the relocation of TLW's production facility, including all TLW's costs associated with such relocation, and any corporate charges from the Company. "Effective Date" has the meaning set forth in Section 3.1. "Employee Benefit Plan" means an Employee Pension Benefit Plan or an Employee Welfare Benefit Plan, where no distinction is intended by the context in which the term is used. "Employee Pension Benefit Plan" has the meaning set forth in Section 3(2) of ERISA. "Employee Welfare Benefit Plan" has the meaning set forth in Section 3(1) of ERISA. "Environment" means soil, land surface or subsurface strata, real property, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), groundwater, water body sediments, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life and any other environmental medium or natural resource. "Environmental Liabilities and Costs" means all Losses incurred: (i) to comply with any Environmental Law; (ii) as a result of a Release of any Hazardous Materials; or, (iii) as a result of any environmental conditions present at, created by or arising out of the past or present operations of Shareholders or TLW through the Closing Date or of any prior owner or operator of a facility or site at which Shareholders or the TLW now operate or have previously operated. "Environmental Permits" means any Permit or authorization from any Governmental Entity required under, issued pursuant to, or authorized by any Environmental Law. "Environmental Law" means any Law with respect to the preservation of the environment or the promotion of worker health and safety, including but not limited to any Law whatsoever relating to Hazardous Materials, drinking water, surface water, groundwater, wetlands, landfills, open dumps, storage tanks, underground storage tanks, solid waste, waste water, storm water run-off, noises, odors, air quality, air emissions, waste emissions or wells. Without limiting the generality of the foregoing, the term will encompass each of the following statutes and the regulations promulgated thereunder, and any similar applicable state, local or foreign Law, each as amended (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, (b) the Solid Waste Disposal Act, (c) the Hazardous Materials Transportation Act, (d) the Toxic Substances Control Act, (e) the Clean Water Act, (f) the Clean Air Act, (g) the Safe Drinking Water Act, (h) the National Environmental Policy Act of 1969, (i) the Superfund Amendments and Reauthorization Act of 1986, (j) Title III of the Superfund Amendments and Reauthorization Act, (k) the Federal Insecticide, Fungicide and Rodenticide Act (l) the provisions of the Occupational Safety and Health Act of 1970 relating to the handling of and exposure to Hazardous Materials and similar substances; (m) California Environmental Quality Act; and (n) National Environmental Policy Act. 3 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow" has the meaning set forth in Section 2.4. "Escrow Agent" has the meaning set forth in Section 2.4. "Escrow Agreement" has the meaning set forth in Section 2.4. "Escrowed Shares" has the meaning set forth in Section 2.4. "GAAP" means United States generally accepted accounting principles, as in effect as of the date of this Agreement. "Governmental Entity" or "Governmental Entities" mean any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. "Government Subcontract" means any Contract that is a subcontract between TLW and any third party relating to a contract between such third party and any Governmental Entity. "Hazardous Materials" means each and every element, compound, chemical mixture, contaminant, pollutant, material, waste or other substance that is defined, determined or identified as hazardous, toxic or controlled under any Environmental Law or the Release of which is prohibited under any Environmental Law. Without limiting the generality of the foregoing, the term will include, without limitation, (a) "hazardous substances" as defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, or Title III of the Superfund Amendments and Reauthorization Act and regulations promulgated thereunder, each as amended, (b) "hazardous waste" as defined in the Solid Waste Disposal Act and regulations promulgated thereunder, each as amended, (c) "hazardous materials" as defined in the Hazardous Materials Transportation Act and the regulations promulgated thereunder, each as amended, (d) "chemical substance or mixture" as defined in the Toxic Substances Control Act and regulation promulgated thereunder, each as amended, (e) petroleum and petroleum products and byproducts and (f) asbestos. "Indemnified Party" has the meaning set forth in Section 11.5. "Indemnifying Party" has the meaning set forth in Section 11.5. "Initial Consideration" means the Reference Price plus Net Cash less Net Debt and less Taxes of TLW accrued on or before the Effective Date that are not previously paid or provided for by Shareholders from sources outside the TLW bank accounts or cash equivalents. "Intellectual Property" means the entire right, title and interest in and to all proprietary rights of every kind and nature, including without limitation patents, patent disclosures, copyrights, Trademarks, mask works, trade secrets and proprietary information, all applications for any of the foregoing, and any license or agreements granting rights related to any of the foregoing (i) subsisting in, covering, relying on, directly applicable to or existing in the Products 4 or the Technology, (ii) that are owned, licensed or controlled in whole or in part by TLW or any Subsidiary of TLW and relate to the business of TLW or any Subsidiary of TLW, or (iii) that are used in or necessary to the development, manufacture, sale, marketing or testing of, the Products collectively, and all registrations, applications, re-issuances, continuations, continuations-in-part, revisions, extensions, reexaminations and associated good will with respect to each of the foregoing, computer software (including source and object codes), computer programs, computer data bases and related documentation and materials, data, other documentation, trade secrets, all confidential business information (including ideas, formulas, compositions, inventions, know-how, manufacturing and production processes and techniques, research and development information, drawings, designs, plans, proposals and technical data, financial, marketing and business data and pricing and cost information) and all other intellectual property rights (in whatever form or medium). "Interim Financial Statements" has the meaning set forth in Section 4.5. "IRS" means the Internal Revenue Service of the United States Department of the Treasury. "Knowledge" has the following meaning: (a) Knowledge for purposes of this Agreement imposes an obligation on the party to make reasonable due inquiry with respect to the matter represented and, in any event, includes all information existing in the books, records and files of such party or its Affiliates, as well as reasonable due inquiry of TLW's employees (b) Knowledge of the Shareholder or words or phrases of similar import, as used in this Agreement, shall also include, without limitation, the knowledge of any of the Shareholders. "Law" means any constitutional provision, statute, law, rule, regulation, Permit, decree, injunction, judgment, order, ruling, determination, finding or writ of any Governmental Entity. "Liability" or "Liabilities" mean any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether incurred or consequential and whether due or to become due), including any liability for Taxes. "Lien" or "Liens" mean any mortgage, pledge, security interest, charge, claim or other encumbrance, other than (a) mechanics', materialmen's and similar liens with respect to amounts not yet due and payable, (b) liens for Taxes not yet due and payable and (c) liens securing rental payments under capital lease arrangements. "Losses" has the meaning set forth in Section 11.2. "Material" means, when used with respect to any matter, any adverse effect on the business, operations, assets or conditions, financial or otherwise, of TLW, which when (a) considered singly results in Losses of $5,000 or more or (b) considered in the aggregate together with all other such effects, events, occurrences or group of events or occurrences related by or to 5 a single customer, single supplier, single event or single action results in Losses of $5,000 or more, and it being understood that with respect to such representations as to which such phrase is used in the Agreement, Losses shall include the initial amount below such threshold if either threshold is reached. "Material Adverse Effect" means any adverse effect on the business, operations, assets, prospects or condition, financial or otherwise, of TLW which, when considered either singly or in the aggregate together with all other such effects with respect to which such phrase is used in this Agreement, constitutes a material adverse effect on the business, assets, operations, prospects or condition, financial or otherwise, of TLW taken as a whole. "Multi-employer Plan" has the meaning set forth in Section 3(37) of ERISA. "Net Cash" means net cash on the TLW balance sheet as of the close of business on the Closing Date plus deposits in transit, less checks, drafts or notes made payable by TLW not cleared, in transit or not paid as of the Closing Date. "Net Debt" means any debt owed by TLW for money borrowed, including all capitalized leases, loans from Shareholders, bank lines of credit, equipment installment notes or other notes payable as of the Closing Date, plus all transaction costs and expenses accrued as of the Closing Date. "Ordinary Course of Business" means the ordinary course of business of TLW consistent with past custom and practice (including with respect to quantity and frequency). "PBGC" means the Pension Benefit Guaranty Corporation. "Permit" or "Permits" mean any license, permit, franchise, certificate of authority or order, or any waiver of the foregoing, issued by any Governmental Entity. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a Governmental Entity. "Product" or "Products" mean all past and current products and services of TLW and, to the extent that they are currently being developed by TLW, (i) any subsequent versions of such products or services, (ii) any products or services which are designed to supersede, replace or function as a component of such products or services, and (iii) any upgrades, enhancements, improvements and modifications to the foregoing, and (iv) any data or information associated with the foregoing that is either provided to the customer, or required by the customer to be delivered. "Product Recall" means a request in writing from TLW to any person for the return of any Products for reasons of health, safety or compliance with any Law. "Prohibited Transactions" has the meaning set forth in Section 406 of ERISA and Section 4975 of the Code. 6 "Reference Price" means the amount of Four Million Eighty-five Thousand dollars ($4,085,000.00). "Registrable Securities" has the meaning set forth in Section 8.5(a). "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, storing, escaping, leaching, dumping, discarding, burying, abandoning or disposing into the environment. "Reportable Event" has the meaning set forth in Section 4043 of ERISA. "Safety Laws and Costs" means all Losses incurred to comply with any Safety Law or as a result of any health or safety conditions present at, created by or arising out of the past or present operations of TLW through the Closing Date "Safety Law" or "Safety Laws" means any Law or legal requirement relating to health or safety, including the Occupational Safety and Health Act, as amended, as now or hereinafter in effect relating to (a) exposure of employees to any Hazardous Materials or (b) the physical structure, use or condition of a building, facility, fixture or other structure, including, without limitation, those relating to equipment or manufacturing processes, or the management, Release, cleanup or removal of any Hazardous Materials. "Schedule" means, unless the context otherwise requires, the referenced Schedule included in the Disclosure Schedules. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Shareholders" has the meaning set forth in the Preamble to this Agreement. "Shareholder" means each Person set forth on Schedule 1 to this Agreement. "Shareholder Indemnified Parties" has the meaning set forth in Section 11.3. "Shareholders' Ancillary Agreements" means, as to each shareholder set forth on Schedule 1 hereof, a Non-Compete and Non-Solicitation Agreement among the Company, TLW and such Shareholder in substantially the form of Exhibit B attached hereto. "Shareholders' Representative" means Terry L. Windust, or in the event Terry L. Windust is unable to continue, any successor appointed by a plurality interest of the Shareholders, their successors, and assigns in and to the Escrowed Shares, or the proceeds thereof. "Subsidiary" means with respect to any Person, (i) any corporation of such Person or any of its Subsidiaries, a majority of whose outstanding voting stock is owned or controlled, directly 7 or indirectly, by such Person or by one or more of its Subsidiaries, or collectively by such Person and one or more of its Subsidiaries; (ii) any general partnership, joint venture or similar entity, a majority of whose outstanding partnership or similar interests is at the time owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries, or collectively by such Person and one or more of its Subsidiaries; (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner or a majority of whose ownership interests is owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries, or collectively by such Person and one or more of its Subsidiaries; and (iv) any limited liability company of which such Person or any of its Subsidiaries is a manager or a majority of whose ownership interests is owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries, or collectively by such Person and one or more of its Subsidiaries. For the purposes of this definition, "voting stock" or "ownership interests" means shares, interests, participations or other equity interests (however designated) in such Person having voting power in the election of directors (or the equivalents) of such Person (whether existing at the time or arising upon any known or contingent event or circumstance). "Tax" or "Taxes" mean taxes, fees, levies, duties, tariffs, imposts and governmental impositions, assessments or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local, or foreign taxing authority, including, without limitation, income, gross receipts, license, lease, service, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code ss. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar, including FICA), unemployment, disability, real property, personal property, sales, use, ad valorem, transfer, registration, value added, alternative or add-on minimum, estimated, or of any other kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" or "Tax Returns" shall mean any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Technology" means all inventions, copyrightable works, discoveries, innovations, know-how, ideas, research and development, formulae, compositions, processes and techniques, technical data, designs, drawings, specifications, customer and supplier information, pricing and cost information, business and marketing plans, proposals, documentation, manuals, software, firmware, hardware, integrated circuits and integrated circuit masks, electronic, electrical or mechanical equipment, machinery and tools, and all other forms and embodiments of technology of all kinds whatsoever, including without limitation improvements, modifications, derivatives or changes, whether tangible or intangible, embodied in any form, whether or not protectible or protected by patent, copyright, mask work right, trade secret law or otherwise. "TLW" has the meaning set forth in the Preamble to this Agreement. "TLW Customers" means those customers or contracts identified on Schedule 4.7(a-2). "TLW Shares" means, collectively, all of the issued and outstanding common stock of TLW. 8 "TLW Reference EBITDA" has the meaning set forth in Section 2.2(b). "TLW Reference EBITDA Work Papers" has the meaning set forth in Section 2.2(b). "Total Consideration" means the Initial Consideration subject to the adjustments in Section 2.3 plus the Additional Consideration set forth in Section 2.2(b). "Trademarks" means any trademarks, service marks, trade dress, logos and trade names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith. "Warranties" shall mean all Product returns, service, repair, replacement and other obligations based upon or arising out of express or implied warranties made or deemed applicable in connection with the sale of goods or the performance of services by TLW. "Year 2000 Compliant" means that systems and products accurately process date and time data (including, without limitation, calculating, comparing and sequencing) from, into and between the twentieth and twenty-first centuries, the years 1999, 2000, and 2001, and leap year calculations. "Year-End Financial Statements" has the meaning set forth in Section 4.5. Section 2. EXCHANGE OF SHARES. 2.1 Sale and Transfer of TLW Shares. On the terms and subject to the conditions set forth in this Agreement, at the Closing the Shareholders shall transfer and convey to the Company, and the Company shall acquire, all right, title and interest in and to the TLW Shares, free and clear of all Liens, claims, encumbrances, pledges, options, security interests and any other adverse claims or interests. At the Closing, each Shareholder shall deliver to the Company all certificates evidencing the TLW Shares owned by him, her or it, properly endorsed for transfer or accompanied by properly executed stock powers. 2.2 Consideration from Company for the TLW Shares. On the terms and subject to the conditions set forth in this Agreement, the Company covenants and agrees that in exchange for the transfer of the TLW Shares to Company by the Shareholders, Company shall deliver to the Shareholders' Representative and the Company's Transfer Agent, irrevocable instructions to immediately issue to the Escrow Agent an aggregate number of shares of BE Stock, valued at the BE Closing Price, equal to One Hundred and Twenty (120%) percent of the Reference Price plus an amount equal to Four Million Two Hundred Thousand ($4,200,000) dollars (One Hundred and Twenty (120%) percent of the maximum Additional Consideration set forth in Section 2.2(b)). The Escrow Agent, pursuant to the Escrow Agreement, will be instructed to release the Escrowed Shares or proceeds from the sale thereof as follows: (a) (i) Within ten (10) business days after the Closing Date, based on the Company's and any Arbiter's, if applicable, confirmation of the Net Cash and Net Debt pursuant to Section 2.3(a) and Section 2.3(b). Escrowed Shares valued at the BE Closing Price, or 9 proceeds therefrom, shall be released from Escrow, subject to the terms of the Escrow Agreement, to (i) the Shareholders, in proportion to the ownership of capital stock of TLW as set forth on Schedule 1, such that the total amount distributed to the Shareholders is equal to ninety-two percent (92%) of the Initial Consideration, and (ii) the Company in an amount equal: (i) Twenty (20%) of the Reference Price; plus (ii) the Reference Price less the Initial Consideration; plus (iii) Twenty (20%) percent of the maximum Additional Consideration; (ii) If the aggregate Net Proceeds received by the Shareholders and the Escrow Agent from the Sales in the Public Offering of the BE Stock divided by the number of Shares of BE Stock sold is greater than the BE Closing Price (the greater amount defined as the "Excess"), then within five (5) days after the closing of the Public Offering the Shareholders and the Escrow Agent shall remit and pay to the Company the Excess. (b) Additional Consideration. (i) Within thirty (30) calendar days (but in no case later than June 1, 2002) after the receipt from the Company's Accounting Firm of the audit for the Company fiscal year ending February 2002, Company will deliver to Shareholders' Representative a calculation of the TLW Reference EBITDA and all associated work papers ("TLW Reference EBITDA Work Papers"). TLW Reference EBITDA, subject to Section 2.2(b)(ii) below, is defined as the calculation of the sum of the following clauses I through VI inclusive: (I) TLW's EBITDA (excluding any Contribution Margin from Clauses II, IV and V below already included in TLW's EBITDA) for fiscal year ending February 2002; (II) thirty (30%) percent of Contribution Margin with respect to production work performed at TLW but originating from any entities subsequently acquired by the Company that are substantially consolidated into TLW; (III) five (5%) percent of all sales for fiscal year ending February 2002 to TLW Customers with respect to production work performed by either the Company or any Subsidiary of the Company other than TLW; (IV) thirty (30%) percent of the Contribution Margin with respect to production work performed by TLW but referred to TLW by the Company or any subsidiary of the Company other than TLW; (V) thirty (30%) percent of the Contribution Margin with respect to production work (other than the work listed in I through IV above) for which either Mr. Windust or Mr. Collins is called upon to perform any management or oversight activities; and (VI) any amount received by TLW or the Company from the Escrow that was returned as a result of an indemnity claim under Section 11.2. If within thirty (30) calendar days after delivery of the TLW Reference EBITDA to Shareholders' Representative, no written notice from Shareholders' Representative disputing the calculation of the TLW Reference EBITDA accompanied by Shareholders' Representative's alternative proposed TLW Reference EBITDA has been received by Company, then Shareholders shall be deemed to have waived the right to dispute the calculation of the TLW Reference EBITDA and, subject to adjustments described in Sections 2.3 and 11.2, Escrowed Shares valued at the BE Closing Price, or proceeds therefrom, in an amount equal to four (4) times that portion of the TLW Reference EBITDA that exceeds Six Hundred Thousand ($600,000.00) dollars shall be distributed, subject to the Escrow Agreement, to the Shareholders, provided that in no case shall the distribution exceed Three Million Five Hundred Thousand dollars ($3,500,000.00) (herein the "Additional Consideration"); and the difference, if any, between Three Million Five Hundred Thousand ($3,500,000) dollars and the Additional Consideration shall be distributed to the Company. 10 (ii) if the Company undergoes a Change of Control before the one year anniversary of the Closing Date, then the Company shall perform and deliver to the Shareholders two calculations of TLW Reference EBITDA. The first calculation shall be made by calculating the TLW Reference EBITDA on the date the Company underwent a Change of Control and annualizing that calculation. The second calculation shall be made as described in Section 2.4(b)(i) above. The Shareholders, in their sole discretion, shall decide which calculation shall be used in the calculation of Additional Consideration. (c) Subject to adjustments described in Sections 2.3 and 11.2, Escrowed Shares valued at the BE Closing Price, or proceeds from the sale thereof, in an amount equal four (4%) percent of the Initial Consideration will be disbursed from Escrow, subject to the Escrow Agreement, to the Shareholders fifteen (15) days after the receipt from the Company's Accounting Firm of the audit for the Company fiscal year ending February 2002, but in no case later than June 1, 2002; (d) Subject to adjustments described in Sections 2.3 and 11.2, Escrowed Shares valued at the BE Closing Price, or proceeds from the sale thereof, in an amount equal to the balance of the Initial Consideration in Escrow will be disbursed from Escrow, subject to the Escrow Agreement, to Shareholders within fifteen (15) days after the receipt from the Company's Accounting Firm of the audit for the Company fiscal year ending February 2003, but in no case later than June 1, 2003. (e) All remaining Escrowed Shares of BE Stock, or proceeds therefrom, shall be distributed, subject to the Escrow Agreement, to the Company. (f) For purposes of complying with the terms set forth in Section 2.2(b), each party promptly will cooperate with and make available to the other party and its auditors and representatives all information, records, data and auditors' working papers, as may be reasonably required in connection with the analysis of the TLW Reference EBITDA and TLW Reference EBITDA Work Papers 2.3 Adjustments of Total Consideration. (a) Within ten (10) days after the Closing Date, based on the Company's and any Arbiter's, if applicable, confirmation of Net Cash and Net Debt, the Company will deliver to Shareholders' Representative, the calculation with respect to the Net Cash and Net Debt, along with any associated work papers (the "Closing Date Initial Consideration Calculation"). (b) Within thirty (30) days after the delivery of the Closing Date Initial Consideration Calculation, the Shareholders' Representative will deliver written notice to the Company of any objections thereto, and will attempt in good faith to reach an agreement with the Company as to any matters in dispute. If Shareholders' Representative does not give such notice within such thirty (30) days, then Shareholders shall be deemed to have waived the right to dispute the Closing Date Initial Consideration Calculation. If Shareholders' Representative gives such notice within such thirty (30) days, and if the Company and the Shareholders' Representative, notwithstanding such good faith effort at resolution, fail to resolve all matters in dispute within fifteen (15) days after Company's receipt of Shareholders' objections, then any remaining disputed matters will be finally and conclusively determined by an independent 11 auditing firm of recognized national standing (the "Arbiter") promptly selected by the Company and the Shareholders' Representative, which firm will not be the regular auditing firm of the Company, TLW, Shareholders, or any Affiliate thereof. Promptly, but not later than forty-five (45) days after acceptance of its appointment, the Arbiter will determine (based solely on presentations by the Shareholders' Representative and the Company and not by independent review) only those matters in dispute and will render a written report as to the disputed matters and the resulting calculation of the Initial Consideration under Section 2.2(a), which report will be conclusive and final as to the Initial Consideration for purposes of Section 2.2(a), but shall not detract from the parties' remedies under Section 11. In resolving the dispute the Arbiter shall be limited to choosing the final proposal of either the Company or Shareholders' Representative. The fees and expenses of the Arbiter will be paid by the non-prevailing party with respect to the determination of the Arbiter as set forth in the Arbiter's report. The Arbiter's final report shall be submitted to the Escrow Agent within ten (10) days after it has been delivered to Shareholders' Representative and the Company. Following said delivery, the Escrow Agent will be instructed to act accordingly pursuant to Section 2.2. (c) For purposes of complying with the terms set forth in Section 2.3(b), each party will promptly cooperate with and make available to the other party and its auditors and representatives all information, records, data and auditors' working papers, as may be reasonably required in connection with the preparation and analysis of the Closing Date Initial Consideration Calculation. (d) If within thirty (30) calendar days after delivery of the TLW Reference EBITDA and TLW Reference EBITDA Work Papers to Shareholders' Representative, written notice from Shareholders' Representative disputing the calculation of the TLW Reference EBITDA accompanied by Shareholders' Representative's alternative proposed TLW Reference EBITDA is received by Company, and if the Company and the Shareholders' Representative, notwithstanding such good faith effort at resolution, fail to resolve all matters in dispute with respect to the calculation of the TLW Reference EBITDA within fifteen (15) days after Shareholders' objections are received by Company, then such remaining disputed matters will be finally and conclusively determined by binding arbitration administered by an Arbiter promptly selected by the Company and the Shareholders' Representative, which firm will not be the regular auditing firm of the Company, TLW, Shareholder or any Affiliate thereof. Promptly, but not later than forty-five (45) days after its acceptance of its appointment, the Arbiter will determine (based solely on presentations by the Shareholders' Representative and the Company and not by independent review) only those matters in dispute and will render a written report as to the disputed matters and the resulting calculation of the TLW Reference EBITDA under Section 2.2(b), which report will be conclusive and final as to the TLW Reference EBITDA for purposes of Section 2.2(b), but shall not detract from the parties' remedies under Section 11. In resolving the dispute the Arbiter shall be limited to choosing the final proposal of either Company or Shareholders' Representative. The fees and expenses of the Arbiter will be paid by the non-prevailing party with respect to the determination of the Arbiter as set forth in the Arbiter's report. Within ten (10) days after the Arbiter's determination of the TLW Reference EBITDA pursuant to this Section 2.3(d), Shareholders and the Company shall receive from Escrow, subject to the Escrow Agreement, an amount as determined pursuant to Section 2.2(b). 12 (e) For purposes of complying with the terms set forth in Section 2.3(d), each party promptly will cooperate with and make available to the other party and its auditors and representatives all information, records, data and auditors' working papers, as may be reasonably required in connection with the analysis of the TLW Reference EBITDA and TLW Reference EBITDA Work Papers. (f) In addition to all other rights and remedies under Section 11 of this Agreement, the Company shall have recourse, subject to the Escrow Agreement, to withhold and set off any unpaid portions of the Escrowed Shares or proceeds from the sale thereof held in Escrow, in partial satisfaction of Shareholders' obligations to the Company Indemnified Parties under Section 11 on a dollar-for-dollar basis. No failure to withhold by Escrow Agent or the Company any amount held in Escrow from Shareholders shall constitute a waiver or release of any kind whatsoever. 2.4 Escrow. At the Closing, the Company shall deposit or cause to be deposited, shares of BE Stock valued at the BE Closing Price in an aggregate amount equal to One Hundred and Twenty (120%) percent of the Reference Price, plus an amount equal to Four Million Two Hundred Thousand ($4,200,000) dollars (One Hundred and Twenty (120%) percent of the maximum Additional Consideration set forth in Section 2.2(b)) ("the Escrowed Shares"), into an escrow account ("Escrow") to be established with an escrow agent (the "Escrow Agent") selected by the Company, reasonably acceptable to the Shareholders, pursuant to an escrow agreement, dated the Effective Date, substantially in the form of Exhibit C-1 (the "Escrow Agreement"). The Escrow Agent will hold the Escrowed Shares as provided by, and in accordance with, the obligations of the Shareholders under Sections 2.2 and 11.2 hereof. The Escrow Agreement shall provide for the distribution of the Escrowed Shares (or proceeds from the sale thereof) from the Escrow pursuant to Sections 2.2(a), (b), (c), (d) and (e), subject to claims of the Company under Section 11.2 or reduction in the Initial Consideration under Section 2.2 or reduction in the Additional Consideration under Sections 2.2 and 2.3. Following the initial distribution from Escrow of Escrowed Shares, or proceeds therefrom, pursuant to Section 2.2(a), the Escrow Agent shall hold the remaining Escrowed Shares or proceeds therefrom equal to eight (8%) of the Initial Consideration, plus the maximum amount of the Additional Consideration, subject to further distribution under the Escrow Agreement. Investment earnings on any balances in the Escrow shall accrue to the benefit of the Shareholders and the Company, pro rata to the distributions made under Sections 2.2(a), (b), (c), and (d), and any fees for maintaining the Escrow, shall be paid from the balances in the Escrow, and if either not practical or if necessary paid directly by the Shareholders and the Company, pro rata to the distributions made under Sections 2.2(a), (b), (c), and (d). No Escrowed Shares, or proceeds from the sale thereof, shall be distributed to Shareholders' Representative or any Shareholder except pursuant to the Escrow Agreement in compliance with the terms and conditions of this Agreement. Any Escrowed Shares released from the Escrow to either the Shareholders, Shareholders' Representative or the Company shall be valued for purposes of satisfying the Total Consideration owing under this Agreement to the Shareholders at the BE Closing Price without reference to the stock's then actual market price. The Company and Shareholders shall be responsible for, as applicable, pro rata based on the distributions made under Sections 2.2(a), (b), (c), and (d), and shall pay when due, any and all Taxes imposed upon or arising from the Escrowed Shares, as well as any fees and costs of Escrow Agent for 13 maintaining the Escrow. The Shareholders and Company agree that the Escrow Agent will be instructed to sell the Escrowed Shares at the earliest opportunity and that the proceeds from the sale thereof shall be substituted in place of the Escrowed Shares. Accordingly, the Shareholders and the Company hereby irrevocably authorize and direct the Escrow Agent and any agents or representatives of the Company to take any and all actions necessary or appropriate, in such Person's sole and absolute discretion, to effect sales of Escrowed Shares on such terms and conditions (and only on such terms and conditions), and at such times and utilizing such underwriters and brokers, as shall be directed and approved by the Company in a written notice (a "Sale Notice") to be delivered to the Escrow Agent. 2.5 Guarantied Proceeds; Mandatory and Optional Cash Payments. In the event that the aggregate Net Proceeds (as defined below) received by the Shareholders or the Escrow Agent from sales in the Public Offering of the BE Stock divided by the number of shares of BE Stock sold are less than the BE Closing Price, then, within 5 days after closing of the Public Offering, the Company shall pay to the Shareholders (or their designee or custodian), or, in regard to Escrowed Shares, to the Escrow Agent, an aggregate amount equal to the Initial Consideration minus the sum of the Net Proceeds received on account of the sales of BE Stock by the Shareholders or the Escrow Agent, allocated according to actual amounts of the deficiency for each. In the event that the aggregate Net Proceeds received by the Shareholders and the Escrow Agent from the sale of BE Stock exceeds the Initial Consideration, the Company shall have no obligation to make any payment pursuant to this Section 2.5, and the Shareholders and the Escrow Agent shall remit or cause to be remitted to the Company such excess amounts within the five (5) day period described in the first sentence of this Section 2.5 As used herein, "Net Proceeds" means (x) in the case of an underwritten sale of BE Stock, the gross proceeds received by the Shareholders and the Escrow Agent in such sale, net of underwriter's discounts, commissions and other expenses paid by the Shareholders (whether incurred by the Shareholders, the Company, the underwriters or any advisors) in connection with such sale and (y) in the case of any other sale of such shares, the gross proceeds received by the Shareholders and the Escrow Agent, net of selling commissions paid in connection with such sale and all other expenses paid by the Shareholders (whether incurred by the Shareholders, the Company, placement agents or any broker dealers), in connection with such sale. In the event that not all of the BE Stock received by the Shareholders or held in escrow are sold in the Public Offering, the Company shall have the right to terminate or withdraw any registration initiated by it and to elect, at its sole option by giving written notice to the Shareholders and the Escrow Agent, to pay the Shareholders or the Escrow Agent in cash an amount per share of unsold BE Stock equal to the BE Closing Price multiplied by the number of unsold shares of BE Stock, and in exchange for such payment, the Shareholders and the Escrow Agent shall transfer to the Company all right and interest in and to the shares of BE Stock that they have not previously sold. If all unsold shares of BE Stock are not theretofore paid for by the Company, then during the week of August 26, 2001, each Shareholder may require the Company to purchase any or all of the unsold shares of BE Stock for an amount equal to the BE Closing Price multiplied by the number of shares that the Shareholder requires that the Company purchase, plus an amount, as interest, that would accrue at the rate of 8% per annum from the Closing Date to the 180th day after the Closing Date. Section 3. CLOSING AND CLOSING DATE. 14 3.1 Closing. Subject to the provisions of Section 10, the consummation of the transactions contemplated by this Agreement (the "Closing") will take place at the offices of Yocca Patch & Yocca, LLP, 19900 MacArthur Boulevard, Suite 650, Irvine, California, on February 26, 2001, or at such other place or on such other date as the Company and the Shareholders may mutually agree. Notwithstanding the foregoing, the parties agree that the Company intends, for financial reporting purposes, to treat the Closing and transfer of effective control of TLW as if it had occurred on February 24, 2001 (the "Effective Date"). 3.2 Closing Date. The date on which the Closing actually takes place is referred to in this Agreement as the "Closing Date." Except as provided in Section 3.1 for financial reporting purposes, the Closing will be deemed for all other purposes under this Agreement to have occurred as of 12:01 A.M., California time, on the Closing Date. 3.3 Deliveries at the Closing. At the Closing, (a) the Shareholders will deliver to the Company the various certificates, instruments, documents and agreements referred to in Section 10.1, (b) the Company will deliver to the Shareholders the various certificates, instruments, documents and agreements referred to in Section 10.2, (c) the Shareholders will deliver to the Company stock certificates evidencing all of the TLW Shares, endorsed in blank or accompanied by duly executed assignment documents, and (d) the Company will deliver to the the Escrow Agent an aggregate number of shares of BE Stock valued at the BE Closing Price equal to One Hundred Twenty (120%) percent of the Reference Price plus and amount equal to Four Million Two Hundred Thousand ($4,200,000) dollars (One Hundred Twenty (120%) percent of the maximum Additional Consideration). 3.4 Bank Signature Cards. At closing, TLW and the Shareholders, as applicable, will deliver to the Company signature cards for all TLW Bank Accounts. Section 4. REPRESENTATIONS AND WARRANTIES OF TLW AND SHAREHOLDERS. The Shareholders, severally and jointly, and TLW represent and warrant to the Company that the statements contained in this Section 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though then made and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4). 4.1 Organization. TLW is a corporation duly organized, validly existing and in good standing under the laws of the State of California. TLW is duly qualified to conduct business and in good standing under the laws of each jurisdiction where such qualification is required. TLW has full corporate power and authority and all Permits and authorizations necessary to carry on the businesses in which they are engaged and in which they presently propose to engage and to own and use the properties owned and used by them. 4.2 Authorization of Transaction. Each of the Shareholders has the capacity and authority to execute and deliver this Agreement and to perform their respective obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Shareholders, enforceable in accordance with its terms and conditions. 15 4.3 Noncontravention; Consents. (a) Neither the execution and delivery of this Agreement, nor the consummation by TLW and the Shareholders of the transactions contemplated hereby, will violate any Law to which TLW or the Shareholders are subject or any provision of the charter or bylaws of TLW. Except as set forth on Schedule 4.3(a), neither the execution and delivery of this Agreement by the Shareholders, nor the consummation by TLW or the Shareholders of the transactions contemplated hereby, will constitute a violation of, be in conflict with, constitute or create a default under or result in the creation or imposition of any Lien upon any property of TLW or the Shareholders pursuant to any agreement or commitment to which TLW or any of the Shareholders is a party or by which TLW, the Shareholders or any of their respective properties (including TLW Shares) is bound or to which TLW, the Shareholders or any of such properties is subject. (b) Except as set forth on Schedule 4.3(b), TLW and the Shareholders have given all required notices and obtained all licenses, Permits, consents, approvals, authorizations, qualifications and orders of Governmental Entities as are required in order to enable the Shareholders to perform their obligations under this Agreement, including all consents and approvals required to permit the Shareholders to transfer all of the TLW Shares to the Company. No Contract relating to TLW has been amended to increase the amount payable thereunder or otherwise modify the terms thereof in order to obtain any such consent, approval or authorization. 4.4 Capitalization. Schedule 4.4 sets forth for TLW (i) the number of shares of authorized capital stock of each class of its capital stock, (ii) the number of issued and outstanding shares of each class of its capital stock, (iii) the names of its directors and elected officers, and (iv) the owners of its capital stock. The Shareholders have delivered to the Company correct and complete copies of the charter and bylaws of TLW as amended to date. All of the issued and outstanding shares of capital stock of TLW have been duly authorized and are validly issued, fully paid and nonassessable. As of immediately prior to the Closing the Shareholders hold of record and own beneficially, and upon the Closing the Shareholders shall transfer, assign and convey to Company, all right, title and interest in and to all of the outstanding shares of stock of TLW, free and clear of any restrictions on transfer (other than restrictions under the Securities Act, and applicable state securities laws), Taxes, Liens, options, warrants, purchase rights, contracts, commitments, equities, claims or demands. Except as set forth on Schedule 4.4, there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other contracts or commitments that could require the Shareholders or TLW to sell, transfer or otherwise dispose of any capital stock of TLW or that could require TLW to issue, sell or otherwise cause to become outstanding any of its own capital stock. There are no outstanding stock appreciation, phantom stock, profit participation or similar rights with respect to TLW. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of TLW. TLW is not in default under or in violation of any provision of its charter or bylaws. Except as set forth on Schedule 4.4, TLW neither controls directly or indirectly, nor has any direct or indirect equity participation in, any Person. 16 4.5 Financial Statements. Set forth in Schedule 4.5(a-1) are correct and complete copies of the unaudited balance sheets of TLW as of June 30, 1998, June 30, 1999 and June 30, 2000 and the related statements of income and cash flow for the years then ended (the "Year-End Financial Statements"). The Year-End Financial Statements were prepared consistent with past accounting practices and present fairly the financial condition and the results of operations of TLW as of the dates and for the periods indicated therein in accordance with GAAP (except as set forth in Schedule 4.5(a-2)). Set forth in Schedule 4.5(a-3) are correct and complete copies of the unaudited balance sheet of TLW as of January 31, 2001 and the related statements of income and cash flow for the seven months then ended (the "Interim Financial Statements"). The Interim Financial Statements were prepared consistent with past accounting practices and present fairly the financial condition and the results of operations of TLW as of the date and for the period indicated in accordance with GAAP (except as set forth in Schedule 4.5(a-2)), except for normal year-end adjustments. 4.6 Undisclosed Liabilities. TLW has no Liabilities that exceed, individually or in the aggregate, Five Thousand Dollars ($5,000), except for liabilities and obligations (i) reflected or reserved for on the Interim Financial Statements, (ii) that have arisen since the date of the Interim Financial Statements in the ordinary course of the operation of TLW (none of which results from, arises out of, relates to, any breach of contract, breach of warranty, tort, infringement or violation of Law) or (iii) as set forth on Schedule 4.6. 4.7 Customers and Suppliers. Except as set forth in Schedule 4.7(a-1), since December 31, 2000, no event or condition has arisen that would reasonably be expected to result in any of the major customers or sole-source or key suppliers of TLW to cease doing business with TLW or to curtail its business with TLW in any Material respect. TLW and Shareholders' have received no notice from any major customers or major suppliers that the transactions contemplated by this Agreement will result in a Material change in the manner of conducting business with TLW. Listed in Schedule 4.7(a-2) are the names and addresses of TLW's customers for 1999 and for 2000. Listed in Schedule 4.7(a-3) are the names and addresses of all major suppliers and all sole source suppliers to TLW for 1999 and for 2000, and the amount for which each supplier invoiced TLW during such period. 4.8 Events Subsequent to Most Recent Fiscal Year End. Since June 30, 2000, there has not been any Material adverse change in the business, financial condition, operations, results of operations, or future prospects of TLW except as disclosed on Schedule 4.8. 4.9 Accounts Receivable. The accounts receivable reflected on the Interim Financial Statements are bona fide receivables, accounted for on a basis consistent with that used in the preparation of the Interim Financial Statements, including any associated reserves, representing amounts due with respect to actual transactions in the ordinary course of the operation of TLW. 4.10 Tax Matters. (a) Except as set forth in Schedule 4.10, (i) all Tax Returns that are required to be filed by or with respect to TLW, have been duly filed, and TLW is not the beneficiary of any extension of time within which to file any Tax Return, (ii) the Shareholders have delivered to the Company correct and complete copies of all federal income Tax Returns, examination 17 reports and statements of deficiencies assessed against or agreed to by TLW for the last three taxable years, (iii) such Tax Returns are true, complete and correct in all Material respects, (iv) all Taxes due and payable by TLW have been paid in full, (v) no waivers of statutes of limitation have been given by or requested with respect to any Taxes of TLW, (vi) there is no claim or assessment threatened by any taxing authority against TLW, (vii) TLW has withheld and timely paid to the appropriate taxing authority the required amounts in compliance with all Tax withholding provisions of applicable Laws, (viii) no claim has ever been made by an authority in a jurisdiction where TLW does not file Tax Returns that TLW may be subject to taxation by that jurisdiction, and (ix) there are no Liens on any of the assets of TLW that arose in connection with any failure (or alleged failure) to pay any Tax. (b) No Shareholder, director or officer (or employee responsible for Tax matters) of TLW expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute, audit, investigation, proceeding or claim concerning any Liability with respect to Taxes of TLW either (i) claimed or raised by any authority in writing or (ii) as to which any of TLW or the Shareholders have Knowledge based upon contact with any such authority. No federal, state, local, and foreign income Tax Returns filed with respect to TLW have been audited and none are currently open or the subject of audit. (c) TLW does not have any Liability for the Taxes of any Person other than TLW under Treasury Regulation ss. 1.1502-6 (or any similar provision of Law), as a transferee or successor, by contract, or otherwise. (d) TLW has not filed a consent under Code ss. 341(f) concerning collapsible corporations. TLW has not made any payments, nor is it obligated to make any payments, nor is it a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code ss.ss. 162, 280G or 404. TLW has not been a United States real property holding corporation within the meaning of Code ss. 897(c)(2) during the applicable period specified in Code ss. 897(c)(1)(A)(ii). TLW has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of the Code ss. 6662. (e) No TLW asset is property which TLW is required to treat as being owned by any other person pursuant to the so-called "safe harbor lease" provisions of former Section 168(f)(8) of the Code. None of the TLW assets is "Tax-exempt use property" within the meaning of Section 168(h) of the Code. TLW has not agreed to make, nor is it required to make, any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. TLW has not participated in (and will not participate in) an international boycott within the meaning of Section 999 of the Code. TLW is not a person other than a United States person within the meaning of the Code. The transaction contemplated herein is not subject to the Tax withholding provisions of Code Section 3406, or of subchapter A of Chapter 3, of the Code or of any other provision of Law. TLW does not have and has not had a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country. TLW is not a party to any joint venture, partnership, or other arrangement or contract that could be treated as a partnership for federal income Tax purposes. 18 (f) Except as disclosed on Schedule 4.10(f), TLW has duly and timely paid all Taxes relating to the business of TLW (whether or not shown on any Tax Return) due to any Governmental Entity prior to the Closing, or has set up an adequate reserve for all such Taxes outside of any source of funds of TLW. 4.11 Contracts. (a) Schedule 4.11 contains a list of all material Contracts, including a description of the terms of all material Contracts not in writing. Without limiting the foregoing, all Contracts with terms exceeding one year or involving consideration in excess of $5,000 shall be deemed material. (b) The Shareholders have made available to the Company correct and complete copies of all items, as amended, listed on Schedule 4.11 that are in writing, and the descriptions contained on Schedule 4.11 of all items listed therein that are not in writing are complete and correct. Each Contract is a valid, binding and enforceable obligation of TLW and the other party or parties thereto and is in full force and effect. Except as set forth on Schedule 4.11, (i) neither TLW nor, to TLW's Knowledge, any other party thereto, is in material breach of any term of any Contract or has repudiated any term of any Contract, (ii) no event, occurrence or condition exists that, with the lapse of time, the giving of notice, or both, would become a material default under any Contract by TLW, or, to TLW's Knowledge, any other party thereto, (iii) TLW has neither waived nor released any of its material rights under any Contract, and (iv) neither TLW, nor the Shareholders, have received any communication questioning the validity or enforceability of any Contract. The execution, delivery and consummation of the transactions contemplated by this Agreement shall not constitute a breach or default under, or give rise to a right of termination under or otherwise adversely affect any provision of any of the Contracts. 4.12 Real Property. (a) Schedule 4.12(a-1) lists all lease and sublease agreements relating to real property leased or subleased by TLW. Except as set forth on Schedule 4.12(a-2), with respect to each such lease and sublease: (i) such lease or sublease constitutes the entire agreement to which TLW is a party with respect to the real property leased thereunder; (ii) TLW has not assigned, sublet, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold; (iii) all facilities leased or subleased thereunder have received all material approvals of Governmental Entities (including all Permits) required in connection with the operation thereof and have been operated and maintained in all material respects in accordance with all applicable Laws; and (iv) there is no action, suit or proceeding pending against TLW or, to Shareholders' Knowledge, any action, suit or proceeding pending or threatened against TLW or 19 any third party that would interfere with the quiet enjoyment of such leased real property after the Closing Date. (b) All of the real property and facilities used by TLW, and all components of all improvements included within such property, are in good working order and repair, reasonable wear and tear excepted, and do not require Material repair or replacement in order to serve their intended purposes in all Material respects, including use and operation consistent with their present use and operation, except for scheduled maintenance, repairs and replacements conducted or required in the ordinary course of the operation of such real property or improvements. (c) Other than options, rights of first refusal or other similar arrangements in favor of TLW under the leases and subleases relating to the real property leased by TLW, TLW has not entered into any contract, arrangement or understanding with respect to the future ownership, development, use, occupancy or operation of any parcel of real property. (d) There are no pending or threatened or contemplated condemnation or eminent domain proceedings that affect the real property leased by TLW, and TLW has not received any notice, oral or written, of the intention of any Governmental Entity or other Person to take or use all or any part thereof. (e) Since TLW's leasing of the real property leased by TLW, none of such property or any part thereof has suffered any Material damage by fire or other casualty that has not been completely restored. (f) TLW has not received any written notice from any insurance company that has issued a policy to TLW with respect to any of its leased real property requiring the performance of any structural or other repairs or alterations to such property. (g) TLW does not now own, and has never owned any real property. All real property previously leased by TLW is identified as such in Schedule 4.12(g). 4.13 Title and Related Matters. Except as set forth on Schedule 4.13, TLW now has, and on the Closing Date will have, good and marketable title to all the properties and assets used by TLW in its business or as shown on the Interim Financial Statements, free and clear of all Liens, except for properties and assets disposed of in the Ordinary Course of Business. 4.14 Intellectual Property. (a) TLW owns or has the right to use pursuant to valid license, sublicense, agreement or permission all Intellectual Property necessary or desirable for the operations of TLW as presently conducted. TLW owns common law Trademark rights to the T. L. Windust Machine and T. L. Windust names and marks. (b) TLW has neither interfered with, nor infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of third parties. TLW has not received any charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation or violation (including any claim that it must license or refrain 20 from using any Intellectual Property rights of any third party). To TLW's Knowledge, no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of TLW. (c) Schedule 4.14(c) identifies each patent and each registered Trademark, and copyright owned by TLW and identifies each pending patent application or application for registration that has been filed by TLW. The Shareholders have made available to the Company correct and complete copies of all such patents, registrations and applications, each as amended to date, and correct and complete copies of all other written documentation evidencing ownership and prosecution of each such item. With respect to each such item of Intellectual Property required to be identified in Schedule 4.14(c): (i) TLW possesses all right, title and interest in and to such item, free and clear of any Lien, license or other restriction; (ii) such item is not subject to any outstanding injunction, judgment, order, decree, ruling or charge; (iii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to TLW's Knowledge, threatened that challenges the legality, validity, enforceability, use or ownership of such item; and (iv) TLW has not agreed to indemnify any Person for or against any interference, infringement, misappropriation or other conflict with respect to such item except to the extent specifically disclosed in Schedule 4.14(c). (d) Schedule 4.14(d) identifies each license, sublicense, agreement or permission pursuant to which TLW uses any item of Intellectual Property. With respect to each such license, sublicense, agreement or permission: (i) to TLW's Knowledge, the underlying item of Intellectual Property is not subject to any outstanding injunction, judgment, order, decree, ruling or charge; (ii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to TLW's Knowledge, threatened that challenges the legality, validity or enforceability of the underlying item of Intellectual Property; (iii) the execution, delivery and consummation of transactions contemplated by this Agreement shall not constitute a breach or default or, give rise to a right of termination thereunder, or otherwise adversely affect the ability of TLW, Company or its Affiliates to use the Intellectual Property in conducting the business of TLW after the Effective Date; and (iv) TLW has not granted any sublicense or similar right with respect to such license, sublicense, agreement or permission. 4.15 Litigation. Schedule 4.15 sets forth each instance in which TLW is (a) subject to any unsatisfied judgment order, decree, stipulation, injunction or charge or (b) a party to or, to 21 TLW's Knowledge, is threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing or investigation of or in any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction, or (c) subject to any Product Recall relating to TLW Products since TLW's incorporation. There are no judicial or administrative actions, proceedings or investigations pending or, to TLW's Knowledge, threatened that question the validity of this Agreement or any action taken or to be taken by TLW or the Shareholders in connection with this Agreement or that, if adversely determined, would have a Material Adverse Effect upon TLW or the Shareholders' ability to enter into or perform their respective obligations under or contemplated by this Agreement to which any of them is a party. 4.16 Employee Benefits. (a) Schedule 4.16(a) lists each Employee Benefit Plan that TLW maintains with respect to the current or former employees of TLW or to which TLW contributes with respect to any of the current or former employees of TLW. With respect to each such Employee Benefit Plan: (i) such Employee Benefit Plan (and each related trust, insurance contract or fund) complies in form and in operation in all respects with the applicable requirements of ERISA, the Code and other applicable Laws; (ii) all required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports and Summary Plan Descriptions) have been filed or distributed appropriately with respect to such Employee Benefit Plan and the requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code have been met with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan; (iii) all contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan and all contributions for any period ending on or before the Effective Date which are not yet due have been paid to each such Employee Pension Benefit Plan. All premiums or other payments for all periods ending on or before the Effective Date have been paid with respect to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan. Nothing has occurred or is expected to occur which would cause a Material increase in the cost of providing benefits to each such Employee Benefit Plan; (iv) each such Employee Benefit Plan which is an Employee Pension Benefit Plan meets the requirements of a "qualified plan" under Section 401(a) of the Code and has received, within the last three years, a favorable determination letter from the IRS, and its related trust has been determined to be exempt from taxation under Section 501(a) of the Code. Nothing has occurred since the date of such favorable determination letter that would adversely affect such qualification or exemption; and (v) the Shareholders have made available to the Company correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the IRS, the most recent Form 5500 Annual Report, and all 22 related trust agreements, insurance contracts and other funding agreements which implement such Employee Benefit Plan. (b) With respect to each Employee Benefit Plan that TLW maintains or ever has maintained, or to which it contributes, ever has contributed or ever has been required to contribute, there have been no Prohibited Transactions with respect to such Employee Benefit Plan, no fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of such Employee Benefit Plan, and no action, suit, proceeding, hearing or investigation with respect to the administration or the investment of the assets of such Employee Benefit Plan (other than routine claims for benefits) is pending or, to TLW's Knowledge, threatened. (c) Except as set forth on Schedule 4.16(c), TLW neither contributes to, nor has ever contributed to or has ever been required to contribute to any Multi-employer Plan or has any liability (including withdrawal liability) under any Multi-employer Plan. None of the transactions contemplated by this Agreement or any Ancillary Agreement will trigger any withdrawal or termination liability under any Multi-employer Plan set forth on Schedule 4.16(c). 4.17 Environmental Matters (a) Except as set forth on Schedule 4.17(a): (i) TLW is and has been in compliance with all applicable Environmental Laws and Safety Laws the violation of which could have a Material Adverse Effect; (ii) TLW has obtained, and is and has been in Material compliance with the conditions of, all Environmental Permits required for the continued conduct of the business of TLW in the manner now conducted and presently proposed to be conducted; (iii) TLW has filed all required applications, notices and other documents necessary to effect the timely renewal or issuance of all Environmental Permits for the continued conduct of the business of TLW in the manner now conducted and presently proposed to be conducted; (iv) there are no past or present events, conditions or circumstances related to environmental or health and safety matters that are likely to have a Material Adverse Effect or which would interfere with compliance with any Environmental Law or Permit or Safety Law; (v) there are no circumstances or conditions present at or arising out of the present or, to the Knowledge of the Shareholders, former assets, properties, leaseholds, businesses or operations of TLW in respect of off-site storage, transportation or disposal of, or any off-site Release of Hazardous Materials which reasonably may be expected to give rise to any Environmental Liabilities and Costs; 23 (vi) there are no circumstances or conditions present at or arising out of the present or former assets, properties, leaseholds, businesses or operations of TLW, including but not limited to any on-site storage, use, disposal or Release of Hazardous Materials, which reasonably may be expected to give rise to any Environmental Liabilities and Costs or Safety Liability and Costs; (vii) none of TLW or the Shareholders or the present or past assets, properties, business, leaseholds or operations of TLW has received or is subject to, or within the past three years has been subject to, any outstanding order, decree, judgment, complaint, agreement, claim, citation, or notice or is subject to any ongoing judicial or administrative proceeding indicating that TLW, the Shareholders or the past and present assets, properties, business, leaseholds, or operations of TLW are or may be: (A) in violation of any Environmental Laws; (B) in violation of any Safety Laws; (C) responsible for the on-site or off-site storage or Release of any Hazardous Materials; or, (D) liable for any Environmental Liabilities and Costs or Safety Liabilities and Costs; (viii) none of TLW or the Shareholders have any reason to believe that TLW will become subject to a matter identified in subsection (vii); and, no investigation or review with respect to such matters is pending or, to the Knowledge of TLW or the Shareholders, is threatened, nor has any authority or other third-party indicated an intention to conduct the same; (ix) neither the business of TLW nor any of its properties or assets is subject to, or as a result of the transactions contemplated by this Agreement will be subject to, the requirements of any Environmental Laws which require notice, disclosure, cleanup or approval prior to transfer of the shares or the business of TLW or which will impose Liens on any such asset or property or otherwise interfere with or affect the business of TLW; (x) Schedule 4.17(a)(x) lists all property presently or previously leased, owned or operated by TLW and identifies all such property (and the area within that property) that has been used by TLW or, to the Knowledge of the Shareholders, by any other Person (including a prior owner or operator) for the storage or disposal of Hazardous Materials); (xi) Schedule 4.17(a)(xi) lists all off-site locations, including, without limitation, commercial waste disposal facilities or municipal landfills, to which or at which Hazardous Materials originating from TLW, or its assets, properties or business have been sent (or otherwise have come to be located) in amounts that would require a waste manifest under the Resource Conservation and Recovery Act of 1976 as now in effect for treatment, storage, disposal, reuse or recycling; (xii) Schedule 4.17(a)(xii) of the Disclosure Schedule sets forth a list of all underground storage tanks owned or operated at any time by TLW and except as disclosed in 24 Schedule 4.17(xii) of the Disclosure Schedule, no such tank is leaking or has leaked at any time in the past, and there is no pollution or contamination of the Environment caused by or contributed to or threatened by a Release of a Hazardous Materials from any such tank; and (xiii) Schedule 4.17(a)(xiii) lists all environmental audits, inspections, assessments, investigations or similar reports in TLW's possession or of which the Shareholders or TLW have Knowledge relating to the assets, properties, or business of TLW or the compliance of the same with applicable Environmental Laws and Safety Laws. (xiv) Schedule 4.17(a)(xiv) sets forth the nature and quantities of any Hazardous Materials (as defined below) generated, transported or disposed of by TLW during the past three years (other than raw material awaiting manufacturing, work-in-process or finished goods and through the sale of products in the ordinary course of business), together with a description of the location of each such activity; and (xv) Schedule 4.17(a)(xv) sets forth a summary of the nature and quantities of any Hazardous Materials that have been disposed of or found at any site or facility owned or operated presently or at any previous time by TLW (other than raw material awaiting manufacturing, work-in-process or finished goods and through the sale of products in the ordinary course of business). For purposes of this Section 4.17 only, all references to "TLW" are intended to include any and all other entities to which, to the Knowledge of the Shareholders, TLW may be considered a successor under applicable Environmental Laws. 4.18 Legal Compliance. Except as set forth on Schedule 4.18, TLW has complied in all Material respects with all applicable Laws and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has been filed or commenced against or, to TLW's Knowledge, has been threatened against TLW alleging any failure to so comply, and TLW has neither been debarred from bidding on any project for any Governmental Entity nor subject to any debarment proceedings involving any Governmental Entity. 4.19 Insurance. Schedule 4.19 contains a correct and complete list of all insurance policies pursuant to which TLW is insured as of the date of this Agreement or, to Shareholders' knowledge, were insured prior to the date hereof, and no such policies subject TLW to any obligations for retrospective claims or adjustments. 4.20 Bank Accounts and Powers. Schedule 4.20 lists by name, address and account number, each bank, trust company, savings institution, brokerage firm, mutual fund or other financial institution with which TLW has an account or safe deposit box and the names and identification of all Persons authorized to draw thereon or to have access thereto. Schedule 4.20 lists the names of each Person holding powers of attorney or agency authority from TLW and a summary of the terms thereof. 25 4.21 Brokers' Fees. Neither TLW nor the Shareholders have any liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Company could become liable or obligated or for which TLW, after the Closing Date, will have any continuing obligation. 4.22 Year 2000 Compliance. Except as set forth on Schedule 4.22, all software, hardware, databases, and devices that run under the control of a microprocessor used by TLW, and each of the Products of TLW, are Year 2000 Compliant. 4.23 Equipment. (a) Schedule 4.23(a-1) lists all lease agreements relating to equipment, furniture or trade fixtures leased by TLW. Except as set forth on Schedule 4.23, all equipment, furniture or trade fixtures used or located in the business or operations of TLW is in good working order and repair, reasonable wear and tear excepted, have been operated and maintained in all Material respects in accordance with all applicable Laws; and do not require Material repair or replacement in order to serve their intended purposes in all Material respects, including use and operation consistent with their present use and operation, except for scheduled maintenance, repairs and replacements conducted or required in the ordinary course of the operation thereof. TLW has not received any written notice from any insurance company that has issued a policy to TLW with respect to any of its equipment, including trade fixtures, requiring the performance of any structural or other repairs or alterations to such property. (b) Schedule 4.23(b-1) lists all personal property owned by TLW. Except as listed on Schedule 4.23(b-2) all personal property used in connection with or in furtherance of TLW's business or operations listed on Schedule 4.23(b-1) is property of TLW, subject to any leases identified in Schedule 4.23(a-1). 4.24 Product Warranties and Liabilities. Schedule 4.24(a-1) sets forth all Warranties (as hereinafter defined) given or made by TLW. TLW has not extended or granted any return rights or given or made any Warranties with respect to any Products sold or services performed by it, except for those set forth in Schedule 4.24. Set forth in Schedule 4.24(a-2) are TLW's warranty and re-work costs for 1998, 1999 and 2000. None of the customers of TLW has claimed to TLW or to TLW suppliers, that TLW's Products are defective. None of the Shareholders nor any of the employees of TLW has any particular knowledge of any Products which have been shipped by TLW in a condition that such products might reasonably be expected to be returned by the customer, or of any intention on the part of any customer to return any of TLW's Products, except returns by customers in the ordinary course of business and consistent with the return policies and which, in any event, are not expected to be Material in amount. TLW has never received nor been subject to any claim, and none of the Shareholders has any Knowledge of any fact or of the ocurrence of any event forming the basis of any present or future claim against TLW, whether or not fully covered by insurance, for liability on account of negligence or product liability or on account of any Warranties. 4.25 Aerospace Records. TLW has maintained complete and accurate records relating to all products in accordance with industry standards and as required by all applicable laws or regulations, including the Federal Aviation Authority CFR 21.607. 26 4.26 Securities Law Compliance. (a) In connection with the issuance of the BE Stock as of the Closing, the Shareholders have been advised and understand and agree that the issuance by the Company to the Shareholders of the BE Stock will not be registered under the Securities Act, nor qualified under any state securities laws before the Closing, on the ground (among others) that no distribution or public offering of the BE Stock is to be effected in connection with the issuance to such Shareholder as contemplated herein and, in issuing the BE Stock to such Shareholder hereunder, the Company is relying on the accuracy and completeness of the representations of the Shareholder set forth in this Section 4.26. This acknowledgement does not limit or constitute a waiver of the Company's obligation set forth in Section 8.5. (b) The Shareholder is acquiring the BE Stock for the Shareholder's own account, for investment and not with a view to distribution or resale thereof. The Shareholder will immediately notify the Company if such intent changes prior to the Closing. The Shareholder's only present intention to sell the BE Stock would be pursuant to an effective registration and qualification under applicable federal and states securities law. This acknowledgement does not limit or constitute a waiver of the Company's obligation set forth in Section 8.5. (c) The Shareholder acknowledges that the Shareholder has been informed and understands that the BE Stock may not be sold or transferred except in compliance with the Securities Act or any exemption thereunder, and there is no assurance that any exemption from registration, including Rule 144, under the Securities Act will become available to permit resales of the BE Stock. This acknowledgement does not limit or constitute a waiver of the Company's obligation set forth in Section 8.5. (d) The Shareholder (i) is familiar with the business of the Company, (ii) has had an opportunity to discuss with representatives of the Company the conditions of and prospects for the continued operation of the Company and such other matters as the Shareholder deemed appropriate in considering whether to invest in the BE Stock, and (iii) has been provided access to publicly available information about the Company requested by the Shareholder. (e) The Shareholder has made the Shareholder's own investigation whether or not to exchange the TLW Shares for the BE Stock and the Shareholder has sufficient business and financial experience so as to enable the Shareholder to evaluate the merits and risks associated with the BE Stock and the transactions contemplated by this Agreement. (f) The Shareholder is able to bear the economic risk of a total loss of the investment in the Company, and the Shareholder has adequate means of providing for the current needs and foreseeable personal contingencies and has no need for the Shareholder's investment in the BE Stock to be liquid. (g) The Shareholder acknowledges and agrees that the certificates representing the BE Stock shall contain a restrictive legend substantially in the form below: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS 27 AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. (h) The Shareholder is an accredited investor, and sophisticated, as defined under Section 501(a) of Regulation D promulgated under the Securities Act, except as set forth in Schedule 4.26(h) (i) The Shareholder acknowledges that he has been fully informed of, and has had full opportunity to discuss with the Company's management, the status of the Company and its operating, investment, financial and strategic plans. 4.27 Permits and Licenses. Set forth in Schedule 4.27(a-1) are the Permits, licenses, franchises and other authorizations necessary for the conduct of TLW's business as currently conducted. Except as set forth in Schedule 4.27(a-2), all such Permits, licenses, franchises and authorizations identified on Schedule 4.27(a-1), are valid and in full force and effect and the business is in compliance with the terms and conditions of such Permits. 4.28 Experience Matters. Schedule 4.28 contain a reasonably detailed description of the history of the experience of TLW's business during the two (2) years ending on the date hereof with respect to (i) product liability claims and general liability claims exceeding $10,000, and (ii) all workers' compensation claims. 4.29 Related Party Transactions. Except as described on Schedule 4.29, neither the Shareholders nor any officer, director or employee of TLW, and none of their relatives or Affiliates, owns any interest in any competitor, lessor, lessee or customer or supplier of TLW; and TLW is not a party to any transaction or arrangement with any of the Shareholders or with any of its respective officers, directors or employees, or any relative or Affiliate of any of them, which relates to or affects the ownership, lease or use or disposition of any assets, properties or the operations of TLW or the sale, lease or use of goods or services, or the loan of money or any extension of credit or guaranty, by or to TLW, other than the payment of wages, salaries and bonuses to employees of TLW for services performed in the ordinary course of business. Except as disclosed in the Financial Statements or described on Schedule 4.29, none of the assets or properties of TLW include any receivables or contract rights from, or notes payable or evidences of indebtedness of, either of the Shareholders or any of the officers, directors or employees of TLW or any relative or Affiliate of any of them. 4.30 Full Disclosure. No representation or warranty of the Shareholders contained in this Agreement contains an untrue statement of a Material fact or omits to state a Material fact necessary to make the statements contained herein not misleading. There is no fact that the Shareholders have not disclosed to the Company in writing that the Shareholders believe has or will have a Material Adverse Effect on TLW or a Material Adverse Effect on the ability of TLW or the Shareholders to perform this Agreement. 28 4.31 Minute Books. TLW's minute books contain complete and accurate records in all Material respects of all meetings and other corporate actions of its Shareholders and boards of directors and committees thereof. 4.32 Government Contracts. Except as set forth on Schedule 4.32, TLW has not been and is not a party to any Contract with a Governmental Entity. Section 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Shareholders that the statements contained in this Section 5 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though then made and as though the Closing Date were substituted for the date of this Agreement throughout this Section 5). 5.1 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 5.2 Authorization of Transaction. The Company has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its respective obligations hereunder. All corporate and other actions or proceedings to be taken by or on the part of the Company to authorize and permit the execution and delivery by the Company of this Agreement and the respective instruments required to be executed and delivered by the Company pursuant hereto, the performance by the Company of their respective obligations hereunder, and the consummation by the Company of the transactions contemplated herein, have been duly and properly taken. This Agreement has been duly executed and delivered by the Company and constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms and conditions, except to the extent that enforceability may be limited by bankruptcy, insolvency and other similar Laws affecting the enforcement of creditors' rights generally. 5.3 Noncontravention: Consents. (a) Neither the execution and the delivery of this Agreement, nor the consummation by the Company of the transactions contemplated hereby will (i) violate any Law or other restriction of any Governmental Entity to which the Company is subject or any provision of its respective charter or bylaws or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement to which the Company is a party or by which it is bound or to which any of their assets are subject. The Company does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Entity in order for the parties to consummate the transactions contemplated by this Agreement, except for such filings as may be required to comply with all applicable securities laws. 5.4 Brokers' Fees. The Company has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Shareholders could become liable or obligated. 29 5.5 Investment Intent. The Company is acquiring the TLW Shares for its own account and not with a view to their distribution within the meaning ofss.2(11) of the Securities Act. 5.6 Status of BE Stock. When issued to the Shareholders at the Closing, the shares of BE Stock so issued will be duly authorized, validly issued, fully paid,nonassessable, and free and clear of encumbrances or other claims affecting the title thereto, caused, suffered or permitted by the Company or its agents. 5.7 Information Concerning Company. The Company's Annual Report on Form 10-K for its fiscal year ended February 2000 (the "10-K"), the Company's Quarterly Report on Form 10-Q for the quarter ended November 25, 2000 (the "10-Q"), each as filed with the SEC, copies of which have been furnished to the Shareholders, as of its respective filing dates did not contain any untrue statement of a Material fact or omit to state a Material fact necessary in order to make the statements contained therein under the circumstances in which they were made not misleading. 5.8 Capitalization of Company. The authorized BE Stock consists of 50,000,000 authorized shares at $.01 par value per share. Each holder of BE Stock is entitled to one vote per share of BE Stock owned by such holder. As of February 23, 2001, there were issued and outstanding 26,003,203 shares of BE Stock. The authorized Preferred Stock of the Company consists of 1,000,000 shares, all of which is unissued. Section 6. TAXES. 6.1 Agreement to Allocate Tax Obligations and Short Tax Year. The Shareholders shall be responsible for (and shall pay) all Taxes shown to be due from TLW on account of all taxable periods up to and including the Closing Date. The Shareholders shall be required to pay all Taxes due with respect to said tax periods on and before the Closing Date. To the extent that any refunds are due pursuant to Tax returns filed by the Shareholders, the parties agree that said refunds absolutely belong to the Shareholders. Without obligating the Company for such Taxes in any way, unless paid separately by TLW or the Shareholders prior to the Closing Date, all tax liabilities of TLW accrued to the Closing Date will be allocated to the Shareholders' Tax liabilities and treated as a reduction from the Total Consideration in the manner described in Section 2.2. TLW and the Shareholders shall take any and all actions requested by the Company in order that TLW close each open tax period as of the end of the day of the Closing Date, as well as to implement, as directed by the Company, a change in TLW's fiscal year end. 6.2 Taxes Accrued at June 30, 2000. Prior to the Closing Date, TLW shall have filed all Tax Returns and paid all Taxes concerning periods ended on or prior to June 30, 2000 and shall have paid all Taxes accrued for the periods prior to June 30, 2000. TLW shall nevertheless separately account for all items of revenue, expense, or otherwise as the case may be, recognized on and before the Closing Date, and Shareholders shall be responsible for the Tax due on account of such period on and before the Closing Date at the effective tax rate. Where the tax rates are progressive, the effective tax rate shall be determined based on the rate that would apply if the income for such period were annualized. 30 6.3 Exchange of Shares and Related Taxes. (a) Each Shareholder hereby waives and releases TLW, the Company, and their respective Affiliates from any claims or Liabilities relating to or arising from, any and all Taxes imposed upon such Shareholder or any of its Affiliates as a result of the consummation of the transactions contemplated hereby. (b) The parties hereto shall, and shall cause TLW to, provide such necessary information as any other party hereto may reasonably request in connection with the preparation of such party's Tax Returns, or respond to or contest any audit, prosecute any claim for refund or credit or otherwise satisfy any legal requirement relating to Taxes and TLW. (c) The obligations of the parties set forth in this Agreement relating to Taxes shall, except as otherwise agreed in writing, be unconditional and absolute and shall remain in effect without limitation as to time or amount of recovery by the Company, TLW and the Shareholders. (d) There shall be withheld by Company, TLW and/or Escrow Agent from any amount payable to Shareholders hereunder such amounts as may be required to be withheld under applicable Law. (e) The Shareholders shall be liable for, shall hold the TLW and the Company harmless against, and agree to pay on a timely basis all Taxes incurred by Shareholders or TLW in connection with the transactions contemplated by this Agreement, for all tax periods ending on and before the Closing Date, and for the portion of any tax period on and before prior to the Closing Date. 6.4 Short Period Tax Returns. The Shareholders' Representative shall be responsible for preparing or causing to be prepared, at the Shareholders' expense, TLW's federal income tax return and comparable state and local income and franchise tax returns, for TLW's taxable year ending on the day preceding the Closing Date (collectively, the "Short Period Tax Returns") or prior to the Closing Date and all other income Tax Returns (together with the Short Period Tax Returns, the "Pre-Closing Period Returns") of TLW for any taxable periods ending on or before the day preceding the Closing Date (the "Pre-Closing Period"). Such Tax Returns shall be prepared in a manner consistent with applicable Tax laws consistent with prior practice. The Company shall cause TLW to cooperate in the preparation and filing of such Tax Returns (including providing Shareholders with access to all information reasonably requested by the Shareholders in connection with the preparation of such Tax Returns). (b) The Shareholders shall be joint and severally responsible for the payment of all Taxes imposed on TLW due or to become due from TLW in respect of all periods prior to the Closing Date, and the pro rata portion of any taxable period commencing on or before the day preceding the Closing Date and ending after the day preceding the Closing Date determined in accordance with subsection (a)(iv) below. 31 (c) In connection with the preparation of the Short Period Tax Returns, the Shareholders' Representative shall use his best efforts to cause the accountants selected by him to deliver a draft of each Short Period Tax Return to the Company within a reasonable period of time so that the Company may be able to review and comment on each Short Period Tax Return prior to the due date (including extension, if any) for filing such Tax Returns. If the Company agrees with the information in the Short Period Tax Returns, the Company will cause the appropriate officers of TLW to sign and file such returns with the applicable taxing authority as prepared by the accountants selected by the Shareholders' Representative within ten (10) days, if reasonably practicable. In the event that the Company disputes any item in a Short Period Tax Return, the Company shall use its commercially reasonable efforts to provide to the Shareholders' Representative and the accountant its comments on, and proposed changes to, the draft of each disputed Short Period Tax Return within a reasonable period of time, for this purpose ten (10) days being deemed reasonable, so that the Shareholders' Representative may be able to review and comment on such proposed changes prior to the due date (including extensions, if any) of such Tax Return. If any aspect of any Short Period Tax Return remains in dispute within 20 days before the due date (including extensions, if any) for filing such Tax Return, the matter in dispute shall be submitted to a mutually acceptable accounting firm for resolution. The decision of the accounting firm concerning any disputed item shall be final and binding on the parties and the fees and expenses of the accounting firm shall be paid by the non-prevailing party. After any dispute is resolved by the mutually acceptable accounting firm, the Company will cause the appropriate officers of TLW to sign and file the Short Period Tax Returns (as resolved) with the applicable taxing authority. Section 7. PRE-CLOSING COVENANTS. The parties agree as follows with respect to the period prior to the Closing Date. 7.1 General. Each of the parties will use its reasonable efforts to take all action and to do all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Section 10). 7.2 Notices and Consents. The Shareholders prior to the Closing Date will give, or cause TLW to give, all notices to third parties and will use their reasonable efforts at their expense to obtain all third party consents that are required of the Shareholders or TLW in connection with the transactions contemplated by this Agreement, and will make all further filings pursuant thereto that may be necessary, proper or advisable. 7.3 Conduct Business in Regular Course. The Shareholders will cause TLW to maintain its owned and leased properties used or held for use in its business in good operating condition and repair and make all necessary renewals, additions and replacements thereto, reasonable wear and tear excepted, and will cause TLW to carry on its operations substantially in the same manner as heretofore conducted and will not cause or permit TLW to make or institute any unusual or novel methods of purchase, sale, lease, management, accounting or operation. 7.4 No General Increases. (a) The Shareholders will not cause or permit TLW to grant any general or uniform increase in the rates of pay of employees of TLW, nor grant any 32 general or uniform increase in the benefits under any bonus or pension plan or other contract or commitment, and (b) the Shareholders will not cause or permit TLW to increase the compensation payable or to become payable to officers, salaried employees or agents of TLW, or increase any bonus, insurance, pension or other benefit plan, payment or arrangement made to, for or with any such officers, salaried employees or agents. 7.5 Contracts and Commitments. The Shareholders will not cause or permit TLW to tender any bid, enter into any contract or commitment or engage in any transaction, including any contract, commitment or engagement with the Shareholders or any division, unit or Affiliate of the Shareholders, or effect any change to any program, not in the usual and Ordinary Course of Business and consistent with the past operation of TLW. 7.6 Dividends and Distributions. The Shareholders will not cause or permit TLW to declare or pay any dividend or distribution with respect to its capital stock or to repurchase, redeem or otherwise acquire for value any shares of its capital stock from and after December 31, 2000. 7.7 Sale of Capital Assets. The Shareholders will not cause or permit TLW to sell or otherwise dispose of any of its capital assets. 7.8 Preservation of Organization. The Shareholders will cause TLW to use its reasonable best efforts to preserve its business organization intact, to keep available to TLW after the Closing Date the present officers and employees of TLW and to preserve for the benefit of the Company the present relationships and goodwill of TLW with its suppliers, customers, landlords and others having business relations with TLW. 7.9 No Default. The Shareholders will not cause or permit TLW to commit or omit to take any act which will cause a termination of or breach or default under any contract, commitment or obligation to which TLW is a party or by which its assets are bound, including the Contracts. 7.10 Compliance with Laws. The Shareholders will cause TLW to comply in its operations in all Material respects with all applicable Laws and to perform such further actions as may be required for the valid and effective transfer to the Company of the TLW Shares. 7.11 Full Access. The Shareholders will cause TLW to permit representatives of the Company to have full access at all reasonable times to all premises, properties, personnel, books, records (including Tax Records), contracts and documents of or pertaining to TLW, and access, at the request of Company with TLW's prior approval, which will not be unreasonably denied, to customers and vendors of or pertaining to TLW. 7.12 Notice of Developments. The Shareholders will give prompt written notice to the Company of any Material development affecting TLW. Each party hereto will give prompt written notice to the other of any Material development affecting the ability of such party or its Affiliates to consummate the transactions contemplated by this Agreement. No disclosure by any party hereto pursuant to this Section 7.12, however, shall be deemed to amend or supplement the Disclosure Schedule or to prevent or cure any misrepresentations, breach of warranty, or breach of covenant. 33 7.13 Exclusivity. Neither TLW nor the Shareholders will (and TLW will not cause or permit any of its officers, directors, agents or Affiliates to) (i) solicit, initiate, or encourage the submission of any proposal or offer from, or enter into or consummate any transaction with any Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets (other than sales of inventory for a fair value in the Ordinary Course of Business), including any acquisition structured as a merger, consolidation, or share exchange or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. TLW will notify the Company immediately if any Person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing, and such notice shall describe such proposal in detail. 7.14 Debt Obligations. Prior to the Effective Date, any and all indebtedness of TLW, except for leases, shall be paid in full. 7.15 Tax Matters. No new elections with respect to Taxes, or any changes in current elections with respect to Taxes, relating to or affecting TLW will be made by TLW or the Shareholders after December 31, 2000 without the prior written consent of the Company. On or prior to the Closing Date, the Shareholders will furnish to the Company an affidavit stating, under penalty of perjury, TLW's and each of the Shareholders' United States tax identification numbers and that no Shareholder is a foreign person, pursuant to Section 1445(b)(2) of the Code. 7.16 Title Insurance. The Shareholders will deliver to the Company the most recent title insurance policies and all riders and endorsements thereto for each parcel of real estate that TLW owns. 7.17 Confidentiality. The existence of this Agreement or its negotiation, terms or provisions, shall be kept confidential by the Company, the Shareholders, TLW, and each of their representatives until the Closing, and thereafter except to the extent that the existence of this Agreement or its terms and provisions, as the case may be, shall have been previously publicly disseminated by the Company or filed with the SEC as a public document. Any publicity or announcements concerning this transaction before the Closing shall be effected only by or with the prior written consent of the Company and its legal counsel, the Shareholders and their legal counsel, and TLW and its legal counsel and at such times and in such manner as the parties deem necessary or appropriate under applicable law. The Company, the Shareholders and TLW shall immediately notify the other party of any actual, anticipated or suspected disclosure of the negotiation, existence, terms or provisions of this Agreement to any Person who is not bound by an obligation to keep the information confidential. 7.18 Building Lease. On the Effective Date, the Company shall conclusively be deemed to have assumed the lease on TLW's facilities. Section 8. POST-CLOSING COVENANTS. The parties agree as follows with respect to the period following the Closing Date. 8.1 General. In case at any time after the Closing Date any further action is necessary or desirable to carry out the purposes of this Agreement, each of the parties will take such further 34 action (including the execution and delivery of such further instruments and documents) as the other party reasonably may request, at the sole cost and expense of the requesting party (unless the requesting party is entitled to indemnification therefor under Section 11). 8.2 Litigation Support. In the event and for so long as any party is actively contesting or defending against any charge, complaint, action, audit, suit, proceeding, hearing, investigation, claim or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction on or prior to the Closing Date involving TLW, the other party will provide its reasonable cooperation to the contesting or defending party and its counsel in the contest or defense, make available its personnel and provide such testimony and access to its books and records as may be necessary in connection with the contest or defense, at the sole cost and expense of the contesting or defending party (unless the contesting or defending party is entitled to indemnification therefor under Section 11). 8.3 Confidential Information and Non-Competition. (a) Confidential Information. From the date hereof until the Closing Date, and for a period of five years thereafter commencing on the Closing Date, the Shareholders will treat and hold as such, and will not use for the benefit of themselves or others, any Confidential Information. In the event the Shareholders or any of their respective Affiliates are requested or required (by oral request or written request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, then the relevant Shareholder(s) will notify the Company promptly in writing of the request or requirement so that the Company may seek an appropriate protective order or waive compliance with this Section 8.3. If, in the absence of a protective order or receipt of a waiver hereunder, the Shareholders are, on the advice of outside counsel, compelled to disclose any Confidential Information to any Governmental Entity or else stand liable for contempt, then the Shareholders may disclose such Confidential Information to such Governmental Entity, provided, that the Shareholders will use its reasonable best efforts to obtain at the request of the Company an order or other assurance that confidential treatment will be accorded to such Confidential Information. (b) Non-Competition. Each Shareholder, in consideration of the acquisition by Company hereunder, shall execute and deliver to the Company prior to the Closing Date, a Non-Compete and Non-Solicitation Agreement substantially in the form as attached hereto as Exhibit "B" and incorporated herein by reference. (c) Each of the Shareholders further agrees that for a period of five (5) years after the Closing Date such Shareholder will not directly or indirectly, without the prior written consent of Company, recruit, offer employment, employ, engage as a consultant, lure or entice away or in any other manner persuade or attempt to persuade any person who is an employee of TLW, Company, any of their Subsidiaries or Affiliates to leave such employment. 35 (d) In the event of a breach, or facts indicating the likelihood of a breach, by any Shareholder of the provisions of this Section 8.3, Company and TLW shall be entitled to a temporary restraining order and an injunction restraining such Shareholder from such breach. Nothing herein, however, shall be construed as prohibiting Company or TLW from pursuing any other remedies available to it for such actual or threatened breach, including, without limitation, the recovery of damages. If it is determined that any Shareholder has violated any of the covenants in this Section 8.3, the term of any such covenant violated shall be automatically extended for the period of time of the violation either from the date on which such Shareholder ceases such violation or from the date of the entry by a court of competent jurisdiction of an order or judgment enforcing such covenant, whichever period is later. 8.4 Post-Closing Receipts. In the event that either party after the Closing Date receives any funds properly belonging to the other party in accordance with the terms of this Agreement, the receiving party will promptly so advise such other party, will segregate and hold such funds in trust for the benefit of such other party and will promptly deliver such funds, together with any interest earned thereon, to an account or accounts designated in writing by such other party. 8.5 Registration Rights. (a) General. Within 15 business days of the Closing, the Company shall file (and shall use its commercially reasonable efforts to cause to become effective as soon as practicable thereafter) a registration statement on Form S-3 under the Securities Act, covering the Registrable Securities, which registration statement shall be kept in effect in the manner and for the period specified in Section 8.5(c)(ii). The Company shall use its best efforts to enter into an underwriting agreement with an underwriter of national reputation to distribute the Registrable Securities (the "Public Offering"). The Shareholders and the Escrow Agent shall be required to sell as many shares of BE Stock in the Public Offering as the underwriter(s) and the Company shall request, up to the entire amount of BE Stock received by them in connection with the transactions contemplated hereby (including shares held in escrow pursuant to the arrangements described in Section 2.4 hereof). As used herein, the term "Registrable Securities" shall mean (i) all BE Stock owned by any of the Shareholders or by other Persons granted similar rights as provided in this Section 8.5, (ii) any shares of common stock or other securities issued as (or issuable upon the conversion or exercise of any warrant, right, class of common stock or other security which is issued as) a dividend or other distribution with respect to, or in exchange by the Company generally for, or in replacement by the Company generally of, such BE Stock, and (iii) any securities issued in exchange for such BE Stock in any merger or reorganization of the Company; provided, however, that once issued, such BE Stock and other securities shall cease to be Registrable Securities when (x) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (y) such securities shall have been sold pursuant to Rule 144 or shall no longer be subject to restriction on resale due to the termination of the holding period requirements (as in effect from time to time) of Rule 144 or satisfaction of the 36 requirements for resale under Rule 144(d) as evidenced by a legal opinion delivered to the Company and its transfer agent, or (z) they shall have ceased to be outstanding. Each Shareholder covenants that he will comply with the prospectus delivery requirements of the Securities Act with respect to any registration statement filed pursuant to this Agreement. Each Shareholder agrees to make customary representations and warranties to the Company and the underwriters or distributors, if any, in form, substance and scope as are customarily made as to ownership of stock by selling stockholders in underwritten public offerings, but each Shareholder shall not be required to make any representation or warranty as to the accuracy or completeness of the registration statement (except as to written information furnished to the Company by such Shareholder expressly for use therein). The Company shall deliver a copy to the Shareholders' Representative of legal opinions and accountants' comfort letters in the forms delivered to the underwriters in the Public Offering. (b) Expenses. The Company shall pay all expenses incident to the Company's performance of or compliance with its obligations under Section 8.5 to effect the registration of Registrable Securities required hereunder, including, without limitation, all registration, filing, securities exchange listing and NASDAQ fees, all registration, filing, qualification and other fees and expenses of complying with federal, state and other securities or blue sky Laws, all word processing, duplicating and printing expenses, messenger, shipping, telephone and delivery expenses, the fees and disbursement of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, and fees and expenses of other Persons retained by the Company in connection with the registration of the Registrable Securities, underwriting discounts and commissions and transfer taxes, if any, in respect of Registrable Securities, but excluding any legal fees and expenses of counsel retained by the holders of the Registrable Securities being registered (with the sole exception of the fees of one special counsel to the holders) of all Registrable Securities, selected by a majority in interest thereof, up to a maximum of $10,000. (c) Further Obligations. The Company will: (i) within 15 days of the Closing Date, prepare, and file with the SEC, the registration statement on Form S-3 to effect such registration (including such audited financial statements as may be required by the Securities Act) and use commercially reasonable efforts to cause such registration statement to become and continue to be effective for the timeframe outlined in Section 8.5(a). (ii) prepare, and file with the SEC, such amendments and supplements to the registration statement referred to above and any prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply in all Material respects with the requirements of the Securities Act with respect to the disposition of all Registrable Securities included in such registration statement, in accordance with the intended methods of disposition thereof, until the such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the Shareholders set forth in such registration statement. 37 (iii) promptly notify in writing each holder of Registrable Securities and the underwriter or underwriters, if any: (A) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with respect to such registration statement or any post-effective amendment thereto, when the same has become effective; (B) of any written request by the SEC or any other regulatory body or other body having jurisdiction over the securities for amendments or supplements to such registration statement or prospectus or for supplemental information; (C) of the notification to the Company by the SEC of its initiation of any proceeding with respect to the issuance by the SEC of any stop order suspending the effectiveness of such registration statement; and (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction; (iv) furnish to each holder of Registrable Securities included in the registration statement such number of conformed copies of the registration statement and of each amendment and supplement thereto (in each case including all exhibits and documents incorporated by reference), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any prospectus supplement) and any other prospectus filed under Rule 424 promulgated under the Securities Act relating to such holder's Registrable Securities, and such other documents, as such seller may reasonably request to facilitate the disposition of such holder's Registrable Securities; (v) use commercially reasonable efforts to register or qualify all Registrable Securities included in the registration statement under such other securities or blue sky laws of such jurisdictions as each holder thereof shall reasonably request which request is made within ten (10) days following the original filing of the registration statement and to keep such registration or qualification in effect for so long as the registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holder, except that the Company shall not for any such purpose be required (a) to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this paragraph (v) to be obligated to be so qualified, (b) to consent to general service of process in any such jurisdiction or (c) to subject itself to taxation in any such jurisdiction by reason of such registration or qualification; and (vi) use its commercially reasonable efforts to obtain withdrawal of any order suspending the effectiveness of a registration statement, or the lifting any suspension of qualification (or exemption from qualification) of the offer and sale of any of the Registrable Securities in any jurisdiction. 38 Each Shareholder whose Registrable Securities are being registered shall, furnish the Company and any underwriters with such information and affidavits regarding such holder and the distribution of such securities as the Company and such underwriters may from time to time reasonably request in writing and to otherwise cooperate in connection with such registration. At any time during the effectiveness of the registration statement covering Registrable Securities offered by a holder, if such holder becomes aware of any change materially affecting the accuracy of the information contained in such registration statement or the prospectus (as then amended or supplemented) relating to such holder, such holder will promptly notify in writing the Company of such change. Upon receipt of any notice from the Company of the happening of any event as a result of which any prospectus included in such registration statement, as then in effect, includes an untrue statement of a Material fact or omits to state any Material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, each holder of Registrable Securities will forthwith discontinue such holder's disposition of Registrable Securities pursuant to the registration statement until such holder receives copies of a supplemented or amended prospectus from the Company and, if so directed by the Company, shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period referred to in paragraph (ii) of this Section 8.5(c) shall be extended by a number of days equal to the number of days during the period from the giving of such notice from the Company to stop trading to the date when the copies of the supplemented or amended prospectus are sent to holders whose Registrable Securities are included in such registration statement. In the event that the SEC issues a stop order suspending the effectiveness of any registration statement filed under this Section 8.5(c), the period referred to in paragraph (ii) of this Section 8.5(c) shall also be extended by a number of days equal to the number of days during which such stop order is in effect. Each Shareholder agrees in connection with any registration of the Company's securities that, upon request of the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in such registration), without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters. Notwithstanding anything to the contrary contained herein, the Company may, upon written notice to the Shareholders whose Registrable Securities are included in any registration statement filed pursuant to this Agreement, suspend the use of a prospectus which is a part of such registration statement if, in the reasonable judgment of the Company, the Company possesses Material nonpublic information and the Company determines in good faith that the disclosure of such information would have a Material Adverse Effect on the Company or would materially and adversely effect the ability of the Company to consummate any pending strategic transaction; provided that the Company may not suspend any use of a prospectus for more than an aggregate of 90 consecutive days or for more than an aggregate of 180 days in any period of 39 twelve consecutive months. This paragraph shall not in any way impair or limit the rights of the Shareholders to require the Company to purchase any or all of the unsold shares of BE Stock pursuant to Section 2.5. (d) Indemnification. (i) The Company shall, to the full extent permitted by Law, indemnify and hold harmless each seller of Registrable Securities included in any registration statement filed pursuant to this Section 8.5, its directors, officers, and partners, and each other Person, if any, who controls any such seller within the meaning of the Securities Act, against any Losses to which such seller or any such director, officer, partner or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or claims, actions, suits, proceedings, arbitration or investigations in respect thereof) arise out of or are based upon any untrue statement of any Material fact contained in such registration statement, any preliminary prospectus, final prospectus or prospectus supplement contained therein or filed with the SEC, or any amendment or supplement thereto, or any omission or alleged omission to state therein a Material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading; provided, that the Company shall not be liable in any such case to the extent that any such Loss (or any claim, action, suit, proceeding, arbitration or investigation in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such registration statement, preliminary prospectus, final prospectus, amendment or supplement in reliance upon and in conformity with information furnished in writing to the Company for inclusion in such registration statement by the holder of the securities. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the holders of the securities or any such director, officer, partner or controlling Person, and shall survive the transfer of such securities by such holder. The Company shall also indemnify each other Person who participates (including as an underwriter) in the offering or sale of Registrable Securities, their officers and directors and each other Person, if any, who controls any such participating Person within the meaning of the Securities Act to the same extent as provided above with respect to the sellers of Registrable Securities. (ii) Each Person and Shareholder whose Registrable Securities are included or are to be included in any registration statement filed pursuant to this Section 8.5, as a condition to including such holder's Registrable Securities in each registration statement, shall to the full extent permitted by Law, indemnify and hold harmless the Company, its directors and officers, and each other Person, if any, who controls the Company within the meaning of the Securities Act, against any Losses to which the Company or any such director or officer or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or claims, actions, suits, proceedings, arbitrations or investigations in respect thereof) arise out of or are based upon any untrue statement of any Material fact contained in any such registration statement, any preliminary prospectus, final prospectus or prospectus supplement contained therein or filed with the SEC, or any amendment or supplement thereto, or any omission or alleged omission to state therein a Material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, if such untrue statement or omission 40 was made in reliance upon and in conformity with information furnished in writing to the Company for inclusion in such registration statement by such seller. Notwithstanding any contrary provision of Section 11, the indemnification obligation of the Shareholders and holders of said Registrable Securities under this Section 8.5(d) shall in no way be limited to (and the Company shall not be constrained to seek in response to any failure to provide indemnity pursuant to this Section 8.5(d)) recourse against Escrowed Shares. The foregoing indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such seller. Such holders shall also indemnify each other Person who participates (including as an underwriter) in the offering or sale of Registrable Securities, their officers and directors and each other Person, if any, who controls any such participating Person within the meaning of the Securities Act to the same extent as provided above with respect to the Company. The foregoing indemnity shall only be enforceable to the extent that the Person or Shareholder has had an opportunity to review and approve any part of a registration statement that contains an aforementioned Material fact. (iii) Promptly after receipt by any party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding paragraphs (i) or (ii) of this Section 8.5(c), such party shall, if a claim in respect thereof is to be made against another party pursuant to such paragraphs, give written notice to the latter of the commencement of such action, provided that any failure of any Person to give notice as provided herein shall not relieve any other Person of its obligations under the preceding paragraphs of this Section 8.5(d), except to the extent that such other Person is actually prejudiced by such failure. In case any such action is brought, the party obligated to indemnify pursuant to the foregoing provisions of this Section 8.5(d) shall be entitled to participate in and, unless, in the reasonable judgment of any indemnified party, a conflict of interest between such indemnified party and any indemnifying party exists with respect to such claim, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; provided that the indemnified party may participate in such defense at the indemnified party's expense. No indemnifying party shall consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to each indemnified party of a release from all liability in respect to such claim or litigation without the consent of the indemnified party. No indemnifying party shall be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. (iv) If the indemnity and reimbursement obligation provided for in any paragraph of this Section 8.5 is unavailable or insufficient to hold harmless a party entitled to indemnification hereunder in respect of any Losses (or claims, actions, suits, proceedings, arbitrations or investigations with respect thereto) for which indemnification is provided therein, the party obligated to indemnify hereunder shall contribute to the amount paid or payable by the 41 indemnified party as a result of such Losses (or claims, actions, suits, proceedings, arbitration or investigations) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a Material fact or the omission or alleged omission to state a Material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this paragraph. Notwithstanding anything herein to the contrary, no participating holder of Registrable Securities shall be required to contribute any amount in excess of the amount by which the net proceeds of the offering (before deducting expenses, if any) received by such participating holder exceeds the amount of any damages that such participating holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person not guilty of such fraudulent misrepresentation. Section 9. EMPLOYEES. 9.1 TLW employees will be requested to submit substantially all expense reimbursement requests for purposes of payment a reasonable time prior to the Closing, and TLW shall pay amounts due, applying standards of documentation and approval consistent with past practice prior to Closing. 9.2 Nothing in this Agreement will limit or restrict in any way the Company's right to cause TLW to modify, amend, terminate or establish employee benefit plans or arrangements in whole or in part at any time after the Closing Date and this Agreement will not, in any way or at any time, create any third party beneficiary rights for or on behalf of any Person. Section 10. CLOSING CONDITIONS. 10.1 Conditions to Obligation of the Company. The obligation of the Company to consummate the transactions to be performed by it in connection with the Closing is subject to fulfillment, prior to or at the Closing, of each of the following conditions (any or all of which may be waived by the Company if it executes a writing unambiguously so stating at or prior to the Closing.): (a) all representations and warranties of the Shareholders set forth in Section 4 shall be true and correct in all Material respects at and as of the Closing; (b) the Shareholders shall have performed and complied with all of its covenants hereunder in all Material respects prior to or at the Closing; 42 (c) there will not be any action, suit or proceeding pending or threatened before any Governmental Entity or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement or any Company Ancillary Agreement, (ii) cause any of the transactions contemplated by this Agreement or any Company Ancillary Agreement to be rescinded following consummation, (iii) affect materially and adversely the right of the Company following the Closing to own TLW Shares or to control TLW, or (iv) affect materially and adversely, the right of TLW to own its assets or to operate its businesses as presently operated (and no such injunction, judgment, order, decree, ruling or charge will be in effect); (d) the Shareholders will have obtained all consents, releases, waivers and other documentation required in order for the Shareholders to transfer and deliver all of the TLW Shares to the Company and to fulfill their other obligations hereunder; (e) the Shareholders' Representative shall have delivered to the Company a certificate to the effect that each of the conditions specified in Section 10.1 above are satisfied in all respects; (f) any relevant Shareholders shall have delivered to the Company an executed counterpart of each of the Company Ancillary Agreements to which such Shareholders are a signatory; (g) the Company shall have received the resignations, effective as of the Closing, of each of the directors, officers, signing agents and attorneys-in-fact of TLW on the Closing Date of TLW, other than those whom the Company has specified in writing at least five business days prior to the Closing to continue in such capacities; (h) the Company shall have received consents, to the extent requested by Company, substantially in the form attached hereto as Exhibit A, executed by the respective spouse of each Shareholders; (i) TLW shall have, in all Material respects, taken and accomplished all actions that Shareholders are required to cause TLW to take; (j) each of the Shareholders shall have executed and delivered to the Company a counterpart executed by such Shareholder of the Shareholder Ancillary Agreements; (k) all actions to be taken by the Shareholders or TLW in connection with consummation of the transactions contemplated hereby and all certificates, instruments and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Company; (l) an affidavit, in a form reasonably satisfactory to the Company, of the Shareholders stating under penalties of perjury such Shareholder's United States taxpayer identification number and that such Shareholder is not a foreign person within the meaning of Section 1445(b)(2) of the Code; 43 (m) a good standing certificate for TLW from the Secretary of State of the State of its incorporation or formation dated the Closing Date; (n) the Escrow Agreement, dated the Closing Date, executed by the Shareholders, together with any counterparts signed by the Escrow Agent and blank stock powers executed by such Shareholder with respect to the Escrowed Shares; (o) an opinion by TLW's counsel, in the form and substance as set forth in Exhibit D attached hereto, addressed to the Company, and dated as of the Closing Date; and (p) signatory card in blank for all TLW bank accounts acceptable to each bank where TLW maintains an account. 10.2 Conditions to Obligation of the Shareholders. The obligation of the Shareholders to consummate the transactions to be performed by it in connection with the Closing is subject to fulfillment, prior to or at the Closing, of each of the following conditions (any or all of which may be waived by the Shareholders if they execute a writing unambiguously so stating at or prior to the Closing): (a) all representations and warranties of the Company set forth in Section 5 shall be true and correct in all Material respects at and as of the Closing Date; (b) the Company will have performed and complied with all of its covenants hereunder in all Material respects prior to or at the Closing; (c) there will not be any action, suit or proceeding pending or threatened before any Governmental Entity or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; (d) the Company shall have delivered to the Shareholders' Representative a certificate to the effect that each of the conditions specified above in Section 10.2 is satisfied in all respects; (e) all actions to be taken by the Company in connection with consummation of the transactions contemplated hereby and all certificates, instruments and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Shareholders' Representative; (f) the Escrow Agreement, dated effective February 25, 2001, executed by the Company; and (g) a certificate or certificates representing the BE Stock and to be delivered to Escrow Agent pursuant to Section 2.2; 44 Section 11. REMEDIES FOR BREACHES OF THIS AGREEMENT. 11.1 Survival of Representations and Warranties. All of the representations and warranties of the Shareholders contained in Section 4 of this Agreement or of the Company contained in Section 5 of this Agreement or in any certificate delivered by the Shareholders or the Company, respectively, pursuant to this Agreement will survive the Closing and continue in full force and effect until the third anniversary of the Closing Date; provided, however, that (a) the representations and warranties contained in Sections 4.2 (Authorization of Transaction), 4.4 (Capitalization), and 4.13 (Title and Related Matters) shall continue in full force and effect forever; and (b) the representations and warranties contained in Sections 4.10 (Tax Matters)and 4.17 (Environmental Matters), or contained in any certificate delivered by the Shareholders relating thereto, and any Tax-related liabilities pursuant to Section 6 hereof shall remain in full force and effect until 30 days after the expiration of the applicable statute of limitations with respect to the matter to which the claim relates, as such limitation period may be extended from time to time by Law. 11.2 Indemnification Provisions for Benefit of the Company. Notwithstanding any investigation at any time made by or on behalf of the Company or any knowledge or information the Company may have or be deemed to have, in the event the Shareholders breach (or in the event a third party alleges facts that, if true, would mean the Shareholders have breached) any of their representations, warranties or covenants or agreements contained in this Agreement or any certificate delivered by the Shareholders pursuant to this Agreement, and provided that the Company makes a written claim for indemnification against the Shareholders prior to the expiration of any applicable survival period, then the Shareholders shall indemnify, defend and hold harmless the Company and TLW from and against the entirety of any and all Liabilities, obligations, judgments, Liens, injunctions, charges, orders, decrees, rulings, damages, dues, assessments, Taxes, losses, fines, penalties, expenses, fees, costs, amounts paid in settlement (including reasonable attorneys' and expert witness fees and disbursements in connection with investigating, defending or settling any action or threatened action (collectively, "Losses") suffered or incurred by the Company, TLW, or any of their Affiliates, or any of their respective stockholders, directors, officers, employees and agents (collectively, the "Company Indemnified Parties"), resulting from or arising out of either (a) the inaccuracy or breach of any representation or warranty made by Shareholders, or resulting from any misrepresentation or breach of warranty, or from any misrepresentation in or omission from any schedule, document, certificate or other instrument required to be furnished by Shareholders hereunder, (b) nonfulfillment of any agreement or covenant of Shareholders contained herein or in any agreement or instrument required to be entered into in connection herewith, or (c) and Taxes imposed on or accrued by TLW for tax periods (or portions thereof) prior to the Effective Date. The liability of the Shareholders hereunder shall be joint and several. Subject to Section 11.4, the liability of Shareholders pursuant to this Section 11.2 shall be limited, in the aggregate, to 25% of the Initial Consideration. Subject to Section 11.4, Shareholders will be obligated to indemnify, defend and hold harmless the Company Indemnified Parties from and against Losses only if the aggregate amount of such Losses exceeds $50,000 (in which case Shareholders shall be obligated to indemnify, defend and hold harmless the Company Indemnified Parties from and against 100% of such Losses, including, without limitation, the initial $50,000). 45 11.3 Indemnification Provisions for Benefit of the Shareholders. Notwithstanding any investigation at any time made by or on behalf of the Shareholders or any knowledge or information the Shareholders may have or be deemed to have, in the event the Company breaches (or in the event any third party alleges facts that, if true, would mean the Company has breached) any of its representations, warranties or covenants contained in this Agreement, and provided that the Shareholders make a written claim for indemnification against the Company, then the Company will indemnify, defend, and hold harmless the Shareholders against the entirety of any Losses the Shareholders, or any of their Affiliates, or any of their respective shareholders, directors, officers, employees and agents(collectively, the "Shareholder Indemnified Parties") may suffer or incur resulting from, arising out of, relating to, in the nature of, or caused by such breach. The liability of the Company pursuant to this Section 11.3 shall be limited in the aggregate to 25% of the Initial Consideration. Subject to Section 11.4, the Company will be obligated to indemnify, defend and hold harmless the Shareholder Indemnified Parties from and against Losses only if the aggregate amount of such Losses exceeds $50,000 (in which case the Company shall be obligated to indemnify, defend and hold harmless the Shareholder Indemnified Parties from and against 100% of such Losses, including, without limitation, the initial $50,000). 11.4 Exception to Limits on Indemnification. (a) The maximum limits and the minimum threshold on the liability of Shareholders to Company Indemnified Parties set forth in Section 11.2 above shall not apply to the representations and warranties in Sections 4.2 (Authorization of Transaction), 4.4 (Capitalization), 4.13 (Title and Related Matters), 4.17 (Environmental Matters), or 4.10 (Tax Matters), any Tax-related liabilities pursuant to Section 6 hereof, and any costs or expenses, including but not limited to attorney's fees and costs, incurred by Company Indemnified Parties to enforce their rights under Section 11. (b) The maximum limits and the minimum threshold on the liability of Company to Shareholders set forth in Section 11.3 above shall not apply to the representations and warranties in Sections 5.1 (Organization), 5.2 (Authorization of Transaction), 5.5 (Investment Intent), or 5.6 (Status of BE Stock), hereof, and any costs or expenses, including but not limited to attorney's fees and costs, incurred by Shareholders to enforce their rights under Section 11 11.5 Indemnification Procedures. Except for claims for indemnification made pursuant to Section 6 hereof, which claims shall follow the procedures set forth in such Section, if any third party notifies any party hereto (the "Indemnified Party") with respect to any matter that may give rise to a claim for indemnification against the other party hereto (the "Indemnifying Party") under this Section 11, then the Indemnified Party will notify the Indemnifying Party thereof promptly and in any event within 60 days after receiving any written notice from a third party; provided, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party will relieve the Indemnifying Party from any obligation hereunder unless, and then solely to the extent that, the Indemnifying Party is prejudiced thereby. Once the Indemnified Party has given notice of the matter to the Indemnifying Party, the Indemnified Party may defend against the matter in any manner it reasonably may deem appropriate. In the event the Indemnifying Party notifies the Indemnified Party within 30 days after the date the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense of such matter (a) the 46 Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (b) the Indemnified Party may retain separate counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of such separate co-counsel to the extent the Indemnified Party concludes in good faith that the counsel the Indemnifying Party has selected has a conflict of interest), (c) the Indemnified Party will not consent to the entry of a judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld or delayed unreasonably) and (d) the Indemnifying Party will not consent to the entry of a judgment with respect to the matter or enter into any settlement that does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld or delayed unreasonably). 11.6 Specific Performance. Each of the parties acknowledges and agrees that the other party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other party shall be entitled to an injunction or injunctions to prevent breaches of Sections 8.3(a), (b) (c) and (d), 8.5(a), and 11.7 of this Agreement and to enforce specifically those sections of this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity. 11.7 Arbitration. (a) Generally. Prior to implementation of arbitration pursuant to this Section 11.7, the parties will attempt in good faith to reach an agreement as to any matters in dispute ("Mediation"). The Mediation shall last for a minimum of 15 business days before either of the parties requests arbitration pursuant to this Section 11.7. Except solely as set forth in Sections 8.3(a), (b), (c) (d) and 8.5, the parties agree that when any claim or controversy that arises out of or relates to this Agreement, or the breach thereof arises, in lieu of litigation, they shall submit such claim, dispute or controversy, or difference or question to be finally settled under the Commercial Arbitration Rules ("Rules") of the American Arbitration Association (the "AAA") by an arbitral tribunal composed of three arbitrators, at least one of whom shall be an attorney experienced in corporate transactions, appointed by agreement of the parties in accordance with said Rules. In the event the Parties fail to agree upon a panel of arbitrators from the first list of potential arbitrators proposed by the AAA, the AAA will submit a second list in accordance with said Rules. In the event the parties shall have failed to agree upon a full panel of arbitrators from said second list, any remaining arbitrators to be selected shall be appointed by the AAA in accordance with said Rules. If, at the time of the arbitration, the parties agree in writing to submit the dispute to a single arbitrator, said single arbitrator shall be appointed by agreement of the parties in accordance with the foregoing procedure, or, failing such agreement, by the AAA in accordance with said Rules. Any party may commence the foregoing arbitration proceedings by notice to all other parties. 47 (b) Place of Arbitration. The venue of such arbitration shall be Orange County, California, or any other place mutually agreed to by Company and Shareholders' Representative. (c) Recourse to Courts. Subject to Section 11.6, the parties hereby exclude any right of appeal to any court on the merits of the dispute. The provisions of this Section 11.7 may be enforced in any court having jurisdiction over the award or any of the parties or any of their respective assets, and judgment on the award (including without limitation equitable remedies) granted in any arbitration hereunder may be entered in any such court. Nothing contained in this Section 11.7 shall prevent any party from seeking interim measures of protection in the form of pre-award attachment of assets or preliminary or temporary equitable relief. (d) Decision of Arbitral Tribunal. In the event of a dispute between the parties hereunder, the Shareholders' Representative and the Company's representative shall each present an offer of settlement, which shall address all issues in dispute such that adoption of such offer of settlement would conclusively settle all items then in dispute. The arbitral tribunal shall be limited in its decision to choosing one of the two offers of settlement presented to it that the arbitral tribunal determines to be most fair, and that offer of settlement shall constitute the settlement of the claims, dispute and other matters. The decision of the arbitral tribunal shall be final and binding on the parties and non-appealable. The party whose offer of settlement is not chosen by the arbitral tribunal shall pay all of the expenses of the arbitration, which, in the event the Shareholders are held responsible for any such expenses prior to the Escrow Termination Date, shall be subject to satisfaction by application of the Escrowed Shares pursuant to Sections 2.2 and 11.2 and Article 4 of the Escrow Agreement. Notwithstanding the above, each party shall bear his, her, its own attorney fees and costs related to any arbitration proceeding. 11.8 Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE SHAREHOLDERS, TLW AND THE COMPANY HEREBY WAIVE, AND COVENANT THAT HE,SHE OR IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR PASSED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE. Section 12. TERMINATION. 12.1 Termination of Agreement. The parties may terminate this Agreement as provided below: (a) the Company and the Shareholders may terminate this Agreement by mutual written consent at any time prior to the Closing; 48 (b) either the Shareholders or the Company may terminate this Agreement by giving written notice to the other at any time prior to the Closing if the Closing has not occurred on or before February 26, 2001. 12.2 Effect of Termination. If any party terminates this Agreement pursuant to Section 12.1, all obligations of the parties hereunder will terminate without liability of any party to the other party; provided, that the expense allocation provisions contained in Section 13.2 will survive termination and remain in full force and effect thereafter. Section 13. MISCELLANEOUS. 13.1 Press Releases and Announcements. No party will issue any press release or announcement relating to the subject matter of this Agreement prior to the Closing Date without the prior approval of the other party; provided, that the Company may make any public disclosure it believes in good faith is required by Law or by the rules and regulations of any stock exchange on which the securities of such party are listed. 13.2 Expenses; Transfer Taxes. Each of the parties hereto will bear all legal, accounting, investment banking and other expenses incurred by it or on its behalf in connection with the transactions contemplated by this Agreement, whether or not such transactions are consummated. Expenses, including expenses and costs of legal counsel, related to the transactions contemplated by this Agreement and the Ancillary Agreements on the part of the Shareholders will be borne by the Shareholders rather than TLW. The Shareholders will each be responsible for the payment of all income, sales, use, transfer, documentary or stamp taxes and recording and filing fees applicable to the assignment of TLW Shares to the Company, and any distributions or payments to the Shareholders in any capacity. 13.3 Remedies. Any party having any rights under any provision of this Agreement will have all rights and remedies set forth in this Agreement and all rights and remedies that such party may have been granted at any time under any other agreement or contract and all of the rights that such party may have under any Law. Any such party will be entitled to enforce such rights specifically, without posting a bond or other security, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by Law. 13.4 Consent to Amendments. The provisions of this Agreement may be amended or waived only by a written agreement executed and delivered by the Shareholders' Representative (on behalf of all Shareholders) and the Company, or by the Shareholder to be bound and benefited thereby and the Company. No other course of dealing between the parties to this Agreement or any delay in exercising any rights hereunder will operate as a waiver of any rights of such parties. 13.5 Successors and Assigns. No Shareholder may assign or delegate any of such party's rights or obligations under or in connection with this Agreement or any Ancillary Agreement without the written consent of the Company, and no assignment by a Shareholder shall release the Shareholder from its obligations and liabilities under this Agreement and Ancillary Agreement to which it is a party. The Company may without the written consent of TLW or the Shareholders assign its rights under this Agreement or any of the Ancillary 49 Agreements to one or more Affiliates of the Company or to any Person acquiring all or substantially all of the stock or assets of TLW from the Company, and the Company shall be relieved of any obligation hereunder assigned and assumed. All covenants and agreements contained in this Agreement or in any Ancillary Agreement by or on behalf of any of the parties hereto or thereto will be binding upon and enforceable against the respective successors and assigns of such party and will be enforceable by and will inure to the benefit of the respective successors and permitted assigns of such party. 13.6 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable Law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 13.7 Attorney-in-Fact. Each Shareholder hereby irrevocably constitutes and appoints the Shareholder Representative as the Shareholder's Attorney-in-Fact and agent, with full power of substitution, to act in the Shareholders name, place and stead and do any and all things that the Shareholder could do if present including, but not limited to, executing, delivering, and performing this Agreement, the Escrow Agreement, and any and all documents ancillary to this Agreement or any amendment or supplement to this Agreement, to give receipts on behalf of the Shareholder, and to execute and deliver share certificates and stock powers or assignments. All persons dealing with the Attorney-in-Fact in such capacity may rely and act upon any writing believed by them in good faith to be genuine and to have been signed by the Attorney-in-Fact. 13.8 Counterparts. This Agreement may be executed simultaneously in two (2) or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement. 13.9 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 13.10 Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally to the recipient or when sent to the recipient by telecopy (receipt confirmed), one business day after the date when sent to the recipient by reputable express courier service (charges prepaid) or three business days after the date when mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications will be sent to the Company and the Shareholders at the addresses indicated below: 50 If to BE or the Company: c/o BE Aerospace, Inc. 1400 Corporate Center Way Wellington, FL 33414 Fax no. (561) 791-3966 Attn: Thomas P. McCaffrey or Edmund J. Moriarty With a copy (which will not constitute notice) to: Yocca, Patch & Yocca 19900 MacArthur Blvd., Suite 650 Irvine, California 92612 Fax no. 949/253-0870 Attn: Ryan M. Patch/ Nicholas J. Yocca If to the Shareholders: Terry L. Collins Shareholders' Representative 1307 Summitridge Drive Diamond Bar, Ca. 91765 With a copy (which will not constitute notice) in either case to: Arthur G. Peinado, Esq. Kolodny & Pressman 11975 El Camino Real Suite 201 San Diego, California 92130-2542 Fax no. (858)453-9347 or to such other address or to the attention of such other party as the recipient party has specified by prior written notice to the sending party. 13.11 No Third-Party Beneficiaries. This Agreement will not confer any rights or remedies upon any Person other than the Shareholders and the Company and their respective successors and permitted assigns. 13.12 Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the parties and supersedes any prior understandings, agreements or representations by or among the parties (whether written or oral) that may have related in any way to the subject matter hereof. 13.13 Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rule of strict construction will be applied against any party. The use of the word "including" in this Agreement means 51 "including" without limitations and is intended by the parties to be by way of example rather than limitation. 13.14 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 13.15 Shareholders' Representative. The Shareholders hereby irrevocably constitute and appoint the Shareholders' Representative, as their attorney-in-fact and agent, with full power of substitution, to serve as Shareholders' Representative and to take all actions, and refrain from taking all actions, as are contemplated in this Agreement or incidental thereto, in the name, place and stead of the Shareholders. 13.16 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF CALIFORNIA. IN WITNESS WHEREOF, the parties hereto have executed and deliver this Agreement on the date first written above. BE AEROSPACE, INC. By: /s/ Jeffrey Holtzman ------------------------------------- Name: Jeffrey Holtzman Title: Chief Financial Officer T. L. WINDUST MACHINE, INC. By: /s/ Terry L. Windust ------------------------------------- Name: Terry L. Windust Title: President SHAREHOLDERS: /s/ Terry L. Windust ---------------------------------------- Name: Terry L. Windust, an individual 52 ---------------------------------------- Name: Dorothy Windust, an individual /s/ Carter Collins ---------------------------------------- Name: Carter Collins, an individual /s/ Kathleen Collins ---------------------------------------- Name: Kathleen Collins, an individual 53 -----END PRIVACY-ENHANCED MESSAGE-----