-----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, EwmaMPTm17FJeMngD4pwxeX94R4a1BpqAqThalxvjAPlrn+hfXbNIPOv1/6fWNc+ HDHcHDCRGl3sLrVGFTXLnw== 0000947871-98-000283.txt : 19980825 0000947871-98-000283.hdr.sgml : 19980825 ACCESSION NUMBER: 0000947871-98-000283 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980228 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980824 SROS: NASD 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: 8-K SEC ACT: SEC FILE NUMBER: 000-18348 FILM NUMBER: 98696793 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 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of Earliest Event Reported): August 7, 1998 BE AEROSPACE, INC. (Exact name of registrant as specified in charter) DELAWARE 0-18348 06-1209796 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 1400 Corporate Center Way, Wellington, Florida 33414 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (561) 791-5000 Exhibit Index Appears on page 5. Item 2. Acquisition or Disposition of Assets. On August 7, 1998, BE Aerospace, Inc., a Delaware corporation (the "Company"), completed the acquisition (the "Acquisition") of SMR Aerospace, Inc, an Ohio Corporation ("SMR"), and its subsidiaries and affiliated entities pursuant to an Acquisition Agreement, dated July 21, 1998 (the "Agreement") among the Company and the shareholders of SMR (the "Sellers"). A copy of the Agreement is attached to this report as Exhibit 2.1. SMR, headquartered in Sharon Center, Ohio, is a leader in providing design, integration, installation and certification services for commercial aircraft passenger cabin interiors. SMR provides 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. SMR is also a supplier of structural design and integration services including airframe modifications for passenger-and freighter conversions. In addition, SMR provides a variety of niche products and components that are used to facilitate reconfigurations and conversions. The $142,000,000 purchase price, consisting of 4,000,000 newly issued shares of the Company's common stock (the "Shares") and $24 million in cash ($22 million of which was paid to the Flight Structures, Inc. Savings and Retirement Plan and Trust and $2 million of which was paid to the Sellers), represents a 7.0 multiple of SMR's EBITDA (earnings before interest, taxes, depreciation and amortization). The Company has filed a registration statement with the Securities and Exchange Commission to register the Shares which may be distributed in an underwritten offering in September of 1998. In the event the Shares are sold for more than $118 million (subject to adjustments), the Sellers shall refund any excess to the Company. If the Shares are sold for less than $118 million (subject to adjustments), the Company shall pay the amount of any deficiency to the Sellers. The Company obtained the $24 million cash portion of the sale price from its credit facility at The Chase Manhattan Bank. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired. The following historical consolidated and combined financial statements and notes thereto are of SMR prior to the consummation of the Acquisition and are attached hereto at pages F-1 to F-27. o Independent Auditors Report. o Balance sheets as of December 31, 1996 and December 31, 1997. o Statements of income as of December 31, 1996 and December 31, 1997. o Statements of cash flow as of December 31, 1996 and December 31, 1997. o Notes to the financial statements. o Condensed balance sheets (unaudited) as of December 31, 1997 and March 31, 1998. o Condensed statements of income (unaudited) as of March 31, 1997 and March 31, 1998. o Condensed statements of cash flows (unaudited) as of March 31, 1997 and March 31, 1998. o Notes to the condensed financial statements. (b) Pro Forma Financial Information. The following unaudited pro forma consolidated and combined financial statements and notes thereto are attached hereto at pages PF-1 to PF-7. o Pro Forma condensed statement of operations for the year ended February 28, 1998. o Notes to pro forma Condensed statement of operations for the year ended February 28, 1998. o Pro Forma condensed statement of operations for the three months ended May 30, 1998. o Notes to the pro forma condensed statement of operations for the three months ended May 30, 1998. o Pro Forma condensed balance sheets as of May 30, 1998. o Notes to pro forma condensed balance sheets as of May 30, 1998. (c) Exhibits. Exhibit No. Description 2.1 Acquisition Agreement, dated as of July 21, 1998, among BE Aerospace, Inc., a Delaware Company Oscar J. Mifsud, Oscar J. Mifsud Trust -- 1998, Patrick L. Ryan, Patrick L. Ryan Trust -- 1998, David B. Smith, and David B. Smith Trust -- 1998. 2.2 Stock Purchase Agreement, dated as of July 21, 1998, between Flight Structures, Inc. Savings and Retirement Plan and Trust and BE Aerospace, Inc. 23.1 Consent of Zalick, Torok, Kirgesner, Cook & Co., dated August 17, 1998. 99.1 Press Release dated August 10, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BE AEROSPACE, INC. By:/s/ Thomas P. McCaffrey ----------------------- Name: Thomas P. McCaffrey Title: Senior Vice President and Chief Financial Officer Date: August 24, 1998 SMR AEROSPACE, INC. CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Years Ended December 31, 1997 and 1996 TABLE OF CONTENTS Page No. INDEPENDENT AUDITOR'S REPORT F-2 CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Balance Sheets F-3 Statements of Income F-5 Statements of Retained Earnings, Partners' Capital, and Members' Capital F-6 Statements of Cash Flows F-7 Notes to Consolidated and Combined Financial Statements F-9 F-1 Zalick, Torok, Kirgesner, Cook & Co. [letterhead] INDEPENDENT AUDITOR'S REPORT The Board of Directors SMR Aerospace, Inc. Sharon Center, Ohio We have audited the accompanying consolidated and combined financial statements, as listed in the accompanying table of contents, of SMR Aerospace, Inc. (an S Corporation), its affiliates, and subsidiaries as of December 31, 1997 and 1996, and for the years then ended. These consolidated and combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial position of SMR Aerospace, Inc., its affiliates, and subsidiaries, as of December 31, 1997 and 1996, and its results of operations and cash flows for the years then ended, in accordance with generally accepted accounting principles. As stated in Note 20, effective August 7, 1998, the shareholders of SMR Aerospace, Inc. sold to BE Aerospace, Inc., a Delaware corporation, all of the outstanding common stock of SMR Aerospace, Inc. (including all of the investments in the subsidiaries), all of the general and limited partnership interests in SMR Associates, and all of the membership interests in SMR Developers. Concurrent with this transaction, BE Aerospace, Inc. also acquired substantially all of the minority interest in the common stock of Flight Structures, Inc. which was owned by the FSI Savings and Retirement Plan. /s/Zalick, Torok, Kirgesner, Cook & Co. Cleveland, Ohio February 7, 1998, except for Note 20, as to which the date is August 7, 1998. F-2 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES BALANCE SHEETS December 31, 1997 and 1996
1997 1996 ---- ---- ASSETS CURRENT ASSETS Cash and short-term cash investments $ 2,977,422 $ 160,586 Accounts receivable Trade 9,597,501 6,728,063 Other 84,386 277,973 Inflatable Survival Systems, Inc. -- 1,000,000 Inventories 10,101,967 6,912,552 Costs and estimated earnings in excess of billings on uncompleted contracts 7,842,277 7,589,890 Deferred income taxes 452,000 400,000 Prepaid income taxes -- 386,163 Prepaid expenses 249,043 39,281 ------------ ------------ TOTAL CURRENT ASSETS 31,304,596 23,494,508 PROPERTY AND EQUIPMENT Land and buildings 2,999,150 1,541,760 Computers and office equipment 1,798,147 1,374,594 Leasehold improvements 617,675 595,402 Machinery and equipment 2,460,737 2,010,026 Furniture and fixtures 1,018,953 570,088 Automobiles 62,317 39,404 Construction in progress 261,902 7,286 ------------ ------------ 9,218,881 6,138,560 Accumulated depreciation (3,692,642) (2,919,440) ------------ ------------ 5,526,239 3,219,120 OTHER ASSETS Goodwill, less accumulated amortization of $1,339,715 in 1997 and $945,311 in 1996 2,759,864 3,056,664 Restricted funds 1,864,454 1,129,094 Deferred income taxes 8,860 160,860 License agreements, net 16,667 26,667 Deferred charges, net 52,069 51,117 Cash surrender value of officers' life insurance 93,090 -- Asset held for resale 209,272 -- Other assets 14,622 26,973 ------------ ------------ 5,018,898 4,451,375 $ 41,849,733 $ 31,165,003 ============ ============
See accompanying notes. F-3
1997 1996 ---- ---- LIABILITIES, STOCKHOLDERS' EQUITY, PARTNERS' CAPITAL, AND MEMBERS' CAPITAL CURRENT LIABILITIES Current portion of long-term debt $ 1,271,175 $ 1,159,871 Current portion of capital lease obligation 144,273 83,935 Accounts payable 4,072,999 4,610,518 Billings in excess of costs and estimated earnings on uncompleted contracts 4,767,376 1,138,293 Accrued expenses Commissions 82,260 496,067 Salaries, vacation, and payroll taxes 2,330,854 1,471,287 Warranties 366,251 439,502 Income taxes 937,786 -- Interest 133,094 132,518 Other 856,261 530,957 ----------- ----------- TOTAL CURRENT LIABILITIES 14,962,329 10,062,948 LONG-TERM LIABILITIES Long-term debt, less current portion 4,615,207 4,535,172 Line of credit 4,115,000 5,072,000 Capital lease obligation, less current portion 73,715 103,441 ----------- ----------- 8,803,922 9,710,613 MINORITY INTEREST IN SUBSIDIARY 1,931,675 956,967 STOCKHOLDERS' EQUITY, PARTNERS' CAPITAL, AND MEMBERS' CAPITAL Common stock with a stated value of $5 per share, 750 shares authorized; 300 shares issued and outstanding 1,500 1,500 Common stock with a stated value of $2 per share, 850 shares authorized; 300 shares issued and outstanding 600 600 Additional paid-in capital 166,000 6,000 Retained earnings, partners' capital, and members' capital 15,983,707 10,426,375 ----------- ----------- 16,151,807 10,434,475 $41,849,733 $31,165,003 =========== ===========
F-4 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES STATEMENTS OF INCOME Years Ended December 31, 1997 and 1996
1997 1996 ---- ---- SALES $ 72,805,309 $ 45,240,743 COST OF SALES 43,914,773 29,463,437 ------------ ------------ GROSS PROFIT 28,890,536 15,777,306 OPERATING EXPENSES Selling, general and administrative expenses 8,719,991 6,546,357 Research, development and engineering 7,388,796 6,265,187 ------------ ------------ TOTAL OPERATING EXPENSES 16,108,787 12,811,544 ------------ ------------ INCOME FROM CONTINUING OPERATIONS 12,781,749 2,965,762 OTHER INCOME (EXPENSE) Minority interest in net loss (earnings) of subsidiary (1,285,033) 102,994 Interest expense (723,163) (712,141) Interest income 80,864 73,822 Representation fees 40,000 60,000 Amortization of license agreements and deferred charges (19,157) (64,543) Miscellaneous 38,824 (5,436) Loss on disposal of property (13,402) (3,258) ------------ ------------ (1,881,067) (548,562) INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION (CREDIT) FOR INCOME TAXES 10,900,682 2,417,200 PROVISION (CREDIT) FOR INCOME TAXES ON EARNINGS OF SUBISIDARY 2,500,000 (588,000) ------------ ------------ INCOME FROM CONTINUING OPERATIONS 8,400,682 3,005,200 DISCONTINUED OPERATIONS Loss from operations of discontinued division -- (156,133) Gain on sale of discontinued division) -- 3,041,772 ------------ ------------ -- 2,885,639 NET INCOME $ 8,400,682 $ 5,890,839 ============ ============
See accompanying notes. F-5 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES STATEMENTS OF RETAINED EARNINGS, PARTNERS' CAPITAL, AND MEMBERS' CAPITAL Years Ended December 31, 1997 and 1996 1997 1996 ---- ---- RETAINED EARNINGS, PARTNERS' CAPITAL, AND MEMBERS' EQUITY AT BEGINNING OF YEAR $ 10,426,375 $ 8,034,090 NET INCOME 8,400,682 5,890,839 CAPITAL CONTRIBUTIONS -- 460,512 CASH DISTRIBUTIONS (2,843,350) (3,959,066) ----------- ------------ RETAINED EARNINGS, PARTNERS' CAPITAL, AND MEMBERS' EQUITY AT END OF YEAR $ 15,983,707 $ 10,426,375 ============ ============ See accompanying notes. F-6 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES STATEMENTS OF CASH FLOWS December 31, 1997 and 1996
1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,400,682 $ 5,890,839 Adjustments to reconcile net income to net cash flows from operating activities: Gain on sale of discontinued operations -- (3,041,772) Depreciation 855,309 737,782 Amortization of goodwill, license agreements, and deferred charges 403,452 496,805 Deferred income taxes 100,000 (273,000) Minority interest in earnings or loss of subsidiary 1,285,033 (102,994) Loss on disposal of property 13,402 3,258 Increase in cash surrender value of officers' life insurance (93,090) -- Changes in assets and liabilities: (Increase) decrease in assets: Accounts receivable - trade and other (1,675,851) 303,399 Accounts receivable - affiliate -- 161,270 Inventories (3,189,415) (695,762) Costs and estimated earnings in excess of billings on uncompleted contracts, net 3,376,696 (2,961,872) Prepaid expenses and other 188,752 (183,427) Increase (decrease) in liabilities: Accounts payable (537,519) 1,341,147 Accrued expenses 1,636,175 165,620 Advance payments received -- (957,579) ------------ ------------ NET CASH FLOWS FROM OPERATING ACTIVITIES 10,763,626 883,714 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (2,992,115) (1,040,971) Increase in leased assets -- (151,378) Proceeds from sale of discontinued operations, net of related costs -- 7,716,036 Proceeds from sale of property -- 600 Increase in restricted funds (735,360) (150,684) Increase in asset held for resale (209,272) -- ------------ ------------ NET CASH FLOWS FROM INVESTING ACTIVITIES (3,936,747) 6,373,603
See accompanying notes. F-7 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (Continued) December 31, 1997 and 1996
1997 1996 ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in line of credit (957,000) 2,018,000 Proceeds of long-term debt 1,461,702 -- Payments of long-term debt (1,270,363) (5,231,221) Payments on capital lease obligation (153,103) (61,793) Cash contributions to partnerships -- 460,512 Proceeds from issuance of common stock and additional paid-in capital 160,000 6,600 Cash distributions (2,843,350) (3,959,066) Redemption of preferred and common stock - minority interest (407,929) (466,548) ----------- ----------- NET CASH FLOWS FROM FINANCING ACTIVITIES (4,010,043) (7,233,516) ----------- ----------- NET CHANGE IN CASH AND SHORT-TERM CASH INVESTMENTS 2,816,836 23,801 CASH AND SHORT-TERM CASH INVESTMENTS AT BEGINNING OF YEAR 160,586 136,785 ----------- ----------- CASH AND SHORT-TERM CASH INVESTMENTS AT END OF YEAR $ 2,977,422 $ 160,586 =========== ===========
See accompanying notes. F-8 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 NOTE 1 - ORGANIZATION AND BASIS OF ACCOUNTING The consolidated and combined financial statements include the accounts of SMR Aerospace, Inc., an Ohio Corporation ("SMR Aerospace"); its affiliates through common ownership: SMR Associates, an Ohio Limited Partnership ("SMR Associates"), DOPCO Associates, an Ohio General Partnership ("DOPCO"), and SMR Developers, an Ohio Limited Liability Corporation ("SMR Developers"); its subsidiaries: Plush Mills, Inc., an Ohio Corporation ("Plush Mills"), SMR Aerospace Management Company, Inc., an Ohio Corporation ("SMR Management"), and SMR Holdings, Inc., an Ohio Corporation ("SMR Holdings"). SMR Holdings has the following subsidiaries: SMR Technologies, Inc., an Ohio Corporation ("SMR Technologies"), and a 76% owned subsidiary, Flight Structures, Inc., a Washington Corporation ("FSI"). The following companies are collectively referred to as "SMR" in the notes to the financial statements: SMR Technologies, SMR Associates, DOPCO Associates, SMR Developers, and Plush Mills. All intercompany transactions and balances have been eliminated in consolidation. The financial statements are presented in accordance with generally accepted accounting principles. SMR Technologies manufactures specialty products for the aviation industry, with operations in Ohio and West Virginia. As more fully explained in Note 3, substantially all of the operating assets of SMR Technologies' Commercial Life Raft Division were sold in 1996. Accordingly, the net assets and operating results of the Commercial Life Raft Division have been reported as discontinued operations in the accompanying financial statements. FSI engages in the design, testing, and certification of modifications to commercial aircraft, as well as the manufacture of certain related components. Substantially all work performed by FSI is performed under fixed price contracts. Customers are located throughout the world. A significant amount of revenues are earned outside the United States. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reclassifications - Certain reclassifications have been made to the 1996 financial statements to conform to the current year presentation. Inventories - Inventories of SMR, with a cost of $3,832,289 at December 31, 1997 and $4,166,915 at December 31, 1996, are stated at cost, determined on a last-in, first-out (LIFO) basis. Inventories of FSI, with a cost of $6,269,678 at December 31, 1997 and $2,745,637 at December 31, 1996, consist of raw materials and purchased parts and are stated at the lower of weighted average cost or market. F-9 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 Inventories consist of the following at December 31, 1997 and 1996: 1997 1996 ---- ---- Raw materials and purchased parts $ 8,791,895 $ 4,983,469 Work in process 1,291,415 1,585,783 Finished goods 913,022 1,029,530 ------------------- ------------------ 10,996,332 7,598,782 LIFO reserve (894,365) (686,230) ------------------- ------------------ $ 10,101,967 $ 6,912,552 =================== ================== Contract Revenue Recognition - Revenues under fixed price contracts are recognized on the percentage of completion method, measured by the percentage of incurred contract costs to estimated total contract costs. Contracts that consist of an engineering and a manufacturing component are combined for purposes of computing revenue. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation. Selling, general, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. The asset, "Costs and estimated earnings in excess of billings on uncompleted contracts", represents revenues in excess of the amounts billed. The liability, "Billings in excess of costs and estimated earnings on uncompleted contracts", represents billings in excess of costs and estimated earnings recognized. Property and Equipment - Property and equipment is stated at cost, less accumulated depreciation. Major additions and betterments are capitalized; maintenance and repairs are expensed as incurred. When properties are retired or otherwise disposed of, gains and losses are recorded in the statement of income. FSI recognizes depreciation and amortization using the straight-line method. Leasehold improvements are amortized over the estimated useful life. All other assets are depreciated over their useful lives of 3 to 10 years. SMR recognizes depreciation using accelerated methods over the estimated useful lives of assets ranging from 5 to 39 years. F-10 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 Depreciation and amortization expense was $855,309 in 1997 and $737,782 in 1996. In accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company reviews for the impairment of long-lived assets whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when the estimated future cash flows are less than the carrying amount of the asset. No impairment losses have been identified. Short-Term Cash Investments - For purposes of the statement of cash flows, cash and short-term cash investments consist of demand deposits and overnight investments at a bank. The amount of cash and short-term cash investments sometimes exceeds federally insured limits. Goodwill - Goodwill, the excess of the purchase price over the net assets paid for FSI, is being amortized over 10 years. Amortization expense was $394,404 in 1997 and $404,916 in 1996, and is included in selling, general, and administrative expenses. License Agreements - As part of the acquisition of the assets of Seaco/Elliot, Inc. in June 1994, the cost of an exclusive sales distribution agreement of $250,000 was being amortized over the five-year term of the agreement. Amortization expense was $20,833 in 1996. These assets were sold to Inflatable Survival Systems, Inc. in connection with the sale of SMR Technologies' Commercial Life Raft Division. A license agreement, with a cost of $100,000, is being amortized using the straight-line method over the 10-year term of the license agreement. Amortization expense was $10,000 in 1997 and 1996. Accumulated amortization was $83,333 at December 31, 1997 and $73,333 at December 31, 1996. Deferred Charges - Deferred charges consist primarily of deferred financing costs that are being amortized using the straight-line method over the term of the related loans. Certain of the these loans were repaid in 1996, in connection with the sale of SMR's Commercial Life Raft Division. The remaining net book value of the related deferred charges was included in amortization expense in 1996, and totaled $59,848. Amortization expense on remaining deferred charges was $9,157 in 1997 and $4,694 in 1996. Accumulated amortization was $16,055 at December 31, 1997 and $9,653 at December 31, 1996. F-11 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 Income Taxes - FSI is a taxpaying entity; therefore, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of certain assets and liabilities for financial and income tax reporting. These assets and liabilities consist primarily of a general business credit carryforward, contracts less than 10% complete, reserve for contract losses, property, and certain accrued liabilities. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. A deferred tax asset is also recognized for research and development tax credits earned in the current year that are available to offset future federal income taxes. The stockholders of SMR Aerospace, SMR Management, SMR Technologies, and Plush Mills have elected to be taxed under the Subchapter S provisions of the Internal Revenue Code. As S Corporations, all items of income, loss, tax credits, and other tax items are passed through to the stockholders for inclusion on their personal income tax returns. Accordingly, no provision for income taxes related to the income of these entities has been recorded. SMR Associates, DOPCO, and SMR Developers are recognized as partnerships for income tax purposes. All items of income, loss, tax credits and capital distributions, among others, are allocated to the Partners or Members in proportion to their respective ownership interest in the Partnership; accordingly, no provision for income taxes related to the income of SMR Associates, DOPCO, or SMR Developers has been recorded. Restricted Funds - The restricted funds may only be used to retire certain debt obligations (Note 6). These funds are held in short-term investments that are stated at cost, which approximates market value. Research and Development - Research and development costs are charged to expense as incurred. Total expense was $6,078,000 in 1997 and $5,011,000 in 1996. NOTE 3 - DISCONTINUED OPERATIONS During 1996, SMR sold substantially all of the assets of its Commercial Life Raft Division. On May 31, 1996, the assets of the Commercial Life Raft Division were sold to Inflatable Survival Systems, Inc. (ISSI) for $8,000,000 in cash and $1,000,000 account receivable due in September 1997. The sale resulted in a gain of $3,041,772 in 1996 after recognizing certain expenses directly related to the sale. Pursuant to the sale of the Commercial Life Raft Division assets, the Division's operating results have been reported as discontinued operations in the accompanying financial statements. The Division had no operations in 1997. F-12 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 Summarized results of operations of the discontinued operation are presented below: 1996 ---- Net sales $ 2,474,599 Costs and expenses 2,630,732 ------------------- Loss from discontinued operations (156,133) Gain on sale of assets 3,041,772 ------------------- Total earnings related to discontinued Commercial Life Raft Division $ 2,885,639 =================== NOTE 4 - CONTRACTS IN PROGRESS The contracts in progress of FSI are summarized as follows:
1997 1996 ---- ---- Total value of contracts in progress $ 109,328,442 $ 81,880,236 Total estimated costs (87,657,197) (61,306,214) -------------------- -------------------- Total estimated gross profit $ 21,671,245 $ 20,574,022 ===================== ================= Costs incurred on uncompleted contracts $ 59,882,335 $ 31,312,201 Estimated earnings 8,578,420 4,266,397 -------------------- -------------------- Total revenues earned on uncompleted contracts 68,460,755 35,578,598 Billings to date (65,385,854) (29,127,001) -------------------- -------------------- Revenues earned in excess of billings $ 3,074,901 $ 6,451,597 ===================== =================
Such amounts are included in the accompanying balance sheet under the following captions:
1997 1996 ---- ---- Costs and estimated earnings in excess of billings on uncompleted contracts $ 7,842,277 $ 7,589,890 Billings in excess of costs and estimated earnings on uncompleted contracts including estimated future losses of $138,000 and $480,000, respectively) (4,767,376) (1,138,293) ----------------- ------------------ $ 3,074,901 $ 6,451,597 ================= ===============
F-13 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 NOTE 5 - LINE OF CREDIT SMR Technologies has a line of credit with Bank One, Akron, NA that allows for maximum borrowings of $8,000,000. Interest is payable monthly at the LIBOR rate plus 1.75% (7.402% at December 31, 1997). The line of credit expires in April 1999. The line of credit is collateralized by substantially all assets of SMR and FSI. $4,115,000 was outstanding at December 31, 1997. NOTE 6 - LONG-TERM DEBT Long-term debt consists of the following at December 31:
1997 1996 ---- ---- $3,700,000 ten-year term loan payable to Bank One, Akron, NA $ 775,740 $ 895,740 $1,975,000 five-year term loan payable to Bank One, Akron, NA 685,012 1,115,008 $2,293,500 notes payable to former stockholders of FSI 802,725 1,261,425 $2,000,000 capitalized lease obligation for Industrial Development Bonds, City of Richwood, West Virginia 2,000,000 2,000,000 Notes payable to West Virginia Economic Development Authority and Valley Developers, Inc. -- 129,851 $1,300,000 term loan payable to Capital One Funding Corporation 1,273,333 -- ESOT note payable to former FSI stockholder 192,560 293,019 Other 157,012 -- TOTAL 5,886,382 5,695,043 CURRENT PORTION (1,271,175) (1,159,871) ----------- ----------- LONG-TERM PORTION $ 4,615,207 $ 4,535,172 =========== -----------
F-14 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 The proceeds of the $3,700,000 ten-year term loan payable to Bank One, Akron, NA were used to finance the acquisitions of FSI and Seaco/Elliot, Inc. Interest is payable monthly at the LIBOR rate plus 1.75% (7.402% at December 31, 1997). Principal is payable in 120 monthly installments of $10,000 from November 1995 through June 2004. The proceeds of the $1,975,000 five-year term loan payable to Bank One, Akron, NA were used to refinance an Employee Stock Ownership Trust term loan payable of FSI to a financial institution. Interest is payable monthly at the LIBOR rate plus 1.75% (7.402% at December 31, 1997). Principal is payable in 55 monthly installments of $35,833 from February 1995 through October 1999. These loans are collateralized by substantially all assets of SMR and FSI. The terms of the financing agreement for these loans and the line of credit provide, among other provisions, requirements for maintaining certain working capital and other financial ratios, and limit the payment of dividends and distributions to $250,000 plus an amount for SMR income taxes. The $2,293,500 notes payable to the former stockholders of FSI provide for interest at 4%, payable quarterly. Principal is payable in 60 monthly installments of $38,225 from October 1994 to September 1999. The notes are collateralized by the common stock of FSI that was purchased by SMR. The $2,000,000 capitalized lease obligation to the City of Richwood, West Virginia was assumed by SMR Associates in a 1988 business acquisition. Principal and interest due on the bonds are payable solely from the lease payments. The bond principal is due in February 2008. Interest at 6.2% is payable semiannually. The bonds are collateralized by land and building with a cost of $1,100,000. SMR Associates was required to deposit at least $100,000 annually through 1993 into an escrow fund. The balance in the fund of $1,864,454 at December 31, 1997 and $1,129,094 at December 31, 1996, is classified as restricted funds on the accompanying statements of assets, liabilities, stockholders' equity, and partners' capital. SMR Associates deposited $675,000 in 1997 and $100,000 in 1996 into this fund. The notes payable to the West Virginia Economic Development Authority and Valley Developers were completely repaid in 1997. The proceeds of the $1,300,000 term loan payable to Capital One Funding Corporation ("Capital") were used by SMR Developers to construct an office and research facility in Sharon Center, Ohio. The loan requires monthly principal payments ranging from $3,333 to $7,500 from May 1997 through April 2017. Interest is adjusted weekly based on commercial paper rates (6% at December 31, 1997) and is payable monthly. The loan is guaranteed by SMR Technologies and SMR Associates, and is secured by a mortgage on the related property. F-15 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 The ESOT note payable to a former stockholder is payable in monthly installments of $8,372 plus interest at the prime rate plus 1% (9.5% at December 31, 1997). It is collateralized by 131,621 shares of common stock of FSI. The note is due November 30, 1999. Aggregate maturities of long-term debt are as follows: Years Ending December 31: Amount ------------------------- ------ 1998 $ 1,271,175 1999 890,130 2000 166,000 2001 170,000 2002 172,000 Thereafter 3,217,077 ----------------- $ 5,886,382 ================= NOTE 7 - INCOME TAXES Income (loss) before taxes of FSI for the year ended December 31, 1997 was $7,836,981, and was $(1,035,356) for the year ended December 31, 1996. The difference between the effective tax rate and the statutory rate applied to pre-tax income of FSI is due primarily to research and development (R&D) tax credits earned and the income attributable to a foreign sales corporation, which is taxed at a lower federal income tax rate. The income tax provision (credit) of FSI consists of the following for the years ended December 31, 1997 and 1996: 1997 1996 ---- ---- Current $ 2,700,000 $ (315,000) Benefits of R & D credits (300,000) (270,000) Deferred 100,000 (3,000) ----------------- ------------------- $ 2,500,000 $ (588,000) ================= ================ F-16 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 The net deferred tax asset in the accompanying balance sheets consist of:
1997 1996 ----- ---- Net current: Gross deferred tax assets $ 457,000 $ 491,000 Gross deferred tax liabilities (5,000) (91,000) ----------------- ----------------- 452,000 400,000 Net non-current: Gross deferred tax assets 20,060 226,860 Gross deferred tax liabilities (11,200) (66,000) ----------------- ----------------- 8,860 160,860 ----------------- ----------------- $ 460,860 $ 560,860 ================== =================
The tax effects of significant temporary differences representing deferred tax assets and liabilities are as follows:
1997 1996 ---- ---- General business credit carryforward $ - $ 458,000 Reserve for contract loss 46,000 169,000 Allowance for doubtful accounts 11,000 - Accrued liabilities 400,000 68,000 Contracts less than 10% complete (5,000) (91,000) Depreciation (11,200) (66,000) Other 20,060 22,860 ----------------- ----------------- $ 460,860 $ 560,860 ================== =================
At December 31, 1996, FSI had a general business credit carryforward which was fully utilized in 1997. NOTE 8 - LEASES Operating Leases - FSI leases its engineering offices, manufacturing facilities and related land under operating leases with partnerships controlled by former stockholders of FSI. The building leases expire from 1999 through 2000 and have renewal options. Rate increases are based on inflation indices and the leases require FSI to pay a portion of the real estate taxes and other expenses. Total lease expense paid to the partnerships was $591,000 in 1997 and $526,000 in 1996. In 1997, FSI leased a warehouse facility from a third party. Total rent expense under this lease was $80,000 in 1997. F-17 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 Future minimum lease payments under noncancelable operating leases are as follows: Year Ended December 31: Amount ----------------------- ------ 1998 $ 725,000 1999 699,000 2000 166,000 Total rent expense on all leases was $754,000 in 1997 and $585,000 in 1996. FSI subleased certain facilities in 1997 and 1996. Rental income was $45,000 in 1997 and $32,000 in 1996. Capital Leases - FSI leases certain computer equipment and printers under leases accounted for as capital leases. These leases expire in the year 2000. The assets and liabilities under capitalized leases are recorded at the lower of the present value of the minimum lease payments or the fair market value of the assets at the inception of the lease. The assets are amortized over their estimated useful lives. Amortization of assets under capitalized leases is included in depreciation expense for 1997 and 1996. The assets recorded under these leases are included in property and equipment as follows:
1997 1996 ---- ---- Computers and office equipment $ 440,035 $ 256,321 Less accumulated depreciation (204,989) (62,261) ----------------- ---------------- $ 235,046 $ 194,060 ================== ================
Future minimum lease payments under the capitalized leases are as follows: Years Ending December 31: Amount 1998 $ 173,197 1999 96,033 2000 740 ---------------- Total future minimum lease payments 269,970 Less amounts representing interest (51,982) 217,988 Current portion (144,273) Long-term portion $ 73,715 ================ F-18 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 NOTE 9 - MINORITY INTEREST Minority interest includes the 24% interest of the ESOP in the common stockholders' equity of FSI, as well as 100% of FSI's preferred stock. Minority interest of FSI's preferred stockholders is carried at liquidation value, which equals the par value of the preferred stock. FSI redeemed 241,360 shares of preferred stock for $241,360 in 1997 and 1996. Minority interest related to the preferred stock was -0- at December 31, 1997 and $241,360 at December 31, 1996. In 1997, FSI repurchased 73,847 shares of its common stock in exchange for cash of $166,569. In 1996, FSI repurchased 85,810 shares of its common stock in exchange for cash of $225,188. In 1996, FSI also purchased 571,659 shares of its common stock in exchange for future contributions to be made to FSI's retirement plans (Note 10). As a result of these transactions, SMR's ownership percentage increased to 76%. In 1997, the purchase price for the common shares was more than the net book value of FSI; therefore these stock repurchases increased goodwill by $97,604. In 1996, the purchase price for the common shares was less than the net book value of FSI; therefore, these stock repurchases decreased goodwill by $321,172. The minority interest of FSI's common stockholders is carried at net book value. NOTE 10 - RETIREMENT PLANS SMR has a noncontributory defined benefit retirement plan covering substantially all of its hourly employees who meet certain age and length of service requirements. Pension costs are funded as actuarially determined to at least meet minimum requirements of the Employee Retirement Income Security Act. The weighted average discount rate used to measure the projected benefit obligation is 7% in 1997 and 1996. The expected long-term rate of return on plan assets used in determining pension cost is 7%. SMR uses the straight-line method of amortization for unrecognized gains and losses. Plan assets are invested in mutual funds, United States Government obligations, and money market accounts. Pension expense includes the following components:
1997 1996 ---- ---- Service cost of the current period $ 53,812 $ 56,522 Interest cost on the projected benefit obligation 40,678 36,333 Actual return on assets held in the plan (81,350) (49,220) Net amortization and deferral 41,210 18,736 ----------------- ----------------- Pension expense $ 54,350 $ 62,371 ================= =================
F-19 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 The funded status of SMR's pension plan is as follows:
1997 1996 ---- ---- Actuarial present value of projected benefit obligations $ 655,356 $ 607,371 Plan assets at fair market value 729,993 589,495 ----------------- ----------------- Plan assets in excess (deficiency) of projected benefit obligations 74,637 (17,876) Unrecognized net asset at transition (34,558) (38,624) Unrecognized prior service cost 61,073 67,881 Unrecognized net (gain) loss (3,470) 57,658 Additional liability to reflect required minimum liability at year-end - (86,915) Other (112,945) 2,613 ----------------- ----------------- Accrued pension obligation $ (15,263) $ (15,263) =================- =================-
SMR also has a defined contribution retirement plan qualified under Section 401(k) of the Internal Revenue Code that covers substantially all employees who meet certain age and length of service requirements that are not covered by the defined benefit plan. Under these plans, the Company will make a matching contribution of 100% of employee elective deferrals, up to a maximum contribution of 3% of a participant's compensation. In addition, the plan provides for a floor contribution of 2% of each eligible employee's compensation. Total expense under these plans was $146,721 in 1997 and $131,100 in 1996. FSI sponsors a defined contribution savings plan ("Plan") qualified under Section 401(k) of the Internal Revenue Code of 1986, covering substantially all full-time employees meeting age and service requirements. Prior to June 30, 1996, FSI sponsored an Employee Stock Ownership Plan ("ESOP") and a 401(k) Plan. These plans were merged on June 30, 1996. The Plan provides for the following contributions: A base non-elective contribution equal to 2% of each eligible employee's compensation (effective July 1, 1996), A matching contribution on a dollar-for-dollar basis, up to 3% of each eligible employee's compensation (this percentage was 6% from October 1, 1996, the date these contributions commenced, to December 31, 1996), and A cash contribution of $9,250 per month through December 2000 (In 1996, a contribution of $27,750 was made in September 1996 and $9,250 per month was contributed from October through December 1996.). F-20 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 The minimum amount of these contributions is $300,000 annually through June 2001. Total expense under the Plan was $517,000 in 1997 and $211,200 in 1996. Plan expense in 1996 includes ESOP contributions made prior to FSI's purchase of the remaining unallocated shares held by the ESOP on June 30, 1996. Certain participant's accounts hold shares of FSI common stock (allocated shares). The total number of allocated shares was 639,257 at December 31, 1997 and 723,564 at December 31, 1996. Under provisions of the Plan, participants receiving distribution of FSI stock may require FSI to repurchase such shares at fair market value. The terminated participant has two periods in which to exercise this "put" option; first, within 60 days from the date of distribution, and second, for a 60 day period one year later after the new determination of fair market value and notice to the participant thereof. Fair market value is determined by independent appraisal. FSI repurchased 73,847 shares for $166,569 in 1997 and 85,810 shares for $225,188 in 1996. NOTE 11 - COMMITMENTS AND CONTINGENCIES FSI is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of liability, if any, with respect to these actions will not materially affect the financial position or results of operations of FSI. FSI has the responsibility to complete all contracts on a timely basis and within the guidelines agreed to in the contract. After completion of a particular job, the work performed by the Company may be subject to review and acceptance by the Federal Aviation Administration and various other regulatory agencies. In the past the Company has not had significant expenditures due to failure to deliver or regulatory agency rejection. NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION The following are supplemental disclosures of cash flow activities:
1997 1996 ---- ---- Cash paid for: Interest $ 723,092 $ 803,076 Income taxes, net of refunds received 1,076,051 249,411
F-21 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 Non-cash investing and financing transactions were as follows:
1997 1996 ---- ---- Property and equipment purchased with capital lease obligation $ 183,715 $ 249,169 Building addition payment included in accounts payable at December 31, 1997 70,000 -
NOTE 13 - PARTNER/STOCKHOLDER AGREEMENTS The partners of SMR Associates and the stockholders of SMR Technologies have a cross purchase agreement, which covers future transfers of each owner's interests in these entities. In the event of an individual's retirement after age 55, disability, or death, the remaining owners are required to purchase that individual's interest in these entities at a price determined in accordance with the agreement. In the event of a third party offer to purchase an owner's interest, the remaining owners have the right to acquire such interest at the same purchase price. The term for payment of the purchase price can be up to 10 years, with interest computed at the prime rate on the unpaid balance. SMR Technologies has a consulting and deferred compensation agreement with its stockholders whereby each stockholder (or his beneficiary) will receive $100,000 for five years after retirement (past age 55), disability, or death. No expense was recognized under this agreement in 1997 or 1996. NOTE 14 - SIGNIFICANT CUSTOMERS Sales to three significant customers totaled $31,879,000 (44% of consolidated net sales) in 1997. Sales to three significant customers totaled $19,100,000 (42% of consolidated net sales) in 1996. All of these customers are in the aircraft industry. Accounts receivable from these customers represented 45% of trade accounts receivable at December 31, 1997 and 50% of trade accounts receivable at December 31, 1996. NOTE 15 - USE OF ESTIMATES Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could vary from the estimates that were used. F-22 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS December 31, 1997 and 1996 The Company has calculated and determined its revenue earned from contracts for the years ended December 31, 1997 and 1996, and the effect on several asset and liability amounts, based on the common industry standard determination formula of actual costs to date compared to total estimated job costs. Due to uncertainties inherent in the estimation process, and uncertainties relating to future performance as the contracts are completed, it is at least reasonably possible that estimated job costs, in total or on individual contracts, will be revised. NOTE 16 - CASH DISTRIBUTION In January 1998, SMR Technologies paid a cash distribution of $675,000 to its stockholders to pay the balance of income taxes due on the S Corporation income for the year ended December 31, 1997. NOTE 17 - CREDIT RISK The Company extends credit to its customers in the normal course of business. Management performs ongoing credit evaluations of its customers, and believes that any risk of loss is minimal. NOTE 18 - LOSS CONTRACT FSI recognized a loss of $1,956,000 in 1997 and $4,167,00 in 1996 on a contract that is considered to be substantially complete as of December 31, 1997. NOTE 19 - SUBSEQUENT EVENT On February 2, 1998, the principal on the SMR Associates $2,000,000 Industrial Development Bonds was called (Note 6). At that time, the escrow fund had a balance of $1,864,454. An additional $135,546 was deposited into the escrow fund in order to satisfy the redemption. NOTE 20 - SALE OF BUSINESS Effective August 7, 1998, the shareholders of SMR Aerospace, Inc. sold to BE Aerospace, Inc., a Delaware corporation, all of the outstanding common stock of SMR Aerospace, Inc. (including all of the investments in the subsidiaries), all of the general and limited partnership interests in SMR Associates, and all of the membership interest in SMR Developers. Concurrent with this transaction, BE Aerospace, Inc. also acquired substantially all of the minority interest in the common stock of Flight Structures, Inc. which was owned by the FSI Savings and Retirement Plan. The total purchase price was approximately $142,000,000. F-23 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES CONDENSED BALANCE SHEETS (Dollars in thousands, except share amounts)
ASSETS March 31, December 31, 1998 1997 (Unaudited) Current assets: Cash and short-term investments ........................ $ 325 $ 2,978 Accounts receivable, net ............................... 19,970 9,682 Inventories, net ....................................... 10,465 10,102 Costs and estimated earnings in excess of billings on uncompleted contracts ................................ 3,873 7,842 Other current assets ................................... 639 701 ------- ------- Total current assets ......................... 35,272 31,305 Property, plant and equipment, net .......................... 5,747 5,526 Intangibles and other assets, net ........................... 3,060 5,019 ------- ------- $44,079 $41,850 ======= ======= LIABILITIES, STOCKHOLDERS' EQUITY, PARTNERS' CAPITAL AND MEMBERS' CAPITAL Current liabilities: Accounts payable ....................................... $ 6,013 $ 4,073 Billings in excess of costs and estimated earnings on uncompleted contracts ................................ 2,752 4,767 Accrued liabilities .................................... 4,527 4,851 Current portion of long term debt ...................... 1,414 1,271 ------- ------- Total current liabilities .................... 14,706 14,962 Long-term debt, less current portion ........................ 2,328 4,615 Other long-term liabilities ................................. 6,801 4,189 Minority interest in subsidiary ............................. 2,487 1,932 Stockholders' equity, partners' capital and members' capital: Common stock, $5 stated value; 750 shares authorized; .... 1 300 shares issued and outstanding ..................... 1 Common stock, $2 stated value; 850 shares authorized; .... 1 300 shares issued and outstanding .................... 1 Additional paid-in capital ............................... 166 166 Retained earnings, partners' capital, and members' capital 17,589 15,984 ------- ------- 17,757 16,152 $44,079 $41,850 ======= =======
See accompanying notes to condensed financial statements. F-24 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES CONDENSED STATEMENTS OF INCOME (Dollars in thousands) (Unaudited)
Three Months Ended March 31, ------------------------------------------- 1998 1997 ------------------ ----------------- Net sales....................................................... $ 26,330 $ 17,028 Cost of sales........................................................ 16,989 10,243 ------------------ ----------------- Gross profit.................................................... 9,341 6,785 Research, development and engineering................................ 1,841 1,545 Selling, general and administrative expenses. 2,572 2,198 ------------------ ----------------- Operating income................................................ 4,928 3,042 Minority interest in net loss (earnings) of subsidiary............... (560) (244) Interest expense..................................................... (152) (190) Other income, net.................................................... 36 13 ------------------ ----------------- Income before income taxes........................................... 4,252 2,621 Income taxes......................................................... 1,252 504 ------------------ ----------------- Net Income........................................................... $ 3,000 $ 2,117 ================== =================
See accompanying notes to condensed financial statements. F-25 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Three Months Ended March 31, ------------------------------------ 1998 1997 -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................. $ 3,000 $ 2,117 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation and amortization............................ 341 279 Minority Interest in earnings of subsidiary.............. 560 244 (Increase) decrease in assets: Accounts receivable...................................... (10,288) (3,245) Inventories.............................................. (363) (223) Costs and estimated earnings in excess of billing on uncompleted contracts................................... 3,969 684 Other assets............................................. 51 (214) Increase (decrease) in liabilities: Accounts payable......................................... 1,940 (215) Billings in excess of costs and estimated earnings on uncompleted contracts................................... (2,015) 1,685 Accrued liabilities...................................... (324) 105 ----------- ---------- Net cash flows provided by (used in) operating activities...................... (3,129) 1,217 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures....................................... (408) (851) Increase (decrease) in restricted funds.................... 1,854 (39) ----------- ---------- Net cash flows provided by (used in) investing activities...................... 1,446 (890) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt............................... -- 705 Repayments of long-term debt............................... (2,172) (356) Net increase in line of credit............................. 2,597 15 Treasury stock redemption.................................. -- (60) Distribution to shareholders............................... (1,395) (688) ----------- ---------- Net cash flows (used in) financing activities......... (970) (384) ----------- ---------- CHANGE IN CASH AND CASH EQUIVALENTS............................. (2,653) (57) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................. 2,978 161 ----------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD ....................... $ 325 $ 104 =========== ==========
See accompanying notes to condensed financial statements. F-26 SMR AEROSPACE, INC., AFFILIATES, AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS March 31, 1998 (Unaudited) Note 1. Basis of Presentation The condensed financial statements of SMR Aerospace, Inc. (the "Company") have been prepared by the Company and are unaudited pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information related to the Company's organization, significant accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management, these unaudited condensed consolidated financial statements reflect all material adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations and statements of financial position for the interim periods presented. These results are not necessarily indicative of a full year's results of operations. Although the Company believes that the disclosures provided are adequate to make the information presented not misleading, these unaudited interim condensed financial statements should be read in conjunction with the audited consolidated and combined financial statements and notes thereto for the year ended December 31, 1997. Note 2. Subsequent Event Effective August 7, 1998, the shareholders of SMR Aerospace, Inc. sold to BE Aerospace, Inc., a Delaware corporation, all of the outstanding common stock of SMR Aerospace, Inc. (including all of the investments in the subsidiaries), all of the general and limited partnership interests in SMR Associates, and all of the membership interest in SMR Developers. Concurrent with this transaction, BE Aerospace, Inc. also acquired substantially all of the minority interest in the common stock of Flight Structures, Inc. which was owned by the FSI Savings and Retirement Plan. The total purchase price was approximately $142 million. F-27 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The unaudited pro forma combined statements of operations and unaudited pro forma combined balance sheet give effect to (i) the acquisition by B/E Aerospace, Inc. ("B/E") of SMR on a purchase accounting basis and (ii) the issuance of the shares issued in the acquisition of SMR. The pro forma combined statement of operations for the fiscal year ended February 28, 1998 is comprised of the results of B/E for the fiscal year ended February 28, 1998 and the results of SMR for the year ended December 31, 1997. The pro forma combined statement of operations for the three months ended May 30, 1998 is comprised of the results of B/E for the three months ended May 30, 1998 and the results of SMR for the three months ended March 31, 1998. The pro forma combined balance sheet as of May 30, 1998 has been prepared by combining the consolidated balance sheet of B/E as of May 30, 1998 with the balance sheet of SMR as of March 31, 1998. The pro forma combined statements of operations for the fiscal year ended February 28, 1998 and the three months ended May 30, 1998 assume that the acquisition of SMR and the issuance of the shares issued in the acquisition of SMR occurred on February 23, 1997. The pro forma combined balance sheets as of May 30, 1998 assumes that the acquisition of SMR and the offering of the shares issued in the acquisition of SMR occurred on May 30, 1998. The pro forma combined statements of operations and balance sheet do not purport to represent the results of operations or financial position of the Company had the transactions and events assumed therein occurred on the dates specified, nor are they necessarily indicative of the results of operations that may be achieved in the future. Certain of the pro forma adjustments represent estimates of costs to be incurred and cost savings expected to be realized in connection with the acquisition of SMR (expenses related to the SMR selling shareholders which are now non-recurring). No assurance can be given as to the amount of costs that will actually be incurred or cost savings that will actually be realized. The pro forma adjustments are based on management's preliminary assumptions regarding purchase accounting adjustments. Terms of the SMR purchase and sale and related agreements (the "Agreements") provide for B/E to issue the SMR selling shareholders 4,000,000 shares of common stock valued at approximately $30 per share. The Agreements also provide that in the event that the SMR selling shareholders do not receive net proceeds (as defined) from the sale of the B/E stock equal to approximately $30 per share, that B/E will pay such difference and reflect the same as an increase in the purchase price of SMR; in the event the SMR selling shareholders receive net proceeds (as defined) greater than approximately $30 per share, they are obligated to remit such amount to B/E, and such amounts will be reflected as additional paid in capital by the Company. B/E has guaranteed its obligations under the Agreements by posting an irrevocable letter of credit in favor of the SMR selling shareholders. This letter of credit may be drawn upon after December 31, 1998 if the sellers have not received net proceeds (as defined) of $120 million from the sale of the 4,000,000 shares. The Agreements provide B/E effective control over the timing, amount of shares and amount per share that the SMR selling shareholders may sell the B/E shares. The pro forma combined financial information is based upon certain assumptions and adjustments described in the notes to the pro forma financial statements. The pro forma combined financial information should be read in conjunction with the historical financial statements, and related notes and "Management's Discussion and Analysis of Results of Operations and Financial Condition" contained, with respect to B/E, in B/E's Annual Report on Form 10-K, as amended, for the year ended February 28, 1998, and the Quarterly Report on Form 10-Q, as amended, for the quarter ended May 30, 1998 and, with respect to SMR, in the audited financial statements attached hereto. PF-1 B/E Aerospace, Inc. Pro Forma Combined Statement of Operations (Unaudited) Year Ended February 28, 1998 (Dollars in thousands)
B/E SMR Adjustments Pro Forma ---------------------------------------------- Net sales $ 487,999 $ 72,805 $ -- $ 560,804 Cost of sales 309,094 43,914(a) 200 353,208 --------- --------- --------- --------- Gross profit 178,905 28,891 (200) 207,596 Operating expenses: Research, development and engineering 45,685 7,389 -- 53,074 Selling, general and administrative 58,622 8,593(b) (1,251) 65,964 Amortization expense 11,265 -- (a) 1,729 12,994 In-process research and development, acquisition and other expenses 4,664 -- (c) 68,400 73,064 --------- --------- --------- --------- Total operating expenses 120,236 15,982 68,878 205,096 --------- --------- --------- --------- Operating earnings (loss) 58,669 12,909 (69,078) 2,500 Interest expense, net 22,765 723(d) 2,520 26,008 --------- --------- --------- --------- Earnings (loss) before income taxes and extraordinary item 35,904 12,186 (71,598) (23,508) Minority interest in net earnings of subsidiary -- 1,285(e) (1,285) -- Income taxes 5,386 2,500(f) (1,152) 6,734 --------- --------- --------- --------- Earnings (loss) extraordinary item 30,518 8,401 (69,161) (30,242) Extraordinary item 8,956 -- -- 8,956 --------- --------- --------- --------- Net earnings (loss) $ 21,562 $ 8,401 $ (69,161) $ (39,198) ========= ========= ========= ========= Basic earnings (loss) per share: Earnings (loss) before extraordinary item $ 1.36 $ (1.14) Extraordinary item (0.40) (0.34) --------- --------- Net earnings (loss) $ 0.96 $ (1.48) ========= ========= Weighted average common shares 22,442 26,442 Diluted earnings (loss) per share: Earnings (loss) before extraordinary item $ 1.30 $ (1.14) Extraordinary item (0.38) (0.34) --------- --------- Net earnings (loss) $ 0.92 (1.48) ========= ========= Weighted average common shares 23,430 26,442
See accompanying notes to Pro Forma Combined Statement of Operations for the Year ended February 28, 1998. PF-2 B/E Aerospace, Inc. Notes to Pro Forma Combined Statement of Operations Year ended February 28, 1998 (a) Reflects adjustments to depreciation and amortization based on the preliminary purchase price allocation related to the acquired property and equipment and intangible assets. (b) Reflects adjustments to eliminate costs attributable to the selling shareholders of the acquired businesses that will no longer be incurred by B/E. Such costs consist of the following: Shareholder salaries and benefits $ 711 Shareholder bonuses 540 ---------- $ 1,251 (c) Reflects the estimated in-process research and development and acquisition related expenses associated with the acquisition of SMR. (d) Represents additional interest expense for the year ended February 28, 1998 that would have been incurred had 1) the acquisition, 2) the offering of the shares issued in the acquisition of SMR and 3) the refinancing of B/E's senior notes (which was completed on March 16, 1998) taken place on February 23, 1997. (e) To eliminate minority interest. (f) To adjust income tax expense to reflect a 15% effective tax rate. PF-3 B/E Aerospace, Inc. Pro Forma Combined Statement of Operations (Unaudited) Three Months Ended May 30, 1998 (Dollars in thousands)
B/E SMR Adjustments Pro Forma ---------------------------------------------- Net sales $ 139,991 $ 26,330 $ -- $ 166,321 Cost of sales 88,111 16,989(a) 50 105,150 --------- --------- -------- --------- Gross profit 51,880 9,341 (50) 61,171 Operating expenses: Research, development and engineering 11,972 1,841 -- 13,813 Selling, general and administrative 17,999 2,572(b) (475) 20,096 Amortization expense 3,441 -- (a) 432 3,873 In-process research and development and acquisition related expenses 98,253 -- 98,253 --------- --------- -------- --------- Total operating expenses 131,665 4,413 (43) 136,035 --------- --------- -------- --------- Operating earnings (loss) (79,785) 4,928 (7) (74,864) Interest expense, net 7,782 116(c) 930 8,828 --------- --------- -------- --------- Earnings (loss) before income taxes (87,567) 4,812 (937) (83,692) Minority interest -- 560(d) (560) -- Income taxes 1,816 1,252(e) (593) 2,475 --------- --------- -------- --------- Net earnings (loss) $ (89,383) $ 3,000 $ 216 $ (86,167) ========= ========= ========= ========= Basic (loss) per share: Net (loss) $ (3.87) $ (3.18) ========= ========= Weighted average common shares 23,070 27,070 Diluted (loss) per share: Net (loss) $ (3.87) $ (3.18) ========= ========= Weighted average common shares 23,070 27,070
See accompanying notes to Pro Forma Combined Statement of Operations for the Three Months Ended May 30, 1998. PF-4 B/E Aerospace, Inc. Notes to Pro Forma Combined Statement of Operations Three Months Ended May 30, 1998 (a) Reflects adjustments to depreciation and amortization based on the preliminary purchase price allocation related to the acquired property and equipment and intangible assets. (b) Reflects adjustments to eliminate costs attributable to the selling shareholders of the acquired businesses that will no longer be incurred by B/E. Such costs consist of the following: Shareholder salaries and benefits $ 475 (c) Represents additional interest expense for the three month period ended May 30, 1998 that would have been incurred had 1) the acquisition, 2) the offering of the shares issued in the acquisition of SMR and 3) the refinancing of B/E's senior subordinated notes (which was completed on March 16, 1998) taken place on February 23, 1997. (d) To eliminate minority interest. (e) To adjust income tax expense to reflect a 17% effective tax rate. PF-5 B/E Aerospace, Inc. Pro Forma Combined Balance Sheets (Unaudited) May 30, 1998 (Dollars in thousands)
B/E SMR Adjustments Pro Forma ------------------------------------------------ Assets: Current assets: Cash and cash equivalents $ 24,821 $ 325 $ -- $ 25,146 Accounts receivable - trade, net 99,565 19,818(b) (400) 118,983 Inventories, net 152,506 10,465(b) (1,100) 161,871 Other current assets 8,867 4,512(b) (1,100) 12,279 --------- --------- --------- --------- Total current assets 285,759 35,120 (2,600) 318,279 Property & equipment, net 120,543 5,747(b) 2,000 128,290 Intangibles & other assets, net 268,232 3,060(a) 142,000 323,158 (c) (23,734) (b) 2,000 (b) (68,400) --------- --------- --------- --------- $ 674,534 $ 43,927 $ 51,266 $ 769,727 ========= ========= ========= ========= Liabilities & Stockholders' Equity Current liabilities: Accounts payable $ 45,764 $ 6,013 $ -- $ 51,777 Accrued liabilities 58,795 7,479(b) 400 67,674 (b) 1,000 Current portion of long-term debt 5,793 1,414(b) (1,414) 5,793 --------- --------- --------- --------- Total current liabilities 110,352 14,906 (14) 125,244 Long-term debt 430,365 9,129(c) (2,428) 466,816 (a) 22,000 (a) 7,750 Deferred income taxes 1,130 -- -- 1,130 Other liabilities 25,528 2,487(c) (2,487) 25,528 --------- --------- --------- --------- Total liabilities 567,375 26,522 24,821 618,718 --------- --------- --------- --------- Stockholders' equity: Common stock 232 2(c) (2) 272 (a) 40 Additional paid-in capital 240,581 -- (a) 119,960 352,791 (a) (7,750) Accumulated deficit (130,107) 17,403(c) (17,403) (198,507) (b) (68,400) Cumulative foreign exchange translation adjustment (3,547) -- -- (3,547) --------- --------- --------- --------- Total stockholders' equity 107,159 17,405 26,445 151,009 --------- --------- --------- --------- $ 674,534 $ 43,927 $ 51,266 $ 769,727 ========= ========= ========== =========
See accompanying notes to Pro Forma Combined Balance Sheets as of May 30, 1998. PF-6 B/E Aerospace, Inc. Notes to Pro Forma Combined Balance Sheets May 30, 1998
(a) Reflects the issuance of common stock and use of cash related to the acquisition of SMR: Common stock issued to SMR selling shareholders in August 1998 $ 120,000 Proceeds from borrowings under the Company's Bank Credit facility 22,000 Estimated offering expenses 7,750 b) The acquisition of SMR has been accounted for as a purchase pursuant to APB Opinion No. 16 "Business Combinations." The purchase price has been allocated to the assets and liabilities of SMR based on relative fair values. Such allocations are subject to final determination based on valuations and other studies. The final values may differ from those set forth below: Purchase cost: Common stock $ 120,000 ESOP debt 22,000 Purchase accounting reserves 1,400 Less estimated book value of net assets purchased (23,734) -------- $ 119,666 Allocation of excess of purchase cost over book value of assets: Property, plant and equipment $ 2,000 Accounts receivable (400) Inventories (1,100) Other current assets (1,100) Goodwill 41,866 Patents 10,000 Purchased in-process research and development 68,400 ------ $ 119,666
c) To reclassify the equity in SMR, minority interest, and debt retained by sellers in excess of $6,700 as part of the allocation of purchase price. PF-7 EXHIBIT INDEX Exhibit No. Description of Exhibits Page - ----------- ----------------------- ---- 2.1 Acquisition Agreement, dated as of July 21, 1998, among BE Aerospace, Inc., a Delaware Company Oscar J. Mifsud, Oscar J. Mifsud Trust -- 1998, Patrick L. Ryan, Patrick L. Ryan Trust -- 1998, David B. Smith, and David B. Smith Trust -- 1998. 2.2 Stock Purchase Agreement, dated as of July 21, 1998, between Flight Structures, Inc. Savings and Retirement Plan and Trust and BE Aerospace, Inc. 23.1 Consent of Zalick, Torok, Kirgesner, Cook & Co., dated August 17, 1998. 99.1 Press Release dated August 10, 1998. EX-2.1 2 ACQUISITION AGREEMENT EXECUTED COPY ACQUISITION AGREEMENT AMONG BE AEROSPACE, INC. AND THE SELLERS NAMED HEREIN Dated as of July 21, 1998 Table of Contents Page ---- ARTICLE I - SALE AND PURCHASE OF THE SECURITIES.............................. 2 1.1 Acquisition and Transfer of the Securities..................................................... 2 1.2 Purchase Price and Payment..................................... 2 1.3 Purchase Price Adjustment...................................... 3 1.4 Allocation of Purchase Price................................... 5 1.5 Registration of Purchaser Shares............................... 6 1.6 Guaranteed Value............................................... 6 1.7 Letter of Credit............................................... 7 1.8 Escrow......................................................... 7 ARTICLE II - THE CLOSING..................................................... 8 2.1 Closing Date................................................... 8 2.2 Proceedings at Closing......................................... 8 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLERS ....................................................... 9 3.1 Organization and Good Standing................................. 9 3.2 Authorization of Agreement..................................... 9 3.3 Capitalization; Shares; Subsidiaries........................... 10 3.4 No Violations; Consents........................................ 11 3.5 Real Property.................................................. 12 3.6 Tangible Personal Property..................................... 14 3.7 Financial Statements; Absence of Certain Changes........................................................ 16 3.8 Conduct of Business............................................ 16 3.9 Material Contracts............................................. 17 3.10 Intangible Property............................................ 17 3.11 Taxes.......................................................... 18 3.12 Employees and Employee Benefits................................ 21 3.13 Litigation..................................................... 22 3.14 Compliance with Law............................................ 22 3.15 Environmental Matters.......................................... 23 3.16 Insurance...................................................... 24 3.17 Brokers........................................................ 24 3.18 Securities Act................................................. 24 3.19 Inventories.................................................... 24 3.20 No Undisclosed Liabilities..................................... 25 3.21 Receivables.................................................... 25 3.22 Customers...................................................... 26 3.23 Suppliers...................................................... 26 3.24 Key Employees.................................................. 26 3.25 Corporate Books and Records.................................... 27 3.26 Certain Interests.............................................. 27 (i) Page - -------------------------------------------------------------------------------- ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER....................................................... 28 4.1 Organization and Good Standing................................. 28 4.2 Authorization of Agreement..................................... 28 4.3 No Violations; Consents........................................ 29 4.4 Litigation..................................................... 29 4.5 Brokers........................................................ 29 4.6 Securities Act................................................. 29 4.7 Condition of the Business...................................... 30 4.8 Representation................................................. 30 ARTICLE V - COVENANTS OF THE SELLERS......................................... 31 5.1 Cooperation; Consents and Conditions........................... 31 5.2 Access to Documents; Opportunity to Ask Questions...................................................... 31 5.3 Conduct of Business............................................ 32 5.4 Notices of Certain Events...................................... 36 5.5 Confidentiality (Sellers)...................................... 37 ARTICLE VI - COVENANTS OF THE PURCHASER...................................... 38 6.1 Cooperation; Consents and Conditions........................... 38 6.2 Confidentiality (Purchaser).................................... 38 6.3 Notices of Certain Events...................................... 38 ARTICLE VII - COVENANTS RELATING TO EMPLOYMENT AND EMPLOYEE MATTERS............................................... 39 7.1 Employment and Employee Benefit Matters........................ 39 ARTICLE VIII - CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS................................................... 40 8.1 Representations, Warranties and Covenants...................................................... 40 8.2 Deliveries by the Sellers to the Purchaser...................................................... 41 8.3 ESOP Shares.................................................... 42 8.4 No Prohibition................................................. 42 ARTICLE IX - CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS..................................................... 42 9.1 Representations, Warranties and Covenants...................................................... 42 9.2 Deliveries by the Purchaser to the Sellers........................................................ 43 9.3 No Prohibition................................................. 44 ARTICLE X - ADDITIONAL POST-CLOSING COVENANTS................................ 44 10.1 Further Assurances............................................. 44 10.2 Public Announcements........................................... 44 10.3 Books and Records; Personnel................................... 44 (ii) Page - -------------------------------------------------------------------------------- 10.4 Transitional Assistance........................................ 45 ARTICLE XI - INDEMNIFICATION AND RELATED MATTERS............................. 45 11.1 Survival of Representations, Warranties........................ 45 11.2 Obligations of the Sellers..................................... 46 11.3 Obligations of Purchaser....................................... 47 11.4 Procedure...................................................... 48 11.5 Miscellaneous.................................................. 50 11.6 Notice of Non-Third Party Claims............................... 50 11.7 Certain Limitations............................................ 50 11.8 Maximum Indemnification........................................ 51 11.9 Subrogation.................................................... 51 11.10 Adjustments to Indemnification Obligations.................................................... 51 11.12 Exclusive Remedy............................................... 52 11.13 No Consequential Damages....................................... 53 ARTICLE XII - TERMINATION.................................................... 53 12.1 Termination.................................................... 53 12.2 Liabilities After Termination.................................. 54 ARTICLE XIII - TAX MATTERS................................................... 54 13.1 Section 338(h)(10) Election; Tax Indemnity..................... 54 13.2 Tax Returns; Audits............................................ 57 13.3 Cooperation and Exchange of Information........................ 62 ARTICLE XIV - MISCELLANEOUS.................................................. 63 14.1 Certain Definitions............................................ 63 14.2 Entire Agreement............................................... 71 14.3 Governing Law.................................................. 71 14.4 Transfer and Other Taxes....................................... 72 14.5 Expenses....................................................... 72 14.6 Table of Contents and Headings................................. 72 14.7 Notices........................................................ 73 14.8 Severability................................................... 74 14.9 Binding Effect; No Assignment.................................. 74 14.10 Amendments..................................................... 74 14.11 Counterparts................................................... 74 (iii) Exhibits and Schedules Schedule 1.1 -- Sellers' Ownership of Securities Schedule 1.2 -- Allocation of Purchaser Common Stock and Preferred Stock Schedule 1.4(a) -- Allocation of Purchase Price Schedule 1.4(b) -- Asset Allocation Schedule 3.1 -- Foreign Qualifications Schedule 3.3(a) -- Ownership of Company Shares Schedule 3.3(b) -- Ownership of Partnership Interests in SMR Associates Schedule 3.3(c) -- Ownership of Membership Interests in SMR Developers Schedule 3.3(d) -- Capitalization and Ownership of the SMR Subsidiaries Schedule 3.3(e) -- Certain Agreements Schedule 3.4 -- Violations; Required Consents (SMR Companies) Schedule 3.5(a) -- SMR Properties Schedule 3.5(c) -- Real Property Leases Terminating as a result of the sale of the Securities Schedule 3.6(a) -- Personal Property Leases Schedule 3.6(c) -- Excluded Property Schedule 3.7 -- Initial Balance Sheet Schedule 3.8 -- Conduct of Business Schedule 3.9 -- Material Contracts Schedule 3.10(a) -- Intangible Assets Schedule 3.10(c) -- Supplemental Type Certificates and Part Manufacturer Approvals Schedule 3.11 -- Tax Matters Schedule 3.12(a) -- Labor Matters Schedule 3.12(b)(i) -- Employee Benefit Plans Schedule 3.12(b)(ii) -- Employment and Severance Contracts Schedule 3.13 -- Litigation Schedule 3.14 -- Compliance with Law Schedule 3.16 -- Insurance Schedule 3.19 -- Title to Inventory (Exceptions) Schedule 3.20 -- Disclosed Liabilities Schedule 3.21 -- Receivables Schedule 3.22 -- Certain Customer Information Schedule 3.23 -- Certain Supplier Information Schedule 3.24 -- Key Employees Schedule 3.26(a) -- Certain Interests of Directors and Officers Schedule 3.26(b) -- Certain Debts Owed by Directors and Officers (iv) Schedule 4.3 -- Violations; Required Consents (Purchaser) Schedule 5.3 -- Certain Bonus Payments Schedule 7.1 -- Certain Healthcare Benefits Schedule 11.2(c) -- Certain Environmental Matters Schedule 11.3 -- DOL Settlement Schedule 13.1(c) -- Estimate of Election Tax Cost Exhibit A Registration Rights Agreement Exhibit B Escrow Agreement Exhibit C Letter of Credit Exhibit D Standstill and Noncompete Agreement Exhibit E Share Disposition Agreement (v) ACQUISITION AGREEMENT ACQUISITION AGREEMENT (the "Agreement"), dated as of July 21, 1998, by and among BE Aerospace, Inc., a Delaware corporation (the "Purchaser"), and the Sellers indicated on the signature pages hereto (collectively, the "Sellers"). W I T N E S S E T H: WHEREAS, SMR Aerospace, Inc., an Ohio corporation (the "Company"), is engaged, through its subsidiaries, in the business of (a) designing and certifying modifications to commercial aircraft in the interior reconfiguration, crew rest compartment and airframe modification market sectors as well as manufacturing related components and (b) manufacturing specialty products for the aviation industry in the commercial aircraft, business/commuter aircraft and government/industrial market sectors (collectively, the "Business"); and WHEREAS, the Company owns all of the outstanding capital stock of SMR Holdings, Inc., an Ohio corporation, which in turn owns all of the outstanding capital stock of SMR Technologies, Inc., an Ohio corporation, and 76.4% of the outstanding capital stock of Flight Structures, Inc., a Washington corporation ("FSI"); and WHEREAS, the Company also owns all of the outstanding capital stock of SMR Aerospace Management Company, Inc., an Ohio corporation, and Plush Mills, Inc., an Ohio corporation; and WHEREAS, SMR Associates, an Ohio limited partnership ("SMR Associates"), and SMR Developers, an Ohio limited liability company ("SMR Developers"), own certain properties and equipment that are leased to the Company's subsidiaries for use in the operation of the Business; and WHEREAS, the Sellers collectively own all of the outstanding shares of common stock of the Company (the "Shares"), and own all of the limited and general partnership interests in SMR Associates (the "Partnership Interests") and all of the membership interests in SMR Developers (the "LLC Interests" and, together with the Shares and the Partnership Interests, the "Securities"); and 1 WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Purchaser is entering into an agreement (the "ESOP Purchase Agreement") with the Flight Structures, Inc. Employee Stock Ownership Plan (the "FSI ESOP") for the purchase of 23.35% of the outstanding capital stock of FSI owned by the FSI ESOP (the "ESOP Shares"); and WHEREAS, the Purchaser desires to acquire the Securities from the Sellers, and the Sellers desire to sell the Securities to the Purchaser, on and subject to the terms and conditions set forth in this Agreement; and WHEREAS, certain capitalized terms used herein are defined in Section 14.1 hereof. NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements hereinafter set forth, and upon the terms and subject to the conditions hereinafter set forth, the Purchaser and the Sellers hereby agree as follows: ARTICLE I SALE AND PURCHASE OF THE SECURITIES 1.1 Acquisition and Transfer of the Securities. Upon the terms and subject to the conditions hereinafter set forth, at the Closing (as defined in Section 2.1 hereof), each Seller shall sell, assign, transfer, convey and deliver to the Purchaser, and the Purchaser shall purchase, acquire and accept from each such Seller, all of such Seller's right, title and interest in and to the Securities set forth opposite such Seller's name on Schedule 1.1, free and clear of all Liens. 1.2 Purchase Price and Payment. In consideration of the sale of the Securities by the Sellers to the Purchaser, the Purchaser shall pay an aggregate purchase price of $120,000,000.00 (One Hundred Twenty Million Dollars), subject to adjustment as set forth in Section 1.3, which amount, as so adjusted, shall be increased at a rate per annum equal to the prime rate of The Chase Manhattan Bank plus 100 basis points, applied to the portion of the Purchase Price that has not been converted to cash pursuant to this Section 1.2 and Sections 1.5 and 1.6 from and after October 15, 1998 until the Sellers receive aggregate Net Proceeds (as defined in Section 1.6(b)) equal 2 to such amount, as so adjusted and increased (the "Purchase Price"). The Purchaser shall pay the Purchase Price by delivering to the Sellers and the Escrow Agent pursuant to the Escrow Agreement referenced in Section 1.8 hereof on the Closing Date (i) an aggregate of 4,000,000 shares of the Purchaser's common stock, par value $.01 per share (the "Purchaser Common Stock") or, at the option of the Purchaser, (ii) a combination of cash, Purchaser Common Stock and non-voting convertible preferred stock of the Purchaser ("Purchaser Preferred Stock"), provided, that the number of shares of Purchaser Common Stock into which such Purchaser Preferred Stock are convertible, when aggregated with the Purchaser Common Stock delivered to the Sellers and the Escrow Agent on the Closing Date, shall equal 4,000,000. The Purchaser Common Stock and any Purchaser Preferred Stock shall be allocated among the Sellers and the Escrow Agent as set forth in Schedule 1.2. To the extent the product of (i) 4,000,000 and (ii) the average of the per share closing prices as reported on the NASDAQ National Market System of shares of Purchaser Common Stock for the 20 consecutive trading days ending on (and including) the first trading day immediately preceding the Closing Date is less than $120,000,000.00 (One Hundred Twenty Million Dollars), then Purchaser shall pay the amount of such deficiency on the Closing Date by wire transfer of immediately available funds to accounts designated for such purpose by the Sellers and the Escrow Agent (the "Cash Payment"). The Cash Payment shall be allocated among the Sellers and the Escrow Agent in the same manner as the allocation of the Purchaser Common Stock and Purchaser Preferred Stock set forth on Schedule 1.2. For purposes of this Agreement, the shares of Purchaser Common Stock delivered to the Sellers and the Escrow Agent at the Closing and the shares of Purchaser Common Stock into which the Purchaser Preferred Stock so delivered at the Closing, if any, are convertible are collectively referred to as the "Purchaser Shares." 1.3 Purchase Price Adjustment. (a) As soon as practicable (but in no event later than 60 days) following the Closing Date, the Sellers shall prepare and deliver to the Purchaser a consolidated and combined balance sheet for the Company, SMR Associates and SMR Developers as of the Closing Date (the "Closing Balance Sheet"), which shall include the Sellers' computation of the Net Worth and the Debt and Related Costs as of the Closing Date. As used herein, "Net Worth" as of the Closing Date means the aggregate shareholders' equity, partners' capital and members' capital of the Company, SMR Associates and SMR 3 Developers on such date as reflected on the Closing Balance Sheet. The "Debt and Related Costs" as of the Closing Date means (i) the aggregate of the current portion of long-term bank debt, current portion of capital lease obligations, long-term bank debt (less current portion) and capital lease obligations (less current portion) on such date plus (ii) all costs incurred or accrued by Sellers in connection with the transactions contemplated hereby and the ESOP Purchase Agreement, in each case as reflected on the Closing Balance Sheet. The Closing Balance Sheet shall (i) fairly present the Net Worth and the Debt and Related Costs as at the close of business on the Closing Date in accordance with GAAP and on a basis consistent with the Initial Balance Sheet, and (ii) be prepared as if the Closing Date were a fiscal year-end. The Purchaser shall provide the Sellers and their representatives with access to the books and records of the Company, SMR Associates and SMR Developers necessary to enable the Sellers to prepare the Closing Balance Sheet. (b) The Purchaser shall have a period of 30 days to review the Closing Balance Sheet and the Sellers' computation of the Net Worth and the Debt and Related Costs as of the Closing Date following delivery of the Closing Balance Sheet by the Sellers. The Purchaser may dispute any amounts reflected in the Sellers' computation of the Net Worth and the Debt and Related Costs as of the Closing Date by giving notice in writing to the Sellers, specifying each of the disputed items and setting forth in reasonable detail the basis for such dispute. (c) If a notice of disagreement shall be timely delivered pursuant to Section 1.3(b) hereof, the parties shall, during the 10 days following such delivery, use their reasonable best efforts to reach agreement on the disputed items or amounts in order to determine, as may be required, the amount of the Net Worth and the Debt and Related Costs as of the Closing Date. If, during such period, the parties are unable to reach such agreement, they shall promptly thereafter cause Arthur Andersen LLC, or if such firm declines to act in such capacity, such other firm of independent nationally recognized accountants mutually chosen by the Purchaser and the Sellers (the "Accounting Referee") promptly to review this Agreement and the disputed items or amounts for the purpose of calculating the Net Worth and the Debt and Related Costs as of the Closing Date. In making such calculation, the Accounting Referee shall consider only those items or amounts in the Closing Balance Sheet or the Sellers' computation of the Net Worth and the 4 Debt and Related Costs as to which the Purchaser has disagreed. The Accounting Referee shall deliver to the Sellers and the Purchaser, as promptly as practicable, a report setting forth such calculation. Such report shall be final and binding upon the parties hereto. The cost of such review and report shall be borne by the party whose calculation of the disputed item is furthest from the Accounting Referee's calculation. As used herein, "Final Net Worth" and "Final Debt and Related Costs" means (i) the Sellers' computation of the Net Worth and the Debt and Related Costs, if no notice of disagreement is delivered by the Purchaser during the period provided in Section 1.3(b), or (ii) if such a notice of disagreement is delivered by the Purchaser, either (A) as agreed by the Sellers and the Purchaser or (B) as shown in the Accounting Referee's calculation delivered pursuant to this Section 1.3(c). (d) If the Final Net Worth is less than $16,509,687, then the Purchase Price shall be reduced by such difference. If the Final Net Worth is greater than $16,509,687, then the Purchase Price shall be increased by such excess. (e) If the Final Debt and Related Costs is greater than $6,700,000.00, then the Purchase Price shall be reduced by such excess. There shall be no adjustment under this Section 1.3(e) if the Final Debt and Related Costs is less than $6,700,000.00. 1.4 Allocation of Purchase Price. (a) The Purchase Price shall be allocated among the Partnership Interests, the LLC Interests and the Shares in the manner set forth on Schedule 1.4(a). (b) In the event the Sellers and the Purchaser make the Election (as defined in Section 13.1 hereof), the Purchase Price allocated to the Shares on Schedule 1.4(a), and the liabilities and other relevant items of the SMR Subsidiaries (other than FSI and its Subsidiaries) to the extent provided in the Treasury Regulations promulgated under Section 338(h)(10) of the Code, shall be further allocated among the assets of the SMR Subsidiaries (other than FSI and its Subsidiaries) in the manner set forth on Schedule 1.4(b). (c) The Purchaser and the Sellers shall prepare and file all tax returns relating to the sale of the Securities hereunder in a manner consistent with the 5 allocations set forth on Schedule 1.4(a) and, if the Election is made, Schedule 1.4(b). 1.5 Registration of Purchaser Shares. Purchaser shall use commercially reasonable efforts to file a registration statement permitting the public sale of the Purchaser Shares as soon as reasonably practicable after the Closing Date, and to cause such registration statement (which shall include interim financial statements of the Purchaser and its subsidiaries for the fiscal quarter ending August 31, 1998) to become effective as soon as practicable after August 31, 1998. Purchaser shall use commercially reasonable efforts to effectuate a fully underwritten public offering of common stock of Purchaser which will include such Purchaser Shares (the "Public Offering") by one or more underwriters to be selected by Purchaser. The Sellers shall be required to sell as many Purchaser Shares in the Public Offering as the underwriter(s) and Purchaser shall request, up to the entire amount of Purchaser Shares received by them in connection with the transactions contemplated hereby (including shares held in escrow pursuant to the arrangements described in Section 1.8 hereof). In the event that not all of the Purchaser Shares received by the Sellers or held in escrow are sold in the Public Offering, notwithstanding the reasonable commercial efforts of Purchaser to effectuate the Public Offering, Purchaser shall use commercially reasonable efforts to file and cause to become effective a shelf registration (the "Shelf Registration") with respect to any unsold shares as soon as reasonably practicable after the termination of the Public Offering and maintain such Shelf Registration in effect through December 31, 1998 to facilitate the sale of such shares. Purchaser Shares shall be sold under the Shelf Registration as directed and approved by Purchaser, utilizing brokers or underwriters approved by Purchaser. The obligation of the parties described in this Section 1.5 are to be more fully described in the Registration Rights Agreement. 1.6 Guaranteed Value. (a) In the event that the aggregate Net Proceeds (as defined below) received prior to December 31, 1998 by the Sellers and the Escrow Agent from sales in the Public Offering or pursuant to the Shelf Registration of the Purchaser Shares plus the Cash Payment, if any, are less than the Purchase Price (including any increase in the Purchase Price after October 15, 1998 as provided in Section 1.2), then, on December 31, 1998, (i) Purchaser shall pay to Sellers and the Escrow Agent an 6 aggregate amount equal to the Purchase Price minus the sum of the Net Proceeds previously received by the Sellers and the Cash Payment, if any. In the event that the aggregate Net Proceeds received by the Sellers and the Escrow Agent from the sale of Purchaser Shares plus the Cash Payment, if any, exceeds the Purchase Price, all such excess Net Proceeds shall be refunded to Purchaser. In either event, the Sellers and Escrow Agent shall transfer to Purchaser all Purchaser Shares that they have not previously sold. (b) As used herein, "Net Proceeds" means (x) in the case of an underwritten sale of Purchaser Shares, the gross proceeds received by the Sellers and the Escrow Agent in such sale net of underwriter's discounts, commissions and other expenses paid by the Sellers (whether incurred by the Sellers, Purchaser, the underwriters or any advisors, and including, without limitation, accounting and legal fees) in connection with such sale and (y) in the case of any other sale of such shares, the gross proceeds received by the Sellers and the Escrow Agent net of selling commissions paid in connection with such sale and all other expenses paid by the Sellers (whether incurred by the Sellers, Purchaser, the placement agents or any advisors, and including, without limitation, accounting and legal fees) in connection with such sale. 1.7 Letter of Credit. At the Closing, Purchaser shall deliver to Sellers an irrevocable letter of credit in the form of Exhibit C (the "Letter of Credit") in the amount of $120,000,000.00 (One Hundred Twenty Million Dollars) (which amount shall automatically adjust to reflect the adjustment provided for in Section 1.3 and to reflect the increase, if any, provided for in Section 1.2) in favor of the Sellers securing Purchaser's obligation under Section 1.6. The Letter of Credit shall be issued by The Chase Manhattan Bank or another financial institution acceptable to Sellers. 1.8 Escrow. At the Closing, Purchaser shall hold back from Sellers and deposit 400,000 Purchaser Shares and 10% of the Cash Payment, if any, into an escrow account to be established with an escrow agent (the "Escrow Agent") mutually acceptable to the parties and pursuant to an escrow agreement, dated the Closing Date, substantially in the form of Exhibit B (the "Escrow Agreement"), which Escrow Agent will hold such property as provided therein as security for the obligations of the Sellers under Section 11.2(b) hereof. In the Public Offering and any other sale of Purchaser 7 Shares, shares held in escrow will be sold only after all other shares have been sold. The proceeds of the sales of shares held in escrow also shall be held in escrow and invested in investment grade securities as designated by the Sellers. Following the sales of Purchaser Shares provided for in Section 1.5 and the cash payments, if any, by Purchaser pursuant to Section 1.6 and the refund, if any, referred to in the last sentence of Section 1.6(a), the Escrow Agent shall hold 10% of the Purchase Price. ARTICLE II THE CLOSING 2.1 Closing Date. The Closing shall take place at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 at 10:00 A.M., on the second business day following the satisfaction or waiver of the last of the conditions to Closing set forth in Articles VIII and IX hereof, or at such other place and at such other time and date as may be mutually agreed upon by the Purchaser and the Sellers. The date of the Closing is referred to in this Agreement as the "Closing Date." Notwithstanding the foregoing, the parties agree that the Purchaser intends, for financial reporting purposes, to treat the Closing and transfer of effective control of the SMR Companies as if it had occurred on August 1, 1998. 2.2 Proceedings at Closing. All proceedings to be taken and all documents to be executed and delivered by any of the Sellers and the Company in connection with the consummation of the transactions contemplated hereby shall be reasonably satisfactory in form and substance to the Purchaser and its counsel. All proceedings to be taken and all documents to be executed and delivered by the Purchaser in connection with the consummation of the transactions contemplated hereby shall be reasonably satisfactory in form and substance to the Sellers, the Company and their counsel. All proceedings to be taken and all documents to be executed and delivered by all parties at the Closing shall be deemed to have been taken, executed and delivered simultaneously, and no proceedings shall be deemed taken nor any documents executed or delivered until all have been taken, executed and delivered. 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLERS Each Seller jointly and severally represents and warrants to the Purchaser as follows: 3.1 Organization and Good Standing. Each of the SMR Companies is a corporation, limited partnership or limited liability company, as the case may be, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation. Each of the SMR Companies has the requisite corporate, partnership or limited liability company, as the case may be, power and authority to carry on its business as it is now being conducted and is duly qualified or authorized to do business and is in good standing under the laws of (i) each jurisdiction in which it owns or leases real property and (ii) each other jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification or authorization, except where the failure to be so duly qualified or authorized and in good standing would not have a Material Adverse Effect. Schedule 3.1 sets forth a true, correct and complete list of each jurisdiction in which any of the SMR Companies is qualified or authorized to do business as a foreign corporation, limited partnership or limited liability company, as the case may be. The Sellers have made available to the Purchaser complete and correct copies of the charter, by-laws, limited partnership agreement, operating agreement, or other organizational documents, as applicable, of each of the SMR Companies, and all amendments thereto. 3.2 Authorization of Agreement. This Agreement has been, and each other agreement, document, instrument or certificate contemplated by this Agreement to be executed by such Seller in connection with the consummation of the transactions contemplated by this Agreement (all such other agreements, documents, instruments and certificates required to be executed by such Seller being hereinafter referred to, collectively, as such "Seller's Documents"), will be at or prior to the Closing, duly executed and delivered by such Seller, and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and such Seller's Documents when so executed and delivered will constitute, legal, valid and binding obligations of such Seller, enforceable against such Seller in accordance with their respective terms, subject to 9 applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). 3.3 Capitalization; Shares; Subsidiaries. (a) The authorized capital stock of the Company consists of shares of common stock, par value $.01 per share (the "Common Stock"), of which 300 Shares are issued and outstanding and held of record by the holders set forth on Schedule 3.3(a). (b) Schedule 3.3(b) sets forth each of the limited and general partners of SMR Associates and the percentage partnership interest in SMR Associates owned by each such partner. The partnership interests in SMR Associates are not documented by certificates or other documentary evidence. (c) Schedule 3.3(c) sets forth each of the members of SMR Developers and the percentage limited liability company interest in SMR Developers owned by each such member. The limited liability company interests in SMR Developers are not documented by certificates or other documentary evidence. (d) Schedule 3.3(d) sets forth with respect to each SMR Subsidiary, the number of shares of its authorized capital stock, the number of shares thereof issued and outstanding, and the record holders thereof. Certain individuals other than the Sellers own .25% of the outstanding stock of FSI, and the purchase by Purchaser of such FSI shares is not a condition to the Closing of the transactions contemplated hereby. (e) The outstanding equity interests in each of the SMR Companies are validly issued, fully paid and non-assessable and are owned by the holders thereof free and clear of all Liens. Except as set forth on Schedule 3.3(e), there are no outstanding options, warrants, calls, rights, commitments or agreements of any kind to which any of the SMR Companies is a party or by which it is bound obligating it to issue, deliver or sell, or cause to be issued, delivered or sold, additional equity interests in such SMR Company, or any securities convertible or exchangeable into or evidencing the right to purchase any such equity 10 interests, or obligating it to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. Except as set forth on Schedule 3.3(e), there are no outstanding contractual obligations of any of the SMR Companies to repurchase, redeem or otherwise acquire any of its equity interests. (f) Such Seller is the record and beneficial owner of the Securities as shown on Schedule 1.1, free and clear of Liens, and has all right, power and authority to sell, convey, assign, transfer and deliver to Purchaser good title to the Securities owned by him. Upon consummation of the transactions contemplated by this Agreement and registration of the Securities in the name of the Purchaser on the stock records of the Company, the membership interests records of SMR Developers and the partnership interests records of SMR Associates, as applicable, the Purchaser, assuming it shall have purchased the Securities for value and in good faith and without notice of any adverse claim, will own all of the issued and outstanding (i) capital stock of the Company, (ii) membership interests of SMR Developers and (iii) partnership interests of SMR Associates, free and clear of all Liens. (g) Except for interests in the SMR Subsidiaries, neither the Company nor any other SMR Company has any Subsidiaries, nor does any of them own or hold beneficially any shares of any class in the capital of any corporation nor does any of them beneficially own any interests in any partnerships, business trusts or joint ventures or in any other unincorporated trade or business enterprises. (h) The SMR Companies include all of the operating entities and assets controlled directly or indirectly by the Sellers related to the Business. 3.4 No Violations; Consents. None of the execution and delivery by such Seller of this Agreement and such Seller's Documents, or the consummation of the transactions contemplated hereby or thereby, or compliance by such Seller with any of the provisions hereof or thereof will (a) conflict with, or result in the breach of, any provision of the certificate of incorporation, by-laws, limited partnership agreement, certificate of formation, operating agreement or other governing charter document of any SMR Company or any trust document of any Seller, (b) assuming compliance with the matters referred to on 11 Schedule 3.4, constitute a violation of any Law applicable to any SMR Company or any Seller, (c) result in the creation of any Lien (other than any Lien in favor of the Purchaser) upon the Securities or any of the assets of any of the SMR Companies, or (d) except as set forth on Schedule 3.4, conflict with, result in a breach of, or give rise to any termination or right to terminate under any Real Property Lease, Personal Property Lease or Material Contract, except for such conflicts, breaches and terminations as would not have a Material Adverse Effect. Except as set forth on Schedule 3.4, no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Governmental Body is required on the part of any SMR Company or any Seller in connection with the execution, delivery and performance of this Agreement or the Sellers' Documents. 3.5 Real Property. (a) Schedule 3.5 sets forth a complete list of (i) all real property and interests in real property owned in fee by the SMR Companies (individually, an "Owned Property" and, collectively, the "Owned Properties"), and (ii) all real property and interests in real property leased or subleased by the SMR Companies (individually, a "Real Property Lease" and, collectively, the "Real Property Leases"; the real properties specified in such leases, together with the Owned Properties, being referred to herein individually as an "SMR Property" and collectively as the "SMR Properties"). Each of the SMR Companies has good and marketable fee title to the Owned Properties owned by it, free and clear of all Liens of any nature whatsoever except (A) Liens set forth on Schedule 3.5 and (B) Permitted Exceptions. The SMR Properties constitute all interests in real property currently used or currently held for use in connection with the Business and which are necessary for the continued operation of the Business as currently conducted. Each of the SMR Companies has a valid and enforceable leasehold interest under each of the Real Property Leases to which it is a party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity), and none of the SMR Companies is in material default under any of the Real Property Leases or within the 12-month period ending on the date hereof has received any written notice of default or event that with notice or lapse of time, or both, would constitute a default under any of 12 the Real Property Leases. To such Seller's knowledge, no third party is in material breach of a Real Property Lease. The Sellers have delivered or otherwise made available to the Purchaser true, correct and complete copies of (i) all deeds, title reports and surveys for the Owned Properties presently in the possession of Sellers or the SMR Companies and (ii) the Real Property Leases, together with all amendments, modifications or supplements, if any, thereto. (b) There are no latent defects or adverse physical conditions affecting the SMR Properties or any the facilities, structures, buildings, erections, improvements, fixtures, fixed assets and personalty of a permanent nature annexed, affixed or attached to, located on, or forming part of the SMR Properties, except for such defects or conditions as would not have a Material Adverse Effect. Each SMR Company is in peaceful and undisturbed possession of each parcel of SMR Property, and there are no contractual or legal restrictions that preclude or restrict in a material way the ability to use the premises for the purposes for which they are currently being used. (c) Except as otherwise disclosed in Schedule 3.5(c) with respect to each such Real Property Lease: (i) none of the SMR Companies has received any notice of cancellation or termination and no lessor has any right of termination or cancellation except in connection with the default of any SMR Company thereunder and (ii) none of the SMR Companies has granted to any other Person any rights, adverse or otherwise, thereunder. Except as otherwise set forth in Schedule 3.5(c) each Real Property Lease will not cease to be legal, valid, binding, enforceable, and in full force and effect on terms identical to those currently in effect as a result of the consummation of the transactions contemplated by this Agreement. (d) No improvements on the SMR Properties and none of the current uses and conditions thereof violate any applicable deed restrictions or other applicable covenants, restrictions, agreements, existing site plan approvals, zoning or subdivision regulations or urban redevelopment plans as modified by any duly issued variances, except for such violations as would not have a Material Adverse Effect. No permits, licenses or certificates pertaining to the ownership or operation of all improvements on the SMR Properties, other than those which are transferable with the SMR Property, are required by any Governmental Authority having jurisdiction over the SMR Property, except for such 13 permits, licenses or certificates the failure to have or transfer would not have a Material Adverse Effect. (e) Except for leases or subleases entered into by and between SMR Companies, the rental set forth in each Real Property Lease is the actual rental being paid, and there are no separate agreements or understandings with respect to the same. (f) The SMR Companies have, and upon the Closing the SMR Companies will have, the full right to exercise any renewal options contained in the Real Property Leases on the terms and conditions contained therein. 3.6 Tangible Personal Property. (a) Schedule 3.6(a) sets forth all leases of personal property ("Personal Property Leases") involving annual payments in excess of $15,000 relating to personal property used in the Business by the SMR Companies or to which any of the SMR Companies is a party or by which the properties or assets of any such SMR Company is bound. The Sellers have delivered or otherwise made available to the Purchaser true, correct and complete copies of the Personal Property Leases, together with all amendments, modifications or supplements thereto, if any. (b) Each of the SMR Companies has a valid and enforceable leasehold interest under each of the Personal Property Leases to which it is a party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity), and none of the SMR Companies is in material default under any of the Personal Property Leases or within the 12 month period ending on the date hereof has received any written notice of default or event that with notice or lapse of time, or both, would constitute a default under any of the Personal Property Leases. To such Seller's knowledge, no third party is in material breach of a Personal Property Lease. (c) Each of the SMR Companies has good and marketable title to all of the items of tangible personal property owned by it and reflected in the Initial Balance Sheet (except as sold or disposed of subsequent to the date thereof in the ordinary course of business consistent with past practice and the provisions of this Agreement) (the 14 "Tangible Personal Property"), free and clear of Liens other than Permitted Exceptions. The parties acknowledge that the personal property listed on Schedule 3.6(c) is property of the Sellers and excluded from the transactions contemplated hereby. (d) Except for Intangible Assets (which are the subject of Section 3.10), each SMR Company owns, leases or has the legal right to use all the properties and assets, including, without limitation, the SMR Properties and the Tangible Personal Property, used by it in the conduct of the Business or otherwise owned, leased or used by such SMR Company and, with respect to contract rights, is a party to and enjoys the right to the benefits (subject to the performance of its obligations) of all contracts, agreements and other arrangements used by such SMR Company or in or relating to the conduct of the Business (all such properties, assets and contract rights being the "Assets"). (e) The Assets and the Intangible Assets constitute all the properties, assets and rights forming a part of, used or held in, and all such properties, assets and rights as are necessary in the conduct of, the Business as it is currently conducted. At all times since May 31, 1998, each SMR Company has caused the Assets to be maintained in accordance with the SMR Companies past business practice, and all the Assets are in good operating condition and repair and are suitable for the purposes for which they are used and intended, subject to normal wear and tear and except for such failure to be in good operating conditions and repair as would not have a Material Adverse Effect. (f) Following the consummation of the transactions contemplated by this Agreement, each SMR Company will continue to own, pursuant to good and marketable title, or lease, under valid and subsisting leases, or otherwise retain its respective interest in the Assets or Intangible Assets without incurring any penalty or other adverse consequence, including, without limitation, any increase in rentals, royalties, or licenses or other fees imposed as a result of, or arising from, the consummation of the transactions contemplated by this Agreement. Immediately following the Closing, each SMR Company shall own and possess all documents, books, records, agreements and financial data of any sort used by such SMR Company in the conduct of the Business or otherwise. 15 3.7 Financial Statements; Absence of Certain Changes. (a) Attached as Schedule 3.7 is the consolidated and combined balance sheet of the SMR Companies (the "Initial Balance Sheet") as at May 31, 1998 (the "Balance Sheet Date"). The Sellers have furnished the Purchaser with a consolidated and combined balance sheet as at December 31, 1997 and December 31, 1996, and the related consolidated and combined statements of income, retained earnings, partners' capital and members' capital, and cash flows for the years then ended (collectively with the Initial Balance Sheet, the "Financial Statements"), certified by Zalick, Torok, Kirgesner, Cook & Co. Such Financial Statements, (i) were prepared in accordance with the books of account and other financial records of the SMR Companies, (ii) have been prepared in accordance with GAAP applied on a basis consistent with the past practices of the SMR Companies, and (iii) fairly present in accordance with GAAP the consolidated and combined financial condition and results of the operations of the SMR Companies and the changes in their financial position at such dates and for such periods subject, in the case of the Initial Balance Sheet, to customary year-end adjustments and (iv) include all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated financial condition of the SMR Companies and the results of operations of the SMR Companies as of the dates thereof or for the periods covered thereby. (b) The books of account and other financial records of the SMR Companies: (i) reflect all items of income and expense and all assets and Liabilities required to be reflected therein in accordance with GAAP applied on a basis consistent with the past practices of the SMR Companies, (ii) are in all material respects complete and correct, and do not contain or reflect any material inaccuracies or discrepancies and (iii) have been maintained in accordance with good business and accounting practices. (c) Since December 31, 1997, there has been no Material Adverse Change with respect to the SMR Companies. 3.8 Conduct of Business. Since December 31, 1997, the Business has been operated in the ordinary course, consistent with past practice and, since the May 31, 1998, except as set forth in Schedule 3.8 or as contemplated or expressly required or permitted by this Agreement no SMR Company has taken any action which, if taken subsequent to the execution of this Agreement and on or prior to the 16 Closing Date, would constitute a breach of the Sellers' agreements set forth in Section 5.3. 3.9 Material Contracts. Except as set forth in Schedules 3.5, 3.6, 3.9 or 3.10, none of the SMR Companies has or is bound by (a) any Contract relating to the employment of any Person, (b) any Contract limiting the freedom of any of the SMR Companies to engage in any line of business or to compete with any other Person or (c) any Contract which involves payment by any of the SMR Companies of $100,000 or more in any calendar year and is not cancelable by the SMR Company without penalty within 30 days after notice is given to the counterparty thereto, (d) any Contract relating to a capital lease obligation or indebtedness for borrowed money (e) any broker, distributor, dealer, manufacturer's representative, franchise, agency, sales promotion or advertising Contract, or (f) any management Contracts or Contracts with independent contractors or consultants, which are not cancelable without penalty or further payment and without more than 30 days notice (the Contracts specified in clauses (a) through (f) above being referred to as "Material Contracts"). The Sellers have delivered or otherwise made available to the Purchaser true, correct and complete copies of the Material Contracts, together with all amendments, modifications or supplements thereto, if any. Each of the SMR Companies has a valid and enforceable interest under each of the Material Contracts to which it is a party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity), and none of the SMR Companies is in material default under any of the Material Contracts or within the 12 month period ending on the date hereof has received any written notice of default or event that with notice or lapse of time, or both, would constitute a default under any of the Material Contracts. To each Seller's knowledge, except as disclosed in Schedule 3.9, no third party is in material breach of a Material Contract. 3.10 Intangible Property. (a) Schedule 3.10 (a) sets forth a list of all patents, trademarks, trade names, service marks and copyrights owned by or licensed to any of the SMR Companies and used in the Business (the "Intangible Assets"), as well as a list of all registrations thereof and pending applications therefor. Each of the Intangible 17 Assets owned by an SMR Company is owned free and clear of Liens (other than Permitted Exceptions) and such SMR Company has good title thereto. The SMR Companies collectively have adequate licenses or other valid rights to use all of the Intangible Assets which they do not own and which are material to the conduct of the Business. Each SMR Company's (i) use of the Intangible Assets and (ii) conduct of the Business does not infringe upon or violate with any intellectual property rights of any other Person, except for such matters as would not have a Material Adverse Effect. Such Seller is not aware that any third party is infringing or violating the Intangible Assets. (b) Each SMR Company possesses and maintains all job files, drawings, engineering and other reports, manuals, customer specifications, manufacturing process documents, proprietary parts kits, and product installation drawings necessary (i) for the conduct of the Business as currently conducted and (ii) for the manufacture, installation and sale of all products currently manufactured, installed or marketed by each SMR Company and the provision of all services provided by each SMR Company. (c) Set forth on Schedule 3.10(c) is a list of all Supplemental Type Certificates and Parts Manufacturer Approvals held by the SMR Companies. All such Supplemental Type Certificates and Parts Manufacturer Approvals are held by each SMR Company free and clear of all Liens (other than Permitted Exceptions). Each SMR Company has all (i) Supplemental Type Certificates, (ii) original equipment manufacturer certifications, and (iii) Parts Manufacturer Approvals, necessary for the manufacture, installation and sale of all products currently manufactured, installed or marketed by each SMR Company and the provision of all services provided by each SMR Company. 3.11 Taxes. (a) Each of the SMR Companies has timely filed, or there has been filed on its behalf, all material federal, state, local and foreign Tax Returns which, to the best knowledge (as defined in this Section 3.11(a)) of the Sellers, are required to be filed by, or with respect to, the SMR Companies on or prior to the date hereof (taking into account any extension of time to file granted to or on behalf of any of the SMR Companies) (collectively, the "Returns"), and all such Tax Returns are true, correct and complete in all material respects. Except as set forth on Schedule 3.11, each of the SMR Companies (i)(A) has paid (or there has been paid on their behalf) all 18 Income Taxes and all material other Taxes that are due from it or (B) has provided for all such Taxes on its Financial Statements in accordance with GAAP, and (ii) will provide for such Taxes (other than Taxes for which Purchaser will be liable pursuant to Section 11.3(f)) on the Closing Balance Sheet in accordance with the methodology used in preparing the Initial Balance Sheet and in accordance with GAAP. Except as set forth in Schedule 3.11, all federal, state, local and foreign income taxes or franchise or other Taxes based on income (including interest and penalties) ("Income Taxes") shown to be due and payable on the Returns have been paid. For purposes of this Section 3.11, Seller's "knowledge" means the actual knowledge of Seller without any duty to make any inquiry. (b) Except as disclosed on Schedule 3.11, (i) the Company has not executed any waivers or extensions of the applicable statutory period of limitation for Taxes of the SMR Companies for any taxable period, which waivers or extensions currently are pending, and (ii) no deficiency assessment or proposed adjustment with respect to any Tax liability of any of the SMR Companies for any taxable period is pending or, to the knowledge of the Company and such Seller, threatened. (c) At all times, the Company 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, to the best of the Sellers' knowledge (as defined in Section 3.11(a)), except as set forth in Schedule 3.11, (i) a comparable election in each state in which it conducts business or is subject to Income Tax, and (ii) a comparable election in each locality in which it both conducts business and is subject to a local Income Tax. The Company 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. At all times until such SMR Subsidiary became a direct or indirect subsidiary of the Company, each of the SMR Subsidiaries, except for FSI and its Subsidiaries, had in effect a valid election under Section 1362 of the Code to be treated as an S corporation for federal income tax purposes and, to the best of the Sellers' knowledge (as defined in Section 3.11(a)), except as set forth in Schedule 3.11, (i) a comparable election in each state in which it conducts business or is subject to Income Tax, and (ii) a comparable election in each locality in which it both conducts business and is subject to a local Income Tax. 19 Since the SMR Subsidiaries, other than FSI and its Subsidiaries, became direct or indirect subsidiaries of the Company, the Company has had in effect for each such SMR Subsidiary a valid election to be taxed as a "qualified subchapter S subsidiary" for federal income tax purposes and, to the best of the Sellers' knowledge (as defined in Section 3.11(a)), except as set forth in Schedule 3.11, and to the extent such election is provided for under applicable Tax law, (i) a comparable election in each state in which it conducts business or is subject to Income Tax, and (ii) a comparable election in each locality in which it both conducts business and is subject to a local Income Tax. The Company has not received written notice of and is not aware of any proposal from the IRS or any tax authority to disallow any of such elections described above for any such SMR Subsidiary for any taxable year. (d) Each of SMR Associates and SMR Developers qualifies and since its inception has always qualified as a partnership for U.S. federal income tax purposes and is not and has not been taxable as a corporation for U.S. federal income tax purposes under Section 7704 of the Code or otherwise. (e) None of the SMR Companies has been a member of any affiliated group for federal income Tax purposes with any other corporation (other than another SMR Company). None of the SMR Companies has filed a Tax Return on a consolidated, combined or unitary basis with any other corporation (other than another SMR Company). None of the SMR Companies is a party to any Tax allocation or Tax sharing agreement pursuant to which it will have any obligation to make any payments after the Closing Date. Sellers are not aware that the receipt of the Purchase Price for the Securities by the Sellers in the manner provided by this Agreement (assuming the Election is made and consideration is allocated to a covenant not to compete as provided in Schedule 1.4(b) hereof) should result in the imposition of a greater amount of Tax liability on the Sellers than the Tax liability that Sellers would have incurred were they to have received the amount of such Purchase Price for the Securities in cash at the Closing (assuming the Election is made and consideration is allocated to a covenant not to compete as provided in Schedule 1.4(b) hereof). (f) For purposes of this Agreement: (i) "Tax" or "Taxes" means any and all taxes, fees, levies, duties, 20 tariffs, imposts and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amount imposed with respect thereto) imposed by any government or taxing authority, including, without limitation, taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, escheat, stamp, transfer, value added or gains taxes, license, registration and documentation fees; and customs' duties, tariffs and similar charges; and (ii) "Tax Return" means all returns, declarations, reports, estimates, information returns and statements required to be filed in respect of any Taxes. 3.12 Employees and Employee Benefits. (a) Except as set forth in Schedule 3.12(a), (i) none of the SMR Companies is a party to any collective bargaining agreement applicable to any of its employees, (ii) none of the employees of any of the SMR Companies is represented by any labor organization, (iii) there is no labor strike, work stoppage or slowdown pending against any of the SMR Companies and no pending lockout by any of the SMR Companies, (iv) none of the SMR Companies is in breach or is otherwise failing to comply with the provisions of any collective bargaining or union contract, except for such breaches or failures as would not have a Material Adverse Effect and there are no grievances outstanding against any SMR Company under any such agreement or contract which could have a Material Adverse Effect; (v) there are no unfair labor practice complaints pending against any SMR Company before the National Labor Relations Board or any other Governmental Body or any current union representation questions involving employees of any SMR Company which could have a Material Adverse Effect; (vi) each SMR Company currently is in compliance with all applicable Laws relating to the employment of labor, including those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by the appropriate Governmental Body and has withheld and paid to the appropriate Governmental Body or is holding for payment not yet due to such Governmental Body all amounts required to be withheld from employees or such SMR Company and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing, except for such matters described in this clause (vi), as would not 21 have a Material Adverse Effect; and (vii) each SMR Company has paid in full to all its employees or adequately accrued for in accordance with GAAP all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees. To each Seller's knowledge, there is no charge of discrimination in employment practices, for any reason including, without limitation, age, gender, race, religion or other legally protected category which is pending or threatened before the United States Equal Employment Opportunity Commission, or any other Governmental Body in any jurisdiction in which such SMR Company employs any Person. (b) Schedule 3.12(b)(i) lists each employee benefit plan as defined in Section 3(3) of ERISA of any SMR Company covering any of its employees or former employees (an "Employee Benefit Plan"). Schedule 3.12(b)(ii) lists each employment or severance contract or arrangement, each plan or arrangement providing for insurance coverage, severance, termination or similar coverage and all written compensation policies and practices maintained by any SMR Company covering any of its employees or former employees and that is not an Employee Benefit Plan (a "Benefit Arrangement"). (c) Each Employee Benefit Plan is in compliance in all material respects with the applicable requirements of ERISA and the Code. 3.13 Litigation. Except as set forth in Schedule 3.13, there is no Legal Proceeding pending, or, to the knowledge of such Seller, threatened in writing against any of the SMR Companies. None of the matters disclosed in Schedule 3.13(i) has or has had a Material Adverse Effect or (ii) seeks to enjoin or obtain damages in respect of the consummation of the transactions contemplated by this Agreement or (iii) questions the validity of this Agreement or such Seller's Documents or any action taken or to be taken by such Seller in connection with the consummation of the transactions contemplated hereby or thereby. 3.14 Compliance with Law. Except as set forth in Schedule 3.14, to the knowledge of such Seller, each of the SMR Companies is conducting the Business in compliance with all applicable Laws and Orders and currently is in compliance with all applicable Laws and Orders, except where the failure to so comply would not have a Material Adverse Effect. 22 3.15 Environmental Matters. (a) There are no pending or, to such Seller's knowledge, threatened claims, suits or proceedings arising out of or related to any environmental law or regulation in connection with the Business or the ownership or use of the assets of any of the SMR Companies, including, without limitation, statutes and regulations related to air quality, water quality, solid waste management, hazardous or toxic substances or protection of health or the environment, including, but not limited to, the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et seq. as amended), the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq. as amended), the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq. as amended), the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA") (42 U.S.C. 9601 et seq. as amended), the Clean Air Act (42 U.S.C. 7401 et seq. as amended), the Toxic Substances Control Act (15 U.S.C. 2601 et seq. as amended), and any similar state or local laws, rules and regulations (collectively, "Environmental Laws"). To such Seller's knowledge, each SMR Company is in compliance with Environmental Laws, except for such noncompliance as would not have a Material Adverse Effect. Each SMR Company has received all Permits ("Environmental Permits") under Environmental Laws related to the operation of the Business including all air, water and waste Permits and Permits for emission and/or disposal of solid, liquid and gaseous materials from manufacturing operations and is operating in compliance with each such Permit, except where the failure to have received such Permits or lack of compliance would not have a Material Adverse Effect. (b) To the Sellers' knowledge none of the SMR Companies or any other Person has released solid, liquid or gaseous materials from manufacturing operations on any of the SMR Properties or, during its ownership and occupancy of such property, on any property formerly owned, leased, used or occupied by any SMR Company in violation of applicable Environmental Laws, except for such violations as would not have a Material Adverse Effect. None of the SMR Companies is conducting, or has undertaken or completed, any investigation or remedial action relating to any release or threatened release of solid, liquid or gaseous materials from manufacturing operations at any of the SMR Properties or at any other site, location or operation, either voluntarily or pursuant to the Order of any Governmental Body or the requirements of any Environmental Law or environmental permit. 23 (c) This Section 3.15 constitutes the sole and exclusive representations and warranties regarding environmental matters, including, but not limited to, those matters under Environmental Laws. 3.16 Insurance. Schedule 3.16 sets forth a list of all material policies of insurance of any kind or nature covering the SMR Companies, including, without limitation, policies of life, fire, theft, workers compensation, employee fidelity and other casualty and liability insurance and the SMR Companies have timely paid all premiums due thereunder. To the Seller's knowledge, none of these policies is in default. True, correct and complete copies of each such policy have been delivered or made available to the Purchaser. 3.17 Brokers. No Person has acted directly or indirectly as a broker, finder or financial advisor for any of the SMR Companies or such Seller in connection with the negotiations relating to or the transactions contemplated by this Agreement and no Person is entitled to any fee, commission or like payment in respect thereof based in any way on any agreement, arrangement or understanding made by or on behalf of any of the SMR Companies or such Seller, except for Schroder & Co. Inc. ("Schroders"). 3.18 Securities Act. Such Seller is acquiring the Purchaser Shares to be issued to him pursuant to Section 1.2 and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act. Such Seller acknowledges that the Purchaser Shares have not been registered under the Securities Act or any applicable state securities Law and that such Purchaser Shares may not be transferred or sold except pursuant to the registration provisions of such Securities Act or pursuant to an applicable exemption therefrom and pursuant to state securities Laws as applicable. Sellers make no representations or warranties regarding the sales of Purchaser Common Stock provided for in Section 1.5. 3.19. Inventories. (a) Subject to amounts reserved therefor on the Initial Balance Sheet, the values at which all Inventories are carried on the Initial Balance Sheet reflect the historical inventory valuation policy of the SMR Companies of stating such Inventories at the lower of cost (determined as set forth in the notes to the Financial Statements) or market value. Except as set forth in Schedule 3.19, the SMR Companies have good and marketable 24 title to the Inventories free and clear of Liens other than Permitted Exceptions. Schedule 3.19 is a complete list of the addresses of all warehouses and other facilities in which the Inventories are located. (b) Subject to amounts reserved therefore on the Initial Balance Sheet, adequate provision has been made for Inventory items that are obsolete, damaged or slow-moving. The Inventories reflected on the Initial Balance Sheet are in good and merchantable condition in all material respects, are suitable and usable for the purposes for which they are intended and are in a condition such that they can be sold in the ordinary course of the Business consistent with past practice. None of the SMR Companies is under any obligation or liability with respect to accepting returns of items of Inventory or merchandise in the possession of their customers other than in the ordinary course of business consistent with past practice. 3.20. No Undisclosed Liabilities. To each Seller's knowledge, there are no Liabilities of the SMR Companies, other than Liabilities (i) reflected or reserved against on the Initial Balance Sheet, (ii) disclosed in Schedule 3.20 or (iii) incurred since the date of the Initial Balance Sheet in the ordinary course of the Business, consistent with the past practice, of the SMR Companies and which do not and would not have a Material Adverse Effect. Reserves are reflected on the Initial Balance Sheet against all Liabilities of the SMR Companies in amounts that have been established on a basis consistent with the past practices of the SMR Companies and in accordance with GAAP. 3.21. Receivables. Schedule 3.21 sets forth an aged list of the Receivables of the SMR Companies as of the Balance Sheet Date showing separately those Receivables that as of such date had been outstanding (i) 29 days or less, (ii) 30 to 59 days, (iii) 60 to 89 days, (iv) 90 to 119 days and (v) more than 119 days. Except to the extent, if any, reserved for on the Initial Balance Sheet, all Receivables reflected on the Initial Balance Sheet arose from, and the Receivables existing on the Closing Date will have arisen from, the sale of Inventory or services to Persons not affiliated with any Seller or any SMR Company and in the ordinary course of the Business consistent with past practice and, except as reserved against on the Initial Balance Sheet, to the Seller's knowledge, constitute or will constitute, as the case may be, only valid, undisputed 25 claims of the SMR Companies not subject to valid claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of the Business consistent with past practice. 3.22. Customers. Listed in Schedule 3.22 are the names and addresses of the ten most significant customers (by revenue) of the SMR Companies for the twelve-month period ended May 31, 1998 and the amount for which each such customer was invoiced during such period. Except as disclosed in Schedule 3.22, none of the Sellers nor any SMR Company has received any notice that any significant customer of any SMR Company has ceased, or will cease, to use the products, equipment, goods or services of such SMR Company, or has substantially reduced, or will substantially reduce, the use of such products, equipment, goods or services at any time. 3.23. Suppliers. Listed in Schedule 3.23 are the names and addresses of each of the ten most significant suppliers of raw materials, supplies, merchandise and other goods for the SMR Companies for the twelve-month period ended May 31, 1998 and the amount for which each such supplier invoiced the SMR Companies during such period. Except as disclosed in Schedule 3.23, none of the Sellers nor any SMR Company has received any notice that any such supplier will not sell raw materials, supplies, merchandise and other goods to any SMR Company at any time after the Closing Date on terms and conditions substantially similar to those used in its current sales to such SMR Company, subject only to general and customary price increases. 3.24. Key Employees. (a) Schedule 3.24 lists the name, place of employment, the current annual salary rates, bonuses, deferred or contingent compensation, pension, accrued vacation, "golden parachute" and other like benefits paid or payable (in cash or otherwise) in 1995, 1996, 1997 and 1998, the date of employment and a description of position and job function of each current salaried employee, officer, director, consultant or agent of each SMR Company (other than any Seller) whose annual compensation exceeded (or, in 1998, is expected to exceed) $90,000. (b) All directors, officers, management employees, and technical and professional employees of each SMR Company are under written obligation to such SMR Company to maintain in confidence all confidential or proprietary 26 information acquired by them in the course of their employment and to assign to such SMR Company all inventions made by them within the scope of their employment during such employment and for a reasonable period thereafter. 3.25. Corporate Books and Records. The minute books of each SMR Company contain materially accurate records of all meetings and accurately reflect in all material respects all other actions taken by the stockholders, boards of directors and all committees of the boards of directors of such SMR Company. Complete and accurate copies of all such minute books and of the stock register of each SMR Company have been provided by the Sellers to the Purchaser. 3.26. Certain Interests. (a) Except as disclosed in Schedule 3.26(a), no officer or director of any SMR Company and no relative or spouse (or relative of such spouse) who resides with, or is a dependent of, any such officer or director: (i) has any direct or indirect financial interest in any competitor, supplier or customer of any SMR Company, provided, however, that the ownership of securities representing no more than one percent of the outstanding voting power of any competitor, supplier or customer, and which are listed on any national securities exchange or traded actively in the national over-the-counter market, shall not be deemed to be a "financial interest" so long as the Person owning such securities has no other connection or relationship with such competitor, supplier or customer; (ii) owns, directly or indirectly, in whole or in part, or has any other interest in any tangible or intangible property which any SMR Company uses or has used in the conduct of the Business or otherwise; or (iii) has outstanding any Indebtedness to any SMR Company (b) Except as disclosed in Schedule 3.26(b), no officer or director of any SMR Company and no relative or spouse (or relative of such spouse) who resides with, or is a dependent of, any such officer or director has outstanding any Indebtedness to any Seller. 27 (c) Except as disclosed in Schedule 3.26(c), no SMR Company has any Liability or any other obligation of any nature whatsoever to any officer, director or shareholder of any SMR Company or to any relative or spouse (or relative of such spouse) who resides with, or is a dependent of, any such officer, director or shareholder. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser hereby represents and warrants to each Seller that: 4.1 Organization and Good Standing. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to carry on its business as it is now being conducted. 4.2 Authorization of Agreement. The Purchaser has full corporate power and authority to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by the Purchaser in connection with the consummation of the transactions contemplated by this Agreement (all such other agreements, documents, instruments and certificates required to be executed by the Purchaser being hereinafter referred to, collectively, as the "Purchaser Documents") and to perform fully its obligations hereunder and thereunder. The execution, delivery and performance by the Purchaser of this Agreement and each Purchaser Document has been duly authorized by the Purchaser's Board of Directors, constituting all necessary corporate action on the part of the Purchaser. This Agreement has been, and the Purchaser Documents will be at or prior to the Closing, duly executed and delivered by the Purchaser and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and the Purchaser Documents when so executed and delivered will constitute, legal, valid and binding obligations of the Purchaser, enforceable against the Purchaser in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless 28 of whether enforcement is sought in a proceeding at law or in equity). 4.3 No Violations; Consents. None of the execution and delivery by the Purchaser of this Agreement and the Purchaser Documents, or the consummation of the transactions contemplated hereby or thereby, or compliance by the Purchaser with any of the provisions hereof or thereof will (a) conflict with, or result in the breach of, any provision of the certificate of incorporation or by-laws of the Purchaser or (b) assuming compliance with the matters referred to on Schedule 4.3, constitute a violation of any Law applicable to the Purchaser. Except as set forth on Schedule 4.3, no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Governmental Body is required on the part of the Purchaser in connection with the execution, delivery and performance of this Agreement or the Purchaser Documents. 4.4 Litigation. There is no Legal Proceeding pending or, to the knowledge of the Purchaser, threatened, that seeks to enjoin or obtain damages in respect of the consummation of the transactions contemplated by this Agreement or that questions the validity of this Agreement, the Purchaser Documents or any action taken or to be taken by the Purchaser in connection with the consummation of the transactions contemplated hereby or thereby. 4.5 Brokers. No Person has acted directly or indirectly as a broker, finder or financial advisor for the Purchaser in connection with the negotiations relating to or the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment (other than from the Purchaser) in respect thereof based in any way on agreements, arrangements or understandings made by or on behalf of the Purchaser. 4.6 Securities Act. The Purchaser is acquiring the Securities solely for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act. The Purchaser acknowledges that the Securities have not been registered under the Securities Act or any applicable state securities Law and that such Securities may not be transferred or sold except pursuant to the registration provisions of such Securities Act or pursuant to an 29 applicable exemption therefrom and pursuant to state securities Laws as applicable. 4.7 Condition of the Business. The Purchaser and its representatives and agents have had and exercised, prior to the date hereof, the right to enter upon the SMR Properties and to make all inspections and investigations of the Business deemed necessary or desirable by the Purchaser. The Purchaser is not purchasing the Securities based on any representation or warranty of the Sellers not expressly set forth in this Agreement. In light of these inspections and investigations, the Purchaser is relinquishing any right to any claim based on any representations and warranties other than those specifically included in this Agreement. Any claims the Purchaser may have for breach of representation or warranty shall be based solely on the representations and warranties set forth in this Agreement. All representations and warranties implied or arising under statute or otherwise (other than the representations and warranties set forth in this Agreement) hereby are waived by the Purchaser. In particular, the Sellers make no representation or warranty to the Purchaser with respect to any offering memoranda or financial projection or forecast relating to the SMR Companies. With respect to any such projection or forecast delivered by or on behalf of the Sellers to the Purchaser, the Purchaser acknowledges that (i) there are uncertainties inherent in attempting to make such projections and forecasts, (ii) it is familiar with such uncertainties, (iii) it is taking full responsibility for making its own evaluation of the adequacy and accuracy of all such projections and forecasts so furnished to it and (iv) it shall have no claim against any of the Sellers with respect thereto. Nothing contained in this Section 4.7 or any investigation or inspection by the Purchaser shall in any way limit the ability of the Purchaser to rely upon the representations and warranties made by the Sellers in this Agreement, subject to the terms and conditions of this Agreement. 4.8 Representation. Purchaser is not aware that the receipt of the Purchase Price for the Securities by the Sellers in the manner provided by this Agreement (assuming the Election is made and consideration is allocated to a covenant not to compete as provided in Schedule 1.4(b) hereof) should result in the imposition of a greater amount of Tax liability on the Sellers than the Tax liability that Sellers would have incurred were they to have received the amount of such Purchase Price for the Securities in cash at 30 the Closing (assuming the Election is made and consideration is allocated to a covenant not to compete as provided in Schedule 1.4(b) hereof). ARTICLE V COVENANTS OF THE SELLERS From and after the date hereof and until the Closing, the Company and each Seller jointly and severally covenants and agrees with the Purchaser that: 5.1 Cooperation; Consents and Conditions. Such Seller shall use his reasonable best efforts to take, or cause to be taken, all action to do, or cause to be done, and to assist and cooperate with the other parties hereto in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including, but not limited to, (a) complying with the HSR Act in all respects (including the filing of a notification and report form to the extent necessary no later than the business day following the execution of this Agreement), (b) obtaining all necessary waivers, consents and approvals from Governmental Bodies and the making of all necessary registrations and filings (including, but not limited to, filings with Governmental Bodies, if any) and the taking of all reasonable steps as may be necessary to obtain any approval or waiver from, or to avoid any action or proceeding by, any Governmental Body, (c) obtaining all necessary consents, approvals or waivers from third parties and (d) defending any lawsuits or any other Legal Proceedings challenging this Agreement or the consummation of the transactions contemplated hereby including, without limitation, seeking to have any temporary restraining order entered by any court or administrative authority vacated or reversed. 5.2 Access to Documents; Opportunity to Ask Questions. Such Seller shall provide the Purchaser with such information as the Purchaser from time to time reasonably may request with respect to the SMR Companies, and shall permit the Purchaser and any of the directors, officers, employees, counsel, representatives, accountants and auditors (collectively, the "Purchaser Representatives") reasonable access, during normal business hours and upon reasonable prior notice, to the properties, records and 31 books of accounts, management and employees of the SMR Companies, as the Purchaser from time to time reasonably may request. Until the Closing Date, all information obtained by the Purchaser, and the manner in which it is obtained, in connection with the transactions contemplated by this Agreement shall be subject to the Confidentiality Agreement, dated as of June 5, 1998, between the Purchaser and Schroders on behalf of the SMR Companies (the "Confidentiality Agreement"). 5.3 Conduct of Business. (a) Each Seller shall cause each of the SMR Companies to operate and conduct its business in the ordinary course consistent with past practice. Without limiting the generality of the foregoing, except as described in Schedule 5.3, each Seller shall cause each SMR Company to (i) continue its advertising and promotional activities, and pricing and purchasing policies, in accordance with past practice, (ii) not shorten or lengthen the customary payment cycles for any of its payables or receivables, (iii) use commercially reasonable efforts to (A) preserve its present business operations, organization and goodwill, (B) keep available the services of its present employees, (C) preserve its present relationships with customers, suppliers and other Persons having business dealings with it, (D) maintain all of its assets and properties in their current condition, normal wear and tear excepted, (E) maintain insurance in such amounts and of such kinds as is comparable to that in effect on the date hereof (with insurers of substantially the same or better financial condition), (iv) exercise, but only after notice to the Purchaser and receipt of the Purchaser's prior written approval, any rights of renewal pursuant to the terms of any of the leases or subleases set forth in Schedule 3.5 which by their terms would otherwise expire; and (v) not engage in any practice, take any action, fail to take any action or enter into any transaction which would have the intent of causing any representation or warranty of any Seller to be untrue or result in a breach of any covenant made by any Seller in this Agreement. (b) Such Seller shall not permit any of the SMR Companies to, do, or agree or commit to do, any of the following without the prior written consent of the Purchaser, which shall not be unreasonably withheld: (i)(A) increase the rate of compensation payable or to become payable to any of its employees other than ordinary increases consistent with past 32 practice, (B) amend in any material respect any bonus, stock option, stock purchase, profit-sharing, deferred compensation, pension, retirement or other similar plan or arrangement to or in respect of any such employee other than as may be required to maintain compliance with ERISA and/or the Code, or (C) enter into any new, or amend in any respect any existing, employment, severance or consulting agreement, sales agency or other Contract with respect to the performance of personal services for any of the SMR Companies, other than as may be required to maintain compliance with ERISA and/or the Code, except that Purchaser agrees that the individuals listed on Schedule 5.3 shall be paid by the SMR Companies the bonuses set forth opposite their names on such Schedule 5.3 immediately prior to the Closing; (ii)(A) increase its indebtedness for borrowed money or capital lease obligations, except in the ordinary course of business or in connection with the payment of transaction expenses, (B) sell, assign, transfer, convey, lease or otherwise dispose of any of its material assets, other than inventory in the ordinary course of business, (C) cancel or compromise any material debt or claim or waive or release any material right, except for adjustments or settlements made in the ordinary course of business consistent with past practice, (D) make any capital expenditure in excess of $10,000 or series of capital expenditures of more than $250,000 in the aggregate, (E) agree to amend, modify or supplement any Real Property Lease, Personal Property Lease or Material Contract, or (F) acquire any material assets other than in the ordinary course of business; (iii) declare, make or set aside funds for any dividend, distribution or other payment in respect of its outstanding equity interests, including any redemptions or repurchases thereof; provided, however, that the Sellers shall be entitled to receive distributions which, in the aggregate, do not exceed their federal, state and local tax liability in respect of the taxable income of the SMR Companies through and including the Closing Date (other than taxable income directly resulting from the making of the Election), subject to any adjustments to the Purchase Price required by Section 1.3. The foregoing shall not be deemed to prohibit the distribution of SMR Associates 33 to each Seller of monthly cash compensation payments in the amount of $20,000.00, which is consistent with past practice; (iv) permit or allow any of the assets or properties (whether tangible or intangible) of any SMR Company to be subjected to any Lien, other than Permitted Exceptions and Liens that will be released at or prior to the Closing; (v) except in the ordinary course of business consistent with past practice, discharge or otherwise obtain the release of any Lien or pay or otherwise discharge any Liability, other than current liabilities reflected on the Initial Balance Sheet and current liabilities incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date (for the avoidance of doubt, nothing in the Section 5.3(b)(v) will in any way restrict the SMR Companies' ability to repay existing long-term debt); (vi) make any loan to, guarantee any Indebtedness of or otherwise incur any Indebtedness on behalf of any Person; (vii) fail to pay any creditor any amount owed to such creditor when due, except in respect of good faith disputes; (viii) make any material changes in the customary methods of operations of any SMR Company, including, without limitation, practices and policies relating to manufacturing, purchasing, Inventories, marketing, selling and pricing; (ix) merge with, enter into a consolidation with or acquire an interest of 5% or more in any Person; (x) issue or sell any capital stock, notes, bonds or other securities, or any option, warrant or other right to acquire the same, of, or any other interest in, any SMR Company; (xi) enter into any agreement, arrangement or transaction with any of its directors, officers, 34 employees or shareholders (or with any relative, beneficiary, spouse or Affiliate of any such Person); (xii) write down or write up (or fail to write down or write up in accordance with GAAP consistent with past practice) the value of any Inventories or Receivables or revalue any assets of any SMR Company other than in the ordinary course of business consistent with past practice and in accordance with GAAP; (xiii) make any change in any method of accounting or accounting practice or policy used by any SMR Company, other than such changes required by GAAP; (xiv) allow any Permit that was issued or relates to any SMR Company or otherwise relates to any Asset to lapse or terminate or fail to renew any such Permit or any insurance policy that is scheduled to terminate or expire within 45 calendar days of the Closing Date; (xv) amend or restate the Certificate of Incorporation or the By-laws (or other organizational documents) of any SMR Company; xvi) terminate, discontinue, close or dispose of any plant, facility or other business operation, or lay off any employees (other than layoffs of less than 50 employees in any six-month period in the ordinary course of business consistent with past practice) or implement any early retirement, separation or program providing early retirement window benefits within the meaning of Section 1.401(a)-4 of the U.S. Treasury Regulations promulgated with respect to the Code or announce or plan any such action or program for the future; (xvii) disclose any secret or confidential Intangible Assets (except by way of issuance of a patent) or permit to lapse or go abandoned any Intangible Assets (or any registration or grant thereof or any application relating thereto) to which, or under which, any SMR Company has any right, title, interest, or license; 35 (xviii) enter into any agreement for the purchase or sale of goods or services by the Company for an amount in excess of $350,000 per agreement; (xix) fail to maintain the Assets in accordance with past practice; (xx) agree, whether in writing or otherwise, to take any of the actions specified in this Section 5.3(b) or grant any options to purchase, rights of first refusal, rights of first offer or any other similar rights or commitments with respect to any of the actions specified in this Section 5.3(b), except as expressly contemplated by this Agreement. (xxi) make any material tax election or settle or compromise any material federal, state, local or foreign income Tax which could be materially detrimental to the Purchaser. 5.4 Notices of Certain Events. Such Seller shall promptly notify the Purchaser of: (a) any notice or other communication (i) alleging that the consent of any Person is or may be required in connection with the transactions contemplated by this Agreement, or (ii) from any Person to the effect that such Person intends not to continue to conduct business with any of the SMR Companies after the Closing; (b) any notice or other communication from any Government Body in connection with the transactions contemplated by this Agreement; and (c) any Legal Proceeding commenced or, to the best of his knowledge threatened against, relating to or involving or otherwise affecting any of the SMR Companies that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 3.13 hereof or that relate to the consummation of the transactions contemplated by this Agreement. 36 SECTION 5.5. Confidentiality (Sellers). Each Seller agrees to: (i) treat and hold as confidential (and not disclose or provide access to any Person to) all information relating to trade secrets, processes, patent and trademark applications, product development, price, customer and supplier lists, pricing and marketing plans, policies and strategies, details of client and consultant contracts, operations methods, product development techniques, business acquisition plans, new personnel acquisition plans and all other confidential information with respect to the Business and each SMR Company, (ii) in the event that such Seller becomes legally compelled to disclose any such information, provide the Purchaser with prompt written notice of such requirement so that the Purchaser or any SMR Company may seek a protective order or other remedy, (iii) in the event that such protective order or other remedy is not obtained, furnish only that portion of such confidential information which is legally required to be provided and exercise reasonable efforts to obtain assurances that confidential treatment will be accorded such information, (iv) promptly furnish (prior to, at, or as soon as practicable following, the Closing) to each SMR Company or the Purchaser any and all copies (in whatever form or medium) of all such confidential information then in the possession of such Seller and destroy any and all additional copies then in the possession of such Seller of such information and of any analyses, compilations, studies or other documents prepared, in whole or in part, on the basis thereof; provided, however, that this sentence shall not apply to any information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by such Seller, provided further that, with respect to Intangible Property, specific information shall not be deemed to be within the foregoing exception merely because it is embraced in general disclosures in the public domain. In addition, with respect to Intangible Property, any combination of features shall not be deemed to be within the foregoing exception merely because the individual features are in the public domain unless the combination itself and its principle of operation are in the public domain. Each Seller agrees and acknowledges that remedies at law for any breach of his obligations under this Section 5.5 are inadequate and that in addition thereto the Purchaser shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach. 37 ARTICLE VI COVENANTS OF THE PURCHASER From and after the date hereof, and until the Closing Date, the Purchaser hereby covenants and agrees with the Sellers that: 6.1 Cooperation; Consents and Conditions. The Purchaser shall use its reasonable best efforts to take, or cause to be taken, all action to do, or cause to be done, and to assist and cooperate with the other parties hereto in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including, but not limited to, (a) complying with the HSR Act in all respects (including the filing of a notification and report form to the extent necessary no later than the business day following the execution of this Agreement), (b) obtaining all necessary waivers, consents and approvals from Governmental Bodies and the making of all necessary registrations and filings (including, but not limited to, filings with Governmental Bodies, if any) and the taking of all reasonable steps as may be necessary to obtain any approval or waiver from, or to avoid any action or proceeding by, any Governmental Body, (c) obtaining all necessary consents, approvals or waivers from third parties and (d) defending any Legal Proceedings challenging this Agreement or the consummation of the transactions contemplated hereby including, without limitation, seeking to have any temporary restraining order entered by any court or administrative authority vacated or reversed. 6.2 Confidentiality (Purchaser). The Purchaser shall comply with the terms regarding confidentiality set forth in the Confidentiality Agreement. 6.3 Notices of Certain Events. The Purchaser shall promptly notify the Sellers of: (a) any notice or other communication from any Government Body in connection with the transactions contemplated by this Agreement; and (b) any Legal Proceedings commenced or, to the best of its knowledge threatened against, relating to or involving or otherwise affecting the Purchaser that, if pending on the date of this Agreement, would have been 38 required to have been disclosed pursuant to Section 4.4 hereof or that relate to the consummation of the transactions contemplated by this Agreement. ARTICLE VII COVENANTS RELATING TO EMPLOYMENT AND EMPLOYEE MATTERS 7.1 Employment and Employee Benefit Matters. (a) The Purchaser shall, and shall cause its Subsidiaries following the Closing Date to: (i) honor and provide for payment of all obligations and benefits under all Employee Benefit Plans and Benefit Arrangements in accordance with their terms; (ii) provide employee benefits which are substantially comparable in the aggregate to the level of employee benefits provided by the SMR Companies under the Employee Benefit Plans and Benefit Arrangements in effect as of the date hereof for the benefit of employees or former employees who are or had been employees of any of the SMR Companies on or before the Closing Date ("Covered Employees") until February 28, 1999; (iii) maintain in effect until February 28, 1999 for the benefit of the Covered Employees the severance plans and practices of the SMR Companies in effect as of the date hereof; (iv) provide until February 28, 1999 for the benefit of Covered Employees who remain in the employ of the Purchaser or any of its affiliates employee compensation that is no less than the compensation (including base pay and incentive compensation) provided by the SMR Companies under the compensation arrangements in effect as of the date hereof; and (v) provide healthcare benefits to the former owners of FSI in accordance with the terms set forth on Schedule 7.1(a). (b) If Covered Employees are included in any benefit plan (including, without limitation, provision for vacation) of the Purchaser or its Subsidiaries, the Purchaser agrees that the Covered Employees shall receive 39 credit as employees of the SMR Companies for service prior to the Closing Date with the SMR Companies to the same extent such service was counted under similar Employee Benefit Plans for purposes of eligibility, vesting, eligibility for retirement and, with respect to vacation, disability and severance, benefit accrual. If Covered Employees are included in any medical, dental or health plan other than the plan or plans they participated in on the Closing Date, the Purchaser agrees that any such plans shall not include pre-existing condition exclusions, except to the extent such exclusions were applicable under the similar Employee Benefit Plan or Benefit Arrangement on the date hereof, and shall provide credit for any deductibles and co-payments applied or made with respect to each Covered Employee in the calendar year of the change. (c) The parties acknowledge that nothing herein shall be deemed to be a commitment on the part of the Purchaser to provide employment to any person for any period of time and, except as otherwise provided in this Section 7.1, nothing herein shall be deemed to prevent the Purchaser from amending or terminating any Employee Benefit Plan or Benefit Arrangement in accordance with its terms. ARTICLE VIII CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS The obligation of the Purchaser to consummate the purchase of the Securities on the Closing Date is subject to the satisfaction of each of the following conditions: 8.1 Representations, Warranties and Covenants. (a) Each of the representations and warranties of the Sellers contained herein and in each of the Seller's Documents shall be true and correct in all material respects when made and shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though the same had been made on and as of the Closing Date, it being understood that to the extent that such representations and warranties were made as of a specified date the same shall continue on the Closing Date to be true and correct in all material respects as of the specified date (provided, however, that if any portion of any representation or warranty is already qualified by materiality, for purposes of determining whether this Section 8.1(a) has been satisfied with respect to such 40 portion of such representation or warranty, such portion of such representation or warranty as so qualified must be true and correct in all respects). (b) Each Seller shall have performed and complied in all material respects with the covenants and provisions of this Agreement and in each of the Seller's Documents required to be performed or complied with by them at or prior to the Closing Date. 8.2 Deliveries by the Sellers to the Purchaser. At the Closing, each Seller shall deliver, or shall cause to be delivered, to the Purchaser the following: (a) the certificates representing the Shares owned by such Seller, duly endorsed or accompanied by duly executed stock powers to the Purchaser, together with such additional documents and instruments reasonably requested by the Purchaser in connection with the sale, transfer, assignment and conveyance of such Shares by such Seller to the Purchaser; (b) appropriate instruments of sale, transfer, assignment and conveyance with respect to the Partnership Interests and the LLC Interests owned by such Seller, in form and substance reasonably acceptable to the Purchaser, together with such additional documents and instruments reasonably requested by the Purchaser in connection with the sale, transfer, assignment and conveyance of such Partnership Interests and LLC Interests by such Seller to the Purchaser; (c) a certificate dated as of the Closing Date, certifying as to the fulfillment of the conditions set forth in Section 8.1 hereof; (d) an affidavit, in a form reasonably satisfactory to the Purchaser, of such Seller stating under penalties of perjury such Seller's United States taxpayer identification number and that such Seller is not a foreign person within the meaning of Section 1445(b)(2) of the Code; (e) a good standing certificate for each of the SMR Companies (to the extent applicable) from the Secretary of State of the State of its incorporation or formation dated the Closing Date; 41 (f) a Registration and Transfer Agreement, dated the Closing Date, substantially in the form attached hereto as Exhibit A (the "Registration Rights Agreement") executed by such Seller; (g) the Escrow Agreement, dated the Closing Date, executed by such Seller, together with any counterparts signed by the Escrow Agent and blank stock powers executed by such Seller with respect to the Purchaser Common Stock and Purchaser Preferred Stock to be held in escrow; (h) a Standstill and Noncompete Agreement, dated the Closing Date, executed by such Seller, substantially in the form attached hereto as Exhibit D; (i) a Share Disposition Agreement, dated the Closing Date, substantially in the form attached hereto as Exhibit E (the "Share Disposition Agreement"), executed by such Seller; and (j) resignations, dated the Closing Date, signed by the Sellers relating to their positions as directors, officers and managers of the SMR Companies. 8.3 ESOP Shares. On or before the Closing Date, the ESOP Shares shall have been purchased by the Purchaser pursuant to the ESOP Purchase Agreement. 8.4 No Prohibition. No Law or Order of any court or administrative agency shall be in effect which prohibits the Purchaser or any Seller from consummating the transactions contemplated hereby. ARTICLE IX CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS The obligation of each Seller to consummate the sale, transfer and assignment to the Purchaser of the Securities owned by such Seller on the Closing Date is subject to the satisfaction of each of the following conditions: 9.1 Representations, Warranties and Covenants. (a) Each of the representations and warranties of the Purchaser contained herein and in the Purchaser Documents 42 shall be true and correct in all material respects when made and shall be true and correct in all material respects as of the Closing Date with the same force and effect as though the same had been made on and as of the Closing Date, it being understood that to the extent that such representations and warranties were made as of a specified date the same shall continue on the Closing Date to be true and correct in all material respects as of the specified date (provided, however, that if any portion of any representation or warranty is already qualified by materiality, for purposes of determining whether this Section 8.1(a) has been satisfied with respect to such portion of such representation or warranty, such portion of such representation or warranty as so qualified must be true and correct in all respects). (b) The Purchaser shall have performed and complied in all material respects with the covenants and provisions in this Agreement and in the Purchaser Documents required herein to be performed or complied with by it at or prior to the Closing Date. 9.2 Deliveries by the Purchaser to the Sellers. At the Closing, the Purchaser shall deliver to each Seller the following: (a) a certificate or certificates representing the Purchaser Common Stock and Purchaser Preferred Stock to be delivered to such Seller pursuant to Section 1.2 hereof, registered in the name of such Seller; (b) the Cash Payment, if any, to be made to such Seller pursuant to Section 1.2 hereof; (c) a certificate of the Purchaser, dated as of the Closing Date and signed by an executive officer of the Purchaser, certifying as to the fulfillment of the conditions set forth in Section 9.1 hereof; (d) the Registration Rights Agreement, executed by the Purchaser; (e) the executed Letter of Credit; (f) the Escrow Agreement, dated the Closing Date, duly executed by the Purchaser; 43 (g) the Share Disposition Agreement, duly executed by the Purchaser; and (h) a certificate of the Purchaser, dated the Closing Date and signed by an executive officer of Purchaser, certifying that the deliveries required to be made by the Purchaser to the Escrow Agent have been made. 9.3 No Prohibition. No Law or Order of any court or administrative agency shall be in effect which prohibits the Purchaser or any Seller from consummating the transactions contemplated hereby. ARTICLE X ADDITIONAL POST-CLOSING COVENANTS 10.1 Further Assurances. From time to time after the Closing Date, each of the Sellers shall, at the Purchaser's sole cost and expense, at the reasonable request of the Purchaser, execute and deliver such other and further instruments of sale, assignment, transfer and conveyance and take such other and further action as the Purchaser may reasonably request in order to vest in the Purchaser and put the Purchaser in possession of the Securities. 10.2 Public Announcements. None of the Sellers, the Purchaser or their respective affiliates shall make any public statement or disclosure with respect to this Agreement and the transactions contemplated hereby to any third party, including, without limitation, any Governmental Body, customers, employees, shareholders and the financial community without the consent of the other party hereto, except as may be required by Law or applicable NASD rule. 10.3 Books and Records; Personnel. For a period of six years after the Closing Date (or such longer period as may be required by any Governmental Body or ongoing Legal Proceeding): (a) Neither any SMR Company nor the Purchaser shall dispose of or destroy any of the business records and files of the SMR Companies. If any SMR Company or the Purchaser wishes to dispose of or destroy such records and files after that time, it shall first give 30 days' prior written notice to the Sellers and each of the Sellers shall have the right, at his option and expense, upon prior 44 written notice to the Purchaser within such 30-day period, to take possession of the records and files within 60 days after the date of the SMR Company's or the Purchaser's notice to the Sellers. (b) The SMR Companies and the Purchaser shall allow each of the Sellers and his representatives access to all business records and files of the SMR Companies for the period prior to the Closing Date, during regular business hours and upon reasonable notice at the Company's principal place of business or at any location where such records are stored, and each of the Sellers shall have the right, at his own expense, to make copies of any such records and files; provided, however, that any such access or copying shall be had or done in such a manner so as not to interfere in any material respect with the normal conduct of business operations. (c) The Company shall make available to each of the Sellers, upon written request and at such Seller's expense, the Company's personnel to assist such Seller in locating and obtaining the above-referenced records and files maintained by SMR Companies. 10.4 Transitional Assistance. For a period commencing on the Closing Date and ending six months thereafter, each Seller shall be available at the reasonable request of Purchaser to respond to inquiries and otherwise assist the Purchaser with respect to transitional matters. No Seller shall be obligated to spend more than 100 hours of his time regarding such matters without compensation. The Purchaser shall promptly reimburse all out-of-pocket expenses incurred by each Seller with respect to the matters set forth in this Section 10.4. ARTICLE XI INDEMNIFICATION AND RELATED MATTERS 11.1 Survival of Representations, Warranties. Except for the representations and warranties set forth in (i) Sections 3.3(f) and 3.11 which shall survive until the applicable statute of limitations has expired plus, with respect to Section 3.11 only, 60 days thereafter and (ii) Section 3.15, which shall survive until the second anniversary of the Closing Date, the representations and warranties of the parties contained in this Agreement shall survive until December 31, 1999. Any covenant or other 45 agreement herein shall survive the Closing hereunder indefinitely or for such lesser period of time as may be specified therein. Any matter as to which a claim has been asserted by formal notice pursuant to Section 11.4 and within the time limitation set forth in this Section 11.1 that is pending or unresolved at the end of such limitation period shall continue to be covered by this Article XI notwithstanding the expiration date set forth in this Section 11.1, until such matter is finally terminated or otherwise resolved by the parties under this Agreement or by a court of competent jurisdiction and any amounts payable hereunder are finally determined and paid. 11.2 Obligations of the Sellers. From and after the Closing, each Seller, jointly and severally, agrees to indemnify, defend and hold harmless the Purchaser, its affiliates (including after the Closing, each SMR Company), and their successors and assigns, and the officers, directors, employees and agents of the Purchaser, its affiliates and their successors and assigns (each a "Purchaser Indemnified Party") from and against any and all Losses which any Purchaser Indemnified Party may suffer, incur or sustain arising out of, attributable to, or resulting from: (a) any breach or nonperformance of any of the covenants or other agreements made by such Seller in Article V of this Agreement and (b) any inaccuracy in or breach of any of the representations or warranties of such Seller contained in Article III of this Agreement; (c) (i) any solid, liquid or gaseous materials from manufacturing operations which on or prior to the Closing Date were present at, on or under, or migrated or transported to or from the SMR Properties (or any property formerly owned or used by any SMR Company or the Business) in violation of Environmental Law, (ii) any noncompliance with or violation of any applicable Environmental Law or Environmental Permit occurring on or prior to the Closing Date, and (iii) the environmental matters set forth on Schedule 11.2(c) hereof (provided that the Purchaser Indemnified Parties first exhaust all available remedies against the former owner identified on such Schedule 11.2(c) before proceeding against Sellers in respect of Section 11.2(c)(i), (ii) or (iii)); provided, however, that no such indemnification shall be required under this clause(c) unless (i) a written notice or claim shall have been received by a Purchaser Indemnified Party from a Governmental Body or third party and not resulting from any actions taken by the Purchaser Indemnified Parties other than Phase II and other environmental testing as advised by the Purchaser's 46 environmental consultants and any reporting obligations to any Governmental Body resulting therefrom and the Seller shall have received notice of such written notice or claim on or prior to the second anniversary of the Closing Date, and provided, further, that the Sellers shall have the right, but not the obligation to control and manage any required remedial action and shall only be responsible to the extent necessary to meet the least stringent, most cost effective standard required by applicable Environmental Laws and consistent with the SMR Properties' use at the time of Closing, (d) any claim brought against the Purchaser or any other Purchaser Indemnified Party in connection with the ESOP Purchase Agreement alleging that the consideration paid to the FSI ESOP (or the beneficiaries thereof) was unfair or inadequate or that the FSI ESOP was otherwise damaged in connection with the ESOP Purchase Agreement (provided that no indemnification shall be provided in connection with any claim that the Purchaser has breached the ESOP Purchase Agreement), and (e) any Taxes imposed on any of the SMR Companies with respect to taxable periods ending on or before the Closing Date or, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such period ending on the Closing Date (determined in accordance with Section 13.2(a)(ii)), in each case other than (i) by reason of the Election (subject to Section 13.1(c)(ii) and the last sentence of Section 13.1(g)) or (ii) by reason of any action (other than the Election) taken by any SMR Company after the Closing or by or at the direction of the Purchaser (including without limitation the filing of an amended Tax Return for an SMR Company for a period (or portion thereof) ending on or prior to the Closing Date without the consent of the Sellers). 11.3 Obligations of Purchaser. From and after the Closing, Purchaser agrees to indemnify, defend and hold harmless each Seller from and against any and all Losses which any of them may suffer, incur, or sustain arising out of, attributable to, or resulting from: (a) any breach or nonperformance of any of the covenants or other agreements made by Purchaser in Article VI of this Agreement; (b) any inaccuracy in or breach of any of the representations and warranties of Purchaser contained in Article IV of this Agreement; (c) any obligations of any of the SMR Companies to the FSI ESOP arising prior to the Closing Date (including for the Department of Labor settlement described on Schedule 11.3 hereof provided that the accruals for such settlement are reflected on the Closing Balance Sheet), other than for the matters described in Section 11.2(d); (d) any claims by any employees or former employees of the SMR Companies, including, without limitation, relating to their employment with the SMR Companies, termination of 47 employment or change in benefits or compensation, except for matters which would constitute a breach of the representations and warranties made by Seller in Section 3.12; or (e) any actions taken as a director, officer, partner or manager of any of the SMR Companies prior to the Closing Date to the maximum extent permitted for directors, officers, partners or managers under applicable state corporate, partnership and limited liability company laws, except for matters for which Purchaser is entitled to indemnification under Section 11.2; or (f) any Taxes imposed on any of the Sellers or SMR Companies with respect to taxable periods ending on or before the Closing Date or, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such period ending on the Closing Date (determined in accordance with Section 13.2(a)(ii)) by reason of (i) the Election (subject to Section 13.1(c)(iii) and the last sentence of Section 13.1(g)) or (ii) any action taken by any SMR Company (other than the Election) after the Closing or by or at the direction of the Purchaser (including without limitation the filing of an amended Tax Return for an SMR Company in respect of a period (or portion thereof) ending on or prior to the Closing Date without the consent of the Sellers). 11.4 Procedure. (a) Notice of Third Party Claims. Any party entitled to and seeking indemnification pursuant to this Article XI for any Loss or potential Loss (an "Indemnified Party") arising from a claim asserted by a third party against the Indemnified Party (a "Third Party Claim") shall give written notice to the party required to indemnify the Indemnified Party pursuant to this Article XI (the "Indemnifying Party") specifying in detail the source of the Loss or potential Loss under Section 11.2 or 11.3, as the case may be. Written notice to the Indemnifying Party of the existence of a Third Party Claim shall be given by the Indemnified Party promptly after notice of the potential claim; provided, however, that the Indemnified Party shall not be foreclosed from seeking indemnification pursuant to this Article XI by any failure to provide such prompt notice of the existence of a Third Party Claim to the Indemnifying Party unless the Indemnifying Party has been damaged or prejudiced as a result of such delay. In the case of a Tax Claim, the procedures set forth in Section 13.2 shall apply in lieu of the procedures set forth in this Section 11.4. (b) Defense. Except as otherwise provided herein, the Indemnifying Party may elect to pay, compromise 48 or defend (with the expenses incurred by the Indemnifying Party in connection therewith for its own account) by such Indemnifying Party's own counsel (which counsel shall be reasonably satisfactory to the Indemnified Party), any Third Party Claim. If the Indemnifying Party elects to compromise or defend such Third Party Claim, it shall, within 30 days after receiving notice of the Third Party Claim, notify the Indemnified Party of its intent to do so, and the Indemnified Party shall cooperate, with the expense of the Indemnified Party being part of the Loss for which the Indemnified Party is entitled to indemnification pursuant to the terms of this Agreement, in the compromise of, or defense against, such Third Party Claim. If the Indemnifying Party elects not to compromise or defend against the Third Party Claim, or fails to notify the Indemnified Party of its election to do so as herein provided, or otherwise abandons the defense of such Third Party Claim, (i) the Indemnified Party may pay (without prejudice of any of its rights as against the Indemnifying Party), compromise or defend such Third Party Claim (until such defense is assumed by the Indemnifying Party) and (ii) the costs and expenses of the Indemnified Party incurred in connection therewith shall be indemnifiable by the Indemnifying Party pursuant to the terms of this Agreement. However, if within 30 days of receiving a notification from the Indemnifying Party that the Indemnifying Party does not elect to defend a Third Party Claim, the Indemnified Party fails to notify the Indemnifying Party that the Indemnified Party is electing to pay, compromise or defend the claim or notifies the Indemnifying Party that it does not elect to pay, compromise or defend the claim, then the Indemnifying Party may elect to pay, compromise or defend the claim by such Indemnifying Party's own counsel (which counsel shall be reasonably satisfactory to the Indemnified Party), with the expenses incurred by the Indemnifying Party for the account of the Indemnified Party but part of the Loss for which the Indemnified Party is entitled to indemnification pursuant to the term by this Agreement. Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnified Party may settle or compromise any claim over the objection of the other; provided, however, that (i) consent to settlement or compromise shall not be unreasonably withheld by the Indemnified Party and (ii) if the sole settlement relief payable to a third party in respect of such Third Party Claim is monetary damages that are paid in full by the Indemnifying Party, the Indemnifying Party may settle such 49 claim without the consent of the Indemnified Party. In any event, except as otherwise provided herein, the Indemnified Party and the Indemnifying Party may each participate, at its own expense, in the defense of such Third Party Claim. If the Indemnifying Party chooses to defend any claim, the Indemnified Party shall make available to the Indemnifying Party any personnel or any books, records or other documents within its control that are reasonably necessary or appropriate for such defense, subject to the receipt of appropriate confidentiality agreements. 11.5 Miscellaneous. The procedures set forth in Section 11.4 above shall apply solely with respect to Third Party Claims and shall not be deemed to apply to, or otherwise affect or limit, an Indemnified Party's rights under this Agreement with respect to any claim other than a Third Party Claim. 11.6 Notice of Non-Third Party Claims. Any Indemnified Party seeking indemnification for any Loss or potential Loss arising from a claim asserted by any party to this Agreement against the Indemnifying Party (a "Non-Third Party Claim") shall give written notice to the Indemnifying Party specifying in detail the source of the Loss or potential Loss under Section 11.2 or 11.3, as the case may be. Written notice to the Indemnifying Party of the existence of a Non-Third Party Claim shall be given by the Indemnified Party promptly after the Indemnified Party becomes aware of the potential claim; provided that the failure to provide such notice shall not affect the other party's indemnification or other obligations hereunder, except to the extent that such party has been prejudiced by such lack of notice. 11.7 Certain Limitations. The Purchaser shall not have any right to seek indemnification under this Agreement against any Seller in respect of any claim of less than $5,000 on an individual basis, or in respect of allowable claims until Losses of such party exceed $500,000 in the aggregate (the "Indemnification Threshold"), after which time only the aggregate amount of such Losses in excess of the Indemnification Threshold shall be recoverable in accordance with the terms hereof; provided, however, that notwithstanding such limitation but subject to the limitations of Section 11.8 hereof, the Purchaser shall have the right to seek indemnification under Section 11.2(d) for all Losses in respect of the subject matter thereof in excess of $250,000. Losses shall be first recoverable from 50 the property held by the escrow agents pursuant to the Escrow Agreement and the escrow agreement executed by the ESOP pursuant to the ESOP Purchase Agreement (the "ESOP Escrow Agreement"). In respect of matters for which indemnification is provided both by the Sellers under this Agreement and the ESOP under the ESOP Purchase Agreement, the Purchaser simultaneously shall seek recovery against the Sellers and the ESOP with 84.5% claimed under this Agreement and 15.5% claimed under the ESOP Purchase Agreement. Thereafter, each Seller shall be jointly and severally liable for the Losses not satisfied pursuant to the preceding sentence. 11.8 Maximum Indemnification. No party shall have any right to obtain an indemnification payment under this Agreement to the extent amounts received by such party and its Affiliates and the successors and assigns of such party and its Affiliates as indemnification payments hereunder and from the Escrow Agreement equal or exceed 15% of the Purchase Price. 11.9 Subrogation. The rights of any Indemnifying Party shall be subrogated to any right of action which the Indemnified Party may have against any other person with respect to any matter giving rise to a claim for indemnification hereunder. 11.10 Adjustments to Indemnification Obligations. The amount of any Loss for which indemnification is provided under Sections 11.2 or 11.3 (the "Specified Sections") shall be net of (i) any accruals or reserves created specifically in respect thereof on the Closing Balance Sheet, (ii) any amounts recovered by the Indemnified Party pursuant to any indemnification by or indemnification agreement with any third party, and (iii) any insurance proceeds or other cash receipts or sources of reimbursement received from a third party as an offset against such Loss (each such person named above, a "Collateral Source"), and (iv) an amount equal to the amount of the Tax benefit, if any, actually realized by the Indemnified Party or any affiliate thereof. To the extent that an Indemnified Party or an affiliate thereof actually realizes Tax benefits subsequent to the date of computation and payment of an indemnification payment due hereunder to such Indemnified Party, the Indemnified Party shall pay to the Indemnifying Party the amount of such Tax Benefits as and when they are actually realized by the Indemnified Party or such affiliate. To the extent that a taxing authority shall require the amount of any 51 indemnification payment to be included in income hereunder, such amount shall be taken into account in determining the Tax benefit derived by the Indemnified Party or an affiliate thereof; provided, however, that the Seller shall not be required to make any indemnification payment to a Purchaser Indemnified Party in respect of a Loss which shall exceed the amount of such Loss, as computed in accordance with this Agreement but prior to reduction thereof by Section 11.10(iv). The Indemnified Party shall provide to the Indemnifying Party a schedule setting forth in reasonable detail the computation of the amount of Tax benefits actually realized which is attributable to a Loss (whether such Tax benefits are actually realized prior or subsequent to the date of the indemnification payment to the Indemnified Party hereunder) and the reason, if any, why such Loss does not produce a current Tax benefit and the basis, if any, for the taxation of an indemnification payment received hereunder. In the event that the Indemnifying Party objects to the computation of Tax benefits actually realized by the Indemnified Party or an affiliate thereof, the parties shall seek to resolve such disagreement in good faith; if the parties are unable to resolve such disagreement, the parties shall submit the matter to the Accounting Referee, whose determination shall be final and binding and whose fees shall be borne 50% by the Indemnifying Party and 50% by the Indemnified Party. The Indemnifying Party may require an Indemnified Party to assign the rights to seek recovery pursuant to the first sentence of this Section 11.10; provided, that the Indemnifying Party will then be responsible for pursuing such claim at its own expense. If the amount to be netted hereunder from any payment required under Sections 11.2 or 11.3 is determined after payment by the Indemnifying Party of any amount otherwise required to be paid to an Indemnified Party to this Article XI, the Indemnified Party shall repay to the Indemnifying Party, promptly after such determination, any amount that the Indemnifying Party would not have had to pay pursuant to this Article XI had such determination been made at the time of such payment. 11.11 Treatment of Indemnification Payments. Any payment made pursuant to the indemnification obligations arising under this Agreement shall be treated as an adjustment to the Purchase Price. 11.12 Exclusive Remedy. To the extent not prohibited by Law and except as provided by Article XIII hereof and except for the granting of injunctive relief or other similar equitable remedies, this Article XI shall provide the sole and exclusive 52 remedy for any and all Losses resulting from any breach of representation and warranty or covenant or resulting from any other provision of this Agreement, including those asserted by any party hereto, Governmental Body, third party, or former or present employee and, to this effect, the Purchaser on behalf of itself and the Purchaser Indemnified Parties hereby waives any claims, rights, demands or causes of action that the Purchaser Indemnified Parties have or may have under Environmental Laws against the Sellers other than those specifically provided for in Section 11.2 of this Agreement. 11.13 No Consequential Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, NO PARTY TO THIS AGREEMENT SHALL BE LIABLE TO OR OTHERWISE RESPONSIBLE TO ANY OTHER PARTY HERETO OR ANY AFFILIATE OF ANY OTHER PARTY HERETO FOR CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES OR FOR DIMINUTION IN VALUE OR LOST PROFITS THAT ARISE OUT OF OR RELATE TO THIS AGREEMENT OR THE PERFORMANCE OR BREACH THEREOF. ARTICLE XII TERMINATION 12.1 Termination. This Agreement may be terminated: (a) by the written agreement of the Purchaser and each of the Sellers; (b) by the Purchaser or the Sellers if there shall be in effect a non-appealable order of a court of competent jurisdiction permanently prohibiting the consummation of the transactions contemplated hereby; and (c) by the Sellers or the Purchaser if the Closing shall not have occurred on or before October 31, 1998. Notwithstanding anything else contained in this Agreement, the right to terminate this Agreement under this Section 12.1 shall not be available to any party (i) that is in material breach of its obligations hereunder or (ii) whose failure to fulfill its obligations or to comply with its covenants under this Agreement in all material respects has been the cause of, or resulted in, the failure 53 to satisfy any condition to the obligations of either party hereunder. 12.2 Liabilities After Termination. Upon any termination of this Agreement pursuant to Section 12.1 hereof, no party hereto shall thereafter have any further liability or obligation hereunder other than the Purchaser's obligations pursuant to Section 6.2 hereof, but no such termination shall relieve any party hereto of any liability to the other parties hereto for any breach of this Agreement prior to the date of such termination. ARTICLE XIII TAX MATTERS 13.1 Section 338(h)(10) Election; Tax Indemnity. (a) The Purchaser may elect, at the Purchaser's sole option, 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 Shares (the "Election"). The Sellers shall join, at the request of the Purchaser, in the Election. If the Election is made, the Purchase Price shall be increased by the Election Tax Cost (as determined in accordance with Section 13.1(c) hereof) and the Sellers and the Purchaser 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 and with the computation of the Election Tax Cost. (b) The Purchaser shall notify the Sellers in writing of its intention to file the Election no later than the earlier of (i) one hundred twenty (120) days after the Closing Date or (ii) fifteen (15) days after Final Net Worth and Final Debt and Related Costs are determined (the "Election Notice"). (c) The term "Election Tax Cost" shall mean an amount which, net of all federal, state and local Taxes imposed on the Sellers in respect of the receipt thereof by the Sellers, would be equal in amount to the excess of (A) the aggregate federal, state and local Tax liability incurred by the Sellers as a consequence of the transactions contemplated hereby (giving effect to the Election and the 54 allocation of the Purchase Price in accordance with Section 1.4 hereof), over (B) the aggregate federal, state and local Tax liability that would have been incurred by the Sellers on the sale of the Securities if the Election had not been made (and assuming that no portion of the Purchase Price were allocable to a covenant not to compete); provided, however, that (i) the Election Tax Cost shall not exceed 200% of the estimate of the Election Tax Cost shown on Schedule 13.1(c) attached hereto, (ii) the amount excluded from the Sellers' indemnification obligation under Section 11.2(e)(i), when aggregated with the Election Tax Cost, shall not exceed 200% of the estimate of this Election Tax Cost shown on Schedule 13.1(c) hereto, and (iii) the amount of Purchaser's indemnification obligation under Section 11.3(f)(i), when aggregated with the Election Tax Cost, shall not exceed 200% of the estimate of the Election Tax Cost shown on Schedule 13.1(c) hereto. (d) Within 25 days after Sellers' receipt of the Election Notice, the Sellers shall provide to the Purchaser the computation of the Election Tax Cost computed as of the Closing Date (which computation shall set forth only such Tax information as relates to the transactions contemplated hereby). Unless the Purchaser objects in writing to the Sellers' computation of the Election Tax Cost, within 20 days after receipt thereof (specifying the reasons therefor in reasonable detail), such computations shall be deemed final. If the Purchaser does so object, the Purchaser shall pay to the Sellers (in accordance with the principles set forth in subparagraph (e) below) the portion of the Election Tax Cost that the Purchaser does not dispute ("Undisputed Amount") at least three days prior to the due date of the Sellers' federal income Tax Return for the Tax period that includes the Closing Date and the Purchaser and the Sellers will negotiate in good faith to resolve all disputed items. If the Purchaser and the Sellers are unable to resolve all disputed items within ten days of Sellers' receipt of Purchaser's written objection, such disputed items will be submitted to the Accounting Referee for resolution. The Purchaser and the Sellers will cooperate with the Accounting Referee to resolve the remaining disputed items within sixty business days after such disputed items are submitted to the Accounting Referee. The determination of the Accounting Referee will be deemed final. In the event it is determined that the Purchaser owes the Sellers any portion of the disputed amount, the Purchaser shall bear the portion of the costs of the Accounting Referee determined by multiplying such costs by a 55 fraction, the numerator of which is the additional amount that such Accounting Referee determines that the Purchaser owes the Sellers and the denominator of which is the disputed amount, and the Purchaser shall pay to the Sellers such additional amount plus interest thereon at the "overpayment rate", as defined in Section 6621(a) of the Code, from the due date of the Sellers' federal income Tax Return to the date of payment. The Sellers shall bear all costs of the Accounting Referee that are not paid by the Purchaser pursuant to the preceding sentence. (e) Upon final determination of the Election Tax Cost, the Purchaser shall pay to each Seller an amount equal to the product of (i) the excess of the Election Tax Cost over the amount thereof previously paid to the Sellers pursuant to Section 13.1(d) and (ii) the percentage set forth opposite the name of such Seller on Schedule 1.1 hereto. (f) The Purchaser shall be responsible for the preparation and filing of all forms and documents required in connection with the Election. In connection with the Election Notice, the Purchaser shall provide the Sellers with copies of (i) Form 8023 as reasonably agreed to by the parties, (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 Sellers shall execute and deliver to the Purchaser within 60 days of receipt of the Election Notice 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; provided, however, that Sellers shall not be required to deliver such documents or forms or file such Election prior to payment of the Election Tax Cost in the manner provided by Section 13.1(e) hereof; provided, further, however, that if a good faith dispute concerning the amount of the Election Tax Cost is pending, and the Purchaser shall have deposited with an escrow agent acceptable to the Sellers, pursuant to an escrow agreement acceptable to the Sellers, the disputed portion of the Election Tax Cost, the Sellers shall deliver such forms and file such Election. The Sellers and the Purchaser 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 Sellers or the Purchaser in order to timely file the Election and any other required statements or schedules and to compute the amount of the 56 Election Tax Cost. The Sellers shall promptly execute and deliver to the Purchaser 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 parties. (g) Purchaser shall indemnify the Sellers, on an after-tax basis, against any federal, state or local Tax liability which is incurred by the Sellers by reason of consummating the transactions contemplated hereby (including by reason of the Election or the allocation of any portion of the Purchase Price to a covenant not to compete, but not by reason of an adjustment required by a taxing authority to the amount of the Purchase Price allocable to a covenant not to compete), to the extent that the amount of such Tax liability exceeds the Tax liability that the Sellers would have incurred were they to have (a) sold the Shares, the Partnership Interests and the LLC Interests without the making of the Election or the allocation of any consideration to a covenant not to compete and (b) received as consideration therefor at the Closing Date an amount of cash equal to the Purchase Price (as adjusted in accordance with Section 1.3 and increased for interest in accordance with Section 1.2 hereof). Notwithstanding anything to the contrary set forth herein, the Purchaser shall not be required to indemnify the Sellers for the increase in the Election Tax Cost (if any), or any increase in the Tax liability incurred by an SMR Company by reason of the Election, that results from the breach of a representation set forth in Section 3.11. 13.2 Tax Returns; Audits. (a) (i) The Sellers shall be responsible for preparing or causing to be prepared, at the appropriate SMR Company's expense, the Company's federal income tax return on Form 1120S and comparable state and local income and franchise tax returns (each, an "S Period Return"), for the Company's taxable year ending on the Closing Date (collectively, the "Final S Period Tax Returns") or prior to the Closing Date and all other Income Tax Returns of the SMR Companies for the taxable periods ending on or prior to the Closing Date. Such Tax Returns shall be prepared in a manner consistent with prior practice unless otherwise required by applicable Tax laws. The Purchaser shall cause the Company to cooperate in the preparation and filing of such Tax Returns 57 (including providing the Sellers with all information reasonably requested by the Sellers in connection with the preparation of such Tax Returns). The Sellers shall be responsible for preparing the Tax Returns of SMR Developers and SMR Associates in respect of taxable periods ending on or before the Closing Date in accordance with the principles set forth in this Section 13.2(a). The Sellers shall provide the Purchaser 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 Purchaser is liable, at least 10 days prior to the due date (including any extensions thereof) for the filing of such Final S Period Tax Returns, and the Purchaser shall have the right to review such Final S Period Tax Returns prior to the filing of such Final S Period Tax Returns. The Purchaser shall cause such Tax Returns to be signed by the appropriate SMR Company so that they may be timely filed by or at the direction of the Sellers. The Purchaser shall cause any amount of Tax shown as due from an SMR Company on such Tax Return to be paid, subject to indemnification as provided in Article 11. (ii) The Sellers and the Purchaser will, to the extent permitted by applicable Law, elect with the relevant Taxing authority to close the taxable period of each SMR Company on the Closing Date. In any case where applicable Law does not permit an SMR Company to close its taxable year on the Closing Date, then Taxes, if any, attributable to the taxable period of the SMR Company beginning on or before and ending after the Closing Date shall be allocated between (A) the period up to and including the Closing Date, and (B) the period subsequent to the Closing Date by means of a closing of the books and records of each of the SMR Companies as of the close of business on the Closing Date. (b) (i) Except as provided in Section 13.2(a), following the Closing, Purchaser shall be responsible for preparing or causing to be prepared all Tax Returns required to be filed by the SMR Companies after the Closing Date. (ii) With respect to any Tax Return required to be filed by the Purchaser for a taxable period of an SMR Company beginning on or before the Closing Date, (A) the Purchaser shall prepare (or cause to be prepared) such Tax Returns in a manner consistent with the prior practice of the respective SMR Company unless otherwise required by applicable Tax laws, and (B) the Purchaser shall deliver, at 58 least twenty (20) business days prior to the due date for filing of such Tax Return (including extensions), to the Sellers (1) a statement setting forth the amount of Tax shown due on such Tax Return for which the Sellers are liable pursuant to Section 11.2(e) hereof (the "Statement"), and (2) copies of such Tax Return. The Sellers shall have the right to review and comment on such Tax Return and the Statement prior to the filing of such Tax Return. The Sellers and the Purchaser agree to consult and resolve in good faith any issue arising as a result of the review of such Tax Return and the Statement and to mutually consent to the filing as promptly as possible of such Tax Return. In the event the parties are unable to resolve any dispute within ten (10) business days following the delivery of such Tax Return and the Statement, the parties shall jointly request the Accounting Referee to resolve any issue in dispute as promptly as possible; provided, however, that the sole issue before the Accounting Referee shall be whether the changes proposed by the Sellers are reasonable. If the Accounting Referee is unable to make a determination with respect to any disputed issue within five (5) business days prior to the due date (including extensions) for the filing of the Tax Return in question, then the Purchaser may file such Tax Return on the due date (including extensions) therefor without such determination having been made and without the Sellers' consent. Notwithstanding the filing of such Tax Return, the Accounting Referee shall make a determination with respect to any disputed issue, and the amount of Taxes for which Sellers are liable under Section 11.2(e) hereof shall be as determined by the Accounting Referee. The fees and expenses of the Accounting Referee shall be paid one-half by the Purchaser and one-half by the Sellers. The Purchaser shall pay or cause to be paid all Taxes shown due on such Tax Return. Not later than (A) three days before the due date for the payment of Taxes with respect to such Tax Return or (B) in the event of a dispute, five business days after notice to the Sellers of the resolution thereof, the Purchaser shall be paid such amount in accordance with Section 11.7. (c) In the event that, following the Closing Date, any Governmental Body notifies the Purchaser or any of the SMR Companies or any affiliate thereof of its intention to audit, assess, examine or otherwise review (collectively, "Audit") an S Period Return of the Company or an SMR Subsidiary (or a Tax Return of SMR Developers or SMR Associates) relating to a taxable period ending on or before the Closing Date, the Purchaser shall promptly notify the 59 Sellers of the receipt of such notice. Upon receipt of notice of the Audit from the Purchaser, the Sellers may, at the Sellers' 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 Body 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 Purchaser will be liable pursuant to Section 11.3(f), the Purchaser shall be entitled to jointly control with the Sellers such adjustment or issue, and neither the Sellers nor the Purchaser 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. The Purchaser shall cooperate and provide or cause the Company to cooperate and provide the Sellers with access to such records and personnel of the SMR Companies as the Sellers determine may be necessary in connection with the conduct of such Audit or any administrative or judicial proceeding in respect thereof. The Purchaser shall provide the Sellers with copies of all correspondence, notices and other written materials received from any Governmental Body. (d)(i) Without prejudice to Sellers' rights under Section 13.2(c), the Purchaser will promptly notify the Sellers in writing of the commencement of any claim, Audit, or other proposed change or adjustment by any taxing authority concerning any Tax covered by Section 11.2(e) hereof (a "Tax Claim"); provided, however, that a Purchaser Indemnified Party shall not be foreclosed from seeking indemnification pursuant to Article XI by any failure to provide such prompt notice of the existence of a Tax Claim except to the extent that the Sellers have been damaged or prejudiced as a result of such delay. (ii) The Sellers shall have the right to represent any SMR Company's interests in any Tax audit or administrative or court proceeding relating to taxable periods of such SMR Company ending on or prior to the Closing Date and to employ counsel of its choice at its expense; provided that (A) if the results of such Tax audit or proceeding (other than a Tax audit or proceeding with respect to any S Corporation Period or any Tax Return of SMR Associates or SMR Developers for a period ending on or before the Closing Date) (i) involves an issue that recurs 60 for a taxable period of an SMR Company beginning after the Closing Date (whether or not such subsequent taxable period is the subject of such Tax audit or proceeding at such time), (ii) would be binding on the Purchaser or the SMR Companies for any taxable period beginning after the Closing Date, and (iii) would materially and detrimentally affect the Tax liability of the SMR Companies for a taxable period beginning after the Closing Date, then the Sellers shall not enter into a settlement or closing or other agreement with respect thereto without the consent of the Purchaser, 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 Purchaser will be liable pursuant to Section 11.3(f), the Purchaser shall be entitled to jointly control with the Sellers such adjustment or issue in the Tax audit or proceeding, and neither the Sellers nor the Purchaser 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; provided, however, that, in a case described in clause (A) above, if the Purchaser shall refuse to consent to any settlement, closing or other agreement that the Sellers propose to accept (a "Proposed Settlement"), then (1) the Sellers' liability with respect to the subject matter of the Proposed Settlement shall be limited to the amount that such liability would have been if the Proposed Settlement had been accepted, and (2) the Purchaser shall be responsible for all expenses incurred thereafter in connection with the contest of such audit or proceeding except to the extent that the final settlement imposes less liability on the Sellers than the Proposed Settlement would have imposed. The Purchaser agrees that, to the extent reasonably requested in writing by the Sellers, it will cause the SMR Companies to take such requested actions in the defense against or compromise of any claim in any such Tax audit or proceeding. The Sellers shall promptly notify the Purchaser if it decides not to control the defense or settlement of any such Tax audit or administrative or court proceeding and the Purchaser thereupon shall be permitted to defend and settle such Tax audit or proceeding; provided, however, that there shall be no settlement or closing or other agreement with respect thereto without the consent of the Sellers (which consent shall not be unreasonably withheld). (iii) With respect to any taxable period of an SMR Company beginning before and ending after the Closing Date, the Purchaser and the Sellers shall jointly control the 61 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) A claim for indemnity under Sections 11.2(e) or 11.3(f) may not be made later than 60 days after the expiration of the applicable Tax statute of limitations with respect to the relevant taxable period. 13.3 Cooperation and Exchange of Information. The Sellers and the Purchaser 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 the SMR Companies 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 an SMR Company for any taxable period ending on or before the Closing Date without the prior written consent of the Sellers (which consent, in the case of an amended Tax Return of FSI or its Subsidiary, shall not to be unreasonably withheld). The Purchaser shall retain all Tax Returns, schedules and work papers, records and other documents ("Tax Materials") in its or any of the SMR Companies' possession relating to Tax matters of the SMR Companies for each taxable period first ending after 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. The provisions of Section 10.3 shall apply to the Tax Materials in the possession of the SMR Companies or the Purchaser. Any information obtained under this Section 13.3 shall be kept confidential except as may be otherwise necessary in connection with the filing of Tax Returns or claims for refund or in conducting an audit or other proceeding. 62 ARTICLE XIV MISCELLANEOUS 14.1 Certain Definitions. As used in this Agreement, the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Accounting Referee" has the meaning set forth in Section 1.3(c) hereof. "Agreement" has the meaning set forth in the recitals hereof. "Audit" has the meaning set forth in Section 13.2(c) hereof. "Balance Sheet Date" has the meaning set forth in Section 3.7 hereof. "Benefit Arrangement" has the meaning set forth in Section 3.12(b). "Business" has the meaning set forth in the recitals hereof. "CERCLA" has the meaning set forth in Section 3.15 hereof. "Cash Payment" has the meaning set forth in Section 1.3 hereof. "Closing" means the consummation of the sale and purchase of the Securities pursuant to this Agreement. "Closing Balance Sheet" has the meaning set forth in Section 1.3(a) hereof. "Closing Date" has the meaning set forth in Section 2.1 hereof. "Code" means the Internal Revenue Code of 1986, as amended. "Common Stock" has the meaning set forth in Section 3.3(a) hereof. 63 "Company" has the meaning set forth in the recitals hereof. "Confidentiality Agreement" has the meaning set forth in Section 5.2 hereof. "Contract" means any contract (including, without limitation, any resale agreement and any manufacturer authorization or medallion or sales or distribution contract), agreement, indenture, note, bond, loan, instrument, lease, conditional sale contract, mortgage, license, franchise, insurance policy, commitment or other arrangement or agreement, whether written or oral. "Covered Employees" has the meaning set forth in Section 7.1 hereof. "Debt and Related Costs" has the meaning set forth in Section 1.3(a) hereof. "Election" has the meaning set forth in Section 13.1(a) hereof. "Election Notice" shall have the meaning set forth in Section 13.1(b) hereof. "Election Tax Cost" shall have the meaning set forth in Section 13.1(c) hereof. "Employee Benefit Plan" has the meaning set forth in Section 3.12(b) hereof. "Environmental Laws" has the meaning set forth in Section 3.15. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agreement" has the meaning set forth in Section 1.8 hereof. "ESOP Purchase Agreement" has the meaning set forth in the Recitals hereof. "ESOP Shares" has the meaning set forth in the recitals hereof. 64 "Exchange Act" means the Securities and Exchange Act of 1934, as amended. "Filed Purchaser SEC Documents" has the meaning set forth in Section 4.7 hereof. "Final Debt" has the meaning set forth in Section 1.3(c) hereof. "Final Net Worth" has the meaning set forth in Section 1.3(e) hereof. "Final S Period Tax Returns" has the meaning set forth in Section 13.2(a) hereof. "Financial Statements" has the meaning set forth in Section 3.7 hereof. "FSI" has the meaning set forth in the recitals hereof. "FSI ESOP" has the meaning set forth in the recitals hereof. "GAAP" means generally accepted accounting principles in the United States as in effect from time to time. "Governmental Body" means any government or governmental or regulatory body thereof, or political subdivision thereof, whether federal, state, local or foreign, or any agency or instrumentality thereof, or any court or arbitrator (public or private). "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indebtedness" means, with respect to any Person, (a) all indebtedness of such Person, whether or not contingent, or borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such 65 property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (h) all Indebtedness of others referred to in clauses (a) through (f) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (i) all Indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. "Indemnification Threshold" has the meaning set forth in Section 11.7 hereof. "Indemnified Party" has the meaning set forth in Section 11.4 hereof. "Indemnifying Party" has the meaning set forth in Section 11.4 hereof. "Initial Balance Sheet" has the meaning set forth in Section 3.7 hereof. "Intangible Assets" has the meaning set forth in Section 3.10 hereof. "Inventories" means all inventory, merchandise, finished goods, and raw materials, packaging, supplies and other personal property related to the Business maintained, 66 held or stored by or for the SMR Companies on the Closing Date and any prepaid deposits for any of the same. "Law" means any federal, state, local or foreign law (including common law), statute, code, ordinance, rule, regulation or other requirement. "Legal Proceeding" means any judicial, administrative or arbitral action, suit, proceeding (public or private), claim, investigation or governmental proceeding. "Letter of Credit" has the meaning set forth in Section 1.7 hereof. "Liabilities" means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law (including, without limitation, any Environmental Laws), Legal Proceeding or Order and those arising under any contract, agreement, arrangement, commitment or undertaking. "Lien" means any lien, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement or other real estate declaration, covenant, condition, restriction or servitude, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction, right in favor of any third party or limitation whatsoever. "LLC Interests" has the meaning set forth in the recitals hereof. "Loss" shall mean any and all claims, losses, liabilities, costs, penalties, fines and expenses (including reasonable expenses for attorneys, accountants, consultants and experts), damages, obligations to third parties, judgments or awards that are imposed upon or otherwise incurred, suffered or sustained by the relevant party. "Material Adverse Change" means any material adverse change on, or in, the assets, business, condition (financial or otherwise), results of operations or liabilities of the SMR Companies, taken as a whole, or the Purchaser. 67 "Material Adverse Effect" means an effect that results in or causes, or has a reasonable likelihood of resulting in or causing, a Material Adverse Change. "Material Contracts" has the meaning set forth in Section 3.9 hereof. "Net Proceeds" has the meaning set forth in Section 1.6(b) hereof. "Net Worth" has the meaning set forth in Section 1.3(a) hereof. "Non-Third Party Claim" has the meaning specified in Section 11.6 hereof. "Order" means any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award. "Owned Properties" has the meaning set forth in Section 3.5 hereof. "Partnership Interests" has the meaning set forth in the recitals hereof. "Permit" means any written approval, authorization, consent, franchise, license, permit or certificate by any Governmental Body. "Permitted Exceptions" means (a) statutory Liens for current taxes, assessments or other governmental charges not yet delinquent or the amount or validity of which is being contested in good faith by appropriate proceedings, (b) mechanics', carriers', workers', repairers' and similar Liens arising or incurred in the ordinary course of business that are not in the aggregate material to the SMR Companies, taken as a whole, and which do not relate to amounts overdue by more than 30 days (unless such amounts are the subject of a good faith dispute) (c) zoning, entitlement and other land use and environmental regulations by Governmental Bodies, provided that such regulations have not been violated, (d) purchase money Liens or purchase money security interests upon or in any inventory acquired or held by the SMR Companies in the ordinary course of business to secure the purchase price of such inventory or to secure indebtedness incurred solely for the purpose of financing the acquisition of such inventory and (e) such other customary imperfections in title to real property, charges, easements, restrictions 68 and encumbrances (other than for borrowed money) which do not, render title to the property encumbered thereby unmarketable and to not, individually or in the aggregate, materially adversely affect the value or use of such property for its current and anticipated purposes. "Person" means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or Governmental Body. "Personal Property Leases" has the meaning set forth in Section 3.6(a) hereof. "Proceedings" has the meaning set forth in Section 14.3 hereof. "Public Offering" has the meaning set forth in Section 1.5 hereof. "Purchase Price" has the meaning set forth in Section 1.2 hereof. "Purchaser" has the meaning set forth in the recitals hereof. "Purchaser Common Stock" has the meaning set forth in Section 1.2 hereof. "Purchaser Documents" has the meaning set forth in Section 4.2 hereof. "Purchaser Preferred Stock" has the meaning set forth in Section 1.2 hereof. "Purchaser Representatives" has the meaning set forth in Section 5.2 hereof. "Purchaser SEC Documents" has the meaning set forth in Section 4.6 hereof. "Purchaser Shares" has the meaning set forth in Section 1.2 hereof. "Real Property Lease" has the meaning set forth in Section 3.5 hereof. 69 "Receivables" means any and all accounts receivable, notes and other amounts receivable by any SMR Company from third parties, including, without limitation, customers, arising from the conduct of the Business or otherwise before the Closing Date, whether or not in the ordinary course, together with all unpaid financing charges accrued thereon. "Returns" has the meaning set forth in Section 3.11 hereof. "S Period Return" has the meaning set forth in Section 13.2(a) hereof. "Schroders" has the meaning set forth in Section 3.17 hereof. "Securities" has the meaning set forth in the recitals hereof. "Securities Act" means the Securities Act of 1933, as amended. "Seller's Documents" has the meaning set forth in Section 3.2 hereof. "Sellers" has the meaning set forth in the recitals hereof. "Shares" has the meaning set forth in the recitals hereof. "Shelf Registration" has the meaning set forth in Section 1.5 hereof. "SMR Associates" has the meaning set forth in the recitals hereof. "SMR Companies" means, collectively and individually, the Company, SMR Associates, SMR Developers and the SMR Subsidiaries. "SMR Developers" has the meaning set forth in the recitals hereof. "SMR Properties" has the meaning set forth in Section 3.5 hereof. 70 "SMR Subsidiaries" means, collectively and individually, SMR Holdings, Inc., an Ohio corporation, SMR Aerospace Management Company, Inc., an Ohio corporation, Plush Mills, Inc., a Rhode Island corporation, SMR Technologies, Inc., an Ohio corporation, Flight Structures, Inc., a Washington corporation, and Flight Structures International, Inc., a Barbados corporation. "Subsidiary" means with respect to any Person, any corporation, partnership or other business entity of which an aggregate of 50% or more of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors, managers, trustees or other controlling persons, is, at the time, directly or indirectly, owned or controlled by such Person and/or one or more Subsidiaries of such Person (irrespective of whether, at the time, capital stock of any other class or classes of such entity shall have or might have voting power by reason of the happening of any contingency). "Taxes" has the meaning set forth in Section 3.11 hereof. "Tax Claim" has the meaning set forth in Section 13.2(d) hereof. "Tax Return" has the meaning set forth in Section 3.11 hereof. "Third Party Claim" has the meaning specified in Section 11.4 hereof. 14.2 Entire Agreement. This Agreement (with its Schedules and Exhibits), together with the Seller's Documents and Purchaser Documents, contain, and is intended as, a complete statement of all of the terms and the arrangements between the parties hereto with respect to the matters provided for herein, and supersedes any and all previous agreements and understandings between the parties hereto with respect to those matters. 14.3 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York applicable to agreements made and to be performed in such jurisdiction. Any action to enforce, which arises out of or in any way relates to, any of the provisions of this Agreement or the instruments, agreements 71 and other documents contemplated hereby shall be brought and prosecuted in the courts of the State of Ohio or of the United States for the District of Ohio. Each party irrevocably: (i) submits to the exclusive jurisdiction of the aforesaid courts, and (ii) waives any objection which it may have at any time to the laying of venue of any suit, action or proceeding ("Proceedings") brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 14.7. Nothing in this Agreement will affect the right of any party to serve process in any other manner permitted by law. 14.4 Transfer and Other Taxes. The Purchaser, on the one hand, and the Sellers, on the other hand, shall each bear 50% of the cost of (a) all transfer, stamp and documentary taxes and fees imposed with respect to instruments of conveyance in the transactions contemplated hereby and (b) all sales, use, gains, real property transfer and other transfer or similar taxes imposed by reason of the transfer of the Securities contemplated hereunder. The Purchaser or the Sellers, as the case may be, shall execute and deliver to the other(s) at the Closing any certificates or other documents as the other may reasonably request to perfect any exemption from any such transfer, documentary, sales, gains, use or similar tax. 14.5 Expenses. Each of the parties hereto shall bear its own expenses (including, without limitation, fees and disbursements of its counsel, accountants and other experts), incurred by it in connection with the preparation, negotiation, execution, delivery and performance of this Agreement, each of the other documents and instruments executed in connection with or contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby. Notwithstanding the foregoing, the SMR Companies may pay the foregoing expenses of the Sellers, subject to any adjustment to the Purchase Price required by Section 1.3 hereof. 14.6 Table of Contents and Headings. The table of contents and section headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement. 72 14.7 Notices. All notices and other communications under this Agreement shall be in writing (including, without limitation, telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand or by a nationally recognized courier service guaranteeing overnight delivery to a party at the following address (or to such other address as such party may have specified by notice given to the other party pursuant to this provision): If to the Sellers, to: c/o SMR Aerospace 6835 Ridge Road P.O. Box 326 Sharon Center, Ohio 44274 Facsimile: (330) 239-4714 with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: Dennis J. Block, Esq. Raymond O. Gietz, Esq. Facsimile: (212) 310-8007 If to the Purchaser, to: BE Aerospace, Inc. 1400 Corporate Center Way Wilmington, Florida 33414 Facsimile: (561) 791-3966 Attention: Chief Financial Officer with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Facsimile: (212) 848-7179 Attention: Alfred J. Ross, Esq. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective three days after deposit in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the 73 cable company, delivered by hand to the addressee or one day after delivery to the courier service. 14.8 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validly or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect. 14.9 Binding Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, heirs, executors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third-party beneficiary rights in any Person not party to this Agreement, except as provided in Section 7.1 hereof. No assignment of this Agreement or of any rights or obligations hereunder may be made by any party (by operation of law or otherwise) without the prior written consent of each of the other parties hereto and any attempted assignment without such required consents shall be void. 14.10 Amendments. (a) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, (i) in the case of an amendment, by the Purchaser and the Sellers, and (ii) in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 14.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 74 IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the date and year first above written. BE AEROSPACE, INC. By:/s/ Thomas P. McCaffrey ------------------------------------------ Name: Thomas P. McCaffrey Title: Chief Financial Officer SELLERS --------------------------------------------- Oscar J. Mifsud --------------------------------------------- Patrick L. Ryan --------------------------------------------- David B. Smith OSCAR J. MIFSUD TRUST - 1998 By: ----------------------------------------- Oscar J. Mifsud, Trustee PATRICK L. RYAN TRUST - 1998 By: ----------------------------------------- Patrick L. Ryan, Trustee DAVID B. SMITH TRUST - 1998 By: ----------------------------------------- David B. Smith, Trustee 75 IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the date and year first above written. BE AEROSPACE, INC. By:------------------------------------------ Name: Thomas P. McCaffrey Title: Chief Financial Officer SELLERS /s/ Ocsar J. Mifsud --------------------------------------------- Oscar J. Mifsud /s/ Patrick L. Ryan --------------------------------------------- Patrick L. Ryan /s/ David B. Smith --------------------------------------------- David B. Smith OSCAR J. MIFSUD TRUST - 1998 By: /s/ Oscar J. Mifsud ----------------------------------------- Oscar J. Mifsud, Trustee PATRICK L. RYAN TRUST - 1998 By: /s/ Patrick L. Ryan ----------------------------------------- Patrick L. Ryan, Trustee DAVID B. SMITH TRUST - 1998 By: /s/ David B. Smith ----------------------------------------- David B. Smith, Trustee 75 EXHIBIT A ================================================================================ Registration and Transfer Agreement by and between BE Aerospace, Inc. and The Stockholders Signatory hereto dated as of August 7, 1998 ================================================================================ Registration and Transfer Agreement by and between BE Aerospace, Inc., and The Stockholders Signatory hereto dated as of August 7, 1998 TABLE OF CONTENTS ----------------- PAGE ---- 1. Certain Definitions..............................................4 2. Restrictions on Transferability..................................5 3. Restrictive Legends..............................................5 4. Registered Public Offering.......................................6 5. Shelf Registration of Registrable Securities.....................7 6. Expenses of Registration.........................................7 7. Indemnification..................................................7 8. Obligations of the Company.......................................9 9. Information by Stockholders.....................................10 10. Securities Law Compliance.......................................10 11. Standoff Agreement..............................................11 12. Investment Representation.......................................11 13. Amendment.......................................................11 14. Notices.........................................................12 15. Transferability.................................................12 16. Governing Law...................................................12 17. Severability....................................................12 18. Counterparts....................................................12 REGISTRATION AND TRANSFER AGREEMENT This Registration and Transfer Agreement ("Agreement") is entered into as of August 7, 1998 by and between BE Aerospace, Inc., a Delaware corporation (the "Company"), and the stockholders signatory hereto (the "Stockholders"), with reference to certain shares of Common Stock, $.01 par value (the "Common Stock"), of the Company. 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "ACQUISITION AGREEMENT" shall mean the Acquisition Agreement dated as of July 21, 1998 among the Stockholders and the Company. "COMMISSION" means the U.S. Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "COMMON SHARES" means the 4,000,000 shares of Common Stock of the Company issued pursuant to the Acquisition Agreement. "EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "HOLDER" means each Stockholder and any permitted assignee or transferee of such Stockholder. "REGISTRABLE SECURITIES" means the Common Shares; provided, however, that Common Shares shall be treated as Registrable Securities only if and so long as they have not been sold in a completed public distribution or a completed public securities transaction. "REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement pursuant to the Securities Act and the declaration or ordering of the effectiveness of such registration statement by the Commission. "REGISTRATION EXPENSES" means all expenses incurred by the Company in complying with Sections 5 and 6 hereof, including, without limitation, all registration, listing, qualification and filing fees, printing fees, transfer agent and register fees, fees and disbursements of counsel and experts for the Company and blue sky fees and expenses incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "RESTRICTED SECURITIES" shall mean the Common Shares of the Company required to bear the legend set forth in paragraph (a) of Section 3 hereof. "SECURITIES ACT" shall mean the U.S. Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SELLING EXPENSES" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities sold by the Stockholders and all fees and disbursements of counsel for the Stockholders in connection therewith. "SHARE DISPOSITION AGREEMENT" shall mean the Share Distribution Agreement dated as of the date hereof among the Stockholders and the Company. "SMR COMPANIES" shall have the meanings specified in the Acquisition Agreement. 2. RESTRICTIONS ON TRANSFERABILITY. On or prior to December 31, 1998, the Common Shares may be sold, assigned, transferred or pledged only in accordance with the conditions specified in the Share Disposition Agreement. 3. RESTRICTIVE LEGENDS. (a) Each certificate or instrument representing Common Shares or any securities issued in respect of the Common Shares upon any stock split, stock dividend, combination or similar recapitalization, shall (unless otherwise permitted by the provisions of Section 4 below) bear the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN 2 THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT OF 1933. (b) Each certificate or instrument representing Common Shares shall also bear the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF AN AGREEMENT BETWEEN THE HOLDER HEREOF AND THE CORPORATION WHICH INCLUDES RESTRICTIONS ON CERTAIN SALES OF THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF BE AEROSPACE, INC. (c) Each Holder consents to the Company's making a notation on its records and giving instructions to any transfer agent of the Common Shares in order to implement the restrictions on transfer established in this Agreement. The legend placed on any certificate pursuant to Section 3(a) and Section 3(b) and any notations or instructions with respect to the Common Shares represented by such certificate will be promptly removed, and the Company will promptly (i.e., in sufficient time to permit such Holder to settle any such sale three business days after the applicable trade date) issue a certificate without such legend to the Holder of such Common Shares (i) in the case of the legend described in Section 3(a), if the Company shall have directed, or consented to, such sale pursuant to the terms of the Share Disposition Agreement or the restrictions contained therein shall have expired and (ii) in the case of the legend described in Section 3(b), if such Common Shares are registered under the Securities Act (but only in connection with the actual sale of such Common Shares) and a prospectus meeting the requirements of Section 10 of the Securities Act is available. 4. REGISTERED PUBLIC OFFERING. (a) The Company shall use commercially reasonable efforts to file a registration statement with the Commission to register the Registrable Securities under the Securities Act and to cause such registration statement (which shall include interim financial statements of the Company and its subsidiaries for the fiscal quarter ending August 31, 1998) to become effective as soon as practicable after August 31, 1998. The Stockholders shall offer such amount of the Registrable Securities 3 as the Company shall determine for public sale (the "Public Offering"), pursuant to such registration statement. (b) UNDERWRITING. The Stockholders and the Company shall enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company, provided however, that the Stockholders shall be required by such underwriting agreement to provide indemnification to the underwriter only to the extent that the Stockholders are required to provide indemnification to the Company pursuant to Section 7(b) hereof. The Company shall determine the number of shares to be underwritten, and may limit the Registrable Securities to be included in such registration. The Company shall so advise the Stockholders of the number of shares of Registrable Securities that may be included in the registration and underwriting by the Stockholders and such number shall thereafter be reduced by the number of shares determined by the Company not to be included in such registration, such cutback to be allocated among the Stockholders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by the Stockholders. (c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 4 prior to the effectiveness of such registration whether or not the Stockholders have elected to include securities in such registration. 5. SHELF REGISTRATION OF REGISTRABLE SECURITIES. In the event that the Stockholders are unable to sell all of the Registrable Securities in the Public Offering, the Company shall file a shelf registration statement on Form S-3 (or successor form) under the Securities Act with the Commission with respect to the Registrable Securities as expeditiously as reasonably possible following the closing of the Public Offering and keep such registration statement effective until December 31, 1998 unless the Stockholders have sold all of their Common Shares prior to such date. If at any time prior to December 31, 1998 the Stockholders desire to sell any of the Registrable Securities then held by them pursuant to such shelf registration statement, the Company shall have the right to direct and approve such sale in accordance with the terms of the Share Disposition Agreement, including to designate any underwriters to administer the offering, and the Company shall enter into underwriting or distribution agreements with any such underwriter(s) or distributor(s) of such offering, which agreements shall contain such representations, warranties and covenants by the Company, and such other terms and conditions and indemnity and contribution provisions as are contained in the form of underwriting or distribution agreement customarily used in connection with similar offerings by the 4 underwriters or distributors selected for such offering and take such other actions as the Stockholders or the managing underwriter or distributor, if any, reasonably require in order to expedite or facilitate the disposition of such Registrable Securities. The Company shall pay all Selling Expenses incurred in connection with such offering. 6. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration pursuant to Sections 4 or 5 shall be borne by the Company. All Selling Expenses relating to securities registered on behalf of the Stockholders shall be borne by the Company. 7. INDEMNIFICATION. (a) The Company will indemnify each Stockholder against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any registration, qualification or compliance effected pursuant to this Agreement, or based on 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 light of the circumstances in which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act or any other federal, state or common law rule or regulation applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each Stockholder for any legal and any other expenses incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, as incurred, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Stockholder, pursuant to Item 507 of Regulation S-K promulgated under the Exchange Act, expressly for use therein. (b) The Stockholders, jointly and severally, will indemnify the Company, each of its directors and officers, underwriters, and each person who controls the Company within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration 5 statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such directors, officers, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, as incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by any Stockholder, pursuant to Item 507 of Regulation S-K promulgated under the Exchange Act, expressly for use therein (and not any other information furnished by any Stockholder). (c) Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Indemnified Party. Each party entitled to indemnification under this Section 7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into a settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Notwithstanding anything to the contrary herein, any Indemnified Party shall have the right to employ separate counsel to represent such Indemnified Party, if, in such Indemnified Party's reasonable judgment (based on advice of counsel) a conflict of interest between such Indemnifying Party and such Indemnified Party exists with respect to such claim or litigation or the Indemnified Party has defenses to such claim or litigation that differ from those of the Indemnifying Party (the fees and expenses of such counsel, in either such case, are to be borne by the Indemnifying Party). In the event the Indemnifying Party exercises its right to assume the defense against such claim or in such litigation as provided above, the Indemnified Party shall cooperate with the Indemnifying 6 Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party's expense, all pertinent records, materials and information in its possession or under its control relating thereto as are reasonably required by the Indemnifying Party. Similarly, in the event the Indemnified Party is, directly or indirectly, conducting the defense against such claim or in such litigation, the Indemnifying Party shall cooperate with the Indemnified Party in such defense and make available to the Indemnified Party all such records, materials and information in the Indemnifying Party's possession or under the Indemnifying Party's control relating thereto as are reasonably required by the Indemnified Party. (d) If the indemnification provided for in this Section 7 is unavailable to an Indemnified Party in respect of any expenses, claims, losses, damages or liabilities referred to in this Section 7 by reasons other than those set forth in subparagraphs (a) or (b) above, then the Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such expenses, claims, losses, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the actions (or inaction) that resulted in such expenses, claims, losses, damages or liabilities as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party on the one hand and Indemnified Party on the other hand shall be determined by reference to, among other things, whether any action (or inaction) in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by such Indemnifying Party or Indemnified Party, and the parties' relative knowledge, intent, access to information and opportunity to correct or prevent such action (or inaction). The parties agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to above. In any case, (A) each Stockholder will not be required to contribute any amount in excess of the proceeds received by it from all such Registrable Securities offered by it pursuant to such registration statement; and (B) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 7 8. OBLIGATIONS OF THE COMPANY. The Company shall: (a) As expeditiously as reasonably possible, prepare and file, after August 31, 1998, with the Commission the registration statement referred to in Sections 4 and 5 hereof and use its diligent best efforts to cause such registration statement to become effective and to keep such registration statement effective (i) for 30 days in the case of the registration under Section 4 and (ii) until December 31, 1998 in the case of the shelf registration statement under Section 5 for the period provided in Section 5 hereof. (b) Prepare and file with the Commission such amendments and supplements to such registration statements and file all reports under the Exchange Act as may be necessary (i) to update and keep such registration statement effective as provided in Section 8(a) above, (ii) to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement and (iii) to reflect a modification in the manner of distribution of the Registrable Securities. Notwithstanding anything else to the contrary contained herein, the Company shall not be required to disclose in any prospectus prepared pursuant to Section 5 hereof any confidential information concerning pending events, transactions or conditions not otherwise required to be disclosed by applicable securities laws. (c) Furnish to each Stockholder such numbers of copies of the registration statement, each amendment thereto and of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as it may reasonably request in order to facilitate the disposition of Registrable Securities owned by it. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities laws as shall be reasonably requested by each Stockholder, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless it is already subject to such jurisdiction. (e) Promptly notify each Stockholder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material 8 fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which the prospectus is used. (f) During reasonable business hours make available for inspection by each Stockholder, any underwriter or distributor participating in any disposition pursuant to a registration statement, and any attorney, accountant or other similar professional advisor retained by any Stockholder or underwriter or distributor (collectively, the "Inspectors"), all pertinent financial, corporate and other records and documents (collectively, the "Records"), and all pertinent real and personal property of the Company, as shall be reasonably necessary to enable such Inspectors to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration statement. 9. INFORMATION BY STOCKHOLDERS. Each Stockholder shall furnish to the Company such information regarding himself, the Registrable Securities held by him and the distribution proposed by such Stockholder as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 10. SECURITIES LAW COMPLIANCE. (a) Each Stockholder covenants that he will comply with the prospectus delivery requirements of the Securities Act with respect to any registration statement filed pursuant to Section 4 or Section 5 of this Agreement. Each Stockholder 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 Stockholder 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 Stockholder expressly for use therein). (b) Each Stockholder agrees that, immediately upon receipt of a notification as referred to in subparagraph (e) of Section 8, it will refrain from selling Registrable Securities under the registration statement filed pursuant to Section 4 or Section 5 of this Agreement until (i) subsequently notified by the Company that the registration statement is current or (ii) receipt of a favorable opinion of counsel as hereinbelow provided. The Company agrees that it will consult with each Stockholder following the 9 giving of any such notification, and that in the event any Stockholder is of the view that its securities could be sold in compliance with the Securities Act and the Exchange Act without disclosure of the nonpublic information which is the subject of the notification, the parties hereto agree to be bound by an opinion of Shearman & Sterling or other counsel reasonably satisfactory both to such Stockholder and to the Company as to whether such sales can be made without violation of the Securities Act or the Exchange Act. 11. STANDOFF AGREEMENT. Each Stockholder 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. 12. INVESTMENT REPRESENTATION. Each Stockholder represents and warrants to the Company that it is acquiring the Common Shares for investment only and not with a view to or in connection with any distribution of the Common Shares. 13. AMENDMENT. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and each Stockholder. Any amendment or waiver effected in accordance with this Section shall be binding upon each Holder of any Registrable Securities then outstanding, each future Holder of all such Registrable Securities, and the Company. 14. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, courier service, United States mail or by facsimile, addressed as follows: (i) if to the Stockholders: Oscar J. Mifsud and Oscar J. Mifsud Trust -- 1998 541 Leeds Gate Lane Wadsworth, OH 44281 Attention: Oscar J. Mifsud 10 Telecopier: (330) 335-3216 Patrick L. Ryan and Patrick L. Ryan Trust -- 1998 624 Tamarac Trail Wadsworth, OH 44281 Attention: Patrick L. Ryan Telecopier: (330) 665-5302 David B. Smith and David B. Smith Trust -- 1998 520 West Point Drive Akron, OH 44333 Attention: David B. Smith Telecopier: (330) 665-5302 11 with a copy to: Weill, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Telecopy: (212) 310-8007 Attention: Raymond O. Gietz, Esq. (ii) if to the Purchaser: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, Florida 33414 Telecopier: (561) 791-3966 Attention: Chief Financial Officer with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Telecopier: (212) 848-7179 Attention: Alfred J. Ross, Esq. or to such address of a party of which such party has given notice to the other parties pursuant to this Section. 15. TRANSFERABILITY. Notwithstanding any provision contained in this Agreement to the contrary, the Purchaser's rights and benefits under Sections 5 and 6 hereof are rights 12 and benefits personal to each Stockholder and may not be assigned or transferred to or held for the benefit of any other person. 16. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws (other than those with respect to choice of law) of the State of New York. 17. SEVERABILITY. The provisions of this Agreement are severable, and in the event that any one or more provisions are deemed illegal or unenforceable, the remaining provisions shall remain in full force and effect. 18. COUNTERPARTS. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. BE AEROSPACE, INC. By: /s/Thomas P. McCaffrey --------------------------------------- Name: Thomas P. McCaffrey Title: Chief Financial Officer STOCKHOLDERS /s/Oscar J. Mifsud --------------------------------------- Oscar J. Mifsud /s/Patrick L. Ryan --------------------------------------- Patrick L. Ryan /s/David B. Smith --------------------------------------- David B. Smith OSCAR J. MIFSUD TRUST - 1998 By: /s/Oscar J. Mifsud --------------------------------------- Oscar J. Mifsud, Trustee PATRICK L. RYAN TRUST - 1998 By: /s/Patrick L. Ryan --------------------------------------- Patrick L. Ryan, Trustee 14 DAVID B. SMITH TRUST - 1998 By: /s/David B. Smith --------------------------------------- David B. Smith, Trustee 15 EXHIBIT B ESCROW AGREEMENT ESCROW AGREEMENT, dated as of August 7, 1998 (the "Agreement"), among Oscar J. Mifsud and the Oscar J. Mifsud Trust -- 1998 (collectively, "Mifsud"), Patrick L. Ryan and the Patrick L. Ryan Trust -- 1998 (collectively, "Ryan") and David B. Smith and the David B. Smith Trust -- 1998 (collectively, "Smith", and together with Mifsud and Ryan, the "Sellers"), BE Aerospace, Inc., a Delaware corporation (the "Purchaser"), and The Bank of New York, a New York banking corporation in its capacity as escrow agent hereunder (the "Escrow Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Sellers and the Purchaser have entered into an Acquisition Agreement, dated as of July 21, 1998 (the "Acquisition Agreement"; terms defined in the Acquisition Agreement and not otherwise defined herein are used herein as defined in the Acquisition Agreement), pursuant to which the Purchaser has agreed to purchase from the Sellers, and the Sellers have agreed to sell to the Purchaser, the Securities; WHEREAS, Section 1.8 of the Acquisition Agreement contemplates that at the Closing the Purchaser will deposit into escrow 400,000 Purchaser Shares (the "Escrowed Shares") and an amount of cash in immediately available funds equal to 10% of the Cash Payment (the "Escrowed Cash"); WHEREAS, the Escrow Agent will hold the Escrowed Fund (as defined below) in escrow to secure the indemnification obligations of the Sellers contained in Article 11 of the Acquisition Agreement, and will deliver and distribute the Escrow Fund in accordance with the terms and conditions of this Agreement; WHEREAS, a copy of the Acquisition Agreement has been delivered to the Escrow Agent, and the Escrow Agent is willing to act as the Escrow Agent hereunder; WHEREAS, the Purchaser and the Sellers have entered into a Registration and Transfer Agreement dated as of the date hereof (the "Registration Rights Agreement"); WHEREAS, the Purchaser and the Sellers have entered into a Share Disposition Agreement dated as of the date hereof (the "Share Disposition Agreement"); WHEREAS, the Sellers have appointed Patrick L. Ryan to act as their representative (the "Sellers' Representative") in connection with certain matters hereunder; and 2 WHEREAS, the Escrow Agent will hold the Escrow Fund (as defined below) in Account No. 001655 at The Bank of New York, ABA No. 021000018 (the "Escrow Account"). NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein and in the Acquisition Agreement, and intending to be legally bound hereby, the parties hereby agree as follows: 1. Appointment and Agreement of Escrow Agent. The Purchaser and the Sellers, individually and collectively, hereby appoint the Escrow Agent to serve as, and the Escrow Agent hereby agrees to serve as, escrow agent upon the terms and conditions of this Agreement. 2. Establishment of the Escrow Account. (a) Pursuant to Section 1.8 of the Acquisition Agreement, the Purchaser shall deliver to the Escrow Agent at the Closing the Escrowed Shares and the Escrowed Cash. The Escrow Agent shall hold in escrow pursuant to this Agreement: (i) the Escrowed Shares, all dividends and other distributions received by the Escrow Agent in respect of such shares, all proceeds from the sale of such shares, all payments made by the Purchaser to the Sellers in respect of such Escrowed Shares pursuant to Section 2(a) of the Share Disposition Agreement, and all interest and other amounts earned on such proceeds, and (ii) the Escrowed Cash and all interest and other amounts earned thereon ((i) and (ii) together, the "Escrow Fund"). On the date hereof, the Sellers shall deliver to the Escrow Agent stock transfer powers duly executed in blank with respect to the Escrow Shares in such number as may reasonably be requested by the Purchaser to allow for subdividing the certificates for Escrowed Shares into smaller denominations in connection with any distributions of such Escrowed Shares that may be required pursuant to this Agreement. Each of the Sellers hereby agrees to execute and deliver to the Escrow Agent, upon the request of the Purchaser or the Escrow Agent, additional stock transfer powers and other documents and instruments to be held by the Escrow Agent, in order to permit the Escrow Agent to distribute or transfer Escrowed Shares as contemplated by this Agreement. (b) Each of the Purchaser and the Sellers confirms to the Escrow Agent and to each other that the Escrowed Shares and the Escrowed Cash is free and clear of any pledge, lien, security interest, mortgage, charge, adverse claim of ownership or use, or other encumbrance of any kind, except as may be created by this Agreement and the Acquisition Agreement. (c) The Sellers hereby authorize the Purchaser to deliver directly to the Escrow Agent all dividends and other distributions made in respect of any Escrowed Shares (whether paid in cash, securities or other property) held in the Escrow Account, and all proceeds from the sale of any such Escrowed Shares, which dividends, distributions and 3 proceeds shall be added to and become part of the Escrow Fund of which the respective Escrowed Shares are or were a part, as the case may be. (d) While any Escrowed Shares are held in escrow in the Escrow Account, and pending the distribution or sale thereof pursuant to this Agreement or the Acquisition Agreement, the Sellers will have all rights with respect to the Escrowed Shares held in the Escrow Account, including, without limitation, the right to vote such shares, except (i) the right of possession thereof, (ii) the right to sell, assign, pledge, hypothecate or otherwise dispose of such shares or any interest therein, except as set forth in Section 5 hereof, and (iii) the right to receive any dividends or other distributions in respect thereof. The Sellers shall be responsible for and pay and discharge all taxes, assessments and governmental charges imposed on or with respect to the Escrowed Shares held in the Escrow Account. 3. Purpose of the Escrow Funds. The Escrowed Cash and Escrowed Shares shall be held in escrow by the Escrow Agent to secure the indemnification obligations of the Selling Shareholders contained in Article 11 of the Acquisition Agreement. 4. Payments from the Escrow Account. (a) If, at any time on or prior to the Distribution Date (as defined below), the Purchaser shall deliver (the date of such delivery being the "Escrow Notice Delivery Date") to the Sellers' Representative a certificate of the Purchaser, executed by an authorized officer of the Purchaser (a "Purchaser's Certificate"), which Purchaser's Certificate shall: (i) state that the Purchaser is entitled to indemnification under Section 11.2(b) of the Acquisition Agreement; (ii) specify in reasonable detail the nature and amount (or if not yet determined, a good faith estimate of the amount) of each individual item for which indemnification is sought (each being an "Indemnification Item"); and (iii) state the aggregate amount (or if not yet determined, a good faith estimate of the amount) of all such Indemnification Items. For purposes of this Agreement, the "Distribution Date" shall be December 31, 1999. (b) If the Sellers' Representative, acting on behalf of the Sellers, shall object to any amount claimed in connection with any Indemnification Item specified in any Purchaser's Certificate, the Sellers' Representative, acting on behalf of the Sellers, shall, within 20 business days after the Escrow Notice Delivery Date, deliver to the Purchaser a certificate, executed by the Sellers' Representative (a "Sellers' Certificate"), (i) specifying each such amount to which the Sellers object and (ii) specifying in reasonable detail the nature 4 and basis for each such objection. If the Purchaser shall not have received a Sellers' Certificate objecting to the amount claimed with respect to an Indemnification Item within 20 business days after the Escrow Notice Delivery Date, the Sellers shall be deemed to have acknowledged the correctness of the amount (the "Claim Amount") claimed on such Purchaser's Certificate with respect to such Indemnification Item, and the Sellers' Representative shall promptly thereafter (but not before the earlier of (x) the date upon which all Escrowed Shares have been sold and converted into cash and (y) December 31, 1998) direct the Escrow Agent, in writing, to transfer to the Purchaser Escrowed Cash in an amount equal to the lesser of (x) the Claim Amount and (y) the aggregate amount of the then remaining Escrowed Cash. (c) If the Purchaser receives, within 20 business days after delivery by it of a Purchaser's Certificate, a Sellers' Certificate objecting to any amount claimed with respect to any Indemnification Item specified in such Purchaser's Certificate, the amount so objected to shall be held by the Escrow Agent and shall not be released from the Escrow Account, except in accordance with either (i) written instructions executed by each of the Purchaser and the Sellers' Representative or (ii) the final nonappealable judgment of a court having jurisdiction over the matters relating to the claim by the Purchaser for indemnification from the Sellers. Following the receipt by the Escrow Agent of such written instructions or final judgment, the Escrow Agent shall promptly thereafter transfer to the Purchaser Escrowed Cash in an amount equal to the lesser of (x) the amount specified in such written instructions or final judgment and (y) the aggregate amount of the then remaining Escrowed Cash. (d) Notwithstanding the limitations set forth in Section 4(a) of this Agreement, following the Distribution Date, the Purchaser shall be entitled to assert claims against the Escrow Account under this Section 4 in respect of all Losses that were included in determining the Reserved Amount (as defined below). (e) On the Distribution Date, the Escrow Agent shall deliver to the Sellers, the then remaining Escrowed Cash in the Escrow Account, if any, less a portion of such Escrowed Cash in an amount equal to the Reserved Amount (as defined below). The "Reserved Amount" shall equal the lesser of (1) the aggregate of the amounts claimed in all Purchaser's Certificates delivered to the Escrow Agent prior to the Distribution Date (which claims shall not have been resolved on or prior to the Distribution Date) and (2) the aggregate value of the then remaining Escrowed Cash and shall be set forth in such written instructions to the Escrow Agent. (f) Upon the termination of this Agreement in accordance with Section 10, the Escrow Agent shall, upon written instructions delivered to it by the Sellers' Representative, promptly liquidate all Permitted Investments in the Escrow Account and deliver to the Sellers the then remaining cash and other Escrowed Cash in the Escrow Account. 5 5. Sale or Other Release of Escrowed Shares. In the event a Registration Statement covering Escrowed Shares is filed by the Purchaser pursuant to Section 4 or Section 5 of the Registration Rights Agreement and is declared effective by the SEC, the Purchaser shall as soon as practicable thereafter notify the Escrow Agent and each Seller of such declaration of effectiveness. The Purchaser, the Sellers and, if applicable, the underwriters acting in respect of the registered offering shall agree to such arrangements as are reasonably satisfactory to the Purchaser to ensure that all Escrowed Shares to be sold under such Registration Statement are available to be sold under the Registration Statement, and that the proceeds of the sale of such Escrowed Shares shall be delivered directly to the Escrow Agent, who shall deposit and hold such proceeds in the Escrow Account until the disbursement thereof in accordance with this Agreement. In connection with the sale of Escrowed Shares pursuant to a Registration Statement, and upon the joint written directions of the Purchaser, on the one hand, and the Sellers on the other hand, the Escrow Agent shall release from the Escrow Account, the number of shares specified in such joint written directions to the party specified therein. On December 31, 1998, all Escrowed Shares shall be replaced with cash pursuant to the provisions set forth in Section 2(a) of the Share Disposition Agreement. 6. Maintenance of the Escrow Account. (a) The Escrow Agent shall continue to maintain the Escrow Account until the earlier of (i) the time at which there shall be no assets in the Escrow Account and (ii) the termination of this Agreement pursuant to Section 10 of this Agreement. (b) Notwithstanding any other provision of this Agreement to the contrary, at any time prior to the termination of this Agreement, the Escrow Agent shall, if so instructed in a writing signed by the Purchaser and the Sellers' Representative, acting on behalf of the Sellers, deliver from the Escrow Account, as instructed, to any person or entity, as directed in such writing, a specified amount of Escrowed Cash and a specified amount of Escrowed Shares (to the extent the amount of the remaining Escrowed Cash and Escrowed Shares is sufficient to do so). 7. Investment of Moneys in the Escrow Fund. The Escrow Agent shall invest and reinvest moneys on deposit in the Escrow Account (including the Escrowed Cash originally deposited therein at the Closing) in Permitted Investments as instructed in writing from time to time by the Sellers. "Permitted Investments" means: (a) readily marketable direct obligations of the Government of the United States or any agency or instrumentality thereof or readily marketable obligations unconditionally guaranteed by the full faith and credit of the Government of the United States, (b) insured certificates of deposit of, or time deposits with, any commercial bank that is a member of the Federal Reserve System and which issues (or the parent of which issues) commercial paper rated as described in clause (c), is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least $1 billion or (c) commercial paper in an aggregate amount of no more than $1,000,000 per issuer outstanding at any time, issued by any corporation organized under the 6 laws of any State of the United States, rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then equivalent grade) by Standard & Poors, Inc. Notwithstanding the foregoing, the Escrow Agent may act upon any contrary written investment instructions signed by all of the Sellers and the Purchaser. 8. Assignment of Rights to the Escrow Account; Assignment of Obligations; Successors. None of the Sellers may assign, transfer, pledge or otherwise dispose of its or their rights to any portion of any Escrow Account. This Agreement may not be assigned by operation of law or otherwise without the express written consent of the other parties hereto (which consent may be granted or withheld in the sole discretion of such other parties); provided, however, that the Purchaser may assign this Agreement to an affiliate of the Purchaser without the consent of the other parties; provided further, however, that the Purchaser may also assign this Agreement to any person or entity who purchases all of the outstanding shares of Purchaser Common Stock or all or substantially all of the assets of the Purchaser, or to any person or entity with or into which the Purchaser causes the Company to merge, if such other person or entity has a creditworthiness that is reasonably satisfactory to the Sellers and agrees in writing to assume (or assumes by operation of law) all of the Purchaser's obligations under this Agreement. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns. 9. Escrow Agent. (a) Except as expressly contemplated by this Agreement or by joint written instructions from the Purchaser and the Sellers' Representative, acting on behalf of the Sellers, the Escrow Agent shall not sell, transfer or otherwise dispose of in any manner all or any portion of the Escrow Account, except pursuant to an order of a court of competent jurisdiction. The Escrow Agent shall not be under any duty to give the Escrowed Cash and Escrowed Shares held by it hereunder any greater degree of care than it gives its own similar property and shall not be required to invest any funds held hereunder except as directed in this Escrow Agreement. (b) The duties and obligations of the Escrow Agent shall be determined solely by this Agreement, and the Escrow Agent shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement. No implied duties or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall not be bound by the provisions of any agreement among the other parties hereto except this Escrow Agreement. (c) In the performance of its duties hereunder, the Escrow Agent shall be entitled to rely upon any document, instrument or signature believed by it in good faith to be genuine and signed by any party hereto or an authorized officer or agent thereof, and shall not be required to investigate the truth or accuracy of any statement contained in any such document or instrument. The Escrow Agent may assume that any person or entity purporting 7 to give any notice in accordance with the provisions of this Agreement has been duly authorized to do so. (d) The Escrow Agent shall not be liable for any error of judgment, or any action taken, suffered or omitted to be taken, hereunder except in the case of its gross negligence, bad faith or willful misconduct. The Escrow Agent may consult with counsel of its own choice and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. (e) The Escrow Agent shall have no duty as to the collection or protection of the Escrow Account or income thereon, nor as to the preservation of any rights pertaining thereto, beyond the safe custody of any such funds actually in its possession. The Escrow Agent makes no representation as to the validity, value, genuineness or the collectability of any security or other document or instrument held by or delivered to it. (f) The Escrow Agent shall not incur any liability for not performing any act or fulfilling any duty, obligation or responsibility hereunder by reason of any occurrence beyond the control of the Escrow Agent (including, but not limited to, any act or provision of any present or future law or regulation or governmental authority, any act of God or war, or the unavailability of the Federal Reserve Bank wire or telex or other wire or communication facility). (g) As compensation for its services to be rendered under this Agreement, for each year or any portion thereof, the Escrow Agent shall receive a fee in the amount specified in Schedule A to this Agreement or as shall be agreed to in writing from time to time by the Escrow Agent, the Purchaser and the Sellers' Representative and shall be reimbursed upon request for all expenses, disbursements and advances, including reasonable fees and expenses of outside counsel, if any, incurred or made by it in connection with the preparation of this Agreement and the carrying out of its duties under this Agreement. The Purchaser and the Sellers shall each be responsible for 50% of all such fees and expenses. (h) The Purchaser shall reimburse and indemnify the Escrow Agent, and any predecessor Escrow Agent, for and hold it harmless against, any loss, liability or expense, including, without limitation, taxes (other than taxes based upon, determined by or measured by the income of the Escrow Agreement) and reasonable attorneys' fees and expenses, incurred without gross negligence, bad faith or willful misconduct on the part of the Escrow Agent arising out of, or in connection with the acceptance of, or the performance of, its duties and obligations under this Agreement. Without limiting the foregoing, the Escrow Agent shall in no event be liable in connection with its investment or reinvestment of any cash held by it hereunder in good faith, in accordance with the terms hereof, including without limitation any liability for any delays (not resulting from its gross negligence or willful misconduct) in the 8 investment or reinvestment of the Escrowed Cash, or any loss of interest incident to any such delays. (i) The Escrow Agent may at any time resign by giving 15 business days' prior written notice of resignation to the Sellers' Representative and the Purchaser. The Purchaser and the Sellers, acting through the Sellers' Representative, may at any time jointly remove the Escrow Agent by giving 10 business days' written notice signed by each of them to the Escrow Agent. If the Escrow Agent shall resign or be removed, a successor Escrow Agent, which shall be a bank or trust company having its principal executive offices in the United States of America and which shall be reasonably acceptable to the Purchaser and the Sellers, shall be appointed by written instrument executed by the Purchaser and the Sellers, and delivered to the Escrow Agent and to such successor Escrow Agent and, thereupon, the resignation or removal of the predecessor Escrow Agent shall become effective and such successor Escrow Agent, without any further act, deed or conveyance, shall become vested with all right, title and interest to all cash and property held hereunder of such predecessor Escrow Agent, and such predecessor Escrow Agent shall, on the written request of the Sellers, acting through the Sellers' Representative, or of the Purchaser or of the successor Escrow Agent, execute and deliver to such successor Escrow Agent all the right, title and interest hereunder in and to the Escrow Account of such predecessor Escrow Agent and all other rights hereunder of such predecessor Escrow Agent. If no successor Escrow Agent shall have been appointed within 15 business days of (i) a notice of resignation by the Escrow Agent, or (ii) removal by the Purchaser and Seller, the Escrow Agent shall have the right to petition a court of competent jurisdiction for the appointment of a successor Escrow Agent and the sole responsibility of the Escrow Agent shall thereafter be to hold and invest in accordance with Section 7 hereof the Escrow Fund until the earlier of its receipt of designation of a successor Escrow Agent, a joint written instruction by the Purchaser and the Sellers, acting through the Sellers' Representative, and termination of this Agreement in accordance with its terms. (j) The Escrow Agent does not have any interest in the Escrowed Cash or Escrowed Shares deposited hereunder but is serving as escrow holder only and having only possession thereof. The Sellers and the Purchaser shall each pay or reimburse the Escrow Agent upon request for 50% of any transfer taxes or other taxes relating to the Escrowed Cash or Escrowed Shares incurred in connection herewith and shall indemnify and hold harmless the Escrow Agent from any amounts that it is obligated to pay in the way of such taxes. Any payments of income from this Escrow Account shall be subject to withholding regulations then in force with respect to United States taxes. The parties hereto will provide the escrow agent with appropriate W-9 forms for tax I.D. number certifications, or W-8 forms for non-resident alien certifications. It is understood that the Escrow Agent shall be responsible for income reporting only with respect to income earned on investment of funds which are a part of the Escrowed Cash or Escrowed Shares and is not responsible for any other reporting. This paragraph and paragraph (g) shall survive notwithstanding any termination of this Escrow Agreement or the resignation of the Escrow Agent. 9 (k) In the event that the Escrow Agent in good faith is in doubt as to what action it should take hereunder, the Escrow Agent shall be entitled to retain the Escrowed Cash and Escrowed Shares until the Escrow Agent shall have received (i) a final non-appealable order of a court of competent jurisdiction directing delivery of the Escrowed Cash and Escrowed Shares or (ii) a written agreement executed by the Purchaser and the Sellers' Representative, acting on behalf of the Sellers, directing delivery of the Escrowed Cash and Escrowed Shares, in which event the Escrow Agent shall disburse the Escrowed Cash and Escrowed Shares in accordance with such order or agreement. Any court order shall be accompanied by a legal opinion by counsel for the presenting party satisfactory to the Escrow Agent to the effect that said opinion is final and non-appealable. The Escrow Agent shall act on such court order and legal opinions without further question. 10. Termination. This Escrow Agreement shall terminate on the later of: (a) the date on which there are no assets remaining in any Escrow Account and (b) 10 business days following the date after the Distribution Date on which all claims made in Purchaser's Certificates delivered to the Escrow Agent prior to the Distribution Date, and all Losses specified in one or more notices delivered to the Sellers' Representative and the Escrow Agent by the Purchaser pursuant thereto that could give rise to a right of indemnification under Article 11 of the Acquisition Agreement shall have been resolved. 11. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by telecopy, or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11): (a) if to the Sellers' Representative: Patrick L. Ryan, as Sellers' Representative 624 Tamarac Trail Wadsworth, OH 44281 Telecopy: (330) 336-0228 10 with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Telecopy: (212) 310-8007 Attention: Raymond O. Gietz, Esq. (b) if to the Purchaser: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, Florida 33414 Telecopy: (561) 791-4402 Attention: Chief Financial Officer with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Telecopy: (212) 848-7179 Attention: Alfred J. Ross, Esq. (c) if to the Escrow Agent, to: The Bank of New York 101 Barclay Street Floor 12 East New York, New York 10286 Telecopy: (212) 815-7181 Attention: Insurance Trust and Escrow Unit 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed and to be performed entirely within that State. 13. Amendments. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the Sellers' Representative, acting on behalf of the Sellers, the Purchaser and the Escrow Agent or (b) by a waiver in accordance with Section 14 of this Agreement. 11 14. Waiver. The Escrow Agent, the Purchaser and the Sellers' Representative, acting on behalf of the Sellers, may (i) extend the time for the performance of any obligation or other act of any of the other parties hereto or (ii) together, waive compliance with any agreement or condition contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights. 15. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible. 16. Entire Agreement. This Agreement and the Acquisition Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, among the parties hereto with respect to the subject matter hereof. 17. No Third Party Beneficiaries; Assignment. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 18. Further Action. Subject to the terms and conditions of this Agreement, each party hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action and do or cause to be done all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. No party hereto shall become a party to any agreement which by its terms restricts its, his or her performance of its, his or her obligations under this Agreement. 19. Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 12 20. Representations and Warranties. Each of the Purchaser and Seller hereby represents and warrants (a) that this Escrow Agreement has been duly authorized, executed and delivered on its behalf and constitutes its legal, valid and binding obligation and (b) that the execution, delivery and performance of this Escrow Agreement by Depositor do not and will not violate any applicable law or regulation. 21. Use of Name. Except as required by law, applicable regulation or NASDAQ rule, no printed or other material in any language, including prospectuses, notices, reports, and promotional material which mentions "The Bank of New York" by name or the rights, powers, or duties of the Escrow Agent under this Agreement shall be issued by any other parties hereto, or on such party's behalf, without the prior written consent of Escrow Agent, which consent shall not be unreasonably withheld. 22. Counterparts. This Agreement may be executed in one or more counterparts, and by different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which when taken together shall constitute one and the same agreement. 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. --------------------------------- Oscar J. Mifsud --------------------------------- Patrick L. Ryan --------------------------------- David B. Smith OSCAR J. MIFSUD TRUST - 1998 By: ------------------------------ Oscar J. Mifsud, Trustee PATRICK L. RYAN TRUST - 1998 By: ------------------------------ Patrick L. Ryan, Trustee DAVID B. SMITH TRUST - 1998 By: ------------------------------ David B. Smith, Trustee BE AEROSPACE, INC. By: ------------------------------ Name: Title: THE BANK OF NEW YORK By: ------------------------------ Name: Title: SCHEDULE A [Escrow Agent Fees] EXHIBIT C STANDBY LETTER OF CREDIT The Chase Manhattan Bank Global Trade Services Group P.O. Box 44, Church Street Station Cable Address: CHAMANBANK New York New York, NY 10008-0044 DATE: AUGUST 7, 1998 Irrevocable Stanby Letter Of Credit Number P-374721 Applicant: BE AEROSPACE 1400 Corporate Center Way Wellington, Florida 33414
Beneficiaries: Oscar J. Mifsud and Patrick L. Ryan and David B. Smith and Oscar J. Misfud Trust-1998 Patrick L. Ryan Trust-1998 David B. Smith Trust-1998 541 Leeds Gate Lane 624 Tamarac Trail 520 West Point Drive Wadsworth, OH 44281 Wadsworth, OH 44281 Akron, OH 44333 Attn: Oscar Mifsud Attn: Patrick L. Ryan Attn: David B. Smith Telecopier: 330-335-3216 Telecopier: 330-336-0228 Telecopier: 330-665-5302
We hereby notify Oscar J. Mifsud, Oscar J. Misfud Trust-1998, Patrick L. Ryan, Patrick L. Ryan Trust-1998 and David B. Smith, David B. Smith Trust-1998 that we have issued our Irrevocable Standby Letter of Credit Number P-374721 in your favor by order and for account of: BE AEROSPACE 1400 Corporate Center Way Wellington, Florida 33414 Up to an aggregate amount of One Hundred Twenty Million U.S.Dollars and no cents ($120,000,000.00) Available by a single beneficiaries' draft at sight drawn on The Chase Manhattan Bank, New York, New York 10041 ACCOMPANIED BY: A signed certification by all of the beneficiaries that: (1) "The date is December 31, 1998 and BE Aerospace, Inc., of 1400 Corporate Center Way, Wellington, Florida 33414 has failed to pay the amounts owed to the beneficiaries pursuant to Section 2 of the Share Disposition Agreement dated as of August 7, 1998 among Oscar J. Mifsud, Oscar J. Mifsud Trust - 1998, Patrick L. Ryan, Patrick L. Ryan Trust - 1998, David B. Smith, David B. Smith Trust - 1998 and BE Aerospace and the amount of the draft accompanying this certification is not in excess of the amount owed by BE Aerospace to the beneficiaries thereunder" or (2) "BE Aerospace, Inc. of 1400 Corporate Center Way, Wellington, Florida 33414 has filed a petition for reorganization or other relief under the Federal Bankruptcy laws and the amount of the draft accompanying this certification is not in excess of the amount owed by BE Aerospace to the beneficiaries pursuant to Section 2 of the Share Disposition Agreement dated as of August 7, 1998 among Oscar J. Mifsud, Oscar J. Mifsud Trust - 1998, Patrick L. Ryan, Patrick L. Ryan Trust - 1998, David B. Smith, David B. Smith - 1998 and BE Aerospace. The available amount hereunder shall be reduced by the amount which the beneficiaries certify to us has been paid by BE Aerospace to the beneficiaries pursuant to Section 2 of the Share Disposition Agreement dated as of August 7, 1998 among Oscar J. Mifsud, Oscar J. Mifsud - 1998, Patrick L. Ryan, Patrick L. Ryan Trust - 1998, and David B. Smith, David B. Smith - 1998 and BE Aerospace. Draft must be drawn and presented at this office at 55 Water Street, Trade Services, Room 1708, New York, New York 10041 not later than January 19, 1999. The draft drawn hereunder must be marked: "Drawn under The Chase Manhattan Bank, New York Letter of Credit Number P-374721" and indicate the date hereof. We hereby engage with the beneficiary that the draft drawn under and in compliance with the terms of this credit will be duly honored. This letter of credit shall be governed by the law of the State of New York, and shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500 (the "UCP") and, in the event of any conflict between the law of the State of New York and the UCP, the UCP shall control. THE CHASE MANHATTAN BANK By /s/ ------------------------ Authorized Signatory EXHIBIT D STANDSTILL AND NON-COMPETE AGREEMENT STANDSTILL AND NON-COMPETE AGREEMENT (the "Agreement"), dated as of August 7, 1998, by and between BE AEROSPACE, INC., a Delaware corporation ("BE Aerospace"), on the one hand, and the other Persons set forth on the signature pages hereto (collectively, the "Stockholders"), on the other hand. W I T N E S S E T H: WHEREAS, BE Aerospace, Oscar J. Mifsud, Patrick L. Ryan and David B. Smith have entered into an Acquisition Agreement dated as of July 21, 1998 (the "Acquisition Agreement"; capitalized terms used without definition herein having the meanings ascribed thereto in the Acquisition Agreement); WHEREAS, as a result of the consummation of the Acquisition Agreement, the Stockholders will beneficially own approximately 14.7% of the issued and outstanding BE Aerospace Common Stock; and NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, BE Aerospace and the Stockholders hereby agree as follows: ARTICLE I DEFINITIONS ----------- For purposes of this Agreement, the following terms have the following meanings: (a) "Affiliate" shall have the meaning set forth in Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"); provided, however, that any corporation in which a Stockholder or any of its Affiliates owns less than a majority of the securities entitled generally to vote for the election of directors shall not be considered an Affiliate of such Stockholder or such Affiliate unless such Stockholder or such Affiliate otherwise controls such corporation. (b) "Beneficial ownership" and "beneficially own" shall have the meanings set forth in Rule 13d-3 under the Exchange Act. (c) "Control" shall mean, with respect to a Person or a Group, (i) beneficial ownership by such Person or Group of securities entitling it to exercise in the aggregate more than 50 percent of the votes in any election of directors or other governing body of the entity in question; or (ii) possession by such Person or Group of the power, directly or indirectly, (x) to elect a majority of the board of directors (or equivalent governing body) of the entity in question or (y) in case of a non-corporate entity, to manage or govern the business, operations or investments of any such non-corporate entity. (d) "Group" shall have the meaning comprehended by Section 13(d)(3) of the Exchange Act; provided that, solely for purposes of Section 2.1(a)(iv) of this Agreement, the Stockholders shall not by themselves constitute a "Group." (e) "Person" shall have the meaning set forth in Section 3(a)(9) of the Exchange Act. (f) "Schedule 13D Filer" means any Person or Group which, based on its direct or indirect beneficial ownership of any Voting Securities, is, or after the acquisition of such beneficial ownership would be, required to file a statement on Schedule 13D with the SEC in accordance with Rule 13d-1 under the Exchange Act, but shall not include any Schedule 13G Filer. (g) "Schedule 13G Filer" means any Person or Group which, based on its direct or indirect beneficial ownership of any Voting Securities, is, or after the acquisition of such beneficial ownership would be, required to file a statement on Schedule 13D with the SEC in accordance with Rule 13d-1 under the Exchange Act, but which in lieu of such filing may instead file a short-form statement on Schedule 13G in accordance with such Rule. (h) "Standstill Percentage" means 14.8% of the Total Voting Power; provided that in the event that the percentage of the Total Voting Power represented by the shares of Voting Securities beneficially owned by the Stockholders and their Affiliates from time to time is reduced, then the Standstill Percentage shall be automatically reduced to the percentage of Total Voting Power represented by shares of Voting Securities beneficially owned by the Stockholders and their Affiliates from time to time; provided further, that (x) following any such reduction in the Standstill Percentage, the Standstill Percentage shall not thereafter be subject to any increase (other than as provided for in the following clause (y)), and (y) if the percentage of Total Voting Power represented by shares of Voting Securities 2 beneficially owned by the Stockholders and their Affiliates is increased as a result of any BE Aerospace Action (as defined in Section 2.1(a)(i) of this Agreement), the Standstill Percentage shall be automatically increased to reflect such BE Aerospace Action. (i) "Total Voting Power" means, at any time, the aggregate number of votes which may be cast by holders of outstanding Voting Securities. (j) "Transfer" means sell, transfer, assign, pledge, hypothecate, give away or in any manner dispose of any Voting Securities. (k) "Voting Securities" means the BE Aerospace Common Stock and any other securities (including voting preferred stock) issued by BE Aerospace which are entitled to vote generally for the election of directors of BE Aerospace, whether currently outstanding or hereafter issued (other than securities having such powers only upon the occurrence of a contingency). ARTICLE II STANDSTILL RESTRICTIONS; VOTING MATTERS --------------------------------------- 2.1 Standstill Restrictions. (a) During the term of this Agreement, each of the Stockholders covenants and agrees that without the prior affirmative vote of a majority of the board of directors of BE Aerospace at a meeting at which a quorum is present, the Stockholders shall not, and shall not permit any of their respective Affiliates to, directly or indirectly: (i) acquire, propose to acquire (or publicly announce or otherwise disclose an intention to propose to acquire) or offer to acquire, by purchase or otherwise, any Voting Securities, if the effect of such acquisition would be to increase the outstanding number of shares of Voting Securities then beneficially owned by the Stockholders and their Affiliates, in the aggregate, to an amount representing Total Voting Power in excess of the Standstill Percentage; provided that this Section 2.1(a)(i) shall not be applicable, and no Stockholder shall be obligated to dispose of Voting Securities, if the aggregate percentage of the Total Voting Power represented by Voting Securities beneficially owned by the Stockholders is increased as a result of corporate 3 action taken solely by BE Aerospace and not caused by any action taken by any Stockholder or any Affiliate of any Stockholder ("BE Aerospace Action"); (ii) propose (or publicly announce or otherwise disclose an intention to propose), solicit, offer, seek to effect, negotiate with or provide any confidential information relating to BE Aerospace or its business to any other Person with respect to, any tender or exchange offer, merger, consolidation, share exchange, business combination, restructuring, recapitalization or similar transaction involving BE Aerospace; (iii) make, or in any way participate in, any "solicitation" of "proxies" to vote (as such terms are defined in Rule 14a-1 under the Exchange Act), solicit any consent with respect to the voting of any Voting Securities or become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 under the Exchange Act) with respect to BE Aerospace; (iv) except to the extent contemplated by the Registration Rights Agreement, form, participate in or join any Person or Group with respect to any Voting Securities (except an arrangement solely among any or all of the Stockholders), or otherwise act in concert with any third Person (other than any Stockholder) for the purpose of (x) acquiring any Voting Securities or (y) holding or disposing of Voting Securities for any purpose otherwise prohibited by this Section 2.1(a); (v) deposit any Voting Securities into a voting trust or subject any Voting Securities to any arrangement or agreement with respect to the voting thereof (except for this Agreement and except for any such arrangement solely among any or all of the Stockholders); (vi) initiate, propose or otherwise solicit stockholders for the approval of one or more stockholder proposals with respect to BE Aerospace as described in Rule 14a-8 under the Exchange Act, or induce or attempt to induce any other Person to initiate any stockholder proposal; (vii) seek election to or seek to place a representative on the Board of Directors, or seek the removal of any member of the Board of Directors; (viii) call or seek to have called any meeting of the stockholders of BE Aerospace for any purpose otherwise prohibited by this Section 2.1(a); 4 (ix) take any other action to seek to control BE Aerospace; (x) demand, request or propose to amend, waive or terminate the provisions of this Section 2.1(a); or (xi) agree to do any of the foregoing, or advise, assist, encourage or persuade any third party to take any action with respect to any of the foregoing. (b) Each of the Stockholders agrees that it will notify BE Aerospace promptly if any inquiries or proposals are received by, any information is exchanged with respect to, or any negotiations or discussions are initiated or continued with, any Stockholder regarding any matter described in Section 2.1(a) hereof. The Stockholders and BE Aerospace shall mutually agree upon an appropriate response to be made to any such proposals received by any Stockholder. (c) The Stockholders shall not be deemed to have breached Section 2.1(a)(i) of this Agreement if (i) the Stockholders or their Affiliates inadvertently and in good faith acquire Voting Securities so as to cause the Total Voting Power represented by the Voting Securities beneficially owned by the Stockholders and their Affiliates to exceed the Standstill Percentage, and (ii) the Stockholders as soon as practicable divest a sufficient number of shares of Voting Securities beneficially owned by the Stockholders and their Affiliates so as to result in the Total Voting Power represented by the Voting Securities beneficially owned by the Stockholders and their Affiliates to be equal to or less than the Standstill Percentage. 2.2 Voting. Until such time as the Stockholders no longer beneficially own Voting Securities representing in the aggregate at least 5% of the Total Voting Power, the Stockholders will take all such action as may be required so that all Voting Securities owned by the Stockholders and their Affiliates, as a group, are voted (in person or by proxy) for BE Aerospace's nominees to the Board of Directors, and with respect to such other matters as are subject to a stockholder vote, in accordance with the recommendation of the Board of Directors. Each of the Stockholders shall be present, in person or by proxy, at all duly held meetings of stockholders of BE Aerospace so that all Voting Securities held by the Stockholders may be counted for the purposes of determining the presence of a quorum at such meetings. 5 ARTICLE III TRANSFERS --------- 3.1 Transfers of Voting Securities. None of the Stockholders shall, directly or indirectly, Transfer any Voting Securities except: (a) in accordance with the terms and provisions of the Share Disposition Agreement; or (b) pursuant to a merger or consolidation of BE Aerospace or pursuant to a plan of liquidation of BE Aerospace, which has been approved by the affirmative vote of a majority of the members of the Board of Directors then in office. ARTICLE IV LEGENDS AND STOP TRANSFER ORDERS -------------------------------- 4.1 Legend. All certificates evidencing Voting Securities beneficially owned by any of the Stockholders shall bear the following legend: "The securities represented by this certificate are subject to the restrictions on disposition and to the other provisions of a Standstill and Non-Compete Agreement dated as of August 7, 1998 among BE Aerospace, Inc. and the Stockholders named therein. Copies of such Agreement are on file at the respective offices of such parties." 4.2 Stop Transfer Orders. The Stockholders each hereby consent to the entry of stop transfer orders with the transfer agents of any such Voting Securities against the transfer of such legended certificates representing such Voting Securities except in compliance with this Agreement. 4.3 Removal or Modification of Legend. BE Aerospace agrees that upon any Transfer of the securities represented by such certificates made in compliance with the provisions of this Agreement, it will, upon the presentation to its transfer agent of the certificates containing such legend, remove such legend from the certificates being sold or registered. 6 ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ 5.1 Representations and Warranties of the Stockholders. Each of the Stockholders jointly and severally represent and warrant to BE Aerospace as follows: (a) Assuming that (i) the Stockholders Shares (as defined below) are duly authorized, validly issued, fully paid and nonassessable, and, immediately prior to their receipt by the Stockholders, are free and clear of all security interests, liens, claims, proxies, charges, encumbrances and options of any nature whatsoever created by any Person other than a Stockholder (other than those created by this Agreement, the Registration Rights Agreement and the Share Disposition Agreement), and (ii) the issuance of the Stockholders Shares to the Stockholders is properly recorded in the stock ledger of BE Aerospace, then, upon the issuance of the Stockholders Shares to the Stockholders pursuant to Section 1.2 of the Acquisition Agreement, each of the Stockholders will be the beneficial and record owner of BE Aerospace Common Shares in the respective amounts set forth in Schedule I attached hereto (the "Stockholders Shares"), free and clear of all security interests, liens, claims, proxies, charges, encumbrances and options of any nature whatsoever, and there will be no outstanding options, warrants or rights to purchase or acquire, or agreements relating to, any of the Stockholders Shares (other than those created by this Agreement, the Registration Rights Agreement and the Share Disposition Agreement). (b) Except for the Stockholders Shares, neither any of the Stockholders, nor any of their Affiliates, owns beneficially or of record, directly or indirectly, any Voting Securities or any options, warrants or rights of any nature (including conversion and exchange rights) to acquire beneficial ownership of any Voting Securities. (c) Each of the Stockholders has full legal right, power and authority to enter into and perform this Agreement. This Agreement has been duly authorized, executed and delivered by each of the Stockholders. This Agreement constitutes a legally valid and binding agreement of each of the Stockholders, enforceable in accordance with its terms, except that such enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, moratorium or other similar laws relating to creditors' rights now or hereafter in effect and by general equitable principles. 7 (d) The execution and delivery of this Agreement by the Stockholders does not conflict with or constitute a violation of or default under any statute, law, regulation, order or decree applicable to any of the Stockholders, or any contract, commitments, agreement, arrangement or restriction of any kind to which any of the Stockholders are a party or by which any of the Stockholders are bound, other than such violations as would not prevent or materially delay the performance by such Stockholder of its obligations hereunder or otherwise subject BE Aerospace to any claim or liability. 5.2 Representations and Warranties of BE Aerospace. BE Aerospace hereby represents and warrants to the Stockholders as follows: (a) BE Aerospace is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) BE Aerospace has full legal right, power and authority to enter into and perform this Agreement and the execution and delivery of this Agreement by BE Aerospace have been duly authorized by all necessary corporate action on behalf of BE Aerospace. This Agreement constitutes a legally valid and binding agreement of BE Aerospace, enforceable in accordance with its terms, except that such enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, moratorium or other similar laws relating to creditors' rights now or hereafter in effect, and by general equitable principles. (c) Neither the execution and delivery of this Agreement nor the consummation by BE Aerospace of the transactions contemplated hereby conflicts with or constitutes a violation of or default under the Restated Certificate of Incorporation or By-laws of BE Aerospace, any statute, law, regulation, order or decree applicable to BE Aerospace, or any contract, commitment, agreement, arrangement or restriction of any kind to which BE Aerospace is a party or by which BE Aerospace is bound, other than such violations as would not prevent or materially delay the performance by BE Aerospace of its obligations hereunder or otherwise subject any Stockholder to any claim or liability. 8 ARTICLE VI NON-COMPETITION COVENANT ------------------------ 6.1 Protective Covenants. (a) Confidentiality. Each Stockholder hereby acknowledges and agrees that he possesses and will continue to possess information which has been created, discovered or developed by or otherwise become known to him (including information discovered or made available by any SMR Company (together, the "SMR Companies") or by which property rights have been assigned or otherwise conveyed to any SMR Company, which information has commercial value to one or more SMR Companies, including, but not limited to, trade secrets, innovations, processes, computer codes, data, know-how, improvements, discoveries, developments, techniques, marketing plans, strategies, costs, customer and client lists, the ownership structure of any SMR Company or any information such stockholder has reason to know that any SMR Company would treat as confidential for any purpose, whether or not developed by you (hereinafter referred to as "Confidential Information"). Each Stockholder hereby agrees that he will keep confidential and will not disclose, directly or indirectly, any such Confidential Information to any third party, except as required by law or to fulfill his duties hereunder or to his attorney or other advisors, whom he shall notify of this confidentiality provision and who shall be similarly bound. None of the Stockholders shall misuse, misappropriate or exploit such Confidential information in any way. The parties hereto acknowledge and agree that Confidential Information shall not include any knowledge or information conveyed to, known to or held by any such Stockholder as a result of his employment or other activities prior to his employment by any SMR Company or otherwise becomes publicly known other than as a result of a breach by such shareholder of his obligations hereunder; provided further that specific information shall not be deemed to be publicly known merely because it is embraced in general disclosures in the public domain. In addition, any combination of features shall not be deemed to be publicly known merely because the individual features are in the public domain unless the combination itself and its principle of operation are in the public domain. (b) Restrictive Covenants. Each Stockholder hereby acknowledges that because of his skills, his position with the SMR Companies and the Confidential Information to which he had access or was provided on account of his relationship with the SMR Companies, competition by him with any SMR Company could damage the SMR Companies in a manner which cannot adequately be compensated by 9 damages or an action at law. Each Stockholder also acknowledges that he has entered into an Acquisition Agreement and that the covenants contained in this Section 6.1 are material to the consummation of the Acquisition Agreement. In view of such circumstances and because of the Confidential Information obtained by or disclosed to each Stockholder, each Stockholder hereby covenants and agrees to the following terms and conditions. (i) Restrictions on Competitive Employment. During the period beginning on the date hereof and ending on August 6, 2005, each Stockholder shall not (as principal, agent, employee, consultant or otherwise), directly or indirectly, without the prior written approval of the Company, engage in activities for, or render services to any firm or business anywhere in the world (A) that conducts a business or engages in any activities conducted or engaged in by any SMR Company (or contemplated by the business plan of any SMR Company) at the time of the closing of the Acquisition Agreement, which business or activities are in direct or indirect competition with any SMR Company or (B) that develops or offers products or services substantially similar to those products or services developed or offered by any SMR Company at the time of the closing of the Acquisition Agreement (or then contemplated by the business plan of any SMR Company) (the businesses in clauses (A) and (B) collectively, "Competitive Businesses"); provided, however, that such Stockholder may have an interest consisting of publicly traded securities constituting less than one percent of any class of publicly traded securities in any public company engaged in a Competitive Business so long as such Stockholder is not employed by and does not consult with, or become a director of or otherwise engage in any activities for, such company. (ii) Restrictions on Solicitation. Beginning on the date hereof and ending on August, 2005, no Stockholder shall solicit any customer or prospective customer of any SMR Company, in either case with whom such Stockholder has had contact during the twenty-four month period prior to the transactions contemplated by the Acquisition Agreement for any commercial pursuit that is in competition with any SMR Company, or induce, or attempt to induce, any employees, agents or consultants of or to any SMR Company to do anything from which such Stockholder is restricted by reason of this Section 5.1(b)(ii), nor shall such Stockholder, directly or indirectly, solicit any employee, consultant or agent to leave the employ of any member of the Company Group. 10 (iii) Reasonable Limitations. Given the important nature of the position each Stockholder previously held with the SMR Companies, the nature of the business of the SMR Companies and the sensitive nature of the Confidential Information and duties such Stockholder has with the SMR Companies, the parties hereby acknowledge that the limitations, including, but not limited to, the scope of activities prohibited, the geographic area covered and the time limitation, are reasonable. (iv) Remedies. In the event of a breach by any Stockholder of the provisions of this Section 6.1, each SMR Company shall be entitled to a temporary restraining order and an injunction restraining such Stockholder from such breach. Nothing herein, however, shall be construed as prohibiting any SMR Company 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 Stockholder has violated any of the covenants in this Section 6.1, 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 Stockholder 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. ARTICLE VII FURTHER ASSURANCES ------------------ Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of their obligations under this Agreement. If reasonably requested by BE Aerospace, each Stockholder agrees to execute a letter to BE Aerospace confirming that the beneficial ownership of Voting Securities by the Stockholders and their Affiliates does not represent in the aggregate Total Voting Power in excess of the Standstill Percentage as of the date of such letter. 11 ARTICLE VIII TERMINATION ----------- Unless earlier terminated by written agreement of the parties hereto, (a) the provisions of Articles II - V shall terminate on the earlier of (i) December 31, 1998 and (ii) the date on which the Stockholders and their Affiliates beneficially own Voting Securities representing in the aggregate less than 5% of the Total Voting Power; and (b) the provisions of Article VI shall terminate on August 6, 2005 or such later date provided for pursuant to Section 6.1(b)(iv). Any termination of this Agreement as provided herein shall be without prejudice to the rights of any party arising out of the breach by any other party of any provisions of this Agreement which occurred prior to the termination. ARTICLE IX MISCELLANEOUS ------------- 9.1 Notices, Etc. All notices, requests, demands or other communications required by or otherwise with respect to this Agreement shall be in writing and shall be deemed to have been duly given to any party when delivered personally (by courier service or otherwise), when delivered by telecopy and confirmed by return telecopy, or seven days after being mailed by first-class mail, postage prepaid in each case to the applicable addresses set forth below: If to BE Aerospace: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, Florida 33414 Attention: Chief Financial Officer Telecopier: (561) 791-3966 with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 12 Attention: Alfred J. Ross, Esq. Telecopier: (212) 848-7179 If to the Stockholders: Oscar J. Mifsud and Oscar J. Mifsud Trust -- 1998 541 Leeds Gate Lane Wadsworth, OH 44281 Attention: Oscar J. Mifsud Telecopier: (330) 335-3216 Patrick L. Ryan and Patrick L. Ryan Trust -- 1998 624 Tamarac Trail Wadsworth, OH 44281 Attention: Patrick L. Ryan Telecopier: (330) 336-0228 David B. Smith and David B. Smith Trust -- 1998 520 West Point Drive Akron, OH 44333 Attention: David B. Smith Telecopier: (330) 665-5302 with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 Attention: Raymond O. Gietz, Esq. Telecopier: (212) 310-8007 or to such other address as such party shall have designated by notice so given to each other party. 13 9.2 Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except by an instrument in writing signed by the holders of a majority in number of the Stockholders Shares and by BE Aerospace following approval thereof by a majority of the board of directors of BE Aerospace. 9.3 Successors and Assigns. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties and their respective Affiliates and their respective successors and assigns, including without limitation in the case of any corporate party hereto any corporate successor by merger or otherwise. Except as otherwise provided herein, this Agreement shall not be assignable. 9.4 Entire Agreement. This Agreement embodies the entire agreement and understanding among the parties relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. There are no representations, warranties or covenants by the parties hereto relating to such subject matter other than those expressly set forth in this Agreement and the Acquisition Agreement. 9.5 Specific Performance. The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. 9.6 Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. 9.7 No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with 14 the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. 9.8 No Third Party Beneficiaries. This Agreement is not intended to be for the benefit of and shall not be enforceable by any Person who or which is not a party hereto. 9.9 Jurisdiction. Each party hereby irrevocably submits to the exclusive jurisdiction of the courts of the State of Ohio or of the United States for the District of Ohio in any action, suit or proceeding arising in connection with this Agreement, and agrees that any such action, suit or proceeding shall be brought only in such court (and waives any objection based on forum non conveniens or any other objection to venue therein); provided, however, that such consent to jurisdiction is solely for the purpose referred to in this Section 9.9 and shall not be deemed to be a general submission to the jurisdiction of said court or in the State of Ohio other than for such purposes. Each party hereto hereby waives any right to a trial by jury in connection with any such action, suit or proceeding. 9.10 Governing Law. This Agreement and all disputes hereunder shall be governed by and construed and enforced in accordance with the law of the State of New York. 9.11 Name, Captions. The name assigned to this Agreement and the section captions used herein are for convenience of reference only and shall not affect the interpretation or construction hereof. 9.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies each signed by less than all, but together signed by all, the parties hereto. 9.13 Expenses. In the event of a dispute concerning the terms or enforcement of this Agreement, the prevailing party in any such dispute shall be entitled to reimbursement of reasonable legal fees and disbursements from the other party or parties to such dispute. 15 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. BE AEROSPACE, INC. By: /s/Thomas P. McCaffrey --------------------------------------- Name: Thomas P. McCaffrey Title: Chief Financial Officer STOCKHOLDERS /s/Oscar J. Mifsud --------------------------------------- Oscar J. Mifsud /s/Patrick L. Ryan --------------------------------------- Patrick L. Ryan /s/David B. Smith --------------------------------------- David B. Smith OSCAR J. MIFSUD TRUST - 1998 By: /s/Oscar J. Mifsud --------------------------------------- Oscar J. Mifsud, Trustee PATRICK L. RYAN TRUST - 1998 By: /s/Patrick L. Ryan --------------------------------------- Patrick L. Ryan, Trustee 16 DAVID B. SMITH TRUST - 1998 By: /s/David B. Smith --------------------------------------- David B. Smith, Trustee 17 SCHEDULE I SHARE OWNERSHIP Name of Stockholder BE Aerospace Common Shares ------------------- -------------------------- 18 EXHIBIT E SHARE DISPOSITION AGREEMENT This SHARE DISPOSITION AGREEMENT (this "Agreement") made and entered into as of August 7, 1998, by and between the sellers signatory hereto (the "Sellers"), and BE AEROSPACE, INC. a Delaware corporation (the "Purchaser"); W I T N E S S E T H: WHEREAS, the Purchaser and the Sellers entered into an Acquisition Agreement dated as of July 21, 1998 (the "Acquisition Agreement"; capitalized terms used herein and not defined have the meanings assigned such terms therein), pursuant to which the Purchaser has agreed to purchase from the Sellers (i) all of the outstanding capital stock of SMR Aerospace, Inc., an Ohio corporation, (ii) all of the limited and general partnership interests in SMR Associates, an Ohio limited partnership and (iii) all of the membership interests in SMR Developers, an Ohio limited liability company, in consideration for (a) delivery to the Sellers on the date hereof of 4,000,000 shares (the "BE Aerospace Shares") of the Purchaser's common stock, par value $.01 per share ("Purchaser Common Stock") and (b) $2,000,000 in cash; WHEREAS, concurrently herewith, the Purchaser and the Sellers are entering into a Registration and Transfer Agreement (the "Registration Agreement") pursuant to which the Purchaser has agreed to file with the U.S. Securities and Exchange Commission and maintain in effect for a specified period a registration statement (the "Registration Statement") with respect to the BE Aerospace Shares. WHEREAS, the parties desire to enter into this Agreement in order to grant to the Sellers and the Purchaser certain rights with respect to the BE Aerospace Shares, subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants hereinafter set forth, the Purchaser and the Sellers hereby agree as follows: SECTION 1. Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: "BE Aerospace Shares" means the 4,000,000 shares of Purchaser Common Stock delivered by the Purchaser to the Sellers on the date hereof and any securities issued with respect to the BE Aerospace Shares by reason of any Stock Event. "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of New York. "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, as in effect from time to time. "Guaranteed Value" means the Purchase Price minus the Cash Payment. "Net Proceeds" means (a) in the case of an underwritten sale of the BE Aerospace Shares held by the Sellers, the gross proceeds received by the Sellers in such sale of the BE Aerospace Shares net of underwriter's discounts, commissions and other expenses paid by the Sellers (whether incurred by the Sellers, the Purchaser, the underwriters or any advisors, and including, without limitation, accounting and legal fees) in connection with such sale and (b) in the case of any other sale of such shares, the gross proceeds received by the Sellers net of selling commissions paid in connection with such sale and all other expenses paid by the Sellers (whether incurred by the Sellers, the Purchaser, the placements agents or any advisors, and including, without limitation, accounting and legal fees) in connection with such sale. "Public Offering" means a fully underwritten public offering of the BE Aerospace Shares and any other shares of Purchaser Common Stock, conducted pursuant to an effective registration statement under the Securities Act. "SEC" means the U.S. Securities and Exchange Commission. "Securities Act" means the U.S. Securities Act of 1933, as amended and the rules and regulations thereunder, as in effect from time to time. 2 "Stock Event" means any stock split, stock dividend, combination or similar recapitalization of the Purchaser Common Stock after the date hereof. "Termination Date" means December 31, 1998. Unless the context otherwise requires: (i) "or" is not exclusive; and (ii) words in the singular include the plural and words in the plural include the singular. SECTION 2. Guaranteed Value for Shares Sold; Refund of Excess. (a) If the aggregate Net Proceeds from the sale by the Sellers of BE Aerospace Shares effected on or before the Termination Date are less than the Guaranteed Value, then the Purchaser shall, on the Termination Date, pay to the Sellers by wire transfer in immediately available federal funds the amount of such deficiency and the Sellers shall transfer to the Company all BE Aerospace Shares held by the Sellers on such date. (b) If the aggregate Net Proceeds from the sale by the Sellers of BE Aerospace Shares effected on or before the Termination Date are greater than the Guaranteed Value, then the Sellers shall, on the date on which any proceeds in excess of the Guaranteed Value are received by the Sellers, pay to the Company by wire transfer of immediately available federal funds equal to the amount of such excess and transfer to the Company all BE Aerospace Shares held by the Sellers on such date. SECTION 3. Disposition Procedures. (a) From the date hereof until the Termination Date, the Sellers agree to sell the BE Aerospace 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 Purchaser in a written notice (a "Sale Notice") delivered to each Seller in accordance with Section 5. The Sellers agree not to sell any BE Aerospace Shares prior to the Termination Date other than pursuant to a Sale Notice. (b) Each Sale Notice (i) shall specify the terms upon which a sale is to be made, including price (which may be a range), date, and method of sale (underwritten offering, broker or private sale) and (ii) shall be delivered to each Seller or to the Escrow Agent (as applicable) no later than 12:00 Noon, one Business Day prior to the date of the proposed sale. 3 (c) The Purchaser shall have no obligation under Section 2 with respect to any sale of BE Aerospace Shares (i) to any Affiliate of any Seller, or (ii) in connection with any transaction in violation of clause (a) of this Section 3. SECTION 4. Security for the Purchaser's Obligations Under this Agreement. The Purchaser's obligations to the Sellers under this Agreement shall be secured by an irrevocable stand-by letter of credit from The Chase Manhattan Bank in the form attached hereto as Exhibit A (the "Letter of Credit"), in favor of the Sellers. From time to time after the date hereof, as the Purchaser's obligations to be secured by the Letter of Credit are reduced due to the receipt by the Sellers of the Net Proceeds of sales of BE Aerospace Shares, the available amount of the Letter of Credit shall be reduced by an amount equal to the Net Proceeds received by the Sellers in such sales. SECTION 5. Miscellaneous. (a) Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by cable, by telecopy, by telegram, by telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 5): (i) if to the Sellers: Oscar J. Mifsud and Oscar J. Mifsud Trust -- 1998 541 Leeds Gate Lane Wadsworth, OH 44281 Attention: Oscar J. Mifsud Telecopier: (330) 335-3216 Patrick L. Ryan and Patrick L. Ryan Trust -- 1998 624 Tamarac Trail Wadsworth, OH 44281 Attention: Patrick L. Ryan Telecopier: (330) 336-0228 4 David B. Smith and David B. Smith Trust -- 1998 520 West Point Drive Akron, OH 44333 Attention: David B. Smith Telecopier: (330) 336-5302 with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Telecopier: (212) 310-8007 Attention: Raymond O. Gietz, Esq. (ii) if to the Purchaser: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, Florida 33414 Attention: Chief Financial Officer Telecopier: (561) 791-3966 with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Telecopier: (212) 848-7179 Attention: Alfred J. Ross, Esq. (b) Successors and Assigns. This Agreement is solely for the benefit of, and binding upon, the parties and their respective successors. Nothing herein shall be construed to provide any rights to any other entity or individual. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party. 5 (c) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (d) Titles. The titles, captions or headings of the Sections herein are for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. (e) Governing Law. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of New York. (f) Invalidity. In the event that any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement. (g) Entire Agreement; Modifications and Waivers. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes agreements, understandings, negotiations and discussions, whether oral or written, of the parties. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 6 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first written above. BE AEROSPACE, INC. By: /s/Thomas P. McCaffrey ------------------------------------ Name: Thomas P. McCaffrey Title: Chief Financial Officer THE SELLERS /s/Oscar J. Mifsud ------------------------------------ Oscar J. Mifsud /s/Patrick L. Ryan ------------------------------------ Patrick L. Ryan /s/David B. Smith ------------------------------------ David B. Smith OSCAR J. MIFSUD TRUST - 1998 By: /s/Oscar J. Mifsud ------------------------------------ Oscar J. Mifsud, Trustee PATRICK L. RYAN TRUST - 1998 By: /s/Patrick L. Ryan ------------------------------------ Patrick L. Ryan, Trustee 7 DAVID B. SMITH TRUST - 1998 By: /s/David B. Smith ------------------------------------ David B. Smith, Trustee 8 EXHIBIT A FORM OF IRREVOCABLE LETTER OF CREDIT 9 EXHIBIT A STANDBY LETTER OF CREDIT The Chase Manhattan Bank Global Trade Services Group P.O. Box 44, Church Street Station Cable Address: CHAMANBANK New York New York, NY 10008-0044 DATE: AUGUST 7, 1998 Irrevocable Stanby Letter Of Credit Number P-374721 Applicant: BE AEROSPACE 1400 Corporate Center Way Wellington, Florida 33414
Beneficiaries: Oscar J. Mifsud and Patrick L. Ryan and David B. Smith and Oscar J. Misfud Trust-1998 Patrick L. Ryan Trust-1998 David B. Smith Trust-1998 541 Leeds Gate Lane 624 Tamarac Trail 520 West Point Drive Wadsworth, OH 44281 Wadsworth, OH 44281 Akron, OH 44333 Attn: Oscar Mifsud Attn: Patrick L. Ryan Attn: David B. Smith Telecopier: 330-335-3216 Telecopier: 330-336-0228 Telecopier: 330-665-5302
We hereby notify Oscar J. Mifsud, Oscar J. Misfud Trust-1998, Patrick L. Ryan, Patrick L. Ryan Trust-1998 and David B. Smith, David B. Smith Trust-1998 that we have issued our Irrevocable Standby Letter of Credit Number P-374721 in your favor by order and for account of: BE AEROSPACE 1400 Corporate Center Way Wellington, Florida 33414 Up to an aggregate amount of One Hundred Twenty Million U.S.Dollars and no cents ($120,000,000.00) Available by a single beneficiaries' draft at sight drawn on The Chase Manhattan Bank, New York, New York 10041 ACCOMPANIED BY: A signed certification by all of the beneficiaries that: (1) "The date is December 31, 1998 and BE Aerospace, Inc., of 1400 Corporate Center Way, Wellington, Florida 33414 has failed to pay the amounts owed to the beneficiaries pursuant to Section 2 of the Share Disposition Agreement dated as of August 7, 1998 among Oscar J. Mifsud, Oscar J. Mifsud Trust - 1998, Patrick L. Ryan, Patrick L. Ryan Trust - 1998, David B. Smith, David B. Smith Trust - 1998 and BE Aerospace and the amount of the draft accompanying this certification is not in excess of the amount owed by BE Aerospace to the beneficiaries thereunder" or (2) "BE Aerospace, Inc. of 1400 Corporate Center Way, Wellington, Florida 33414 has filed a petition for reorganization or other relief under the Federal Bankruptcy laws and the amount of the draft accompanying this certification is not in excess of the amount owed by BE Aerospace to the beneficiaries pursuant to Section 2 of the Share Disposition Agreement dated as of August 7, 1998 among Oscar J. Mifsud, Oscar J. Mifsud Trust - 1998, Patrick L. Ryan, Patrick L. Ryan Trust - 1998, David B. Smith, David B. Smith - 1998 and BE Aerospace. The available amount hereunder shall be reduced by the amount which the beneficiaries certify to us has been paid by BE Aerospace to the beneficiaries pursuant to Section 2 of the Share Disposition Agreement dated as of August 7, 1998 among Oscar J. Mifsud, Oscar J. Mifsud - 1998, Patrick L. Ryan, Patrick L. Ryan Trust - 1998, and David B. Smith, David B. Smith - 1998 and BE Aerospace. Draft must be drawn and presented at this office at 55 Water Street, Trade Services, Room 1708, New York, New York 10041 not later than January 19, 1999. The draft drawn hereunder must be marked: "Drawn under The Chase Manhattan Bank, New York Letter of Credit Number P-374721" and indicate the date hereof. We hereby engage with the beneficiary that the draft drawn under and in compliance with the terms of this credit will be duly honored. This letter of credit shall be governed by the law of the State of New York, and shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500 (the "UCP") and, in the event of any conflict betweent he las of the State of New York and the UCP, the UCP shall control. THE CHASE MANHATTAN BANK By /s/ ------------------------ Authorized Signatory EX-2.2 3 STOCK PURCHASE AGREEMENT EXECUTION COPY ================================================================================ ----------------------------------------------------- STOCK PURCHASE AGREEMENT ----------------------------------------------------- Between FLIGHT STRUCTURES, INC. SAVINGS AND RETIREMENT PLAN AND TRUST and BE AEROSPACE, INC. Dated as of July 21, 1998 ================================================================================ TABLE OF CONTENTS Section Page ARTICLE I DEFINITIONS 1.01. Certain Defined Terms...................................................1 ARTICLE II PURCHASE AND SALE 2.01. Purchase and Sale of the ESOP Shares....................................4 2.02. Purchase Price..........................................................4 2.03. Closing.................................................................4 2.04. Closing Deliveries by the Seller........................................4 2.05. Closing Deliveries by the Purchaser.....................................4 2.06. Escrow .................................................................5 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER 3.01. Organization, Authority and Qualification of the Seller.................5 3.02. Ownership of the Shares.................................................6 3.03. No Conflict.............................................................6 3.08. Governmental Consents and Approvals.....................................7 SECTION 3.09. Fairness Determination..........................................7 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 4.01. Organization and Authority of the Purchaser.............................7 4.02. No Conflict.............................................................7 4.03. Governmental Consents and Approvals.....................................8 4.04. Litigation..............................................................8 4.06. Brokers.................................................................8 -i- ARTICLE V CONDITIONS TO CLOSING 5.01. Conditions to Obligations of the Seller.................................9 5.02. Conditions to Obligations of the Purchaser..............................9 ARTICLE VI INDEMNIFICATION 6.01. Survival of Representations and Warranties.............................10 6.02. Indemnification by the Seller..........................................11 6.03. Indemnification by Purchaser...........................................11 ARTICLE VII TERMINATION AND WAIVER 7.01. Termination............................................................11 7.02. Effect of Termination..................................................12 7.03. Waiver ................................................................12 ARTICLE VIII GENERAL PROVISIONS 8.01. Expenses...............................................................12 8.02. Notices................................................................12 8.03. Public Announcements...................................................13 8.04. Headings...............................................................13 8.05. Severability...........................................................14 8.06. Entire Agreement.......................................................14 8.07. Assignment.............................................................14 8.08. No Third Party Beneficiaries...........................................14 8.09. Amendment..............................................................14 8.10. Governing Law..........................................................14 8.11. Counterparts...........................................................14 8.12. Specific Performance...................................................15 -ii- EXHIBIT 2.06 FORM OF ESCROW AGREEMENT................................................17 -iii- EXECUTION COPY STOCK PURCHASE AGREEMENT, dated as of July 21, 1998 (the "Agreement"), between Flight Structures, Inc. Savings and Retirement Plan and Trust, a trust organized under the laws of the State of Washington (the "Seller" or "ESOP"), and BE Aerospace, a Delaware corporation (the "Purchaser"). W I T N E S S E T H: WHEREAS, the Seller owns 637,332.78 issued and outstanding shares (the "ESOP Shares") of common stock (the "Common Stock"), of Flight Structures, Inc., a Washington corporation (the "Company" or "FSI"); and WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Purchaser is entering into an agreement (the "Acquisition Agreement") dated as of the date hereof, with Oscar J. Mifsud, Oscar J. Mifsud Trust - 1998, Patrick L. Ryan, Patrick L. Ryan - 1998, David B. Smith and David B. Smith Trust - 1998 (collectively, the "Stockholders") for the purchase of the Securities (as defined in the Acquisition Agreement); and WHEREAS, the Seller wishes to sell to the Purchaser, and the Purchaser wishes to purchase from the Seller, the ESOP Shares, upon the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, the Purchaser and the Seller hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Acquisition Documents" has the meaning specified in Section 6.01. "Action" means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority. "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. 2 "Agreement" or "this Agreement" means this Stock Purchase Agreement, dated as of July 21, 1998, between the Seller and the Purchaser (including the Exhibits hereto and the Disclosure Schedule) and all amendments hereto. "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in The City of New York. "Closing" has the meaning specified in Section 2.03. "Closing Date" has the meaning specified in Section 2.03. "Code" means the Internal Revenue Code of 1986, as amended through the date hereof. "Common Stock" has the meaning specified in the recitals to this Agreement. "Company" has the meaning specified in the recitals to this Agreement. "Disclosure Schedule" means the Disclosure Schedule attached hereto, dated as of the date hereof, and forming a part of this Agreement. "Encumbrance" means any security interest, pledge, mortgage, lien (including, without limitation, environmental and tax liens), charge, encumbrance, adverse claim, preferential arrangement or restriction of any kind, including, without limitation, any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" means Wachovia Bank, N.A. "Escrow Agreement" has the meaning specified in Section 2.06. "Escrow Amount" means $3,300,000. "ESOP" has the meaning specified in the recitals to this Agreement. "ESOP Shares" has the meaning specified in the recitals to this Agreement. "Governmental Authority" means any United States federal, state or local or any foreign government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body. 3 "Governmental Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. "Indemnified Party" has the meaning specified in Section 6.02(a). "Law" means any federal, state, local or foreign statute, law, ordinance, regulation, rule, code, order, other requirement or rule of law. "Liabilities" means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law (including, without limitation, any Environmental Law), Action or Governmental Order and those arising under any contract, agreement, arrangement, commitment or undertaking. "Loss" has the meaning specified in Section 6.02. "Person" means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. "Purchase Price" has the meaning specified in Section 2.02. "Purchase Price Bank Account" means a bank account in the United States to be designated by the Seller in a written notice to the Purchaser at least five Business Days before the Closing. "Purchaser" has the meaning specified in the recitals to this Agreement. "Seller" has the meaning specified in the recitals to this Agreement. "Third Party Claims" has the meaning specified in Section 6.02(b). "Trust Agreement" has the meaning specified in Section 3.01. "Trustee" has the meaning specified in Section 3.01. 4 ARTICLE II PURCHASE AND SALE SECTION 2.01. Purchase and Sale of the ESOP Shares. Upon the terms and subject to the conditions of this Agreement, at the Closing, the Seller shall sell to the Purchaser, and the Purchaser shall purchase from the Seller, the ESOP Shares. SECTION 2.02. Purchase Price. The Purchaser shall pay the ESOP $22,000,000 in cash (the "Purchase Price"), in consideration for the purchase of the ESOP Shares in satisfaction of any and all obligations of the Company under Section 4(b) of the Share Purchase Agreement, dated as of August 30, 1996, by and among the ESOP, Cole Taylor Bank, as trustee of the ESOP, the Company and SMR Technologies, Inc. SECTION 2.03. Closing. Upon the terms and subject to the conditions of this Agreement, the sale and purchase of the ESOP Shares contemplated by this Agreement shall take place at a closing (the "Closing") to be held at the offices of Weil, Gotshal & Manges at 10:00 A.M. New York time on the second business day following the satisfaction of the conditions to the Closing set forth in Article V (other than the condition set forth in Section 5.02(f) which shall be satisfied on the Closing Date) (provided that any conditions required herein to be satisfied prior to the Closing have been satisfied or waived as of such date), or at such other place or at such other time and date as the Seller and the Purchaser may mutually agree upon in writing (the day on which the Closing takes place being the "Closing Date"). Notwithstanding the foregoing, for financial reporting purposes only, the Closing and the transfer of effective control of the Company will be deemed to have occurred on August 1, 1998. SECTION 2.04. Closing Deliveries by the Seller. At the Closing, the Seller shall deliver or cause to be delivered to the Purchaser: (a) stock certificates evidencing the ESOP Shares duly endorsed in blank, or accompanied by stock powers duly executed in blank, in form satisfactory to the Purchaser and with all required stock transfer tax stamps affixed; (b) a receipt for the Purchase Price less the Escrow Amount; and (c) the certificates and other documents required to be delivered pursuant to Section 5.02. SECTION 2.05. Closing Deliveries by the Purchaser. (a) At the Closing, the Purchaser shall deliver to the Seller: 5 (i) the Purchase Price less the Escrow Amount by wire transfer in immediately available funds to the Purchase Price Bank Account; and (ii) the certificates and other documents required to be delivered pursuant to Section 5.01. (b) At the Closing, the Purchaser shall deliver to the Escrow Agent, in accordance with the Escrow Agreement, the Escrow Amount by wire transfer in immediately available funds to the account designated therefor in the Escrow Agreement. SECTION 2.06. Escrow. Prior to the Closing, the Seller and the Purchaser shall enter into an Escrow Agreement with the Escrow Agent substantially in the form of Exhibit 2.06 (the "Escrow Agreement"). In accordance with the terms of the Escrow Agreement, the Purchaser shall deposit the Escrow Amount in an account to be managed and paid out by the Escrow Agent in accordance with the terms of the Escrow Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER As an inducement to the Purchaser to enter into this Agreement, the Seller hereby represents and warrants to the Purchaser as follows: SECTION 3.01. Organization, Authority and Qualification of the Seller. The ESOP has been duly authorized and established; and the Trust Agreement between the Company and GreatBanc Trust Company (the "Trustee"), as amended and restated to be effective as of November 20, 1996 (the "Trust Agreement") has been duly authorized, by all necessary corporate action on the part of the Company; the ESOP constitutes in all material respects an "eligible individual account plan" within the meaning of Section 407(d)(3) of ERISA and the execution, delivery and performance of this Agreement and the Escrow Agreement and the consummation of the transactions contemplated by the parties hereto will not constitute a violation of, or give rise to any liability under, Title I of ERISA or Section 4975 of the Internal Revenue Code of 1996, as amended (together with the rules and regulations promulgated thereunder, the "Code"). The execution and delivery of this Agreement and the Escrow Agreement by the Seller, the performance by the Seller of its obligations hereunder and thereunder and the consummation by the Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of the Seller. This Agreement has been, and upon its execution the Escrow Agreement shall have been, duly executed and delivered by the Seller, and (assuming due authorization, execution and delivery by the Purchaser) this Agreement constitutes, and upon its execution the Escrow Agreement will constitute, a legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms. 6 SECTION 3.02. Ownership of the Shares. The ESOP Shares are owned of record and beneficially solely by the Seller 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 Purchaser in the stock records of the Company, the Purchaser, 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. SECTION 3.03. No Conflict. The execution and delivery of this Agreement by the Seller does not, and the consummation by the Seller of the transactions contemplated herein will not violate, cause a default under, breach the terms of or require the consent, authorization or approval of any other person under any law, rule or regulation or any governing instrument or any loan agreement, mortgage, indenture, or other contract or agreement to which the ESOP or the Trustee is bound, or to which the properties of the ESOP or the Trust are subject or under any franchise, license or permit applicable to the Trustee, the ESOP or the Trust. SECTION 3.04. ERISA Matters. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by the parties hereto will not constitute a violation of, or give rise to any liability under, Title I of ERISA or Section 4975 of the Code. SECTION 3.05. ESOP Shares. The shares of Common Stock held by the ESOP are owned of record and beneficially by the ESOP 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. SECTION 3.06. Litigation. There is no private or governmental action, suit, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of the Trustee, threatened against the ESOP or the Trustee or any properties of the ESOP or the Trust that, individually or in the aggregate, could reasonably be expected to have a material adverse effect on the ability of the Trustee or the ESOP to consummate the transactions contemplated by this Agreement. There is no judgment, decree or order against the Trustee, the ESOP or any properties of the ESOP or the Trust that could prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement, or that could reasonably be expected to have a material adverse effect on the ability of the Trustee or the ESOP to consummate the transactions contemplated by this Agreement. SECTION 3.07. Broker's and Finders' Fees. Neither the Trustee nor the ESOP has incurred, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby, other than fees to Houlihan Lokey. 7 SECTION 3.08. Governmental Consents and Approvals. The execution, delivery and performance of this Agreement and the Escrow Agreement by the Seller do not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to any Governmental Authority. SECTION 3.09. Fairness Determination. The ESOP and the Trustee have received an opinion from Houlihan Lokey, the Trustee's independent financial advisor, that the Purchase Price is not less than the fair market value of the ESOP Shares and the transactions contemplated hereby are fair to the ESOP from a financial point of view. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER As an inducement to the Seller to enter into this Agreement, the Purchaser hereby represents and warrants to the Seller as follows: SECTION 4.01. Organization and Authority of the Purchaser. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary corporate power and authority to enter into this Agreement and the Escrow Agreement, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Escrow Agreement by the Purchaser, the performance by the Purchaser of its obligations hereunder and thereunder and the consummation by the Purchaser of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of the Purchaser. This Agreement has been, and upon its execution the Escrow Agreement will be, duly executed and delivered by the Purchaser, and (assuming due authorization, execution and delivery by the Seller) this Agreement constitutes, and upon its execution the Escrow Agreement will constitute, a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms. SECTION 4.02. No Conflict. Assuming the making and obtaining of all filings, notifications, consents, approvals, authorizations and other actions referred to in Section 4.03, except as may result from any facts or circumstances relating solely to the Seller, the execution, delivery and performance of this Agreement and the Escrow Agreement by the Purchaser do not and will not (a) violate, conflict with or result in the breach of any provision of the Certificate of Incorporation or By-laws of the Purchaser, (b) conflict with or violate any Law or Governmental Order applicable to the Purchaser or (c) conflict with, or result in any breach of, constitute a default (or event which with the giving of notice or lapse or time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation, or cancellation of, or result in the creation of any 8 Encumbrance on any of the assets or properties of the Purchaser pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which the Purchaser is a party or by which any of such assets or properties are bound or affected which would have a material adverse effect on the ability of the Purchaser to consummate the transactions contemplated by this Agreement or by the Escrow Agreement. SECTION 4.03. Governmental Consents and Approvals. The execution, delivery and performance of this Agreement and the Escrow Agreement by the Purchaser do not and will not require any consent, approval, authorization or other order of, action by, filing with, or notification to, any Governmental Authority. SECTION 4.04. Litigation. Except as disclosed in a writing given to the Seller by the Purchaser on the date of this Agreement, no claim, action, proceeding or investigation is pending or, to the best knowledge of the Purchaser after due inquiry, threatened, which seeks to delay or prevent the consummation of, or which would be reasonably likely to materially adversely affect the Purchaser's ability to consummate, the transactions contemplated by this Agreement and the Escrow Agreement. SECTION 4.05. Investment Purpose. The Purchaser is acquiring the ESOP solely for the purpose of investment and not with a view to, or for offer or sale in connection with, any distribution thereof. SECTION 4.06. Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Purchaser. ARTICLE V CONDITIONS TO CLOSING SECTION 5.01. Conditions to Obligations of the Seller. The obligations of the Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions: (a) Representations and Warranties. The representations and warranties of the Purchaser contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Closing, with the same force and effect as if made as of the Closing Date, other than such representations and warranties as are made as of another date, which shall be true and correct as of such date (provided, however, that if any -9- portion of any representation or warranty is already qualified by materiality, for purposes of determining whether this Section 5.01(a) has been satisfied with respect to such portion of such representation or warranty, such portion of such representation or warranty as so qualified must be true and correct in all respects), and the Seller shall have received a certificate from the Purchaser to such effect signed by a duly authorized officer thereof; (b) No Proceeding or Litigation. No Action shall have been commenced by or before any Governmental Authority against either the Seller or the Purchaser, seeking to restrain or materially and adversely alter the transactions contemplated by this Agreement which, in the reasonable, good faith determination of the Seller, is likely to render it impossible or unlawful to consummate such transactions; provided, however, that the provisions of this Section 5.01(b) shall not apply if the Seller has directly or indirectly solicited or encouraged any such Action; SECTION 5.02. Conditions to Obligations of the Purchaser. The obligations of the Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions: (a) Representations and Warranties. The representations and warranties of the Seller contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Closing with the same force and effect as if made as of the Closing, other than such representations and warranties as are made as of another date, which shall be true and correct as of such date (provided, however, that if any portion of any representation or warranty is already qualified by materiality, for purposes of determining whether this Section 5.02(a) has been satisfied with respect to such portion of such representation or warranty, such portion of such representation or warranty as so qualified must be true and correct in all respects), and the Purchaser shall have received a certificate of the Seller to such effect signed by a duly authorized officer thereof; (b) No Proceeding or Litigation. No Action shall have been commenced or threatened by or before any Governmental Authority against either the Seller or the Purchaser, seeking to restrain or materially and adversely alter the transactions contemplated hereby which the Purchaser reasonably believes is likely to render it impossible or unlawful to consummate the transactions contemplated by this Agreement; provided, however, that the provisions of this Section 5.02(b) shall not apply if the Purchaser has solicited or encouraged any such Action; (c) Resolutions of the Seller. The Purchaser shall have received a true and complete copy, certified by a Trustee of the Seller, of the resolutions duly and validly adopted by the Trustee evidencing its authorization of the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; (d) Incumbency Certificate of the Seller. The Purchaser shall have received a certificate of a Trustee of the Seller certifying the names and signatures of officers of the Trustee -10- of the Seller authorized to sign this Agreement and the other documents to be delivered hereunder; (e) Consents and Approvals. The Purchaser and the Seller shall have received all authorizations, consents, orders and approvals of all Governmental Authorities and officials and all third party consents and estoppel certificates which the Purchaser deems necessary or desirable for the consummation of the transactions contemplated by this Agreement; (f) Acquisition Agreement. The Stockholders and the Purchaser shall have consummated the transactions contemplated by the Acquisition Agreement. (g) Escrow Agreement. The Seller shall have executed the Escrow Agreement. ARTICLE VI INDEMNIFICATION SECTION 6.01. Survival of Representations and Warranties. The representations and warranties of the ESOP and the Purchaser contained in this Agreement, and all statements contained in this Agreement, the Exhibits to this Agreement, the Disclosure Schedule and any certificate or other document delivered pursuant to this Agreement or in connection with the transactions contemplated by this Agreement (collectively, the "Acquisition Documents"), shall survive the Closing until December 31, 1999. Neither the period of survival nor the liability of the ESOP and the Purchaser with respect to their respective representations and warranties shall be reduced by any investigation made at any time by or on behalf of the Purchaser or the ESOP. If written notice of a claim has been given prior to the expiration of the applicable representations and warranties by either party hereto to the other, then the relevant representations and warranties shall survive as to such claim, until such claim has been finally resolved. SECTION 6.02. Indemnification by the Seller. The Purchaser, its Affiliates and their successors and assigns, and the officers, directors, employees and agents of the Purchaser, its Affiliates and their successors and assigns (each an "Indemnified Party") shall be indemnified and held harmless by the ESOP (a) for 15.5% of Losses (as defined in the Acquisition Agreement) suffered, incurred or sustained by such Indemnified Party, and indemnifiable by the Sellers (as defined in the Acquisition Agreement) under Article XI of the Acquisition Agreement and (b) any losses, claims, damages, liabilities, costs and expenses, interest, awards, judgements and penalties resulting from any breach of any representation or warranty made by the ESOP hereunder. Notwithstanding anything to the contrary contained in this Agreement or the Acquisition Agreement, the amount of such indemnifiable losses under clauses (a) or (b) of this -11- Section 6.02 which may be recovered from the ESOP under this Section 6.02 shall not be from a source other than the funds escrowed under the Escrow Agreement. SECTION 6.03. Indemnification by Purchaser. The ESOP shall be indemnified and held harmless by the Purchaser for any losses, claims, damages, liabilities, costs and expenses, interest, awards, judgements and penalties suffered, incurred or sustained by the ESOP resulting from any breach of the representations and warranties of the Purchaser hereunder. ARTICLE VII TERMINATION AND WAIVER SECTION 7.01. Termination. This Agreement may be terminated at any time prior to the Closing: (a) by either the Seller or the Purchaser if the Closing shall not have occurred by October 31, 1998; provided, however, that the right to terminate this Agreement under this Section 7.01(a) shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date; or (b) by either the Purchaser or the Seller in the event that any Governmental Authority shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or (c) by either the Purchaser or the Seller if the Acquisition Agreement shall have been terminated; or (d) by the mutual written consent of the Seller and the Purchaser. SECTION 7.02. Effect of Termination. In the event of termination of this Agreement as provided in Section 7.01, this Agreement shall forthwith become void and there shall be no liability on the part of either party hereto except that nothing herein shall relieve either party from liability for any breach of this Agreement. SECTION 7.03. Waiver. Either party to this Agreement may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered by the other party pursuant hereto or (c) waive compliance with any of the agreements or conditions of the other party contained herein. Any such extension or waiver shall -12- be valid only if set forth in an instrument in writing signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights. ARTICLE VIII GENERAL PROVISIONS SECTION 8.01. Expenses. Except as otherwise specified in this Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby by the Purchaser shall be paid by the Purchaser incurring such costs and expenses, whether or not the Closing shall have occurred. Costs and expenses of the ESOP shall be paid by the Stockholders, subject to the provisions of the Acquisition Agreement. SECTION 8.02. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by cable, by telecopy, by telegram, by telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 8.02): -13- (a) if to the Seller: GreatBanc Trust Company 105 East Galena Boulevard; Ste. 500 Aurora, Illinois 60505 Telecopy: (630) 844-7096 Attention: John Hommel with a copy to: McDermott, Will & Emery 600 Thirteenth Street, N.W. Washington, DC 20005 Telecopy: (202) 756-8087 Attention: Louis Granados (b) if to the Purchaser: BE Aerospace Inc. 1400 Corporate Center Way Wellington, Florida 33414 Telecopy: (561) 791-3699 Attention: Thomas P. McCaffrey with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Telecopy: (212) 848-7179 Attention: Alfred J. Ross, Jr. SECTION 8.03. Public Announcements. No party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions contemplated hereby or otherwise communicate with any news media without the prior written consent of the other party and the parties shall cooperate as to the timing and contents of any such press release or public announcement. -14- SECTION 8.04. Headings. The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 8.05. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. SECTION 8.06. Entire Agreement. This Agreement, the Acquisition Agreement and the Escrow Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof and thereof and supersede all prior agreements and undertakings, both written and oral, between the Seller and the Purchaser with respect to the subject matter hereof and thereof. SECTION 8.07. Assignment. This Agreement may not be assigned by operation of law or otherwise without the express written consent of the Seller and the Purchaser (which consent may be granted or withheld in the sole discretion of the Seller or the Purchaser); provided, however, that the Purchaser may assign this Agreement to an Affiliate of the Purchaser without the consent of the Seller. SECTION 8.08. No Third Party Beneficiaries. Except for the provisions of Article IX relating to Indemnified Parties, this Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. SECTION 8.09. Amendment. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the Seller and the Purchaser or (b) by a waiver in accordance with Section 7.03. SECTION 8.10. Governing Law. This Agreement shall be governed by the laws of the State of New York. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined in any Ohio state or federal court sitting in the State of Ohio. -15- SECTION 8.11. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. SECTION 8.12. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. FLIGHT STRUCTURES, INC. SAVINGS AND RETIREMENT PLAN AND TRUST By: GreatBanc Trust Company, in its capacity as Trustee By: /s/ Michael Welgate ----------------------------------- Name: Michael Welgate Title: President BE AEROSPACE, INC. By: /s/ Thomas P. McCaffrey ----------------------------------- Name: Thomas P. McCaffrey Title: Corporate Senior Vice President & Chief Financial Officer EXHIBIT 2.06 FORM OF ESCROW AGREEMENT ESCROW AGREEMENT ESCROW AGREEMENT, dated as of August 7, 1998 (the "Agreement"), among Flight Structures, Inc. Savings and Retirement Plan and Trust, a trust organized under the laws of the State of Washington (the "Seller"), BE Aerospace, Inc., a Delaware corporation (the "Purchaser"), and The Bank of New York, a New York banking corporation in its capacity as escrow agent hereunder (the "Escrow Agent"). W I T N E S S E T H : WHEREAS, the Purchaser and the Seller have entered into a Stock Purchase Agreement, dated as of July 21, 1998 (the "Purchase Agreement"; all capitalized terms used herein without definition have the same meanings herein as in the Purchase Agreement), pursuant to which, among other things, the Purchaser has agreed to purchase from the Seller, and the Seller has agreed to sell to the Purchaser, the ESOP Shares. WHEREAS, it is contemplated under Section 2.05(b) of the Purchase Agreement that at the Closing the Purchaser, as a portion of the Purchase Price, will deposit or cause to be deposited into escrow the sum of $3,300,000 in cash (the "Escrow Amount"; the Escrow Amount and all interest and income accrued thereon being referred to herein as the "Escrow Fund") to be held and disbursed by the Escrow Agent in accordance with Section 3 of this Agreement. WHEREAS, a copy of the Purchase Agreement has been delivered to the Escrow Agent, and the Escrow Agent is willing to act as the Escrow Agent hereunder. WHEREAS, the Escrow Agent shall hold the Escrow Fund in Account No. 119254 (the "Escrow Account") at The Bank of New York, ABA No. 021000018, such account to be opened on behalf of the Seller. WHEREAS, the Seller has appointed GreatBanc Trust Company to act as its representative (the "Seller's Representative") in connection with certain matters hereunder. NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and covenants set forth herein and in the Purchase Agreement, the parties hereby agree as follows: 1. Appointment and Agreement of Escrow Agent. The Purchaser and the Seller hereby appoint the Escrow Agent to serve as, and the Escrow Agent hereby agrees to act as, Escrow Agent upon the terms and conditions of this Agreement. 2. Establishment of the Escrow Fund. (a) The Purchaser shall deliver to the Escrow Agent on the date hereof the Escrow Amount. The Escrow Agent shall hold the Escrow Fund in escrow pursuant to this Agreement in the Escrow Account. (b) The Purchaser and the Seller confirm to the Escrow Agent and to each other that the Escrow Fund is free and clear of all Encumbrances except as may be created by this Agreement and the Purchase Agreement. 3. Payments from the Escrow Fund. (a) Until December 31, 1999 (the "Distribution Date") (and if any funds remain in the Escrow Account), the Purchaser may make claims for payment from the Escrow Fund by delivering to the Seller's Representative a certificate of the Purchaser (a "Purchaser's Certificate") which shall: (i) state that the Purchaser is entitled to indemnification under Article VI of the Purchase Agreement (an "Indemnification Item"); (ii) state the aggregate amount of such Indemnification Item; and (iii) specify in reasonable detail the nature and amount of each individual Indemnification Item. (b) If the Seller's Representative shall object to any amount claimed in connection with any Indemnification Item specified in any Purchaser's Certificate, the Seller's Representative shall, within 20 business days after delivery by the Purchaser to the Seller's Representative of such Purchaser's Certificate, deliver to the Purchaser a certificate of the Seller's Representative (a "Seller's Certificate") (i) specifying each such amount to which the Seller's Representative objects and (ii) specifying in reasonable detail the nature and basis for each such objection. If the Seller's Representative shall not have delivered to the Purchaser a Seller's Certificate objecting to the amount claimed with respect to an Indemnification Item within 20 business days after delivery to the Seller's Representative of a Purchaser's Certificate specifying such Indemnification Item, the Seller's Representative shall be deemed to have acknowledged the correctness of the amount claimed on such Purchaser's Certificate with respect to such Indemnification Item, and the Seller's Representative shall promptly thereafter direct the Escrow Agent in writing to transfer to the Purchaser, by wire transfer of immediately available funds, out of the Escrow Account an amount set forth in such written instructions and claimed in the Purchaser's Certificate with respect to such Indemnification Item. (c) If the Purchaser shall receive, within 20 business days after delivery to the Seller's Representative of a Purchaser's Certificate, a Seller's Certificate objecting to the amount claimed with respect to any Indemnification Item specified in such Purchaser's Certificate, the amount so objected to shall be held by the Escrow Agent and shall not be released from the Escrow Account except in accordance with either (i) written instructions 2 executed by the Purchaser and by the Seller's Representative or (ii) the final order of a court of competent jurisdiction directing the Escrow Agent with respect to the matters relating to the claim by the Purchaser for indemnification from the Seller, promptly after which time the Escrow Agent shall transfer to the Purchaser, by wire transfer of immediately available funds, out of the Escrow Account an amount equal to the amount set forth in such written instructions or in such order, as the case may be. (d) On the Distribution Date, the Escrow Agent shall transfer to the Seller's Representative, by wire transfer of immediately available funds, out of the Escrow Account, an amount in cash equal to the then remaining balance of the Escrow Fund less the Reserved Amount (as defined below). The "Reserved Amount" shall equal the lesser of (1) the aggregate of the amounts claimed in all Purchaser's Certificates delivered to the Escrow Agent prior to the Distribution Date (which claims shall not have been resolved on or prior to Distribution Date) and (2) the then remaining balance of the Escrow Fund. (e) Notwithstanding the limitations set forth in Section 3(a) of this Agreement, following the Distribution Date, the Purchaser shall be entitled to assert claims against the Escrow Fund under this Section 3 only in respect of all Losses that were included in determining the Reserved Amount. (f) Upon termination of this Agreement pursuant to Section 9 of this Agreement, the Escrow Agent shall, upon written instructions delivered to it by the Seller's Representative, promptly thereafter, transfer to the Seller's Representative, by wire transfer of immediately available funds, all amounts then remaining in the Escrow Fund. 4. Liquidation of the Escrow Fund. Whenever the Escrow Agent shall be required to make payment from the Escrow Fund, the Escrow Agent shall pay such amounts by liquidating the investments of the Escrow Fund, to the extent necessary to pay such amounts in full and in cash. 5. Maintenance of the Escrow Fund; Termination of the Escrow Fund. (a) The Escrow Agent shall continue to maintain the Escrow Fund until the earlier of (i) the time at which there shall be no funds in the Escrow Fund and (ii) the termination of this Agreement. (b) Notwithstanding any other provision of this Agreement to the contrary, at any time prior to the termination of the Escrow Fund, the Escrow Agent shall, if so instructed in a writing executed by the Purchaser and the Seller's Representative, pay from the Escrow Fund to the Seller's Representative or the Purchaser, as directed in such writing, the amount of cash so instructed (and if such cash is not available, shall liquidate such investments of the Escrow Fund as are necessary to make such payment). 6. Investment of the Escrow Fund. The Escrow Agent shall invest and reinvest moneys on deposit in the Escrow Fund upon joint written notice signed by the Seller and 3 the Purchaser in any combination of the following: (a) readily marketable direct obligations of the Government of the United States, or any agency or instrumentality thereof or readily marketable obligations unconditionally guaranteed by the full faith and credit of the Government of the United States, (b) insured certificates of deposit of, or time deposits with, any commercial bank which issues (or the parent of which issues) commercial paper rated as described in clause (c), is organized under the laws of the United States, or any State thereof, and has combined capital and surplus of at least $1 billion or (c) commercial paper in an aggregate amount of no more than $1,000,000 per issuer outstanding at any time, issued by any corporation organized under the laws of any State of the United States, rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then equivalent grade) by Standard & Poors, Inc. Notwithstanding the foregoing, the Escrow Agent may act upon any contrary written investment instructions signed by the Seller and the Purchaser. 7. Assignment of Rights to the Escrow Fund; Assignment of Obligations; Successors. The Seller may not assign, transfer, pledge or otherwise dispose of its rights to any portion of the Escrow Account, provided however that the Seller may assign such rights to any successor employee stock ownership plan or other benefit plan or to the individual participants in the ESOP. This Agreement may not be assigned by operation of law or otherwise without the express written consent of the other parties hereto (which consent may be granted or withheld in the sole discretion of such other parties); provided, however, that the Purchaser may assign this Agreement to an affiliate of the Purchaser without the consent of the other parties; provided further, however, that the Purchaser may also assign this Agreement to any person or entity who purchases all of the outstanding shares of Purchaser's common stock or all or substantially all of the assets of the Purchaser, or to any person or entity with or into which the Purchaser causes the Company to merge, if such other person or entity has a creditworthiness that is reasonably satisfactory to the Seller and agrees in writing to assume (or assumes by operation of law) all of the Purchaser's obligations under this Agreement. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns. 8. Escrow Agent. (a) Except as expressly contemplated by this Agreement or by joint written instructions from the Purchaser and the Seller's Representative, acting on behalf of the Seller, the Escrow Agent shall not sell, transfer or otherwise dispose of in any manner all or any portion of the Escrow Account, except pursuant to an order of a court of competent jurisdiction. The Escrow Agent shall not be under any duty to give the Escrow Fund held by it hereunder any greater degree of care than it gives its own similar property and shall not be required to invest any funds held hereunder except as directed in this Escrow Agreement. (b) The duties and obligations of the Escrow Agent shall be determined solely by this Agreement, and the Escrow Agent shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Agreement. No implied duties or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall not be bound by the provisions of any agreement among the other parties hereto except this Escrow Agreement. 4 (c) In the performance of its duties hereunder, the Escrow Agent shall be entitled to rely upon any document, instrument or signature believed by it in good faith to be genuine and signed by any party hereto or an authorized officer or agent thereof, and shall not be required to investigate the truth or accuracy of any statement contained in any such document or instrument. The Escrow Agent may assume that any person or entity purporting to give any notice in accordance with the provisions of this Agreement has been duly authorized to do so. (d) The Escrow Agent shall not be liable for any error of judgment, or any action taken, suffered or omitted to be taken, hereunder except in the case of its gross negligence, bad faith or willful misconduct. The Escrow Agent may consult with counsel of its own choice and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. (e) The Escrow Agent shall have no duty as to the collection or protection of the Escrow Account or income thereon, nor as to the preservation of any rights pertaining thereto, beyond the safe custody of any such funds actually in its possession. The Escrow Agent makes no representation as to the validity, value, genuineness or the collectability of any security or other document or instrument held by or delivered to it. (f) The Escrow Agent shall not incur any liability for not performing any act or fulfilling any duty, obligation or responsibility hereunder by reason of any occurrence beyond the control of Escrow Agent (including, but not limited to, any act or provision of any present or future law or regulation or governmental authority, any act of God or war, or the unavailability of the Federal Reserve Bank wire or telex or other wire or communication facility). (g) As compensation for its services to be rendered under this Agreement, for each year or any portion thereof, the Escrow Agent shall receive a fee in the amount specified in Schedule A to this Agreement or as shall be agreed to in writing from time to time by the Escrow Agent, the Purchaser and the Seller's Representative and shall be reimbursed upon request for all expenses, disbursements and advances, including reasonable fees and expenses of outside counsel, if any, incurred or made by it in connection with the preparation of this Agreement and the carrying out of its duties under this Agreement. All such fees and expenses shall be the responsibility of the Purchaser. (h) The Purchaser shall reimburse and indemnify the Escrow Agent and any predecessor Escrow Agent for, and hold it harmless against, any loss, liability or expense, including, without limitation, taxes (other than taxes based upon, determined by or measured by the income of the Escrow Agent) and reasonable attorneys' fees and expenses, incurred without gross negligence, bad faith or wilful misconduct on the part of the Escrow Agent arising out of, or in connection with the acceptance of, or the performance of, its duties and obligations under this Agreement. Without limiting the foregoing, the Escrow Agent shall in no event be liable in connection with its investment or reinvestment of any cash held by it hereunder in good faith, in accordance with the terms hereof, including without limitation any liability for any delays (not 5 resulting from its gross negligence or willful misconduct) in the investment or reinvestment of the Escrow Fund, or any loss of interest incident to any such delays. (i) The Escrow Agent may at any time resign by giving 15 business days' prior written notice of resignation to the Seller's Representative and the Purchaser. The Purchaser and the Seller, acting through the Seller's Representative, may at any time jointly remove the Escrow Agent by giving 10 business days' written notice signed by each of them to the Escrow Agent. If the Escrow Agent shall resign or be removed, a successor Escrow Agent, which shall be a bank or trust company having its principal executive offices in New York, New York and which shall be reasonably acceptable to the Purchaser and the Seller, shall be appointed by the Purchaser by written instrument executed by the Purchaser and the Seller, and delivered to the Escrow Agent and to such successor Escrow Agent and, thereupon, the resignation or removal of the predecessor Escrow Agent shall become effective and such successor Escrow Agent, without any further act, deed or conveyance, shall become vested with all right, title and interest to all cash and property held hereunder of such predecessor Escrow Agent, and such predecessor Escrow Agent shall, on the written request of the Seller, acting through the Seller's Representative, or of the Purchaser or of the successor Escrow Agent, execute and deliver to such successor Escrow Agent all the right, title and interest hereunder in and to the Escrow Account of such predecessor Escrow Agent and all other rights hereunder of such predecessor Escrow Agent. If no successor Escrow Agent shall have been appointed within 15 business days of a notice of resignation by the Escrow Agent or removal by the Purchaser and the Seller, the Escrow Agent shall have the right to petition a court of competent jurisdiction for the appointment of a successor Escrow Agent and its sole responsibility shall thereafter be to hold and invest in accordance with Section 6 hereof the Escrow Fund until the earlier of its receipt of designation of a successor Escrow Agent, a joint written instruction by the Purchaser and the Seller, acting through the Seller's Representative, and termination of this Agreement in accordance with its terms. (j) The Escrow Agent does not have any interest in the Escrow Fund but is serving as escrow holder only and having only possession thereof. The Seller shall pay or reimburse the Escrow Agent upon request for any transfer taxes or other taxes relating to the Escrow Fund incurred in connection herewith and shall indemnify and hold harmless the Escrow Agent from any amounts that it is obligated to pay in the way of such taxes. Any payments of income from this Escrow Account shall be subject to withholding regulations then in force with respect to United States taxes. The parties hereto will provide the escrow agent with appropriate W-9 forms for tax I.D. number certifications, or W-8 forms for non-resident alien certifications. It is understood that the Escrow Agent shall be responsible for income reporting only with respect to income earned on investment of funds which are a part of the Escrow Fund and is not responsible for any other reporting. This paragraph and paragraph (g) shall survive notwithstanding any termination of this Escrow Agreement or the resignation of the Escrow Agent. 6 (k) In the event that the Escrow Agent in good faith is in doubt as to what action it should take hereunder, the Escrow Agent shall be entitled to retain the Escrow Fund until the Escrow Agent shall have received (i) a final non-appealable order of a court of competent jurisdiction directing delivery of the Escrow Fund or (ii) a written agreement executed by the Purchaser and the Seller's Representative, acting on behalf of the Seller, directing delivery of the Escrow Fund, in which event the Escrow Agent shall disburse the Escrow Fund in accordance with such order or agreement. Any court order shall be accompanied by a legal opinion by counsel for the presenting party satisfactory to the Escrow Agent to the effect that said opinion is final and non-appealable. The Escrow Agent shall act on such court order and legal opinions without further question. 9. Termination. This Escrow Agreement shall terminate on the later of: (a) the date on which there are no assets remaining in any Escrow Account and (b) 10 business days following the date after the Distribution Date on which all claims made in Purchaser's Certificates delivered to the Escrow Agent prior to the Distribution Date, and all Losses specified in one or more notices delivered to the Seller's Representative and the Escrow Agent by the Purchaser pursuant thereto that could give rise to a right of indemnification under Article VI of the Purchase Agreement shall have been resolved. 10. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by telecopy, or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 11): (a) if to the Seller's Representative: GreatBanc Trust Company, as Seller's Representative 105 East Galena Blvd. Suite 500 Aurora, Illinois 60505 Telecopy: (630) 844-7096 Attention: John Hommel with a copy to: McDermott, Will & Emery 600 Thirteenth Street N.W. Washington, DC 20005 Telecopy: (202) 756-8087 Attention: Luis Granados 7 (b) if to the Purchaser: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, Florida 33414 Telecopy: (561) 791-4402 Attention: Chief Financial Officer with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Telecopy: (212) 848-7179 Attention: Alfred J. Ross, Esq. (c) if to the Escrow Agent, to: The Bank of New York 101 Barclay Street, Floor 12 East New York, NY 10286 Telecopy: (212) 815-7181 Attention: Insurance Trust and Escrow Unit 11. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed and to be performed entirely within that State. 12. Amendments. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the Seller's Representative, acting on behalf of the Seller, the Purchaser and the Escrow Agent or (b) by a waiver in accordance with Section 13 of this Agreement. 13. Waiver. The Escrow Agent, the Purchaser and the Seller's Representative, acting on behalf of the Seller, may (i) extend the time for the performance of any obligation or other act of any of the other parties hereto or (ii) together, waive compliance with any agreement or condition contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights. 8 14. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible. 15. Entire Agreement. This Agreement and the Purchase Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, among the parties hereto with respect to the subject matter hereof. 16. No Third Party Beneficiaries; Assignment. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 17. Further Action. Subject to the terms and conditions of this Agreement, each party hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action and do or cause to be done all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. No party hereto shall become a party to any agreement which by its terms restricts its, his or her performance of its, his or her obligations under this Agreement. 18. Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 19. Representations and Warranties. Each of the Purchaser and Seller hereby represents and warrants (a) that this Escrow Agreement has been duly authorized, executed and delivered on its behalf and constitutes its legal, valid and binding obligation and (b) that the execution, delivery and performance of this Escrow Agreement by Depositor do not and will not violate any applicable law or regulation. 20. Use of Name. Except as required by law, applicable regulation or NASDAQ rule, no printed or other material in any language, including prospectuses, notices, reports, and promotional material which mentions "The Bank of New York" by name or the rights, powers, or duties of the Escrow Agent under this Agreement shall be issued by any other parties hereto, or on such party's behalf, without the prior written consent of Escrow Agent, which consent shall not be unreasonably withheld. 9 21. Counterparts. This Agreement may be executed in one or more counterparts, and by different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which when taken together shall constitute one and the same agreement. 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. FLIGHT STRUCTURES, INC. SAVINGS AND RETIREMENT PLAN AND TRUST By: GreatBank Trust Company, in its capacity as Trustee By: /s/ John G. Hummel ---------------------------------- Name: John G. Hummel Title: BE AEROSPACE, INC. By: /s/ Thomas P. McCaffrey ----------------------------------- Name: Thomas P. McCaffrey Title: Corporate Senior Vice President & Chief Financial Officer THE BANK OF NEW YORK By: /s/ David G. Sampson ---------------------------------- Name: David G. Sampson Title: Vice President 11 SCHEDULE A [Escrow Agent Fees] 12 EX-23.1 4 CONSENT Zalick Torok, Kirgesner, Cook & Co. [letterhead] CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use in this Form 8-K of our report dated February 7, 1998, except for Note 20, as to which the date is August 7, 1998, relating to the consolidated and combined financial statements of SMR Aerospace, Inc. (an S Corporation), its affiliates, and subsidiaries. /s/ Zalick, Torok, Kirgesner, Cook & Co. Cleveland, Ohio August 17, 1998 EX-99 5 PRESS RELEASE Monday August 10, 11:21 am Eastern time Company Press Release BE Aerospace Completes Acquisitions of Aerospace Lighting Corporation and SMR Aerospace, Inc. WELLINGTON, FL--(BUSINESS WIRE)--Aug. 10, 1998--B/E Aerospace, Inc. (Nasdaq-NMS: BEAV - news) announced today that it had completed the acquisitions of Aerospace Lighting Corporation (ALC) and SMR Aerospace, Inc. (SMR). Aerospace Lighting Corporation, headquartered in Holbrook, New York, is the leading producer of interior cabin lighting for corporate and VIP jet aircraft, including aircraft manufactured by Cessna, Gulfstream, Bombardier, Raytheon, Israel Aircraft Industries, Dassault and Boeing, among others. The company also has a significant upgrade, retrofit and spares business as a result of its large installed base. SMR Aerospace, Inc. (SMR), headquartered in Sharon Center, Ohio, is a worldwide leader in the provision of design, integration, installation and certification services for commercial aircraft passenger cabin interiors. SMR provides 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 and lavatories, and install crew rest compartments. SMR is also a leading supplier of structural design and integration services, including airframe modifications for passenger and freighter conversions. In addition, SMR provides a variety of high-margin niche products and components that are used to facilitate reconfigurations and conversions. Finally, SMR is aggressively targeting the general aviation market through a line of aftermarket upgrade components for the most popular commuter and general aviation aircraft types. B/E Chairman Amin J. Khoury stated, "We are pleased to have completed the acquisitions of ALC and SMR. As we have stated previously, ALC, the world's leading manufacturer of general aviation jet aircraft lighting, is highly complementary to our AMP and WEMAC(TM) business units, the world's leading manufacturers of seating and air valve components, respectively, for general aviation jet aircraft. Clearly, B/E has become a major participant in supplying cabin interior products and services to the rapidly growing general aviation/business/VIP aircraft market." "The acquisition of SMR is a major strategic accomplishment for B/E. Adding SMR's capabilities to the Company positions B/E to handle the entire process of outfitting the cabin interior for its airline customers -- from the conceptualization and engineering design of new cabin interiors, to the supply of leading-edge cabin interior products, through the management of the final integration, installation and certification." Khoury continued, "Both companies give B/E substantial new competitive opportunities to cross-sell its breadth of products and services to both existing and new airline and general aviation customers and to participate in their purchase decision-making processes at a significantly earlier stage. We expect both companies to be accretive to B/E's earnings in the current fiscal year." B/E Aerospace, Inc. designs, develops, manufactures, sells and services a broad line of passenger cabin interior products for both commercial and general aviation aircraft, including seating products, cabinetry, passenger entertainment systems, a full line of passenger and crew oxygen and protective breathing equipment, passenger service systems and components and a complete line of food and beverage preparation and storage equipment. The Company also provides a broad range of interior reconfiguration services and products as a prime vendor to commercial airlines. B/E Aerospace is the world's leading supplier of cabin interior products and services, serving virtually all the world's airlines, aircraft manufacturers and business jet owners. This press release contains forward-looking statements that involve risks and uncertainties that may cause the Company's actual experience to differ materially from that anticipated. Factors that might cause such a difference include, but are not limited to, those discussed in the Company's filings with the Securities and Exchange Commission, including its most recent Form 10-Q, proxy statement and Form 10-K, and in "Risk Factors" in its Form S-3 filed on July 30, 1998 relating to the registration of the Company's common stock, as well as future events that have the effect of reducing the Company's available cash balances, such as unexpected operating losses or delays in the integration of the Company's acquired businesses or the delivery of the MDDS interactive video system or capital expenditures or cash expenditures related to possible future acquisitions. _________________ Contact: Jay Jacobson, Scarsdale NY Financial Relations (914) 772-2737 -----END PRIVACY-ENHANCED MESSAGE-----