-----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, BbNK6bQXxMeXmrihbxvyW9mpa0z9zwx6pWWpi+w2rczdaMIojqGcwZdS4K6jklbj Z3Wh3t5iWr/PRBVVbw8VzA== 0000950123-96-007287.txt : 19961213 0000950123-96-007287.hdr.sgml : 19961213 ACCESSION NUMBER: 0000950123-96-007287 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19961212 SROS: NONE 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: 0331 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-16235 FILM NUMBER: 96679602 BUSINESS ADDRESS: STREET 1: 1400 CORPORATE CENTER WAY CITY: WELLINGTON STATE: FL ZIP: 33414 BUSINESS PHONE: 4077915000 MAIL ADDRESS: STREET 1: 1300 CORPORATE CENTER WAY STREET 2: 1300 CORPORATE CENTER WAY CITY: WELLINGTON STATE: FL ZIP: 33414 FORMER COMPANY: FORMER CONFORMED NAME: BE AVIONICS INC DATE OF NAME CHANGE: 19920608 S-3/A 1 AMENDMENT #1 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1996 REGISTRATION NO. 333-16235 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BE AEROSPACE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3728 06-1209796 (I.R.S. EMPLOYER IDENTIFICATION (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL NUMBER) INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
------------------------ BE AEROSPACE, INC. 1400 CORPORATE CENTER WAY WELLINGTON, FLORIDA 33414 (561) 791-5000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ AMIN J. KHOURY CHAIRMAN OF THE BOARD BE AEROSPACE, INC. 1400 CORPORATE CENTER WAY WELLINGTON, FLORIDA 33414 (561) 791-5000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE FOR THE REGISTRANT) ------------------------ COPIES TO: C. DEAN DUSSEAULT, ESQ. ROHAN S. WEERASINGHE, ESQ. ROPES & GRAY SHEARMAN & STERLING ONE INTERNATIONAL PLACE 599 LEXINGTON AVENUE BOSTON, MASSACHUSETTS 02110 NEW YORK, NEW YORK 10022
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN, NOR SHALL THERE BE ANY SALE OF SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. PROSPECTUS (Subject to Completion) Issued December 12, 1996 4,000,000 Shares BE Aerospace, Inc. COMMON STOCK ------------------------ ALL OF THE SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. THE COMMON STOCK IS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "BEAV." ON DECEMBER 11, 1996, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET WAS $25 1/2. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PRICE $ A SHARE ------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) --------------------- --------------------- --------------------- Per Share................... $ $ $ Total(3).................... $ $ $
- ------------ (1) The Company and certain stockholders of the Company (the "Selling Stockholders") have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriters." (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company and the Selling Stockholders have granted the Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of 535,000 and 65,000 additional Shares of Common Stock, respectively, at the price to public less underwriting discounts and commissions, for the purpose of covering over-allotments, if any. If the Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions, proceeds to Company and proceeds to the Selling Stockholders will be $ , $ , $ and $ , respectively. See "Underwriters." ------------------------ The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Shearman & Sterling, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1996, at the offices of Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor in immediately available funds. ------------------------ MORGAN STANLEY & CO. Incorporated CS FIRST BOSTON PAINEWEBBER INCORPORATED , 1996 3 [LOGO] B/E Aerospace is the world's leading manufacturer of commercial aircraft cabin interior products. In-Flight Entertainment [PHOTO OF INDIVIDUAL ENTERTAINMENT SYSTEM] [PHOTO OF INDIVIDUAL ENTERTAINMENT SYSTEM] [PHOTO OF PERSON IN AIRLINE SEAT] [PHOTO OF AIRLINE SEATS] Seating [PHOTO OF AIRLINE SEATS] Galley Products [PHOTO OF COFFEE [PHOTO OF GALLEY [PHOTO OF MAKER] STRUCTURE] BEVERAGE CHILLER] 4 NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 2 Risk Factors.......................... 7 The Company........................... 10 Use of Proceeds....................... 10 Capitalization........................ 10 Price Range of Common Stock........... 11 Dividend Policy....................... 11 Selected Financial Data............... 12 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 14 Business.............................. 20 PAGE ---- Management............................ 32 Security Ownership of Certain Beneficial Owners and Management.... 35 Description of Capital Stock.......... 37 Underwriters.......................... 39 Legal Matters......................... 40 Experts............................... 40 Available Information................. 40 Incorporation of Certain Documents by Reference........................... 41 Index to Consolidated Financial Statements.......................... F-1
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"). SEE "UNDERWRITERS." DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE EXCHANGE ACT. ------------------------ The following trademarks are mentioned in this Prospectus: Silhouette(TM) and Combi(TM) are registered trademarks of BE Aerospace, Inc.; Nintendo(@) is a registered trademark of Nintendo of America, Inc.; and Sega(@) is a registered trademark of Sega Enterprises, Ltd. 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements, including the related notes, appearing elsewhere in this Prospectus. As used in this Prospectus, unless the context otherwise requires, the "Company," "B/E Aerospace" or "B/E" refers to BE Aerospace, Inc., a Delaware corporation. References herein to a fiscal year end relate to a year ending on the last Saturday in February (for example, fiscal 1996 refers to the Company's fiscal year ended February 24, 1996). Unless otherwise indicated, the information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised. Market share information presented herein does not include markets in the former Soviet Union and will vary, sometimes significantly, from year to year. Investors should carefully consider the information set forth under the heading "Risk Factors." THE COMPANY B/E Aerospace is the world's largest manufacturer of commercial aircraft cabin interior products, serving virtually all major airlines with a broad line of products, including aircraft seats, a full line of food and beverage preparation and storage equipment, galley structures and in-flight entertainment systems. In addition, B/E provides upgrade, maintenance and repair services for the products which it manufactures as well as for those supplied by other manufacturers. Management believes that the Company has achieved the leading global market position in each of its major product categories. B/E is the largest manufacturer of airline seats in the world, offering an extensive line of first class, business class, tourist class and commuter seats. The Company is also the world's largest manufacturer of galley equipment for both narrow- and wide-body aircraft, including a wide selection of coffee and beverage makers, water boilers, ovens, liquid containers, refrigeration equipment and galley structures. In addition, the Company is the leading manufacturer of passenger entertainment and service systems, including passenger control systems and individual passenger in-flight entertainment systems. The Company believes that individual passenger in-flight entertainment systems will be one of the fastest growing and among the largest product categories in the commercial aircraft cabin interior products industry in the future. As of August 31, 1996, B/E's backlog was at a record $480 million (excluding any additional backlog attributable to United Airlines from the matters described under "Recent Developments") and, during the six months ended August 31, 1996, the Company has experienced significant growth in revenues and operating earnings. COMPETITIVE STRENGTHS The Company believes that it has a strong competitive position attributable to a number of factors, including the following: - - Leading Market Share and Significant Installed Base. Management believes that the Company has achieved the leading global market positions in each of its major product categories, with worldwide market shares, based upon industry sources, of approximately 50% in aircraft seats, 90% in coffee makers, 90% in refrigeration equipment and 50% in ovens, in each case based on unit sales for the six months ended August 31, 1996, and 33% in individual passenger in-flight entertainment systems, determined on the basis of installed base as of August 31, 1996. The Company believes these market shares provide it with significant competitive advantages in serving its customers, including economies of scale and the ability to commit greater product development, global product support and marketing resources. Furthermore, because of economies of scale, in part attributable to its large market shares and its approximate $2.6 billion installed base of cabin interior equipment (valued at replacement prices as of August 31, 1996), the Company believes it is among the lowest cost producers in the cabin interior products industry. The Company also believes that its large installed base provides B/E with a significant advantage over competitors in obtaining orders for retrofit and refurbishment programs, principally because airlines tend to purchase equipment from the original supplier. In addition, because of the need for compatible spare parts at airline maintenance depots and the desire of airlines to maximize fleet commonality, a single vendor is typically used for all aircraft of the same type operated by a particular airline. 2 6 - - Broadest Product Line in the Industry. Management believes the Company offers more technologically advanced products for the cabin interiors of commercial aircraft than any other manufacturer. With an established reputation for quality, service and product innovation, the Company enjoys broad recognition among the world's commercial airlines. The Company maintains a constant dialogue with a wide array of existing and potential customers, enabling it to become aware of emerging industry trends and needs and thereby play a leading role in product development. The Company has continued to expand its product line, believing that the airline industry increasingly will seek an integrated approach to the development, testing and sourcing of the aircraft's cabin interior. - - Technological Leadership/New Product Development. Management believes that the Company is a technological leader in its industry, with the largest R&D organization in the industry currently comprised of 319 engineers. The Company believes that its R&D effort and its on-site engineers at both the airlines and airframe manufacturers enable B/E to consistently introduce innovative products and thereby gain early entrant advantages and substantial market shares. Examples of such product development include: the Company's family of in-flight entertainment systems, which it believes to be superior to existing operational systems in terms of performance, reliability, weight, heat generation and flexibility to adapt to changing technology; a cappuccino/espresso maker; a quick chill wine cooling system; and a constant-pressure, steam cooking oven, which the Company believes substantially improves the appearance, aroma and taste of airline food. GROWTH OPPORTUNITIES B/E believes that it is benefiting from three major growth trends occurring in the commercial aircraft cabin interior products industry: - - Increase in Refurbishment and Upgrade Orders. B/E's substantial installed base provides significant ongoing revenues from replacements, upgrades, repairs and spare parts. Approximately two-thirds of B/E's revenues and operating earnings for the six months ended August 31, 1996 were derived from refurbishment and upgrade orders. In the late 1980s and early 1990s, the airline industry suffered a significant downturn, which resulted in a deferral of cabin interior maintenance expenditures. Since early 1994, the airlines have experienced a turnaround in operating results, leading the domestic airline industry to record operating earnings during 1995 and 1996 to date. Deterioration of cabin interior product functionality and aesthetics within the commercial airline fleets during the industry downturn has encouraged airlines to increase spending on refurbishments and upgrades. The Company believes that it is well positioned to benefit over the next several years as a result of the airlines' dramatically improved financial condition and liquidity and the need to refurbish and upgrade cabin interiors. The Company's recent growth in backlog, revenues and operating earnings has been almost entirely from refurbishment and upgrade programs, and the Company is currently experiencing a high level of new order quote activity related to such programs. - - Expansion of Worldwide Fleet and Shift Toward Wide-Body Aircraft. Industry sources report that the airlines are experiencing extremely high load factors and that a significant number of new aircraft will be purchased to meet projected growth in worldwide air travel, which is expected to nearly double by 2005. According to the Current Market Outlook published by the Boeing Commercial Airplane Group in 1996 (the "Boeing Report"), the worldwide fleet of commercial passenger aircraft is projected to expand from approximately 11,000 at the end of 1995 to approximately 16,000 by the end of 2005. The Company believes that growth in aircraft interior product shipments related to new aircraft deliveries will begin in 1997. For example, Boeing has indicated that it plans to ship 215 aircraft in 1996 as compared with 340, 385, and 380, respectively, in each of the subsequent years through 1999. The Company generally receives orders related to new aircraft deliveries approximately six months before the delivery date. Furthermore, according to the July 1996 Airline Monitor, the percentage of new Boeing aircraft deliveries projected to be wide-body aircraft for 1996 through 1998 is 43%, as compared to 32% for the three-year period ended December 31, 1995. This shift toward wide-body aircraft is significant to the Company since these aircraft require substantially more seats, galley equipment and in-flight entertainment products per aircraft than do narrow-body aircraft. 3 7 - - Emergence of Individual Passenger In-flight Entertainment Systems as a Major New Product Category. Airlines increasingly are demanding individual passenger in-flight entertainment systems as a method to attract and retain customers, as the availability of such service affects passengers' decisions on airline selection. These systems also provide the airlines with the opportunity to generate increased revenues, without raising ticket prices, by charging passengers for the services used. The Company expects that individual passenger in-flight entertainment systems will be one of the fastest growing and among the largest product categories in the commercial aircraft cabin interior products industry in the future. The Company has developed a number of individual in-flight entertainment systems that are designed to meet the varying technological and price specifications of the airlines. The Company's three current systems are the B/E 2000, a system that provides non-interactive video programming; the B/E 2000M, which offers similar functionality to the B/E 2000 but is fully upgradable to the Company's Multimedia Digital Distribution System ("MDDS") product; and the MDDS product itself. The MDDS product is a fully interactive entertainment system with the capacity to provide movies on demand, telecommunications, gaming and other services. As of August 31, 1996, B/E had entered into contracts to supply individual passenger entertainment systems to a number of airlines, including British Airways, Air France and KLM. As of August 31, 1996 B/E had an in-flight entertainment systems backlog of approximately $152 million (excluding any additional backlog attributable to United Airlines from the matters described under "Recent Developments"). RECENT DEVELOPMENTS On November 15, 1996, the Company announced that United Airlines had selected B/E as a supplier of individual in-flight entertainment systems for its B777, B747-400 and B767-300 aircraft. While such selection is subject to negotiation of definitive documentation, the Company expects an initial order of approximately $60 million of the B/E 2000M system, to be installed on 54 United Airlines aircraft. If United Airlines decides to upgrade its B/E 2000M entertainment systems to full MDDS interactive functionality, significant additional orders would follow. Pending the negotiation of the final contract, United Airlines has authorized the Company to proceed with necessary engineering and other long lead time items. The Company also announced on the same date that it had been selected, in a program valued at $70 million, to supply all of United Airlines' seating requirements for its Premiere Connoisseur Class services, including business class on all of its wide-body fleet, and first class on all of its narrow-body fleet. On November 6, 1996, B/E announced that the MDDS (including the B/E 2000M) is now being offered by Boeing to its customers as a line fit option for both the B777 and the B747 aircraft, allowing airlines to specify the MDDS as their in-flight entertainment system choice on these Boeing aircraft. Prior to this announcement, the MDDS could only be installed as a retrofit option after the airlines took initial delivery of new aircraft. THE OFFERING Common Stock Offered by the Company.................. 4,000,000 shares Common Stock to be Outstanding after the Offering.... 21,704,275 shares(1) Use of Proceeds...................................... To repay amounts currently outstanding under certain of the Company's existing bank credit facilities and for general corporate purposes, including working capital requirements to support increased sales and possible investments in strategic acquisitions. See "Use of Proceeds." NASDAQ Symbol........................................ BEAV
- --------------- (1) As of November 30, 1996 and does not include 2,489,825 shares of Common Stock issuable upon exercise of outstanding stock options on the date hereof, including 1,503,577 shares issuable pursuant to options which are currently exercisable. 4 8 SUMMARY FINANCIAL DATA The financial data as of and for the fiscal years ended February 24, 1996, February 25, 1995, and February 26, 1994, except backlog, have been derived from financial statements which have been audited by B/E's independent auditors. The financial data as of and for the six months ended August 31, 1996 and August 26, 1995 have been derived from financial statements which are unaudited, but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for such periods. Operating results for the six months ended August 31, 1996 and August 26, 1995 are not necessarily indicative of results that may be expected for a full year. The following financial information is qualified by reference to, and should be read in conjunction with, the B/E historical financial statements, including notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
SIX MONTHS ENDED FISCAL YEAR ENDED --------------------------- -------------------------------------- AUGUST 31, AUGUST 26, FEB. 24, FEB. 25, FEB. 26, 1996(A) 1995 1996(A) 1995 1994 ---------- ---------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS: Net sales....................................... $200,328 $113,045 $232,582 $229,347 $203,364 Cost of sales................................... 133,342 75,925 160,031 154,863 136,307 -------- -------- -------- -------- -------- Gross profit.................................. 66,986 37,120 72,551 74,484 67,057 Operating expenses: Selling, general and administrative........... 24,254 16,743 42,000 31,787 28,164 Research, development and engineering......... 19,157 24,774(c) 58,327(c) 12,860 9,876 Amortization expenses......................... 5,514 4,650 9,499 9,954 7,599 Other expenses................................ -- -- 4,170(b) 23,736(b) -- -------- -------- -------- -------- -------- Operating earnings (loss)....................... 18,061 (9,047) (41,445) (3,853) 21,418 Interest expense, net........................... 14,399 8,149 18,636 15,019 12,581 -------- -------- -------- -------- -------- Earnings (loss) before income taxes (benefit) and cumulative effect of accounting change.... 3,662 (17,196) (60,081) (18,872) 8,837 Income taxes (benefit).......................... 366 -- -- (6,806) 3,481 -------- -------- -------- -------- -------- Earnings (loss) before cumulative effect of accounting change............................. 3,296 (17,196) (60,081) (12,066) 5,356 Cumulative effect of accounting change.......... -- (23,332)(c) (23,332)(c) -- -- -------- -------- -------- -------- -------- Net earnings (loss)............................. $ 3,296 $(40,528) $(83,413) $(12,066) $ 5,356 ======== ======== ======== ======== ======== Earnings (loss) per common share: Earnings (loss) before cumulative effect of accounting change............................. $ 0.19 $ (1.07) $ (3.71) $ (0.75) $ 0.35 Cumulative effect of accounting change.......... -- (1.45)(c) (1.44)(c) -- -- -------- -------- -------- -------- -------- Net earnings (loss)............................. $ 0.19 $ (2.52) $ (5.15) $ (0.75) $ 0.35 ======== ======== ======== ======== ======== Common and common equivalent shares............. 17,446 16,108 16,158 16,021 15,438 OTHER DATA: Depreciation and amortization................... $ 11,840 $ 8,413 $ 18,435 $ 16,146 $ 13,115 Capital expenditures............................ 7,065 8,168 13,656 12,172 11,002 Backlog, at period end.......................... 480,000 345,000 450,000 331,000 241,000
AS OF AUGUST 31, 1996 --------------------------- ACTUAL AS ADJUSTED(D) -------- -------------- BALANCE SHEET DATA: Working capital......................................................................... $ 62,282 $ 94,452 Total assets............................................................................ 443,340 475,510 Long-term debt.......................................................................... 282,058 225,000 Stockholders' equity.................................................................... 52,144 141,914
5 9 SUMMARY FINANCIAL DATA (CONTINUED) FOOTNOTES TO TABLE (a) On January 24, 1996, the Company acquired all of the stock of Burns Aerospace Corporation ("Burns"), an industry leader in commercial aircraft seating. The acquisition of Burns was accounted for as a purchase, and the results of Burns are included in B/E's historical financial data from the date of acquisition. (b) In fiscal 1996, in conjunction with the Company's rationalization of its seating business and as a result of the Burns acquisition, the Company recorded a charge to earnings of $4.2 million related to costs associated with the integration and consolidation of the Company's European seating operations. In fiscal 1995, the Company charged to earnings $23.7 million of expenses primarily related to intangible assets and inventories associated with the Company's earlier generations of passenger entertainment systems. (c) In fiscal 1996, the Company changed its method of accounting relating to the capitalization of pre-contract engineering costs that were previously included as a component of inventories and amortized to earnings as the product was shipped. Effective February 26, 1995, such costs have been charged to research and development and expensed as incurred, and, as a result, periods prior to fiscal 1996 are not comparable. In connection with such change in accounting, the Company recorded a charge to earnings of $23.3 million. See Note 2 of Notes to Consolidated Financial Statements. (d) Adjusted to reflect the sale of 4,000,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $23 7/8 per share and the application of $57.6 million of net proceeds to reduce indebtedness as described in "Use of Proceeds." 6 10 RISK FACTORS In addition to the other information in this Prospectus, prospective investors should consider carefully the following factors in evaluating the Company and its business before purchasing the shares of Common Stock offered hereby. DEPENDENCE UPON CONDITIONS IN THE AIRLINE INDUSTRY The Company's customers are the world's commercial airlines. As a result, the Company's business is directly dependent upon the conditions in the highly cyclical and competitive commercial airline industry. In the late 1980s and early 1990s, the world airline industry suffered a severe downturn, which resulted in record losses and several air carriers seeking protection under bankruptcy laws. As a consequence, during such period, airlines sought to conserve cash by reducing or deferring scheduled cabin interior refurbishment and upgrade programs and delaying purchases of new aircraft. This led to a significant contraction in the commercial aircraft cabin interior products industry, and a decline in the Company's business and profitability. The airline industry has experienced an economic turnaround and the levels of airline spending on refurbishment and new aircraft purchases have expanded. However, due to the volatility of the airline industry there can be no assurance that the current profitability of the airline industry will continue or that the airlines will maintain or increase expenditures on cabin interior products for refurbishments or new aircraft. In addition, the airline industry is undergoing a process of consolidation and significantly increased competition. Such consolidation could result in a reduction in future aircraft orders as overlapping routes are eliminated and airlines seek greater economies through higher aircraft utilization. Increased airline competition may also result in airlines seeking to reduce costs by promoting greater price competition from airline cabin interior products manufacturers, thereby adversely affecting the Company's revenues and margins. NEW PRODUCT INTRODUCTIONS AND TECHNOLOGICAL CHANGE Airlines currently are taking delivery of a new generation of aircraft and demanding increasingly sophisticated cabin interior products. As a result, the cabin interior configurations of commercial aircraft are becoming more complex and will require more technologically advanced and integrated products. For example, airlines increasingly are seeking sophisticated in-flight entertainment systems, such as the MDDS interactive individual passenger in-flight entertainment system developed by B/E, which the Company expects will provide a significant percentage of its future revenues. Development of the MDDS required substantial investment by the Company and third parties in research, development and engineering. MDDS is not yet in commercial production. The future success of the Company will depend, to a significant extent, on its ability to manufacture successfully and deliver, on a timely basis, its MDDS product and to have the MDDS perform at the level expected by B/E's customers and their passengers, as well as the Company's ability to continue to develop, profitably manufacture and deliver, on a timely basis, other technologically advanced, reliable high- quality products which can be readily integrated into complex cabin interior configurations. See "Business -- Products and Services." COMPETITION The Company competes with a number of established companies that have significantly greater financial, technological and marketing resources than the Company. Although the Company has achieved a significant share of the market for a number of its cabin interior products, there can be no assurance that the Company will be able to maintain this market share. The ability of the Company to maintain its market share will depend not only on its ability to remain the supplier of retrofit and refurbishment products and spare parts on the commercial fleets on which its products are currently in service but also on its success in causing its products to be selected for installation in new aircraft, including next generation aircraft, expected to be purchased by the airlines over the next decade, and in avoiding product obsolescence. In addition, the Company's primary competitor in the market for new passenger entertainment products, including individual seat video and in-flight entertainment and cabin management systems, Matsushita Electronics, has significantly greater technological capabilities and financial and marketing resources than the Company. See "Business -- Competition." 7 11 ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE Following the Offering, the Company will continue to have substantial indebtedness and, as a result, significant debt service obligations. As of August 31, 1996, after giving effect to the Offering and the application of the net proceeds therefrom, the Company would have had approximately $230 million aggregate amount of indebtedness outstanding, representing 62% of total capitalization. See "Use of Proceeds" and "Capitalization." The degree of the Company's leverage could have important consequences to purchasers of the shares of Common Stock offered hereby, including: (i) limiting the Company's ability to obtain additional financing to fund future working capital requirements, capital expenditures, acquisitions or other general corporate requirements; (ii) requiring a substantial portion of the Company's cash flow from operations to be dedicated to debt service requirements, thereby reducing the funds available for operations and further business opportunities; and (iii) increasing the Company's vulnerability to adverse economic and industry conditions. In addition, since any borrowings under the Company's bank credit facilities will be at variable rates of interest, the Company will be vulnerable to increases in interest rates. The Company may incur additional indebtedness in the future, although its ability to do so will be restricted by the indenture governing the Company's Senior Subordinated Notes due 2006 (the "Senior Subordinated Notes"), the indenture governing the Company's Senior Notes due 2003 (the "Senior Notes") and the Company's bank credit facilities. The ability of the Company to make scheduled payments under its present and future indebtedness will depend on, among other things, the future operating performance of the Company and the Company's ability to refinance its indebtedness when necessary. Each of these factors is to a large extent subject to economic, financial, competitive and other factors beyond the Company's control. The Company's bank credit facilities and the indentures governing the Senior Notes and the Senior Subordinated Notes contain numerous financial and operating covenants that will limit the discretion of the Company's management with respect to certain business matters. These covenants will place significant restrictions on, among other things, the ability of the Company to incur additional indebtedness, to create liens or other encumbrances, to make certain payments and investments, and to sell or otherwise dispose of assets and merge or consolidate with other entities. The Company's bank credit facilities also require the Company to meet certain financial ratios and tests. A failure to comply with the obligations contained in the Company's bank credit facilities, or the indentures governing the Senior Notes and the Senior Subordinated Notes, could result in an event of default under the Company's bank credit facilities, or the aforementioned indentures, which could permit acceleration of the related debt and acceleration of debt under other instruments that may contain cross-acceleration or cross-default provisions. ABILITY TO INTEGRATE ACQUIRED BUSINESSES Since 1992, B/E has acquired nine companies. The Company intends to consider future strategic acquisitions in the commercial airline cabin interior industry, some of which could be material to the Company. The ability of the Company to continue to achieve its goals will depend upon its ability to integrate effectively any future acquisition, and to achieve cost efficiencies. Although B/E has been successful in the past in doing so, there can be no assurance that it will continue to be successful. REGULATION The Federal Aviation Administration (the "FAA") prescribes standards and licensing requirements for aircraft components, including virtually all commercial airline cabin interior products, and licenses component repair stations within the United States. Comparable agencies regulate these matters in other countries. If the Company fails to obtain a required license for one of its products or services or loses a license previously granted, the sale of the subject product or service would be prohibited by law until such license is obtained or renewed. In addition, designing new products to meet existing FAA requirements and retrofitting installed products to comply with new FAA requirements can be both expensive and time-consuming. See "Business -- Government Regulation." 8 12 CERTAIN LEGAL PROCEEDING In July 1995, B/E became aware that the U.S. Attorney's Office for the District of Connecticut, in conjunction with the Department of Commerce and the U.S. Customs Service, is conducting a grand jury investigation focused on possible non-compliance by B/E with certain statutory and regulatory provisions relating to export licensing and controls. The investigation relates primarily to the sale of passenger seats and related spare parts for civilian commercial passenger aircraft to Iran Air from 1992 through mid-1995. B/E has been advised that it is a target of the investigation; however, neither it nor any current or former directors, officers, or employees have been charged in connection with the investigation. The investigation is at an early stage and, while the Company intends to defend itself vigorously, the ultimate outcome of the investigation cannot presently be determined. An adverse outcome could have a material adverse effect upon the operations and/or financial condition of the Company. 9 13 THE COMPANY B/E Aerospace is the world's largest supplier of commercial aircraft cabin interior products, serving virtually all major airlines with a broad line of products, including aircraft seats, galley products and structures and in-flight entertainment systems. B/E's executive offices are located at 1400 Corporate Center Way, Wellington, Florida 33414, and its telephone number is (561) 791-5000. USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the 4,000,000 shares of Common Stock offered hereby are approximately $89.8 million ($101.8 million if the Underwriters' overallotment option is exercised in full; the Company will not receive any proceeds from the sale of Common Stock by the Selling Stockholders pursuant to any exercise of the Underwriters' overallotment option). The Company intends to use approximately $57.6 million of the net proceeds from the Offering to repay the outstanding balances under certain B/E bank credit facilities. The bank indebtedness which the Company intends to repay accrued interest at a weighted average rate of 7.56% per annum as of August 31, 1996 and had maturities extending through March 2003. A portion of such debt to be repaid was incurred within the past year for working capital purposes. Assuming such repayment, the Company would have available under its bank credit facilities approximately $97.0 million for subsequent borrowings. The remainder of the net proceeds will be used for general corporate purposes, including working capital requirements to support increased sales, and possible investments in strategic acquisitions. The Company currently has no agreements, commitments or understandings with respect to any acquisitions. Pending application as described above, the net proceeds of the Offering will be invested in short-term investments. CAPITALIZATION The following table sets forth the capitalization of the Company as of August 31, 1996 and as adjusted to give effect to the sale of the 4,000,000 shares of Common Stock offered by the Company hereby after deducting estimated underwriting discounts, commissions and other offering expenses, and the application of the net proceeds of the Offering as described in "Use of Proceeds." The table should be read in conjunction with the financial statements, including notes thereto, included elsewhere in the Prospectus.
AS OF AUGUST 31, 1996 --------------------------- ACTUAL AS ADJUSTED(A) -------- -------------- (UNAUDITED) (DOLLARS IN THOUSANDS) Short-term debt, including current maturities of long-term debt.... $ 5,459 $ 4,917 -------- -------- Long-term debt, excluding current maturities: Bank indebtedness................................................ 57,058 -- Senior Notes..................................................... 125,000 125,000 Senior Subordinated Notes........................................ 100,000 100,000 -------- -------- Total long-term debt.......................................... 282,058 225,000 -------- -------- Stockholders' equity Preferred Stock, $.01 par value, 1,000,000 shares authorized; no shares issued and outstanding................................. -- -- Common Stock, $.01 par value, 30,000,000 shares authorized; 16,877,867 shares issued and outstanding (20,877,867 shares, as adjusted)(b)............................................... 169 209 Additional paid-in capital....................................... 125,730 215,460 Retained earnings................................................ (72,699) (72,699) Currency translation adjustment.................................. (1,056) (1,056) -------- -------- Total stockholders' equity.................................... 52,144 141,914 -------- -------- Total capitalization..................................... $339,661 $371,831 ======== ========
- --------------- (a) Adjusted to reflect the sale of 4,000,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $23 7/8 per share. The Company intends to use approximately $57.6 million of the net proceeds from the Offering to repay certain outstanding bank indebtedness, which accrued interest at a weighted average of 7.56% per annum as of August 31, 1996. Assuming such repayment, the Company would have available under its various bank credit facilities approximately $97.0 million for subsequent borrowings. (b) Excludes 746,500 shares of Common Stock issued pursuant to stock options exercised after August 31, 1996. Also excludes 3,214,512 shares of Common Stock reserved for issuance under the Company's various stock options plans, including 1,503,577 options which are currently exercisable. 10 14 PRICE RANGE OF COMMON STOCK The Company's Common Stock is quoted on the NASDAQ National Market System under the symbol "BEAV." The following table sets forth, for the periods indicated, the range of high and low per share sale prices for the Common Stock as reported by NASDAQ:
HIGH LOW ----- ---- FISCAL YEAR ENDED FEBRUARY 26, 1994: First Quarter....................................................... 12 1/2 8 3/ Second Quarter...................................................... 15 1/4 12 1/4 Third Quarter....................................................... 15 10 Fourth Quarter...................................................... 12 8 3/ FISCAL YEAR ENDED FEBRUARY 25, 1995: First Quarter....................................................... 11 1/2 7 7/ Second Quarter...................................................... 9 1/2 7 3/ Third Quarter....................................................... 9 1/4 7 1/ Fourth Quarter...................................................... 8 1/2 5 3/ FISCAL YEAR ENDED FEBRUARY 24, 1996: First Quarter....................................................... 8 5/8 5 1/ Second Quarter...................................................... 9 1/4 7 1/ Third Quarter....................................................... 9 9/1 7 1/ Fourth Quarter...................................................... 13 5/8 8 7/ FISCAL YEAR ENDED FEBRUARY 22, 1997: First Quarter....................................................... 16 1/4 9 7/ Second Quarter...................................................... 16 3/4 12 3/8 Third Quarter....................................................... 24 1/2 15 7/8 Fourth Quarter (through December 11, 1996).......................... 25 1/2 22 7/8
As of November 30, 1996, the Company had 278 shareholders of record, and management estimates that there were approximately 3,300 beneficial owners of the Company's Common Stock. A recent last sale price of the Common Stock as reported by NASDAQ is set forth on the cover page of this Prospectus. DIVIDEND POLICY The Company has never paid a cash dividend and does not plan to pay cash dividends on its Common Stock in the foreseeable future. It is the current policy of the Company's Board of Directors to retain any future earnings for use in the business of the Company. In addition, terms of the Company's Senior Notes, Senior Subordinated Notes and bank credit facilities place restrictions on the amount of dividends which may be declared. 11 15 SELECTED FINANCIAL DATA On February 28, 1992, B/E acquired from the Pullman Company certain assets and liabilities of PTC Aerospace, Inc. ("PTC") and Aircraft Products Company ("APC") and changed its fiscal year-end to the last Saturday in February. On April 2, 1992, B/E acquired the stock of Flight Equipment Engineering Limited ("FEEL"). During fiscal 1994, B/E completed the following acquisitions: (a) on April 29, 1993, B/E acquired all of the stock of Royal Inventum, B.V. ("Inventum"); (b) on August 23, 1993, B/E acquired all of the stock of Nordskog Industries ("Nordskog"); (c) on August 26, 1993, B/E acquired all of the stock of Acurex Corporation ("Acurex"); and (d) on October 13, 1993, B/E acquired substantially all of the assets of Philips Airvision ("Airvision"). On January 24, 1996, the Company acquired all of the stock of Burns Aerospace Corporation ("Burns"), an industry leader in commercial aircraft seating. The financial data as of and for the fiscal years ended February 24, 1996, February 25, 1995, February 26, 1994 and February 27, 1993, the seven months ended February 29, 1992 and the fiscal year ended July 28, 1991 have been derived from financial statements which have been audited by B/E's independent auditors. The financial data as of and for the six months ended August 31, 1996 and August 26, 1995 have been derived from financial statements which are unaudited, but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for such periods. Operating results for the six months ended August 31, 1996 and August 26, 1995 are not necessarily indicative of results that may be expected for a full year. The following financial information is qualified by reference to, and should be read in conjunction with, the B/E historical financial statements, including notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
SIX MONTHS ENDED FISCAL YEAR ENDED SEVEN MONTHS FISCAL YEAR ---------------------- ------------------------------------------------------ ENDED ENDED AUGUST 31, AUGUST 26, FEBRUARY 24, FEBRUARY 25, FEBRUARY 26, FEBRUARY 27, FEBRUARY 29, JULY 28, 1996(A) 1995 1996(A) 1995 1994 1993 1992 1991 ---------- ---------- ------------ ------------ ------------ ------------ ------------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS: Net sales........... $200,328 $113,045 $232,582 $229,347 $203,364 $198,019 $ 12,192 $24,278 Cost of sales....... 133,342 75,925 160,031 154,863 136,307 137,690 5,626 10,645 -------- -------- -------- -------- -------- -------- -------- ------- Gross profit.... 66,986 37,120 72,551 74,484 67,057 60,329 6,566 13,633 Operating expenses: Selling, general and administrative... 24,254 16,743 42,000 31,787 28,164 21,698 4,871(e) 4,855 Research, development and engineering..... 19,157 24,774(c) 58,327(c) 12,860 9,876 11,299 1,324 1,809 Amortization expense......... 5,514 4,650 9,499 9,954 7,599 4,551 3,707(e) -- Other expenses.... -- -- 4,170(b) 23,736(b) -- -- -- -- -------- -------- -------- -------- -------- -------- -------- ------- Operating earnings (loss)............ 18,061 (9,047) (41,445) (3,853) 21,418 22,781 (3,336) 6,969 Interest (income) expense, net...... 14,399 8,149 18,636 15,019 12,581 3,955 (743) (211) -------- -------- -------- -------- -------- -------- -------- ------- Earnings (loss) before income taxes (benefit), extraordinary item and cumulative effect of accounting change............ 3,662 (17,196) (60,081) (18,872) 8,837 18,826 (2,593) 7,180 Income taxes (benefit)......... 366 -- -- (6,806) 3,481 6,676 (860) 2,478 -------- -------- -------- -------- -------- -------- -------- ------- Earnings (loss) before extraordinary item and cumulative effect of accounting change............ 3,296 (17,196) (60,081) (12,066) 5,356 12,150 (1,733) 4,702 Extraordinary item, net of tax effect............ -- -- -- -- -- (522)(d) -- -- Cumulative effect of accounting change............ -- (23,332)(c) (23,332)(c) -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- ------- Net earnings (loss)............ $ 3,296 $(40,528) $(83,413) $(12,066) $ 5,356 $ 11,628 $ (1,733) $ 4,702 ======== ======== ======== ======== ======== ======== ======== ======= Earnings (loss) per common share: Earnings (loss) before cumulative effect of accounting change.......... $ 0.19 $ (1.07) $ (3.71) $ (0.75) $ 0.35 $ 1.03 $ (0.18) $ 0.65 Cumulative effect of accounting change.......... -- (1.45)(c) (1.44)(c) -- -- (0.05)(d) -- -- -------- -------- -------- -------- -------- -------- -------- ------- Net earnings (loss)............ $ 0.19 $ (2.52) $ (5.15) $ (0.75) $ 0.35 $ 0.98 $ (0.18) $ 0.65 ======== ======== ======== ======== ======== ======== ======== ======= Common and common equivalent shares............ 17,446 16,108 16,158 16,021 15,438 11,847 9,604 7,248 Supplemental earnings (loss) per common share:(f) Earnings (loss) before cumulative effect of accounting change.......... $ 0.26 $ (2.98) Cumulative effect of accounting change.......... -- (1.25) -------- -------- Net earnings (loss).......... $ 0.26 $ (4.23) ======== ======== BALANCE SHEET DATA (END OF PERIOD): Working capital..... $ 62,282 $ 53,022 $ 41,824 $ 76,563 $ 76,874 $133,661 $ 27,367 $13,500 Total assets........ 443,340 355,125 433,586 379,954 375,009 314,055 135,330 26,034 Long-term debt...... 282,058 188,435 273,192 172,693 159,170 127,743 40,500 -- Shareholders' equity............ 52,144 86,630 44,157 125,331 133,993 107,974 57,057 22,467
12 16 SELECTED FINANCIAL DATA (CONTINUED) FOOTNOTES TO TABLE (a) On January 24, 1996, the Company acquired all of the stock of Burns, an industry leader in commercial aircraft seating. The acquisition of Burns was accounted for as a purchase, and the results of Burns are included in B/E's historical financial data from the date of acquisition. (b) In fiscal 1996, in conjunction with the Company's rationalization of its seating business and as a result of the Burns acquisition, the Company recorded a charge to earnings of $4.2 million related to costs associated with the integration and consolidation of the Company's European seating operations. In fiscal 1995, the Company charged to earnings $23.7 million of expenses primarily related to intangible assets and inventories associated with the Company's earlier generations of passenger entertainment systems. (c) In fiscal 1996, the Company changed its method of accounting relating to the capitalization of pre-contract engineering costs that were previously included as a component of inventories and amortized to earnings as the product was shipped. Effective February 24, 1995, such costs have been charged to research and development and expensed as incurred and, as a result, periods prior to fiscal 1996 are not comparable. In connection with such change in accounting, the Company recorded a charge to earnings of $23.3 million. See Note 2 of Notes to Consolidated Financial Statements. (d) As a result of the sale of Senior Notes in 1993, the Company wrote off the unamortized portion of certain debt issuance costs related to its prior credit agreement. (e) During the seven months ended February 29, 1992, approximately $3.1 million of non-recurring expenses related to writedown of intangible assets and $2.1 million of costs associated with the Company's acquisitions were charged to amortization expense and selling, general and administrative expenses, respectively. (f) As required by APB 15, the Supplemental earnings (loss) per common share data adjust the Statement of Operations data and Common and common equivalent shares to give effect to: (i) the assumed issuance of 2,566,559 shares of Common Stock by the Company which would be necessary to generate proceeds (using an assumed share price of $23 7/8), net of estimated offering costs, sufficient to repay $57.6 million of indebtedness; and (ii) the elimination of interest expense related to such borrowings for each period, net of tax. The supplemental data do not give effect to the issuance of an additional 1,433,441 shares of Common Stock offered by the Company, the proceeds of which will be used as set forth under "Use of Proceeds". 13 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS) INTRODUCTION B/E has become the world's leading manufacturer of commercial aircraft interior products through the strategic acquisitions of seating, in-flight passenger entertainment and services systems and galley products businesses. B/E's products include an extensive line of first, business, tourist class and commuter seats, a broad range of galley products including coffee and beverage makers, ovens, liquid containers, refrigeration equipment and galley structures, as well as a line of in-flight entertainment products including the MDDS interactive video system. B/E markets and sells its products to its customers, the airlines, through an integrated worldwide approach, focused by airline and encompassing B/E's entire product line. B/E's revenues are generally derived from two primary sources: refurbishment or upgrade programs for the airlines' existing worldwide fleets, and new aircraft deliveries. B/E believes its large installed base of products, estimated to be approximately $2.6 billion as of August 31, 1996 (valued at replacement prices), gives it a significant advantage over competitors in obtaining orders for refurbishment programs, principally due to the tendency of the airlines to purchase equipment for such programs from the original supplier. With the exception of spare parts sales, B/E's revenues are generated from programs initiated by the airlines which may vary significantly from year to year in terms of size, mix of products and length of delivery. As a result, B/E's revenues and margins may fluctuate from period to period based upon the size and timing of the program and the type of products sold. Historically, B/E experienced certain trends in its two revenue drivers: as the airlines took deliveries of large numbers of new aircraft, refurbishment programs as a percentage of revenues declined and, similarly, when new aircraft deliveries declined, refurbishment programs tended to increase in number and size. During the most recent airline industry recession, which ended in 1994, the airlines significantly depleted their cash reserves and incurred record losses. In an effort to improve their liquidity, the airlines conserved cash by reducing or deferring cabin interior refurbishment and upgrade programs and purchases of new aircraft. As a result, in contrast with historical experience, B/E experienced declines in the number of both new orders and refurbishments. Since early 1994, the airlines have experienced a significant turnaround in operating results, with the domestic airline industry achieving record operating earnings during 1995 and 1996 to date. Consequently, during fiscal 1996 and the six months ended August 31, 1996, B/E has experienced significant growth in backlog of seating and galley products, and, during the six months ended August 31, 1996, has experienced significant growth in revenues and operating earnings. This growth is a reflection of the airlines' need to begin refurbishing worn fleets and their ability to do so as a result of the strengthening of the airlines' balance sheets. B/E has substantially expanded the size, scope and nature of its business as a result of a number of acquisitions. During the fiscal year ended February 26, 1994, B/E completed the following acquisitions: (a) on April 29, 1993, the Company acquired, through a Dutch holding company, all of the capital stock of Inventum, a supplier of galley inserts including ovens, beverage makers and water boilers to airlines located primarily in Europe and the Pacific Rim; (b) on August 23, 1993, the Company acquired all of the capital stock of Nordskog, an industry pioneer in galley structures and inserts; (c) on August 26, 1993, the Company acquired all of the capital stock of Acurex, the leading worldwide supplier of commercial aircraft refrigeration products; and (d) on October 13, 1993, the Company acquired substantially all of the assets and certain of the liabilities of Airvision, a manufacturer of in-flight entertainment equipment. On January 24, 1996, the Company acquired all of the stock of Burns, an industry leader in commercial aircraft seating. While the Company will continue to be susceptible to industry-wide conditions, management believes that the Company's significantly more diversified product line and revenue base achieved through acquisitions has reduced its exposure to demand fluctuations in any one product area. The Burns acquisition has had a significant impact on B/E's results of operations. Burns was one of the three leading North American suppliers of commercial aircraft passenger seats, with a base of airline customers that was largely complementary to that of B/E. B/E's and Burns' approximate share of the 14 18 worldwide seating products market at the time of acquisition were 30% and 20%, respectively, based on fiscal 1995 unit sales. By consolidating engineering, marketing, administration and manufacturing operations of the two companies, B/E has been able to reduce fixed costs, thereby enhancing its low-cost position. B/E's business strategy is to maintain its market leadership position through various initiatives, including new product development. In fiscal 1996, research, development and engineering expenses totaled $58,327, or 25% of net sales, primarily consisting of costs related to the development of the MDDS, with the balance attributable to its seating products and galley businesses. During the six months ended August 31, 1996, primarily as a result of the substantial completion of the engineering associated with the development of the MDDS, such expenses were $19,157, or 10% of net sales. The Company expects that its research, development and engineering expenses will increase in fiscal 1998 as a result of the introduction of the MDDS as a line fit option on the Boeing B777 and B747 aircraft. See "Prospectus Summary -- Recent Developments." RESULTS OF OPERATIONS -- SIX MONTHS ENDED AUGUST 31, 1996 COMPARED TO THE SIX MONTHS ENDED AUGUST 26, 1995 Sales for the six months ended August 31, 1996 were $200,328, or 77% higher than sales of $113,045 for the comparable period in the prior year. The increase in sales is attributable to substantially higher unit volume shipments of all the Company's products as a result of improving industry conditions. Of the $87,283 increase in sales for the six-month period, $56,129 was due to increased seating revenues directly related to the acquisition of Burns. Excluding the effect of the Burns acquisition, sales increased 28% from the comparable period in the prior year. At August 31, 1996, the Company's backlog was approximately $480,000, up from $450,000 at February 24, 1996. New order bookings in the six months ended August 31, 1996 of $230,000 were $112,000 greater than new order bookings of $118,000 for the comparable period in the prior year. Management estimates that approximately 36% of its backlog is deliverable during the balance of fiscal 1997. Gross profit was $66,986, or 33.4% of sales, for the six months ended August 31, 1996 and was $29,866 higher than gross profit for the comparable period in the prior year of $37,120, which represented 32.8% of sales. The increase in gross profit is primarily the result of the higher sales volumes. Selling, general and administrative expenses were $24,254, or 12.1% of sales, for the six months ended August 31, 1996. This was $7,511 higher than selling, general and administrative expenses for the comparable period in the prior year of $16,743, or 14.8% of sales, principally due to the substantial increases in revenues and the acquisition of Burns. Research, development and engineering expenses were $19,157, or 9.6% of sales, for the six months ended August 31, 1996. For the comparable period in the prior year, research and development expense was $24,774, or 21.9% of sales. The decrease in expenses during the current year is the result of a decrease in the level of activity associated with the MDDS, offset somewhat by an increase in product development activity in the Seating Products Division. Amortization expense for the six months ended August 31, 1996 of $5,514 was $864 more than the amount recorded in the first half of fiscal 1996 as a result of the Burns acquisition. Net interest expense was $14,399 for the six months ended August 31, 1996, or $6,250 higher than the net interest expense of $8,149 recorded for the comparable period in the prior year, and is due to the increase in the Company's long-term debt outstanding as a result of the Burns acquisition and the upturn in the Company's business. Earnings before income taxes of $3,662 for the six months ended August 31, 1996 were $20,858 more than the loss before income taxes of $(17,196) in the prior period. Income taxes for the six months ended August 31, 1996 were $366, or 10% of earnings before income taxes, as compared to no tax provision in the first half of fiscal 1996. 15 19 Net earnings were $3,296, or $.19 per share, for the six months ended August 31, 1996 as compared to a net loss of $(40,528) or $(2.52) per share for the comparable period in the prior year, which included the cumulative effect of an accounting change of $23,332. RESULTS OF OPERATIONS -- YEAR ENDED FEBRUARY 24, 1996 COMPARED WITH YEAR ENDED FEBRUARY 25, 1995 Sales for the year ended February 24, 1996 were $232,582, or 1% greater than sales of $229,347 in the prior year. This increase in sales is primarily related to the inclusion of results of operations of Burns, which was acquired during the fourth quarter of fiscal 1996. Offsetting this increase in revenues was the negative impact of the ten-week strike at Boeing, which ended December 14, 1995. At February 24, 1996, the Company's backlog stood at approximately $450,000, up from $331,000 at February 25, 1995. The increase in backlog is attributable to the acquisition of Burns, along with solid growth from orders placed by the airlines. During the year ended February 24, 1996, and for the first time in over two years, the airlines placed orders for the Company's seating and galley products in excess of its shipment levels, resulting in an increase in its seating and galley products backlog. Gross profit was $72,551, or 31.3% of sales, for the year ended February 24, 1996 and was $1,933 less than gross profit for the prior year of $74,484, which represented 32.5% of sales. The decrease in gross profit during the year ended February 24, 1996 is primarily the result of the mix of products sold. Selling, general and administrative expenses were $42,000, or 18.1% of sales, for the year ended February 24, 1996. This was $10,213 higher than selling, general and administrative expenses in the prior year of $31,787, or 13.9% of sales, principally due to costs associated with the Burns acquisition and related organizational changes brought about by this acquisition, higher promotional and selling costs associated with B/E's participation in industry trade shows, and higher medical benefits and legal costs during fiscal 1996. Effective as of the beginning of fiscal 1996, the Company changed its method of accounting for pre-contract engineering expenditures associated with customer orders. These expenditures, which previously were carried in inventory for amortization over future deliveries, are now expensed as incurred. As a result of this change in accounting method, research, development and engineering expenses for the year ended February 24, 1996 increased by $45,467 to $58,327, as compared to $12,860 in the prior year. Amortization expense for the year ended February 24, 1996 of $9,499 was $455 less than the amount recorded in the prior year, and is due to the lower level of intangible assets being amortized during fiscal 1996. Other expenses were $4,170 for the year ended February 24, 1996 and relate to costs associated with the integration and consolidation of the Company's European seating business. Other expenses for the year ended February 25, 1995 were $23,736 and related primarily to a charge associated with B/E's earlier generations of passenger entertainment systems. Net interest expense was $18,636 for the year ended February 24, 1996, or $3,617 higher than net interest expense of $15,019 recorded in the prior year. This increase is the result of an increase in the amount of the Company's long-term debt outstanding, as well as higher interest rates. No income tax benefit was provided for the year ended February 24, 1996 as compared to a tax benefit of $(6,806), or 36% of the loss before income taxes, for the prior year. The Company recorded the cumulative effect of an accounting change of $23,332 during the year ended February 24, 1996. Such amount represents the total amount of capitalized pre-contract engineering costs which were included in inventories as of February 25, 1995. The net loss for fiscal 1996 was $(83,413), or $(5.15) per share, as compared to a net loss of $(12,066), or $(.75) per share, in the prior year. 16 20 RESULTS OF OPERATIONS -- YEAR ENDED FEBRUARY 25, 1995 (FISCAL 1995) COMPARED WITH YEAR ENDED FEBRUARY 26, 1994 (FISCAL 1994) Sales for the year ended February 25, 1995 were $229,347, or 13% higher than sales of $203,364 in the prior year. The increase in sales was primarily related to the results of operations of businesses acquired at the end of the second quarter of fiscal 1994. The level of activity in the cabin interior products industry continued to reflect the depressed conditions within the airline industry. At February 25, 1995, B/E's backlog stood at $331,000, up from $241,000 at February 26, 1994. Substantially all of the growth in backlog was attributable to B/E's in-flight entertainment products; backlog for B/E's seating and galley products continued to decline through fiscal 1995 as a result of the depressed conditions present in the airline industry. Gross profit was $74,484, or 32% of sales, for the year ended February 25, 1995 and was $7,427, or 11%, greater than the prior year's gross profit of $67,057, which represented 33% of sales. The increase in gross profit during the fiscal year ended February 25, 1995 was in large part the result of higher revenues associated with the businesses acquired at the end of the second quarter of fiscal 1994. Selling, general and administrative expenses were $31,787, or 14% of sales, for the year ended February 25, 1995. This was $3,623, or 13%, higher than the selling, general and administrative expenses in the prior year of $28,164, or 14% of sales, principally due to the acquisitions completed during fiscal 1995. Research, development and engineering expenses were $12,860, or 6% of sales, for the fiscal year ended February 25, 1995. For the prior year, research and development expenses were $9,876, or 5% of sales. The increase in research, development and engineering expense was attributable to B/E's ongoing new product development programs. Amortization expense for the fiscal year ended February 25, 1995 of $9,954, was $2,355, or 31%, higher than the amount recorded in the prior year, and was due to the acquisitions completed during fiscal 1995. Other expenses consisted of a charge of $23,736, related primarily to intangible assets and inventories associated with B/E's earlier generations of passenger entertainment systems. The introduction of B/E's MDDS, which B/E expects to become the industry's standard for in-flight passenger and service entertainment, has captured the dominant market share with it receiving contract awards from major airlines totaling more than $150,000 during the fiscal year ended February 25, 1995. The MDDS also caused major carriers to convert programs for earlier products of B/E to the MDDS and has resulted in two of B/E's principal competitors offering to develop for the airlines systems similar to B/E's MDDS. These events caused the in-flight entertainment industry to reevaluate its product offerings and, in the process, have impaired the value of certain of its assets. As a result, B/E has written down certain of its assets principally related to its earlier systems. Principally due to the other expenses described above, B/E recorded a net operating loss of ($3,853) for the fiscal year ended February 25, 1995, as compared to operating earnings of $21,418 in the prior year. Operating earnings for the period before the special charge mentioned above were $19,883. Net interest expense of $15,019 for the fiscal year ended February 25, 1995 was $2,438, or 19%, higher than net interest expense of $12,581 in the prior year. This increase was the result of an increase in the amount of B/E's long-term debt outstanding, as well as higher interest rates. An income tax benefit of $(6,806), or 36% of the loss before income taxes, was recognized principally as the result of the charge described above. Income tax expense for the fiscal year ended February 25, 1994 was $3,481, or 39% of earnings before income taxes. The net loss for fiscal 1995 was $(12,066) or $(.75) per share as compared to net earnings of $5,356, or $.35 per share in the prior year, principally due to the charge. 17 21 LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements consist primarily of working capital needs and scheduled payments of interest on its indebtedness. As a result of the Burns acquisition, the Company has significantly increased cash requirements for the payment of interest on its outstanding borrowings. B/E's primary requirements for working capital have been directly related to increased accounts receivable and inventory levels as a result of revenue growth. B/E's working capital was $62,282 as of August 31, 1996, compared to $41,824 as of February 24, 1996. In January 1996 the Company amended its existing credit facilities with The Chase Manhattan Bank by increasing the aggregate principal amount that may be borrowed thereunder to $100,000 (the "Bank Credit Facility"). The Bank Credit Facility consists of a $25,000 Reducing Revolver and a $75,000 Revolving Facility. The amount of the Reducing Revolver will be reduced automatically by 12.5% on April 19, 1999 and on each of the seven succeeding quarterly anniversaries of such date. The Reducing Revolver is collateralized by all of the issued and outstanding capital stock of Acurex, a wholly owned subsidiary, and has a five year maturity and the Revolving Facility is collateralized by all of the Company's accounts receivable, all of its inventory and substantially all of its other personal property and has a five-year maturity. The Bank Credit Facility contains customary affirmative covenants, negative covenants and conditions of borrowing. At November 15, 1996 indebtedness in an aggregate principal amount of approximately $47,000, plus letters of credit amounting to approximately $5,000, were outstanding under the Bank Credit Facility. The Company intends to use approximately $57,600 of the net proceeds from the Offering to repay the outstanding balances under certain B/E bank credit facilities. Assuming such repayment, the Company would have available under its bank credit facilities approximately $97,000 for subsequent borrowings. The Senior Notes and Senior Subordinated Notes are due March 1, 2003 and February 1, 2006, respectively. At August 31, 1996, the Company's cash and cash equivalents were $14,188 as compared to $15,376 at February 24, 1996. Cash used in operating activities during the six months ended August 31, 1996 was $(4,022), and cash used in operating activities in fiscal 1996 was $(8,296). The primary source of cash during the six months ended August 31, 1996 was net earnings of $3,296, non-cash charges for depreciation and amortization of $11,840 and approximately $3,900 from the issuance of Common Stock pursuant to stock option exercises and employee benefit plans, offset by a use of cash of $19,158 principally due to increases in receivables and inventories, as well as decreases in current liabilities. The primary source of cash during the year ended Feburary 24, 1996 was non-cash charges for depreciation and amortization of $18,435 and the cumulative effect of the accounting change of $23,332 which was offset by a use of cash for research, development and engineering of $58,327 and for inventory of $11,929. The Company's capital expenditures were $7,065 and $8,168 during the six months ended August 31, 1996 and August 26, 1995, respectively, and $13,656, $12,172, and $11,002 in fiscal 1996, 1995, and 1994, respectively. The Company believes that cash flow from operations and availability under the Bank Credit Facility will provide adequate funds for its working capital needs, planned capital expenditures and debt service obligations through the term of the Bank Credit Facility. The Company believes that it will be able to refinance the Bank Credit Facility prior to its termination, although there can be no assurance that it will be able to do so. The Company's ability to fund its operations and make planned capital expenditures, to make scheduled payments and to refinance its indebtedness depends on its future operating performance and cash flow, which, in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond its control. INDUSTRY CONDITIONS The Company's customers are the world's commercial airlines. As a result, the Company's business is directly dependent upon the conditions in the commercial airline industry. In the late 1980s and early 1990s the world airline industry suffered a severe downturn which resulted in record losses and several air carriers 18 22 seeking protection under bankruptcy laws. As a consequence, during such period, airlines sought to conserve cash by reducing or deferring scheduled cabin interior refurbishment and upgrade programs and delaying purchases of new aircraft. This led to a significant contraction in the commercial aircraft cabin interior products industry, and a decline in the Company's business and profitability. Over the last two years, the airline industry has experienced an economic turnaround, with significantly improved results, and a number of the world's airlines have placed significant orders for new aircraft over the past 12 months. Industry sources are now predicting that new aircraft deliveries will increase over the next several years. Due to the volatility of the airline industry, there can be no assurance that the recent profitability of the airline industry will continue or that the airlines will maintain or increase expenditures on cabin interior products for refurbishments or new aircraft. The foregoing statements include forward-looking statements which involve risks and uncertainties. The Company's actual experience may differ materially from that discussed above. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors," as well as future events that have the effect of reducing the Company's operating income and available cash balances, such as unexpected operating losses or delays in the integration of the Company's seating business, the delivery of the MDDS interactive video system, new or expected refurbishments, or cash expenditures related to possible future acquisitions. 19 23 BUSINESS INTRODUCTION B/E Aerospace is the world's largest manufacturer of commercial aircraft cabin interior products, serving virtually all major airlines with a broad line of products, including aircraft seats, a full line of food and beverage preparation and storage equipment, galley structures and in-flight entertainment systems. In addition, B/E provides upgrade, maintenance and repair services for the products which it manufactures as well as for those supplied by other manufacturers. Management believes that the Company has achieved the leading global market position in each of its major product categories. B/E is the largest manufacturer of airline seats in the world, offering an extensive line of first class, business class, tourist class and commuter seats. The Company is also the world's largest manufacturer of galley equipment for both narrow- and wide-body aircraft, including a wide selection of coffee and beverage makers, water boilers, ovens, liquid containers, refrigeration equipment and galley structures. In addition, the Company is the leading manufacturer of passenger entertainment and service systems, including passenger control systems and individual passenger in-flight entertainment systems. The Company believes that individual passenger in-flight entertainment systems will be one of the fastest growing and among the largest product categories in the commercial aircraft cabin interior products industry in the future. As of August 31, 1996, B/E's backlog was at a record $480 million (excluding any additional backlog attributable to United Airlines from the matters described under "Prospectus Summary -- Recent Developments") and, during the six months ended August 31, 1996, the Company has experienced significant growth in revenues and operating earnings. INDUSTRY OVERVIEW The commercial aircraft cabin interior products industry encompasses a broad range of products and services, including not only aircraft seating products, passenger entertainment and service systems, and food and beverage preparation and storage systems, but also lavatories, lighting systems, evacuation equipment and overhead bins. Management estimates that the industry had annual sales in excess of one billion dollars during fiscal 1996. Historically, revenues in the cabin interior products industry have been derived from five sources: (i) new installation programs in which airlines purchase new equipment to outfit a newly delivered aircraft; (ii) retrofit programs in which airlines purchase new components to overhaul completely the interiors of aircraft already in service; (iii) refurbishment programs in which airlines purchase components and services to improve the appearance and functionality of certain cabin interior equipment; (iv) spare parts; and (v) technology upgrades. The retrofit and refurbishment cycles for commercial aircraft cabin interior products differ by product category. Aircraft seating typically has a refurbishment cycle of one to two years and a retrofit cycle of seven to eight years, although during the industry downturn, these periods tended to be extended. See "Recent Industry Conditions." Galley structures and products are periodically upgraded or repaired, and require a continual flow of spare parts, but may be retrofitted only once or twice during the life of the aircraft. The various product categories currently manufactured by the Company include: - Aircraft Seats. This is the largest single product category in the industry and includes first class, business class, tourist class and commuter seats. Prices range from $1,150 to $10,000 per seat. Management estimates that the aggregate size of the worldwide aircraft seat market (including spare parts) during fiscal 1996, which still reflected economic conditions stemming from the recent airline industry downturn, was in excess of $400 million, and has ranged as high as approximately $510 million in the past five years. Approximately ten companies worldwide, including the Company, supply aircraft seats, although the Company (which has an approximately 50% market share) and two other competitors share approximately 90% of the market. - Passenger Entertainment and Service Systems ("PESS"). This product category includes individual seat video systems, overhead video projection systems, audio distribution systems, passenger control 20 24 units ("PCUs") and related wiring and harness assemblies and sophisticated interactive telecommunications and entertainment systems. Prices for PCUs range from $18,000 to $115,000 per aircraft. Individual passenger in-flight entertainment systems currently range in price from approximately $3,000 to $8,000 per seat. Management estimates that the aggregate size of the worldwide PESS market was approximately $250 million during fiscal 1996. Industry sources expect the PESS market to increase substantially in the near term as individual passenger entertainment systems become standard in-flight entertainment equipment in first, business and tourist classes on wide-body, and with the further development of live broadcast in-flight television, many narrow-body aircraft. PESS products are currently supplied by approximately five companies worldwide. The Company has a market share of approximately 33% in individual passenger in-flight entertainment systems, determined on the basis of installed units as of August 31, 1996. - Galley Products. This product category includes complete galley systems for both narrow- and wide-body aircraft, including a wide selection of coffee and beverage makers, water boilers, ovens, liquid containers, air chillers, wine coolers and other refrigeration equipment and other galley components. Prices for coffee makers and ovens range from $3,000 to $10,000. Prices for aircraft refrigeration products range from $14,500 to $28,500. Prices for complete aircraft galley systems range from $120,000 for narrow-body aircraft to $1,000,000 for wide-body aircraft. Management estimates that the aggregate size of the worldwide galley equipment market during fiscal 1996 was in excess of $250 million and has ranged as high as approximately $300 million during the past five years. The majority of the Company's sales of galley products have been associated with deliveries of new aircraft to the airlines (particularly galley structures and refrigeration equipment). While there are approximately 22 companies worldwide who supply galley equipment to the airline industry, the Company is the only manufacturer with a complete line of galley equipment. The Company operates in the commercial aircraft cabin interior products segment of the commercial airlines supplier industry. Revenues for similar classes of products or services within this business segment for the six months ended August 1996 and 1995, and for the three most recent fiscal years are presented below:
SIX MONTHS ENDED AUGUST FISCAL YEAR ------------- ---------------------- 1996 1995 1996 1995 1994 ---- ---- ---- ---- ---- (UNAUDITED; DOLLARS IN MILLIONS) Seating products...................................... $105 $ 48 $ 97 $100 $ 99 Galley products....................................... 47 39 79 81 59 Passenger entertainment and service systems........... 23 15 33 34 36 Services.............................................. 25 11 24 14 9 ---- ---- ---- ---- ---- Total revenues...................................... $200 $113 $233 $229 $203 ==== ==== ==== ==== ====
RECENT INDUSTRY CONDITIONS The Company's principal customers are the world's commercial airlines. The airlines, particularly the U.S. carriers, incurred record losses during the three-year period ended December 31, 1993. The losses incurred during the downturn seriously impaired airline balance sheets and negatively influenced airline purchasing decisions with respect to both new aircraft and refurbishment programs. The domestic airlines in large part returned to profitable operations during calendar 1994 and calendar 1995, and have started to restore their balance sheets since then through cash generated from operations and debt and equity placements. Further, throughout calendar 1996, the aircraft manufacturers began experiencing a significant increase in new aircraft orders. Among those factors expected to affect the cabin interior products industry are the following: - Large Existing Installed Base. According to the Boeing Report, the world commercial passenger aircraft fleet, as of the end of 1995, consisted of 11,066 aircraft, including 3,281 aircraft with fewer than 120 seats, 4,930 aircraft with between 120 and 240 seats and 2,855 aircraft with more than 240 seats. Based on such fleet numbers, management estimates that the total worldwide installed base of commercial aircraft cabin interior products, valued at replacement prices, was approximately $7.9 21 25 billion at the end of 1995. This existing installed base will generate continued retrofit, refurbishment and spare parts revenue, particularly in light of the deterioration of existing interior cabin functionality and aesthetics resulting from the airlines' deferral of refurbishment programs in recent years. - Expanding Worldwide Fleet. Worldwide air traffic has grown in every year since 1946 (except in 1990) and, according to the Boeing Report, is projected to grow at a compounded average rate of approximately five percent per year through 2015, increasing annual revenue passenger miles from approximately 1.4 trillion in 1993 to approximately 4.3 trillion by 2015. Industry sources report that the airlines are experiencing extremely high load factors and that a significant number of new aircraft will be purchased to meet the growth in worldwide air travel, which is expected to nearly double by 2005. According to the Boeing Report, the worldwide fleet of commercial passenger aircraft is projected to expand from approximately 11,000 at the end of 1995 to approximately 16,000 by the end of 2005. The Company believes that growth in aircraft interior product shipments related to new aircraft deliveries will begin in 1997. For example, Boeing has indicated that it plans to ship 215 aircraft in 1996 as compared with 340, 385, and 380, respectively, in each of the subsequent years through 1999. The Company generally receives orders related to new deliveries approximately six months before an aircraft is delivered. According to Airbus Industrie Global Market Forecast published in March 1995 (the "Airbus Industrie Report"), the worldwide installed seat base, which management considers to be a good indicator for potential growth in the aircraft cabin interior products industry, is expected to increase from approximately 1.6 million passenger seats at the end of 1994 to approximately 3.9 million passenger seats at the end of 2014. The expanding worldwide fleet will generate additional revenues from new installation programs, and the increase in the size of the installed base will generate additional and continual retrofit, refurbishment and spare parts revenue. - Wide-body Aircraft Orders. Orders for wide-body, long-haul aircraft constitute an increasing share of total new airframe orders. According to the July 1996 Airline Monitor, the percentage of Boeing aircraft deliveries projected to be wide-body aircraft for 1996 through 1998 is 43%, as compared to 32% for the three-year period ended December 31, 1995. Wide-body aircraft currently carry up to three times the number of seats as narrow-body aircraft, and because of multiple classes of service, including large first class and business class configurations, the Company's average revenue per seat on wide-body aircraft is also higher. Aircraft crews on wide-body aircraft may make and serve between 300 and 900 meals and may brew and serve more than 2,000 cups of coffee on a single flight. As a result, wide-body aircraft may require as much as seven times the dollar value of cabin interior products as narrow-body aircraft, as well as products which are technically more sophisticated and typically more expensive. Further, individual passenger in-flight entertainment systems are installed principally on wide-body aircraft. Airlines are increasingly demanding such systems for long-haul flights to attract and retain customers, especially as the quality of in-flight entertainment has become a differentiating factor in passengers' airline selection decisions. Such systems also provide the airlines with the opportunity to increase revenues per passenger mile, without raising ticket prices, by charging individually for services used. For these reasons, management believes that in the future, interactive in-flight entertainment systems will be installed on essentially all wide-body aircraft and, with the further development of live broadcast in-flight television, many narrow-body planes. - New Product Development. The commercial aircraft cabin interior products industry is engaged in intensive development and marketing efforts for a number of new products, including convertible seats, interactive individual passenger entertainment systems, advanced telecommunications equipment and new galley equipment. Interactive video technology provides a passenger with a wide range of computer capabilities, which are designed to accept information generated by the passenger and communicate such information to the cabin crew for assisting passengers and crew with food service selection, the purchase of duty-free goods, information in connection with the arrival time, connecting flights, gate and other passenger information, as well as facilitate effective on-board inventory control and provide individual entertainment. New cabin interior products will generate new installation and retrofit revenues as well as service revenues from equipment maintenance, inspection and repair. 22 26 - Growing Upgrade, Maintenance, Inspection and Repair Service Markets. Historically the airlines have relied on their airframe and engine mechanics to repair or replace cabin interior products that have become damaged or otherwise non-functional. As cabin interior product configurations have become increasingly sophisticated and the airline industry increasingly competitive, the airlines have begun to outsource such services in order to increase productivity and reduce costs and overhead. Outsourced services include product upgrades (such as the installation of a telecommunications module or individual passenger entertainment unit in an aircraft seat not originally designed to accommodate such equipment), cabin interior product maintenance and inspection, as well as other repair services. COMPETITIVE STRENGTHS AND BUSINESS STRATEGY The Company believes that it has a strong competitive position attributable to a number of factors including the following: - Leading Market Share and Significant Installed Base. Management believes that the Company has achieved the leading global market positions in each of its major product categories, with market shares, based upon industry sources, of approximately 50% in aircraft seats, 90% in coffee makers, 90% in refrigeration equipment and 50% in ovens, in each case based on unit sales for the six months ended August 31, 1996, and 33% in individual passenger in-flight entertainment systems, determined on the basis of installed base as of August 31, 1996. The Company believes these market shares provide it with significant competitive advantages in serving its customers, including economies of scale and the ability to commit greater product development, global product support and marketing resources. Furthermore, because of economies of scale, in part attributable to its large market shares and its approximate $2.6 billion installed base of cabin interior equipment (valued at replacement prices as of August 31, 1996), the Company believes it is among the lowest cost producers in the cabin interior products industry. The Company also believes that its large installed base provides B/E with a significant advantage over competitors in obtaining orders for retrofit and refurbishment programs, principally because airlines tend to purchase equipment from the original supplier. In addition, because of the need for compatible spare parts at airline maintenance depots and the desire of airlines to maximize fleet commonality, a single vendor is typically used for all aircraft of the same type operated by a particular airline. Finally, B/E is better positioned to obtain any on-going upgrade, maintenance, inspection and repair service contracts due to the size of its installed base. - Broadest Product Line in the Industry. Management believes the Company offers more technologically advanced products for the cabin interiors of commercial aircraft than any other manufacturer. With an established reputation for quality, service and product innovation, the Company enjoys broad recognition among the world's commercial airlines. The Company maintains a constant dialogue with a wide array of existing and potential customers, enabling it to become aware of emerging industry trends and needs and thereby play a leading role in product development. The Company has continued to expand its product line, believing that the airline industry increasingly will seek an integrated approach to the development, testing and sourcing of the aircraft's cabin interior. - Technological Leadership/New Product Development. Management believes that the Company is a technological leader in its industry, with the largest R&D organization in the industry currently comprised of 319 engineers. The Company believes that its R&D effort and its on-site engineers at both the airlines and airframe manufacturers enable B/E to consistently introduce innovative products and thereby gain early entrant advantages and substantial market shares. Examples of such product development include: the Company's family of in-flight entertainment systems, which it believes to be superior to existing operational systems in terms of performance, reliability, weight, heat generation and flexibility to adapt to changing technology; a cappuccino/espresso maker; a quick chill wine cooling system; and a constant-pressure, steam cooking oven, which the Company believes substantially improves the appearance, aroma and taste of airline food. 23 27 The Company's business strategy is to maintain its leadership position and best serve its airline customers by (i) offering the broadest and most integrated product line in the industry for both new product sales and follow-on products and services; (ii) pursuing a worldwide marketing approach focused by airline and encompassing the Company's entire product line; (iii) remaining the technological leader, as well as significantly growing its installed base of products in the developing in-flight individual passenger entertainment market; (iv) enhancing its position in the growing upgrade, maintenance, inspection and repair services market; and (v) pursuing selective strategic acquisitions in the commercial aircraft cabin interior products industry. GROWTH OPPORTUNITIES B/E believes that it is benefiting from three major growth trends occurring in the commercial aircraft cabin interior products industry: - Increase in Refurbishment and Upgrade Orders. B/E's substantial installed base provides significant ongoing revenues from replacements, upgrades, repairs and spare parts. Approximately two-thirds of B/E's revenues and operating earnings for the six months ended August 31, 1996 were derived from refurbishment and upgrade orders. In the late 1980s and early 1990s, the airline industry suffered a significant downturn, which resulted in a deferral of cabin interior maintenance expenditures. Since early 1994, the airlines have experienced a turnaround in operating results, leading the domestic airline industry to record operating earnings during 1995 and 1996 to date. Deterioration of cabin interior product functionality and aesthetics within the commercial airline fleets during the industry downturn has encouraged airlines to increase spending on refurbishments and upgrades. The Company believes that it is well positioned to benefit over the next several years as a result of the airlines' dramatically improved financial condition and liquidity and the need to refurbish and upgrade cabin interiors. The Company's recent growth in backlog, revenues and operating earnings has been almost entirely from refurbishment and upgrade programs, and the Company is currently experiencing a high level of new order quote activity related to such programs. - Expansion of Worldwide Fleet and Shift Toward Wide-Body Aircraft. B/E will benefit from the significant number of new aircraft which will need to be purchased to meet projected growth in worldwide air travel in three ways: (a) shipments of interior products to equip these new aircraft; (b) expansion in the overall fleet, leading to more potential refurbishment and upgrade revenues; and (c) a shift in new aircraft shipments toward wide-body aircraft, which require substantially more seats, galley equipment and in-flight entertainment products per aircraft than do narrow-body aircraft. Due to the time lag in significantly increasing production rates of new aircraft at the airframe manufacturers, the Company does not expect the impact of new aircraft deliveries to be felt in the commercial aircraft cabin interior product industry until calendar 1997. See "-- Recent Industry Conditions." - Emergence of Individual Passenger In-flight Entertainment Systems as a Major New Product Category. Airlines increasingly are demanding individual passenger in-flight entertainment systems as a method to attract and retain customers, as the availability of such service affects passengers' decisions on airline selection. These systems also provide the airlines with the opportunity to generate increased revenues, without raising ticket prices, by charging passengers for the services used. The Company expects that individual passenger in-flight entertainment systems will be one of the fastest growing and among the largest product categories in the commercial aircraft cabin interior products industry in the future. PRODUCTS AND SERVICES Seating Products The Company is the world's leading manufacturer of aircraft seats, offering a wide selection of first class, business class, tourist class and commuter seats. A typical seat sold by the Company includes the seat frame, cushions, armrests and tray table, together with a variety of optional features such as in-flight entertainment systems, oxygen masks and telephones. Management estimates that the Company has an aggregate installed 24 28 base as of August 31, 1996 of aircraft seats, valued at replacement prices, of approximately $1.25 billion comprised of more than 735,000 seats. - Tourist Class. The Company is the leading manufacturer of tourist class seats in both the U.S. and worldwide markets. B/E has designed tourist class seats which incorporate features not previously utilized in that class, such as top-mounted passenger control units, footrests and improved oxygen systems. - First and Business Classes. First class and business class seats are generally larger, heavier and more complicated in design, and are substantially more expensive than other types of aircraft seats. The Company's first class seats and certain of its business class seats are equipped with an articulating bottom cushion suspension system, sophisticated hydraulic leg-rests and large tables. - Convertible Seats. The Company has developed two types of seats which can be converted from a tourist class triple-row seat to a business class double-row seat with minimal conversion complexity. Convertible seats allow airline customers to optimize the ratio of business class to tourist class seats for a given aircraft configuration. - Commuter Seats. The Company is the leading manufacturer of commuter seats in both the U.S. and worldwide markets. The Company's Silhouette(TM) Composite commuter seats are similar to commercial jet seats in comfort and performance but are lightweight and require minimal maintenance. - Spares. Aircraft seats are exposed to significant stress in the course of normal passenger activity, and certain seat parts are particularly susceptible to damage from continued use. As a result, a significant market exists for spare parts. Passenger Entertainment and Service Systems Management estimates that the Company has the largest installed base of PESS products in the world, which, valued at replacement prices, is approximately $290 million. The Company has the leading share of the market for PCUs and related wiring and harness assemblies, and has developed products aimed at other portions of the PESS market, including individual seat video systems, advanced multiplexer and hard-wired distribution systems and other products. The Company believes that it is a market leader in individual passenger in-flight entertainment systems and that this product category will be one of the fastest growing and among the largest product categories in the commercial aircraft cabin interior products industry in the future. - Individual Passenger Entertainment. The Company has developed a number of in-flight entertainment systems that are designed to meet the technological and price specifications of the airlines: B/E 2000. The 2000, introduced in 1991, is the Company's first-generation individual in-flight video system and offers centralized electronic distribution of a limited range of programming. Since its introduction, the Company has sold approximately 13,500 units of the B/E 2000 to 10 airlines. MDDS Family. The Company has developed a family of next-generation, individual passenger in-flight entertainment products, which includes the 2000M and the MDDS: B/E 2000M -- The 2000M is an in-flight entertainment system that offers similar functionality to the 2000 but is designed to be upgradeable to the Company's fully interactive MDDS. Since its introduction in 1994, the Company has sold approximately 3,600 units of the 2000M to 5 airlines. On November 15, 1996, the Company announced that United Airlines had selected B/E as a supplier of individual in-flight entertainment systems for its B777, B747-400, and B767-300 aircraft. While such selection is subject to negotiation of definitive documentation, the Company expects an initial order of approximately $60 million of the B/E 2000M system, to be installed on 54 United Airlines aircraft. If United Airlines decides to upgrade its B/E 2000M entertainment systems to full MDDS interactive functionality, significant additional orders would follow. Pending the negotiation of the final contract, United Airlines has authorized the Company to proceed with necessary engineering and other long lead time items. 25 29 MDDS -- B/E's MDDS is a state-of-the-art, fully interactive individual passenger in-flight entertainment system which has the capacity to offer numerous movies on demand, telecommunications, gaming, Nintendo(@), Sega(@) and PC-based games, in-flight shopping and, in the future, live television, among other services. The system was first installed, on a limited basis, on a British Airways Boeing 747-400 in November 1995 and, upon successful completion of live tests, is expected to be installed in all classes of service on approximately 90 aircraft. MDDS is not yet in commercial production. On November 6, 1996, B/E announced that the MDDS (including the B/E 2000M) is now being offered by Boeing to its customers as a line fit option for both the B777 and B747 aircraft, allowing airlines to specify the MDDS as their in-flight entertainment system of choice on these Boeing aircraft. Prior to this announcement, the MDDS could only be installed as a retrofit option after the airlines took initial delivery of new aircraft. As of August 31, 1996, B/E had entered into contracts to supply individual passenger entertainment systems to a number of airlines, including Air France, British Airways and KLM, and had an in-flight entertainment systems backlog of approximately $152 million (excluding any additional backlog attributable to United Airlines from the matters described under "Prospectus Summary -- Recent Developments"). - PCUs, Wiring and Harness Assemblies. The Company's PCU product line is the broadest in the industry, including over 300 different designs which are functionally similar but differ widely due to the style preferences and technical requirements of the various airlines. Wiring and harness assemblies (which stabilize installed wiring) are sold as a package with PCUs and vary as widely as PCU types. - Distribution Systems. The Company has manufactured hard-wired audio (since 1963) and video distribution systems (since 1992) and is currently the principal supplier of such systems to the airline industry. The Company also offers frequency division multiplex distribution systems which deliver substantially improved audio performance compared to competitors' multiplex systems. Galley Equipment and Structures The Company is the world's largest manufacturer of galley equipment for both narrow- and wide-body aircraft, offering a wide selection of coffee and beverage makers, water boilers, ovens, liquid containers, refrigeration equipment and other galley components as well as galley structures. Management estimates that the Company has an aggregate installed base of galley equipment and structures, valued at replacement prices, of approximately $1.0 billion. - Coffee Makers. The Company is the leading supplier of aircraft coffee makers, with equipment currently installed in virtually every type of aircraft for almost every major airline. The Company manufactures a broad line of coffee makers, coffee warmers and water boilers including the Flash Brew Coffee Maker, with the capability to brew 54 ounces of coffee in one minute, a Combi(TM) unit which will brew coffee or boil water for tea while utilizing 25% less electrical power than traditional 5,000 watt water boilers, and a recently introduced cappuccino/espresso maker. - Ovens. The Company is a significant supplier of a broad line of specialized ovens, including high-heat efficiency ovens, high-heat convection ovens, and warming ovens. The Company's newest offering, the DS-2000 Steam Oven represents a new method of preparing food in-flight by maintaining constant temperature and moisture in the food. It addresses the airlines' needs to provide a wider range of foods than can be prepared by convection ovens. - Refrigeration Equipment. The Company is the worldwide industry leader in the design, manufacture, and supply of commercial aircraft refrigeration equipment. The Company recently introduced a self-contained wine and beverage chiller, the first unit specifically designed to rapidly chill wine and beverages on board an aircraft. - Galley Structures. Galley structures are generally custom designed to accommodate the unique product specifications and features required by a particular carrier. Galley structures require intensive design and engineering work and are among the most sophisticated and expensive of the aircraft's cabin 26 30 interior products. The Company provides a variety of galley structures, closets and class dividers, emphasizing sophisticated and higher value-added galleys for wide-body aircraft. Upgrade, Maintenance, Inspection and Repair Services The Company is an active participant in the growing upgrade, maintenance, inspection and repair services market. Management believes that the Company's broad and integrated product line and close relationships with its airline customers position the Company to become a leading service provider in this market. The Company believes that this market offers a significant opportunity for growth. Most participants in this market are small, and management believes that the Company is the only major product manufacturer in the industry currently participating in this market. - Upgrade. The Company provides a variety of upgrade services for cabin interior products. For example, the Company has begun to install individual passenger video and telecommunications modules in seat backs and center consoles which were otherwise not originally designed for such products. The Company has this capability regardless of whether it manufactures the product or whether the product is produced by others. - Maintenance, Inspection and Repair. These services are provided at selected airports on an overnight or between scheduled flights basis, or at seven service centers maintained by the Company. The Company has been engaged by several airlines to remove entire sets of aircraft seats, wash and repair them and reinstall the seats within a one-week period. In addition, the Company offers maintenance and repair services which may be provided on an overnight basis when an aircraft is not flying or at the airport gate in the period between an aircraft's scheduled flights. During this process cabin interior products are checked by Company employees for damage and functionality and are repaired or replaced with available spares. Frequently, the spare part is a Company product even if the original part was supplied by another manufacturer. RESEARCH, DEVELOPMENT AND ENGINEERING The Company works closely with commercial airlines to improve existing products and identify customers' emerging needs. B/E's expenditures in research, development and engineering totaled $19.2 million, $58.3 million, $12.9 million, and $9.9 million for the six months ended August 31, 1996 and the fiscal years ended February 24, 1996, February 25, 1995, and February 26, 1994, respectively. B/E employs 319 professionals in the engineering and product development areas. The Company believes that it has the largest engineering organization in the cabin interior products industry, with not only software, electronic, electrical and mechanical design skills but also substantial expertise in materials composition and custom cabin interior layout design. MARKETING AND CUSTOMERS The Company markets and sells its products directly to virtually all of the world's major airlines. B/E has a sales and marketing organization of 83 persons, along with 15 independent sales representatives. B/E sales to non-US airlines were $112.5 million, $124.5 million, $114.5 million, and $85.2 million for the six months ended August 31, 1996, and the fiscal years ended February 24, 1996, February 25, 1995, and February 26, 1994, respectively, or approximately 56%, 54%, 50%, and 42%, respectively, of net sales during such periods. Airlines select suppliers of cabin interior products primarily on the basis of custom design capabilities, product quality and performance, prompt delivery, after-sales service and price. B/E believes that its large installed base, its timely responsiveness in connection with the custom design, manufacture, delivery and after-sales service of its products and its broad product line and stringent customer and regulatory requirements all present barriers to entry for potential new competitors in the cabin interior products market. The Company believes that its integrated worldwide marketing approach, focused by airline and encompassing the Company's entire product line, is preferred by airlines. Led by a B/E senior executive, teams representing each product line serve designated airlines which together account for approximately 60% 27 31 of the purchases of products manufactured by B/E. These airline customer teams have developed customer specific strategies to meet each airline's product and service needs. The Company also staffs "on-site" customer engineers at major airlines and airframe manufacturers to represent its entire product line and work closely with the customers to develop specifications for each successive generation of products required by the airlines. These engineers help customers integrate the wide range of cabin interior products and assist in obtaining the applicable regulatory certification for each particular product or cabin configuration. Through its on-site customer engineers, the Company expects to be able more efficiently to design and integrate products which address the requirements of its customers. The Company provides program management services, integrating all on-board cabin interior equipment and systems, including installation and FAA certification, allowing airlines to substantially reduce costs. The Company believes that it is one of the only suppliers in the commercial aircraft cabin interior products industry with the size, resources, breadth of product line and global product support capability to operate in this manner. No customer accounted for more than 10% of B/E's revenues in the six months ended August 31, 1996 or during the fiscal years ended February 24, 1996, February 25, 1995 or February 26, 1994. Because of differing schedules of various airlines for purchases of new aircraft and for retrofit and refurbishment of existing aircraft, that portion of the Company's revenues attributable to particular airlines varies from year to year. BACKLOG Management estimates that B/E's backlog at August 31, 1996 was approximately $480 million, approximately 36% of which management believes to be deliverable during the remainder of fiscal 1997, compared with a backlog of $450 million on February 24, 1996. A significant portion of the Company's backlog represents MDDS orders from British Airways which were placed in fiscal 1995. CUSTOMER SERVICE The Company believes that it provides the highest level of customer service available in the commercial aircraft cabin interior products industry and that such service is a critical factor in the Company's success. The key elements of such service include (i) rapid response to requests for engineering designs, price quotes and technical specifications; (ii) flexibility with respect to customized features; (iii) on-time delivery; (iv) immediate availability of spare parts for a broad range of products; and (v) prompt attention to customer problems, including on-site customer training. Customer service is particularly important to airlines due to the high cost to the airlines of late delivery, malfunctions and other problems. WARRANTY AND PRODUCT LIABILITY The Company warrants its products, or specific components thereof, for periods ranging from one to seven years, depending upon product type and component. The Company generally establishes reserves for product warranty expense on the basis of the ratio of warranty costs incurred by the product over the warranty period to sales of the product over the warranty period. Actual warranty costs reduce the warranty reserve as they are incurred. Management periodically reviews the adequacy of accrued product warranty reserves. Revisions of accrued product warranty reserves are recognized in the period in which such revisions are determined. In addition, due to the nature of the Company's products, the Company currently carries product liability insurance. The Company believes that its insurance is generally sufficient to cover product liability claims. COMPETITION The commercial aircraft cabin interior products market is relatively fragmented with a number of competitors in each of the individual product categories. Due to the global nature of the commercial airline industry, competition in product categories comes from both U.S. and foreign manufacturers. However, as aircraft cabin interiors have become increasingly sophisticated and technically complex, airlines have demanded higher levels of engineering support and customer service than many smaller cabin interior products suppliers can provide. At the same time, airlines have recognized that cabin interior product suppliers must be 28 32 able to integrate a wide range of products, including sophisticated electronic components, particularly in wide-body aircraft. Management believes that these increasing demands of airlines upon their suppliers will result in a number of suppliers leaving the cabin interior products industry and a consolidation of those suppliers which remain. The Company has participated in this consolidation through strategic acquisitions and internal growth and intends to continue to participate in the consolidation. The Company's principal competitors for seating products include Group Zodiac S.A., Keiper Recaro GmbH, and a number of other producers in the European community and Japan. The Company's principal competitors for PESS products are Matsushita Electronics ("MAS") and Hughes Avicom as to PCUs, and MAS as to individual seat video systems. The Company's primary competitors for galley products are JAMCO Limited and Buderus Sell GmbH (a subsidiary of Metallgesellschaft A.G.). See "Risk Factors -- Competition." MANUFACTURING AND RAW MATERIALS The Company's manufacturing operations consist of both the in-house manufacturing of component parts and subassemblies and the assembly of Company specified and designed component parts which are purchased from outside vendors. The Company maintains state-of-the-art facilities, and management has an on-going strategic manufacturing improvement plan utilizing focused factories and cellular production technologies in which each of the product lines is manufactured in a dedicated factory. Management expects that continuous improvement from implementation of this plan for each of its product lines will occur over the next several years and should lower production costs, cycle times and inventory requirements and at the same time improve product quality and customer response. GOVERNMENT REGULATION The FAA prescribes standards and licensing requirements for aircraft components, and licenses component repair stations within the United States. Comparable agencies regulate such matters in other countries. The Company holds several FAA component certificates and performs component repairs at a number of its US facilities under FAA repair station licenses. The Company also holds an approval issued by the UK Civil Aviation Authority to design, manufacture, inspect and test aircraft seating products in Leighton Buzzard, England and in Kilkeel, Northern Ireland and the necessary approvals to design, manufacture, inspect, test and repair its galley products in Nieuwegein, The Netherlands and to inspect, test and repair products at its six service centers throughout the world. In March 1992, the FAA adopted Technical Standard Order C127 which requires that all seats on certain new generation commercial aircraft installed after such date be certified to meet a number of new safety requirements, including an ability to withstand a 16G force. Management understands that the FAA plans to adopt in the near future additional regulations which will require that within the next five years all seats, including those on existing older commercial aircraft which are subject to the FAA's jurisdiction, will have to comply with similar seat safety requirements. The Company has developed a number of seat models which meet these new seat safety regulations. PATENTS B/E currently holds 48 United States patents and 50 international patents, covering a variety of products. However, the Company believes that the termination, expiration or infringement of one or more of such patents would not have a material adverse effect on the business or prospects of the Company. LEGAL PROCEEDINGS In July 1995, B/E became aware that the U.S. Attorney's Office for the District of Connecticut, in conjunction with the Department of Commerce and the U.S. Customs Service, is conducting a grand jury investigation focused on possible non-compliance by B/E with certain statutory and regulatory provisions relating to export licensing and controls. The investigation relates primarily to the sale of passenger seats and related spare parts for civilian commercial passenger aircraft to Iran Air from 1992 through mid-1995. B/E 29 33 has been advised that it is a target of the investigation; however, neither it nor any current or former directors, officers, or employees have been charged in connection with the investigation. The investigation is at an early stage and, while the Company intends to defend itself vigorously, the ultimate outcome of the investigation cannot presently be determined. An adverse outcome could have a material adverse effect upon the operations and/or financial condition of the Company. EMPLOYEES As of October 31, 1996, B/E had approximately 2,693 employees. Approximately 74% of these employees are engaged in manufacturing, 12% in engineering, research and development, and 14% in sales, marketing, product support and general administration. Approximately 18% of the employees are represented by a union. B/E considers its employee relations to be good. PROPERTIES As of August 31, 1996, B/E had 18 principal facilities, where it leased or owned an aggregate of approximately 1,122,950 square feet of space. The following table describes the principal facilities and indicates the location, function and approximate size of each:
FACILITY SIZE LOCATION PRODUCTS AND FUNCTION (SQ. FEET) OWNERSHIP - ---------------------------------- -------------------------------------- ---------- --------- CORPORATE: Wellington, Florida Corporate headquarters, finance, marketing and sales................... 17,700 Owned Longwood, Florida Administration........................ 1,300 Leased SEATING PRODUCTS: Litchfield, Connecticut Manufacturing, service and warehousing........................... 147,700 Owned Winston-Salem, North Carolina Seating products division headquarters, research and development, finance, marketing, sales and manufacturing..................... 264,800 Owned Leighton Buzzard, England Manufacturing, service, research and development, sales support, finance and warehousing....................... 114,000 Owned(a) Kilkeel, Northern Ireland Manufacturing, sales support and warehousing....................... 64,500 Leased/Owned(b) GALLEY PRODUCTS: Anaheim, California Manufacturing, service, research and development, sales support, finance and warehousing....................... 57,100 Leased Delray Beach, Florida Manufacturing, service, research and development, sales support, finance and warehousing; galley products division headquarters................. 52,000 Owned Jacksonville, Florida Manufacturing, service, engineering, and warehousing....................... 75,000 Owned Nieuwegein, The Netherlands Manufacturing, service, research and development, sales support, finance and warehousing....................... 39,000 Leased
30 34
FACILITY SIZE LOCATION PRODUCTS AND FUNCTION (SQ. FEET) OWNERSHIP - ---------------------------------- -------------------------------------- ---------- --------- PESS PRODUCTS: Irvine, California Manufacturing, service, research and development, sales support, finance and warehousing; in-flight entertainment division headquarters... 106,700 Leased SERVICES: Orange, California Upgrade, maintenance, inspection and repair, finance, sales support and warehousing; service division headquarters.......................... 106,300 Leased Longwood, Florida Upgrade, maintenance, inspection and repair................................ 19,200 Leased Longwood, Florida Upgrade, maintenance, inspection and repair................................ 5,300 Leased Burnsville, Minnesota Upgrade, maintenance, inspection and repair............................ 7,200 Leased Linden, New Jersey Upgrade, maintenance, inspection and repair............................ 5,800 Leased Redmond, Washington Upgrade, maintenance, inspection and repair............................ 5,350 Leased Chesham, England Upgrade, maintenance, inspection and repair............................ 34,000 Owned(a)
- --------------- (a) B/E's owned properties in England are mortgaged to Barclays Bank PLC to collateralize credit facilities of FEEL in aggregate amounts of up to approximately L7.0 million. (b) Approximately 38,500 square feet of the Kilkeel, Northern Ireland facilities are owned with the balance leased. The Company believes that its facilities are suitable for their present intended purposes and adequate for the Company's present and anticipated level of operations. As a result of recent conditions in the airline industry as described in "Recent Industry Conditions," B/E's facilities have been substantially underutilized for the past several years. The Company believes that its ongoing facility integration program, together with anticipated continued growth in airline profitability, should result in significant improvement in the degree of utilization in the Company's facilities. 31 35 MANAGEMENT The following table sets forth information regarding the directors and executive officers of the Company. Officers of the Company are elected annually by the Board of Directors.
NAME AGE POSITION - ----------------------------- --- ------------------------------------------------------------ Amin J. Khoury............... 57 Chairman of the Board Robert J. Khoury............. 54 Vice Chairman of the Board and Chief Executive Officer Paul E. Fulchino............. 50 President, Chief Operating Officer and Director Marco C. Lanza............... 40 Executive Vice President, Marketing and Product Development Vice President, Chief Financial Officer and Assistant Thomas P. McCaffrey.......... 42 Secretary Edmund J. Moriarty........... 51 Vice President, General Counsel and Secretary Jeffrey P. Holtzman.......... 41 Vice President, Treasurer and Assistant Secretary G. Bernard Jewell............ 55 President, Seating Products Division E. Ernest Schwartz........... 60 President, Galley Products Division Arthur H. Lipton............. 58 President, In-flight Entertainment Division Jim C. Cowart+............... 45 Director Richard G. Hamermesh*+....... 48 Director Brian H. Rowe................ 65 Director Hansjoerg Wyss*.............. 61 Director
- --------------- * Member, Audit Committee. + Member, Stock Option and Compensation Committee. The Company's Restated Certificate of Incorporation provides that the Board of Directors is classified into three classes, as nearly as equal in number as possible, so that each director (after a transitional period) will serve for three years, with one class of directors being elected each year. The Board is currently comprised of three Class I Directors (Brian H. Rowe, Jim C. Cowart and Paul E. Fulchino), two Class II Directors (Robert J. Khoury and Hansjoerg Wyss) and two Class III Directors (Amin J. Khoury and Richard G. Hamermesh). The terms of the Class I, Class II and Class III Directors expire upon the election and qualification of successor directors at annual meetings of stockholders held following the end of fiscal years 1998, 1996 and 1997, respectively. The nonmanagement directors receive compensation of $2,500 per calendar quarter. The executive officers of the Company are elected annually by the Board of Directors following the annual meeting of stockholders and serve at the discretion of the Board of Directors. Amin J. Khoury has been Chairman of the Board of the Company since July 1987 and was Chief Executive Officer until April 1, 1996. Since 1986, Mr. Khoury has also been the Managing Director of The K.A.D. Companies, Inc., an investment, venture capital and consulting firm. Mr. Khoury is currently the Chairman of the Board of Directors of Applied Extrusion Technologies, Inc., a manufacturer of oriented polypropylene films used in consumer products labeling and packaging applications, and a member of the Board of Directors of Brooks Automation, Inc., the leading manufacturer in the U.S. of vacuum central wafer handling systems for semiconductor manufacturing and Aurora Electronics, Inc., a leading provider of parts support services to computer service organizations. Mr. Khoury is employed by the Company pursuant to an Employment Agreement which expires in 2002. Mr. Khoury is the brother of Robert J. Khoury. Robert J. Khoury has been a Director of the Company since July 1987. Mr. Khoury was elected Vice Chairman and Chief Executive Officer effective April 1, 1996; from July 1987 until that date, Mr. Khoury served as the Company's President and Chief Operating Officer. From 1986 to 1987, Mr. Khoury was Vice President of The K.A.D. Companies, Inc. The Company has entered into an Employment Agreement with Mr. Khoury which expires in 2001. Mr. Khoury is the brother of Amin J. Khoury. Paul E. Fulchino was elected a Director and President and Chief Operating Officer of the Company effective April 1, 1996. From 1990 to 1996, Mr. Fulchino served as President and Vice Chairman of Mercer Management Consulting, Inc. ("Mercer"), a general management consulting firm with over 1,100 employees. 32 36 In addition to his management responsibilities as President of Mercer, Mr. Fulchino also had responsibility for advising clients throughout the world, particularly with respect to the transportation industry, including a number of major airlines. The Company has entered into an Employment Agreement with Mr. Fulchino extending through March 31, 1999. Marco C. Lanza has been the Executive Vice President, Marketing and Product Development since January 1994. From March 1992 through January 1994, Mr. Lanza was President of the In-flight Entertainment Division of the Company. From 1987 through February 1992, Mr. Lanza was Vice President, Marketing and Product Development, of the Company. The Company has entered into an Employment Agreement with Mr. Lanza extending through December 31, 1999. Thomas P. McCaffrey has been Vice President and Chief Financial Officer since May 1993. From August 1989 through May 1993, Mr. McCaffrey was an Audit Director with Deloitte & Touche LLP, and from 1976 through 1989 served in several capacities, including Audit Partner, with Coleman & Grant. The Company has entered into an Employment Agreement with Mr. McCaffrey extending through December 31, 1999 in which he agrees to serve as Chief Financial Officer of the Company. Edmund J. Moriarty has been Vice President, General Counsel and Secretary since November 16, 1995. From 1991 to 1995, Mr. Moriarty served as Vice President and General Counsel to Rollins, Inc., a national service company. From 1982 through 1991, Mr. Moriarty served as Vice President and General Counsel to Old Ben Coal Company, a wholly owned coal subsidiary of The Standard Oil Company. Jeffrey P. Holtzman has been Treasurer since September 1993 and Vice President since November 1996. From June 1986 to July 1993, Mr. Holtzman served in several capacities at FPL Group, Inc., including Assistant Treasurer and Manager of Financial Planning. Mr. Holtzman previously worked for Mellon Bank, Gulf Oil and Arthur Young & Company. G. Bernard Jewell has been President of the Company's Seating Products Division since March 1996. From February 1994 through February 1996, Mr. Jewell was President, Services Division of the Company. From April 1992 through January 1994, Mr. Jewell was Group Vice President, Marketing and Product Development of the Company. From 1988 to 1992, Mr. Jewell was President of Burns Aerospace Corporation, a manufacturer of commercial aircraft cabin interior products. E. Ernest Schwartz has been President of the Galley Products Division of the Company since March 1992. From 1986 through February 1992, Mr. Schwartz was President of Aircraft Products Company, which was acquired by the Company in 1992. Arthur H. Lipton has been the President of the In-flight Entertainment Division since July 1995. From 1990 to 1995, Mr. Lipton was the Senior Vice President and General Manager of the Wyse Technology Display Division. Prior to that he was with the Xerox Corporation for 20 years with his last position being Vice President and General Manager of their Imaging Business Unit. Jim C. Cowart has been a Director of the Company since November 1989. Since January 1993, Mr. Cowart has been the Chairman of the Board of Directors and Chief Executive Officer of Aurora Electronics, Inc. Since January 1992, Mr. Cowart has also been a Director of EOS Capital, Inc., a private capital firm retained by the Company for strategic planning, competitive analysis, financial relations and other services. From 1987 until 1991, Mr. Cowart was a general partner of Capital Resource Partners, a private capital investment manager. From 1982 to 1987, Mr. Cowart was a Senior Vice President of Investment Banking at Shearson Lehman Brothers and was the President of Shearson Venture Capital, Inc. Richard G. Hamermesh has been a Director of the Company since July 1987. Since August 1987, Dr. Hamermesh has been the Managing Partner of the Center for Executive Development, an independent management consulting company, and, from December 1986 to August 1987, Dr. Hamermesh was an independent consultant. Prior to such time, Dr. Hamermesh was on the faculty at the Harvard Business School. Dr. Hamermesh is also a Director of Applied Extrusion Technologies, Inc. Brian H. Rowe has been a Director of the Company since July 1995. Mr. Rowe is currently Chairman Emeritus of GE Aircraft Engines, a principal business unit of the General Electric Company, where he also 33 37 served as Chairman from September 1993 through January 1995 and as President from 1979 through 1993. From March 1994 to November 1995, Mr. Rowe served as a Director of Astrostructures Hamble Limited, a manufacturer of military and civil aircraft components. Since March 1995, Mr. Rowe has also been a Director of Atlas Air Inc., an air cargo carrier. Since January 1980 Mr. Rowe has been a Director of Fifth Third Bank, an Ohio banking corporation. Since October 1995, Mr. Rowe has been a Director of Cincinnati Bell Inc., a communications services company. Since December 1995, Mr. Rowe has also been a Director of Stewart & Stevenson Services, Inc., a custom packager of engine systems, and Textron Inc., a manufacturer of mechanical devices for aircraft and other applications. Since January 1996, Mr. Rowe has served as Executive Vice Chairman of American Regional Aircraft Industries, Inc. Hansjoerg Wyss has been a Director of the Company since October 1989. Since 1977, Mr. Wyss has been a Director and the Chairman and Chief Executive Officer of Synthes (U.S.A.) and Synthes (Canada), Ltd., manufacturers and distributors of orthopedic implants and instruments. Mr. Wyss is also a Director of Applied Extrusion Technologies, Inc. 34 38 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table and notes thereto set forth certain information with respect to the beneficial ownership of the Company's Common Stock as of November 30, 1996, and as adjusted to reflect the sale of the shares offered hereby, by (i) each person who is known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock of the Company, (ii) each of the chief executive officer and the four other most highly paid executive officers of the Company in fiscal 1996 (collectively, the "Named Executive Officers") and each director of the Company, and (iii) all Named Executive Officers and directors of the Company as a group. Except as otherwise indicated, each of the stockholders named below has sole voting and investment power with respect to the shares of Common Stock beneficially owned:
PERCENT OF TOTAL(A) --------------------- NUMBER OF PRIOR TO AFTER NAMES SHARES OFFERING OFFERING - --------------------------------------------------------------- --------- -------- -------- Wellington Management Company.................................. 2,210,600 11.9% 9.8% 75 State Street Boston, MA 02109 Frank Russell Co. Inc. ........................................ 998,200 5.4 4.4 909 A Street Tacoma, WA 98401 Amin J. Khoury+*............................................... 270,300(b) 1.4 1.2 Marco C. Lanza+................................................ 203,285(c) 1.1 0.9 Hansjoerg Wyss*................................................ 193,609(d) 1.0 0.9 Robert J. Khoury+*............................................. 110,164(e) 0.6 0.5 Jim C. Cowart*................................................. 100,500(f) 0.5 0.4 Thomas P. McCaffrey+........................................... 70,784(g) 0.4 0.3 Richard G. Hamermesh*.......................................... 43,301(h) 0.2 0.2 E. Ernest Schwartz+............................................ 24,750(i) 0.1 0.1 Paul E. Fulchino*.............................................. 12,768(j) 0.1 0.1 Brian H. Rowe*................................................. 10,000(k) 0.1 ** All Directors and Named Executives Officers as a group (14 persons)..................................................... 1,163,528(l) 6.2 5.1
- --------------- + Named Executive Officer * Director of the Company ** Less than 0.1% (a) The number of shares of Common Stock deemed outstanding includes: (i) 17,704,275 shares outstanding as of November 30, 1996; and (ii) shares of Common Stock subject to outstanding stock options which are exercisable by the named individual or group in the next sixty days (commencing December 1, 1996). (b) Represents shares issuable upon the exercise of stock options exercisable in the next sixty days. (c) Includes 181,250 shares issuable upon the exercise of stock options exercisable in the next sixty days and shares owned through the Company 401(k) plan. (d) Includes 52,500 shares issuable upon the exercise of stock options exercisable in the next sixty days. Excludes options to purchase 7,500 shares of Common Stock which are not exercisable in the next sixty days. (e) Includes 107,500 shares issuable upon the exercise of stock options exercisable in the next sixty days and shares owned through the Company 401(k) plan. Excludes options to purchase 52,500 shares of Common Stock which are not exercisable in the next sixty days. (f) Includes 20,000 shares acquired by a profit sharing plan in which Mr. Cowart has a fifty percent interest and 77,500 shares issuable upon the exercise of stock options exercisable in the next sixty days. Excludes options to purchase 12,500 shares of Common Stock which are not exercisable in the next sixty days. 35 39 (g) Includes 65,000 shares issuable upon the exercise of stock options exercisable in the next sixty days. Excludes options to purchase 50,000 shares of Common Stock which are not exercisable in the next sixty days. (h) Includes 2,000 shares held in trusts for the benefit of Mr. Hamermesh's two children, of which trust Mr. Hamermesh and his wife are trustees and in which shares Mr. Hamermesh disclaims all beneficial interest. Also includes 32,500 shares issuable upon the exercise of stock options exercisable in the next sixty days. Excludes options to purchase 7,500 shares of Common Stock which are not exercisable in the next sixty days. (i) Includes 23,750 shares issuable upon the exercise of stock options exercisable in the next sixty days. Excludes options to purchase 31,250 shares of Common Stock which are not exercisable in the next sixty days. (j) Excludes 187,500 shares issuable upon the exercise of stock options not exercisable in the next sixty days. (k) Includes 10,000 shares issuable upon the exercise of stock options exercisable in the next sixty days. Excludes options to purchase 30,000 shares of Common Stock which are not exercisable in the next sixty days. (l) Includes 946,800 shares issuable upon the exercise of stock options exercisable in the next sixty days. Excludes options to purchase 557,500 shares of Common Stock which are not exercisable in the next sixty days. SELLING STOCKHOLDERS Pursuant to the Underwriting Agreement, the Underwriters have been granted an option to purchase up to an aggregate of 600,000 shares of Common Stock from the Company and the Selling Stockholders for the purpose of covering overallotments, if any. The Selling Stockholders, Sheila L. Palandjian, the PAP Stock Trust (for the benefit of Peter A. Palandjian), the PLP Stock Trust (for the benefit of Paul L. Palandjian) and the LP Stock Trust (for the benefit of Leon Palandjian), who respectively owned options to purchase 35,000, 46,666, 46,667 and 46,667 shares of Common Stock before the Offering, have granted such overallotment option to the Underwriters with respect to 35,000, 10,000, 10,000 and 10,000 shares of Common Stock, respectively, and will own options to purchase 0, 36,666, 36,667 and 36,667 shares of Common Stock, respectively, if the overallotment option is exercised in full with respect to the Selling Stockholders' shares. The Selling Stockholders are the surviving spouse and trusts for the benefit of the children of Petros A. Palandjian, a former director of the Company who died in August, 1996. If the Underwriters exercise their overallotment option, the shares of Common Stock purchased thereunder will first be purchased from the Selling Stockholders on a pro rata basis (based upon the aggregate number of shares that may be purchased from the Selling Stockholders) until all such shares of Common Stock to be sold by the Selling Stockholders have been purchased, and the remaining shares, if any, will be purchased from the Company. 36 40 DESCRIPTION OF CAPITAL STOCK COMMON STOCK The Company is authorized to issue 30,000,000 shares of Common Stock, $0.01 par value, of which 16,877,867 shares were outstanding as of August 31, 1996, and held by approximately 242 stockholders of record. Holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders and to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor. The indentures relating to the Company's Senior Notes and Senior Subordinated Notes and the Bank Credit Agreement, however, currently restrict dividend payments by the Company to its stockholders. In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock have the right to a ratable portion of the assets remaining after payment of liabilities. Holders of Common Stock do not have cumulative voting, preemptive, redemption or conversion rights. All outstanding shares of Common Stock are, and the shares to be sold in this offering will be, fully paid and non-assessable. PREFERRED STOCK The Company's Restated Certificate of Incorporation (the "Certificate") provides, among other things, for the authorization of 1,000,000 shares of Preferred Stock, $0.01 par value (the "Preferred Stock"). The shares of Preferred Stock may be issued from time to time at the discretion of the Board of Directors without stockholder approval. The Board of Directors is authorized to issue these shares in different classes and series and, with respect to each class or series, to determine the dividend rate, the redemption provisions, conversion provisions, liquidation preference and other rights and privileges not in conflict with the Certificate. No shares of Preferred Stock are outstanding, and the Company has no immediate plans to issue any Preferred Stock. While issuance of Preferred Stock could provide needed flexibility in connection with possible acquisitions and other corporate purposes, such issuance could also make it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company or discourage an attempt to gain control of the Company. In addition, the Board of Directors, without stockholder approval, can issue shares of Preferred Stock with voting and conversion rights which could adversely affect the voting power and other rights of the holders of Common Stock. DIRECTORS' EXCULPATION AND INDEMNIFICATION The Certificate provides that no director of the Company shall be liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty as a director, except to the extent otherwise required by the Delaware General Corporation Law (the "DGCL"). The effect of this provision of the Certificate is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of a fiduciary duty of care as a director. This provision does not limit or eliminate the rights of the Company or any stockholder to seek non-monetary relief, such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the Certificate provides that, if the DGCL is amended to authorize the further elimination or limitation of the liability of a director, then the liability of the directors shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. These provisions will not alter the liability of directors under federal or state securities laws. The Certificate also includes provisions for the indemnification of the Company's directors and officers to the fullest extent permitted by Section 145 of the DGCL. ELECTION AND REMOVAL OF DIRECTORS The Certificate classifies the board of directors into three classes, as nearly equal in number as possible, so that each director will serve for three years, with one class of directors being elected each year. The Certificate also provides that directors may be removed for cause only with the approval of the holders of at least two-thirds of the voting power of the Company's shares entitled to vote generally in the election of directors at an annual meeting or special meeting called for such purpose. In addition, the Certificate requires at least two-thirds of the voting power of the Company's shares entitled to vote generally in the election of 37 41 directors at an annual meeting or special meeting called for such purpose to alter, amend or repeal the provisions relating to the classified board and removal of directors described above. Management believes that the Certificate provisions described in the preceding paragraph (the "Provisions"), taken together, reduce the possibility that a third party could effect a change in the composition of the Company's board of directors without the support of the incumbent board. The Provisions, however, may have significant effects on the ability of stockholders of the Company to change the composition of the incumbent board, to benefit from transactions which are opposed by the incumbent board, to assume control of the Company or effect a fundamental corporate transaction such as a merger. Nevertheless, although the Company has not experienced any problems in the past with the continuity or stability of the board, management believes that the Provisions help assure the continuity and stability of the Company's policies in the future, since the majority of the directors at any time will have prior experience as directors of the Company. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW The Company is subject to the provisions of Section 203 of DGCL. That section provides, with certain exceptions, that a Delaware corporation may not engage in any of a broad range of business combinations with a person or affiliate, or associate of such person, who is an "interested stockholder" for a period of three years from the date that such person became an interested stockholder unless: (i) the transaction resulting in a person becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder; (ii) the interested stockholder acquires 85% or more of the outstanding voting stock of the corporation in the same transaction that makes it an interested stockholder (excluding shares owned by persons who are both officers and directors of the corporation, and shares held by certain employee stock ownership plans); or (iii) on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by the holders of at least 66 2/3% of the corporation's outstanding voting stock at an annual or special meeting, excluding shares owned by the interested stockholder. An "interested stockholder" is defined as any person that is (i) the owner of 15% or more of the outstanding voting stock of the corporation or (ii) an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Company's Common Stock is The First National Bank of Boston, 100 Federal Street, Boston, Massachusetts 02110. 38 42 UNDERWRITERS Under the terms and subject to the conditions in the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters named below (the "Underwriters") have severally agreed to purchase, and the Company has agreed to sell to them, severally, the respective number of shares of the Company's Common Stock set forth opposite the names of such Underwriters below:
NUMBER OF NAME SHARES ------------------------------------------------------------------------- --------- Morgan Stanley & Co. Incorporated...................................... CS First Boston Corporation............................................ PaineWebber Incorporated............................................... ------- Total.................................................................. =======
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters propose to offer part of the Common Stock directly to the public at the Price to Public set forth on the cover page hereof and part to certain dealers at a price which represents a concession not in excess of $ per share under the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ a share to other Underwriters or to certain dealers. Pursuant to the Underwriting Agreement, the Company and the Selling Stockholders have granted to the Underwriters an option, exercisable for 30 days from the date of the Prospectus, to purchase up to 535,000 and 65,000 additional shares of Common Stock, respectively, at the Price to Public set forth on the cover page hereof, less underwriting discounts and commissions. The Underwriters may exercise such option to purchase solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Common Stock offered hereby. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number set forth next to such Underwriter's name in the preceding table bears to the total number of shares as offered hereby. The Company and directors and executive officers of the Company have agreed with certain exceptions, not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, except for the shares to be sold in the offering, for a period of at least 90 days from the date of this Prospectus without the prior written consent of Morgan Stanley & Co. Incorporated, on behalf of the several Underwriters. If any such consent is given it would not necessarily be preceded or followed by a public announcement thereof. 39 43 In connection with the offering of Common Stock hereby, the Underwriters may engage in passive market making transactions in the Company's Common Stock on the Nasdaq National Market immediately prior to the commencement of the sale of shares in this offering, in accordance with Rule 10b-6A under the Exchange Act. Passive market making consists of displaying bids on the Nasdaq National Market limited by the bid prices of market makers not connected with this offering and purchases limited by such prices and effected in response to order flow. Net purchases by a passive market maker on each day are limited in amount to 30% of the passive market maker's average daily trading volume in the Common Stock during the period of the two full consecutive calendar months prior to the filing with the Commission of the Registration Statement of which this Prospectus is a part and must be discontinued when such limit is reached. Passive market making may stabilize the market price of the Common Stock at a level above that which might otherwise prevail and, if commenced, may be discontinued at any time. The Company, the Selling Stockholders and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Chase Securities Inc., one of the Underwriters, is an affiliate of The Chase Manhattan Bank which is the agent and a lender under the Bank Credit Facility. The Company intends to use a portion of the net proceeds of the offering to repay outstanding amounts under the Bank Credit Facility and The Chase Manhattan Bank will receive its proportionate share of such repayment. See "Use of Proceeds." Because more than 10% of the net offering proceeds will be paid to an affiliate of a member of the National Association of Securities Dealers, Inc. (the "NASD"), the Offering is being conducted in accordance with Rule 2710(c)(8) of the Conduct Rules of the NASD. LEGAL MATTERS The validity of the shares of Common Stock being offered hereby will be passed upon for the Company by Ropes & Gray, Boston, Massachusetts. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Shearman & Sterling, New York, New York. EXPERTS The financial statements and the related financial statement schedule of BE Aerospace, Inc. as of February 24, 1996 and February 25, 1995, and for each of the three fiscal years in the period ended February 24, 1996, appearing in this Prospectus and the Registration Statement referred to below, have been audited by Deloitte & Touche L.L.P., independent auditors, as set forth in their report dated April 19, 1996, appearing elsewhere herein and in the Registration Statement and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The audited financial statements of Burns Aerospace, Inc. as of December 31, 1994 and December 31, 1993, and for each of the three years in the period ended December 31, 1994, incorporated by reference in this Prospectus and the Registration Statement referred to below, have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report dated November 27, 1995, incorporated by reference herein and in the Registration Statement and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files periodic reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy and information statements, and other information filed by the Company with the Commission pursuant to the informational requirements of the Exchange Act may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, 40 44 New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained at prescribed rates by writing to the Commission, Public Reference Section, 450 Fifth Street N.W., Washington, D.C. 20549. The Company's Common Stock is listed on the NASDAQ National Market System, and such reports, proxy and information statements, and other information can also be inspected at the offices of NASDAQ Operations, 1735 K Street, N.W., Washington, D.C. 20006. The Company has filed with the Commission a Registration Statement on Form S-3 under the Securities Act of 1933, as amended, with respect to the Common Stock offered hereby (the "Registration Statement"). This Prospectus does not contain all the information set forth in the Registration Statement and in the exhibits and schedules thereto. For further information about the Company and the securities offered hereby, reference is hereby made to the Registration Statement and to the exhibits and schedules thereto, which may be inspected without charge at the principal office of the Commission in Washington, D.C. and copies of all or any part of which may be obtained from the Commission upon payment of the prescribed fees. Statements contained in this Prospectus as to the contents of any contract or any other document are not necessarily complete and in each instance reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated by reference in this Prospectus: (i) the Company's Annual Report on Form 10-K for the fiscal year ended February 24, 1996; (ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended on May 25, 1996 and August 31, 1996; (iii) the Company's Current Report on Form 8-K dated April 5, 1996; (iv) the Company's Current Report on Form 8-K dated November 14, 1996; and (v) the description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A filed under Section 12 of the Exchange Act, including any amendment or report updating such description. All documents filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the initial filing of the Registration Statement and prior to the termination of this offering shall be deemed to be incorporated by reference herein and to be a part hereof from the respective dates of the filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, upon written or oral request of any such person, a copy of any and all of such documents (other than exhibits to such documents which are not specifically incorporated by reference into such documents). Requests for such copies should be directed to the Chief Financial Officer, BE Aerospace, Inc., 1400 Corporate Center Way, Wellington, Florida 33414 (telephone number (561) 791-5000). 41 45 BE AEROSPACE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE ----- SIX MONTHS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995 Consolidated Balance Sheet, August 31, 1996 (Unaudited).......................... F-2 Consolidated Statements of Operations for the Six Months Ended August 31, 1996 and August 26, 1995 (Unaudited).................................................... F-3 Consolidated Statements of Cash Flows for the Six Months Ended August 31, 1996 and August 26, 1995 (Unaudited)................................................. F-4 Notes to Consolidated Financial Statements for the Six Months Ended August 31, 1996 and August 26, 1995 (Unaudited)............................................ F-5 FISCAL YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 Independent Auditors' Report..................................................... F-6 Consolidated Balance Sheets, February 24, 1996 and February 25, 1995............. F-7 Consolidated Statements of Operations for the Years Ended February 24, 1996, February 25, 1995 and February 26, 1994......................................... F-8 Consolidated Statements of Stockholders' Equity for the Years Ended February 24, 1996, February 25, 1995, and February 26, 1994.................................. F-9 Consolidated Statements of Cash Flows for the Years Ended February 24, 1996, February 25, 1995 and February 26, 1994......................................... F-10 Notes to Consolidated Financial Statements for the Years Ended February 24, 1996, February 25, 1995, and February 26, 1994....................................... F-12 Schedule II - Valuation and Qualifying Accounts for the Years Ended February 24, 1996, February 25, 1995, and February 26, 1994.................................. F-26
F-1 46 BE AEROSPACE, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
FEBRUARY 24, 1996 AUGUST 31, ------------ 1996 ---------- (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents........................................ $ 14,188 $ 15,376 Receivables -- trade, less allowance for doubtful accounts of $4,562 (August 31, 1996) and $4,973 (February 24, 1996)......... 59,935 54,242 Inventories, net................................................. 77,518 72,569 Other current assets............................................. 8,138 7,621 -------- -------- Total current assets........................................ 159,779 149,808 Property and Equipment, net........................................... 86,887 86,357 Intangibles and Other Assets, net..................................... 196,674 197,421 -------- -------- $ 443,340 $433,586 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................................................. $ 41,867 $ 45,102 Accrued expenses................................................. 50,171 56,400 Current portion of long-term debt................................ 5,459 6,482 -------- -------- Total current liabilities................................... 97,497 107,984 Long-Term Debt........................................................ 282,058 273,192 Deferred Income Taxes................................................. 1,923 1,257 Other Liabilities..................................................... 9,718 6,996 Stockholders' Equity: Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares outstanding.............................................. Common stock, $.01 par value; 30,000,000 shares authorized; 16,877,867 (August 31, 1996) 16,392,994 (February 24, 1996) issued.......................................................... 169 164 Additional paid-in capital....................................... 125,730 121,366 Retained deficit................................................. (72,699) (75,995) Cumulative foreign exchange translation adjustment............... (1,056) (1,378) -------- -------- Total stockholders' equity.................................. 52,144 44,157 -------- -------- $ 443,340 $433,586 ======== ========
F-2 47 BE AEROSPACE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED ------------------------- AUGUST 31, AUGUST 26, 1996 1995 ---------- ---------- (UNAUDITED) Net Sales.............................................................. $ 200,328 $ 113,045 Cost of Sales.......................................................... 133,342 75,925 -------- -------- Gross Profit........................................................... 66,986 37,120 Operating Expenses: Selling, general and administrative............................... 24,254 16,743 Research, development and engineering............................. 19,157 24,774 Amortization expense.............................................. 5,514 4,650 -------- -------- Total operating expenses..................................... 48,925 46,167 Operating Earnings (Loss).............................................. 18,061 (9,047) Interest Expense, net.................................................. 14,399 8,149 -------- -------- Earnings (Loss) Before Income Taxes and Cumulative Effect of Change in Accounting Principle................................................. 3,662 (17,196) Income Taxes........................................................... 366 -- -------- -------- Earnings (Loss) Before Cumulative Effect of Change in Accounting Principle............................................................ 3,296 (17,196) Cumulative Effect of Change in Accounting Principle.................... -- (23,332) -------- -------- Net Earnings (Loss).................................................... $ 3,296 $ (40,528) ======== ======== Earnings (Loss) Per Common Share: Earnings (Loss) Before Cumulative Effect of Change in Accounting Principle............................................................ $ .19 $ (1.07) Cumulative Effect of Change in Accounting Principle.................... -- (1.45) -------- -------- Net Earnings (Loss) Per Common Share................................... $ .19 $ (2.52) ======== ======== Common and Common Equivalent Shares.................................... 17,446 16,108 ======== ========
F-3 48 BE AEROSPACE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED ------------------------- AUGUST 31, AUGUST 26, 1996 1995 ---------- ---------- (UNAUDITED) Cash Flows from Operating Activities: Net earnings (loss)........................................... $ 3,296 $(40,528) Adjustments to reconcile net loss to net cash flows provided by operating activities: Depreciation and amortization............................ 11,840 8,413 Cumulative effect of change in accounting principle...... -- 23,332 Deferred income taxes.................................... 524 948 Non cash employee benefit plan contributions............. 442 683 Changes in operating assets and liabilities: Accounts receivable................................. (5,596) 4,306 Inventories......................................... (4,693) (3,813) Other current assets................................ (512) 120 Accounts payable.................................... (3,724) 3,555 Other liabilities................................... (5,599) (5,312) ---------- ---------- Net cash flows used in operating activities................... (4,022) (8,296) ---------- ---------- Cash Flows from Investing Activities: Capital expenditures.......................................... (7,065) (8,168) Change in intangibles and other assets -- net................. (4,591) (2,095) ---------- ---------- Net cash flows used in investing activities................... (11,656) (10,263) ---------- ---------- Cash Flows from Financing Activities: Net borrowings under revolving lines of credit................ 10,576 17,665 Proceeds from issuances of stock.............................. 3,927 153 ---------- ---------- Net cash flows provided by financing activities............... 14,503 17,818 ---------- ---------- Effect of exchange rate changes on cash flows...................... (13) (88) ---------- ---------- Net decrease in cash and cash equivalents.......................... (1,188) (829) Cash and cash equivalents, beginning of period..................... 15,376 8,319 ---------- ---------- Cash and cash equivalents, end of period........................... $ 14,188 $ 7,490 ---------- ---------- Supplemental disclosures of cash flow information: Cash paid during period for interest.......................... $ 13,336 $ 8,510 Cash paid during period for income taxes, net................. $ 309 --
F-4 49 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED AUGUST 31, 1996 AND AUGUST 26, 1995 NOTE 1. BASIS OF PRESENTATION: The information set forth in these consolidated financial statements as of August 31, 1996 and for the six-month periods ended August 31, 1996 and August 26, 1995 is unaudited and may be subject to normal year-end adjustments. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial position of BE Aerospace, Inc. for the periods indicated. Results of operations for the interim periods ended August 31, 1996 and August 26, 1995 are not necessarily indicative of the results of operations for the full fiscal year. For further information, including information with regard to conditions in the airline industry and their possible impact on the Company, please refer to the Company's annual report on Form 10-K for the fiscal year ended February 24, 1996. The accompanying consolidated financial statements consolidate all of the Company's subsidiaries. Certain information normally included in footnote disclosures to the annual financial statements has been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. F-5 50 BE AEROSPACE, INC. INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders BE Aerospace, Inc. Wellington, Florida We have audited the accompanying consolidated balance sheets of BE Aerospace, Inc. and subsidiaries as of February 24, 1996 and February 25, 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended February 24, 1996. Our audits also included the financial statement schedule on page F-26. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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, such consolidated financial statements present fairly, in all material respects, the financial position of BE Aerospace, Inc. and subsidiaries as of February 24, 1996 and February 25, 1995, and the results of their operations and their cash flows for each of the three years in the period ended February 24, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 2 to the consolidated financial statements, in the year ended February 24, 1996 the Company changed its method of accounting for engineering expenditures. DELOITTE & TOUCHE LLP Costa Mesa, California April 19, 1996 F-6 51 BE AEROSPACE, INC. CONSOLIDATED BALANCE SHEETS, FEBRUARY 24, 1996 AND FEBRUARY 25, 1995 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1996 1995 -------- -------- ASSETS Current Assets: Cash and cash equivalents........................................ $ 15,376 $ 8,319 Accounts receivable -- trade, less allowance for doubtful accounts of $4,973 (1996) and $4,034 (1995)............................. 54,242 48,915 Inventories, net................................................. 72,569 71,347 Deferred income taxes............................................ -- 6,502 Income tax refund receivable..................................... -- 1,019 Other current assets............................................. 7,621 6,415 -------- -------- Total current assets........................................ 149,808 142,517 -------- -------- Property and Equipment, net........................................... 86,357 60,304 Intangibles and Other Assets, net..................................... 197,421 177,133 -------- -------- $433,586 $379,954 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................................................. $ 45,102 $ 35,164 Accrued liabilities.............................................. 56,400 26,123 Current portion of long-term debt................................ 6,482 4,667 -------- -------- Total current liabilities................................... 107,984 65,954 -------- -------- Long-Term Debt........................................................ 273,192 172,693 Deferred Income Taxes................................................. 1,257 11,212 Other Liabilities..................................................... 6,996 4,764 Commitments and Contingencies Stockholders' Equity: Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares outstanding Common stock, $.01 par value; 30,000,000 shares authorized; 16,392,994 (1996) and 16,095,790 (1995) shares issued and outstanding..................................................... 164 160 Additional paid-in capital....................................... 121,366 119,209 Retained earnings (deficit)...................................... (75,995) 7,418 Cumulative foreign exchange translation adjustment............... (1,378) (1,456) -------- -------- Total stockholders' equity.................................. 44,157 125,331 -------- -------- $433,586 $379,954 ======== ========
See notes to consolidated financial statements. F-7 52 BE AEROSPACE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED ---------------------------------------------- FEBRUARY 24, FEBRUARY 25, FEBRUARY 26, 1996 1995 1994 ------------ ------------ ------------ Net Sales............................................... $232,582 $229,347 $203,364 Cost of Sales........................................... 160,031 154,863 136,307 -------- -------- -------- Gross Profit............................................ 72,551 74,484 67,057 Operating Expenses: Selling, general and administrative................ 42,000 31,787 28,164 Research, development and engineering.............. 58,327 12,860 9,876 Amortization of intangible assets.................. 9,499 9,954 7,599 Other expenses..................................... 4,170 23,736 -- -------- -------- -------- Total operating expenses...................... 113,996 78,337 45,639 -------- -------- -------- Operating Earnings (Loss)............................... (41,445) (3,853) 21,418 Interest Expense, net................................... 18,636 15,019 12,581 -------- -------- -------- Earnings (Loss) Before Income Taxes (Benefit) and Cumulative Effect of Change in Accounting Principle... (60,081) (18,872) 8,837 Income Taxes (Benefit).................................. -- (6,806) 3,481 -------- -------- -------- Earnings (Loss) Before Cumulative Effect of Change in Accounting Principle.................................. (60,081) (12,066) 5,356 Cumulative Effect of Change in Accounting Principle..... (23,332) -- -- -------- -------- -------- Net Earnings (Loss)..................................... $(83,413) $(12,066) $ 5,356 ======== ======== ======== Earnings (Loss) per Common Share: Earnings (loss) before cumulative effect of change in accounting principle.......................... $ (3.71) $ (0.75) $ 0.35 Cumulative effect of change in accounting principle........................................ (1.44) -- -- -------- -------- -------- Net earnings (loss)................................ $ (5.15) $ (0.75) $ 0.35 ======== ======== ========
See notes to consolidated financial statements. F-8 53 BE AEROSPACE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (IN THOUSANDS)
COMMON STOCK ADDITIONAL RETAINED CURRENCY TOTAL ---------------- PAID-IN EARNINGS TRANSLATION STOCKHOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT EQUITY ------ ------ ---------- -------- ---------- ------------- BALANCE, FEBRUARY 27, 1993...... 14,606 $146 $ 98,156 $ 14,128 $ (4,456) $ 107,974 Issuance of common stock........ 1,272 12 19,080 -- -- 19,092 Exercise of stock options....... 107 1 963 -- -- 964 Tax benefit from exercise of non statutory stock options....... -- -- 158 -- -- 158 Net earnings.................... -- -- -- 5,356 -- 5,356 Foreign currency translation adjustment.................... -- -- -- -- 449 449 ------ ---- -------- -------- ------- -------- BALANCE, FEBRUARY 26, 1994...... 15,985 159 118,357 19,484 (4,007) 133,993 Sale of stock under employee stock purchase plan........... 15 -- 132 -- -- 132 Employee benefit plan matching contribution.................. 96 1 720 -- -- 721 Net loss........................ -- -- -- (12,066) -- (12,066) Foreign currency translation adjustment.................... -- -- -- -- 2,551 2,551 ------ ---- -------- -------- ------- -------- BALANCE, FEBRUARY 25, 1995...... 16,096 160 119,209 7,418 (1,456) 125,331 Sale of stock under employee stock purchase plan........... 74 1 403 -- -- 404 Exercise of stock options....... 121 2 896 -- -- 898 Employee benefit plan matching contribution.................. 102 1 858 -- -- 859 Net loss........................ -- -- -- (83,413) -- (83,413) Foreign currency translation adjustment.................... -- -- -- -- 78 78 ------ ---- -------- -------- ------- -------- BALANCE, FEBRUARY 24, 1996...... 16,393 $164 $ 121,366 $(75,995) $ (1,378) $ 44,157 ====== ==== ======== ======== ======= ========
See notes to consolidated financial statements. F-9 54 BE AEROSPACE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS)
1996 1995 1994 -------- -------- -------- Cash Flows from Operating Activities: Net earnings (loss)...................................... $(83,413) $(12,066) $ 5,356 Adjustments to reconcile net earnings (loss) to net cash flows (used in) provided by operating activities: Cumulative effect of accounting change.............. 23,332 -- -- Depreciation and amortization....................... 18,435 16,146 13,115 Change in intangible assets......................... -- 8,588 -- Deferred income taxes............................... (3,453) (6,764) 1,657 Non cash employee benefit plan contributions........ 859 721 -- Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable.............................. 6,068 6,226 (3,188) Inventories...................................... (11,929) (16,863) (4,153) Income tax refunds receivable.................... 1,019 915 (1,934) Other current assets............................. (1,657) (1,500) (2,047) Accounts payable................................. 3,008 7,295 6,056 Other liabilities................................ 13,169 (642) (9,071) -------- -------- -------- Net cash flows (used in) provided by operating (34,562) 2,056 5,791 activities............................................... -------- -------- -------- Cash Flows from Investing Activities: Payments for purchase of property and equipment.......... (13,656) (12,172) (11,002) Change in other assets................................... (5,914) (8,610) (5,077) Acquisitions............................................. (42,500) -- (107,506) -------- -------- -------- Net cash flows used in investing activities................ (62,070) (20,782) (123,585) -------- -------- -------- Cash Flows from Financing Activities: Net borrowings under revolving lines of credit........... 2,000 9,080 -- Proceeds from issuance of stock, net of repurchases...... 1,302 132 964 Principal payments on long-term debt..................... (942) -- (13,514) Proceeds from long-term debt............................. 101,252 3,873 130,010 -------- -------- -------- Net cash flow provided by financing activities............. 103,612 13,085 117,460 -------- -------- -------- Effect of exchange rate changes on cash flows.............. 77 222 (198) -------- -------- -------- Net increase (decrease) in cash and cash equivalents....... 7,057 (5,419) (532) Cash and cash equivalents, beginning of year............... 8,319 13,738 14,270 -------- -------- -------- Cash and cash equivalents, end of year..................... $ 15,376 $ 8,319 $ 13,738 ======== ======== ========
See notes to consolidated financial statements. F-10 55 BE AEROSPACE, INC. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1996 1995 1994 ------- ------- ------- Cash paid (received) during year for: Interest................................................. $16,967 $16,664 $ 7,524 Income taxes -- net...................................... (3,292) (1,096) 2,918 Schedule of Noncash Transactions: Tax benefit upon exercise of nonstatutory stock options................................................ -- -- 158 Liabilities assumed and accrued acquisition costs incurred in connection with the acquisitions........... 27,532 -- 19,954 Liabilities incurred in connection with purchase of land and buildings.......................................... -- 4,000 4,932 Common stock issued in connection with the acquisitions........................................... -- -- 19,100
See notes to consolidated financial statements. F-11 56 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation BE Aerospace, Inc. (the "Company") operates in a single business segment and designs, manufactures, sells and services a broad line of commercial aircraft cabin interior products consisting of a broad range of aircraft seating products, passenger entertainment and service systems, and galley products, including structures as well as all food and beverage storage and preparation equipment. The Company's customers are the world's commercial airlines. As a result, the Company's business is directly dependent upon the conditions in the commercial airline industry. As described in Note 3, the Company has completed several business combinations, all accounted for using purchase accounting. On February 28, 1992, the Company acquired from the Pullman Company all of the assets and certain of the liabilities of PTC Aerospace, Inc. (PTC) and Aircraft Products Company (APC) (collectively, the Business Unit). Following the acquisition of the Business Unit, the Company changed its name to BE Aerospace, Inc. On April 2, 1992, the Company, through its Dutch holding company, acquired all of the outstanding stock of Flight Engineering and Equipment Limited (FEEL) and substantially all of the operating assets of JFB Engineering Limited (JFB), both English corporations. On April 30, 1993, the Company acquired all of the outstanding stock of Royal Inventum B.V., a Dutch corporation (Inventum). On August 26, 1993, the Company acquired all of the outstanding stock of Acurex Corporation, a California corporation (Acurex) and, on August 23, 1993, the Company acquired all of the outstanding stock of Nordskog Industries, Inc., a California corporation (Nordskog). On October 13, 1993, the Company acquired substantially all of the assets and certain of the liabilities of Philips Airvision of Valencia, California (Airvision), a division of Philips Electronics Corporation, North America Corporation. On January 24, 1996, the Company acquired all of the outstanding stock of Burns Aerospace Corporation, a Delaware corporation. Consolidation -- The accompanying financial statements consolidate the accounts of BE Aerospace, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes -- In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, the Company provides deferred income taxes for temporary differences between amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. Warranty Costs -- Estimated costs related to product warranties are accrued at the time products are sold. Revenue Recognition -- Sales of assembled products, equipment or services are recorded on the date of shipment or, if required, upon acceptance by the customer. The Company sells its products primarily to airlines worldwide, including F-12 57 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) occasional sales collateralized by letters of credit in countries where customary payment terms exceed one year. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses. Actual losses have been within management's expectations. Cash Equivalents -- The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Intangible Assets -- The Company amortizes intangible assets using the straight-line method based on the estimated economic lives of the assets, which range from 7-30 years. The Company annually evaluates the carrying value of the intangible assets versus the cash benefit expected to be realized and adjusts for any impairment of value. As discussed in Note 16, the Company introduced a new product to the inflight entertainment industry, causing the industry in general to re-evaluate its product offerings and, in the process, impairing the value of certain assets, including certain earlier Company technology. Accordingly, certain intangible assets related to these product offerings were written down to their estimated realizable value during the year ended February 25, 1995. Research and Development -- Research and development expenditures are expensed as incurred. Stock-Based Compensation -- In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation, which will be effective for the Company beginning February 25, 1996. SFAS 123 requires extended disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply Accounting Principle Board Opinion No. 25 (APB 25), which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB 25 to its stock-based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share beginning in fiscal 1997. Earnings (Loss) per Common Share -- Earnings (loss) per common share amounts are computed using the weighted-average number of common and common equivalent (where not antidilutive) shares outstanding during each period. The number of weighted average shares of common stock outstanding amounted to 16,185,000, 16,021,000, and 15,438,000 for the years ended February 24, 1996, February 25, 1995, and February 26, 1994. Foreign Currency Translation -- In accordance with the provisions of SFAS No. 52, "Foreign Currency Translation," the assets and liabilities located outside the United States are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates. Income and expense items are translated at the average exchange rates prevailing during the period. Gains and losses resulting from foreign currency transactions are recognized currently in income, and those resulting from translation of financial statements are accumulated as a separate component of stockholders' equity. F-13 58 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 2. ACCOUNTING CHANGE The Company undertook a comprehensive review of the engineering capitalization policies followed by its competitors and others in its industry peer group. The results of this study and an evaluation of the Company's policy led the Company to conclude that it should adopt the accounting method that it believes is followed by most of its competitors and certain members of its industry peer group. Previously, the Company had capitalized pre-contract engineering costs as a component of inventories, which were then amortized to earnings as the product was shipped. The Company now expenses such costs as they are incurred. While the accounting policy for pre-contract engineering expenditures previously followed by the Company was in accordance with generally accepted accounting principles, the changed policy is preferable. The effect of this change in accounting for periods through February 25, 1995 was a charge of $23,332 ($1.44 per share); the effect of expensing engineering costs for the year ended February 24, 1996 was a charge of $42,114 ($2.60). The following table summarizes the pro forma net earnings (loss) and per share amounts for each period presented. Primarily as a result of this accounting change, inventories decreased by approximately $65,446 as of February 24, 1996. Pro forma amounts assuming the change in application of accounting principle applied retroactively (unaudited):
YEAR ENDED ---------------------------------------------- FEBRUARY 24, FEBRUARY 25, FEBRUARY 26, 1996 1995 1994 ------------ ------------ ------------ Net (loss) earnings...................... $(60,081) $(35,398) $688 Net (loss) earnings per share............ $ (3.71) $ (2.20) $.04
3. ACQUISITIONS The Company completed a number of acquisitions during the years ended February 24, 1996 (1996 Acquisition) and February 26, 1994 (1994 Acquisitions) which are described below. Funds for the 1996 and 1994 Acquisitions were obtained from proceeds of the long-term debt issuance described in Note 8. 1996 ACQUISITION Burns -- On January 24, 1996 the Company acquired all of the outstanding capital stock of Burns Aerospace Corporation which designs, manufactures, sells and services aircraft seating products to commercial airlines worldwide. The aggregate acquisition cost of $70,032 includes the payment of $42,500 to the seller, the assumption of approximately $27,532 of liabilities, including related acquisition costs, and certain purchase accounting reserves. The aggregate purchase price for the Burns acquisition has been allocated to the net assets acquired based on appraisals and management's estimates as follows: Receivables.......................................................... $11,396 Inventories.......................................................... 12,624 Other current assets................................................. 806 Property and equipment............................................... 21,695 Intangible and other assets.......................................... 23,511 ------- $70,032 =======
F-14 59 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The following table presents unaudited pro forma operating results for the fiscal years ended February 1996 and 1995, respectively, as if the 1996 acquisition had occurred on February 27, 1994:
1996 1995 -------- -------- Net sales............................................... $327,073 $322,841 Net loss................................................ $(88,113) $(15,061) -------- -------- Net loss per share...................................... $ (5.44) $ (.94) ======== ========
None of the above proforma amounts reflect the anticipated cost savings associated with the Burns business integration plan. 1994 ACQUISITIONS Inventum -- On April 30, 1993, the Company acquired all of the capital stock of Inventum which designs, manufactures, sells and services galley inserts such as ovens, beverage makers, and water boilers to commercial airlines located primarily in Europe and the Pacific Rim. The aggregate acquisition cost of $39,964 includes the payment of $33,095 to the seller, the assumption of approximately $3,614 of liabilities, plus related acquisition costs, and certain purchase accounting reserves. Acurex -- On August 26, 1993, the Company acquired all of the outstanding capital stock of Acurex which designs, manufactures, sells and services aircraft refrigeration appliances such as chillers, refrigeration units and wine chillers to commercial airlines worldwide. The aggregate acquisition cost of $70,454 includes the payment of $45,000 to the seller, the assumption of approximately $2,507 of liabilities, the issuance of 1,272,728 shares of the Company's common stock to the sellers, valued at $15.00 per share, plus related acquisition costs, and certain purchase accounting reserves. Nordskog -- On August 23, 1993, the Company acquired all of the outstanding capital stock of Nordskog which designs, manufactures, sells and services aircraft galley structures and inserts to commercial airlines worldwide. The aggregate acquisition cost of $25,402 includes a cash payment of $17,158 to the seller, the assumption of approximately $2,374 of liabilities, plus related acquisition costs, and certain purchase accounting reserves. Airvision -- On October 13, 1993, the Company acquired substantially all of the assets and certain of the liabilities of Airvision which designs, manufactures, sells and services in-seat video products, including interactive video for commercial airlines worldwide. The aggregate acquisition cost of $16,601 includes the payment of $12,253 to the seller, the assumption of approximately $1,640 of liabilities, plus related acquisition costs, and certain purchase accounting reserves. The aggregate purchase price for the 1994 Acquisitions has been allocated to the net assets acquired based on appraisals and management's estimates as follows: Cash and cash equivalents........................................... $ 4,403 Receivables......................................................... 14,403 Inventories......................................................... 21,392 Property and equipment.............................................. 5,424 Intangible and other assets......................................... 106,799 -------- $152,421 ========
F-15 60 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 4. INVENTORIES Inventories are valued at the lower of cost or market using the weighted average cost method. Inventories consist of the following:
1996 1995 ------- ------- Raw materials............................................. $28,252 $23,675 Work-in-process........................................... 39,045 39,131 Finished goods............................................ 5,272 8,541 ------- ------- $72,569 $71,347 ======= =======
Inventories at February 25, 1995 included $23,332 of capitalized pre-contract engineering costs. As described in Note 2, during fiscal 1996, the Company changed its method of accounting for such costs. 5. PROPERTY AND EQUIPMENT Property and equipment are carried at cost, and depreciated and amortized generally on the straight-line method over their estimated useful lives of three to 20 years (term of lease as to leasehold improvements). Property and equipment consist of the following:
YEARS 1996 1995 ----- -------- -------- Land, buildings and improvements................ 15-20 $ 39,979 $ 31,920 Machinery....................................... 5-12 46,374 29,743 Tooling......................................... 3-5 14,819 10,324 Furniture and equipment......................... 3-5 12,758 7,075 -------- -------- 113,930 79,062 Less accumulated depreciation and amortization.................................. (27,573) (18,758) -------- -------- $ 86,357 $ 60,304 ======== ========
6. INTANGIBLES AND OTHER ASSETS Intangibles and other assets consist of the following:
STRAIGHT-LINE AMORTIZATION PERIOD (YEARS) 1996 1995 -------------- -------- -------- Covenants not-to-compete.................. 14 $ 10,198 $ 9,198 Product technology, production plans and drawings................................ 7-20 60,201 56,774 Replacement parts annuity................. 20 29,416 26,042 Product approvals and technical manuals... 20 18,529 13,909 Goodwill.................................. 30 77,256 68,651 Debt issue costs.......................... 10 12,592 5,662 Trademarks and patents.................... 20 10,470 9,114 Other..................................... 11,761 9,482 -------- -------- 230,423 198,832 Less accumulated amortization........ (33,002) (21,699) -------- -------- $197,421 $177,133 ======== ========
F-16 61 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 7. ACCRUED LIABILITIES Accrued liabilities consist of the following:
1996 1995 -------- ------- Accrued product warranties.............................. $ 3,455 $ 2,969 Accrued salaries, vacation and related benefits......... 10,479 5,502 Accrued acquisition expenses............................ 11,105 2,507 Accrued interest........................................ 7,449 6,694 Customer advances....................................... 5,940 -- Accrued income taxes.................................... 7,315 1,642 Other accrued liabilities............................... 10,657 6,809 -------- ------- $ 56,400 $26,123 ======== =======
8. LONG-TERM DEBT Long-term debt consists of the following:
1996 1995 -------- -------- Senior notes............................................. $124,313 $124,215 Senior subordinated notes................................ 100,000 -- Revolving lines of credit................................ 38,000 36,000 Term loan................................................ 16,665 16,577 Other long-term debt..................................... 696 568 -------- -------- 279,674 177,360 Less current portion of long-term debt................... (6,482) (4,667) -------- -------- $273,192 $172,693 ======== ========
In January 1996, the Company amended its existing credit facilities by increasing the aggregate principal amount that may be borrowed thereunder to $100,000 (the "Bank Credit Facility"). The Bank Credit Facility consists of a $25,000 Reducing Revolver and a $75,000 Revolving Facility. The amount of the Reducing Revolver will be reduced automatically by 12.5% on April 19, 1999 and on each of the seven succeeding quarterly anniversaries of such date. The Reducing Revolver is collateralized by all of the issued and outstanding capital stock of Acurex and has a five-year maturity, with the commitments of the lenders thereunder reducing during such five-year period. The Revolving Facility is collateralized by all of the Company's accounts receivable, all of its inventory and substantially all of its other personal property and has a five-year maturity. The Bank Credit Facility contains customary affirmative covenants, negative covenants and conditions of borrowing, all of which were met by the Company as of February 24, 1996. Borrowings under the Bank Credit Facility were used to refinance the remaining borrowings under the Company's then outstanding credit facility. Borrowings under the Bank Credit Facility currently bear interest at LIBOR plus 1.75% or prime (as defined) plus 1/2%. The interest to be charged on the Bank Credit Facility can increase or decrease based upon specified operating performance criteria set forth in the Bank Credit Facility Agreement. Amounts may be borrowed or repaid in $1,000 increments. At February 24, 1996, approximately $5,800 of letters of credit were outstanding, reducing the aggregate Bank Credit Facility availability to approximately $56,200. On January 24, 1996, the Company sold $100,000 of 9 7/8% Senior Subordinated Notes (the "Senior Subordinated Notes"). The proceeds from the Senior Subordinated Notes were utilized to acquire Burns and refinance the Company's then outstanding Bank credit facilities. F-17 62 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The Senior Subordinated Notes are unsecured senior subordinated obligations of the Company and are subordinated to all senior indebtedness of the Company and mature on February 1, 2006. Interest on the Senior Subordinated Notes is payable semi-annually in arrears February 1 and August 1 of each year. The Senior Subordinated Notes are redeemable at the option of the Company, in whole or in part, at any time after February 1, 2001 at predetermined redemption prices together with accrued and unpaid interest through the date of redemption. Upon a change of control (as defined), each holder of the Senior Subordinated Notes may require the Company to repurchase such holder's Senior Subordinated Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of such purchase. The Senior Subordinated Notes contain certain restrictive covenants, all of which were met by the Company as of February 24, 1996, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers and transfers of assets. On February 24, 1993, the Company sold $125,000 of 9 3/4% Senior Notes (the "Senior Notes"), which were priced to yield 9 7/8%. The Company received the proceeds from the Senior Notes on March 3, 1993 and utilized $32,545 thereof to repay the outstanding balance of the Company's then outstanding bank obligations. The Senior Notes are senior unsecured obligations of the Company, ranking equally with any future senior obligations of the Company and mature on March 1, 2003. Interest on the Senior Notes is payable semi-annually in arrears on March 1 and September 1 of each year. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 1, 1998 at predetermined redemption prices, together with accrued and unpaid interest through the date of redemption. Upon a change of control (as defined), each holder of the Senior Notes may require the Company to repurchase such holder's Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of such purchase. The Senior Notes contain certain restrictive covenants, all of which were met by the Company as of February 24, 1996, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers and transfers of assets. Terms of the Senior Notes provide that, among other things, the payment of cash dividends on Common Stock is limited to a cumulative amount that equals fifty percent of the Company's consolidated adjusted net income since the date of the Senior Notes' issuance, plus the sum of $10,000 and other equity adjustments (as defined therein). The payment of cash dividends may only be made if the Company is not in default under the terms of the Senior Notes. The Bank Credit Facility also contains restrictions on the cumulative amount of dividends that may be paid. As of February 24, 1996, no cash dividends could have been declared by the Company. The Company has a U.K. revolving line of credit and term loan facility aggregating $13,300 (the FEEL Credit Agreement). The FEEL Credit Agreement is collateralized by substantially all of the assets of FEEL. Borrowings may be made under the line of credit provided FEEL is in compliance with certain covenants, all of which were met or waived as of February 24, 1996. Aggregate borrowings outstanding under the FEEL Credit Agreement were approximately $12,815 as of February 24, 1996. Such borrowings will be repaid in pounds sterling. The Company also has a Netherlands revolving line of credit agreement for approximately $1,000 (the Inventum Credit Agreement). The Inventum Credit Agreement is collateralized by substantially all of the assets of Inventum. Borrowings may be made under the line of credit provided Inventum is in compliance with certain covenants, all of which were met by Inventum as of February 24, 1996. There were no borrowings outstanding under the Inventum Credit Agreement as of February 24, 1996. During fiscal 1995, the Company entered into term loan agreements aggregating $4,000 which are collateralized by two of the Company's recently constructed properties. These term loans bear interest at F-18 63 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) prime (as defined) plus 1/2% or LIBOR plus 1 3/4%, at the option of the Company and contain certain restrictive covenants, all of which were met by the Company as of February 24, 1996. Maturities of long-term debt are as follows: Fiscal year ending February: 1997........................................................... $ 6,482 1998........................................................... 1,591 1999........................................................... 1,424 2000........................................................... 1,357 2001........................................................... 39,358 Thereafter.......................................................... 229,462 -------- $279,674 ========
9. INCOME TAXES Income tax expense (benefit) consists of the following:
1996 1995 1994 ------- ------- ------ Current: Federal..................................... $ 1,972 $ (786) $1,408 State....................................... 818 105 139 Foreign..................................... 663 639 277 ------- ------- ------ $ 3,453 $ (42) $1,824 ======= ======= ====== Deferred: Federal..................................... $(2,635) $(5,146) $ 155 State....................................... (818) (904) 266 Foreign..................................... -- (714) 1,236 (3,453) (6,764) 1,657 ------- ------- ------ $ -0- $(6,806) $3,481 ======= ======= ======
The difference between income tax expense (benefit) and the amount computed by applying the statutory U.S. federal income tax rate (35%) to the pretax earnings before change in accounting principle consists of the following:
1996 1995 1994 -------- ------- ------ Statutory U.S. federal income tax expense (benefit)..................................... $(21,028) $(6,605) $3,093 Operating loss without tax benefit.............. 14,569 -- -- Foreign tax rate differential................... 3,324 -- -- State income taxes, net......................... -- (519) 264 Goodwill amortization........................... 558 708 290 Research and development credit................. -- (600) -- Foreign Sales Corporation tax benefit........... -- (353) (281) Other, net...................................... 2,577 563 115 -------- ------- ------ $ -0- $(6,806) $3,481 ======== ======= ======
F-19 64 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The tax effects of temporary differences and carryforwards that give rise to the Company's deferred income tax assets and liabilities consist of the following:
1996 1995 -------- -------- Engineering costs...................................... $ 22,182 $ -- Inventory reserves..................................... 5,164 2,396 Acquisition reserves................................... 991 855 Inventory costs capitalized for tax purposes........... 815 815 Bad debt reserves...................................... 658 1,415 Other.................................................. 1,611 1,021 -------- -------- Net current deferred income tax assets................. $ 31,421 $ 6,502 ======== ======== Intangible assets...................................... (14,701) (16,421) Depreciation........................................... (1,556) (1,904) Net operating loss carryforward........................ 9,254 3,708 Research credit carryforward........................... 600 600 Other.................................................. 1,137 2,805 -------- -------- Net noncurrent deferred income tax liabilities......... (5,266) (11,212) -------- -------- Valuation allowance.................................... (27,412) -- -------- -------- Net deferred tax liabilities........................... $ (1,257) $ (4,710) ======== ========
Due to uncertainty surrounding the realization of the benefits of its net deferred tax asset, the Company has established a valuation allowance of $27,412 against its otherwise recognizable net deferred tax asset. As of February 24, 1996, the Company had approximately $22,816 of federal operating loss carryforwards which expire at various dates through 2011, federal research credit carryforwards of $600 which expire at various dates through 2011, and alternative minimum tax credit carryforwards of $269 which have no expiration date. The Company has not provided for any residual U.S. income taxes on the approximately $2,855 of earnings from its foreign subsidiaries because such earnings are intended to be indefinitely reinvested. Such residual U.S. income taxes, if provided for, would be immaterial. The Company's federal tax returns for the years ended February 26, 1994 and February 27, 1993 are currently under examination by the Internal Revenue Service. Management believes that the resolution of this examination will not have a material adverse effect on the Company's results of operations or its financial condition. F-20 65 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 10. COMMITMENTS AND CONTINGENCIES Leases-- The Company leases certain of its office, manufacturing and service facilities under operating leases which expire at various times through August 2003. Rent expense for fiscal 1996, 1995, and 1994 was approximately $2,943, $2,276 and $2,091, respectively. Future payments under leases with terms currently greater than one year are as follows: Year ending February: 1997........................................................... $ 5,308 1998........................................................... 4,318 1999........................................................... 2,567 2000........................................................... 1,460 2001........................................................... 1,257 Thereafter.......................................................... 3,063 ------- $17,973 =======
Contingencies -- BEA has been advised that the U.S. Attorney's Office for the District of Connecticut, in conjunction with the Department of Commerce and the U.S. Customs Service, is conducting a grand jury investigation focused on possible non-compliance by BEA with certain statutory and regulatory provisions relating to export licensing and controls. The investigation relates primarily to the sale of passenger seats and related spare parts for civilian commercial passenger aircraft to Iran Air from 1992 through mid-1995. BEA has been advised that it is a target of the investigation; however, neither it nor any current or former directors, officers, or employees have been charged in connection with the investigation. The investigation is at an early stage and, while the Company intends to defend itself vigorously, the ultimate outcome of the investigation cannot presently be determined. An adverse outcome could have a material adverse effect upon the operations and/or financial condition of the Company. The Company is also a defendant in various other legal actions arising in the normal course of business, the outcome of which, in the opinion of management, neither individually nor in the aggregate are likely to result in a material adverse effect to the Company's financial statements. Employment Agreements -- The Company has employment and compensation agreements with two key officers of the Company. One of the agreements provides for an officer to earn a minimum of $450 adjusted annually for changes in the consumer price index (as defined) per year through 2001, as well as a deferred compensation benefit equal to the aggregate annual compensation earned through termination and payable thereafter. Such deferred compensation will be payable in equal monthly installments over the same number of years it was earned. The other agreement provides for an officer to receive annual minimum compensation of $450, and an incentive bonus not to exceed 100% of the officer's then-current salary through 1998. In addition, if the officer terminates his employment on or after April 28, 1996, the Company is obligated to pay the officer annually, as deferred compensation, an amount equal to 100% of the officer's annual salary (as defined) for a period of ten years from the date of termination. Such deferred compensation has been accrued at the present value of the obligation at February 24, 1996. The Company has other employment agreements with certain key members of management that provide for aggregate minimum annual base compensation of $1,660, expiring on various dates through 1999. F-21 66 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Supply Agreement -- The Company has entered into a supply agreement with Applied Extrusion Technologies, Inc. ("AET"), a related party by way of common management. Under this agreement, the Company has agreed to purchase its requirements for certain component parts through April 1998 at a price that results in a 33-1/3% gross margin to AET. The Company's purchases under this contract for the years ended February 24, 1996, February 25, 1995, and February 26, 1994 were $1,301, $984, $1,040, respectively. 11. PROFIT-SHARING PLAN In August 1988, the Company established a non-qualified contributory profit-sharing plan. Effective August 1, 1989, this plan was amended to incorporate a 401(k) Plan which permits the Company to match a portion of employee contributions and to make profit-sharing contributions to all participants (as defined). Commencing in 1995, the Company's 401(k) Plan was amended to permit the Company's matching contribution to be made in common stock of the Company. The Company recognized expenses of $859, $757, and $585 related to this plan for the years ended February 24, 1996, February 25, 1995 and February 26, 1994, respectively. 12. STOCKHOLDERS' EQUITY Stock Option Plans -- The Company has various stock option plans, including the 1989 Stock Option Plan, the 1991 Directors Stock Option Plan and the 1992 Share Option Scheme (collectively the "Option Plans"), under which shares of the Company's common stock may be granted to key employees and directors of the Company. The Option Plans provide for granting key employees options to purchase the Company's common stock. Options are granted at the discretion of the compensation and stock option committee of the Board of Directors, and the option term cannot exceed ten years. Options granted generally vest at the rate of 25% per year from the date of grant and are exercisable to the extent vested. In August 1995, the compensation and stock option committee of the Board of Directors reviewed the exercise prices of the options then outstanding, current market conditions, as well as other factors, and deemed it appropriate to re-price 540,800 options with exercise prices ranging from $9.25 to $11.75 per share to $7.625 per share, which was the fair market value as of that date. The following table sets forth options granted, cancelled, forfeited and outstanding:
FEBRUARY 26, 1996 FEBRUARY 25, 1995 FEBRUARY 26, 1994 -------------------------- -------------------------- -------------------------- OPTION PRICE OPTION PRICE OPTION PRICE OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE --------- -------------- --------- -------------- --------- -------------- Outstanding, beginning of period.... 2,871,287 $ .81 - $13.00 2,493,162 $ .81 - $13.00 2,215,112 $ .81 - $14.00 Options granted..................... 731,925 $7.37 - $10.37 484,500 $7.44 - $ 8.75 404,500 $8.75 - $11.75 Options exercised................... (139,750) $ .81 - $ 8.75 (375) $ .81 (106,450) $8.75 - $ 9.50 Options forfeited................... (743,112) $7.00 - $13.00 (106,000) $8.25 - $11.75 (20,000) $8.75 - $12.25 --------- --------- --------- Outstanding, end of period.......... 2,720,350 $ .81 - $13.00 2,871,287 $ .81 - $13.00 2,493,162 $ .81 - $13.00 ========= ========= =========
13. EMPLOYEE STOCK PURCHASE PLAN The Company has established a qualified Employee Stock Purchase Plan, the terms of which allow for qualified employees (as defined) to participate in the purchase of designated shares of the Company's common stock at a price equal to the lower of 85% of the closing price at the beginning or end of each semi- annual stock purchase period. The Company issued 73,544 and 15,065 shares of stock during fiscal 1996 and 1995 (none in fiscal 1994) pursuant to this plan at a price per share of $5.50 and $7.01, respectively. F-22 67 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 14. RELATED PARTY TRANSACTIONS Aurora, a private capital firm, has provided assistance to the Company in developing its acquisition program, the acquisitions of the Business Unit, FEEL and AFL, Inventum, Nordskog and Acurex as well as in its 1992 equity offering, strategic planning, competitive analysis and financial relations. During fiscal 1994, the Company had an arrangement with Aurora under which Aurora was entitled to receive reimbursement for its reasonable expenses and to receive a monthly retainer of $20 which was credited against any fees earned for services rendered related to certain transactions, including $100 for each acquisition consummated in fiscal 1994. This arrangement was terminated effective July 1993. Aurora earned approximately $300 during the year ended February 26, 1994 related to the 1994 Acquisitions. A member of the Company's Board of Directors is a part owner of Aurora. 15. EXPORT SALES AND MAJOR CUSTOMERS Export sales from the United States to customers in foreign countries amounted to approximately $61,717 $61,645, and $44,058 in fiscal 1996, 1995, and 1994, respectively. Total sales to all customers in foreign countries amounted to approximately $124,469, $114,511 and $85,239 in fiscal 1996, 1995 and 1994, respectively. Total sales to Europe amounted to 18%, 22% and 28% in fiscal 1996, 1995 and 1994, respectively. Total sales to Asia amounted to 20%, 19% and 21% in fiscal 1995, 1994 and 1993, respectively. Major customers (i.e., customers representing more than 10% of total sales) change from year to year depending on the level of refurbishment activity and/or the level of new aircraft purchases by such customers. There were no major customers in fiscal 1996, 1995 or 1994. 16. OTHER EXPENSES Other expenses for the year ended February 24, 1996 relate to costs associated with the integration and consolidation of the Company's European seating business. Other expenses for the year ended February 25, 1995 consisted of a charge related primarily to intangible assets ($10,835) and inventories ($11,216) associated with the Company's passenger entertainment systems. The introduction of the Company's MDDS interactive video system, which the Company expects to become the industry's standard for inflight passenger and service entertainment, has captured the dominant market share with contract awards from the major airlines totaling more than $150,000 during the year ended February 24, 1996. The MDDS system also has recently caused major carriers to convert programs for earlier products to the Company's MDDS system and has caused two of the Company's principal competitors to offer to develop for the airlines systems similar to the Company's MDDS system. These events have caused the inflight entertainment industry to re-evaluate its product offerings and, in the process, have impaired the value of certain of its assets. As a result, the Company has written down certain of its assets, including certain customer-specific inventories and other assets. 17. FOREIGN OPERATIONS Geographic Area -- The Company operated principally in two geographic areas, the United States and Europe during the years ended February 24, 1996, February 25, 1995, and February 26, 1994. There were no significant transfers between geographic areas during the period. Identifiable assets are those assets of the Company that are identified with the operations in each geographic area. F-23 68 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The following table presents operating results for the years ended February 24, 1996, February 25, 1995, and February 26, 1994 and identifiable assets as of February 24, 1996, February 25, 1995, and February 26, 1994 by geographic area.
UNITED 1996 STATES EUROPE CONSOLIDATED ------------------------------------------- -------- -------- ------------ Sales to unaffiliated customers............ $169,830 $ 62,752 $232,582 Gross profit............................... 53,772 18,779 72,551 Selling, general and administrative and amortization expenses.................... 39,833 11,666 51,499 Research, development and engineering...... 49,574 8,753 58,327 Other expenses............................. 187 3,983 4,170 Interest expense, net...................... 17,600 1,036 18,636 Loss before income taxes and cumulative effect of accounting change.............. (53,422) (6,659) (60,081) Identifiable assets........................ 332,832 100,754 433,586
UNITED 1995 STATES EUROPE CONSOLIDATED ------------------------------------------- -------- -------- ------------ Sales to unaffiliated customers............ $170,542 $ 58,805 $229,347 Gross profit............................... 56,296 18,188 74,484 Selling, general and administrative and amortization expenses.................... 32,183 9,558 41,741 Research, development and engineering...... 9,834 3,026 12,860 Other expenses............................. 23,736 -- 23,736 Interest expense, net...................... 11,835 3,184 15,019 Loss before income taxes................... (18,578) (294) (18,872) Identifiable assets........................ 279,402 100,552 379,954
UNITED 1994 STATES EUROPE CONSOLIDATED ------------------------------------------- -------- -------- ------------ Sales to unaffiliated customers............ $156,638 $ 46,726 $203,364 Gross profit............................... 51,401 15,656 67,057 Selling, general and administrative and amortization expenses.................... 27,288 8,475 35,763 Research, development and engineering...... 7,783 2,093 9,876 Interest expense, net...................... 11,424 1,157 12,581 Earnings before income taxes............... 4,814 4,023 8,837 Identifiable assets........................ 280,827 94,182 375,009
18. FAIR VALUE INFORMATION The following disclosure of the estimated fair value of financial instruments at February 24, 1996 and February 25, 1995 is made in accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts of cash and cash equivalents, accounts receivable -- trade, and accounts payable are a reasonable estimate of their fair values. Except for the Company's Senior Notes and Senior F-24 69 BE AEROSPACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Subordinated Notes at February 24, 1996, the Company's Senior Notes have a carrying value of $124,313 and fair value of $130,625, while the Company's Senior Subordinated Notes have a carrying value of $100,000 and fair value of $102,750. The carrying amount of other long-term debt approximates fair value because the obligations either bear interest at floating rates or compare favorably with fixed rate obligations that would be available to the Company. The fair value information presented herein is based on pertinent information available to management as of February 24, 1996. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. 19. SELECTED QUARTERLY DATA (UNAUDITED) Summarized quarterly financial data for fiscal 1996 is as follows:
YEAR ENDED FEBRUARY 24, 1996 ---------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- As previously reported: Sales............................................. $55,594 $57,451 $55,188 $64,349 Gross profit...................................... 18,401 17,573 17,519 17,664 Selling, general & administrative................. 8,300 8,443 8,504 16,692 Research, development and engineering............. 3.547 4,433 3,611 21,071 Operating earnings (loss)......................... 4,221 3,337 (1,113) (22,617) Net earnings (loss)............................... 33 (375) (3,368) (28,864) Net earnings (loss) per share..................... 0.00 (0.02) (0.21) (1.92) As restated due to accounting change: Sales............................................. $55,594 $57,451 $55,188 $64,349 Gross profit...................................... 18,401 18,719 17,726 17,664 Selling, general & administrative................. 8,300 8,443 8,504 16,692 Research, development & engineering............... 13,303 11,471 12,483 21,071 Operating (loss).................................. (5,494) (3,553) (9,782) (22,617) Net (loss) before cumulative effect of accounting (9,682) (7,514) (14,021) (28,864) change.......................................... Cumulative effect of accounting change............ (23,332) -- -- -- Net loss.......................................... (33,014) (7,514) (14,021) (28,864) Loss per common share: Net loss per share: Before cumulative effect of accounting change..... $ (0.60) $ (0.45) $ (0.74) $ (1.92) Cumulative effect of accounting change............ (1.44) -- -- -- ------- ------- ------- ------- Net loss per share................................ $ (2.04) $ (0.45) $ (0.74) $ (1.92)
Selling, general and administrative expense and research, development and engineering expense for the fourth quarter reflect a significant increase primarily attributable to the Burns acquisition. Summarized quarterly financial data for fiscal 1995 is as follows:
YEAR ENDED FEBRUARY 25, 1995 ---------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Net sales.............................................. $57,567 $55,197 $57,281 $59,302 Gross profit........................................... 18,887 18,408 18,668 18,521 Net earnings (loss).................................... 1,074 964 (14,569) 465 Net earnings (loss) per common share................... .07 .06 (.90) .03
F-25 70 SCHEDULE II BE AEROSPACE, INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995 AND FEBRUARY 26, 1994 (DOLLARS IN THOUSANDS)
BALANCE BALANCE AT BEGINNING AT END OF YEAR EXPENSES OTHER DEDUCTIONS OF YEAR ------------ -------- ------- ---------- ------- Deducted From Assets: Allowance for doubtful accounts: 1996.............................. $ 4,034 $ 162 $1,449 (1) $ 672 $ 4,973 1995.............................. 2,208 3,119 -- 1,293 4,034 1994.............................. 1,304 774 650 (2) 520 2,208 Reserve for obsolete inventories: 1996.............................. $ 10,664 $6,022 $5,840 (1) $2,741 $19,785 1995.............................. 7,557 2,787 2,754 (2) 2,434 10,664 1994.............................. 2,885 1,880 4,452 (2) 1,660 7,557 Included In Liabilities: Accrued product warranties: 1996.............................. $ 2,969 $2,758 $ 936 (1) $3,208 $ 3,455 1995.............................. 2,388 2,544 666 (2) 2,629 2,969 1994.............................. 1,856 1,926 (184 ) 1,210 2,388
- --------------- (1) Burns acquisition (2) 1994 acquisitions F-26 71 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth estimates of the various expenses to be borne by the Company in connection with the offering of the securities being hereby registered.
ITEM COST -------------------------------------------------------------------------- -------- SEC Registration Fee...................................................... $ 33,277 NASD Filing Fee........................................................... 11,483 Nasdaq National Market Listing Fee........................................ 17,500 Blue Sky Fees and Expenses................................................ 15,000 Transfer Agent and Registrar Fees......................................... 5,000 Accounting Fees and Expenses.............................................. 200,000 Legal Fees and Expenses................................................... 225,000 Printing and Mailing Expenses............................................. 300,000 Miscellaneous............................................................. 17,740 -------- TOTAL........................................................... $825,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law ("DGCL") provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any such person serving in any such capacity who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor, against expenses actually and reasonably incurred in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or such other court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 102(b)(7) of the DGCL permits a corporation to include in its certificate of incorporation a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (relating to unlawful payment of dividends and unlawful stock purchase and redemption) or (iv) for any transaction from which the director derived an improper personal benefit. The Registrant's Restated Certificate of Incorporation (the "Certificate") provides that the Company's Directors shall not be liable to the Registrant or its stockholders for monetary damages for breach of fiduciary II-1 72 duty as a director except to the extent that exculpation from liabilities is not permitted under the DGCL as in effect at the time such liability is determined. The Registrant's Certificate further provides that the Registrant shall indemnify its directors and officers to the fullest extent permitted by the DGCL. The directors and officers of the Company are covered under directors' and officers' liability insurance policies maintained by the Company. ITEM 16. EXHIBITS The following is a list of exhibits filed as a part of this registration statement. 1.1 Form of Underwriting Agreement* 4.1 Specimen Common Stock Certificate(1) Certificate of Amendment of the Restated Certificate of 4.2 Incorporation (2) 4.3 Amended and Restated By-laws (3) 4.4 Form of Power of Attorney and Custody Agreement* 5.1 Opinion of Ropes & Gray* 23.1 Consent of Deloitte & Touche LLP* 23.2 Consent of Arthur Andersen LLP* 23.3 Consent of Ropes & Gray (included in Exhibit 5.1)* 24 Power of Attorney**
- --------------- (1) Incorporated by reference from Registrant's Registration Statement on Form S-1, as amended (No. 33-33689), filed with the Commission on March 7, 1990. (2) Incorporated by reference from Registrant's Registration Statement on Form S-1, as amended (No. 33-54146), filed with the Commission on November 3, 1992. (3) Incorporated by reference from Registrant's Current Report on Form 8-K dated March 6, 1992. * Filed herewith. ** Previously filed. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under "Item 15 - -- Indemnification of Directors and Officers" above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-2 73 The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 74 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wellington, Florida, on this 12th day of December, 1996. BE AEROSPACE, INC. By: /s/ AMIN J. KHOURY ------------------------------------ Amin J. Khoury Chairman of the Board of Directors Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed below by Amin J. Khoury as attorney-in-fact for the specific persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ----------------------------------- ---------------------------------- ------------------ /s/ AMIN J. KHOURY Chairman of the Board of Directors December 12, 1996 - ----------------------------------- Amin J. Khoury * Vice Chairman of the Board of December 12, 1996 - ----------------------------------- Directors and Chief Executive Robert J. Khoury Officer (principal executive officer) * President, Director and Chief December 12, 1996 - ----------------------------------- Operating Officer Paul E. Fulchino * Vice President, Chief Financial December 12, 1996 - ----------------------------------- Officer and Assistant Secretary Thomas P. McCaffrey (principal financial and accounting officer) * Director December 12, 1996 - ----------------------------------- Jim C. Cowart * Director December 12, 1996 - ----------------------------------- Richard G. Hamermesh * Director December 12, 1996 - ----------------------------------- Brian H. Rowe * Director December 12, 1996 - ----------------------------------- Hansjoerg Wyss *By: /s/ AMIN J. KHOURY - ----------------------------------- Amin J. Khoury Attorney-in-Fact
II-4 75 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ----- -------------------------------------------------------------------------- ------------ 1.1 Form of Underwriting Agreement*........................................... 4.1 Specimen Common Stock Certificate(1)...................................... 4.2 Certificate of Amendment of the Restated Certificate of Incorporation(2).......................................................... 4.3 Amended and Restated By-laws(3)........................................... 4.4 Form of Power of Attorney and Custody Agreement*.......................... 5.1 Opinion of Ropes & Gray*.................................................. 23.1 Consent of Deloitte & Touche LLP*......................................... 23.2 Consent of Arthur Andersen LLP*........................................... 23.3 Consent of Ropes & Gray (included in Exhibit 5.1)*........................ 24 Power of Attorney**.......................................................
- --------------- (1) Incorporated by reference from Registrant's Registration Statement on Form S-1, as amended (No. 33-33689), filed with the Commission on March 7, 1990. (2) Incorporated by reference from Registrant's Registration Statement on Form S-1, as amended (No. 33-54146), filed with the Commission on November 3, 1992. (3) Incorporated by reference from Registrant's Current Report on Form 8-K dated March 6, 1992. * Filed herewith. ** Previously filed. EX-1.1 2 FORM 0F UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 4,000,000 Shares BE AEROSPACE, INC. Common Stock (par value $.01 per share) UNDERWRITING AGREEMENT ___________, 1996 2 _____________, 1996 Morgan Stanley & Co. Incorporated CS First Boston Corporation PaineWebber Incorporated c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Ladies and Gentlemen: BE Aerospace, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the "Underwriters") 4,000,000 shares of its Common Stock, par value $.01 (the "Firm Shares"). The Company and certain shareholders of the Company (the "Selling Shareholders") named in Schedule III hereto also propose to issue and sell to the several Underwriters not more than an additional 600,000 shares of the Company's Common Stock, par value $.01 (the "Additional Shares"), if and to the extent that you shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of common stock granted to the Underwriters in Section 4 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." The shares of Common Stock, par value $.01, of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "Common Stock." The Company and the Selling Shareholders are hereinafter collectively referred to as the "Sellers." The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (Registration No. 333-16235), including a prospectus, relating to the Shares. The registration statement as amended at the time it becomes effective, including the exhibits thereto, the documents incorporated by reference therein and the exhibits thereto and the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the "Securities Act"), together with any registration statement the Company may file pursuant to Rule 462(b) under the Securities Act, which would become effective upon filing with the Commission (a "Rule 462(b) Registration Statement"), is hereinafter referred to as the "Registration Statement"; the prospectus in the form first used to confirm sales of Shares, including the documents filed by the Company 3 2 with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are incorporated by reference therein, is hereinafter referred to as the "Prospectus." 1. Representation and Warranties of the Company. The Company represents and warrants to each of the Underwriters that: (a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the knowledge of the Company, threatened by the Commission. (b) (i) Each part of the Registration Statement, when such part became effective, did not contain and each such part, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder and (iii) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph 1(b) do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (c) The documents incorporated by reference in the Prospectus, at the time they were filed with the Commission, complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder (the "Exchange Act Regulations") and, when read together with the other information in the Prospectus, do not and will not, on the date hereof and on the Closing Date, include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) The accountants who have audited certain financial statements and related notes included in the Registration Statement and the Prospectus are independent public accountants as required by the provisions of the Securities Act and the rules and regulations of the Commission thereunder. 4 3 (e) The financial statements included in the Registration Statement and the Prospectus present fairly the financial position of the Company and its subsidiaries on a consolidated basis as of the dates indicated and the results of operations and cash flows of the Company and its subsidiaries on a consolidated basis for the periods specified, subject, in the case of unaudited financial statements of the Company, to normal year-end adjustments which shall not be materially adverse to the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise. Such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. The financial statement schedules, if any, included in the Registration Statement and the Prospectus present fairly the information required to be stated therein. The selected financial data included in the Registration Statement and the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited consolidated financial statements included in the Registration Statement and the Prospectus. (f) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with corporate power and authority under such laws to own, lease and operate its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and its subsidiaries, considered as one enterprise. (g) The Company's only subsidiaries (either direct or indirect) are: BEA Aerospace International Ltd., a company incorporated under the laws of Barbados ("BEA International"), Flight Equipment Engineering Limited, a company incorporated under the Companies Act (United Kingdom) ("FEEL"), BE Aerospace (U.K) Limited, a company incorporated under the Companies Act (United Kingdom) ("BEA UK"), Fort Hill Aircraft Holdings Limited, a company incorporated under the Companies Act (United Kingdom) ("Fort Hill"), AFI Holdings Limited, a company incorporated under the Companies Act (United Kingdom) ("AFI"), Aircraft Furnishing Limited, a company incorporated under the Companies Act (United Kingdom) ("AFL"), BE Aerospace (Services) Limited, a company incorporated under the Companies Act (United Kingdom), BE Aerospace (U.S.A.), Inc., a Delaware corporation ("BEA USA"), BE Aerospace (Netherlands) B.V., a company incorporated under the laws of the Netherlands ("BEA Netherlands"), Royal Inventum, B.V., a company incorporated under the laws of the Netherlands ("Royal Inventum"), Nordskog Industries, Inc., a California corporation ("Nordskog"), 5 4 Acurex Corporation, a Delaware corporation ("Acurex"), and BE Aerospace (France) S.A.R.L., a company incorporated under the laws of France ("BEA France") (each individually, a "Subsidiary" and collectively, the "Subsidiaries"). The Company has no significant subsidiaries (as defined in Rule 1.02 of the Commission's Regulation S-X), other than Acurex, FEEL and Royal Inventum. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with corporate power and authority under such laws to own, lease and operate its properties and conduct its business; and each Subsidiary is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Company and its subsidiaries, considered as one enterprise. All of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued or created and are fully paid and non-assessable and, other than in the case of BEA France, director's qualifying shares, and five shares owned by The K.A.D. Companies, Inc., an investment, venture capital and consulting firm owned by Amin J. Khoury, the Chief Executive Officer of the Company, are owned by the Company, directly or through one or more Subsidiaries, free and clear of any pledge, lien, security interest, charge, claim, equity or encumbrance of any kind, except that (1) 65% of the issued and outstanding Ordinary Shares of FEEL are pledged to The Chase Manhattan Bank (National Association) ("Chase") under the Amended Bank Credit Agreement dated as of January 24, 1996 (the "Amended Bank Credit Agreement"), (2) 65% of the issued and outstanding capital stock of BEA Netherlands is pledged to Chase under the Amended Bank Credit Agreement, (3) the outstanding capital stock of each of BEA USA and Acurex is pledged to Chase under the Amended Bank Credit Agreement and (4) the outstanding capital stock of each of CNC and BEA UK is charged to Barclays Bank PLC pursuant to a debenture over the assets of FEEL dated November 19, 1992. The Company does not, directly or indirectly, own any equity or long term debt securities of any corporation, firm, partnership, joint venture or other entity, other than the stock of its Subsidiaries, a note from Acurex in the principal amount of $6,950,000, a note from FEEL in the principal amount of (pound)69,541 and a note from BEA Netherlands in the principal amount of Dfls. 49,385,000. (h) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus. (i) The Company had, at the date indicated in the Prospectus, a duly authorized, issued and outstanding capitalization as set forth in the Prospectus under the caption "Capitalization." 6 5 (j) The shares of capital stock of the Company outstanding prior to the issuance of the Shares have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive rights of any stockholder of the Company. There are no outstanding options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any shares of Common Stock of the Company, any shares of capital stock of any subsidiary, or any such warrants, convertible securities or obligations, except as set forth in the Prospectus. (k) The Shares have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights. (l) This Agreement has been duly authorized, executed and delivered by the Company. (m) Neither the Company nor any Subsidiary is in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which it is a party or by which it may be bound or to which any of its properties may be subject, except for such defaults that would not have a material adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise. The execution and delivery by the Company of this Agreement and the compliance by the Company with the terms of this Agreement have been duly authorized by all necessary corporate action on the part of the Company and do not and will not result in any violation of the charter or by-laws of the Company or any Subsidiary, and do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary under, (A) any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the Company or any Subsidiary is a party or by which they may be bound or to which any of their respective properties may be subject or (B) any existing applicable law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their respective properties. (n) No authorization, approval, consent or license of any government, governmental instrumentality or court, domestic or foreign (other than the securities 7 6 or "blue sky" laws of the various states), is required for the execution, delivery or performance by the Company of this Agreement, or for the consummation by the Company of the transactions contemplated in this Agreement except such of the foregoing as will be obtained prior to the Closing Date. (o) Since the respective dates as of which information is given in the Prospectus, except as otherwise stated therein, there has not been (A) any material adverse change, or any development involving a prospective change, in the condition, (financial or otherwise), or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, (B) any transaction entered into by the Company or any subsidiary, other than in the ordinary course of business, that is material to the Company and its subsidiaries, considered as one enterprise, or (C) any dividend or distribution of any kind declared, paid or made by the Company on its capital stock. (p) Except as disclosed in the Prospectus, there is no action, suit or proceeding before or by any government, governmental instrumentality or court, domestic or foreign, now pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any of their respective officers, in their capacity as such, that could result in any material adverse change in the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise, or that could materially and adversely affect the properties or assets of the Company and its subsidiaries, considered as one enterprise, or that could adversely affect the consummation of the transactions contemplated in this Agreement; the aggregate of all pending legal or governmental proceedings that are not described in the Prospectus to which the Company or any Subsidiary is a party or which affect any of their respective properties, including ordinary routine litigation incidental to the business of the Company or any Subsidiary, would not have a material adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise; there are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. (q) The Company and each of the Subsidiaries has good and marketable title to all properties and assets described in the Prospectus as owned by it, free and clear of all liens, charges, encumbrances or restrictions, except such as (i) are 8 7 described in the Prospectus or (ii) are neither material in amount nor materially significant in relation to the business of the Company and its subsidiaries, considered as one enterprise; all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any Subsidiary holds properties described in the Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of such corporation to the continued possession of the leased or subleased premises under any such lease or sublease. (r) The Company and each of the Subsidiaries owns, possesses or has obtained all material governmental licenses, permits, certificates, consents, orders, approvals and other authorizations, including, without limitation, any licenses, permits, certificates, consents, orders, approvals and other authorizations required to be obtained from the Federal Aviation Administration, necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, and neither the Company nor any Subsidiary has received any notice of proceedings relating to revocation or modification of any such licenses, permits, certificates, consents, orders, approvals or authorizations. (s) The Company and each of the Subsidiaries owns or possesses adequate patents, patent licenses, trademarks, service marks and trade names necessary to carry on its business as presently conducted, and neither the Company nor any Subsidiary has received any notice of infringement of or conflict with asserted rights of others with respect to any patents, patent licenses, trademarks, service marks or trade names that in the aggregate, if the subject of an unfavorable decision, ruling or finding, could materially adversely affect the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise. (t) To the best knowledge of the Company, no labor problem exists with its employees or with the employees of any Subsidiary or is imminent that could adversely affect the Company and its subsidiaries, considered as one enterprise, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any Subsidiary's principal suppliers, contractors or customers that could be expected to materially adversely affect the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise. 9 8 (u) Neither the Company nor any Subsidiary has taken or will take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Common Stock. (v) The Shares have been approved for quotation on the Nasdaq National Market System ("Nasdaq") by the National Association of Securities Dealers, Inc. (w) All United States federal income tax returns of the Company and the Subsidiaries required by law to be filed have been filed and all United States federal income taxes which are due and payable have been paid, except assessments against which appeals have been or will be promptly taken and as to which adequate reserves have been provided. The United States federal income tax returns of the Company through the period ended July 28, 1991 have been settled and no assessment in connection therewith has been made against the Company. The Company and the Subsidiaries each has filed all other tax returns that are required to have been filed by it pursuant to applicable foreign, state, local or other law except insofar as the failure to file such returns would not have a material adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise, and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company and the Subsidiaries, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. The charges, accruals and reserves on the books of the Company in respect of any income and corporation tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income tax for any years not finally determined, except to the extent of any inadequacy that would not have a material adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise. (x) The Company and the Subsidiaries each maintains a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management's general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management's general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and its subsidiaries have not made, and, to the knowledge of the Company, no employee or agent of the Company or any subsidiary has made, any payment of the Company's funds or any subsidiary's funds or received or retained any funds in violation of any 10 9 applicable law, regulation or rule or that would be required to be disclosed in the Prospectus or Registration Statement. (y) Except for John F. Branham pursuant to an agreement relating to the sale and purchase of the business and undertaking of JFB Engineering Company Limited by and between Mr. John F. Branham, JFB Engineering Company Limited, FEEL and the Company dated April 3, 1992, there are no holders of securities of the Company who have the right to require the Company to register securities held by them under the Securities Act and such registration rights of Mr. Branham will not be triggered by the transactions contemplated by this Agreement. (z) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the rules and regulations of the Commission thereunder. (aa) The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. (ab) Except as disclosed in the Prospectus and except as would not individually or in the aggregate have a material adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise, (A) the Company and the Subsidiaries are each in compliance with all applicable Environmental Laws, (B) the Company and the Subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or threatened Environmental Claims against the Company or any of the Subsidiaries and (D) there are no circumstances with respect to any property or operations of the Company or any Subsidiary that could reasonably be anticipated to form the basis of an Environmental Claim against the Company or any Subsidiary. For purposes of this Agreement, the following terms shall have the following meanings: "Environmental Law" means any United States (or other applicable jurisdiction's) federal, state, local or municipal statute, law, rule, regulation, ordinance, code, policy or rule of common law and any judicial or administrative interpretation thereof including any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety or any chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority. "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of 11 10 noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law. 2. Representations and Warranties of the Selling Shareholders. Each of the Selling Shareholders represents and warrants to and agrees with each of the Underwriters that: (a) This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder. (b) The execution and delivery by such Selling Shareholder of, and the performance by such Selling Shareholder of its obligations under, this Agreement and the Irrevocable Power of Attorney and Custody Agreement signed by such Selling Shareholder, the Company, as Custodian, and _____________, relating to the deposit of the Options (as hereinafter defined) and, upon exercise of the Options, the deposit of the Shares to be sold by such Selling Shareholder with the Custodian and appointing ____________ as such Selling Shareholder's attorney-in-fact to the extent set forth therein, relating to the transactions contemplated hereby and by the Registration Statement (the "Irrevocable Power of Attorney and Custody Agreement"), will not contravene any provision of applicable law or any agreement or other instrument binding upon such Selling Shareholder or any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Shareholder, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by such Selling Shareholder of its obligations under this Agreement or the Irrevocable Power of Attorney and Custody Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (c) Each of the Selling Shareholders has, and on the Option Closing Date (as hereinafter defined) will have, valid and marketable title, free and clear of all security interests, claims, liens, equities and other encumbrances, to options (the "Options") which are exercisable into no less than the number of shares of Common Stock set forth next to such Selling Shareholder's name in Schedule III hereto (such shares of Common Stock constituting the Shares to be sold by such Selling Shareholder pursuant to this Agreement) and on the Option Closing Date such Selling Shareholder will, upon exercise of the Options on the Option Closing Date, have valid and marketable title, free and clear of all security interests, claims, liens, equities and other encumbrances, to such Shares, and the legal right and power, and all authorization and approval required by law, to enter into this Agreement and the Irrevocable Power of Attorney and Custody Agreement and to sell, transfer and deliver the Shares to be sold by such Selling Shareholder. 12 11 (d) At the Option Closing Date, the Shares to be sold by such Selling Shareholder pursuant to this Agreement will have been duly authorized and will be validly issued, fully paid and non-assessable. (e) The Irrevocable Power of Attorney and Custody Agreement has been duly authorized, executed and delivered by such Selling Shareholder and is a valid and binding agreement of such Selling Shareholder, enforceable in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability. (f) Delivery of the Shares to be sold by such Selling Shareholder pursuant to this Agreement will pass title to such Shares free and clear of any security interests, claims, liens, equities and other encumbrances. (g) All information furnished to the Company by or on behalf of such Selling Shareholder expressly for use in the Registration Statement and Prospectus is, and on the Closing Date (as hereinafter defined) will be, true, correct and complete, and does not, and on the Closing Date will not, contain any untrue statement of material fact or omit to state any material fact necessary to make such information not misleading. (h) Such Selling Shareholder has not taken and will not take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Common Stock (provided that such Selling Shareholder does not make any representation as to any actions that may be taken by any Underwriter); and such Selling Shareholder has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares other than any preliminary prospectus supplement filed with the Commission or the Prospectus or other material permitted by the Securities Act. (i) Such Selling Shareholder has no direct or indirect association or affiliation with any National Association of Securities Dealers, Inc. members and has had no arrangements, dealings or affiliation with, and is not aware of any information relating to underwriting compensation payable to or for the benefit of, any member of the National Association of Securities Dealers, Inc., person associated with a member or any Underwriter, relating to the offering of Shares that has not been disclosed in the Registration Statement. 3. Certificates. Any certificate signed by any officer of the Company or any Subsidiary and delivered to the Underwriters or to counsel for the Underwriters shall be 13 12 deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. 4. Agreements to Sell and Purchase. The Company hereby agrees to sell to the several Underwriters, and the Underwriters, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agree, severally and not jointly, to purchase from the Company the respective numbers of Firm Shares set forth in Schedule I hereto opposite their names at $____ a share -- the purchase price. On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company and the Selling Shareholders agree to sell to the Underwriters the Additional Shares, and the Underwriters shall have a one-time right to purchase, severally and not jointly, up to 600,000 Additional Shares at the purchase price. Additional Shares may be purchased from the Company and the Selling Shareholders (in such amounts as are set forth in Schedule III hereto) and as provided in Section 6 hereof solely for the purpose of covering overallotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter bears to the total number of Firm Shares. If any Additional Shares are to be purchased, such Additional Shares shall first be purchased from the Selling Shareholders on a pro rata basis (based upon the aggregate number of Additional Shares that may be purchased from the Selling Shareholders) until all such Additional Shares to be sold by the Selling Shareholders, as set forth in Schedule III hereto, have been purchased, and the remaining Additional Shares, if any, shall be purchased from the Company. The Company hereby agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated, it will not (A) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (B) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (A) or (B) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise for a period of 90 days after the date of the Prospectus, other than (i) the Shares to be sold hereunder, (ii) the issuance by the Company of shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and described in the Prospectus or (iii) the issuance by the Company of shares of Common Stock or options pursuant to stock 14 13 option or employee benefit plans of the Company as such plans are in effect on the date of the Prospectus. 5. Terms of Public Offering. The Sellers have been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Sellers have been further advised by you that the Shares are to be offered to the public initially at $____ a share (the public offering price) and to certain dealers selected by you at a price that represents a concession not in excess of $____ a share under the public offering price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of $____ a share, to any Underwriter or to certain other dealers. 6. Payment and Delivery. Payment for the Firm Shares shall be made by wire transfer in immediately available funds to the Company at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York, at 9:00 A.M., New York City time, the third (fourth, if the pricing occurs after 4:30 P.M., New York City time, on any given day) full business day after the date hereof (unless postponed pursuant to Section 12), or at such other time not more than ten full business days thereafter as you and the Company shall determine. The time and date of such payment are hereinafter referred to as the Closing Date. Payment for any Additional Shares shall be made by wire transfer in immediately available funds to the Company or the Selling Shareholders, as the case may be, at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York, at 9:00 A.M., local time, on such date (which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor later than ten business days after the giving of the notice hereinafter referred to) as shall be designated in a written notice from you to the Sellers of their determination, on behalf of the Underwriters, to purchase a number, specified in said notice, of Additional Shares, or on such other date, in any event not later than 40 days after the date hereof, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the Option Closing Date. The notice of the determination to exercise the option to purchase Additional Shares and of the Option Closing Date may be given at any time within 30 days after the date of this Agreement. Certificates for the Firm Shares and Additional Shares, if any, to be purchased by the Underwriters shall be in definitive form and registered in such names and in such denominations as you shall request in writing not later than two full business days prior to the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and Additional Shares, if any, will be made available in New York City for examination and packaging by you not later than 10:00 A.M., New York City time, on the business day prior to the Closing Date or Option Closing Date, as the case may 15 14 be. The certificates evidencing the Firm Shares and Additional Shares, if any, shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the purchase price therefor. 7. Conditions to the Underwriters' Obligations. The obligations of the Sellers and the several obligations of the Underwriters hereunder are subject to the condition that the Registration Statement shall have become effective not later than the date hereof. The several obligations of the Underwriters hereunder are subject to the following further conditions: (a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date: (i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities by any "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; and (ii) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations, of the Company and its subsidiaries, taken as a whole, from that set forth in the Registration Statement, that, in your judgment, is material and adverse and makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (b) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date, that there has not occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the Company's securities as described in Section 7(a)(i) and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. 16 15 The officer signing and delivering such certificate may rely upon the best of his knowledge as to proceedings threatened. (c) No stop order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for such purpose shall be pending before or, to the knowledge of the Company, threatened by the Commission. (d) You shall have received on the Closing Date an opinion of Ropes & Gray, counsel for the Company, dated the Closing Date, in the form attached hereto as Exhibit A. (e) You shall have received on the Closing Date an opinion of Lovell White Durrant, counsel to BEA UK and FEEL, dated the Closing Date, in the form attached hereto as Exhibit B. (f) You shall have received on the Closing Date an opinion of Trenite Van Doorne, counsel to Royal Inventum, dated the Closing Date in the form attached hereto as Exhibit C. (g) You shall have received on the Closing Date an opinion of James Bradley, counsel to the Selling Shareholders, dated the Closing Date in the form attached hereto as Exhibit D. (h) You shall have received on the Closing Date an opinion of Shearman & Sterling, counsel for the Underwriters, dated the Closing Date, with respect to the Registration Statement and the Prospectus and such other related matters as you may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters. (i) You shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to you, from Deloitte & Touche L.L.P., independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (j) The "lock-up" agreements, in the form attached hereto as Exhibit E, between you and the officers and directors of the Company named in Schedule II hereto and delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date. 17 16 (k) The Shares shall have been approved for quotation on the Nasdaq National Market by the National Association of Securities Dealers, Inc. (l) You shall have received on the Closing Date certificates dated the Closing Date and signed by each of the Selling Shareholders or by the attorney-in-fact of the Selling Shareholders, to the effect that the representations and warranties of each such Selling Shareholder contained in this Agreement are true and correct as of the Closing Date and that each such Selling Shareholder has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. (m) The Company shall have complied with the provisions of Section 8(a) hereof with respect to the furnishing of Prospectuses on the business day next succeeding the date of this Agreement, in such quantities as you shall have reasonably requested. (n) You shall have received such other documents and certificates as are reasonably requested by you or your counsel. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the Option Closing Date of such documents as they may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares and other matters related to the issuance of the Additional Shares. 8. Covenants of the Company. In further consideration of the agreements of the Underwriters herein contained, the Company covenants as follows: (a) To furnish to you, without charge, four signed copies of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and to furnish to you in New York City, without charge, prior to 10:00 A.M. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in paragraph (c) below, as many copies of the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request. (b) Before amending or supplementing the Registration Statement or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and to file no such proposed amendment or supplement to which you reasonably object. 18 17 (c) If, during such period after the first date of the public offering of the Shares as in the opinion of your counsel the Prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of your counsel, it is necessary to amend or supplement the Prospectus to comply with law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law. (d) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request and to pay all expenses (including fees and disbursements of counsel) in connection with such qualification and in connection with any review of the offering of the Shares by the National Association of Securities Dealers, Inc, provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. (e) If the Company elects to rely on Rule 462(b) under the Securities Act, the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) under the Securities Act no later than the earlier of (i) 3:00 P.M. New York City time on the date hereof and (ii) the time confirmations are sent or given, as specified by Rule 462(b)(2) under the Securities Act, and shall pay the applicable fees in accordance with Rule 111 under the Securities Act. (f) To make generally available to the Company's security holders and to you, as soon as practicable but not later than 60 days after the end of the twelve-month period beginning at the end of the Company's fiscal quarter during which the effective date of the Registration Statement occurs, an earning statement of the Company covering such twelve-month period that satisfies the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder. 19 18 (g) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Prospectus and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or Legal Investment memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in paragraph (d) above, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or Legal Investment memorandum, (iv) all filing fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering by the National Association of Securities Dealers, Inc., (v) all costs and expenses incidental to listing the Shares on Nasdaq, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expense of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show and (ix) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this paragraph. It is understood, however, that except as provided in this Section , Section 8 and the third paragraph of Section 10 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 9. Covenants of the Selling Shareholders. In further consideration of the agreements of the Underwriters herein contained, each of the Selling Shareholders severally and not jointly covenants as follows: 20 19 (a) Whether or not the transactions contemplated hereby are consummated or this Agreement is terminated, to pay or cause to be paid (i) all taxes, if any, on the transfer and sale of the Shares being sold by such Selling Shareholder and (ii) the fees, disbursements and expenses of counsel for such Selling Shareholder. (b) Such Selling Shareholder has carefully reviewed the Registration Statement and will carefully review, promptly upon receipt, each amendment thereto provided to such Selling Shareholder. Such parts of the Registration Statement, including the tables and notes thereto, that specifically relate to such Selling Shareholder, and, to the best of the knowledge of such Selling Shareholder, the other portions of the Registration Statement, do not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. At any time during the period from the date hereof through the Closing Date, if there is any change in the information referred to in the preceding sentence relating to such Selling Shareholder, such Selling Shareholder will immediately notify the Company of such change. (c) Such Selling Shareholder shall cooperate fully with the Company in supplying such information relating to such Selling Shareholder and the Shares as the Company may reasonably request for use in preparation of the Registration Statement and all other documents reasonably necessary or desirable in connection with the offering of Shares. In addition, such Selling Shareholder shall furnish to the Company (or, at the Company's request, to the Underwriters or other parties) such further certificates and documents confirming the representations and warranties contained herein, or with respect to related matters, as the Company may reasonably request. 10. Indemnity and Contribution. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred by any Underwriter or any such controlling person in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by 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, except insofar as such 21 20 losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (b) The Company will indemnify and hold harmless each of the Selling Shareholders to the same extent that the Company indemnifies and holds harmless each Underwriter pursuant to the preceding paragraph; provided, however, the Company shall not be liable under this paragraph to the extent any losses, claims, damages or liabilities described in the preceding paragraph arise out of or are based upon an untrue statement or omission or alleged untrue statement or omission based upon information relating to such Selling Shareholder furnished in writing by or on behalf of such Selling Shareholder expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. (c) Each Selling Shareholder agrees to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by 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, but only with reference to information relating to such Selling Shareholder furnished in writing by or on behalf of such Selling Shareholder expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. (d) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, the Selling Shareholders, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Seller to such Underwriter, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through 22 21 you expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto. (e) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to subsection (a), (b), (c) or (d) of this Section 10, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (i) if the indemnifying party is the Company or a Selling Shareholder, the fees and expenses of more than one separate firm (in addition to any local counsel) for all Underwriters and all persons, if any, who control any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, (ii) if the indemnifying party is an Underwriter or a Selling Shareholder, the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and (iii) if the indemnifying party is the Company or an Underwriter, the fees and expenses of more than one separate firm (in addition to any local counsel) for all Selling Shareholders and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Underwriters and such control persons of Underwriters, such firm shall be designated in writing by Morgan Stanley & Co. Incorporated. In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. In the case of any such separate firm for the Selling Shareholders, such firm shall be designated in writing by the person named as attorney-in-fact for the Selling Shareholders under the Power of Attorney. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to 23 22 indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (f) If the indemnification provided for in subsection (a), (b), (c) or (d) of this Section 10 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Sellers on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by each Seller and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table (and in the footnotes thereto) on the cover of the Prospectus, bear to the aggregate public offering price of the Shares. The relative fault of the Sellers on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Sellers or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement 24 23 or omission. The Underwriters' respective obligations to contribute pursuant to this Section 10 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint. (g) The Sellers and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 10 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 10, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 10 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (h) The indemnity and contribution provisions contained in this Section 10 and the representations and warranties of the Company and the Selling Shareholders contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its officers or directors or any person controlling the Company, or by or on behalf of the Selling Shareholders and (iii) acceptance of and payment for any of the Shares. 11. Termination. This Agreement shall be subject to termination by notice given by you to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York 25 24 shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of any of the events specified in clauses (a)(i) through (iv), such event singly or together with any other such event makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. 12. Effectiveness; Defaulting Underwriters. This Agreement shall become effective upon the later of (x) execution and delivery hereof by the parties hereto and (y) release of notification of the effectiveness of the Registration Statement by the Commission. If, on the Closing Date or the Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule I bears to the aggregate number of Firm Shares set forth opposite the names of all such nondefaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to Section 4 be increased pursuant to this Section 12 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date or the Option Closing Date, as the case may be, any Underwriter or Underwriters shall fail or refuse to purchase Shares and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares to be purchased on such date, and arrangements satisfactory to you, the Company and the Selling Shareholders for the purchase of such Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Shareholders. In any such case either you, the Company or (in the case of such a failure on the Option Closing Date) the Selling Shareholders shall have the right to postpone the Closing Date or the Option Closing Date, as the case may be, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of any Seller to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason any of the Sellers shall be unable to 26 25 perform its obligations under this Agreement, the Sellers will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder. 13. Counterparts. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 27 Very truly yours, BE AEROSPACE, INC. By______________________________ The Selling Shareholders named in Schedule III hereto By_______________________________ Attorney-in-Fact Accepted as of the date first above written: MORGAN STANLEY & CO. INCORPORATED CS FIRST BOSTON CORPORATION PAINEWEBBER INCORPORATED Acting severally on behalf of themselves and the several Underwriters named in Schedule I hereto. By Morgan Stanley & Co. Incorporated By__________________________ 28 27 SCHEDULE I Underwriters Number of Firm Shares Underwriter To Be Purchased ----------- --------------- Morgan Stanley & Co. Incorporated CS First Boston Corporation PaineWebber Incorporated ------------------ Total Shares................................................. ================== 29 28 SCHEDULE II Lock-up Agreements Amin J. Khoury Robert J. Khoury Paul E. Fulchino Marco C. Lanza Thomas P. McCaffrey Edmund J. Moriarty Jeffrey P. Holtzman G. Bernard Jewell E. Ernest Schwartz Arthur H. Lipton Jim C. Cowart Richard G. Hamermesh Brian H. Rowe Hansjoerg Wyss 30 29 SCHEDULE III Selling Shareholders
Number of Seller Additional Shares ------ ----------------- Sheila L. Palandjian 35,000 PAP Stock Trust 10,000 PLP Stock Trust 10,000 LP Stock Trust 10,000 ====== 65,000
31 1 EXHIBIT A FORM OF OPINION OF ROPES & GRAY [Ropes & Gray Letterhead] [Date] MORGAN STANLEY & CO. INCORPORATED 1585 Broadway New York, NY 10036 CS FIRST BOSTON CORPORATION 11 Madison Avenue New York, NY 10010 PAINEWEBBER INCORPORATED 1285 Avenue of the Americas New York, NY 10019 Ladies and Gentlemen: We have acted as counsel for BE Aerospace, Inc., a Delaware corporation (the "Company"), in connection with the issuance and sale by the Company of 4,000,000 shares of Common Stock, par value $.01 per share (the "Shares"). This opinion is furnished to you pursuant to Section 7(d) of the Underwriting Agreement dated December ___, 1996 (the "Underwriting Agreement") among the Company, the Selling Shareholders named in Schedule III thereto and the several Underwriters, including yourselves, named in Schedule I thereto (the "Underwriters") relating to the issuance and sale of the Shares. Terms defined in the Underwriting Agreement and not otherwise defined herein are used herein with the meanings so defined. We have attended the closing of the sale of Shares held today. We have examined signed copies of the registration statement on Form S-3 (Registration No. 333- 16235), filed by the Company under the Securities Act of 1933, as amended (the "Securities Act"), with the Securities and Exchange Commission (the "Commission") on November 15, 1996, and of the amendment thereto filed by the Company with the Commission on 32 2 _____________, 1996 and copies of the related prospectuses (the registration statement as amended at the time when it became effective, including the information deemed to be part thereof at the time of effectiveness pursuant to Rule 430A of the rules and regulations of the Commission under the Securities Act, being hereinafter referred to as the "Registration Statement," and the final prospectus dated December ___, 1996 in the form in which it was filed pursuant to Rule 424(b) of the Commission under the Securities Act, being hereinafter referred to as the "Prospectus"); the documents filed by the Company under the Securities Exchange Act of 1934, as amended (the "Exchange Act") which are incorporated by reference in the Registration Statement and the Prospectus (the "Incorporated Documents"); an executed copy of the Underwriting Agreement; and such other documents as we have deemed necessary as a basis for the opinions expressed herein. Additionally, we have relied upon oral advice from the staff of the Commission to the effect that the Registration Statement became effective on December ___, 1996. Except as otherwise specified herein, all references to the Registration Statement or the Prospectus include the Incorporated Documents and the exhibits and schedules thereto. We express no opinion as to the laws of any jurisdiction other than those of The Commonwealth of Massachusetts, the General Corporation Law of the State of Delaware and the federal laws of the United States of America. Insofar as this opinion relates to factual matters, information with respect to which is in the possession of the Company, we have made inquiries to the extent we believe reasonable with respect to such matters and have relied upon representations made by the Company in the Underwriting Agreement and representations made to us by one or more officers of the Company. Although we have not independently verified the accuracy of such representations we do not know of the existence or absence of any fact contradicting such representations. Any reference herein to "our knowledge," "known to us" or any variation thereof shall mean the actual knowledge of lawyers in this firm who have participated in our representation of the Company in connection with the preparation of the Registration Statement and the Prospectus. With respect to our opinion set forth in paragraphs 6(ii) and 7(iii) below, other than as specified therein we have not searched the dockets of any court, administrative body, agency or other filing office in any jurisdiction. Based upon and subject to the foregoing, we are of the opinion that: 1. Each of the Company and Acurex is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with corporate power to own or lease all assets owned or leased by it and conduct its business as described in the Prospectus. The Company has authority to issue, sell and deliver the Shares, to execute and deliver the Underwriting Agreement and to perform its obligations thereunder. The Company is qualified to transact business, and is in good standing as a foreign corporation, in California, Connecticut, Florida, Massachusetts, Minnesota, New Jersey and Washington; 33 3 the states of California, Connecticut, Florida, Minnesota, New Jersey and Washington being the only jurisdictions in the United States in which the Company has advised us that it owns or leases real property. Acurex is qualified to transact business, and is in good standing as a foreign corporation, in California and Florida; the states of California and Florida being the only jurisdictions in which the Company has advised us that Acurex owns or leases real property. 2. The authorized, issued and outstanding capital stock of the Company is as set forth in the Capitalization table in the Prospectus under the caption "Actual," except for issuances or forfeitures subsequent to the date of the information provided in such table, if any, pursuant to the Company's stock option plans. The Shares and the other shares of the Company's common stock, $.01 par value per share (together, the "Common Stock") issued and outstanding on this date as set forth in the certificate of the Company's Chief Financial Officer included in the documents delivered at the closing have been duly authorized and validly issued and are fully paid and nonassessable. None of the shares of Common Stock was issued in violation of any preemptive rights under the Delaware General Corporation Law or the Restated Certificate of Incorporation of the Company or, to the best of our knowledge, any preemptive rights pursuant to any contract to which the Company is a party or by which it is bound. 3. The authorized capital stock of the Company conforms to the description thereof contained in the Prospectus under the caption "Description of Capital Stock." 4. The statements made (a) in the Prospectus under the captions "Business- Legal Proceedings," and "Description of Capital Stock" and (b) in the Registration Statement in Item 15, in each case to the extent that they constitute matters of law or legal conclusions, have been reviewed by us and fairly present the information. 5. The Underwriting Agreement has been duly authorized, executed and delivered by the Company. 6. To the best of our knowledge, (i) neither the Company nor Acurex is in violation of its certificate of incorporation or by-laws or in default in the performance of any obligation, agreement or condition in any agreement or instrument known to us to which the Company or Acurex is a party or by which either of them is bound and which default could have a material adverse effect on the business or financial condition of the Company and its subsidiaries taken as a whole and (ii) except as set forth in the Prospectus under the captions "Risk Factors" and "Business - Legal Proceedings," neither the Company nor Acurex is in violation of any applicable law, rule or regulation, or, to our knowledge after having made inquiry of the Company, any order, writ, injunction or decree, of any jurisdiction, court or governmental instrumentality, where such violation or default could have a material adverse effect on the business or financial condition of the Company and its subsidiaries taken as a whole. 34 4 7. The execution and delivery of the Underwriting Agreement, the issuance and sale of the Shares and compliance by the Company with the terms of the Underwriting Agreement do not, and will not, result in any violation of, be in conflict with, constitute a default under, or result in the creation of a lien under, any term or provision of (i) the certificate of incorporation or by-laws of the Company or Acurex, (ii) any agreement or instrument known to us to which the Company or Acurex is a party or by which either of them or their properties is bound or (iii) any applicable law or regulation, or, to our knowledge after having made inquiry of the Company, any order, writ, injunction or decree of any jurisdiction, court or governmental instrumentality, except that we express no opinion as to state securities or "blue sky" laws and except that we express no opinion in this paragraph 7 as to compliance with the antifraud provisions of federal and state securities laws. 8. No authorization, approval, consent or license of any governmental or regulatory body, agency or instrumentality of the United States or any state thereof is required for the (i) valid issuance of the Shares, (ii) sale of the Shares to you as contemplated by the Underwriting Agreement or (iii) execution, delivery or performance by the Company of the Underwriting Agreement other than such as have been obtained, except that we express no opinion with respect to qualification under, or compliance with, any state securities or "blue sky" laws or the review of the underwriting arrangements pursuant to the rules of the National Association of Securities Dealers, Inc. 9. The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. 10. The Registration Statement became effective under the Securities Act on December ___, 1996; any required filing of the Prospectus and of any supplements thereto pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of our knowledge, the Registration Statement is still effective, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or are contemplated under the Securities Act. 11. The Registration Statement and the Prospectus and each amendment or supplement thereto, excluding the documents incorporated be reference therein and except for financial statements and schedules included therein as to which we express no opinion, as of their respective effective or issue dates, complied as to form in all material respects with the Securities Act and the published rules and regulations of the Commission thereunder. 35 5 12. The Incorporated Documents (except for the financial statements and schedules included therein as to which we express no opinion), as of the dates they were filed with the Commission, comply as to form in all material respects to the requirements of the Exchange Act and the published rules and regulations of the Commission thereunder. 13. To the best of our knowledge, no legal or governmental proceedings are pending or threatened to which the Company or Acurex is a party or to which any of the properties of the Company or Acurex is subject that are required to be described in the Registration Statement or the Prospectus and are not so described and there are no statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. We have not independently verified the accuracy, completeness or fairness of the statements made or the information contained in the Registration Statement or the Prospectus and, except with respect to the descriptions referred to in paragraphs 2, 3 and 4 above, we are not passing upon and do not assume any responsibility therefor. In the course of the preparation by the Company of the Registration Statement and the Prospectus, we have participated in discussions with your representatives and those of the Company and its independent accountants, in which the business and affairs of the Company and the contents of the Registration Statement and the Prospectus were discussed. On the basis of information that we have gained in the course of our representation of the Company in connection with its preparation of the Registration Statement and the Prospectus and our participation in the discussions referred to above, we have no reason to believe that (i) as of its effective date, the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Prospectus, as of the date hereof, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. We express no opinion, however, as to the financial statements, including the notes and schedules thereto, or any other financial or accounting information set forth or referred to in the Registration Statement or the Prospectus. This opinion is furnished by us as counsel for the Company to you as Underwriters and is solely for the benefit of the Underwriters. Very truly yours, Ropes & Gray 36 EXHIBIT B FORM OF OPINION OF LOVELL WHITE DURRANT [Lovell White Durrant Letterhead] [Date] MORGAN STANLEY & CO. INCORPORATED 1585 Broadway New York, NY 10036 CS FIRST BOSTON CORPORATION 11 Madison Avenue New York, NY 10010 PAINEWEBBER INCORPORATED 1285 Avenue of the Americas New York, NY 10019 Ladies and Gentlemen: BE AEROSPACE (UK) LIMITED AND FLIGHT EQUIPMENT AND ENGINEERING LIMITED 1. We have acted as English legal advisers to BE Aerospace (UK) Limited (formerly Flight Equipment and Engineering Limited), a company registered in England and Wales under registered number 516846, the registered office of which is located at Nissen House, Grovebury Road, Leighton Buzzard, Bedfordshire ("BEA(UK)"), since its acquisition by BE Aerospace, Inc. (formerly BE Avionics, Inc.) (the "Issuer") on 2 April, 1992. We have also acted as English legal advisers to Flight Equipment and Engineering Limited, a company registered in England and Wales under registered number 1417308, the registered office of which is located at Nissen House, Grovebury Road, Leighton Buzzard, Bedfordshire ("FEEL"), 2 April, 1992. We have been asked by the Issuer, a Delaware corporation, to provide this opinion in connection with the issue and sale by the Issuer of 4,000,000 shares of Common Stock, par value $.01 per share (the "Shares"). We have been provided with copies of:- 37 2 (a) the Registration Statement dated _________, 1996, and amendments thereto dated _________ and _____________, respectively, related to the Shares; (b) the Prospectus dated ____________ 1996, related to the Shares; (c) the underwriting agreement dated as of _________, 1996, among the Issuer, Morgan Stanley & Co. Incorporated, as representative of the several underwriters named in Schedule I thereto and the selling shareholders named in Schedule III thereto relating to the issue and sale of the Shares (the "Underwriting Agreement"); 2. We understand that this opinion is required by you pursuant to Section 7(e) of the Underwriting Agreement. 3. For the purposes of giving this opinion, we have examined the following documents relating to each of BEA(UK) and FEEL:- (a) Statutory Books, including the Register of Members and the Minutes of board meetings and general meetings of the shareholders contained therein; (b) copies of the Memorandum and Articles of Association and Certificate of Incorporation; and (c) Certificates of good standing issued by the Registrar of Companies on _________, 1996, copies of which are annexed hereto marked "A". 4. We have carried out a search of microfiches relating to each of BEA(UK) and FEEL supplied to us by the Companies Registration Office on _________, 1996, timed at _______ which revealed no order or resolution to wind up either BEA(UK) or FEEL and no notice of the appointment of an administrator or receiver of either BEA(UK) or FEEL. We have also carried out a search at the Central Registry of Winding Up Petitions, London on _________, 1996, which shows no pending petition to wind up either BEA(UK) or FEEL. We have not conducted any further search, or any search in any District Registry of the High Court where winding-up and administration petitions may also be presented in certain cases, and accordingly this opinion is given on the assumption that such searches (if made) would not reveal any circumstances which would require amendment of this opinion. 5. Except for the documents listed in paragraph 3 above, we have not examined for the purposes of this opinion any contracts or other documents entered into by or affecting either BEA(UK) or FEEL or any corporate records of either BEA(UK) or FEEL. We have not made any other enquiries or searches concerning either BEA(UK) or FEEL 38 3 (whether within this firm or otherwise), except as mentioned in paragraph 4 above. For the purposes of this opinion, we have relied as to factual matters upon certificates of officers and directors of the Issuer and of BEA(UK) and FEEL and have relied on representations made by the Issuer in the Underwriting Agreement. 6. This opinion is given only with respect to English law in force at the date of this letter as applied by English Courts and is given on the basis that it will be governed by and construed in accordance with English law. No opinion is expressed or implied as to the laws of any other territory. 7. This opinion is based on the assumptions set out in the appendix to this letter, which we have taken no steps to verify independently. 8. Based upon and subject to the foregoing, and subject as stated herein and to any matters not disclosed to us, we are of the opinion that:- (a) each of BEA(UK) and FEEL is duly incorporated under the Companies Act 1948 as a private company with limited liability under English law, is validly existing under English law and has the necessary corporate power under the Companies Act 1985 and 1989 and its Memorandum and Articles of Association to conduct its business and to own, lease and operate its properties as described in the Prospectus at pages ____ (copies of which are annexed hereto marked "B"); (b) as reflected in the register of members of BEA(UK), the Issuer is the registered holder of the 500,000 issued ordinary shares of (pound)1 each of BEA(UK) and the 380,000 shares issued cumulative redeemable preference shares of (pound)1 each of BEA(UK). Pursuant to Section 361 Companies Act 1985, the register of members of a company (as defined in that Act) is prima facie evidence of any matters which are by that Act directed or authorised to be inserted in it, and of legal ownership of shares; (c) as reflected in the register of members of FEEL, BEA(UK) is the registered holder of the 100 issued ordinary shares of (pound)1 each of FEEL. Pursuant to Section 361 Companies Act 1985, the register of members of a company (as defined in that Act) is prima facie evidence of any matters which are by that Act directed or authorised to be inserted in it, and of legal ownership of shares; (d) in the absence of any circumstance by which a member of a company limited by shares (as defined in the Companies Act 1985) may become liable for the company's debts, the liability of the member (including, with respect to BEA(UK), the Issuer or with respect to FEEL, BEA(UK)) for such debts will be limited to the par value of the shares held and any premium agreed to be 39 4 paid, to the extent that such amounts have not been paid by any previous holder of those shares. According to the register of members of each of BEA(UK) and FEEL, the search of microfiches relating to each of BEA(UK) and FEEL referred to in paragraph 4 above and the certificates of the officers and directors of the Issuer, BEA(UK) and FEEL, but having made no other enquiry, investigation or verification, we are of the opinion that the issued ordinary shares of (pound)1 each in BEA(UK) and FEEL are fully paid; (e) the issued cumulative redeemable preference shares of (pound)1 each of BEA(UK) have been duly authorised, validly issued and fully paid; (f) the issued cumulative redeemable preference shares of (pound)1 each of BEA(UK) were not issued in violation of any pre-emptive rights under statute or under the Memorandum and Articles of Association of BEA(UK); (g) none of the following will result in any breach of the Memorandum and Articles of Association of either of BEA(UK) or FEEL:- (i) the execution and delivery by the Issuer of the Underwriting Agreement, the consummation by the Issuer of the transactions therein contemplated and the compliance by the Issuer with its terms; and (ii) the issue and delivery by the Issuer of the Shares as contemplated by the Prospectus; (h) the matters referred to in paragraph 8(g)(i) and (ii) above do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of either BEA(UK) or FEEL under:- (i) any existing English law, rule or regulation; or (ii) to our knowledge (based solely upon written notification by BEA(UK) and FEEL) and on the basis of the certificates of the officers and directors of BEA(UK), FEEL and the Issuer, any judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over BEA(UK) or FEEL or any of their properties. 40 5 9. This opinion is addressed to you in connection with the Issue. It is given for your benefit for the purpose of the issue of the Shares only, and may not be disclosed or quoted to or relied upon by any other person, without our prior written consent in each specific case, or used for any other purpose. No person (other than you) into whose possession a copy of this opinion may come may rely on this opinion without our express written consent addressed to him. Yours faithfully Lovell White Durrant 41 6 Appendix to Opinion In this opinion letter, we have assumed that:- (a) All documents submitted to us as originals are authentic and complete and all signatures and seals are genuine. (b) All documents supplied to us as photocopies or facsimile transmitted copies or other copies conform to the originals and such originals are authentic and complete. (c) All documents, forms, notices and information which should have been delivered to the Companies Registration Office and the Central Registry of Winding Up Petitions on behalf of or relating to the Company have been so delivered and the file of records maintained at the Companies Registration Office and the Central Registry of Winding Up Petitions concerning the Company, and reproduced on microfiche for public inspection or disclosed to us orally, was complete, accurate and up-to-date at the time of the respective searches referred to in paragraph 4 of this opinion letter and there has been no change in the information filed or the oral disclosure made since the date on which those searches were made. (d) All documents dated earlier than the date of this opinion letter on which we have expressed reliance remain accurate, complete and in full force and effect at the date of the opinion letter. (e) Neither BEA(UK) nor FEEL has passed a resolution for its winding-up and no proceedings have been instituted or steps taken for the winding-up of BEA(UK) or FEEL or the appointment of an administrator or receiver in respect of all or any assets of BEA(UK) or FEEL. (f) No law (other than English law) affects any of the conclusions stated in this opinion letter. (g) The resolutions contained in the minutes referred to in paragraph 3(a) of this opinion letter were duly passed at a properly convened, constituted and conducted meeting of duly appointed directors and shareholders, respectively, of the Company at which all constitutional, statutory and other formalities were duly observed (including, if applicable, those relating to the declaration of directors' interests or the power of interested directors to vote); such resolutions have not been amended or rescinded and are in full force and effect; and the minutes of such meetings referred to in paragraph 3(a) of this opinion letter are a true record of the proceedings at such meetings. 42 7 (h) The certificates of the officers and directors of the Issuer and BEA(UK) and FEEL provided for the purposes of this opinion letter are true and accurate in all respects. 43 EXHIBIT C FORM OF OPINION OF TRENITE VAN DOORNE [Trenite van Doorne Letterhead] MORGAN STANLEY & CO. INCORPORATED 1585 Broadway New York, NY 10036 CS FIRST BOSTON CORPORATION 11 Madison Avenue New York, NY 10010 PAINEWEBBER INCORPORATED 1285 Avenue of the Americas New York, NY 10019 Rotterdam, [ ] _________ 1996 Ladies and Gentlemen: Re: Royal Inventum Company B.V. We have acted as legal advisers in The Netherlands to BE Aerospace (Netherlands) B.V. ("BEAN"), Koninklijke Fabriek Inventum B.V. ("KFI") and BE Aerospace (Sales and Services) B.V. ("BEASS"), which companies have their registered office at Galvanibaan 5, 3439 MG Nieuwegein, The Netherlands, for the purpose of rendering an opinion on certain matters of Netherlands law in connection with the issue and sale by BE Aerospace Inc. of 4,000,000 shares of Common Stock, par value $.01 per share (the "Shares"). We understand that this opinion is required by you pursuant to Section 7(f) of the underwriting agreement dated as of _________, 1996, among the Issuer, Morgan Stanley & Co. Incorporated, as representative of the several underwriters named in Schedule I thereto and the selling shareholders named in Schedule III thereto relating to the issue and sale of the Shares. For the purposes of this opinion, we have examined and relied only on the following documents: 44 2 (a) a copy of the Registration Statement dated _________, 1996, and amendments thereto dated _________ and _____________, respectively, related to the Shares; (b) a copy of the Prospectus dated ____________ 1996, related to the Shares; (c) a copy of the notarial deed of incorporation of BEAN, KFI and BEASS dated 28 April 1993, 20 May 1915 and 20 August 1990 respectively (the "Deeds of Incorporation"); (d) a copy of the articles of association (as amended) of BEAN and KFI dated 20 May 1994 and of BEASS, dated 11 January 1995 (the "Articles of Association"); (e) a copy of the register of shareholders of BEAN, KFI and BEASS respectively (the "Shareholders Registers"); (f) an extract dated ____________ 1996 (updated by a computer generated extract dated [_________]) from the Commercial Register (Handels-register) in Utrecht, The Netherlands in respect of BEAN, KFI and BEASS respectively (the "Extracts"); (g) two notarial deeds of transfer of shares in the share capital of BEASS dated 22 September 1994 (the "Deeds of Transfer"); (h) a notarial deed of transfer of shares in the share capital of KFI dated 29 April 1993 (the "Deed of Transfer KFI") The documents referred to in paragraphs (a) to (h) inclusive above are hereinafter referred to as the "Certificates". In connection with such examination and in giving this opinion, we have assumed: (i) the genuineness of all signatures to all Documents and Certificates, the authenticity and completeness of all Documents and Certificates submitted to us as originals, the completeness and the conformity to the original documents of all Documents and Certificates submitted to us as copies and the authenticity of such original documents; (ii) the legal capacity (handelingsbekwaamheid) of the natural persons acting on behalf of any of the parties, the due incorporation and valid existence of, the power, authority and legal rights of, and the due authorization and execution of each of the Documents by, each of the parties thereto under any applicable law to execute the Documents to which it is a party and to perform its obligations thereunder; 45 3 (iii) the due compliance with all matters of, and the validity, binding effect and enforceability of each of the Documents under any applicable law other than Netherlands law; (iv) the accuracy, validity and binding effect of the Certificates and the matters certified or evidenced thereby at the date hereof (and any other relevant date); and (v) the due execution by the parties thereto of the Documents, submitted to and examined by us in draft, in the form of such drafts. This opinion shall be governed by and construed in accordance with Netherlands law and is given only with respect to Netherlands law in effect on the date of this opinion. We have not investigated and express no opinion as to the law of any jurisdiction other than The Netherlands, the completenes or accuracy of any representations or warranties made by the parties to the Documents in relation to BEAN, KFI or BEASS respectively, any matters of fact, tax law, anti-trust law or international law, including, without limitation, the law of the European Community (except to the extent that such representations, warranties and matters of fact and law are explicitly covered by the opinions below). No opinion is given on any commercial, accounting or non-legal matters or on the ability of the parties to the Documents to meet their financial or other obligations thereunder. We have assumed that any foreign law which may apply with respect to the Documents or the transactions contemplated thereby and any document not examined by us does not affect this opinion. Based on and subject to the foregoing, and subject to the qualifications set out below, we express the following opinions: 1 Each of BEAN, KFI and BEASS is a closed company with limited liability (besloten vennootschap met beperkte aansprakelijkheid), duly incorporated and validly existing under the laws of The Netherlands. 2 According to the deed of incorporation and the shareholders register of BEAN, BE Aerospace Inc. ("BEAI"), with registered office at 1400 Corporate Center Way, Wellington, Florida 33414, U.S.A., is the registered holder of 36 (thirty six) issued ordinary registered shares, with a par value of NLG 1,000 each, and BE Aerospace (USA) Inc. ("BEAU"), with registered office at 1400 Corporate Center Way, Wellington, Florida 33414, U.S.A., is the registered holder of 4 (four) issued ordinary registered shares, with a par value of NLG 1,000 each, in the issued share capital of BEAN consisting of 40 shares. 3 According to the shareholders register of KFI and the Deed of Transfer KFI, BEAN is the registered holder of 5,584 (five thousand five hundred and eighty-four) issued 46 4 ordinary registered shares, with a par value of NLG 500 each, in the issued share capital of KFI consisting of 5604 shares. 4 According to the shareholders register of BEASS and the Deeds of Transfer, BEAN is the registered holder of 40 (forty) shares, with a par value of NLG 1,000 each, in the issued share capital of BEASS consisting of 40 shares. 5 In the absence of any circumstance by which a shareholder of a closed company with limited liability (een besloten vennootschap met beperkte aansprakelijkheid) may become liable for the company's debts, the liability of BEAN, as shareholder of KFI and BEASS, will be limited to the obligation to fully pay the par value of the shares held and any share premium agreed to be paid, to the extent that such amounts have not been paid. Pursuant to the Articles of Association, BEAI and BEAU, as shareholders of BEAN, are each personally liable for everything performed in the name of BEAN. According to the Shareholders Registers and the Extracts, but having made no other enquiry, investigation or verification, the par value of the issued ordinary shares in BEAN, KFI and BEASS is fully paid. 6. The execution and delivery by the Issuer of the Documents and, where appropriate, the consummation by the Issuer of the transactions therein contemplated and the compliance by the Issuer with its terms will not result in any conflict with rules of Netherlands law or in any breach of the articles of association of either BEAN or KFI. The opinions expressed above are subject to the following qualifications: (A) Our opinions expressed herein are subject to and limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the protection or enforcement of priorities and creditors' rights generally, including, without limitation, those governing the avoidance and/or validity of transactions entered into and securities created at a time when a company is, or may in consequence thereof become, unable to pay its debts. (B) We have assumed that the Extracts fully and accurately reflect the corporate status and position of BEAN, KFI and BEASS respectively. It is noted, however, that the Extracts may not completely and accurately reflect such status and position insofar as there may be a delay between the taking of a corporate action (such as the issuance of shares, the appointment or removal of a director, a winding-up (ontbinding) or suspension of payment resolution or the making of a court order, like a winding-up, suspension of payment or bankruptcy order) and the filing of the necessary documentation at the Commercial Register and a further delay between such filing and an entry appearing on the file of the relevant party at the Commercial Register. 47 5 (C) There is no public register of shares in The Netherlands. In respect of the title to shares in the share capital of BEAN, KFI and BEASS respectively per the date of this opinion, we have compared the deed of incorporation of BEAN with the shareholders register of BEAN, the Deed of Transfer KFI with the shareholders register of KFI and the Deeds of Transfer with the shareholders register of BEASS and established the consistency of each of these Certificates. The absence of any registration in the Shareholders Registers of any subsequent transfer of title to the shares of BEAN, KFI or BEASS (as the case may be) is, however, no conclusive evidence that any such subsequent transfer of title has not occurred. (D) We have assumed that the difference between the total number of shares issued in the share capital of KFI and the number of shares held by BEAN, as reflected in the shareholders register of KFI, is explained by the fact that at conversion of the company of KFI from a company limited by shares (naamlose vennootschap) into a closed company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) on 2 March 1992, not each holder of shares has offered its shares in order to be registered as a shareholder of the company, as converted. Pursuant to section 2:183, subsection 4, of the Dutch Civil Code, after conversion a shareholder is not able to exercise the rights pertaining to the shares as long as the shareholder has not been registered in the shareholders register of the company. A holder of shares that has not offered his shares at conversion in order to be registered as a shareholder, does not forfeit the right to be registered as a shareholder still after conversion. If such holder(s) of shares represent(s) less than 5% of the issued share capital, the shareholder owning title to at least 95% of the issued share capital has the right to institute a claim against the joined other holders of shares for transfer of their shares to him pursuant to section 2:201a of the Dutch Civil Code. This opinion is solely for your benefit in this particular matter and the context specified herein and no opinion may be inferred or implied beyond that expressly stated herein. It may not be, without our prior written consent, transmitted or otherwise disclosed to, or relied upon by, others, referred to in any other matter or context whatsoever, or be quoted or made public in any way, save for disclosure to your legal advisors. Yours faithfully, Trenite van Doorne 48 EXHIBIT D FORM OF OPINION OF JAMES BRADLEY [ ____________ Letterhead] [Date] MORGAN STANLEY & CO. INCORPORATED 1585 Broadway New York, NY 10036 CS FIRST BOSTON CORPORATION 11 Madison Avenue New York, NY 10010 PAINEWEBBER INCORPORATED 1285 Avenue of the Americas New York, NY 10019 Ladies and Gentlemen: We have acted as counsel for ______________ (the "Selling Shareholders") and are rendering this opinion pursuant to Section 7(g) of the Underwriting Agreement dated ___________ 1996 (the "Underwriting Agreement") among BE Aerospace, Inc. (the "Company"), the several underwriters (the "Underwriters") named in Schedule I of the Underwriting Agreement and the Selling Shareholders. Terms defined in the Underwriting Agreement and not otherwise defined herein are used herein with the meanings so defined. In connection with our opinion herein, we have examined copies of the Underwriting Agreement, each of the Irrevocable Power of Attorney and Custody Agreements dated _________ 1996 (the "Irrevocable Power of Attorney and Custody Agreements") between each Selling Shareholder, the Company and ___________, and such other documents as we have deemed necessary as a basis for the opinions expressed herein. In such examination, we have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures, the legal capacity of all natural persons and the conformity with the original documents of any copies thereof submitted to us for our examination. 49 2 We express no opinion as to the laws of any jurisdiction other than __________, the General Corporation Law of the State of Delaware and the federal laws of the United States of America. Based upon the foregoing, we are of the opinion that: (i) the Underwriting Agreement has been duly authorized, executed and delivered by or on behalf of each of the Selling Shareholders; (ii) the execution and delivery by each of the Selling Shareholders of, and the performance by each of the Selling Shareholders of its obligations under, the Underwriting Agreement and the Irrevocable Power of Attorney and Custody Agreements will not contravene any provision of applicable law or, to the best of our knowledge, any agreement or other instrument binding upon such Selling Shareholder or, to the best of our knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Shareholder, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by such Selling Shareholder of its obligations under the Underwriting Agreement or the Irrevocable Power of Attorney and Custody Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with offer and sale of the Shares; (iii) each of the Selling Shareholders has valid and marketable title, free and clear of all security interests, claims, liens, equities and other encumbrances, to the Options and, upon exercise of the Options on the Option Closing Date, will have valid and marketable title, free and clear of all security interests, claims, liens, equities and other encumbrances, to the Shares to be sold by such Selling Shareholder pursuant to the Underwriting Agreement; (iv) the Irrevocable Power of Attorney and Custody Agreements have been duly authorized, executed and delivered by each of the Selling Shareholders and are valid and binding agreements of the Selling Shareholders and are enforceable in accordance with their terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability; and (v) delivery of the Shares to be sold by each of the Selling Shareholders pursuant to the Underwriting Agreement will pass title to such Shares free and clear of any security interests, claims, liens, equities and other encumbrances. This opinion is furnished by us as counsel for the Selling Shareholders to you as Underwriters and is solely for the benefit of the Underwriters. 50 3 Very truly yours, -------------------- 51 EXHIBIT E FORM OF LOCK-UP AGREEMENT Lock-up Agreement December __, 1996 Morgan Stanley & Co. Incorporated CS First Boston Corporation PaineWebber Incorporated c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Ladies and Gentlemen: The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan Stanley"), as Representative of the several Underwriters, proposes to enter into an Underwriting Agreement (the "Underwriting Agreement") with BE Aerospace, Inc., a Delaware corporation (the "Company") and certain shareholders of the Company (the "Selling Shareholders") providing for the public offering (the "Public Offering") by the several Underwriters, including Morgan Stanley (the "Underwriters"), of shares of the common stock, par value $0.01 per share, of the Company (the "Common Stock"). To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 90 days after the date of the final prospectus relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (provided that such shares or securities are either now owned by the undersigned or are hereafter acquired prior to or in connection with the Public Offering), or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such shares of Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to the sale of any Shares to the Underwriter pursuant to the Underwriting Agreement. In addition, the undersigned agrees that, without the prior 52 2 written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 90 days after the date of the Prospectus, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock. Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to agreement between the Company and the Underwriters. Very truly yours, -------------------------------- (Name) -------------------------------- (Address) EX-4.4 3 FORM OF POWER OF ATTORNEY & CUSTODY AGREEMENT 1 EXHIBIT 4.4 IRREVOCABLE POWER OF ATTORNEY AND CUSTODY AGREEMENT - --------------------- As Attorney-in-Fact c/o BE Aerospace, Inc. 1400 Corporate Center Way Wellington, Florida 33414 BE Aerospace, Inc. As Custodian 1400 Corporate Center Way Wellington, Florida 33414 Dear Sirs or Mesdames: The undersigned and certain other persons listed in Appendix A hereto (the undersigned and such other persons being hereinafter collectively called the "Selling Shareholders") and BE Aerospace, Inc., a Delaware corporation (the "Company"), contemplate selling issued and outstanding shares of the Company's Common Stock, par value $.01 per share ("Common Stock") (which shares will be acquired by the Selling Shareholders through the exercise of options ("Options") to purchase shares of Common Stock), to certain underwriters (the "Underwriters"), pursuant to the Underwriting Agreement referred to below, in connection with a registered public offering of the Company's Common Stock including the shares of Common Stock ("Shares") to be issued upon exercise of the Options (the "Offering"). The undersigned also understands that the Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-3 (the "Registration Statement") (File No. 333-16235) to register the shares of Common Stock to be sold by the Company and the Shares to be sold by Selling Shareholders in the Offering under the Securities Act of 1933, as amended (the "Securities Act"). The undersigned, by executing and delivering this Irrevocable Power of Attorney and Custody Agreement (the "Agreement"), confirms the undersigned's willingness (i) to deposit with the Company, acting in its capacity as Custodian hereunder (the "Custodian"), Options exercisable into not less than the number of Shares set forth next to the undersigned's name on Appendix A and (ii) upon exercise of the Options (or such lesser number of Options, as determined by the Attorney-in-Fact in accordance herewith) into Shares, to sell the Shares to the Underwriters, all as hereinafter provided. The undersigned hereby acknowledges receipt of (i) a draft of an underwriting agreement dated December 5, 1996 (the "Underwriting Agreement"), among the Company, the Selling Shareholders (acting by their Attorney-in-Fact) and the Underwriters relating to the Offering of Common Stock to be purchased by the Underwriters from the Company and 2 2 the Selling Shareholders, and (ii) a conformed copy (without exhibits) of the original Registration Statement and all amendments thereto through the date of execution hereof. The undersigned understands that the Underwriting Agreement is subject to revisions before execution, with such changes as the Attorney-in-Fact referred to below deems appropriate (including with respect to the number of Shares to be sold), and that the Registration Statement has not yet become effective under the Securities Act and is subject to amendment. To induce the Underwriters to enter into the Underwriting Agreement with the Company and the Selling Shareholders and to secure their performance, the undersigned agrees, for the benefit of the other Selling Shareholders, the Underwriters and the Company, as follows: (1) Appointment of Attorney-in-Fact, Grant of Authority. For purposes of effecting the exercise of the Options, payment of the exercise price (the "Exercise Price") therefor, receipt of the Shares and the sale of the Shares pursuant to the Underwriting Agreement, the undersigned hereby irrevocably makes, constitutes and appoints ______________ the true and lawful agent and attorney-in-fact of the undersigned (the "Attorney-in-Fact"), with full power and authority (except as provided below) to act hereunder, individually, collectively, or through a duly appointed successor attorney-in-fact, in his sole discretion (it being understood and agreed that the Attorney-in-Fact may duly appoint his successor attorney-in-fact and delegate to him or her any and all of his powers hereunder), all as hereinafter provided, in the name of and for and on behalf of the undersigned, as fully as could the undersigned if present and acting in person, with respect to all matters in connection with the execution and delivery of the Underwriting Agreement and the registration and sale of the Shares in the Offering including, but not limited to, the power and authority to: (a) authorize and direct the Custodian and any other person or entity to take any and all actions as may be necessary or deemed to be advisable by the Attorney-in-Fact to effect the exercise of the Options, payment of the Exercise Price therefor and receipt of the Shares at any time following the execution of the Underwriting Agreement by or on behalf of the Selling Shareholders [and prior to the business day preceding the Option Closing Date (as defined in the Underwriting Agreement)] and the sale, transfer and disposition of the Shares in, and in connection with, the Offering (including without limitation to determine the number of Shares of the undersigned to be sold (which may differ from the amount set forth in the drafts of the Registration Statement and Underwriting Agreement reviewed by the undersigned) and the price at which such Shares will be sold to the Underwriters), on such terms and conditions, except as set forth below, as the Attorney-in-Fact may, in his sole discretion, determine; 3 3 (b) execute and deliver the Underwriting Agreement, substantially in the form of the draft dated December 5, 1996 with such changes therein as the Attorney-in-Fact, in his sole discretion, except as set forth below, may determine, the execution and delivery of such Underwriting Agreement by the Attorney-in-Fact to be conclusive evidence with respect to his approval thereof, and carry out and comply with each and all of the provisions of the Underwriting Agreement; (c) arrange for, prepare or cause to be prepared an amendment or amendments to the Registration Statement and take all actions as may be necessary or deemed to be desirable with respect to the Registration Statement, including, without limitation, the execution, acknowledgment and delivery of all such certificates, reports, assurances, documents, letters and consents, as may be necessary or deemed to be desirable in connection therewith, and execute, acknowledge and deliver any and all certificates, assurances, reports, documents, letters and consents to the Commission, appropriate authorities of states or other jurisdictions, the Underwriters or legal counsel, which may be required or appropriate in connection with the registration of the Shares under the Securities Act or the securities or blue sky laws of the various states and jurisdictions or to facilitate sales of the Shares including, but not limited to (i) a request for acceleration of the effective date of the Registration Statement and (ii) any representations to the Commission necessary to facilitate effectiveness of the Registration Statement; (d) retain legal counsel, as appropriate, in connection with any and all matters referred to herein (which counsel may, but need not, be counsel for the Company) to represent the Selling Shareholders in connection with the transactions referred to in the Underwriting Agreement and this Agreement; (e) agree with the Company and the other Selling Shareholders upon the allocation of the expenses of the Offering, and upon the mutual indemnification of the Company, the Underwriters and the Selling Shareholders, including the undersigned and the Attorney-in-Fact as set forth in the Underwriting Agreement, this Agreement or in any other agreement or instrument; (f) endorse (in blank or otherwise) on behalf of the undersigned (i) the certificates for the Options necessary to exercise the Options and receive the Shares upon exercise thereof and payment of the Exercise Price with respect thereto, (ii) the certificates for Shares to be sold by the undersigned to the Underwriters, and (iii) any stock power or stock powers attached to such certificates; and 4 4 (g) take or cause to be taken any and all further actions, and execute and deliver, or cause to be executed and delivered, any and all such agreements (including, but not limited to, the Underwriting Agreement and any and all documents, instruments and certificates as may be necessary or deemed to be advisable in connection therewith), instruments, documents, certificates and share powers, with such changes as the Attorney-in-Fact may, in his sole discretion, approve (such approval to be evidenced by his signature thereof) as may be necessary or deemed to be desirable by the Attorney-in- Fact to effectuate, implement and otherwise carry out the transactions contemplated by the Underwriting Agreement and this Agreement, or as may be necessary or deemed to be desirable in connection with the registration of the Shares pursuant to the Securities Act or the sale of the Shares to the Underwriters. (2) Irrevocability. The undersigned has conferred and granted the power of attorney and all other authority contained herein in consideration of the Company's, the other Selling Shareholders' and the Underwriters' proceeding with, and for the purpose of completing, the transactions contemplated by the Underwriting Agreement. Therefore, the undersigned hereby agrees that all power and authority hereby conferred is coupled with an interest and is irrevocable; and to the fullest extent not prohibited by law shall not be terminated by any act of the undersigned or by operation of law or by the occurrence of any event whatsoever, including without limitation, the death, incapacity, dissolution, liquidation, termination, bankruptcy, dissolution of marital relationship or insolvency of the undersigned or any similar event. If, after the execution of this Agreement, any such event shall occur before the completion of the transactions contemplated by the Underwriting Agreement and this Agreement, the Attorney-in-Fact and the Custodian are nevertheless authorized and directed to complete all of such transactions, including the exercise of the Options, payment of the Exercise Price therefor and receipt of the Shares in consideration thereof and the delivery and sale of the certificates for the Shares to be sold to the Underwriters, as if such event had not occurred and regardless of notice thereof. (3) Deposit and Delivery of Shares. The undersigned hereby appoints the Company as Custodian to hold the Shares, the Options and, upon execution of the Underwriting Agreement by the Selling Shareholders, to exercise the Options, pay the Exercise Price therefor, and to dispose of the Shares in accordance with the instructions of the Attorney-in-Fact and as set forth herein, with full power in the name of, and for and on behalf of, the undersigned. (a) If stock certificates with respect to the Shares or Options are in the undersigned's possession, the undersigned hereby agrees to deliver 5 5 herewith and deposit such certificates with the Custodian, together with an irrevocable stock power duly executed in blank. (b) If any Options or Shares are to be delivered to the Custodian by someone other than the undersigned, the undersigned hereby agrees to deliver to and deposit with the Custodian an irrevocable stock power duly executed in blank. (c) The undersigned authorizes and directs the Custodian to deliver to the Underwriters such Shares as may be designated in written instructions from the Attorney-in-Fact and to deliver, or cause to be delivered, certificates representing such Shares to the Underwriters on the Option Closing Date referred to in the Underwriting Agreement against receipt of payment (payable to the Custodian) therefor. (d) The undersigned hereby authorizes and directs the Attorney-in-Fact and the Custodian to issue appropriate receipts to the Underwriters, for the full amount of net proceeds, in the name of the undersigned as payee. (e) It is understood that the Company and the Underwriters may determine that it is not practicable to sell all of such Shares in the Offering. The undersigned authorizes each Attorney-in-Fact to exercise a number of Options equal to the number of the undersigned's Shares that the Company and the Underwriters determine is practicable to sell in the Offering. In the event that the Company and the Underwriters determine that it is not practicable to sell in the Offering all shares issuable upon the exercise of the Options, the Options will be exercised pro rata (based upon the aggregate number of Shares listed on Appendix A). Unexercised Options, if any, will be returned to the undersigned. (4) The Custodian. The Custodian's execution of this Agreement shall constitute the acceptance by the Custodian of the agency herein conferred, and shall evidence its agreement to carry out and perform its duties under this Agreement in accordance with the provisions hereof, subject, however, to the following terms and conditions, which all parties hereto agree shall govern and control the rights, duties and immunities of the Custodian: (a) The Custodian shall have no duties except those expressly set forth herein and shall not be liable except for commission of gross negligence or willful misconduct in the performance of such duties of the Custodian as are specifically set out herein. The Custodian shall not be responsible for the performance of the powers of attorney contained herein by any party hereto, 6 6 or for the interpretation of any of the provisions of such powers of attorney, or for the failure or inability of any other party hereto, or anyone else, to deliver moneys or certificates for Shares, Options or other property to it or otherwise to honor any provision hereof. (b) If a controversy arises between two or more of the parties hereto, or between any of the parties hereto and any person not a party hereto, as to whether or not or to whom the Custodian shall deliver the certificates for the Shares, Options or any funds held by it, or as to any other matter arising out of or relating hereto or to the property held by it hereunder, the Custodian shall not be required to determine the same and need not make any delivery of the property or any portion thereof but may retain it until the rights of the parties to the dispute shall have finally been determined by agreement or by final order of a court of competent jurisdiction, provided, however, that the time for appeal for any such final order shall have expired without an appeal having been made. The Custodian shall deliver the property or any portion thereof within 15 days after it has received written notice of any such agreement or final order (accompanied by an affidavit that the time for appeal has expired without an appeal having been made). The Custodian shall be entitled to assume that no such controversy has arisen unless it has received a written notice that such a controversy has arisen which refers specifically to this Agreement and identifies by name and address the adverse claimants to the controversy. (c) The Custodian will acknowledge in writing receipt by physical delivery of any certificates representing any Shares or Options when such certificates are received. (5) Representations, Warranties and Agreements. The undersigned represents warrants and agrees that: (a) All authorizations and consents, including, but not limited to, any releases necessary for the execution, delivery and performance by the undersigned of this Agreement and for the exercise of the Options, payment of the Exercise Price therefor and receipt of the Shares in consideration thereof and the sale and delivery of the Shares to the Underwriters have been obtained and are in full force and effect, and the undersigned has full right, power and authority to enter into and perform the Underwriting Agreement and this Agreement and to sell, transfer and deliver the Shares to the Underwriters. This Agreement, upon execution and delivery by the undersigned, and the Underwriting Agreement, upon execution and delivery by the undersigned or on behalf of the undersigned by the Attorney-in-Fact, will constitute valid and 7 7 binding agreements of the undersigned in accordance with their respective terms. (b) The undersigned has read the draft of the Underwriting Agreement referred to above and understands the same, and agrees that the representations and warranties ascribed to the undersigned as set forth in Section 2 of the Underwriting Agreement are incorporated by reference herein, are true and correct on the date hereof and will be true and correct on the Option Closing Date with respect to the Offering, and authorizes the Attorney-in-Fact, acting on behalf of the undersigned, to confirm the truth and accuracy of such representations and warranties in connection with the consummation or implementation of the transactions contemplated by the Underwriting Agreement and this Agreement. The undersigned acknowledges that the representations, warranties and obligations made or undertaken by the undersigned herein shall survive the conclusion of the Offering and are in addition to, and not in limitation of, the representations, warranties and obligations made or undertaken, or to be made or undertaken, on the part of the undersigned in the Underwriting Agreement, as the same may be executed, delivered and amended. (c) The undersigned has not taken and will not take, directly or indirectly, any action intended to constitute or which has constituted, or which might reasonably be expected to cause or result in, stabilization or manipulation of the price of the Common Stock, and, to assure compliance with Rule 10b-6 under the Securities Exchange Act of 1934, the undersigned will not make bids for or purchases of, or induce bids for or purchases of, directly or indirectly, any shares of Common Stock until the distribution of all Shares being sold in the public Offering has been completed; the undersigned has not and will not distribute any prospectus or other Offering material in connection with the Offering and sale of the Shares other than the then current prospectus filed with the Commission or other material permitted by the Securities Act. (d) The foregoing representations, warranties and agreements are for the benefit of and may be relied upon by the Attorney-in-Fact, the Company, the other Selling Shareholders, the Underwriters and their respective legal counsel. The undersigned agrees that the representations, warranties and agreements herein contained shall also be true and correct and in full force and effect on the effective date of the Registration Statement and the Option Closing Date referred to in the Underwriting Agreement. The undersigned will immediately notify the Attorney-in-Fact and the Company of any default under or breach of this Agreement (or of any event which, with 8 8 notice or the lapse of time or both, would constitute such a default or breach), and in the event any representation or warranty contained herein shall not be true or correct; provided, however, that nothing contained herein shall in any way affect the obligations of the undersigned hereunder and under the Underwriting Agreement to maintain such representations and warranties as true and correct and in full force and effect through the Option Closing Date. (e) The undersigned acknowledges that the success of the Offering is largely dependent upon factors not within the Company's control, such as participation and cooperation by other Selling Shareholders, market conditions, Securities and Exchange Commission and Blue Sky matters, and other factors within the discretion of the Underwriters. It is therefore understood that the Company and the Underwriters shall not be obligated to complete the Offering, except under such circumstances as the Company and the Underwriters deem appropriate and desirable, and neither the Company nor the Underwriters shall be liable to the undersigned for any failure to complete the Offering. It is further understood that the Underwriters shall not be obligated to exercise the option granted to them under Section 4 of the Underwriting Agreement, and neither the Company nor the Underwriters shall be liable to the undersigned for any failure to exercise such option. This Agreement will terminate in the event that the Option Closing Date does not occur on or prior to January 21, 1997 unless this Agreement is extended by the parties hereto in writing. (6) Payment. The undersigned hereby authorizes and directs the Attorney-in-Fact to take such action as may be required to provide for the distribution to the undersigned of the proceeds of the Offering (net of the Exercise Price with respect to any exercised Options and the reserve for undersigned's share of expenses of the Offering as described below) owing to the undersigned in connection therewith, such payment to be made in immediately available funds or such other manner as the Attorney-in-Fact shall determine. Before remitting any proceeds of the sale of the Shares to the undersigned, the Attorney-in-Fact is authorized and empowered to reserve from the proceeds allocable to the undersigned in respect of Shares sold by the undersigned an amount determined by the Attorney-in-Fact to be sufficient to pay the undersigned's share of all expenses of the Selling Shareholders. The Selling Shareholders' expenses shall include those items of expense set forth in Section 9(a) of the Underwriting Agreement and such other expenses as the Attorney-in-Fact deem reasonable, and the Attorney-in-Fact is authorized to pay such expenses from the amount reserved for such purpose. After payment of any such expenses from the reserve, the Attorney-in-Fact will prepare a written itemization of the expenses and remit to the undersigned his proportionate 9 9 share of the balance, as well as the itemization. To the extent expenses exceed the amount reserved, the Selling Shareholder shall remain liable for such expenses. (7) Ownership. Subject to the terms hereof, until payment of the purchase price for the Shares being sold by the undersigned pursuant to the Underwriting Agreement has been made by or for the account of the Underwriters, the undersigned shall remain the owner of the Options and the Shares and shall have all rights thereto, including the right to receive all dividends and distributions thereon, which are not inconsistent with this Agreement. However, until such payment in full has been made or until the Underwriting Agreement has been terminated, the undersigned agrees that the undersigned will not give, sell, pledge, hypothecate, grant any lien on or security interest in, transfer, deal with or contract with respect to the Options or the Shares or any interest therein, except to the Underwriters pursuant to the Underwriting Agreement. (8) Release. The undersigned hereby agrees to release the Attorney-in-Fact and the Custodian from any and all liabilities, joint or several, to which they may become subject insofar as such liabilities (or action in respect thereof) arise out of or are based upon any action taken or omitted to be taken by the Attorney-in-Fact or the Custodian pursuant hereto, except if such liabilities shall result from the bad faith of the Attorney-in-Fact or the Custodian. This paragraph shall survive termination of this Agreement. (9) Termination. If the Underwriting Agreement shall not be entered into on behalf of the undersigned, or if it shall not become effective pursuant to its terms, or if it shall be terminated pursuant to its terms, or if the Shares agreed to be sold as contemplated by the Underwriting Agreement are not purchased and paid for by the Underwriters on or before January 21, 1997, then after such date the undersigned shall have the power, on written notice to the Attorney-in-Fact and the Custodian, to terminate this Agreement, subject, however, (i) to Section (8) hereof, (ii) to the payment of all expenses incurred by or on behalf of the undersigned, and (iii) to all lawful action of the Attorney-in-Fact and the Custodian done or performed pursuant hereto prior to actual receipt of such notice, and thereafter the Attorney-in-Fact and the Custodian shall have no further responsibilities or liabilities to the undersigned except to redeliver to the undersigned the Shares held in custody by book entry or otherwise. (10) Notices. Any notice required to be given pursuant to this Agreement shall be deemed given if in writing and delivered in person, or if given by telephone or telegraph if subsequently confirmed by letter, (i) to _______________ as Attorney-in-Fact, c/o BE Aerospace, Inc., 1400 Corporate Center Way, Wellington, Florida 33414 (ii) BE Aerospace, Inc., as Custodian, 1400 Corporate Center Way, Wellington, Florida 33414 or to such other address as the Custodian shall have specified in a 10 10 written notice duly given to the undersigned, or (iii) to the undersigned at the address set forth in the Company's records. (11) Applicable Law. The validity, enforceability, interpretation, and construction of this Agreement shall be determined in accordance with the substantive laws of the state of New York, and this Agreement shall inure to the benefit of, and shall be binding upon, the undersigned and the undersigned's heirs, executors, administrators, successors and assigns, as the case may be. (12) Counterparts. This Agreement may be signed in any number of counterparts, each executed counterpart constituting an original but all together constituting only one instrument. 11 11 This Irrevocable Power of Attorney and Custody Agreement shall be effective as of __________________, ___ 1996. Very truly yours, Name: --------------------------- (signature) When signing as an officer of a corporation, partner of a partnership, trustee of a trust, guardian of a minor child, or Custodian under the Uniform Gift to Minors Act, please indicate title as such and provide documentation evidence of the authority of person signing. For certificates held by joint tenants or as community property, all named holders must sign. Notarization required for individuals only: STATE OF COUNTY OF Before me, a notary public, personally appeared the above named _________________, who acknowledged that he did sign the foregoing instrument, and that the same is his free act and deed. In testimony whereof, I have hereunto affixed my name and official seal at ________________ ______ this __ day of _____________________, 1996. ------------------------------- Notary Public [Seal] 12 12 ___________________________ hereby accepts the appointment as Attorney-in-Fact pursuant to the foregoing Irrevocable Power of Attorney and Custody Agreement, and agrees to abide by and act in accordance with the terms of said agreement. Dated: ________________ ___, 1996 -------------------------------------- BE Aerospace, Inc. hereby agrees to act as Custodian pursuant to the foregoing Irrevocable Power of Attorney and Custody Agreement, and agrees to abide by and act in accordance with the terms of said agreement. Dated: _________________ ___, 1996 BE AEROSPACE, INC. By: -------------------------------- 13 APPENDIX A
Number of Shares Selling Shareholders To Be Sold Sheila L. Palandjian................................................................ 35,000 PAP Stock Trust..................................................................... 10,000 PLP Stock Trust..................................................................... 10,000 LP Stock Trust...................................................................... 10,000 ------ Total ..................................................................... 65,000 ======
EX-5.1 4 OPINION OF ROPES AND GRAY 1 EX. 5.1 December , 1996 BE Aerospace, Inc. 1400 Corporate Center Way Wellington, Florida 33414 Ladies and Gentlemen: This opinion is furnished to you in connection with a registration statement on Form S-3 (No. 333-16235) (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, for the registration of 4,600,000 shares of common stock, $.01 par value per share (the "Shares"), of BE Aerospace, Inc., a Delaware corporation (the "Company"). The Shares are to be sold pursuant to an Underwriting Agreement (the "Underwriting Agreement") to be entered into among the Company, certain stockholders (the "Selling Stockholders") of the Company and Morgan Stanley & Co. Incorporated, CS First Boston Corporation and PaineWebber Incorporated as representatives of the several underwriters to be named on Schedule I thereto. We have acted as counsel for the Company in connection with the issue and sale of the Shares. For purposes of this opinion we have examined and relied upon such documents, records, certificates and other instruments as we have deemed necessary. We express no opinion as to the applicability of, compliance with or effect of federal law or the law of any jurisdiction other than the General Corporation Law of the State of Delaware. Based upon the foregoing, we are of the opinion that (i) the Shares have been duly authorized; (ii) the Shares to be received by the Selling Stockholders upon exercise of stock options, when issued upon exercise of such stock options in accordance with their terms, and when sold by the Selling Stockholders in accordance with the terms of the Underwriting Agreement, will be validly issued, fully paid and nonassessable; and (iii) when issued and sold by the Company in accordance with the terms of the Underwriting Agreement, the Shares being sold by the Company will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as part of the Registration Statement and to the use of our name therein and in the related prospectus under the caption "Legal Matters." Very truly yours, Ropes & Gray EX-23.1 5 CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in Amendment No. 1 to the Registration Statement (No. 333-16235) of BE Aerospace, Inc. on Form S-3 of our report dated April 19, 1996, appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP - ------------------------- DELOITTE & TOUCHE LLP Costa Mesa, California December 12, 1996 EX-23.2 6 CONSENT OF ARTHUR ANDERSON LLP 1 Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our firm included in or made a part of this Amendment No. 1 to Form S-3 registration statement (No. 333-16235). /s/ ARTHUR ANDERSEN LLP ------------------------ ARTHUR ANDERSEN LLP Chicago, Illinois, December 11, 1996 -----END PRIVACY-ENHANCED MESSAGE-----