-----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, EDz3E5fa6LewMmj0VR/C/tMVKZNws+zsPUA3ZCOxFCAaV2uto7LiqKVJV+QSxqfF ZVtmtU8nP5cZtKacYS0sEA== 0000950135-98-003605.txt : 19980601 0000950135-98-003605.hdr.sgml : 19980601 ACCESSION NUMBER: 0000950135-98-003605 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980529 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BE AEROSPACE INC CENTRAL INDEX KEY: 0000861361 STANDARD INDUSTRIAL CLASSIFICATION: PUBLIC BUILDING AND RELATED FURNITURE [2531] IRS NUMBER: 061209796 STATE OF INCORPORATION: DE FISCAL YEAR END: 0222 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-18348 FILM NUMBER: 98634251 BUSINESS ADDRESS: STREET 1: 1400 CORPORATE CTR WY CITY: WELLINGTON STATE: FL ZIP: 33414 BUSINESS PHONE: 5617915000 MAIL ADDRESS: STREET 1: 1300 CORPORATE CENTER WAY STREET 2: 1300 CORPORATE CENTER WAY CITY: WELLINGTON STATE: FL ZIP: 33414 FORMER COMPANY: FORMER CONFORMED NAME: BE AVIONICS INC DATE OF NAME CHANGE: 19920608 10-K 1 BE AEROSPACE, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 28, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-18348 BE AEROSPACE, INC. (Exact name of registrant as specified in its charter)
DELAWARE 06-1209796 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1400 CORPORATE CENTER WAY, WELLINGTON, FLORIDA 33414 (Address of principal executive offices) (Zip Code)
(561) 791-5000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes[X] No[ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] The aggregate market value of the registrant's voting stock held by non-affiliates was approximately $696,357,028 on May 20, 1998 based on the closing sales price of the registrant's Common Stock as reported on the Nasdaq National Market as of such date. The number of shares of the registrant's Common Stock, $.01 par value, outstanding as of May 20, 1998 was 23,192,600 shares. DOCUMENTS INCORPORATED BY REFERENCE Those sections of the Registrant's Proxy Statement to be filed with the Commission in connection with its 1998 Annual Meeting of Stockholders to be held on August 5, 1998, described in Part III hereof, are incorporated by reference in this report. 1 2 INDEX PART I
ITEM 1. Business..........................................................................................3 ITEM 2. Properties.......................................................................................15 ITEM 3. Legal Proceedings................................................................................17 ITEM 4. Submission of Matters to a Vote of Security Holders..............................................17 Executive Officers of the Registrant.............................................................18 PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters..........................................................................................21 ITEM 6. Selected Financial Data..........................................................................22 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................................24 ITEM 8. Financial Statements and Supplementary Data......................................................29 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................................................................29 PART III ITEM 10. Directors and Executive Officers of the Registrant...............................................30 ITEM 11. Executive Compensation...........................................................................30 ITEM 12. Security Ownership of Certain Beneficial Owners and Management...................................30 ITEM 13. Certain Relationships and Related Transactions...................................................30 PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................30 Index to Consolidated Financial Statements and Schedule.........................................F-1
2 3 PART I This Item 1 "Business" includes forward-looking statements which involve risks and uncertainties. The Company's actual experience may differ materially from that discussed in such statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors" contained in Exhibit 99.1 hereto, 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 acquired businesses, the delivery of the Company's MDDS interactive video system, customer delivery requirements, new or expected refurbishments, or cash expenditures related to possible future acquisitions. ITEM 1. BUSINESS INTRODUCTION B/E Aerospace, Inc. ("B/E" or the "Company") is the world's largest manufacturer of interior products for commercial and general aviation aircraft cabins, serving virtually all major airlines and commercial and general aviation original equipment manufacturers with a broad line of products, including a full range of aircraft seating products, a full line of food and beverage preparation and storage equipment, cabin interior structures, oxygen delivery systems, and in-flight entertainment systems. In addition, B/E provides upgrade, maintenance and repair services for the products that it manufactures as well as for those supplied by other manufacturers. On April 13, 1998, the Company acquired Puritan Bennett Aero Systems Co. ("PBASCO"). PBASCO is the leading manufacturer of commercial aircraft oxygen delivery systems and a leading manufacturer of passenger service unit components and systems, and is a major supplier of air valves, overhead lights and switches, crew masks and protective breathing devices for both commercial and general aviation aircraft. On April 21, 1998, the Company acquired substantially all of the assets and assumed certain liabilities of Aircraft Modular Products ("AMP"). AMP is the leading manufacturer of cabin interior products for general aviation (business jet) and commercial type VIP aircraft, providing a broad line of products, including seating, side walls, bulkheads, credenzas, closets, galley structures, lavatories, tables, and sofas, along with related spare parts. Management believes that the Company has leading global market positions in each of its major product categories. B/E is the largest manufacturer of aircraft seating products in the world, offering an extensive line of commercial aircraft first class, business class, tourist class and commuter seats and a complete line of general aviation seating products. The Company is also the world's largest manufacturer of equipment for the preparation and preservation of food and beverages on aircraft, including a wide selection of coffee and beverage makers, water boilers, liquid containers, ovens, and refrigeration equipment. In addition, the Company manufacturers a broad range of interior structures, including galleys, lavatories, sidewalls, credenzas, and closets. The Company is also a worldwide leader in the manufacturer of oxygen delivery systems, passenger service units, air valves, lighting and switches, and is a leading manufacturer of passenger entertainment and service systems, including passenger control systems and individual-passenger in-flight entertainment systems. B/E's substantial installed base provides significant ongoing revenues from replacements, upgrades, repairs and spare parts. Approximately 61% of B/E's revenues for the year ended February 28, 1998 were derived from refurbishment, retrofit 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 calendar years 1995 through 1997. Deterioration of cabin interior product functionality and aesthetics occurred within the commercial airline fleets during the industry downturn because of maintenance deferrals. Since the turnaround began, the airlines have experienced greater utilization resulting from higher load factors, which 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 from the airlines' dramatically improved financial condition and liquidity and the need to refurbish, retrofit and upgrade cabin interiors. A significant portion of the Company's recent growth in backlog, revenues and operating earnings has been from refurbishment, retrofit and upgrade programs, and the Company is currently experiencing a high level of new order quote activity related to such programs. 3 4 Airlines have recently been purchasing a significant number of new aircraft in part due to current high load factors and the projected growth in worldwide air travel. According to the "Current Market Outlook" published by the Boeing Commercial Airplane Group in 1997 (the "Boeing Report"), worldwide air travel is projected to increase by 75% by calendar 2006, and the worldwide fleet of commercial passenger aircraft is projected to expand from approximately 10,300 at the end of 1996 to approximately 15,300 by the end of 2006 and to more than 21,200 by 2016. In 1997, Boeing shipped 375 aircraft versus 218 in 1996. In addition, Boeing has stated plans to ship 550 aircraft in each of calendar years 1998 and 1999. Furthermore, according to the July 1997 "Airline Monitor", the percentage of new Boeing aircraft deliveries projected to be widebody aircraft for 1997 through 2001 is 39% as compared to 33% for the five year period ended December 31, 1996. This shift toward widebody aircraft is significant to the Company since these aircraft require as much as seven times the dollar value of the type of products manufactured by the Company as those used in narrowbody aircraft. INDUSTRY OVERVIEW The commercial and general aviation aircraft cabin interior products industry encompasses a broad range of products and services, including not only aircraft seating products, passenger entertainment and service systems, food and beverage preparation and storage systems, and oxygen delivery systems, but also lavatories, side walls, overhead bins, closets, lighting systems and evacuation equipment. Management estimates that the industry had sales in excess of $1.5 billion during fiscal 1998. Historically, revenues in the commercial aircraft cabin interior products industry have been derived from five sources: (i) refurbishment and retrofit programs in which airlines purchase new components to substantially overhaul the interiors of aircraft already in service; (ii) refurbishment programs in which the interior components of the aircraft are substantially overhauled to improve the appearance and functionality; (iii) new installation programs to outfit newly delivered aircraft; (iv) spare parts; and (v) equipment to upgrade the functionality or appearance of the aircraft interior. The retrofit and refurbishment cycles for commercial aircraft cabin interior products differ by product category. Historically, revenues in the general aviation cabin interior products industry have been derived from four sources: (i) retrofit and refurbishment programs in which the interior components of the aircraft are substantially overhauled to improve the appearance and functionality; (ii) new installation programs to outfit newly delivered aircraft; (iii) spare parts; and (iv) equipment to upgrade the functionality or appearance of the aircraft interior. 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. Management estimates that the aggregate size of the worldwide aircraft seat market (including spare parts) during fiscal 1998 was in excess of $530 million. Approximately ten companies worldwide, including the Company, supply aircraft seats, although the Company (which has an approximately 50% market share) and two 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 units ("PCUs") and related wiring and harness assemblies and sophisticated interactive telecommunications and entertainment systems. Management estimates that the aggregate size of the worldwide PESS market was approximately $325 million during fiscal 1998. 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 widebody aircraft, and with the further development of LiveTV(TM) on many narrowbody aircraft. PESS products are currently supplied by approximately five companies worldwide. The Company has a market share of approximately 30% in individual-passenger in-flight entertainment systems, determined on the basis of installed units as of February 28, 1998. - - Interior Systems Products. This product category includes interior systems for both narrowbody and widebody commercial aircraft and general aviation / VIP aircraft, including a wide selection of coffee and beverage 4 5 makers, water boilers, ovens, liquid containers, air chillers, wine coolers and other refrigeration equipment, oxygen delivery systems, air valves, lighting and switches, and other interior systems components. The Company is the only manufacturer with a complete line of interior systems products and the only supplier with the capability to fully integrate overhead passenger service units with either chemical or gaseous oxygen equipment. - - General Aviation and VIP Products. The Company entered this line of business with its acquisition of AMP in April 1998. By combining AMP's substantial presence in the general aviation and VIP aircraft cabin interior products industry with that of PBASCO, B/E has become the industry's leading manufacturer with a broad product line, including a complete line of seating products, sidewalls, bulkheads, credenzas, closets, galley structures, lavatories, tables, sofas, oxygen delivery systems, air valves and lighting. B/E has the capability to provide complete interior packages, including all design services, all interior components and program management services for executive aircraft interiors. B/E is the preferred supplier of seating products of essentially every general aviation airframe manufacturer. Through February 28, 1998, the Company operated primarily 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 fiscal years ended February 1998, 1997 and 1996 are presented below:
Fiscal Year (dollars in millions) 1998 1997 1996 ---- ---- ---- Seating products .......................... $252 $217 $ 97 Interior systems products ................. 126 101 79 Passenger entertainment and service systems 81 52 33 Services .................................. 29 42 23 ---- ---- ---- Total revenues ............................ $488 $412 $232 ==== ==== ====
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 year 1994 have achieved record operating earnings during calendar years 1995 through 1997 and have substantially restored their balance sheets since then through cash generated from operations and debt and equity placements. This improvement in the airlines' profitability and liquidity has, in turn, led to an increase in refurbishment and retrofit programs, which coupled with spares revenues, generated approximately 61% of the Company's revenues in fiscal 1998. Further, throughout calendar year 1997, the aircraft manufacturers continued to experience 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 1996, consisted of approximately 10,300 aircraft, including 3,000 aircraft with fewer than 120 seats, 4,511 aircraft with between 120 and 240 seats and 2,760 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 $9.5 billion at the end of 1997. 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 2016, increasing annual revenue passenger miles from approximately 1.7 trillion in 1996 to approximately 4.4 trillion by 2016. According to the Boeing Report, the worldwide fleet of commercial passenger aircraft is projected to expand from approximately 10,300 at the end of 1996 to approximately 15,300 by 2006 and 21,200 by 2016. In 1997, Boeing shipped 375 aircraft versus 218 in 1996. In addition, 5 6 Boeing has stated plans to ship 550 aircraft in each of calendar years 1998 and 1999. According to Airbus Industrie "Global Market Forecast" published in March 1997 (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 1.7 million passenger seats at the end of 1996 to approximately 4.0 million passenger seats at the end of 2016. 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 recurring retrofit, refurbishment and spare parts revenue. According to industry sources, the worldwide fleet of general aviation and VIP commercial type jets at the end of calendar 1997 consisted of more than 10,000 aircraft, of which approximately two-thirds were located domestically. The average age of the domestic fleet is approximately 15 years, which should provide the Company a continuing large market for its products and services as business jet owners move toward the lighter weight, more modern, FAA-compliant products offered by the Company. The general aviation and VIP airframe manufacturers are experiencing a surge in new aircraft deliveries similar to that occurring in the commercial aircraft industry. According to industry sources, executive aircraft deliveries amounted to 222 units in calendar 1994 and were approximately 348 in calendar 1997, an increase of 57%. Industry sources indicate that executive aircraft deliveries are expected to be approximately 450 in calendar 1998 and should reach 550 per year by the year 2000. The Company believes it is well positioned to meet the cabin interior product requirements for general aviation and VIP aircraft arising from both the retrofit and upgrade of cabin interiors of the existing 10,000 general aviation / VIP aircraft fleet and the anticipated increase in new aircraft deliveries over the next several years. - - Widebody Aircraft Orders. Orders for widebody, long-haul aircraft constitute an increasing share of total new airframe orders. According to the July 1997 "Airline Monitor", the percentage of Boeing aircraft deliveries projected to be widebody aircraft for 1997 through 2001 is 39%, as compared to 33% for the three-year period ended December 31, 1995. Widebody aircraft currently carry up to three times the number of seats as narrowbody aircraft, and because of multiple classes of service, including large first class and business class configurations, the Company's average revenue per seat on widebody aircraft is significantly higher. Aircraft crews on widebody 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, widebody aircraft may require as much as seven times the dollar value of cabin interior products as narrowbody 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 widebody 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 widebody aircraft and, with the further development of live broadcast in-flight television, many narrowbody planes. - - New Product Development. The commercial and general aviation aircraft cabin interior products industries are engaged in intensive development and marketing efforts for a number of new products, including full electric "sleeper" seats, convertible seats, interactive individual-passenger entertainment systems, live broadcast television, advanced telecommunications equipment, crew masks, protective breathing equipment, oxygen generating systems, and new galley equipment. Interactive video technology provides passengers 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 arrival time, connecting flights, gate and other passenger information, as well as facilitate effective on-board inventory control and provide individual entertainment. LiveTV(TM), a new product line being developed by a joint venture between the Company and Harris Corporation, will provide live broadcast television via satellite to passenger aircraft, allowing passengers the capability to view up to 48 different channels of television service. New cabin interior products will generate new installation and retrofit revenues as well as service revenues from equipment maintenance, inspection and repair. - - 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 6 7 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 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 a leading global market position in each of its major product categories with market shares, based upon industry sources, of approximately 50% in commercial aircraft seats, 90% in coffee makers, 60% in executive aircraft seats, 90% in refrigeration equipment, 90% in air valves, 50% in oxygen delivery systems, 50% in ovens, and 30% in individual-passenger in-flight entertainment systems. 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 $3.7 billion installed base of commercial aircraft cabin interior equipment (valued at replacement prices as of February 28, 1998), 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. Finally, B/E is well positioned to obtain ongoing upgrade, maintenance, inspection and repair service contracts due to the breadth of its product line and the size of its installed base. - - Broadest Product Line in the Industry. Management believes the Company offers the broadest and most technologically advanced line of products for the cabin interiors of commercial aircraft. 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 500 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 introduction of several premium and main cabin class seats, which the Company believes provide greater comfort and are lighter in weight as a result of their ergonomic design and pre-engineered individual-passenger comfort features; 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. - - Proven Track Record of Integration. The Company has demonstrated the ability to make strategic acquisitions and successfully integrate such acquired businesses by identifying opportunities to consolidate engineering, manufacturing and marketing activities, as well as rationalizing product lines. The Company has purchased 12 businesses over the last nine years, for an aggregate purchase price of approximately $489 million. Since 1989, the Company has integrated its acquisitions by reducing the number of operating facilities acquired from 20 to nine and substantially improving productivity, efficiency and quality at the acquired businesses. 7 8 GROWTH OPPORTUNITIES B/E believes that it is benefiting from four major growth trends. - - Increase in Refurbishment and Upgrade Orders. B/E's substantial installed base provides significant ongoing revenues from replacements, upgrades, repairs and spare parts. Approximately 61% of B/E's revenues for the year ended February 28, 1998 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 1997. Deterioration of cabin interior product functionality and aesthetics occurred within the commercial airline fleets during the industry downturn because of maintenance deferrals. Since the turnaround began, the airlines have experienced greater utilization resulting from higher load factors, which 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 primarily 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 Widebody Aircraft. Airlines have recently purchased a significant number of new aircraft due in part to current high load factors and the projected growth in worldwide air travel. According to the Boeing Report, worldwide air travel is projected to increase by 75% by calendar 2006 and the worldwide fleet of commercial passenger aircraft is projected to expand from approximately 10,300 at the end of 1996 to approximately 15,300 by the end of 2006 and to more than 21,200 by 2016. Related growth in aircraft interior product shipments associated with new aircraft deliveries began during calendar 1996. In 1997, Boeing shipped 375 aircraft versus 218 in 1996. In addition, Boeing has stated plans to ship 550 aircraft in each of calendar years 1998 and 1999. Furthermore, according to the July 1997 "Airline Monitor", the percentage of new Boeing aircraft deliveries projected to be widebody aircraft for 1997 through 2001 is 39% as compared to 33% for the five-year period ended December 31, 1996. This shift toward widebody aircraft is significant to the Company since these aircraft require as much as seven times the dollar value of cabin interior products as narrowbody aircraft, including substantially more seats, galley equipment and in-flight entertainment products. - - General Aviation and VIP Aircraft Fleet Expansion and Related Retrofit Opportunities. General aviation and VIP airframe manufacturers are experiencing a surge in new aircraft deliveries similar to that occurring in the commercial aircraft industry. According to industry sources, executive aircraft deliveries amounted to 222 units in calendar 1994 and were approximately 348 in calendar 1997, an increase of 57%. Industry sources indicate that executive aircraft deliveries are expected to be approximately 450 in calendar 1998 and should reach 550 per year by the year 2000. Several new aircraft models including the Visionaire Vantage, Cessna Citation Excel, the Boeing Business Jet, Global Express and Airbus Business Jet have been, or will be introduced over the next several years. The overall strength of the global economy, advances in engine and avionics and emergence of fractional ownership of executive aircraft are all important growth factors. In addition, the general aviation and VIP aircraft fleet consists of approximately 10,000 aircraft with an average age of approximately 15 years. As aircraft age or ownership changes, operators retrofit and upgrade the cabin interior, including seats, sofas and tables, sidewalls, headliners, structures such as closets, lavatories and galleys, and related equipment including lighting and oxygen delivery systems. The installed value of a new interior can range from $1 million for smaller models to up to $7 million for a long haul aircraft. In addition, operators generally reupholster or replace seats every five to seven years. Management believes the Company is well positioned to benefit from the retrofit opportunities due to (i) the 15-year average age of the executive jet fleet; (ii) operators who have historically reupholstered their seats are now more inclined to replace these seats with lighter weight, more modern and 16g- compliant seating models; and (iii) the Company is the only manufacturer with the capability for cabin interior design services, a broad product line for essentially all cabin interior products and program management services, for true "one-stop shopping." - - Emergence of Individual Passenger In-Flight Entertainment Systems. Airlines increasingly are demanding individual-passenger in-flight entertainment systems in order to attract and retain customers, as the availability of such service affects passengers' decisions on airline selection. These systems also provide the 8 9 airlines with the opportunity to generate increased revenues, without raising ticket prices, by charging passengers for the services used. In June 1997, the Company announced a joint venture with Harris Corporation to develop and deliver live-broadcast television (LiveTV(TM)), to domestic narrowbody commercial aircraft. The Company expects that 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. 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: (i) the B/E 2000, with an installed base of approximately 28,000 units, which is a system that provides non-interactive video programming, (ii) the B/E 2000M, with an installed base of approximately 6,000 units, which offers similar functionality to the B/E 2000 but can be upgraded to the Company's Multimedia Digital Distribution System ("MDDS") product and (iii) the MDDS product, which is in its final development stage, is an interactive entertainment system with the capacity to provide movies on demand, telecommunications, gaming and other services. The Company completed the initial development and testing of the MDDS product and delivered the first MDDS system to its launch customer, Japan Airlines ("JAL"), in April 1998. The Company also completed the engineering necessary to enable installation of the MDDS as a line-fit option on Boeing aircraft in April 1998. Business Strategy The Company's business strategy is to maintain its leadership position and best serve its 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) pursuing the highest level of quality in every facet of its operations, from the factory floor to customer support; (iv) remaining the technological leader in its industry; (v) enhancing its position in the growing upgrade, maintenance, inspection and repair services market; and; (vi) pursuing selective strategic acquisitions in the aircraft cabin interior products industry. 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 manufactured and 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 base as of February 28, 1998 of aircraft seats, valued at replacement prices, of approximately $2 billion comprised of more than 1,000,000 seats. - - Tourist Class. The Company is the leading worldwide manufacturer of tourist class seats. B/E has designed tourist class seats that incorporate features not previously utilized in that class, such as top-mounted passenger control units, footrests and improved oxygen systems. - - First and Business Classes. Based upon major airlines program selection and orders on hand the Company is the leading worldwide manufacturer of premium class seats. First class and business class seats are generally larger, heavier and more complicated in design and are substantially more expensive than tourist class aircraft seats. The Company's first class seats and certain of its business class seats are equipped with articulating bottom cushion suspension systems, sophisticated hydraulic legrests, lumbar massage devices, adjustable thigh support cushions, reading lights, adjustable head and neck supports and large tables. - - 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. 9 10 Passenger Entertainment and Service Systems Management estimates that the Company has one of the largest installed bases of PESS products in the world, which, valued at replacement prices, is approximately $360 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 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 designed to meet the technological and price specifications of the airlines: B/E 2000. The B/E 2000, introduced in 1992, is one of the Company's first-generation individual in-flight video systems and offers centralized electronic distribution of a limited range of programming. Since its introduction, the Company has installed approximately 28,000 units of the B/E 2000 and earlier generation individual-passenger video systems for 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 B/E 2000M is an in-flight entertainment system that offers similar functionality to the B/E 2000 but can be upgraded to the Company's fully interactive MDDS. Since its introduction in 1995, the Company has installed approximately 6,000 units. 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(TM), Sega(TM) and PC-based games, in-flight shopping and, in the future, live television, among other services. The Company has completed the initial development and testing of the MDDS product and delivered the first MDDS product to its launch customer, JAL, in April 1998. The Company also completed the engineering necessary to enable installation of the MDDS as a line fit option on Boeing aircraft in conjunction with the JAL delivery. LiveTV(TM). In June 1997, the Company announced a joint venture with Harris Corporation to develop and market a system that will allow airline passengers to receive in-flight, live broadcast television aboard narrowbody commercial aircraft at each individual-passenger seat. The Company controls a 51 percent voting interest in the joint venture. B/E will provide its individual-seat video distribution system as its part of the overall LiveTV(TM) reception system, while Harris Corporation will provide the specialized aircraft antenna and receiver system to enable in-the-air reception. - - PCUs, Wiring and Harness Assemblies. The Company's PCU product line is the broadest in the industry, including over 300 different designs that 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. Interior Systems Products The Company is the world's largest manufacturer of interior systems products for both narrowbody and widebody aircraft, offering a wide selection of structures, coffee and beverage makers, water boilers, liquid containers, ovens, refrigeration equipment, oxygen delivery systems, passenger service units, air valves, lighting and switches, and a variety of other interior components. Management estimates that the Company has an aggregate installed base of such equipment valued at replacement prices, of approximately $1.2 billion. 10 11 - - Coffee Makers. The Company is the leading manufacturer of aircraft coffee makers, with the Company's 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 both brew coffee and boil water for tea while utilizing 25% less electrical power than traditional 5,000 watt water boilers, and a recently introduced next-generation coffee maker. - - Ovens. The Company is the leading 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' need 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 specifications and features required by a particular carrier. Galley structures require intensive design and engineering work and are among the most sophisticated and expensive of the aircraft's cabin interior products. The Company provides a variety of galley structures, closets and class dividers, emphasizing sophisticated and higher value-added galleys for widebody aircraft. - - Oxygen Delivery Systems. The Company is a leading manufacturer of oxygen delivery systems, passenger service units, air valves, lighting and switches for both commercial and general aviation aircraft. B/E is the only manufacturer with the capability to fully integrate its own manufactured components with overhead passenger service units with either chemical or gaseous oxygen equipment. The Company's oxygen and passenger service unit equipment has been approved for use on all Boeing and Airbus aircraft and is also found on essentially all general aviation and VIP aircraft. General Aviation - - General Aviation and VIP Products. The Company entered this line of business with its acquisition of AMP in April 1998. By combining AMP's substantial presence in the general aviation and VIP aircraft cabin interior products industry with that of PBASCO, B/E is now the leading manufacturer of a broad product line including a complete line of seating products, sidewalls, bulkheads, credenzas, closets, galley structures, lavatories, tables, sofas, oxygen delivery systems, air valves and lighting. B/E has the capability to provide complete interior packages, including all design services, all interior components and program management services for executive aircraft interiors. B/E is the preferred supplier of seating products at essentially every general aviation airframe manufacturer. Services and Specialty Products The Company is an active participant in the growing service and custom products markets. Management believes that the Company's broad and integrated product line and close relationships with its airline and leasing customers position the Company to become a leading service provider in this market. 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. - - Services. The Company provides a comprehensive complement of services for cabin interior products on board aircraft either between flights or on an overnight basis, or at one of eight service centers in the worldwide service network. The spectrum of services includes systems check and components repair, parts inventory and management, refurbishment of seating products, on-board surveys regarding status and product installations, as well as data support functions such as loading and updating of in-flight systems entertainment software, direct satellite broadcast systems support and systems integration. 11 12 - - Specialty Products. The Company manufacturers several specialty products for the commercial airline industry including flight attendant seats, observer seats and custom products in the passenger seating area. The Company maintains a staff of engineers to design and certify various modules and kits to accommodate individual-passenger video and telecommunications modules in seat backs and center consoles. The Company believes it is able to provide such unique custom products more rapidly than original manufacturers. 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 $45.7 million, $37.1 million, and $58.3 million for the fiscal years ended February 28, 1998, February 22, 1997 and February 24, 1996, respectively. The increase in expenses during the current period is the result of the substantial completion of Boeing line-fit certification activities for MDDS as well as ongoing product development activity in the Seating Products Group and Interior Systems Group. B/E employs approximately 500 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. MARKET AND CUSTOMERS The Company markets and sells its products directly to virtually all of the world's major airlines and commercial and general aviation aircraft manufacturers. The Company markets its general aviation products directly to all of the world's general aviation airframe manufacturers, modification centers and operators. B/E has a sales and marketing organization of 110 people, along with 22 independent sales representatives. B/E sales to all customers in foreign countries were $232.7 million, $203.4 million and $124.5 million for the fiscal years ended February 28, 1998, February 22, 1997 and February 24, 1996, respectively, or approximately 43%, 49% and 54%, respectively, of net sales during such periods. Airlines select manufacturers of cabin interior products primarily on the basis of product quality and performance, custom design capabilities, on-time 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, modification center and general aviation airframe manufacturer and encompassing the Company's entire product line, is preferred by its customers. Led by a B/E senior executive, teams representing each product line serve designated airlines, which together account for approximately 60% of the purchases of products manufactured by B/E during fiscal 1998. These 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 to more efficiently 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 the only supplier 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. The Company markets its general aviation products directly to all of the world's general aviation airframe manufacturers, modification centers and operators. 12 13 During the latter part of fiscal 1997, the Company initiated a program management discipline under which a program manager is assigned for each significant contract. The program manager is responsible for all aspects of the specific contract, including management of change orders and negotiation of related non-recurring engineering charges, monitoring the progress of the contract through its scheduled delivery dates, and overall profitability associated with the contract. The Company believes that it and its customers derive substantial benefit from its program management approach, including better on-time delivery and higher service levels. The Company also believes its program management approach results in better customer satisfaction and higher profitability over the life of the contract. During the fiscal year ended February 28, 1998, one customer accounted for approximately 18% of the Company's total revenues, and no other customer accounted for more than 10% of such revenues. There were no major customers in fiscal 1997 or 1996. Because of differing schedules of various airlines for purchases of new aircraft and for retrofit and refurbishment of existing aircraft, the portion of the Company's revenues attributable to particular airlines varies from year to year. BACKLOG Management estimates that B/E's backlog at February 28, 1998 was approximately $560 million, approximately 52% of which management believes to be deliverable in fiscal 1999, compared with a backlog of $420 million on February 22, 1997 (as adjusted for the debooking of the British Airways MDDS program in August 1997). CUSTOMER SERVICE The Company believes that it provides the highest level of customer service and product support 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, proposal requests 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 ten 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 and revisions of such reserves are recognized in the period in which such revisions are determined. The Company also 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 increased levels of engineering support and customer service than many smaller cabin interior products suppliers can provide. At the same time, airlines have recognized that cabin interior product suppliers must be able to integrate a wide range of products, including sophisticated electronic components, particularly in widebody aircraft. Management believes that the increasing demands airlines place upon remaining suppliers will result in a number of suppliers leaving the cabin interior products industry and a consolidation of those suppliers. The Company has participated in this consolidation through strategic acquisitions and internal growth and intends to continue to participate in the consolidation. 13 14 The Company's principal competitors for seating products include Group Zodiac S.A., Keiper Recaro GmbH, and a limited number of other producers in the European community and Japan. The Company's principal competitors for PESS products are MAS and Rockwell Collins. The Company's primary competitors for interior systems products are JAMCO Limited, Britax PLC, Scott Aviation and Intertechnique. MANUFACTURING AND RAW MATERIALS The Company's manufacturing operations consist of both the in-house manufacturing of component parts and sub-assemblies and the assembly of Company specified and designed component parts purchased from outside vendors. The Company maintains state-of-the-art facilities, and management has an ongoing strategic manufacturing improvement plan utilizing focused factories and cellular production technologies. 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 satisfaction. 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 U.S. facilities under FAA repair station licenses. The Company also holds an approval issued by the U.K. 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 interior systems products in Nieuwegein, The Netherlands and to inspect, test and repair products at its eight service centers throughout the world. In March 1992, the FAA adopted Technical Standard Order C127 requiring that all seats on certain new generation commercial aircraft installed after such date be certified to meet a number of new safety requirements, including an ability to withstand a 16G force. Management understands that the FAA plans to adopt additional regulations in the near future that will require that within the next five years all seats, including those on existing older commercial aircraft that are subject to the FAA's jurisdiction, will have to comply with similar seat safety requirements. At February 28, 1998, the Company had developed eleven different seat models meeting these new seat safety regulations. PATENTS B/E currently holds 52 United States patents and 21 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 Company. EMPLOYEES As of February 28, 1998, B/E had approximately 3,600 employees. Approximately 73% of these employees are engaged in manufacturing, 14% in research, development and engineering, and 13% in sales, marketing, product support and general administration. Approximately 13% of the employees are represented by unions. On April 25, 1997, the Company completed negotiations with its only domestic union which represents 11% of the Company's employees. This contract, which covers a period of three years, was ratified by the members of the union on April 26, 1997. B/E considers its employee relations to be good. [Remainder of page intentionally left blank] 14 15 ITEM 2. PROPERTIES B/E currently has 21 principal facilities, comprising an aggregate of approximately 1.4 million square feet of space. The following table describes the principal facilities and indicates the location, function, approximate size and ownership status of each:
FACILITY LOCATION PRODUCTS AND FUNCTION SIZE OWNERSHIP -------- --------------------- ---- --------- (SQ. FEET) CORPORATE: Wellington, Florida Corporate headquarters, finance, marketing and 17,700 Owned sales SEATING PRODUCTS: Litchfield, Connecticut Manufacturing, service and warehousing 147,700 Owned Winston-Salem, North Seating Products Group headquarters, research and 264,800 Owned Carolina development, finance, marketing, sales and manufacturing Leighton Buzzard, Manufacturing, service, research and development, 114,000 Owned (a) England sales support, finance and warehousing Kilkeel, Northern Ireland Manufacturing, sales support and warehousing 38,500 Owned INTERIOR SYSTEMS: Anaheim, Manufacturing, service, research and development, 57,100 Leased California sales support, finance and warehousing Fountain Valley, Manufacturing, service, research and 26,000 Owned California development, sales support, finance and warehousing Delray Beach, Florida Manufacturing, service, research and development, sales support, finance and warehousing; Interior Systems Group headquarters 52,000 Owned Jacksonville, Florida Manufacturing, service, engineering, and warehousing 75,000 Owned Lenexa, Kansas Manufacturing, service, engineering, and 80,000 Leased Warehousing Nieuwegein, The Manufacturing, service, research and development, Netherlands sales support, finance and warehousing 39,000 Leased PESS PRODUCTS: Irvine, California Manufacturing, service, research and development, sales support, finance and warehousing; In-flight Entertainment Group headquarters 106,700 Leased
15 16
FACILITY LOCATION PRODUCTS AND FUNCTION SIZE OWNERSHIP -------- --------------------- ---------- --------- (SQ. FEET) GENERAL AVIATION AND VIP PRODUCTS: Miami, Florida Manufacturing, service, research and development, 84,300 Leased sales support, finance and warehousing; General 71,700 Owned Aviation Headquarters SERVICES: Orange, California Upgrade, maintenance, inspection and repair, 106,300 Leased finance, sales support and warehousing; Service Group Headquarters Longwood, Florida Upgrade, maintenance, inspection and repair 5,300 Leased Burnsville, Minnesota Upgrade, maintenance, inspection and repair 7,200 Leased Woodinville, Washington Upgrade, maintenance, inspection and repair 26,800 Leased Chesham, England Upgrade, maintenance, inspection and repair 34,000 Owned (a) Toulouse, France Upgrade, maintenance, inspection and repair 400 Leased Houston, Texas Upgrade, maintenance, inspection and repair 45,000 Owned Schipol, The Netherlands Upgrade, maintenance, inspection and repair 3,600 Leased
(a) B/E's owned properties in England are mortgaged to Barclays Bank PLC to collateralize credit facilities of BE Aerospace (U.K.) Ltd. in aggregate amounts of up to approximately pound sterling 5.0 million. 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 "Industry Overview-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. [Remainder of page intentionally left blank] 16 17 ITEM 3. LEGAL PROCEEDINGS The Company is not a party to litigation or other legal proceedings which the Company believes could reasonably be expected to have a material adverse effect on the Company's business, financial condition and results of operations. In January 1998, the Company resolved a long-running dispute with the U.S. Government over export sales between 1992 and 1995 to Iran Air. The dispute centered on shipments of aircraft seats and related spare parts for five civilian aircraft operated by Iran Air. Iran Air purchased the seats in 1992 and arranged for them to be installed by a contractor in France. At the time, Iran was not the subject of a U.S. trade embargo. In connection with its sale of seats to Iran Air, B/E applied for and was granted a validated export license by the U.S. Department of Commerce (the "DOC"). The dispute with the U.S. Government centered on whether seats were delivered to Iran Air before the formal license was issued by the DOC, some seven months after B/E first applied for the license. This action resolved all disputes between B/E Aerospace and the Department of Justice as well as the DOC's Bureau of Export Enforcement. As part of the settlement, B/E pleaded guilty to a violation of the International Economic Emergency Powers Act and was placed on probation for a three-year period. In addition, B/E entered into a consent order with the DOC under which the DOC has agreed to suspend the imposition of a three-year export denial order on PTC Aerospace, a member of B/E's U.S. Seating Products Group, provided no further violations of the export laws occur. The Company recorded a charge of approximately $4.7 million in the quarter ended February 28, 1998, related to fines, civil penalties and associated legal fees arising from the settlement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the last quarter of the fiscal year covered by this report, the Company did not submit any matters to a vote of security holders, through the solicitation of proxies or otherwise. [Remainder of page intentionally left blank] 17 18 EXECUTIVE OFFICERS OF THE REGISTRANT 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 59 Chairman of the Board Robert J. Khoury 56 Vice Chairman of the Board and Chief Executive Officer and Director Paul E. Fulchino 51 President, Chief Operating Officer and Director Marco C. Lanza 41 Executive Vice President, Marketing and Product Development Thomas P. McCaffrey 44 Corporate Senior Vice President of Administration, Chief Financial Officer and Assistant Secretary E. Ernest Schwartz 61 Corporate Senior Vice President, Development and Planning Edmund J. Moriarty 54 Corporate Vice President-Law, General Counsel and Secretary Jeffrey P. Holtzman 42 Corporate Vice President, Treasurer and Assistant Secretary Sam G. Ayoub 55 Group Vice President and General Manager, Services Group Roman G. Ptakowski 49 Group Vice President and General Manager, Interior Systems Products Group Scott A. Smith 43 Group Vice President and General Manager, In-flight Entertainment Group Jim C. Cowart 46 Director** Richard G. Hamermesh 50 Director* Brian H. Rowe 66 Director** Hansjoerg Wyss 62 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, 1997 and 1996, respectively. 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. Mr. Khoury is employed by the Company pursuant to an Employment Agreement extending through December 31, 2001. 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, extending through February 28, 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"), an international general management consulting firm with over 1,100 employees. 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 18 19 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 Vice President and General Manager of the In-flight Entertainment Group 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 Corporate Senior Vice President of Administration, Chief Financial Officer and Assistant Secretary 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. E. Ernest Schwartz has been Corporate Senior Vice President, Development and Planning since December 1997. From March 1992 through November 1997, Mr. Schwartz was Group Vice President and General Manager of the Interior Systems Products Group. From 1986 through February 1992, Mr. Schwartz was President of Aircraft Products Company, which was acquired by the Company in 1992. Edmund J. Moriarty has been Corporate Vice President, General Counsel and Secretary since November 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. Sam G. Ayoub has been Group Vice President and General Manager of the Company's Services Group since May 1996 and from November 1994 through April 1996, was Executive President-Services. From 1984 to 1994 Mr. Ayoub served in several capacities with AAR Corporation including Corporate Vice President Marketing and President-Technical Services Division. Prior to that Mr. Ayoub was with United Airlines for 20 years with his last position being General Manager of their Cargo Division. Roman G. Ptakowski has been the Group Vice President and General Manager of the Interior Systems Group since December 1997. From September 1995 through December 1997, Mr. Ptakowski was Vice President, Sales and Marketing of the Interior Systems Group of the Company. From January 1995 through August 1995, Mr. Ptakowski served as Senior Vice President, Marketing for Farrel Corporation. Prior to that he was with the ABB Power T&D Company Inc. and Westinghouse Electric Corp. for 25 years with his last position being General Manager of their Protective Relay Division. Scott A. Smith has been the Vice President and General Manager of the In-flight Entertainment Group since April 1998. From December 1995 through March 1998, Mr. Smith was with Toshiba American Information Electronics with his last position being Senior Vice President, Sales of the Americas. From December 1992 to February 1994, Mr. Smith served as Corporate Vice President of Engineering and from February 1994 to September 1995 served as the General Manager of the Desktop and Server Product Division of AST Research. Prior to that, Mr. Smith was with IBM for 16 years and served in numerous capacities, including Systems Manager of the engineering team which developed IBM's first PC Server and advanced desktop, Staff Assistant to the Chairman of the Board and Director of Visual Subsystems Group. 19 20 Jim C. Cowart has been a Director of the Company since November 1989. Mr. Cowart is currently an independent investor and has been a principal of Cowart & Co. LLC and EOS Capital, Inc. private capital firms retained by the Company for strategic planning, competitive analysis, financial relations and other services. From January 1993 to November 1997, Mr. Cowart was the Chairman of the Board and Chief Executive Officer of Aurora Electronics Inc. From 1987 until 1991, Mr. Cowart was a founding General Partner of Capital Resource Partners, a private investment capital manager. Prior to such time, Mr. Cowart held various positions in investment banking and venture capital with Lehman Brothers, Shearson Venture Capital and Kidder, Peabody & Co. 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 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 1996, 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. [Remainder of page intentionally left blank] 20 21 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is quoted on the Nasdaq National Market under the symbol "BEAV." The following table sets forth, for the periods indicated, the range of high and low per share closing prices for the Common Stock as reported by Nasdaq.
HIGH LOW ---- --- FISCAL YEAR ENDED FEBRUARY 24, 1996 First Quarter 8 5/8 5 1/4 Second Quarter 9 1/4 7 1/4 Third Quarter 9 9/16 7 1/2 Fourth Quarter 13 5/8 8 7/8 FISCAL YEAR ENDED FEBRUARY 22, 1997 First Quarter 16 1/4 9 7/8 Second Quarter 16 3/4 12 3/8 Third Quarter 25 1/8 15 1/2 Fourth Quarter 29 22 3/4 FISCAL YEAR ENDED FEBRUARY 28, 1998 First Quarter 27 1/2 19 1/2 Second Quarter 37 23 5/8 Third Quarter 41 1/2 27 1/8 Fourth Quarter 32 1/4 20 1/2
On May 20, 1998 the closing price of the Common Stock as reported by Nasdaq was $30.31 per share. As of such date, the Company had 531 shareholders of record, and management estimates that there are approximately 14,300 beneficial owners of the Company's common stock. The Company has not paid any cash dividends in the past, and management has no present intention of doing so in the immediate future. The Company's Board of Directors intends, for the foreseeable future, to retain any earnings to finance the future growth of the Company, but expects to review its dividend policy regularly. The Indentures pursuant to which the Company's 8% and 9 7/8% Senior Subordinated Notes were issued and the terms of the Company's credit facilities permit the declaration or payment of cash dividends only in certain circumstances described therein. [Remainder of page intentionally left blank] 21 22 ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share data) During fiscal 1994, B/E completed the following acquisitions: (i) on April 29, 1993, B/E acquired all of the stock of Royal Inventum, B.V. ("Inventum"); (ii) on August 23, 1993, B/E acquired all of the stock of Nordskog Industries ("Nordskog"); (iii) on August 26, 1993, B/E acquired all of the stock of Acurex Corporation ("Acurex"); and (iv) 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"). The financial data as of and for the fiscal years ended February 28, 1998, February 22, 1997, February 24, 1996, February 25, 1995 and February 26, 1994 have been derived from financial statements which have been audited by B/E's independent auditors. The following financial information is qualified by reference to, and should be read in conjunction with, the B/E financial statements, including notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report.
FISCAL YEAR ENDED ------------------------------------------------------------------------ Feb. 28, Feb. 22, Feb. 24, Feb. 25, Feb. 26, 1998 1997 1996 (c) 1995 1994 ---- ---- -------- ---- ---- STATEMENTS OF OPERATIONS DATA: Net sales ...................................... $ 487,999 $ 412,379 $ 232,582 $ 229,347 $ 203,364 Cost of sales .................................. 309,094 270,557 160,031 154,863 136,307 --------- --------- --------- --------- --------- Gross profit ................................... 178,905 141,822 72,551 74,484 67,057 Operating expenses: Selling, general and administrative .......... 58,622 51,734 42,000 31,787 28,164 Research, development and engineering ........ 45,685 37,083 58,327 (d) 12,860 9,876 Amortization ................................. 11,265 10,607 9,499 9,954 7,599 Other expenses ............................... 4,664(a) -- 4,170 (e) 23,736 (e) -- --------- --------- --------- --------- --------- Operating earnings (loss) ...................... 58,669 42,398 (41,445) (3,853) 21,418 Interest expense, net .......................... 22,765 27,167 18,636 15,019 12,581 --------- --------- --------- --------- --------- Earnings (loss) before income taxes (benefit), extraordinary item and cumulative effect of accounting change .......................... 35,904 15,231 (60,081) (18,872) 8,837 Income taxes (benefit) ......................... 5,386 1,522 -- (6,806) 3,481 --------- --------- --------- --------- --------- Earnings (loss) before extraordinary item and cumulative effect of accounting change ..... 30,518 13,709 (60,081) (12,066) 5,356 Extraordinary item ............................. 8,956 (b) -- -- -- -- --------- --------- --------- --------- --------- Earnings (loss) before cumulative effect of accounting change ........................... 21,562 13,709 (60,081) (12,066) 5,356 Cumulative effect of accounting change ......... -- -- (23,332) -- -- --------- --------- --------- --------- --------- Net earnings (loss) ............................ $ 21,562 $ 13,709 $ (83,413) $ (12,066) $ 5,356 ========= ========= ========= ========= ========= Basic earnings (loss) per share (f): Earnings (loss) before extraordinary Item and cumulative effect of change in accounting principle ................................... $ 1.36 $ .77 $ (3.71) $ (.75) $ .35 Extraordinary item ............................. (.40) -- -- -- -- Cumulative effect of accounting change ......... -- -- (1.44) (d) -- -- --------- --------- --------- --------- --------- Net earnings (loss) ............................ $ .96 $ .77 $ (5.15) $ (.75) $ .35 ========= ========= ========= ========= ========= Weighted average common shares ................ 22,442 17,692 16,185 16,021 15,438 Diluted earnings (loss) per share (f): Earnings (loss) before extraordinary Item and cumulative effect of change in accounting principle .................................... $ 1.30 $ .72 $ (3.71) $ (.75) $ .34 Extraordinary item ............................. (.38) -- -- -- -- Cumulative effect of accounting change ......... -- -- (1.44) (d) -- -- --------- --------- --------- --------- --------- Net earnings (loss) ............................ $ .92 $ .72 $ (5.15) $ (.75) $ .34 ========= ========= ========= ========= ========= Weighted average common shares ................ 23,430 19,097 16,185 16,021 15,623 BALANCE SHEET DATA (END OF PERIOD): Working capital ................................ $ 262,504 $ 122,174 $ 41,824 $ 76,563 $ 76,874 Total assets ................................... 681,757 491,089 433,586 379,954 375,009 Long-term debt ................................. 349,557 225,402 273,192 172,693 159,170 Stockholders' equity ........................... 196,775 165,761 44,157 125,331 133,993
22 23 SELECTED FINANCIAL DATA (CONTINUED) FOOTNOTES TO TABLE (a) In fiscal 1998, the Company resolved a long-running dispute with the U.S. Government over export sales between 1992 and 1995 to Iran Air. The Company recorded a charge of $4,664 in fiscal 1998 related to fines, civil penalties and associated legal fees arising from the settlement. (b) The Company incurred an extraordinary charge of $8,956 during fiscal 1998 for unamortized debt issue costs, tender and redemption premiums and fees and expenses related to the repurchase of its 9 3/4% Senior Notes. (c) 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. (d) In fiscal 1996, the Company changed its method of accounting relating to the capitalization of precontract 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, development and engineering 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 $23,332. See Note 2 of Notes to Consolidated Financial Statements. (e) 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 $4,170 related to costs associated with the integration and consolidation of the Company's European seating operations. In fiscal 1995, the Company charged to earnings $23,736 of expenses primarily related to intangible assets and inventories associated with the Company's earlier generations of passenger entertainment systems. (f) During fiscal year 1998, the Company adopted Statement of Financial Accounting Standard No. 128, Earnings per Share, and, accordingly, has restated earnings per share for all periods presented. [Remainder of page intentionally left blank] 23 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward-looking statements which involve risks and uncertainties. The Company's actual experience may differ materially from that anticipated in such statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors" contained in Exhibit 99.1 hereto, 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 Company's MDDS interactive video system, customer delivery requirements, new or expected refurbishments, or cash expenditures related to possible future acquisitions. (In thousands, except share and per share data) INTRODUCTION B/E is the world's largest manufacturer of interior products for commercial and general aviation aircraft cabins, serving virtually all major airlines and general aviation aircraft owners and original equipment manufacturers with a broad line of products, including aircraft seats, a full line of food and beverage preparation and storage equipment, Interior Systems structures, oxygen delivery systems and related products, 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. B/E's revenues are generally derived from two primary sources: refurbishment or upgrade programs for the existing worldwide fleets of commercial and general aviation aircraft, and new aircraft deliveries. B/E believes its large installed base of products, estimated to be approximately $3.7 billion (valued at replacement prices as of February 28, 1998), gives it a significant advantage over competitors in obtaining orders for refurbishment programs, principally due to the airlines' tendency 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 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 programs 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 calendar years 1995 through 1997. Consequently, during fiscal 1998, B/E has experienced significant growth in backlog of seating and interior systems products, and 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: (i) 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; (ii) on August 23, 1993, the Company acquired all of the capital stock of Nordskog, an industry pioneer in galley structures and inserts; (iii) on August 26, 1993, the Company acquired all of the capital stock of Acurex, the leading worldwide supplier of commercial aircraft refrigeration products; and (iv) 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 24 25 leader in commercial aircraft seating. On April 13, 1998, the Company acquired substantially all of the assets and assumed certain of the liabilities of Puritan Bennett Aero Systems Co., the leading manufacturer of commercial aircraft oxygen delivery systems, a leading manufacturer of passenger service unit components and systems, and a major supplier of air valves, overhead lights and switches, crew masks and protective breathing devices. On April 21, 1998, the Company acquired substantially all of the assets and assumed certain of the liabilities of Aircraft Modular Products, the leading manufacturer of cabin interior products for general aviation (business jet) and commercial type VIP aircraft. 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, with calendar 1995 revenues of $99,800, was one of the three leading North American suppliers of commercial aircraft passenger seats and had a base of airline customers that was largely complementary to that of B/E. B/E's and Burns' approximate share of the worldwide seating products market at the time of acquisition were approximately 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. Over the last two fiscal years, the Company's gross margins have improved substantially, increasing from 31.2% in fiscal 1996 to 34.4% in fiscal 1997 and to 36.7% in fiscal 1998. The primary reasons for the improvement in gross margins include: (i) a Company-wide re-engineering program, which has resulted in higher employee productivity and better manufacturing efficiency; (ii) higher unit volumes; and (iii) a shift in product mix in all Groups toward higher margin products and services. B/E's business strategy is to maintain its market leadership position through various initiatives, including new product development. In fiscal 1998, research, development and engineering expenses totaled $45,685, or 9.4% of net sales, primarily consisting of costs related to the development of the MDDS and related Boeing line-fit expenditures, with the balance attributable to its seating and interior systems products businesses. [Remainder of page intentionally left blank] 25 26 RESULTS OF OPERATIONS -- YEAR ENDED FEBRUARY 28, 1998 COMPARED TO YEAR ENDED FEBRUARY 22, 1997 Sales for the year ended February 28, 1998 were $487,999 or 18% higher than sales of $412,379 in the prior year and reflected a 24% increase in product sales, offset by a $13,305 decline in service revenues (attributable to discontinued service lines of business). The increase in sales is attributable to substantially higher unit volume shipments of all the Company's products. Gross profit was $178,905 or 36.7% of sales, for the year ended February 28, 1998 and was $37,083 or 26% greater than the prior year's gross profit of $141,822 which represented 34.4% of sales. The increase in gross profit, while primarily the result of the higher sales volume, was also positively impacted by the 230 basis point improvement in gross margin. Selling, general and administrative expenses were $58,622 or 12% of sales for the year ended February 28, 1998. This was $6,888 or 13%, higher than the selling, general and administrative expenses for the prior year of $51,734 (12.5% of sales) and is primarily due to the higher level of sales and quotation activity as well as a higher level of customer service, product support and information technology activities. Research, development and engineering expenses were $45,685 or 9.4% of sales, for the fiscal year ended February 28, 1998. For the prior year, research, development and engineering expenses were $37,083 or 9.0% of sales. The increase in research, development and engineering was attributable to B/E's ongoing new product development programs, including costs related to the development of the MDDS and related Boeing line-fit expenditures. Amortization expense for the fiscal year ended February 28, 1998 of $11,265 was $658 or 6%, higher than the amount recorded in the prior year. Other expenses for the fiscal year ended February 28, 1998 consisted of a non-recurring charge of $4,664 related to the settlement of a dispute with the U.S. Government over certain export sales between 1992 and 1995. (See Item 3. "Legal Proceedings") Net interest expense was $22,765 for the year ended February, 28, 1998, or $4,402 less than the net interest expense of $27,167 recorded for the prior year, and is due to the decrease in the Company's long-term debt. The increase in gross profit offset by somewhat higher operating expenses and lower interest expenses in the current year resulted in earnings before income taxes, extraordinary item and cumulative effect of change in accounting principle of $35,904, an increase of $20,673 over the prior year. Income taxes for the year ended February 28, 1998 were $5,386 or 15% of earnings before income taxes as compared to $1,522 or 10% of earnings before income taxes in the prior year. Earnings before extraordinary item were $30,518 or $1.30 per share (diluted), which includes the $4,664 non-recurring charge related to the settlement of the dispute with the U.S. government, for the year ended February 28, 1998, as compared to $13,709 or $.72 per share (diluted) for the prior year. The Company incurred an extraordinary charge of $8,956 during fiscal 1998 for unamortized debt issue costs, tender and redemption premiums and fees and expenses related to the repurchase of its 9 3/4% Senior Notes. Net earnings were $21,562, or $.96 per share (basic) and $.92 per share (diluted), for the year ended February 28, 1998 as compared to $13,709, or $.77 per share (basic) and $.72 per share (diluted), for the prior year. 26 27 RESULTS OF OPERATIONS -- YEAR ENDED FEBRUARY 22, 1997 COMPARED TO YEAR ENDED FEBRUARY 24, 1996 Sales for the year ended February 22, 1997 were $412,379, or 77% higher than sales of $232,582 for the comparable period in the prior year. The increase in sales is attributable to substantially higher volume shipments of all the Company's products and services as a result of improving industry conditions. Of the $179,797 increase in sales for the year, $103,800 was due to increased seating and services revenues directly related to the acquisition of Burns. Excluding the effect of the Burns acquisition, sales increased 33% year over year. Gross profit was $141,822, or 34.4% of sales, for the year ended February 22, 1997 and was $69,271 higher than gross profit for the comparable period in the prior year of $72,551, which represented 31.2% of sales. The increase in gross profit was primarily the result of the higher sales volumes and the mix of products and services sold. Selling, general and administrative expenses were $51,734, or 12.5% of sales, for the year ended February 22, 1997. This was $9,734 higher than selling, general and administrative expenses for the prior year of $42,000, or 18.1% of sales, principally due to the substantial increases in revenues and the acquisition of Burns. Research, development and engineering expenses were $37,083, or 9.0% of sales, for the year ended February 22, 1997. For the comparable period in the prior year, research and development expense was $58,327, or 25.1% 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 interactive entertainment system, offset somewhat by an increase in product development activity in the Seating Products Group. Amortization expense for the year February 22, 1997 of $10,607 was $1,108 more than the amount recorded in fiscal 1996 as a result of the Burns acquisition. Net interest expense was $27,167 for the year ended February 22, 1997, or $8,531 higher than the net interest expense of $18,636 recorded for the comparable period in the prior year, and is due to the increase in the Company's long-term debt outstanding throughout most of fiscal 1997 as a result of the 9 7/8% Senior Subordinated Notes issued at the time of the Burns acquisition. Earnings before income taxes of $15,231 for the year ended February 22, 1997 were $75,312 more than the loss before income taxes of $60,081 in the prior year. Income taxes for the year ended February 22, 1997 were $1,522, or 10% of earnings before income taxes, as compared to no tax provision in fiscal 1996. Net earnings were $13,709, or $.77 per share (basic) and $.72 per share (diluted), for the year ended February 22, 1997 as compared to a net loss of $(83,413), or $(5.15) per share (basic and diluted) for the comparable period in the prior year, which included the cumulative effect of an accounting change of $23,332. 27 28 BOOKINGS AND BACKLOG INFORMATION On September 15, 1997, British Airways ("BA") notified the Company of its decision not to conduct a flight trial of B/E's MDDS interactive video system. BA ultimately selected a competitor's system for their in-flight entertainment equipment needs. As a result of BA's decision not to move forward with the interactive program, as of August 1997, the Company debooked approximately $155,000 of backlog related to the MDDS program. At February 28, 1998, the Company's backlog, after debooking the BA backlog, stood at approximately $560,000, which represents a year-to-year increase of approximately $140,000 or 33% versus the Company's backlog at the end of fiscal 1997, as similarly adjusted to exclude the amount then attributable to the BA MDDS backlog. Although the Company has debooked the BA backlog, the Company is continuing to complete the initial development and testing of the MDDS product and has completed line fit certification of its MDDS system on Boeing 747-400 aircraft and has delivered the first MDDS product to its launch customer, JAL, in April 1998. See "Business -- Products and Services." LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements consist of working capital needs, for ongoing capital expenditures and scheduled payments of interest on its indebtedness. 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 $262,504 as of February 28,1998 (including approximately $136,000 of cash from the net proceeds from the Senior Subordinated Notes offering described below), as compared to $122,174 as of February 22, 1997. At February 28,1998 the Company's cash and cash equivalents were $164,685, as compared to $44,149 at February 22, 1997. Cash provided from operating activities during fiscal 1998 was $9,598 and cash used in operating activities during fiscal 1997 was $(10,591). The primary source of cash during fiscal 1998 was net earnings of $21,562, the extraordinary item of $8,956, non-cash charges for depreciation and amortization of $24,160 and increases in accounts payable of $3,972, offset by a use of cash of $43,262 related to increases in inventories and receivables and $31,627 related to net increases in other current and non-current assets and liabilities. In February 1998, the Company sold $250,000 of 8% Senior Subordinated Notes, (the "8% Notes"). In conjunction with the sale of the 8% Notes, the Company initiated a tender offer for the $125,000 of 9 3/4% Senior Notes due 2003 (the "9 3/4% Notes"). The net proceeds from the offering of approximately $240,419 were used (i) for the tender offer (which expired on February 25, 1998) in which approximately $101,800 of the 9 3/4% Notes were retired, (ii) to call the remaining 9 3/4% notes on March 16, 1998, and (iii) together with the proceeds from the Bank Credit Facility, to fund the acquisitions of AMP and PBASCO. The Company incurred an extraordinary charge of $8,956 for unamortized debt issue costs, tender and redemption premiums and fees and expenses related to the repurchase of the 9 3/4% Notes. Long term debt at February 28, 1998 consists of the remaining 9 3/4% Notes not retired in the tender offer, the 8% Notes and 9 7/8% Senior Subordinated Notes due 2006. In April 1998 the Company amended its credit facilities with The Chase Manhattan Bank by increasing the aggregate principal amount that may be borrowed thereunder to $200,000 (the "Bank Credit Facility"). The Bank Credit Facility consists of a $100,000 revolving credit facility and an acquisition facility of up to $100,000. The acquisition facility is amortizable over five years beginning in April 1999; the revolving credit facility expires in April 2004. The Bank Credit Facility is collateralized by the Company's accounts receivable and inventories and by substantially all of its other personal property. The Bank Credit Facility contains customary affirmative covenants, negative covenants and conditions of borrowing. At February 28, 1998, indebtedness under the then-existing Bank Credit Facility consisted of letters of credit amounting to approximately $4,500. The Company's capital expenditures were $28,923 and $14,471 during fiscal 1998 and 1997, respectively. The increase in capital expenditures was primarily attributable to (i) the development of a new management information system to replace the Company's existing systems, many of which were inherited in acquisitions, and (ii) expenditures for plant modernization. The management information system is expected to be installed over the 28 29 next 18 months and will be year 2000 compliant. The Company anticipates ongoing annual capital expenditures of approximately $30,000 for the next several years to be in line with the expanded growth in business and the recent acquisitions. The Company believes that the cash flow from operations, proceeds from the 8% Notes and availability under the Bank Credit Facility will provide adequate funds for its working capital needs, planned capital expenditures and debt service requirements 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, make planned capital expenditures, make scheduled payments and 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. YEAR 2000 COSTS The Company has recognized the need to ensure that its computer systems will not be adversely affected by the upcoming calendar year 2000. The Company has assessed how it may be impacted by Year 2000 and has formulated and commenced implementation of a comprehensive plan to address known issues as they relate to its information systems. The plan, as it relates to information systems, involves a combination of software modification, upgrades and replacement. The Company estimates that the cost of Year 2000 compliance for its information systems will not have a material adverse effect on the future consolidated results of operations of the Company. However, the Company cannot measure the impact that the Year 2000 issue will have on its vendors, suppliers, customers and other parties with which it conducts its business. INDUSTRY CONDITIONS The Company's principal 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 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 now experienced five consecutive years of profitability including record profitability in each of the last three calendar years. This financial turnaround has, in part, been driven by record load factors, rising fare prices and declining fuel costs. The airlines have substantially restored their balance sheets through cash generated from operations and debt and equity placements. As a result, 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 economics through higher aircraft utilization. Increased airline competition may also result in airlines seeking to reduce costs by producing greater price competition from airline cabin interior products manufacturers, thereby adversely affecting the Company's margins. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This information required by this section is set forth on pages F-1 through F-20 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 29 30 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information set forth under the caption "Election of Directors" in the Proxy Statement to be filed with the Commission in connection with Company's 1998 Annual Meeting of Stockholders (the "Proxy Statement") is incorporated by reference herein. Information relating to the executive officers of the Company is set forth in Part I of this report under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information set forth under the caption "Executive Compensation" in the Proxy Statement is incorporated by reference herein. The Compensation Committee Report and the Performance Graph included in the Proxy Statement are not incorporated herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information set forth under the caption "Beneficial Ownership of Shares" in the Proxy Statement is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information set forth under the caption "Certain Transactions" in the Proxy Statement is incorporated by reference herein. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements (See page F-1). Consolidated Balance Sheets, February 28, 1998 and February 22, 1997. Consolidated Statements of Operations for the Years Ended February 28, 1998, February 22, 1997 and February 24, 1996. Consolidated Statements of Stockholders' Equity for the Years Ended February 28, 1998, February 22, 1997 and February 24, 1996. Consolidated Statements of Cash Flows for the Years Ended February 28, 1998, February 22, 1997 and February 24, 1996. Notes to Consolidated Financial Statements for the Years Ended February 28, 1998, February 22, 1997 and February 24, 1996. 2. Financial Statement Schedules (See page F-20). Schedule II - Valuation and Qualifying Accounts for the Years Ended February 28, 1998, February 22, 1997 and February 24, 1996. 30 31 Exhibits - The following is a list of exhibits. Exhibit Number Description Exhibit 3 Articles of Incorporation and By-Laws 3.1 Amended and Restated Certificate of Incorporation (1) 3.2 Certificate of Amendment of the Restated Certificate of Incorporation (2) 3.3 Amended and Restated By-Laws Exhibit 4 Instruments defining the rights of security holders, including debentures 4.1 Specimen Common Stock Certificate (1) 4.2 Form of Note for the Registrant's Series B 9-7/8% Senior Subordinated Notes (3) 4.3 Indenture dated January 24, 1996 between Fleet National Bank, as trustee, and the Registrant relating to the Registrant's 9-7/8% Senior Subordinated Notes and Series B 9-7/8% Senior Subordinated Notes (3) 4.4 Indenture dated February 13, 1998 for the Registrant's issue of 8% Senior Subordinated Notes (4) 4.5 Form of Note for the Registrant's 8% Senior Subordinated Notes (4) 4.6 Form of Stockholders' Agreement by and among the Registrant, Summit Ventures II, L.P., Summit Investors II, L.P. and Wedbush Capital Partners (5) Exhibit 10(i) Material Contracts 10.1 Supply Agreement dated as of April 17, 1990 between the Registrant and Applied Extrusion Technologies, Inc. (1) 10.2 Amended and Restated Credit Agreement (the "Chase Credit Agreement"), dated as of May 18, 1994 among the Registrant, the banks named therein and The Chase Manhattan Bank, N.A. as Agent (6)10.3 10.3 Amendment No. 1 dated May 18, 1994 to the Chase Credit Agreement (7) 10.4 Second Amended and Restated Chase Credit Agreement dated January 19, 1996 (3) 10.5 Third Amended and Restated Chase Credit Agreement dated May 29, 1997 (4) 10.6 Fourth Amended and Restated Chase Credit Agreement dated April 3, 1998 31 32 10.7 Receivables Sales Agreement dated January 24, 1996 among the Registrant, First Trust of Illinois, N.A. and Centrally Held Eagle Receivables Program, Inc. (3) 10.8 Escrow Agreement dated January 24, 1996 among the Registrant, Eagle Industrial Product Corporation and First Trust of Illinois, N.A. as Escrow Agent (3) 10.9 Acquisition Agreement dated as of December 14, 1995 by and among the Registrant, Eagle Industrial Products Corporation, Eagle Industries, Inc. and Great American Management and Investment, Inc. (8) 10.10 Asset Purchase Agreement dated as of April 16, 1998 by and between Stanford Aerospace Group, Inc. and the Registrant (9) 10.11 Stock Purchase Agreement dated as March 31, 1998 by and between the Registrant and Puritan-Bennet Corporation (10) Exhibit 10(ii) Leases 10.12 Lease dated May 15, 1992 between McDonnell Douglas Company, as lessor, and the Registrant, as lessee, relating to the Irvine, California property (2) 10.13 Lease dated September 1, 1992 relating to the Wellington, Florida property (2) 10.14 Chesham, England Lease dated October 1, 1973 between Drawheath Limited and The Peninsular and Oriental Steam Navigation Company (assigned in February 1985) 10.15 Utrecht, The Netherlands Lease dated December 15, 1988 between the Pension Fund Foundation for Food Supply Commodity Boards and Inventum 10.16 Utrecht, The Netherlands Lease dated January 31, 1992 between G.W. van de Grift Onroerend Goed B.V. and Inventum 10.17 Lease dated October 25, 1993 relating to the property in Longwood, Florida (6) Exhibit 10(iii) Executive Compensation Plans and Arrangements 10.18 Amended and Restated 1989 Stock Option Plan (11) 10.19 Directors' 1991 Stock Option Plan (11) 10.20 1990 Stock Option Agreement with Richard G. Hamermesh (11) 32 33 10.21 1990 Stock Option Agreement with B. Martha Cassidy (11) 10.22 1990 Stock Option Agreement with Jim C. Cowart (11) 10.23 1990 Stock Option Agreement with Petros A. Palandjian (11) 10.24 1990 Stock Option Agreement with Hansjorg Wyss (11) 10.25 1991 Stock Option Agreement with Amin J. Khoury (11) 10.26 1991 Stock Option Agreement with Jim C. Cowart (11) 10.27 1992 Stock Option Agreement with Amin J. Khoury (11) 10.28 1992 Stock Option Agreement with Jim C. Cowart (11) 10.29 1992 Stock Option Agreement with Paul W. Marshall (11) 10.30 1992 Stock Option Agreement with David Lahar (11) 10.31 United Kingdom 1992 Employee Share Option Scheme (2) 10.32 1994 Employee Stock Purchase Plan (12) 10.33 Employment Agreement dated as of January 1, 1992 between the Registrant and Amin J. Khoury (the "A. Khoury Agreement") 10.34 Amendment No. 2 dated as of April 1, 1996 to the A. Khoury Agreement (13) 10.35 Employment Agreement dated as of March 1, 1992 between the Registrant and Robert J. Khoury (the "R. Khoury Agreement") 10.36 Amendment No. 2 dated as of January 1, 1996 to the R. Khoury Agreement (13) 10.37 Employment Agreement dated as of March 1, 1992 between the Registrant and Marco Lanza (the "Lanza Agreement") 10.38 Amendment No. 1 dated as of January 1, 1996 to the Lanza Agreement (13) 10.39 Employment Agreement dated as of April 1, 1992 between the Registrant and G. Bernard Jewell 10.40 Employment Agreement dated as of May 1, 1994 between the Registrant and Thomas P. McCaffrey (the "McCaffrey Agreement") (6) 10.41 Amendment No. 1 dated as of January 1, 1996 to the McCaffrey Agreement (13) 10.42 Employment Agreement dated as of May 1, 1994 between the Registrant and Paul E. Fulchino (13) 33 34 10.43 BE Aerospace, Inc. Savings and Profit Sharing Plan and Trust - - Financial Statements for the Ten Months Ended December 31, 1995 and the Year Ended February 28, 1995, Supplemental Schedules and Independent Auditors' Report 10.44 BE Aerospace, Inc. 1994 Employee Stock Purchase Plan -- Financial Statements as of February 29, 1996 and February 26, 1995; and for the Year Ended February 29, 1996 and the period from May 15, 1994 (inception) to February 28, 1995 and Independent Auditors' Report Exhibit 21 Subsidiaries of the Registrant Exhibit 23 Consent of Deloitte & Touche LLP Exhibit 27 Financial Data Schedule for the Fiscal Year Ended February 28, 1998 Exhibit 99.1 Risk Factors (b) Reports on Form 8-K None - ------------------------------ (1) Incorporated by reference to the Company's Registration Statement on Form S-1, as amended (No. 33-33689), filed with the Commission on March 7, 1990. (2) Incorporated by reference to the Company's 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 to the Company's Registration Statement on Form S-4 (No. 333-00433), filed with the Commission on January 26, 1996. (4) Incorporated by reference to the Company's Registration Statement on Form S-4 (No. 333-47649) filed with the Commission on March 10, 1998. (5) Incorporated by reference to the Company's Registration Statement on Form S-2 (No. 33-66490) filed with the Commission on July 23, 1993. (6) Incorporated by reference to the Company's Annual Report on Form 10-K as amended for the Fiscal year ended February 26, 1994, filed with Commission on May 25, 1994. (7) Incorporated by reference to the Company's Annual Report on Form 10-K, for the Fiscal year ended February 25, 1995, filed with the Commission on May 26, 1995. (8) Incorporated by reference to the Company's Current Report on Form 8-K dated December 14, 1995 filed with the Commission on December 28, 1995. (9) Incorporated by reference to the Company's Current Report on Form 8-K dated May 8, 1998, filed with the Commission on May 8, 1998. (10) Incorporated by reference to the Company's Current Report on Form 8-K dated March 31, 1998, filed with the Commission on April 27, 1998. (11) Incorporated by reference to the Company's Registration Statement on Form S-8 (No. 33-48119), filed with the Commission on May 26, 1992. (12) Incorporated by reference to the Company's Registration Statement on Form S-8 (No. 33-82894), filed with the Commission on August 16, 1994. (13) Incorporated by reference to the Company's Current Report on Form 8-K dated March 26, 1996, filed with the Commission on April 5, 1996. 34 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. B/E AEROSPACE, INC. By /s/ Robert J. Khoury ----------------------------------------- Robert J. Khoury Vice Chairman and Chief Executive Officer Dated: May 27, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on May 27, 1998 by the following persons on behalf of the registrant in the capacities indicated. Signature Title /s/ Amin J. Khoury Chairman ---------------------- Amin J. Khoury /s/ Robert J. Khoury Vice Chairman and Chief Executive Officer ---------------------- and Director Robert J. Khoury /s/ Paul E. Fulchino President and Chief Operating Officer ---------------------- and Director Paul E. Fulchino /s/ Thomas P. McCaffrey Corporate Senior Vice President of ---------------------- Administration, Chief Financial Officer and Thomas P. McCaffrey Assistant Secretary (principal financial and accounting officer) /s/ Jim C. Cowart Director ---------------------- Jim C. Cowart /s/ Richard G. Hamermesh Director ---------------------- Richard G. Hamermesh /s/ Brian H. Rowe Director ---------------------- Brian H. Rowe /s/ Hansjorg Wyss Director ---------------------- Hansjorg Wyss 35 36 EXHIBIT INDEX Exhibit No. Description Page 3.3 Amended and Restated By-Laws 10.6 Fourth Amended and Restated Chase Credit Agreement dated April 3, 1998 10.14 Chesham, England Lease dated October 1, 1973 between Drawheath Limited and The Peninsular and Oriental Steam Navigation Company (assigned in February 1985) 10.15 Utrecht, The Netherlands Lease dated December 15, 1988 between the Pension Fund Foundation for Food Supply Commodity Boards and Inventum 10.16 Utrecht, The Netherlands Lease dated January 31, 1992 between G.W. van de Grift Onroerend Goed B.V. and Inventum 10.33 Employment Agreement dated as of January 1, 1992 between the Registrant and Amin J. Khoury (the "A. Khoury Agreement") 10.35 Employment Agreement dated as of March 1, 1992 between the Registrant and Robert J. Khoury (the "R. Khoury Agreement") 10.37 Employment Agreement dated as of March 1, 1992 between the Registrant and Marco Lanza (the "Lanza Agreement") 10.39 Employment Agreement dated as of April 1, 1992 between the Registrant and G. Bernard Jewell 10.43 BE Aerospace, Inc. Savings and Profit Sharing Plan and Trust -- Financial Statements for the Ten Months Ended December 31, 1995 and the Year Ended February 28, 1995, Supplemental Schedules and Independent Auditors' Report 10.44 BE Aerospace, Inc. 1994 Employee Stock Purchase Plan -- Financial Statements as of February 29, 1996 and February 26, 1995; and for the Year Ended February 29, 1996 and the period from May 15, 1994 (inception) to February 28, 1995 and Independent Auditors' Report Exhibit 21 Subsidiaries of the Registrant Exhibit 23 Consent of Deloitte & Touche LLP Exhibit 27 Financial Data Schedule for the Fiscal Year Ended February 28, 1998 Exhibit 99.1 Risk Factors 37 ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE. Page Independent Auditors' Report F-2 Financial Statements: Consolidated Balance Sheets, February 28, 1998 and February 22, 1997. F-3 Consolidated Statements of Operations for the Years Ended February 28, 1998, February 22, 1997 and February 24, 1996. F-4 Consolidated Statements of Stockholders' Equity for the Years Ended February 28, 1998, February 22, 1997 and February 24, 1996. F-5 Consolidated Statements of Cash Flows for the Years Ended February 28, 1998, February 22, 1997 and February 24, 1996. F-6 Notes to Consolidated Financial Statements for the Years Ended February 28, 1998, February 22, 1997 and February 24, 1996. F-7 Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts for the Years Ended February 28, 1998, February 22, 1997 and February 24, 1996. F-20 [Remainder of page intentionally left blank] F-1 38 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders B/E Aerospace, Inc. Wellington, Florida We have audited the accompanying consolidated balance sheets of B/E Aerospace, Inc. and subsidiaries as of February 28, 1998 and February 22, 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended February 28, 1998. Our audits also included the financial statement schedule on page F-21. 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 B/E Aerospace, Inc. and subsidiaries as of February 28, 1998 and February 22, 1997 and the results of their operations and their cash flows for each of the three years in the period ended February 28, 1998, 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. DELOITTE & TOUCHE LLP Costa Mesa, California April 15, 1998 F-2 39 CONSOLIDATED BALANCE SHEETS, FEBRUARY 28, 1998 AND FEBRUARY 22, 1997 (Dollars in thousands, except share data)
ASSETS 1998 1997 - ------ ---- ---- CURRENT ASSETS: Cash and cash equivalents $ 164,685 $ 44,149 Accounts receivable - trade, less allowance for doubtful accounts of $2,190 (1998) and $4,864 (1997) 87,931 73,489 Inventories, net 121,728 92,900 Other current assets 7,869 2,781 --------- -------- Total current assets 382,213 213,319 --------- -------- PROPERTY AND EQUIPMENT, net 103,821 87,888 INTANGIBLES AND OTHER ASSETS, net 195,723 189,882 --------- --------- $ 681,757 $ 491,089 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 47,858 $ 42,889 Accrued liabilities 38,566 43,837 Current portion of long-term debt 33,285 4,419 ---------- --------- Total current liabilities 119,709 91,145 ---------- --------- LONG-TERM DEBT 349,557 225,402 DEFERRED INCOME TAXES 1,207 1,667 OTHER LIABILITIES 14,509 7,114 COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares outstanding - - Common stock, $.01 par value; 50,000,000 shares authorized; 22,891,918 (1998) and 21,893,392 (1997) shares issued and outstanding 229 219 Additional paid-in capital 240,289 228,710 Accumulated deficit (40,724) (62,286) Cumulative foreign exchange translation adjustment (3,019) (882) ----------- ------------ Total stockholders' equity 196,775 165,761 ---------- ----------- $ 681,757 $ 491,089 ========== ===========
See notes to consolidated financial statements. F-3 40 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED FEBRUARY 28, 1998, FEBRUARY 22, 1997 AND FEBRUARY 24, 1996 (Dollars in thousands, except per share data)
Year ended --------------------------------------------- February 28, February 22, February 24, 1998 1997 1996 ---- ---- ---- NET SALES $ 487,999 $ 412,379 $ 232,582 COST OF SALES 309,094 270,557 160,031 --------- --------- --------- GROSS PROFIT 178,905 141,822 72,551 OPERATING EXPENSES: Selling, general and administrative 58,622 51,734 42,000 Research, development and engineering 45,685 37,083 58,327 Amortization of intangible assets 11,265 10,607 9,499 Other expenses 4,664 -- 4,170 --------- --------- --------- Total operating expenses 120,236 99,424 113,996 --------- --------- --------- OPERATING EARNINGS (LOSS) 58,669 42,398 (41,445) INTEREST EXPENSE, net 22,765 27,167 18,636 --------- --------- --------- EARNINGS (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 35,904 15,231 (60,081) INCOME TAXES 5,386 1,522 -- --------- --------- --------- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 30,518 13,709 (60,081) EXTRAORDINARY ITEM 8,956 -- -- --------- --------- --------- EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 21,562 13,709 (60,081) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- (23,332) --------- --------- --------- NET EARNINGS (LOSS) $ 21,562 $ 13,709 $ (83,413) ========= ========= ========= BASIC EARNINGS (LOSS) PER SHARE: Earnings (loss) before extraordinary item and cumulative effect of change in accounting principle $ 1.36 $ .77 $ (3.71) Extraordinary item (.40) -- -- Cumulative effect of change in accounting principle -- -- (1.44) --------- --------- --------- Net earnings (loss) $ .96 $ .77 $ (5.15) ========= ========= ========= Weighted average common shares 22,442 17,692 16,185 ========= ========= ========= DILUTED EARNINGS (LOSS) PER SHARE: Earnings (loss) before extraordinary item and cumulative effect of change in accounting principle $ 1.30 $ .72 $ (3.71) Extraordinary item (.38) -- -- Cumulative effect of change in accounting principle -- -- (1.44) --------- --------- --------- Net earnings (loss) $ .92 $ .72 $ 5.15) ========= ========= ========= Weighted average common shares 23,430 19,097 16,185 ========= ========= =========
See notes to consolidated financial statements. F-4 41 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED FEBRUARY 28, 1998, FEBRUARY 22, 1997 AND FEBRUARY 24, 1996 (in thousands)
Common Stock Additional Retained Currency Total ------------ Paid-in Earnings Translation Stockholders' Shares Amount Capital (Deficit) Adjustment Equity ------ ------ ---------- --------- ----------- ------------- 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 Sale of stock under employee stock purchase plan 58 -- 482 -- -- 482 Exercise of stock options 1,362 14 11,650 -- -- 11,664 Employee benefit plan matching contribution 75 1 1,316 -- -- 1,317 Sale of common stock under public offering 4,005 40 93,896 -- -- 93,936 Net earnings -- -- -- 13,709 -- 13,709 Foreign currency translation adjustment -- -- -- -- 496 496 --------- --------- --------- --------- --------- --------- Balance, February 22, 1997 21,893 219 228,710 (62,286) (882) 165,761 Sale of stock under employee stock purchase plan 88 1 1,796 -- -- 1,797 Exercise of stock options 852 9 8,106 -- -- 8,115 Employee benefit plan matching contribution 59 -- 1,677 -- -- 1,677 Net earnings -- -- -- 21,562 -- 21,562 Foreign currency translation adjustment -- -- -- -- (2,137) (2,137) --------- --------- --------- --------- --------- --------- Balance, February 28, 1998 22,892 $ 229 $ 240,289 $ (40,724) $ (3,019) $ 196,775 ========= ========= ========= ========= ========= ========= See notes to consolidated financial statements.
F-5 42 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED FEBRUARY 28, 1998, FEBRUARY 22, 1997 AND FEBRUARY 24, 1996 (Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997 1996 ---- ---- ---- Net earnings (loss) $ 21,562 $ 13,709 $ (83,413) Adjustments to reconcile net earnings (loss) to net cash flows provided by (used in) operating activities: Extraordinary item 8,956 -- -- Cumulative effect of accounting change -- -- 23,332 Depreciation and amortization 24,160 24,147 18,435 Deferred income taxes (460) 410 (3,453) Non cash employee benefit plan contributions 1,677 1,317 859 Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable (14,665) (19,366) 6,068 Inventories (28,597) (19,536) (11,929) Other current assets (5,141) 5,059 (638) Accounts payable 3,972 (4,767) 3,008 Accrued and other liabilities (1,866) (11,564) 13,169 --------- --------- --------- Net cash flows provided by (used in) operating activities 9,598 (10,591) (34,562) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for purchase of property and equipment (28,923) (14,471) (13,656) Change in intangible and other assets (15,686) (1,331) (5,914) Acquisitions -- -- (42,500) --------- --------- --------- Net cash flows used in investing activities (44,609) (15,802) (62,070) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under revolving lines of credit 5,450 (38,882) 2,000 Proceeds from issuance of stock, net of expenses 11,611 106,082 1,302 Principal payments on long-term debt (101,808) (11,968) (942) Proceeds from long-term debt 240,419 -- 101,252 --------- --------- --------- Net cash flows provided by financing activities 155,672 55,232 103,612 --------- --------- --------- Effect of exchange rate changes on cash flows (125) (66) 77 --------- --------- --------- Net increase in cash and cash equivalents 120,536 28,773 7,057 Cash and cash equivalents, beginning of year 44,149 15,376 8,319 --------- --------- --------- Cash and cash equivalents, end of year $ 164,685 $ 44,149 $ 15,376 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid (received) during year for: Interest, net $ 25,065 $ 26,097 $ 16,967 Income taxes 5,012 1,209 (3,292) SCHEDULE OF NON-CASH TRANSACTIONS: Liabilities assumed and accrued acquisition costs incurred in connection with the acquisitions -- -- 27,532
See notes to consolidated financial statements. F-6 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 28, 1998, FEBRUARY 22, 1997 AND FEBRUARY 24, 1996 (Dollars in thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation -- B/E Aerospace, Inc. ("B/E" or 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 interior systems 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. Consolidation -- The accompany consolidated financial statements include the accounts of B/E Aerospace, Inc., its wholly owned and majority 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. Revenues and costs under certain long-term contracts are recognized using contract accounting. The Company sells its products primarily to airlines worldwide, including occasional sales collateralized by letters of credit. 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 accounts for the impairment and disposition of long-lived assets in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". In accordance with SFAS No. 121, long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable. The Company periodically evaluates the carrying value of the intangible assets versus the cash benefit expected to be realized and adjusts for any impairment of value. Research and Development -- Research and development expenditures are expensed as incurred. Stock-Based Compensation -- In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation", which became effective for the Company beginning during fiscal 1997. SFAS No. 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 Principles Board ("APB") Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company continues to apply APB Opinion No. 25 to its stock-based compensation awards to employees and discloses the required pro forma effect on net income and earnings per share. See Note 12. F-7 44 Earnings (Loss) Per Share -- In fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share". Basic earnings per common share calculations are determined by dividing earnings available to common shareholders by the weighted average number of shares of common stock. Diluted earnings per share are determined by dividing earnings available to common shareholders by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding (all related to outstanding stock options discussed in Note 12). The Company's reported primary earnings per share for fiscal 1997 have been restated to comply with the requirements of SFAS No. 128. The effect on previously reported earnings per share for fiscal 1997 was as follows: Primary earnings per share as reported $ .72 Effect of SFAS No. 128 .05 ------- Basic EPS as restated $ .77 ====== SFAS No. 128 had no impact on the Company's reported loss per share for fiscal 1996. Comprehensive Income - During 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which established standards for the reporting and displaying of comprehensive income. Comprehensive income is defined as all changes in a Company's net assets except changes resulting from transactions with shareholders. It differs from net income in that certain items currently recorded to equity would be a part of comprehensive income. Comprehensive income must be reported in a financial statement with the cumulative total presented as a component of equity. This statement will be adopted by the Company in its fiscal 1999 quarterly financial statements. Segment Information - In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which will be effective for the Company beginning March 1, 1998. SFAS No. 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. The Company believes the segment information required to be disclosed under SFAS No. 131 will be more comprehensive than previously provided, including expanded disclosure of income statement and balance sheet items. The Company has not yet completed its analysis of which operating segments it will report on. Pensions and Other Postretirement Benefits -- In February 1998, FASB issued SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits", which is effective for annual and interim periods beginning after December 15, 1997. This statement standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis and eliminates certain disclosures that are no longer as useful as they were under previous statements. 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. 2. ACCOUNTING CHANGE In fiscal 1996, 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 precontract 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 precontract engineering expenditures previously followed by the Company was in accordance with generally accepted accounting principles, the changed policy is preferable. F-8 45 3. ACQUISITIONS 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 and the assumption of approximately $27,532 of liabilities, including related acquisition costs and certain liabilities arising from the acquisition. Funds for the acquisition were obtained from proceeds of the long-term debt issuance described in Note 8. 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 ========= 4. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the weighted average cost method. Finished goods and work in process inventories include material, labor and manufacturing overhead costs. Inventories consist of the following: 1998 1997 ---- ---- Raw materials $ 56,100 $ 45,947 Work-in-process 59,036 39,024 Finished goods 6,592 7,929 --------- ------- $ 121,728 $ 92,900 ========= ======== [Remainder of page intentionally left blank] F-9 46 5. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated and amortized generally on the straight-line method over their estimated useful lives of two to thirty years (term of lease as to leasehold improvements). Property and equipment consist of the following:
Years 1998 1997 ----- ---- ---- Land, buildings and improvements 10-30 $ 45,951 $ 42,966 Machinery 3-13 54,178 45,444 Tooling 3-10 24,771 17,179 Furniture and equipment 2-10 26,815 18,327 ---------- --------- 151,715 123,916 Less accumulated depreciation and amortization (47,894) (36,028) ---------- --------- $ 103,821 $ 87,888 ========= =========
6. INTANGIBLES AND OTHER ASSETS Intangibles and other assets consist of the following:
Straight-line Amortization Period (Years) 1998 1997 -------------- ---- ---- Covenants not-to-compete 14 $ 10,195 $ 10,198 Product technology, production plans and drawings 7-20 60,577 59,484 Replacement parts annuity 20 29,652 29,778 Product approvals and technical manuals 20 22,942 18,331 Goodwill 30 77,452 78,913 Debt issue costs 10 16,789 13,431 Trademarks and patents 20 10,491 10,820 Other intangible assets 5-20 16,540 7,527 Other assets 4,277 6,744 ------- --------- 248,915 235,226 Less accumulated amortization (53,192) (45,344) ---------- ---------- $ 195,723 $ 189,882 ========= =========
7. ACCRUED LIABILITIES Accrued liabilities consist of the following:
1998 1997 ---- ---- Accrued product warranties $ 4,353 $ 5,231 Accrued salaries, vacation and related benefits 17,022 12,868 Accrued acquisition expenses 1,190 5,488 Accrued interest 2,995 6,585 Accrued income taxes 5,373 6,563 Other accrued liabilities 7,633 7,102 ----------- ---------- $ 38,566 $ 43,837 ========== =========
F-10 47 8. LONG-TERM DEBT Long-term debt consists of the following:
1998 1997 ---- ---- 8% Senior Subordinated Notes $ 249,375 $ -- 9 7/8% Senior Subordinated Notes 100,000 100,000 9 3/4% Senior Notes 23,192 124,411 Revolving lines of credit 10,093 4,419 Other long-term debt 182 991 --------- 382,842 229,821 Less current portion of long-term debt (33,285) (4,419) --------- --------- $ 349,557 $ 225,402 ========= =========
8% SENIOR SUBORDINATED NOTES In February 1998, the Company sold $250,000 of 8% Senior Subordinated Notes, priced to yield 8.02% (the "8% Notes"). In conjunction with the sale of the 8% Notes, the Company initiated a tender offer for its 9 3/4% Notes. The net proceeds from the offering of approximately $240,419 were used for the tender offer (which expired on February 25, 1998) in which approximately $101,808 of the 9 3/4% Notes were retired; the remaining $23,192 of the 9 3/4% Notes were called on March 16, 1998. The Company incurred an extraordinary charge of $8,956 for unamortized debt issue costs, tender and redemption premiums and fees and expenses related to the repurchase of the 9 3/4% Notes. The 8% Senior Notes are unsecured senior subordinated obligations of the Company, are subordinated to all senior indebtedness of the Company and mature on March 1, 2008. Interest on the 8% Notes is payable semi-annually in arrears on March 1 and September 1 of each year. The 8% Notes are redeemable at the option of the Company, in whole or in part, on or after March 1, 2003 at predetermined redemption prices together with accrued and unpaid interest through the date of redemption. In addition, at any time prior to March 1, 2001, the Company may, at predetermined prices together with accrued and unpaid interest through the date of redemption, redeem up to 35% of the aggregate principal amount of the Notes originally issued with the net proceeds of one or more equity offerings, provided that at least 65% of the aggregate principal amount of the 8% Notes originally issued remains outstanding after the redemption. Upon a change of control (as defined), each holder of the 8% Notes may require the Company to repurchase such holder's 8% Notes at 101% of the principal amount thereof, plus accrued interest to the date of such purchase. The 8% Notes contain certain covenants, all of which were met by the Company as of February 28, 1998, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers and transfers of assets. 9 7/8% SENIOR SUBORDINATED NOTES The 9 7/8% Senior Subordinated Notes (the "9 7/8% 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 9 7/8% Notes is payable semi-annually in arrears on February 1 and August 1 of each year. The 9 7/8% 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 9 7/8% Notes may require the Company to repurchase such holder's 9 7/8% Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of such purchase. The 9 7/8% Notes contain certain restrictive covenants, all of which were met by the Company as of February 28, 1998, including limitations on future indebtedness, restricted payments, transactions with affiliates, liens, dividends, mergers and transfers of assets. 9 3/4% SENIOR NOTES The 9 3/4% Senior Notes (the "9 3/4% Notes") are senior unsecured obligations of the Company, ranking equally with any future senior obligations of the Company. As described above, at February 28, 1998, $101,808 of the 9 3/4% Notes had been repurchased; the balance of the 9 3/4% Notes were redeemed in March 1998. F-11 48 CREDIT FACILITIES In April 1998, the Company amended its credit facilities with the Chase Manhattan Bank by increasing the aggregate principal amount that may be borrowed thereunder to $200,000 (the "Bank Credit Facility"). The Bank Credit Facility consists of a $100,000 revolving credit facility and an acquisition facility of up to $100,000. The acquisition facility is amortizable over five years beginning April 1999; the revolving facility expires in April 2004. The Bank Credit Facility is collateralized by the Company's accounts receivable and inventories and by substantially all of its other personal property. 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 28, 1998. At February 28, 1998, indebtedness under the then-existing Bank Credit Facility consisted of letters of credit amounting to approximately $4,500. Borrowings under the Bank Credit Facility currently bear interest at LIBOR plus 1.25% or prime (as defined). 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. FEEL, a subsidiary of the Company, has a short-term revolving line of credit agreement (the "FEEL Credit Agreement") which is collateralized by substantially all of the assets of FEEL. Aggregate borrowings outstanding under the FEEL Credit Agreement were approximately $10,093 as of February 28, 1998. The Company has guaranteed a portion of the indebtedness outstanding under the FEEL Credit Agreement. Inventum, another subsidiary of the Company, has a revolving line of credit agreement for approximately $1 million (the "Inventum credit agreement"). The Inventum Credit Agreement is collateralized by substantially all of the assets of Inventum. There were no borrowings outstanding under the Inventum Credit Agreement as of February 28, 1998. Maturities of long-term debt are as follows:
Fiscal year ending February: 1999 $ 33,285 2000 182 2001 - 2002 - 2003 - Thereafter 349,375 --------- $ 382,842 =========
Interest expense amounted to $25,834, $28,369 and $18,788 for the years ended February 28, 1998, February 22, 1997 and February 24, 1996, respectively. 9. INCOME TAXES Income tax expense (benefit) consists of the following:
1998 1997 1996 ------- ------- ------- Current: Federal $ (920) $ -- $ 1,972 State -- -- 818 Foreign 6,766 1,112 663 ------- ------- ------- 5,846 1,112 3,453 Deferred: Federal (3,666) 2,703 (2,635) State (716) 1,550 (818) Foreign (460) 410 -- ------- ------- ------- (4,842) 4,663 (3,453) Change in Valuation Allowance 4,382 (4,253) -- ------- ------- ------- $ 5,386 $ 1,522 $ -- ======= ======= =======
F-12 49 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:
1998 1997 1996 -------- -------- -------- Statutory U.S. federal income tax expense (benefit) $ 9,432 $ 5,331 $(21,028) Operating loss (with)/without tax benefit (6,114) (6,164) 14,569 Foreign tax rate differential 1,309 1,267 3,324 Goodwill amortization 537 566 558 Penalties 1,050 -- -- Other, net (828) 522 2,577 -------- -------- -------- $ 5,386 $ 1,522 $ -- ======== ======== ========
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:
1998 1997 -------- -------- Accrued vacation $ 1,172 $ 1,117 Inventory reserves 3,987 3,145 Acquisition reserves (1,220) (1,740) Inventory costs capitalized for tax purposes 1,327 1,236 Bad debt reserves 579 948 Warranty reserve 2,440 1,452 Other 1,731 1,723 -------- -------- Net current deferred income tax asset 10,016 7,881 -------- -------- Intangible assets (12,576) (13,565) Depreciation (1,853) (2,074) Net operating loss carryforward 27,462 26,309 Research credit carryforward 3,285 2,941 -------- -------- Net noncurrent deferred income tax asset 16,318 13,611 -------- -------- Valuation allowance (27,541) (23,159) -------- -------- Net deferred tax liabilities $ (1,207) $ (1,667) ======== ========
Due to uncertainty surrounding the realization of the benefits of its net deferred tax asset, the Company has established a valuation allowance of $27,541 against its otherwise recognizable net deferred tax asset. As of February 28, 1998, the Company had approximately $66,104 of federal operating loss carryforwards, which expire at various dates through 2011, federal research credit carryforwards of $3,285, which expire at various dates through 2011, and alternative minimum tax credit carryforwards of $410, which have no expiration date. Approximately $15,000 of the Company's net operating loss carryforward related to non-qualified stock options will be credited to additional paid-in-capital rather than income tax expense when utilized. The Company has not provided for any residual U.S. income taxes on the approximately $6,005 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 24, 1996 and February 25, 1995 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-13 50 10. COMMITMENTS AND CONTINGENCIES Leases -- The Company leases certain of its office, manufacturing and service facilities and equipment under operating leases, which expire at various times through February 2007. Rent expense for fiscal 1998, 1997 and 1996 was approximately $8,848, $7,021 and $2,943, respectively. Future payments under operating leases with terms currently greater than one year are as follows:
Year ending February: 1999 $ 7,658 2000 6,398 2001 5,079 2002 2,495 2003 2,041 Thereafter 796 -------- $ 24,467 ========
Litigation -- The Company is a defendant in various 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 $550 adjusted annually for changes in the consumer price index (as defined) per year through 2002, 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 $550, and an incentive bonus not to exceed 100% of the officer's then-current salary through 2001. In addition, when the officer terminates his employment, 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 28, 1998. The Company has other employment agreements with certain key members of management that provide for aggregate minimum annual base compensation of $1,825 expiring on various dates through 1999. Supply Agreement -- The Company had a supply agreement with Applied Extrusion Technologies, Inc. ("AET"), a related party by way of common management. Under this agreement, which was terminated in September 1997, the Company agreed to purchase its requirements for certain component parts through March 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 28, 1998, February 22, 1997 and February 24, 1996, were $1,743, $1,642 and $1,301, respectively. F-14 51 11. EMPLOYEE RETIREMENT PLAN In August 1988, the Company established a non-qualified contributory profit-sharing plan. This plan was amended to incorporate a 401(k) Plan which permits the Company to match a portion of employee contributions. 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 $1,677, $1,317 and $859 related to this plan for the years ended February 28, 1998, February 22, 1997 and February 24, 1996, respectively. 12. STOCKHOLDERS' EQUITY Earnings (Loss) Per Share. The Company adopted No. SFAS No. 128 Earnings Per Share during fiscal year 1998. SFAS No. 128 establishes standards for computing and presenting basic and diluted earnings (loss) per share. All prior period earnings (loss) per share data have been restated to conform with SFAS No. 128. The following table sets forth the computation of basic and diluted earnings (loss) per share for the years ended February 28, 1998, February 22, 1997 and February 26, 996:
1998 1997 1996 ======== ======== ======== Numerator - Net earnings (loss) $ 21,562 $ 13,709 $(83,413) ======== ======== ======== Denominator: Denominator for basic earnings (loss) per share - Weighted average shares 22,442 17,692 16,185 Effect of dilutive securities - Employee stock options 988 1,405 - -------- -------- -------- Denominator for diluted earnings (loss) per share - Adjusted weighted average shares 23,430 19,097 16,185 ======== ======== ======== Basic earnings (loss) per share $ .96 $ .77 $ (5.15) ======== ======== ======== Diluted earnings (loss) per share $ .92 $ .72 $ (5.15) ======== ======== ========
Stock Option Plans. The Company has various stock option plans, including the 1989 Stock Option Plan, the 1991 Directors Stock Option Plan, the 1992 Share Option Scheme and the 1996 Stock Option Plan (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. Options granted generally vest at the rate of 25% per year from the date of grant and are exercisable to the extent vested and the option term cannot exceed ten years. The following table sets forth options granted, canceled, forfeited and outstanding:
February 28, 1998 February 22, 1997 February 26, 1996 ---------------------------- ----------------------------- ------------------------------ Option Price Option Price Option Price Per Share Per Share Per Share Options (in dollars) Options (in dollars) Options (in dollars) --------- ------------ ---------- ------------ ---------- ------------ Outstanding, beginning of 2,447,425 .081-24.93 2,720,350 0.81-13.00 2,871,287 0.81-13.00 period Options granted 1,394,250 21.50-31.50 1,313,500 10.25-24.94 731,925 7.37-10.37 Options exercised (852,174) 0.81-29.875 (1,361,925) 0.81-16.125 (139,750) 0.81-8.75 Options forfeited (58,000) 7.63-29.875 (224,500) 7.38-16.13 (743,112) 7.00-13.00 --------- ---------- -------- Outstanding, end of period 2,931,501 7.00-31.50 2,447,425 0.81-24.9 2,720,350 0.81-13.00 ========= ========== ========= =========== ========= ========== Exercisable at end of year 1,317,503 7.00-31.50 1,374,927 0.81-4.9 2,223,225 0.81-13.00 ========= ========== ========= =========== ========= ==========
F-15 52 At February 28, 1998, options were available for grant under each of the Company's option plans.
Options Outstanding at February 28, 1998 -------------------------------------------------------------------------------------------------------- Weighted Weighted Average Options Range of Options Average Remaining Exercisable Weighted Average Exercise Price Outstanding Exercise Price Contractual Life at February 28, 1998 Exercise Price -------------- ----------- -------------- ---------------- -------------------- -------------- (years) $ 7.00-$ 8.875 $691,800 $ 8.36 5.82 623,675 $ 8.35 $ 10.00-$19.00 $798,826 $ 17.27 8.45 313,328 $ 18.14 $ 21.50-$25.8125 $511,625 $ 23.02 9.41 149,125 $ 23.38 $ 29.875-$31.50 $929,250 $ 29.89 9.46 231,375 $ 29.89
The estimated fair value of options granted during fiscal 1998 was $13.56 per share. The estimated fair value of options granted during fiscal 1997 was $16.60 per share. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its stock option and purchase plans. Accordingly, no compensation cost has been recognized for its stock option plans and its stock purchase plan other than that described above. Had compensation cost for the Company's stock option plans and its stock purchase plans been determined consistent with SFAS No. 123, the Company's net earnings and net earnings per share for the year ended February 28, 1998 and February 22, 1997 would have been reduced to the pro forma amounts indicated in the following table:
1998 1997 ---- ---- Net earnings - as reported $21,562 $ 13,709 Net earnings - pro forma $13,232 $ 10,709 Net earnings per share - as reported $ .92 $ .72 Net earnings per share - pro forma $ .56 $ .56 Weighted average and pro forma weighted average common shares 23,430 19,097
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for options granted in 1998 and 1997: risk-free interest rates of 7.0% and 6.4%; expected dividend yields of 0.0%; expected lives of 3 years and 4 years; and expected volatility of 40% and 43%, respectively. The impact of outstanding non-vested stock options granted prior to fiscal 1997 has been excluded from the pro forma calculation; accordingly, the 1998 and 1997 pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all applicable stock options. 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 87,561 and 58,490 shares of common stock during fiscal 1998 and 1997 pursuant to this plan at an average price per share of $20.52 and $9.70, respectively. F-16 53 14. EXPORT SALES AND MAJOR CUSTOMERS Export sales from the United States to customers in foreign countries amounted to approximately $132,831, $153,423 and $61,717 in fiscal 1998, 1997 and 1996, respectively. Total sales to all customers in foreign countries amounted to approximately $232,691, $203,388 and $124,469 in fiscal 1998, 1997 and 1996, respectively. Total sales to Europe amounted to 23%, 29% and 18% in fiscal 1998, 1997 and 1996, respectively. Total sales to Asia amounted to 18%, 16% and 20% in fiscal 1998, 1997 and 1996, 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. During the fiscal year ended February 28, 1998, one customer accounted for approximately 18% of the Company's sales. There were no major customers in fiscal 1997 or 1996. 15. OTHER EXPENSES In January 1998, the Company resolved a long-running dispute with the U.S. Government over export sales between 1992 and 1995 to Iran Air. The dispute centered on shipments of aircraft seats and related spare parts for five civilian aircraft operated by Iran. Iran Air purchased the seats in 1992 and arranged for them to be installed by a contractor in France. At the time, Iran was not the subject of a U.S. trade embargo. In connection with its sale of seats to Iran Air, B/E applied for and was granted a validated export license by the U.S. Department of Commerce. Other expenses for the year ended February 28, 1998 relate to fines, civil penalties and associated legal fees arising from the settlement. 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. 16. FOREIGN OPERATIONS Geographic Area -- The Company operated principally in two geographic areas, the United States and Europe during the years ended February 28, 1998, February 22, 1997 and February 24, 1996. 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. The following table presents net sales and operating income for the years ended February 28, 1998, February 22, 1997 and February 24, 1996, and identifiable assets as of February 28, 1998, February 22, 1997 and February 24, 1996 by geographic area.
1998 1997 1996 ---- ---- ---- Net Sales: United States $ 365,957 $ 312,497 $ 169,830 Europe 122,042 99,882 62,752 --------- --------- --------- Total: $ 487,999 $ 412,379 $ 232,582 ========= ========= ========= OPERATING EARNINGS (LOSS): United States $ 38,928 $ 33,834 $ (35,822) Europe 19,741 8,564 (5,623) --------- --------- --------- Total: $ 58,669 $42,398 $ (41,445) ========= ========= ========= IDENTIFIABLE ASSETS: United States $ 541,675 $ 380,273 $ 332,832 Europe 140,082 110,816 100,754 --------- --------- --------- Total: $ 681,757 $ 491,089 $ 433,586 ========= ========= =========
F-17 54 17. FAIR VALUE INFORMATION The following disclosure of the estimated fair value of financial instruments at February 28, 1998 and February 22, 1997 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. At February 28, 1998, the Company's 8% Notes have a carrying value of $249,375 and fair value of $248,750, while the Company's 9 7/8% Notes have a carrying value of $100,000 and fair value of $107,500. Additionally, at February 28, 1998, the Company's 9 3/4% Notes have a carrying value of $23,192 and fair value of $24,410. The carrying amounts of other long-term debts approximate 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 28, 1998. 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. 18. SELECTED QUARTERLY DATA (Unaudited) Summarized quarterly financial data for fiscal 1998 is as follows:
Year Ended February 28, 1998 --------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- Sales $ 113,846 $ 119,843 $ 128,998 $ 125,312 Gross profit 41,063 44,149 46,650 47,043 Earnings before extraordinary item 6,943 8,077 9,432 6,066 Extraordinary item -- -- -- (8,956) ----------- --------- --------- ------------ Net earnings (loss) $ 6,943 $ 8,077 $ 9,432 $ (2,890) =========== ========= ========= ============ Basic net earnings (loss) per share: Before extraordinary item $ .32 $ .36 $ .41 $ 27 Extraordinary item -- -- (.40) ----------- --------- --------- ------------ Net earnings (loss) per share $ .32 $ .36 $ .41 $ (.13) =========== ========= ========= ============ Diluted net earnings (loss) per share: Before extraordinary item $ .30 $ .34 .40 $ .26 Extraordinary item -- -- -- (.38) ----------- --------- --------- ------------ Net earnings (loss) per share $ .30 $ .34 .40 (.12) =========== ========= ========= ============
Summarized quarterly financial data for fiscal 1997 is as follows:
Year Ended February 22, 1997 ---------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- --------- Sales $ 97,302 $ 103,026 $ 107,823 $ 104,228 Gross profit 32,547 34,439 36,510 38,326 Net earnings 1,433 1,863 4,131 6,282 Net earnings per share - Basic .09 .11 .24 .30 Net earnings per share - Diluted .08 .10 .22 .29
F-18 55 SUBSEQUENT EVENTS (UNAUDITED) On April 13, 1998, the Company completed its acquisition of Puritan Bennett Aero Systems Co. ("PBASCO") for approximately $69,700 in cash and the assumption of liabilities aggregating approximately $2,810. PBASCO is the leading manufacturer of commercial aircraft oxygen delivery systems and passenger service unit components and systems, and is a major supplier of air valves, overhead lights and switches, crew masks and protective breathing devices for both commercial and general aviation aircraft. Based upon management's assumptions, a portion of the purchase price was allocated to purchased research and development that had not reached technological feasibility and had no future alternative use. During the first quarter of fiscal 1999, the Company will record a charge of approximately $37,000 for the acquisition of in-process research and development and acquisition related expenses. On April 21, 1998, the Company acquired substantially all of the Aircraft Modular Products (AMP) assets for approximately $118,000 in cash and assumed certain liabilities aggregating approximately $2,840. AMP is the leading manufacturer of cabin interior products for general aviation (business jet) and commercial - type VIP aircraft, providing a broad line of products including seating, sidewalls, bulkheads, credenzas, closets, galley structures, lavatories, tables and sofas; along with related spare parts. Based on management's assumptions, a portion of the purchase price was allocated to purchased research and development that had not reached technological feasibility and had no future alternative use. During the first quarter of fiscal 1999, the Company will record a charge of approximately $61,000 for the acquisition of in-process research and development and acquisition related expenses. F-19 56 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED FEBRUARY 28, 1998, FEBRUARY 22, 1997 AND FEBRUARY 24, 1996 (Dollars in thousands)
BALANCE BALANCE AT BEGINNING AT END OF YEAR EXPENSES OTHER DEDUCTIONS OF YEAR DEDUCTED FROM ASSETS: Allowance for doubtful accounts: 1998 $ 4,864 $ 481 $ -- $ 3,155 $ 2,190 1997 4,973 2,144 (69) 2,184 4,864 1996 4,034 162 1,449 (1) 672 4,973 Reserve for obsolete inventories: 1998 $ 8,282 $ 9,973 $ -- $ 7,766 $10,489 1997 19,785 4,583 1,758 17,844(2) 8,282 1996 10,664 6,022 5,840(1) 2,741 19,785 INCLUDED IN LIABILITIES: Accrued product warranties: 1998 $ 5,231 $ 3,085 $ -- $ 3,963 $ 4,353 1997 3,455 6,325 (156) 4,393 5,231 1996 2,969 2,758 936 (1) 3,208 3,455
(1) Balances associated with the Burns acquisition. (2) During fiscal 1997, the Company disposed of substantially all of the inventories which were fully reserved in fiscal years 1995 and 1996. F-20 EX-3.3 2 AMENDED AND RESTATED BY-LAWS 1 BY-LAWS OF BE AEROSPACE, INC. (amended as of 5/27/92) Section 1. LAW, CERTIFICATE OF INCORPORATION AND BY-LAWS 1.1. These by-laws are subject to the certificate of incorporation of the corporation. In these by-laws, references to law, the certificate of incorporation and by-laws mean the law, the provisions of the certificate of incorporation and the by-laws as from time to time in effect. Section 2. STOCKHOLDERS 2.1. ANNUAL MEETING. The annual meeting of stockholders shall be held at 10:30 a.m. on the third Wednesday in July in each year, unless that day be a legal holiday at the place where the meeting is to be held, in which case the meeting shall be held at the same hour on the next succeeding day not a legal holiday, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect a board of directors and transact such other business as may be required by law or these bylaws or as may property come before the meeting. 2.2. SPECIAL MEETINGS. A special meeting of the stockholders may be called at any time by the chairman of the board, if any, the president or the board of directors. A special meeting of the stockholders shall be called by the secretary, or in the case of the death, absence, incapacity or refusal of the secretary, by an assistant secretary or some other officer, upon application of a majority of the directors. Any such application shall state the purpose or purposes of the proposed meeting. Any such call shall state the place, date, hour, and purposes of the meeting. 2.3. PLACE OF MEETING. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such place within or without the State of Delaware as may be determined from time to time by the chairman of the board, if any, the president or the board of directors. Any adjourned session of any meeting of the stockholders shall be held at the place designated in the vote of adjournment. 2 2.4. NOTICE OF MEETINGS. Except as otherwise provided by law, a written notice of each meeting of stockholders stating the place, day and hour thereof and, in the case of a special meeting, the purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the meeting, to each stockholder entitled to vote thereat, and to each stockholder who, by law, by the certificate of incorporation or by these by-laws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by depositing it in the United States mail, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the corporation. Such notice shall be given by the secretary, or by an officer or person designated by the board of directors, or in the case of a special meeting by the officer calling the meeting. As to any adjourned session of any meeting of stockholders, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment was taken except that if the adjournment is for more than thirty days or if after the adjournment a new record date is set for the adjourned session, notice of any such adjourned session of the meeting shall be given in the manner heretofore described. No notice of any meeting of stockholders or any adjourned session thereof need be given to a stockholder if a written waiver of notice, executed before or after the meeting or such adjourned session by such stockholder, is filed with the records of the meeting or if the stockholder attends such meeting without objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders or any adjourned session thereof need be specified in any written waiver of notice. 2.5. QUORUM OF STOCKHOLDERS. At any meeting of the stockholders a quorum as to any matter shall consist of a majority of the votes entitled to be cast on the matter, except where a larger quorum is required by law, by the certificate of incorporation or by these by-laws. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. If a quorum is present at an original meeting, a quorum need not be present at an adjourned session of that meeting. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of any corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 2.6. ACTION BY VOTE. When a quorum is present at any meeting, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. -2- 3 2.7. ACTION WITHOUT MEETINGS. Unless otherwise provided in the certificate of incorporation, any action required or permitted to be taken by stockholders for or in connection with any corporate action may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. If action is taken by unanimous consent of stockholders, the writing or writings comprising such unanimous consent shall be filed with the records of the meetings of stockholders. If action is taken by less than unanimous consent of stockholders and in accordance with the foregoing, there shall be filed with the records of the meetings of stockholders the writing or writings comprising such less than unanimous consent. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those who have not consented in writing and a certificate signed and attested to by the secretary that such notice was given shall be filed with the records of the meetings of stockholders. In the event that the action which is consented to is such as would have required the filing of a certificate under any of the provisions of the General Corporation Law of Delaware, if such action had been voted upon by the stockholders at a meeting thereof, the certificate filed under such provision shall state that written consent has been given under Section 228 of said General Corporation Law, in lieu of stating that the stockholders have voted upon the corporate action in question, if such last mentioned statement is required thereby. 2.8. PROXY REPRESENTATION. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may but need not be limited to specified action, provided, however, that if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjournment thereof. -3- 4 2.9. INSPECTORS. The directors or the person presiding at the meeting may, but need not, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. 2.10. LIST OF STOCKHOLDERS. The secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his name. The stock ledger shall be the only evidence as to who are stockholders entitled to examine such list or to vote in person or by proxy at such meeting. Section 3. BOARD OF DIRECTORS 3.1. NUMBER. The number of directors which shall constitute the whole board shall not be less than one in number. Thereafter, within the foregoing limits, the stockholders at the annual meeting shall determine the number of directors and shall elect the number of directors as determined. Within the foregoing limits, the number of directors may be increased at any time or from time to time by the stockholders or by the directors by vote of a majority of the directors then in office. The number of directors may be decreased to any number permitted by the foregoing at any time either by the stockholders or by the directors by vote of a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation or removal of one or more directors. Directors need not be stockholders. 3.2. CLASSIFICATION, ELECTION AND TENURE. The directors, other than those who may be elected by the holders of any class or series of preference stock voting separately by class or series, shall be classified, with respect to the duration of the term for which they severally hold office, into three classes, designated Class I, Class II, and Class III, which shall be as nearly equal in number as possible and as provided by resolution of the board of directors in connection with such election. Each initial director in Class I shall hold office for a term expiring at the 1992 annual meeting of stockholders; each initial director of Class II shall hold office for a term expiring at the 1993 annual meeting of stockholders; and each initial director of Class III shall hold office -4- 5 for a term expiring at the 1994 annual meeting of stockholders. Each director shall serve until his successor is duly elected and qualified or until his earlier death, resignation, removal or disqualification. At each annual meeting of stockholders following the 1991 annual meeting, the stockholders shall elect the successors to the class of directors whose term expires at that meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and until their successors have been duly elected and qualified or until their earlier death, resignation, removal or disqualification. The board of directors shall increase or decrease the number of directors in one or more classes as may be appropriate whenever it increases or decreases the number of directors pursuant to Section 3.1, in order to ensure that the three classes shall be as nearly equal in number as possible. 3.3. POWERS. The business and affairs of the corporation shall be managed by or under the direction of the board of directors who shall have and may exercise all the powers of the corporation and do all such lawful acts and things as are not by law, the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. 3.4. VACANCIES. Vacancies and any newly created directorships resulting from any increase in the number of directors may be filled by vote of the stockholders at a meeting called for the purpose, or by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have resigned, shall have power to fill such vacancy or vacancies, the vote or action by writing thereon to take effect when such resignation or resignations shall become effective. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these by-laws as to the number of directors required for a quorum or for any vote or other actions. 3.5. COMMITTEES. The board of directors may, by vote of a majority of the whole board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors; (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of the committee; and (c) determine the extent to which each such committee shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which require it and the power and authority to declare dividends or to authorize the issuance of stock; excepting, however, such powers which by law, by the certificate of incorporation or by these by-laws they are prohibited from so delegating. In the absence or disqualification of any member of such committee and his alternate, if any, the member or members thereof present at any meeting and not disqualified -5- 6 from voting, whether or not constituting a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Except as the board of directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the board or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these by-laws for the conduct of business by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors upon request. 3.6. REGULAR MEETINGS. Regular meetings of the board of directors may be held without call or notice at such places within or without the State of Delaware and at such times as the board may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of stockholders. 3.7. SPECIAL MEETINGS. Special meetings of the board of directors may be held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the chairman of the board, if any, the president, or by one-third or more in number of the directors, reasonable notice thereof being given to each director by the secretary or by the chairman of the board, if any, the president or any one of the directors calling the meeting. 3.8. NOTICE. It shall be reasonable and sufficient notice to a director to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 3.9. QUORUM. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, at any meeting of the directors a majority of the directors then in office shall constitute a quorum; a quorum shall not in any case be less than one-third of the total number of directors constituting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 3.10. ACTION BY VOTE. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors. -6- 7 3.11. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the board of directors or a committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meetings of the board or of such committee. Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be. 3.12. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the board of directors, or any committee designated by such board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other or by any other means permitted by law. Such participation shall constitute presence in person at such meeting. 3.13. COMPENSATION. In the discretion of the board of directors, each director may be paid such fees for his services as director and be reimbursed for his reasonable expenses incurred in the performance of his duties as director as the board of directors from time to time may determine. Nothing contained in this section shall be construed to preclude any director from serving the corporation in any other capacity and receiving reasonable compensation therefor. 3.14. INTERESTED DIRECTORS AND OFFICERS. (a) No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporation's directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. -7- 8 (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. Section 4. OFFICERS AND AGENTS 4.1. ENUMERATION; QUALIFICATION. The officers of the corporation shall be a president, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint including without limitation a chairman of the board, one or more vice presidents and a controller. The corporation may also have such agents, if any, as the board of directors from time to time may in its discretion choose. Any officer may be but none need be a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the board of directors to secure the faithful performance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the board of directors may determine. 4.2. POWERS. Subject to law, to the certificate of incorporation and to the other provisions of these by-laws, each officer shall have, in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate. 4.3. ELECTION. The officers may be elected by the board of directors at their first meeting following the annual meeting of the stockholders or at any other time. At any time or from time to time the directors may delegate to any officer their power to elect or appoint any other officer or any agents. 4.4. TENURE. Each officer shall hold office until the first meeting of the board of directors following the next annual meeting of the stockholders and until his respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes disqualified. Each agent shall retain his authority at the pleasure of the directors, or the officer by whom he was appointed or by the officer who then holds agent appointive power. 4.5. CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND VICE PRESIDENT. The chairman of the board, if any, shall have such duties and powers as shall be designated from time to time by the board of directors. Unless the board of directors otherwise specifies, the chairman of the board, or if there is none the chief executive officer, shall preside, or designate the person who shall preside, at all meetings of the stockholders and of the board of directors. Unless the board of directors otherwise specifies, the president shall be the chief executive officer and shall have direct charge of all business operations of the corporation and, -8- 9 subject to the control of the directors, shall have general charge and supervision of the business of the corporation. Any vice presidents shall have such duties and powers as shall be set forth in these by-laws or as shall be designated from time to time by the board of directors or by the president. 4.6. TREASURER AND ASSISTANT TREASURERS. The treasurer shall be the chief financial officer of the corporation and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be designated from time to time by the board of directors or by the president. If no controller is elected, the treasurer shall also have the duties and powers of the controller. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the treasurer. 4.7. CONTROLLER AND ASSISTANT CONTROLLERS. If a controller is elected, he shall be the chief accounting officer of the corporation and shall be in charge of its books of account and accounting records, and of its accounting procedures. He shall have such other duties and powers as may be designated from time to time by the board of directors, the president or the treasurer. Any assistant controller shall have such duties and powers as shall be designated from time to time by the board of directors, the president, the treasurer or the controller. 4.8. SECRETARY AND ASSISTANT SECRETARIES. The secretary shall record all proceedings of the stockholders, of the board of directors and of committees of the board of directors in a book or series of books to be kept therefor and shall file therein all actions by written consent of stockholders or directors. In the absence of the secretary from any meeting, an assistant secretary, or if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed the secretary shall keep or cause to be kept the stock and transfer records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder. He shall have such other duties and powers as may from time to time be designated by the board of directors or the president. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of directors, the president or the secretary. Section 5. RESIGNATIONS AND REMOVALS 5.1. Any director or officer may resign at any time by delivering his resignation in writing to the chairman of the board, if any, the president, or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be -9- 10 effective at some other time, and without in either case the necessity of its being accepted unless the resignation shall so state. Except as otherwise provided in the certificate of incorporation or these by-laws relating to the rights of the holders of any class or series of preference stock, voting separately by class or series, to elect directors under specified circumstances, any director or directors may be removed from office at any time, but only for cause and only by the affirmative vote, at any regular meeting or special meeting of the stockholders, of not less than two-thirds of the total number of votes of the then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, but only if notice of such proposal was contained in the notice of such meeting. Any vacancy in the board of directors resulting from any such removal may be filed by vote of a majority of the directors then in office, although less than a quorum, and any director or directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified or until their earlier death, resignation or removal. The board of directors may at any time remove any officer either with or without cause. The board of directors may at any time terminate or modify the authority of any agent. No director or officer resigning and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no director or officer removed shall have any right to any compensation as such director or officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless, in the case of a resignation, the directors, or, in the case of removal, the body acting on the removal, shall in their or its discretion provide for compensation. Section 6. VACANCIES 6.1. If the office of the president or the treasurer or the secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that officer may choose a successor. Each such successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the secretary until his successor is chosen and qualified or in each case until he sooner dies, resigns, is removed or becomes disqualified. Any vacancy of a directorship shall be filled as specified in Section 3.4 of these by-laws. Section 7. CAPITAL STOCK 7.1. STOCK CERTIFICATES. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and the by-laws, be prescribed from time to time by the board of directors. Such certificate shall be signed by the chairman or vice chairman of the board, if any, or the president or a vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary. Any of or all -10- 11 the signatures on the certificate may be a facsimile. In case an officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue. 7.2. LOSS OF CERTIFICATES. In the case of the alleged theft, loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms, including receipt of a bond sufficient to indemnify the corporation against any claim on account thereof, as the board of directors may prescribe. Section 8. TRANSFER OF SHARES OF STOCK 8.1. TRANSFER ON BOOKS. Subject to the restrictions, if any, stated or noted on the stock certificate, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the board of directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the certificate of incorporation or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation. It shall be the duty of each stockholder to notify the corporation of his post office address. 8.2. RECORD DATE AND CLOSING TRANSFER BOOKS. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days (or such longer period as may be required by law) before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: -11- 12 (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 9. CORPORATE SEAL 9.1. Subject to alteration by the directors, the seal of the corporation shall consist of a flat-faced circular die with the word "Delaware" and the name of the corporation cut or engraved thereon, together with such other words, dates or images as may be approved from time to time by the directors. Section 10. EXECUTION OF PAPERS 10.1. Except as the board of directors may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts or other obligations made, accepted or endorsed by the corporation shall be signed by the chairman of the board, if any, the president, a vice president or the treasurer. Section 11. FISCAL YEAR 11.1. The fiscal year of the corporation shall end on the last Saturday of February of each year. Section 12. AMENDMENTS 12.1. These by-laws may be adopted, amended or repealed by vote of a majority of the directors then in office or by vote of a majority of the stock outstanding and entitled to vote. -12- 13 Any by-law, whether adopted, amended or repealed by the stockholders or directors, may be amended or reinstated by the stockholders or the directors. -13- EX-10.6 3 FOURTH AMENDED AND RESTATED CHASE CREDIT AGREEMENT 1 Execution Counterpart ************************************************************ BE AEROSPACE, INC. ----------------------------- FOURTH AMENDED AND RESTATED CREDIT AGREEMENT Dated as of October 29, 1993 Amended and Restated as of April 3, 1998 ------------------------------ THE CHASE MANHATTAN BANK, as Administrative Agent NATIONSBANK, N.A., as Documentation Agent ************************************************************ 2 TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience of reference only.
page ---- Section 1. Definitions and Accounting Matters...............................................1 1.01 Certain Defined Terms............................................................1 1.02 Accounting Terms and Determinations.............................................19 1.03 Classes and Types of Loans......................................................20 Section 2. Commitments, Loans, Notes and Prepayments.......................................20 2.01 Loans...........................................................................20 2.02 Borrowings......................................................................21 2.03 Letters of Credit...............................................................21 2.04 Changes of Commitments..........................................................25 2.05 Commitment Fee..................................................................26 2.06 Lending Offices.................................................................26 2.07 Several Obligations; Remedies Independent.......................................26 2.08 Evidence of Debt................................................................26 2.09 Optional Prepayments and Conversions or Continuations of Loans..................27 2.10 Mandatory Prepayments and Reductions of Commitments.............................27 Section 3. Payments of Principal and Interest..............................................29 3.01 Repayment of Loans..............................................................29 3.02 Interest........................................................................30 Section 4. Payments; Pro Rata Treatment; Computations; Etc.................................31 4.01 Payments........................................................................31 4.02 Pro Rata Treatment..............................................................31 4.03 Computations....................................................................32 4.04 Minimum Amounts.................................................................32 4.05 Certain Notices.................................................................32 4.06 Non-Receipt of Funds by the Administrative Agent................................33 4.07 Sharing of Payments, Etc........................................................34 Section 5. Yield Protection, Etc...........................................................35 5.01 Additional Costs................................................................35 5.02 Limitation on Types of Loans....................................................37 5.03 Illegality......................................................................38 5.04 Treatment of Affected Loans.....................................................38 5.05 Compensation....................................................................39 5.06 Additional Costs in Respect of Letters of Credit................................40 5.07 U.S. Taxes......................................................................40
(i) 3 Section 6. Conditions Precedent............................................................41 6.01 Conditions to Effectiveness.....................................................41 6.02 Initial and Subsequent Extensions of Credit.....................................44 Section 7. Representations and Warranties..................................................44 7.01 Corporate Existence.............................................................44 7.02 Financial Condition.............................................................45 7.03 Litigation......................................................................45 7.04 No Breach.......................................................................45 7.05 Action..........................................................................46 7.06 Approvals.......................................................................46 7.07 Use of Credit...................................................................46 7.08 ERISA...........................................................................46 7.09 Taxes...........................................................................47 7.10 Investment Company Act..........................................................47 7.11 Public Utility Holding Company Act..............................................47 7.12 Material Agreements and Liens...................................................47 7.13 Environmental Matters...........................................................48 7.14 Capitalization..................................................................49 7.15 Subsidiaries, Etc...............................................................50 7.16 Title to Assets.................................................................50 7.17 Compliance with Law.............................................................51 7.18 True and Complete Disclosure....................................................51 7.19 Year 2000.......................................................................51 Section 8. Covenants of the Company........................................................52 8.01 Financial Statements, Etc.......................................................52 8.02 Litigation......................................................................55 8.03 Existence, Etc..................................................................55 8.04 Insurance.......................................................................56 8.05 Prohibition of Fundamental Changes..............................................56 8.06 Limitation on Liens.............................................................57 8.07 Indebtedness....................................................................58 8.08 Investments.....................................................................59 8.09 Restricted Payments.............................................................60 8.10 Leverage Ratio..................................................................60 8.11 Adjusted Net Worth..............................................................61 8.12 Interest Coverage Ratio.........................................................61 8.13 [Intentionally Omitted.]........................................................62 8.14 Lines of Business...............................................................62 8.15 Transactions with Affiliates....................................................62 8.16 Use of Proceeds.................................................................63 8.17 Certain Obligations Respecting Subsidiaries.....................................63 8.18 Modifications of Certain Documents..............................................64 8.19 Environmental Matters...........................................................64
(ii) 4 8.20 Security for Loans..............................................................65 8.21 Redemption of Senior Subordinated Indebtedness..................................65 Section 9. Events of Default...............................................................65 Section 10. The Administrative Agent........................................................68 10.01 Appointment, Powers and Immunities..............................................68 10.02 Reliance by Administrative Agent................................................69 10.03 Defaults........................................................................69 10.04 Rights as a Lender..............................................................70 10.05 Indemnification.................................................................70 10.06 Non-Reliance on Administrative Agent and Other Lenders..........................71 10.07 Failure to Act..................................................................71 10.08 Resignation or Removal of Administrative Agent..................................71 10.09 Consents under Basic Documents..................................................72 10.10 Collateral Sub-Agents...........................................................72 10.11 Documentation Agent.............................................................72 Section 11. Miscellaneous...................................................................72 11.01 Waiver..........................................................................73 11.02 Notices.........................................................................73 11.03 Expenses, Etc...................................................................73 11.04 Amendments, Etc.................................................................74 11.05 Successors and Assigns..........................................................75 11.06 Assignments and Participations..................................................75 11.07 Survival........................................................................77 11.08 Captions........................................................................77 11.09 Counterparts....................................................................77 11.10 Governing Law; Submission to Jurisdiction.......................................78 11.11 Waiver of Jury Trial............................................................78 11.12 Treatment of Certain Information; Confidentiality...............................78
(iii) 5 Annex 1 - Commitments SCHEDULE I - Material Agreements and Liens SCHEDULE II - Hazardous Materials SCHEDULE III - Subsidiaries and Investments SCHEDULE IV - Approvals and Compliance SCHEDULE V - Existing Letters of Credit SCHEDULE VI - Taxes SCHEDULE VII - Transactions with Affiliates EXHIBIT A-1 - Form of Security Agreement EXHIBIT A-2 - Form of In-Flight Guarantee and Security Agreement EXHIBIT B - Form of Confidentiality Agreement (iv) 6 -1- FOURTH AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 29, 1993, amended and restated as of April 3, 1998, among: BE AEROSPACE, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "COMPANY"); each of the lenders that is a signatory hereto identified under the caption "LENDERS" on the signature pages hereto or which, pursuant to Section 11.06(b) hereof, shall become a "Lender" hereunder (individually, a "LENDER" and, collectively, the "LENDERS"); and THE CHASE MANHATTAN BANK, a New York banking corporation, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "ADMINISTRATIVE AGENT"). The Company, certain Lenders and the Administrative Agent are party to a Third Amended and Restated Credit Agreement dated as of October 29, 1993, amended and restated as of May 29, 1997 (as modified and supplemented and in effect immediately prior to the Amendment Effective Date referred to below, the "EXISTING CREDIT AGREEMENT"). The Company has requested that the Lenders and the Administrative Agent agree to amend and restate the Existing Credit Agreement, and the Lenders and the Administrative Agent are willing to amend and restate the Existing Credit Agreement, all on the terms and conditions herein set forth. Accordingly, the parties hereto agree to amend and restate the Existing Credit Agreement so that, as amended and restated, it reads in its entirety as provided herein. Section 1. DEFINITIONS AND ACCOUNTING MATTERS. 1.01 CERTAIN DEFINED TERMS. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and VICE VERSA): "ACQUISITION" shall mean any transaction, or any series of related transactions, by which the Company and/or any of its Subsidiaries (a) acquires any ongoing business or all or substantially all of the assets of any Person, whether through purchase of assets, merger or otherwise, (b) directly or indirectly acquires control of at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors or (c) directly or indirectly acquires control of a majority ownership interest in any partnership, joint venture or similar arrangement. The terms "ACQUIRE" and "ACQUIRED" used as a verb shall have a correlative meaning. "ADJUSTED NET WORTH" shall mean, as at any date, the sum of (a) total stockholders' equity of the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) PLUS (b) the aggregate amount of Restricted Payments made since November 29, 1997 in respect of the purchase, redemption, retirement or other acquisition of any shares of any class of stock of the Company permitted under Section 8.09 CREDIT AGREEMENT 7 -2- hereof PLUS (c) the fair market value of any shares of capital stock of the Company (determined as of the date such shares are issued) issued after November 29, 1997 which are utilized in any business combination accounted for using pooling of interest accounting PLUS (d) an amount not to exceed $35,000,000 in the aggregate of the after-tax amount (calculated using the then effective corporate Federal tax rate, regardless of the after-tax amount determined in accordance with GAAP) of any nonrecurring noncash write-offs of intangible assets since November 29, 1997 PLUS (e) the amount of any purchased research and development and related acquisition costs of a target company to the extent such costs are or have been expensed after November 29, 1997. "ADMINISTRATIVE QUESTIONNAIRE" shall mean an Administrative Questionnaire in a form supplied by the Administrative Agent. "AFFILIATE" shall mean any Person that directly or indirectly controls, or is under common control with, or is controlled by, the Company and, if such Person is an individual, any member of the immediate family (including parents, spouse, children and siblings) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "CONTROL" (including, with its correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), PROVIDED that, in any event, any Person that owns directly or indirectly securities having 5% or more of the voting power for the election of directors or other governing body of a corporation or 5% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely by reason of his or her being a director, officer or employee of the Company or any of its Subsidiaries and (b) none of the Subsidiaries of the Company shall be Affiliates. "AMENDMENT EFFECTIVE DATE" shall mean the date on which all of the conditions set forth in Section 6.01 hereof shall have been satisfied or waived by the Lenders and the Administrative Agent. "APPLICABLE LENDING OFFICE" shall mean, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for such Type of Loan in the Administrative Questionnaire submitted by such Lender or such other office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Company as the office by which its Loans of such Type are to be made and maintained. CREDIT AGREEMENT 8 -3- "APPLICABLE MARGIN" shall mean with respect to Base Rate Loans and Eurodollar Loans, the rate for such Type of Loan for each level period set forth in the schedule below: Applicable Margin Level Period Base Rate Loans Eurodollar Loans - ------------------------ --------------- ---------------- Level I Period 0.00% 0.500% Level II Period 0.00% 0.750% Level III Period 0.00% 0.875% Level IV Period 0.00% 1.000% Level V Period 0.00% 1.250% Level VI Period 0.25% 1.500% Level VII Period 0.75% 2.000% PROVIDED that notwithstanding anything herein to the contrary, the Applicable Margin from the Amendment Effective Date through August 31, 1998 shall not be less than the rate for a Level V Period. "B/E SERVICES" shall mean B/E Services, Inc., a Delaware corporation and Wholly Owned Subsidiary of the Company. "BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978, as amended from time to time. "BASE RATE" shall mean, for any day, a rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "BASE RATE LOANS" shall mean Loans that bear interest at rates based upon the Base Rate. "BASIC DOCUMENTS" shall mean, collectively, this Agreement, the Notes, the Letter of Credit Documents and the Security Documents. "BUSINESS DAY" shall mean any day (a) on which commercial banks are not authorized or required to close in New York City and (b) if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice by the Company with respect to any such borrowing, payment, prepayment, Conversion or Interest Period, which is also a day on which dealings in Dollar deposits are carried out in the London interbank market. CREDIT AGREEMENT 9 -4- "CALCULATION PERIOD" shall mean, as at any date, the period of four consecutive complete fiscal quarters of the Company ending on or most recently ended prior to such date for which financial statements have been delivered pursuant to Sections 7.02(a), 8.01(a), 8.01(b) or 8.01(h) hereof. "CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board), and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13). "CASUALTY EVENT" shall mean, with respect to any Property of any Person, any loss of or damage to, or any condemnation or other taking of, such Property for which such Person or any of its Subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation. "CHASE" shall mean The Chase Manhattan Bank. "CLASS" shall have the meaning assigned to such term in Section 1.03 hereof. "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL ACCOUNT" shall have the meaning assigned to such term in Section 4.01 of the Security Agreement. "COMMITMENT FEE RATE" shall mean (a) 0.2000% for any Level I Period, (b) 0.2250% for any Level II Period, (c) 0.2500% for any Level III Period, (d) 0.2750% for any Level IV Period, (e) 0.3250% for any Level V Period, (f) 0.3750% for any Level VI Period and (e) 0.5000% for any Level VII Period, PROVIDED that notwithstanding anything herein to the contrary, the Commitment Fee Rate from the Amendment Effective Date through August 31, 1998 shall not be less than the rate for a Level V Period. . "COMMITMENTS" shall mean the Series A Commitments and the Series B Commitments. "CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the continuation pursuant to Section 2.09 hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion pursuant to Section 2.09 hereof of one Type of Loans into another Type of Loans, which may be CREDIT AGREEMENT 10 -5- accompanied by the transfer by a Lender (at its sole discretion) of a Loan from one Applicable Lending Office to another. "DEFAULT" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. "DISPOSITION" shall mean any sale, assignment, transfer or other disposition of any Property (whether now owned or hereafter acquired) by the Company or any of its Subsidiaries to any Person excluding any sale, assignment, transfer or other disposition of inventory in the ordinary course of business and on ordinary business terms; PROVIDED that the term "Disposition" shall not include (i) any Equity Issuance (as such term is defined in this Section 1.01 without giving effect to the proviso therein), (ii) any sale, assignment, transfer or other disposition of Property by any Subsidiary of the Company to the Company or to any other Subsidiary of the Company, in each case for consideration that is not in excess of the fair market value of such Property as determined in good faith by the chief financial officer of the Company or (iii) any sale, assignment, transfer or other disposition of Property by the Company or any Subsidiary of the Company to a joint venture, subject to the proviso in Section 8.08(h) hereof. The creation of any Lien on any Property permitted under Section 8.06 hereof shall not constitute a "DISPOSITION" of such Property. The term "DISPOSE" shall have a correlative meaning. "DOLLARS" and "$" shall mean lawful money of the United States of America. "DOMESTIC SUBSIDIARY" shall mean any Subsidiary of the Company that is incorporated under the law of any State of the United States of America. "EBITDA" shall mean, for any period of four consecutive fiscal quarters of the Company, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), net operating earnings (calculated before depreciation and amortization expense, non-recurring non-cash write-offs of assets (to the extent deducted in computing net operating earnings), Interest Expense, taxes and extraordinary and unusual items) for such period. "ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, (a) any written notice, claim, demand or other communication (collectively, a "CLAIM") by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any written claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any written claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. CREDIT AGREEMENT 11 -6- "ENVIRONMENTAL LAWS" shall mean any and all present and future Federal, state, local and foreign laws, rules or regulations, and any orders or decrees, in each case as now or hereafter in effect, relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "EQUITY ISSUANCE" shall mean (a) any issuance or sale by the Company or any of its Subsidiaries after the Restatement Date of (i) any capital stock, (ii) any warrants or options exercisable in respect of capital stock (other than any warrants or options issued to directors, officers, employees, agents, consultants or advisors of the Company or any of its Subsidiaries and any capital stock of the Company issued upon the exercise of such warrants or options) or (iii) any other security or instrument representing an equity interest (or the right to obtain any equity interest) in the issuing or selling Person or (b) the receipt by the Company or any of its Subsidiaries after November 29, 1997 of any capital contribution (whether or not evidenced by any equity security issued by the recipient of such contribution); PROVIDED that Equity Issuance shall not include (x) any such issuance or sale by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the Company, (y) any capital contribution by the Company or any Wholly Owned Subsidiary of the Company to any Subsidiary of the Company or (z) any such issuance or sale by the Company in connection with a permitted Acquisition under Section 8.05(b). "EQUITY RIGHTS" shall mean, with respect to any Person, any outstanding subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or outstanding securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA AFFILIATE" shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which the Company is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Company is a member. "EURODOLLAR BASE RATE" shall mean, with respect to any Eurodollar Loan for any Interest Period therefor, the arithmetic mean (rounded upwards, if necessary, to the nearest 1/100 of 1%) of the respective rates per annum quoted by each Reference Lender at approximately CREDIT AGREEMENT 12 -7- 11:00 a.m. London time (or as soon thereafter as practicable) on the date two Business Days prior to the first day of such Interest Period for the offering by such Reference Lender to leading banks in the London interbank market of Dollar deposits having a term comparable to such Interest Period and in an amount comparable to the principal amount of the Eurodollar Loan to be made by such Reference Lender for such Interest Period. If any Reference Lender is not participating in any Eurodollar Loan during any Interest Period therefor, the Eurodollar Base Rate for such Loan for such Interest Period shall be determined by reference to the amount of the Eurodollar Loan to be made by Chase for such Interest Period. "EURODOLLAR LOANS" shall mean Loans the interest rates on which are determined on the basis of rates referred to in the definition of "Eurodollar Base Rate" in this Section 1.01. "EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any Interest Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to the Eurodollar Base Rate for such Loan for such Interest Period divided by 1 minus the Reserve Requirement for such Loan for such Interest Period. "EVENT OF DEFAULT" shall have the meaning assigned to such term in Section 9 hereof. "EXISTING CREDIT AGREEMENT" shall have the meaning assigned to such term in the recitals hereto. "EXISTING LENDERS" shall mean the lenders party to the Existing Credit Agreement. "EXISTING LETTERS OF CREDIT" shall have the meaning assigned to such term in Section 2.03(l) hereof. "FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, PROVIDED that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published for any Business Day, the Federal Funds Rate for such Business Day shall be the average rate charged to Chase on such Business Day on such transactions as determined by the Administrative Agent. "FISCAL DATE" shall mean the last day of each fiscal quarterly period of the Company. "FOREIGN SUBSIDIARY" shall mean each Subsidiary of the Company other than any Domestic Subsidiary. CREDIT AGREEMENT 13 -8- "FUNDED DEBT" shall mean, for any Person: (a) all Indebtedness of such Person that should be reflected on a balance sheet of such Person in accordance with GAAP; and (b) all Indebtedness of any other Person that should be reflected on a balance sheet of such other Person in accordance with GAAP and that is secured by a Lien on the Property of, is supported by a letter of credit issued for account of, or is Guaranteed by, such Person. "GAAP" shall mean generally accepted accounting principles applied on a basis consistent with those which, in accordance with the last sentence of Section 1.02(a) hereof, are to be used in making the calculations for purposes of determining compliance with this Agreement. "GE LEASE AGREEMENT" shall mean the Master Lease Agreement dated as of October 20, 1997 between the Company and General Electric Capital Corporation, for itself and as Agent for Certain Participants. "GUARANTEE" shall mean a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning. "HAZARDOUS MATERIAL" shall mean, collectively, (a) any petroleum or petroleum products, flammable explosives, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls (PCB's), (b) any chemicals or other materials or substances which are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "INDEBTEDNESS" shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of CREDIT AGREEMENT 14 -9- the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; and (f) Indebtedness of others Guaranteed by such Person. "IN-FLIGHT" shall mean In-Flight Entertainment, LLC, a Delaware limited liability company and Wholly Owned Subsidiary of the Company. "IN-FLIGHT GUARANTEE AND SECURITY AGREEMENT" shall mean the Amended and Restated Guarantee and Security Agreement dated as of the Restatement Date between In-Flight and the Administrative Agent, substantially in the form of Exhibit A-2 hereto, as the same shall be modified, supplemented and in effect from time to time. "INFORMATION MEMORANDUM" shall mean the Confidential Information Memorandum dated March, 1998 distributed to the Lenders. "INTEREST COVERAGE RATIO" shall mean, as at any date the ratio of (i) EBITDA for the relevant Calculation Period to (ii) Interest Expense for such Calculation Period; PROVIDED that, from and after the date of any Acquisition occurring after February 28, 1998 until four full fiscal quarters of the Company have elapsed since the date of such Acquisition, the Interest Coverage Ratio shall be calculated on a PRO FORMA basis (reflecting, INTER ALIA, any amount attributable to any operating expense that will be eliminated or cost reduction that will be realized (in each case, net of any operating expense or other cost increase) in connection with such Acquisition, as determined in good faith by the chief financial officer of the Company in accordance with GAAP and the rules, regulations and guidelines of the Securities and Exchange Commission, as if such elimination of operating expense or the realization of such cost reductions were achieved at the beginning of such four-quarter period) as though such Acquisition had occurred, and any Funded Debt incurred or assumed by the Company or any of its Subsidiaries in connection with, or in anticipation of, such Acquisition had been incurred or assumed, on the first day of such Calculation Period. "INTEREST EXPENSE" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all interest in respect of Indebtedness accrued or capitalized during such period (whether or not actually paid during such period) PLUS (b) the net amounts payable (or MINUS the net amounts receivable) under Interest Rate Protection Agreements accrued during such period (whether or not actually paid or received during such period) MINUS (c) interest income during such period. "INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan, each period commencing on the date such Eurodollar Loan is made or Converted from a Base Rate Loan or the last day of the next preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company CREDIT AGREEMENT 15 -10- may select as provided in Section 4.05 hereof, except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) no Interest Period for any Series A Loan may end after the Series A Commitment Termination Date; (ii) no Interest Period for any Series B Loan may commence before and end after any Series B Principal Payment Date unless, after giving effect thereto, the aggregate principal amount of the Series B Loans having Interest Periods that end after such Series B Principal Payment Date shall be equal to or less than the aggregate principal amount of the Series B Loans scheduled to be outstanding after giving effect to the payments of principal required to be made on such Series B Principal Payment Date; (iii) each Interest Period that would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iv) notwithstanding clauses (i) and (ii) above, no Interest Period shall have a duration of less than one month and, if the Interest Period for any Eurodollar Loan would otherwise be a shorter period, such Eurodollar Loan shall not be available hereunder for such period. "INTEREST RATE PROTECTION AGREEMENT" shall mean, for any Person, an interest rate swap, cap or collar agreement or similar arrangement between such Person and one or more financial institutions providing for the transfer or mitigation of interest risks either generally or under specific contingencies. For purposes hereof, the "CREDIT EXPOSURE" at any time of any Person under an Interest Rate Protection Agreement to which such Person is a party shall be determined at such time in accordance with the standard methods of calculating credit exposure under similar arrangements as prescribed from time to time by the Administrative Agent, taking into account potential interest rate movements and the respective termination provisions and notional principal amount and term of such Interest Rate Protection Agreement. "INVESTMENT" shall mean, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of, or capital contribution to, any other Person or any agreement to make any such acquisition or capital contribution (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of inventory or supplies sold by such Person in the ordinary course of business); (c) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person; or (d) the entering into of any Interest Rate Protection Agreement. "ISSUING LENDER" shall mean Chase, as the issuer of Letters of Credit under Section 2.03 hereof, together with its successors and assigns in such capacity. CREDIT AGREEMENT 16 -11- "LETTER OF CREDIT" shall have the meaning assigned to such term in Section 2.03 hereof. "LETTER OF CREDIT DOCUMENTS" shall mean, with respect to any Letter of Credit, collectively, any application therefor and any other agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations, each as the same may be modified and supplemented and in effect from time to time. "LETTER OF CREDIT INTEREST" shall mean, for each Series A Lender, such Lender's participation interest (or, in the case of the Issuing Lender, the Issuing Lender's retained interest) in the Issuing Lender's liability under Letters of Credit and such Lender's rights and interests in Reimbursement Obligations and fees, interest and other amounts payable in connection with Letters of Credit and Reimbursement Obligations. "LETTER OF CREDIT LIABILITY" shall mean, without duplication, at any time and in respect of any Letter of Credit, the sum of (a) the undrawn amount of such Letter of Credit PLUS (b) the aggregate unpaid principal amount of all Reimbursement Obligations of the Company at such time due and payable in respect of all drawings made under such Letter of Credit. For purposes of this Agreement, a Series A Lender (other than the Issuing Lender) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest in the related Letter of Credit under Section 2.03 hereof, and the Issuing Lender shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in the related Letter of Credit after giving effect to the acquisition by the Series A Lenders other than the Issuing Lender of their participation interests under said Section 2.03. "LEVEL I PERIOD" shall mean any period during which (a) no Event of Default shall have occurred and be continuing, and (b) the Leverage Ratio is less than 2.25 to 1; "LEVEL II PERIOD" shall mean any period, other than a Level I Period, during which (a) no Event of Default shall have occurred and be continuing and (b) the Leverage Ratio is greater than or equal to 2.25 to 1 but less than 2.75 to 1; "LEVEL III PERIOD" shall mean any period, other than a Level I Period or a Level II Period, during which (a) no Event of Default shall have occurred and be continuing and (b) the Leverage Ratio is greater than or equal to 2.75 to 1 but less than 3.25 to 1; "LEVEL IV PERIOD" shall mean any period, other than a Level I Period, a Level II Period or a Level III Period during which (a) no Event of Default shall have occurred and be continuing and (b) the Leverage Ratio is greater than or equal to 3.25 to 1 but less than 3.75 to 1; "LEVEL V PERIOD" shall mean any period, other than a Level I Period, a Level II Period, a Level III Period or Level IV Period during which (a) no Event of Default shall have occurred and be continuing and (b) the Leverage Ratio is greater than or equal to 3.75 to 1 but less than 4.25 to 1; "LEVEL VI PERIOD" shall mean any period that is not a Level I Period, a Level II Period, a Level III Period, a Level IV Period or a Level V Period during which (a) no Event of Default shall have occurred and be continuing and (b) the Leverage Ratio is greater than or equal to 4.25 to 1 but less than 4.75; and "LEVEL VII PERIOD" shall mean any period that is not a Level I Period, a Level II Period, a Level III Period, a Level IV Period, a Level V Period or a Level VI Period. Any change in the Applicable Margin CREDIT AGREEMENT 17 -12- for any Type of Loan or any change in the Commitment Fee by reason of a change in the Leverage Ratio shall become effective on the third Business Day following receipt by the Administrative Agent of the financial statements of the Company and its Subsidiaries delivered as required by Sections 8.01(a), (b) or (h) hereof; PROVIDED that failure to deliver such financial statements as required by Sections 8.01(a), (b) or (h) hereof shall result in the Applicable Margin and Commitment Fee Rate being at the rates set forth opposite Level VII Period. "LEVERAGE RATIO" shall mean, as at any date, the ratio of Total Funded Debt at such date to EBITDA for the relevant Calculation Period; PROVIDED that, from and after the date of any Acquisition occurring after February 28, 1998 until four full fiscal quarters of the Company shall have elapsed since the date of such Acquisition, the Leverage Ratio shall be calculated on a PRO FORMA basis (reflecting, INTER ALIA, any amount attributable to any operating expense that will be eliminated or cost reduction that will be realized (in each case, net of any operating expense or other cost increase) in connection with such Acquisition, as determined in good faith by the chief financial officer of the Company in accordance with GAAP and the rules, regulations and guidelines of the Securities and Exchange Commission, as if such elimination of operating expense or the realization of such cost reductions were achieved at the beginning of such four-quarter period") as though such Acquisition had occurred, any Funded Debt incurred or assumed by the Company or any of its Subsidiaries in connection with, or in anticipation of, such Acquisition had been incurred or assumed, on the first day of such Calculation Period. "LIEN" shall mean, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement and the other Basic Documents, a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such Property. "LOANS" shall mean the Series A Loans and the Series B Loans. "MAJORITY LENDERS" shall mean Majority Series A Lenders and Majority Series B Lenders. "MAJORITY SERIES A LENDERS" shall mean Series A Lenders having more than 50% of the aggregate amount of the Series A Commitments or, if the Series A Commitments shall have terminated, Lenders holding more than 50% of the sum of (a) the aggregate unpaid principal amount of the Series A Loans PLUS (b) the aggregate amount of all Letter of Credit Liabilities. "MAJORITY SERIES B LENDERS" shall mean Series B Lenders having more than 50% of the aggregate amount of the Series B Commitments or, if the Series B Commitments shall have terminated, Lenders holding more than 50% of the aggregate unpaid principal amount of the Series B Loans. CREDIT AGREEMENT 18 -13- "MARGIN STOCK" shall mean "margin stock" within the meaning of Regulations U and X. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the Property, business, operations, financial condition, prospects, liabilities or capitalization of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company to perform its obligations under any of the Basic Documents to which it is a party, (c) the validity or enforceability of any of the Basic Documents, (d) the rights and remedies of the Lenders and the Administrative Agent under any of the Basic Documents or (e) the timely payment of the principal of or interest on the Loans or the Reimbursement Obligations or other amounts payable in connection therewith. "MATERIAL SUBSIDIARY" shall mean at any date any Subsidiary of the Company whose total assets equal or exceed 2% of the total assets of the Company and its Subsidiaries on a consolidated basis as at the most recent Fiscal Date; PROVIDED that, notwithstanding the above, each of B/E Services and Royal Inventum B.V. shall at all times constitute a Material Subsidiary of the Company so long as it is a Subsidiary of the Company. "MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA. "NET AVAILABLE PROCEEDS" shall mean: (i) in the case of any Disposition, the amount of Net Cash Payments received in connection with such Disposition; (ii) in the case of any Casualty Event, the aggregate amount of proceeds of insurance, condemnation awards and other compensation received by the Company and its Subsidiaries in respect of such Casualty Event net of (A) reasonable expenses incurred by the Company and its Subsidiaries in connection therewith and (B) contractually required repayments of Indebtedness to the extent secured by a Lien on such Property and any income and transfer taxes payable by the Company or any of its Subsidiaries in respect of such Casualty Event; (iii) in the case of any Equity Issuance, the aggregate amount of all cash received by the Company and its Subsidiaries in respect of such Equity Issuance net of reasonable expenses incurred by the Company and its Subsidiaries in connection therewith; and (iv) in the case of any Reversion, the aggregate amount of all cash received by the Company or any of its Subsidiaries in respect of such Reversion net of (A) reasonable expenses incurred by the Company and its Subsidiaries in connection therewith and (B) any income and excise taxes payable by the Company or any of its Subsidiaries in respect of such Reversion. CREDIT AGREEMENT 19 -14- "NET CASH PAYMENTS" shall mean, with respect to any Disposition, the aggregate amount of all cash payments, and the fair market value of any non-cash consideration, received by the Company and its Subsidiaries directly or indirectly in connection with such Disposition; PROVIDED that (a) Net Cash Payments shall be net of (i) the amount of any legal, accounting and other professional fees, title and recording tax expenses, commissions and other fees and expenses paid by the Company and its Subsidiaries in connection with such Disposition and (ii) any Federal, state and local income or other taxes estimated to be payable by the Company and its Subsidiaries as a result of such Disposition (but only to the extent that such estimated taxes are in fact paid to the relevant Federal, state or local governmental authority within three months of date of such Disposition or the Company or any of its Subsidiaries uses any applicable tax benefit available to it as set forth on its balance sheet to reduce such estimated taxes payable within such three month period), (b) Net Cash Payments shall not include any cash payments of less than $100,000 from any one Disposition or a series of related Dispositions, and (c) Net Cash Payments shall be net of any repayments by the Company or any of its Subsidiaries of Indebtedness to the extent that (i) such Indebtedness is secured by a Lien on the Property that is the subject of such Disposition and (ii) the transferee of (or holder of a Lien on) such Property requires that such Indebtedness be repaid as a condition to the purchase of such Property. "NOTES" shall mean the promissory notes (if any) executed and delivered by the Company pursuant to Section 2.08 hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERMITTED INVESTMENTS" shall mean any Investment in (i) direct obligations of the United States of America or any agency thereof, or obligations guaranteed by the United States of America, or of any agency thereof; (ii) commercial paper rated at least A-1 by S&P or P-1 by Moody's; (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of America of any bank or trust company which is organized under the laws of the United States of America or any state thereof and has capital, surplus and undivided profits aggregating at least $1,000,000,000; (iv) shares of any money market or mutual fund not less than 80% of the assets of which are invested solely in securities or obligations of the type described in clauses (i) through (iii) above and (v) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, PROVIDED in each case that such Investment matures within one year from the date of acquisition thereof by the Company or a Subsidiary of the Company. "PERSON" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "PLAN" shall mean an employee benefit plan established or maintained by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. CREDIT AGREEMENT 20 -15- "POST-DEFAULT RATE" shall mean, in respect of any principal of any Loan, any Reimbursement Obligation or any other amount under this Agreement, any Note or any other Basic Document that is not paid when due (whether at stated maturity, by acceleration, by optional or mandatory prepayment or otherwise), a rate per annum during the period from and including the due date to but excluding the date on which such amount is paid in full equal to 2% PLUS the Base Rate as in effect from time to time PLUS the Applicable Margin for Base Rate Loans (PROVIDED that, if the amount so in default is principal of a Eurodollar Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Post-Default Rate" for such principal shall be, for the period for and including such due date to but excluding the last day of the Interest Period, 2% PLUS the interest rate for such Loan as provided in Section 3.02 hereof and, thereafter, the rate provided for above in this definition). "PRIME RATE" shall mean the rate of interest from time to time announced by Chase at the Principal Office as its prime commercial lending rate. "PRINCIPAL OFFICE" shall mean the principal office of Chase, located on the date hereof at 270 Park Avenue, New York, New York 10017. "PROPERTY" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "QUARTERLY DATES" shall mean the quarterly anniversaries of the Restatement Date; PROVIDED that, if any such date is not a Business Day, the Quarterly Date shall be the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, the next preceding Business Day). "RECAPTURE DATE" shall mean the last day of the Recapture Period. "RECAPTURE PERIOD" shall mean each period (a) commencing on the later of (i) the Restatement Date and (ii) the day immediately following the last day of the immediately preceding Recapture Period, and (b) ending on the date on which the Company and/or its Subsidiaries receives Net Available Proceeds which, together with all Net Available Proceeds received since the first day of such Recapture Period, equal or exceeds in the aggregate $1,000,000. "REFERENCE LENDERS" shall mean Chase and NationsBank, N.A. "REGULATIONS A, D, U AND X" shall mean, respectively, Regulations A, D, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "REGULATORY CHANGE" shall mean, with respect to any Lender, any change after the date of this Agreement in Federal, state or foreign law or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, CREDIT AGREEMENT 21 -16- directive or request applying to a class of banks including such Lender of or under any Federal, state or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "REIMBURSEMENT OBLIGATIONS" shall mean, at any time, the obligations of the Company then outstanding, or which may thereafter arise in respect of all Letters of Credit then outstanding, to reimburse amounts paid by the Issuing Lender in respect of any drawings under a Letter of Credit. "RELEASE" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, groundwater, wetlands, land or subsurface strata. The terms "RELEASE" and "RELEASED" used as a verb shall have a correlative meaning. "RESERVE REQUIREMENT" shall mean, for any Interest Period for any Eurodollar Loan, the average maximum rate at which reserves (including, without limitation, any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall include any other reserves required to be maintained by such member banks by reason of any Regulatory Change with respect to (i) any category of liabilities that includes deposits by reference to which the Eurodollar Base Rate is to be determined as provided in the definition of "Eurodollar Base Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets that includes Eurodollar Loans. "RESTATEMENT DATE" shall mean April 3, 1998. "RESTRICTED PAYMENT" shall mean, with respect to any Person, (a) dividends (in cash, Property or obligations) on, or other payments or distributions on account of, or the setting apart of money for a sinking or other analogous fund for, or the purchase, redemption, retirement or other acquisition of, any shares of any class of stock of such Person or of any warrants (other than of shares of common stock, warrants or options of such Person as payment for the exercise price of options or warrants to purchase common stock of such Person having a fair market value equal to such exercise price), options or other rights to acquire the same (or to make any payments to any other Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market or equity value of such Person or any of its Subsidiaries), but excluding dividends payable solely in shares of common stock or in options, warrants or other rights to purchase such common stock of such Person or (b) any payment (whether made by such Person or any of its Subsidiaries) on account of the purchase, redemption, prepayment, defeasance or other acquisition or retirement of value of any Indebtedness (such Indebtedness, "RETIRED INDEBTEDNESS") that is subordinated in right of payment to the prior payment of the Loans, except any such payment made from the proceeds of CREDIT AGREEMENT 22 -17- (x) the issuance of any equity securities or (y) any additional unsecured Indebtedness that does not rank senior in right of payment to, and does not mature or have any mandatory prepayment, which does not include required prepayments as a result of a change of control or asset sale, prior to the maturity of, such Retired Indebtedness. "REVERSION" shall mean the termination by the Company or any of its Subsidiaries of a Plan which results in a payment to the Company or any of its Subsidiaries of any part of the over-funded portion of such Plan. "SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "SECURITY AGREEMENT" shall mean the Amended and Restated Security Agreement dated as of the Restatement Date between the Company and the Administrative Agent, substantially in the form of Exhibit A-1 hereto, as the same shall be modified, supplemented and in effect from time to time. "SECURITY DOCUMENTS" shall mean, collectively, the Security Agreement and the In-Flight Guarantee and Security Agreement. "SENIOR SUBORDINATED INDENTURES" shall mean the Senior Subordinated 1996 Indenture and the Senior Subordinated 1998 Indenture. "SENIOR SUBORDINATED 1996 INDENTURE" shall mean the Indenture dated as of February 1, 1996 between the Company and Fleet National Bank Connecticut, N.A., as Trustee, as the same shall be modified and supplemented and in effect from time to time. "SENIOR SUBORDINATED 1998 INDENTURE" shall mean the Indenture dated as of February 13, 1998 between the Company and United States Trust Company of New York as Trustee, as the same shall be modified and supplemented and in effect from time to time. "SERIES A COMMITMENT" shall mean, for each Series A Lender, the obligation of such Lender to make Series A Loans in an aggregate amount at any one time outstanding up to but not exceeding the amount set opposite the name of such Lender on Annex 1 hereto under the caption "Series A Commitment" (as the same may be reduced from time to time pursuant to Section 2.04 hereof or increased or reduced from time to time pursuant to Section 11.06 hereof). The original aggregate principal amount of the Series A Commitments is $100,000,000. "SERIES A COMMITMENT PERCENTAGE" shall mean, with respect to any Series A Lender, the ratio of (a) the amount of the Series A Commitment of such Lender to (b) the aggregate amount of the Series A Commitments of all of the Lenders. "SERIES A COMMITMENT TERMINATION DATE" shall mean the sixth anniversary of the Restatement Date; PROVIDED that if such day is not a Business Day, the Series A Commitment Termination Date shall be the immediately preceding Business Day. CREDIT AGREEMENT 23 -18- "SERIES A LENDERS" shall mean (a) on the Amendment Effective Date, the Lenders having Series A Commitments as indicated on Annex 1 hereto and (b) thereafter, the Lenders from time to time holding Series A Loans and Series A Commitments after giving effect to any assignments thereof permitted by Section 11.06 hereof. "SERIES A LOANS" shall mean the loans provided for by Section 2.01(a) hereof, which may be Base Rate Loans and/or Eurodollar Loans. "SERIES A NOTES" shall mean the promissory notes (if any) provided for by Section 2.08(a) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "SERIES B COMMITMENT" shall mean, for each Series B Lender, the obligation of such Lender to make Series B Loans in an aggregate amount at any one time outstanding up to but not exceeding the amount set opposite the name of such Lender on Annex 1 hereto under the caption "Series B Commitment" (as the same may be reduced from time to time pursuant to Section 2.04 hereof or increased or reduced from time to time pursuant to Section 11.06 hereof). The original aggregate principal amount of the Series B Commitments is $100,000,000. "SERIES B COMMITMENT TERMINATION DATE" shall mean the date 364 days after the Restatement Date; PROVIDED that if such day is not a Business Day, the Series B Commitment Termination Date shall be the immediately preceding Business Day. "SERIES B LENDERS" shall mean (a) on the Amendment Effective Date, the Lenders having Series B Commitments as indicated on Annex 1 hereto and (b) thereafter, the Lenders from time to time holding Series B Loans and Series B Commitments after giving effect to any assignments thereof permitted by Section 11.06 hereof. "SERIES B LOANS" shall mean the loans provided for by Section 2.01(b) hereof, which may be Base Rate Loans and/or Eurodollar Loans. "SERIES B NOTES" shall mean the promissory notes provided for by Section 2.08(b) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "SERIES B PRINCIPAL PAYMENT DATE" shall mean any Quarterly Date on which payments of principal of Series B Loan are scheduled to be made pursuant to Section 3.01(b) hereof. "SPECIFIED SUBSIDIARY" shall mean each Subsidiary of the Company identified as a "Specified Subsidiary" on Schedule III hereto, but only until all (or, in the case of a Subsidiary that is not a Domestic Subsidiary, 65%) of its shares that are owned by the Company become subject to the Lien of the Security Agreement or are otherwise pledged to the Administrative CREDIT AGREEMENT 24 -19- Agent for the benefit of the Lenders pursuant to documentation in form and substance reasonably satisfactory to the Majority Lenders. "SUBSIDIARY" shall mean, for any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "WHOLLY OWNED SUBSIDIARY" shall mean any such corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are so owned or controlled. "TOTAL FUNDED DEBT" shall mean, as at any date, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of all Funded Debt. "TYPE" shall have the meaning assigned to such term in Section 1.03 hereof. 1.02 ACCOUNTING TERMS AND DETERMINATIONS. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof in the manner described in subsection (b) below) be prepared, in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Lenders hereunder (which, prior to the delivery of the first financial statements under Section 8.01 hereof, shall mean the audited financial statements as at February 22, 1997 referred to in Section 7.02 hereof). All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest annual or quarterly financial statements furnished to the Lenders pursuant to Section 8.01 hereof (or, prior to the delivery of the first financial statements under Section 8.01 hereof, used in the preparation of the audited financial statements as at February 22, 1997, referred to in Section 7.02 hereof) unless (i) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Majority Lenders shall so object in writing within 30 days after delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 8.01 hereof, shall mean the audited financial statements as at February 22, 1997 referred to in Section 7.02 hereof). CREDIT AGREEMENT 25 -20- (b) The Company shall deliver to the Lenders at the same time as the delivery of any annual or quarterly financial statement under Section 8.01 hereof (i) a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the next preceding annual or quarterly financial statements as to which no objection has been made in accordance with the last sentence of subsection (a) above and (ii) reasonable estimates of the difference between such statements arising as a consequence thereof. (c) To enable the ready and consistent determination of compliance with the covenants set forth in Section 8 hereof, the fiscal year of the Company shall end on the last Saturday in February of each year, and the last days of the first three fiscal quarters shall fall on the last Saturday in each of May, August and November of each year, respectively. 1.03 CLASSES AND TYPES OF LOANS. Loans hereunder are distinguished by "Class" and by "Type". The "Class" of a Loan (or of a Commitment to make a Loan) refers to whether such Loan is a Series A Loan or a Series B Loan, each of which constitutes a Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a Eurodollar Loan, each of which constitutes a Type. Loans may be identified by both Class and Type. Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS. 2.01 LOANS. (a) SERIES A LOANS. Each Series A Lender severally agrees, on the terms and conditions of this Agreement, to make loans to the Company in Dollars to but not including the Series A Commitment Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of the Series A Commitment of such Lender as in effect from time to time (such Loans, together with the "Series A Loans" made under the Existing Credit Agreement, being herein called "SERIES A LOANS"), PROVIDED that in no event shall the aggregate principal amount of all Series A Loans, together with the aggregate amount of all Letter of Credit Liabilities, exceed the aggregate amount of the Series A Commitments. Subject to the terms and conditions of this Agreement, the Company may borrow, repay and reborrow the amount of the Series A Commitments by means of Base Rate Loans and Eurodollar Loans and may Convert Series A Loans of one Type into Series A Loans of another Type (as provided in Section 2.09 hereof). (b) SERIES B LOANS. Each Series B Lender severally agrees, on the terms and conditions of this Agreement, to make loans to the Company in Dollars to but not including the Series B Commitment Termination Date in an aggregate principal amount up to but not exceeding the amount of the Series B Commitment of such Lender as in effect from time to time (such Loans being herein called "SERIES B LOANS"). Subject to the terms and conditions of this Agreement, the Company may borrow the amount of the Series B Commitments by means of CREDIT AGREEMENT 26 -21- Base Rate Loans and Eurodollar Loans and may Convert Series B Loans of one Type into Series B Loans of another Type (as provided in Section 2.09 hereof) or Continue Series B Loans of one Type as Series B Loans of the same Type (as provided in Section 2.09 hereof). Series B Loans may be prepaid, but they may not be reborrowed once prepaid. (c) LIMIT ON EURODOLLAR LOANS. No more than six separate Interest Periods in respect of Eurodollar Loans of either Class from each Lender may be outstanding at any one time. 2.02 BORROWINGS. The Company shall give the Administrative Agent (which shall promptly notify the Lenders) notice of each borrowing hereunder as provided in Section 4.05 hereof. Not later than 1:00 p.m. New York time on the date specified for each borrowing hereunder, each Lender shall make available the amount of the Loan or Loans to be made by it on such date to the Administrative Agent, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders, in immediately available funds, for account of the Company. The amount so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing the same, in immediately available funds, in an account of the Company maintained with Chase at the Principal Office designated by the Company. 2.03 LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement, the Series A Commitments may be utilized, upon the request of the Company, in addition to the Series A Loans provided for by Section 2.01(a) hereof, by the issuance by the Issuing Lender of letters of credit (collectively, "LETTERS OF CREDIT") for account of the Company or any of its Subsidiaries (as specified by the Company), PROVIDED that in no event shall (i) the aggregate amount of all Letter of Credit Liabilities, together with the aggregate principal amount of the Series A Loans, exceed the aggregate amount of the Series A Commitments as in effect from time to time, (ii) the outstanding aggregate amount of all Letter of Credit Liabilities exceed $15,000,000 and (iii) the expiration date of any Letter of Credit extend beyond the earlier of the Series A Commitment Termination Date and the date twelve months following the issuance of such Letter of Credit. The following additional provisions shall apply to Letters of Credit: (a) The Company shall give the Administrative Agent at least three Business Days' irrevocable prior notice (effective upon receipt) specifying the Business Day (which shall be no later than thirty days preceding the Series A Commitment Termination Date) each Letter of Credit is to be issued and the account party or parties therefor and describing in reasonable detail the proposed terms of such Letter of Credit (including the beneficiary thereof) and the nature of the transactions or obligations proposed to be supported thereby (including whether such Letter of Credit is to be a commercial letter of credit or a standby letter of credit). Upon receipt of any such notice, the Administrative Agent shall advise the Issuing Lender of the contents thereof. (b) On each day during the period commencing with the issuance by the Issuing Lender of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, the Series A Commitment of each Series A Lender shall be deemed to be utilized for CREDIT AGREEMENT 27 -22- all purposes of this Agreement in an amount equal to such Lender's Series A Commitment Percentage of the then undrawn face amount of such Letter of Credit. Each Series A Lender (other than the Issuing Lender) agrees that, upon the issuance of any Letter of Credit hereunder, it shall automatically acquire a participation in the Issuing Lender's liability under such Letter of Credit in an amount equal to such Lender's Series A Commitment Percentage of such liability, and each Series A Lender (other than the Issuing Lender) thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Issuing Lender to pay and discharge when due, its Series A Commitment Percentage of the Issuing Lender's liability under such Letter of Credit. (c) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment under such Letter of Credit, the Issuing Lender shall promptly notify the Company (through the Administrative Agent) of the amount to be paid by the Issuing Lender as a result of such demand and the date on which payment is to be made by the Issuing Lender to such beneficiary in respect of such demand. Notwithstanding the identity of the account party of any Letter of Credit, the Company hereby unconditionally agrees to pay and reimburse the Administrative Agent for account of the Issuing Lender for the amount of each demand for payment under such Letter of Credit at or prior to the date on which payment is to be made by the Issuing Lender to the beneficiary thereunder, without presentment, demand, protest or other formalities of any kind. (d) Forthwith upon its receipt of a notice referred to in clause (c) of this Section 2.03, the Company shall advise the Administrative Agent whether or not the Company intends to borrow hereunder to finance its obligation to reimburse the Issuing Lender for the amount of the related demand for payment and, if it does, submit a notice of such borrowing as provided in Section 4.05 hereof. In the event that the Company fails to so advise the Administrative Agent, or if the Company fails to reimburse the Issuing Lender for a demand for payment under a Letter of Credit by the date of such payment, the Administrative Agent shall give each Series A Lender prompt notice of the amount of the demand for payment, specifying such Lender's Series A Commitment Percentage of the amount of the related demand for payment. (e) Each Series A Lender (other than the Issuing Lender) shall pay to the Administrative Agent for account of the Issuing Lender at the Principal Office in Dollars and in immediately available funds, the amount of such Lender's Series A Commitment Percentage of any payment under a Letter of Credit upon notice by the Issuing Lender (through the Administrative Agent) to such Series A Lender requesting such payment and specifying such amount; PROVIDED that such Series A Lender shall not be obligated to reimburse the Issuing Bank if such payment is the result of the willful misconduct or gross negligence of the Issuing Bank in determining that the request or demand for such payment complied with the terms of such Letter of Credit. Each such Series A Lender's obligation to make such payments to the Administrative Agent for account of the Issuing Lender under this clause (e), and the Issuing Lender's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, (i) the failure of any other Series A Lender to make its payment under this clause (e), the financial condition of the Company (or any CREDIT AGREEMENT 28 -23- other account party), the existence of any Default or (ii) the termination of the Commitments. Each such payment to the Issuing Lender shall be made without any offset, abatement, withholding or reduction whatsoever. If any Series A Lender shall default in its obligation to make any such payment to the Administrative Agent for account of the Issuing Lender, for so long as such default shall continue the Administrative Agent shall at the request of the Issuing Bank withhold from any payments received by the Administrative Agent under this Agreement or any Note for account of such Series A Lender the amount so in default and the Administrative Agent shall pay the same to the Issuing Lender in satisfaction of such defaulted obligation. (f) Upon the making of each payment by a Series A Lender to the Issuing Lender pursuant to clause (e) above in respect of any Letter of Credit, such Lender shall, automatically and without any further action on the part of the Administrative Agent, the Issuing Lender or such Lender, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to the Issuing Lender by the Company hereunder and under the Letter of Credit Documents relating to such Letter of Credit and (ii) a participation in a percentage equal to such Lender's Series A Commitment Percentage in any interest or other amounts payable by the Company hereunder and under such Letter of Credit Documents in respect of such Reimbursement Obligation (other than the commissions, charges, costs and expenses payable to the Issuing Lender pursuant to clause (g) of this Section 2.03). Upon receipt by the Issuing Lender from or for account of the Company of any payment in respect of any Reimbursement Obligation or any such interest or other amount (including by way of setoff or application of proceeds of any collateral security) the Issuing Lender shall promptly pay to the Administrative Agent for account of each Series A Lender entitled thereto, such Series A Lender's Series A Commitment Percentage of such payment, each such payment by the Issuing Lender to be made in the same money and funds in which received by the Issuing Lender. In the event any payment received by the Issuing Lender and so paid to the Series A Lenders hereunder is rescinded or must otherwise be returned by the Issuing Lender, each Series A Lender shall, upon the request of the Issuing Lender (through the Administrative Agent), repay to the Issuing Lender (through the Administrative Agent) the amount of such payment paid to such Lender, with interest as specified in clause (j) of this Section 2.03. (g) The Company shall pay to the Administrative Agent for account of the Series A Lenders in respect of each Letter of Credit a letter of credit fee in an amount equal to the product of the Applicable Margin for Eurodollar Loans TIMES the daily average undrawn amount of such Letter of Credit for the period from and including the date of issuance of such Letter of Credit to and including the date such Letter of Credit is drawn in full, expires or is terminated (such fee to be non-refundable, to be paid in arrears on each Quarterly Date and on the Series A Commitment Termination Date and to be calculated, for any day, after giving effect to any payments made under such Letter of Credit on such day). In addition, the Company shall pay to the Administrative Agent for account of the Issuing Lender all commissions, charges, costs and expenses in the amounts customarily charged by the Issuing Lender from time to time in like circumstances with respect to the issuance of each Letter of Credit and drawings and other transactions relating thereto. CREDIT AGREEMENT 29 -24- (h) Promptly following the end of each calendar month, the Issuing Lender shall deliver (through the Administrative Agent) to each Series A Lender and the Company a notice describing the aggregate amount of all Letters of Credit outstanding at the end of such month. Upon the request of any Series A Lender from time to time, the Issuing Lender shall deliver any other information reasonably requested by such Lender with respect to each Letter of Credit then outstanding. (i) The issuance by the Issuing Lender of each Letter of Credit shall, in addition to the conditions precedent set forth in Section 6 hereof, be subject to the conditions precedent that (i) such Letter of Credit shall be in such form, contain such terms and support such transactions as shall be satisfactory to the Issuing Lender consistent with its then current practices and procedures with respect to letters of credit of the same type and (ii) the Company shall have executed and delivered such applications, agreements and other instruments relating to such Letter of Credit as the Issuing Lender shall have reasonably requested consistent with its then current practices and procedures with respect to letters of credit of the same type, provided that in the event of any conflict between any such application, agreement or other instrument and the provisions of this Agreement or any Security Document, the provisions of this Agreement and the Security Documents shall control. (j) To the extent that any Series A Lender fails to pay any amount required to be paid pursuant to clause (e) or (f) of this Section 2.03 on the due date therefor, such Lender shall pay interest to the Issuing Lender (through the Administrative Agent) on such amount from and including such due date to but excluding the date such payment is made (i) during the period from and including such due date to but excluding the date three Business Days thereafter, at a rate per annum equal to the Federal Funds Rate (as in effect from time to time) and (ii) thereafter, at a rate per annum equal to the Base Rate (as in effect from time to time) plus 2%. (k) The issuance by the Issuing Lender of any modification or supplement to any Letter of Credit hereunder shall be subject to the same conditions applicable under this Section 2.03 to the issuance of new Letters of Credit, and no such modification or supplement shall be issued hereunder unless either (x) the respective Letter of Credit affected thereby would have complied with such conditions had it originally been issued hereunder in such modified or supplemented form or (y) each Series A Lender shall have consented thereto. (l) Pursuant to Section 2.03 of the Existing Credit Agreement, Chase has issued the Letters of Credit identified on Schedule V hereto (the "EXISTING LETTERS OF CREDIT"). Each Series A Lender hereby agrees that each Existing Letter of Credit shall constitute, on and after the Amendment Effective Date, a Letter of Credit for all purposes of this Agreement. The Company hereby indemnifies and holds harmless each Series A Lender and the Administrative Agent from and against any and all claims and damages, losses, liabilities, costs or expenses which such Lender or the Administrative Agent may incur (or which may be claimed against such Lender or the Administrative Agent by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or refusal to pay by the Issuing Lender under any Letter of Credit; PROVIDED that the Company shall not be required CREDIT AGREEMENT 30 -25- to indemnify any Lender or the Administrative Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (x) the willful misconduct or gross negligence of the Issuing Lender in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) in the case of the Issuing Lender, such Lender's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 2.03 is intended to limit the other obligations of the Company, any Lender or the Administrative Agent under this Agreement. 2.04 CHANGES OF COMMITMENTS. (a) SERIES A COMMITMENTS. (i) The Series A Commitments shall terminate on the Series A Commitment Termination Date. (ii) The Company shall have the right at any time or from time to time (x) so long as no Series A Loans or Letter of Credit Liabilities are outstanding, to terminate the Series A Commitments and (y) to reduce the aggregate unused amount of the Series A Commitments (for which purpose use of the Series A Commitments shall be deemed to include the aggregate amount of Letter of Credit Liabilities); PROVIDED that (A) the Company shall give notice of each such termination or reduction as provided in Section 4.05 hereof and (B) each partial reduction shall be in an aggregate amount at least equal to $5,000,000 or in multiples of $1,000,000 in excess thereof. (b) SERIES B COMMITMENTS. (i) The Series B Commitments shall terminate on the Series B Commitment Termination Date. (ii) The Company shall have the right at any time or from time to time (x) so long as no Series B Loans are outstanding, to terminate the Series B Commitments and (y) to reduce the aggregate amount of the Series B Commitments; PROVIDED that (A) the Company shall give notice of each such termination or reduction as provided in Section 4.05 hereof; (B) each partial reduction shall be in an aggregate amount at least equal to $5,000,000 or in multiples of $1,000,000 in excess thereof; and (C) to the extent that, after giving effect to any such reduction, the aggregate principal amount of the Series B Loans would exceed the Series B Commitments, the Company shall prepay the Series B Loans. (c) ALL COMMITMENTS. The Commitments once terminated or reduced may not be reinstated. 2.05 COMMITMENT FEE. The Company shall pay to the Administrative Agent for account of (i) each Series A Lender a commitment fee on the daily average unused amount of CREDIT AGREEMENT 31 -26- such Lender's Series A Commitment (for which purpose Letter of Credit Liabilities shall be deemed to be a use of any Lender's Series A Commitment) and (ii) each Series B Lender a commitment fee on the daily average unused amount of such Lender's Series B Commitment, for the period from and including the Amendment Effective Date to but not including the date such Commitment is terminated, at a rate per annum equal to the Commitment Fee Rate. Accrued commitment fee shall be payable on each Quarterly Date and on the date the relevant Commitments are terminated. 2.06 LENDING OFFICES. The Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. 2.07 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of any Lender to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan on such date, but neither any Lender nor the Administrative Agent shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender, and no Lender shall have any obligation to the Administrative Agent (except as provided in Section 4.06 hereof) or any other Lender for the failure by such Lender to make any Loan required to be made by such Lender. 2.08 EVIDENCE OF DEBT. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Company to such Lender resulting from each Loan made or continued hereunder by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (b) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made or continued hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (c) The entries made in the accounts maintained pursuant to paragraph (a) or (b) of this Section 2.08 shall be PRIMA FACIE evidence of the existence and amounts of the obligations recorded therein; PROVIDED that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Company to repay the Loans in accordance with the terms of this Agreement. (d) Any Lender may request that Loans made or continued by it hereunder be evidenced by a promissory note(s). In such event, the Company, at its own expense, shall prepare, execute and deliver to such Lender a promissory note(s) payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent and such note(s) shall be evidence of such Loans (and all amounts payable in respect thereof). CREDIT AGREEMENT 32 -27- 2.09 OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF LOANS. Subject to Sections 4.04 and 5.05 hereof, the Company shall have the right to prepay Loans, or to Convert Loans of one Type into Loans of another Type or Continue Loans of one Type as Loans of the same Type, at any time or from time to time, PROVIDED that the Company shall give the Administrative Agent notice of each such prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and, upon the date specified in any such notice of prepayment, the amount to be prepaid shall become due and payable hereunder) and PROVIDED further that any prepayment of the principal of the Series B Loans shall be applied to reduce the then remaining installments thereof on a pro rata basis (based on the then remaining principal amount of each such installment). Notwithstanding the foregoing, and without limiting the rights and remedies of the Lenders under Section 9 hereof, in the event that any Event of Default shall have occurred and be continuing, the Administrative Agent may (and at the request of the Majority Lenders shall) suspend the right of the Company to Convert any Loan into a Eurodollar Loan, or to Continue any Loan as a Eurodollar Loan, in which event all Loans shall be Converted (on the last day(s) of the respective Interest Periods therefor) or Continued, as the case may be, as Base Rate Loans. 2.10 MANDATORY PREPAYMENTS AND REDUCTIONS OF COMMITMENTS. (a) [Intentionally Omitted] (b) CASUALTY EVENTS. Unless the Company or any of its Subsidiaries, as the case may be, shall have irrevocably committed to repair or replace any Property of the Company or such Subsidiary affected by a Casualty Event, on the date 30 days following the receipt by the Company of the proceeds of insurance, condemnation award or other compensation in respect of such Casualty Event affecting such Property (or upon such earlier date as the Company or such Subsidiary, as the case may be, shall have determined not to repair or replace the Property affected by such Casualty Event), the Company shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (f) below), and the Commitments shall be subject to automatic reduction, in an aggregate amount, if any, equal to 75% of the Net Available Proceeds of such Casualty Event not theretofore applied to the repair or replacement of such Property (or reserved by the Company for application to such purposes), such prepayment and reduction to be effected in each case in the manner and to the extent specified in clause (e) of this Section 2.10. Nothing in this clause (b) shall be deemed to limit any obligation of the Company or any of its Subsidiaries pursuant to any of the Security Documents to remit to a collateral or similar account (including, without limitation, the Collateral Account) maintained by the Administrative Agent pursuant to any of the Security Documents the proceeds of insurance, condemnation award or other compensation received in respect of any Casualty Event. (c) RECAPTURE OF PROCEEDS FROM ASSET SALES. In the event of a Disposition, the Company shall deposit 75% of the Net Available Proceeds therefrom into the Collateral Account no later than five Business Days after receipt thereof; PROVIDED that prior to such deposit the Company may invest such Net Available Proceeds, or after such deposit the Company may withdraw such Net Available Proceeds from the Collateral Account within 270 days after such CREDIT AGREEMENT 33 -28- Disposition so long as immediately thereafter such Net Available Proceeds are invested, in Property to be used by the Company or any of its Subsidiaries in the lines of business in which the Company or any of its Subsidiaries is engaged as of the Restatement Date or in any business related thereto. No later than 270 days following the occurrence of any such Disposition, the Company will deliver to the Lenders a statement, certified by the chief financial officer of the Company, in form and detail satisfactory to the Administrative Agent, of the amount of the Net Available Proceeds of such Disposition not applied as contemplated by the immediately preceding sentence and, on the first Recapture Date thereafter, the Company shall withdraw the remaining Net Available Proceeds from the Collateral Account and prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (f) below), and the Commitments shall be subject to automatic reduction, in an aggregate amount equal to 75% of the Net Available Proceeds received or which become available for prepayment or reduction during such Recapture Period ending on such Recapture Date, such prepayment and reduction to be effected in each case in the manner and to the extent specified in clause (e) of this Section 2.10. In addition to the foregoing, to the extent the remaining 25% of the Net Available Proceeds from such Disposition would become "Excess Proceeds" (as defined in the Senior Subordinated Indenture[s]) under clause (b) of Section 1016 of the Senior Subordinated Indenture[s] (the "REMAINDER AMOUNT"), the Company shall, immediately prior to such Remainder Amount becoming "Excess Proceeds" as aforesaid, prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (f) below), and the Commitments shall be subject to automatic reduction, in an aggregate amount equal to such Remainder Amount, such prepayment and reduction to be effected in each case in the manner and to the extent specified in clause (e) of this Section 2.10. Nothing in this Section 2.10(c) shall be deemed to excuse or otherwise limit the obligation of the Company to obtain the consent of the Majority Lenders pursuant to Section 8.05 hereof to any Disposition not otherwise permitted hereunder. (d) REVERSIONS. Without limiting the obligation of the Company under Section 8.01(c) hereof, upon any Reversion the Company shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (f) below), and the Commitments shall be subject to automatic reduction, in an aggregate amount equal to 75% of the Net Available Proceeds thereof, such prepayment and reduction to be effected in each case in the manner and to the extent specified in clause (e) of this Section 2.10. (e) APPLICATION. Prepayments and reductions of Commitments described in the above clauses of this Section 2.10 shall be effected as follows: (i) first, the Series B Loans shall be prepaid in an amount equal to the prepayment or reduction specified in such clauses (such prepayments shall be applied first to Base Rate Loans and then to Eurodollar Loans) and shall be applied to the installments of the Series B Loans on a pro rata basis (based on the then remaining principal amount of each such installment); and (ii) second, any excess over the amount referred to in the foregoing clause (i) shall automatically reduce the Series A Commitments (and to the extent that, after giving effect to such reduction, the aggregate principal amount of Series A Loans, together with CREDIT AGREEMENT 34 -29- the aggregate amount of all Letter of Credit Liabilities, would exceed the Series A Commitments, the Company shall, first, prepay Series A Loans (such prepayments shall be applied first to Base Rate Loans and then to Eurodollar Loans) and, second, provide cover for Letter of Credit Liabilities as specified in clause (f) below, in an aggregate amount equal to such excess). (f) COVER FOR LETTER OF CREDIT LIABILITIES. In the event that the Company shall be required pursuant to this Section 2.10 to provide cover for Letter of Credit Liabilities, the Company shall effect the same by paying to the Administrative Agent immediately available funds in an amount equal to the required amount, which funds shall be retained by the Administrative Agent in the Collateral Account (as provided therein as collateral security in the first instance for the Letter of Credit Liabilities) until such time as the Letters of Credit shall have been terminated and all of the Letter of Credit Liabilities paid in full. Section 3. PAYMENTS OF PRINCIPAL AND INTEREST. 3.01 REPAYMENT OF LOANS. (a) The Company hereby promises to pay to the Administrative Agent for account of each Series A Lender the entire outstanding principal amount of such Lender's Series A Loans, and each Series A Loan shall mature, on the Series A Commitment Termination Date. (b) Subject to Sections 2.09 and 2.10 hereof, the Company hereby promises to pay to the Administrative Agent for account of each Series B Lender the principal amount of each of such Lender's Series B Loans in twenty (20) consecutive quarterly installments, commencing on the Quarterly Date falling approximately three (3) months after the Series B Commitment Termination Date and on each of the nineteen (19) Quarterly Dates thereafter, the first eight (8) of which shall each be in an amount equal to 2.5% of the initial principal amount of such Series B Loan, the next four (4) of which shall each be in an amount equal to 4% of the initial principal amount of such Series B Loan, the next four (4) of which shall each be in an amount equal to 7% of the initial principal amount of such Series B Loan, and the last four (4) of which shall each be in an amount equal to 9% of the initial principal amount of such Series B Loan. 3.02 INTEREST. The Company hereby promises to pay to the Administrative Agent for account of each Lender interest on the unpaid principal amount of each Loan made by such Lender for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at the following rates per annum: (a) during such periods as such Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) PLUS the Applicable Margin (if any) and CREDIT AGREEMENT 35 -30- (b) during such periods as such Loan is a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Loan for such Interest Period PLUS the Applicable Margin. Notwithstanding the foregoing, the Company hereby promises to pay to the Administrative Agent for account of each Lender interest at the applicable Post-Default Rate on any principal of any Loan made by such Lender, on any Reimbursement Obligation held by such Lender and on any other amount payable by the Company hereunder or under the Notes held by such Lender to or for account of such Lender, which shall not be paid in full when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. Accrued interest on each Loan shall be payable (i) in the case of a Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar Loan, on the last day of each Interest Period therefor and, if such Interest Period is longer than three months, at three-month intervals following the first day of such Interest Period, and (iii) in the case of any Loan, upon the payment or prepayment thereof or the Conversion of such Loan to a Loan of another Type (but only on the principal amount so paid, prepaid or Converted), except that interest payable at the Post-Default Rate shall be payable from time to time on demand. Promptly after the determination of any interest rate provided for herein or any change therein, the Administrative Agent shall give notice thereof to the Lenders to which such interest is payable and to the Company. Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. 4.01 PAYMENTS. (a) Except to the extent otherwise provided herein, all payments of principal, interest, Reimbursement Obligations and other amounts to be made by the Company under this Agreement and the Notes, and, except to the extent otherwise provided therein, all payments to be made by the Company under any other Basic Document, shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Administrative Agent to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Company, not later than 1:00 p.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) Any Lender for whose account any such payment is to be made may (but shall not be obligated to) debit the amount of any such payment that is not made by such time to any ordinary deposit account of the Company with such Lender (with notice to the Company and the Administrative Agent). (c) The Company shall, at the time of making each payment under this Agreement or any Note for account of any Lender, specify to the Administrative Agent (which shall so notify the intended recipient(s) thereof) the Loans, Reimbursement Obligations or other amounts payable by the Company hereunder to which such payment is to be applied (and in the CREDIT AGREEMENT 36 -31- event that the Company fails to so specify, or if an Event of Default has occurred and is continuing, the Administrative Agent may distribute such payment to the Lenders for application in such manner as it or the Majority Lenders, subject to Section 4.02 hereof, may determine to be appropriate). (d) Except to the extent otherwise provided in the last sentence of Section 2.03(e) hereof, each payment received by the Administrative Agent under this Agreement or any Note for account of any Lender shall be paid by the Administrative Agent promptly to such Lender, in immediately available funds, for account of such Lender's Applicable Lending Office for the Loan or other obligation in respect of which such payment is made. (e) If the due date of any payment under this Agreement or any Note would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 4.02 PRO RATA TREATMENT. Except to the extent otherwise provided herein: (a) each borrowing of Loans of a particular Class from the Lenders under Section 2.01 hereof shall be made from the relevant Lenders, each payment of commitment fee under Section 2.05 hereof in respect of Commitments of a particular Class shall be made for account of the relevant Lenders, and each termination or reduction of the amount of the Commitments of a particular Class under Section 2.04 hereof and under Section 2.10(e) hereof shall be applied to the respective Commitments of such Class of the relevant Lenders, pro rata according to the amounts of their respective Commitments of such Class; (b) the making, Conversion and Continuation of Series A Loans and Series B Loans of a particular Type (other than Conversions provided for by Section 5.04 hereof) shall be made pro rata among the relevant Lenders according to the amounts of their respective Series A and Series B Commitments (in the case of making of Loans) or their respective Series A and Series B Loans (in the case of Conversions and Continuations of Loans) and the then current Interest Period for each Eurodollar Loan shall be coterminous; (c) each payment or prepayment of principal of Series A Loans or Series B Loans by the Company shall be made for account of the relevant Lenders pro rata in accordance with the respective unpaid principal amounts of the Loans of such Class held by them; and (d) each payment of interest on Series A Loans and Series B Loans by the Company shall be made for account of the relevant Lenders pro rata in accordance with the amounts of interest on such Loans then due and payable to the respective Lenders. 4.03 COMPUTATIONS. Interest on Eurodollar Loans and Reimbursement Obligations and commitment fee and letter of credit fee shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable and interest on Base Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. Notwithstanding the foregoing, for each date that the Base Rate is calculated by reference to the Federal Funds Rate, interest on Base Rate Loans shall be computed on the basis of a year of 360 days and actual days elapsed. CREDIT AGREEMENT 37 -32- 4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made pursuant to Section 2.10 hereof and Conversions or prepayments made pursuant to Section 5.04 hereof, (i) each borrowing, Conversion and partial prepayment of principal of Series A Loans shall be in multiples of $1,000,000 and (ii) each borrowing, Conversion or partial prepayment of principal of Series B Loans shall be in multiples of $1,000,000 (borrowings, Conversions or prepayments of or into Loans of different Types, or, in the case of Eurodollar Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, Conversions and prepayments for purposes of the foregoing, one for each Type or Interest Period). Anything in this Agreement to the contrary notwithstanding, the aggregate principal amount of Eurodollar Loans having the same Interest Period shall be in an amount at least equal to $5,000,000 or in multiples of $1,000,000 in excess thereof and, if any Eurodollar Loans would otherwise be in a lesser principal amount for any period, such Loans shall be Base Rate Loans during such period. 4.05 CERTAIN NOTICES. Notices by the Company to the Administrative Agent of terminations or reductions of the Commitments, of borrowings, Conversions, Continuations and optional prepayments of Loans and of Classes of Loans and of Types of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by the Administrative Agent not later than 10:00 a.m. New York time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, Conversion, Continuation or prepayment or the first day of such Interest Period specified below: Number of Business Notice Days Prior - ------------------------------------- ---------- Termination or reduction 3 of Commitments Borrowing or prepayment of, 1 or Conversions into, Base Rate Loans Borrowing or prepayment of, 3 Conversions into, Continuations as, or duration of Interest Period for, Eurodollar Loans Each such notice of termination or reduction shall specify the amount and the Class of the Commitments to be terminated or reduced. Each such notice of borrowing, Conversion, Continuation or optional prepayment shall specify the Class of Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to Section 4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued or prepaid and the date of borrowing, Conversion, Continuation or optional prepayment (which shall be a Business Day). Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Administrative Agent shall promptly notify the Lenders of the contents of each such notice. In the event that the Company fails to select the Type of Loan, or the duration of any Interest Period for any Eurodollar Loan, within the time period and otherwise as provided in this Section 4.05, such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted CREDIT AGREEMENT 38 -33- into a Base Rate Loan on the last day of the then current Interest Period for such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. 4.06 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT. Unless the Administrative Agent shall have been notified by a Lender or the Company (the "PAYOR") prior to the date on which the Payor is to make payment to the Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be made by such Lender, or a participation in a Letter of Credit drawing to be acquired by such Lender, hereunder or (in the case of the Company) a payment to the Administrative Agent for account of one or more of the Lenders hereunder (such payment being herein called the "REQUIRED PAYMENT"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Administrative Agent, the Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; and, if the Payor has not in fact made the Required Payment to the Administrative Agent, the recipient(s) of such payment shall, on demand, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "ADVANCE DATE") such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day and, if such recipient(s) shall fail promptly to make such payment, the Administrative Agent shall be entitled to recover such amount, on demand, from the Payor, together with interest as aforesaid, PROVIDED that if neither the recipient(s) nor the Payor shall return the Required Payment to the Administrative Agent within three Business Days of the Advance Date, then, retroactively to the Advance Date, the Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment as follows: (i) if the Required Payment shall represent a payment to be made by the Company to the Lenders, the Company and the recipient(s) shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Post-Default Rate (and, in case the recipient(s) shall return the Required Payment to the Administrative Agent, without limiting the obligation of the Company under Section 3.02 hereof to pay interest to such recipient(s) at the Post-Default Rate in respect of the Required Payment) and (ii) if the Required Payment shall represent proceeds of a loan to be made by the Lenders to the Company, the Payor and the Company shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant to Section 3.02 hereof (and, in case the Company shall return the Required Payment to the Administrative Agent, without limiting any claim the Company may have against the Payor in respect of the Required Payment). 4.07 SHARING OF PAYMENTS, ETC. CREDIT AGREEMENT 39 -34- (a) The Company agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option, to offset balances held by it for account of the Company at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender's Loans, Reimbursement Obligations or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to the Company), in which case it shall promptly notify the Company and the Administrative Agent thereof, PROVIDED that such Lender's failure to give such notice shall not affect the validity thereof. (b) If any Lender shall obtain from the Company payment of any principal of or interest on any Loan of any Class or Letter of Credit Liability owing to it or payment of any other amount under this Agreement or any other Basic Document through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise (other than from the Administrative Agent as provided herein), and, as a result of such payment, such Lender shall have received a greater percentage of the principal of or interest on the Loans of such Class or Letter of Credit Liabilities or such other amounts then due hereunder or thereunder by the Company to such Lender than the percentage received by any other Lender, it shall promptly purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans of such Class or Letter of Credit Liabilities or such other amounts, respectively, owing to such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Loans of such Class or Letter of Credit Liabilities or such other amounts, respectively, owing to each of the Lender. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) The Company agrees that any Lender so purchasing such a participation (or direct interest) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation. (d) Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Company. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 4.07 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.07 to share in the benefits of any recovery on such secured claim. CREDIT AGREEMENT 40 -35- Section 5. YIELD PROTECTION, ETC. 5.01 ADDITIONAL COSTS. (a) The Company shall pay directly to each Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs that such Lender determines are attributable to its making or maintaining of any Eurodollar Loans or its obligation to make any Eurodollar Loans hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change that: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or its Notes in respect of any of such Loans (other than taxes imposed on or measured by the overall net income of such Lender or of its Applicable Lending Office for any of such Loans by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit or similar requirements (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate for such Loan) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (including, without limitation, any of such Loans or any deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof), or any commitment of such Lender (including, without limitation, the Commitments of such Lender hereunder); or (iii) imposes any other condition affecting this Agreement or its Notes (or any of such extensions of credit or liabilities) or its Commitments. If any Lender requests compensation from the Company under this Section 5.01(a), the Company may, by notice to such Lender (with a copy to the Administrative Agent), suspend the obligation of such Lender thereafter to make or Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable), PROVIDED that such suspension shall not affect the right of such Lender to receive the compensation so requested. (b) Without limiting the effect of the provisions of paragraph (a) of this Section 5.01, in the event that, by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender that includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender that includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets that it may hold, then, if such Lender so elects by notice to the Company (with a copy to the CREDIT AGREEMENT 41 -36- Administrative Agent), the obligation of such Lender to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable). (c) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Company shall pay directly to each Lender from time to time on request such amounts as such Lender may determine to be necessary to compensate such Lender (or, without duplication, the bank holding company of which such Lender is a subsidiary) for any costs that it determines are attributable to the maintenance by such Lender (or any Applicable Lending Office or such bank holding company), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law and whether or not failure to complete therewith would be unlawful) of any court or governmental or monetary authority (i) following any Regulatory Change or (ii) implementing any risk-based capital guideline or other requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) heretofore or hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basle Accord (including, without limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of its Commitments or Loans (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender (or any Applicable Lending Office or such bank holding company) to a level below that which such Lender (or any Applicable Lending Office or such bank holding company) could have achieved but for such law, regulation, interpretation, directive or request). For purposes of this Section 5.01(c) and Section 5.06 hereof, "BASLE ACCORD" shall mean the proposals for risk-based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented and in effect from time to time or any replacement thereof. (d) Each Lender shall notify the Company of any event occurring after the Amendment Effective Date entitling such Lender to compensation under paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any event within 45 days, after such Lender obtains actual knowledge thereof; PROVIDED that (i) if any Lender fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Lender shall, with respect to compensation payable pursuant to this Section 5.01 in respect of any costs resulting from such event, only be entitled to payment under this Section 5.01 for costs incurred from and after the date 45 days prior to the date that such Lender does give such notice and (ii) each Lender will designate a different Applicable Lending Office for the Loans of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, except that such Lender shall have no obligation to designate an Applicable Lending Office located in the United States of America. Each Lender will furnish to the Company a certificate setting forth the basis and amount of each request by such Lender for compensation under paragraph (a) or (c) of this Section 5.01. Determinations and allocations by any Lender for purposes of this CREDIT AGREEMENT 42 -37- Section 5.01 of the effect of any Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01, or of the effect of capital maintained pursuant to paragraph (c) of this Section 5.01, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive, PROVIDED that such determinations and allocations are made on a reasonable basis. 5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Eurodollar Base Rate for any Interest Period: (a) the Administrative Agent reasonably determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or (b) if the related Loans are Series A Loans, the Majority Series A Lenders or, if the related Loans are Series B Loans, the Majority Series B Lenders reasonably determine, which determination shall be conclusive, and notify the Administrative Agent that the relevant rates of interest referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not likely adequately to cover the cost to such Lenders of making or maintaining Eurodollar Loans for such Interest Period; then the Administrative Agent shall give the Company and each Lender prompt notice thereof and, so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans, and the Company shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate Loans in accordance with Section 2.09 hereof. 5.03 ILLEGALITY. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans hereunder, then such Lender shall promptly notify the Company thereof (with a copy to the Administrative Agent) and such Lender's obligation to make or Continue, or to Convert Loans of any other Type into, Eurodollar Loans shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be applicable). 5.04 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to make Eurodollar Loans or to Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof, such Lender's Eurodollar Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest CREDIT AGREEMENT 43 -38- Period(s) for Eurodollar Loans (or, in the case of a Conversion required by Section 5.01(b) or 5.03 hereof, on such earlier date as such Lender may specify to the Company with a copy to the Administrative Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Eurodollar Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Eurodollar Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Eurodollar Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be Converted into Eurodollar Loans shall remain as Base Rate Loans. If such Lender gives notice to the Company with a copy to the Administrative Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the Conversion of such Lender's Eurodollar Loans pursuant to this Section 5.04 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Loans made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Eurodollar Loans and by such Lender are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments. 5.05 COMPENSATION. The Company shall pay to the Administrative Agent for account of each Lender, upon the request of such Lender through the Administrative Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost or expense incurred by it that such Lender determines is attributable to: (a) any payment, mandatory or optional prepayment or Conversion of a Eurodollar Loan made by such Lender for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 9 hereof) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 6 hereof to be satisfied) to borrow a Eurodollar Loan from such Lender on the date for such borrowing specified in the relevant notice of borrowing given pursuant to Section 2.02 hereof. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest that otherwise would have accrued on the principal amount so paid, prepaid or Converted or not borrowed for the period CREDIT AGREEMENT 44 -39- from the date of such payment, prepayment, Conversion or failure to borrow to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan that would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the amount of interest that otherwise would have accrued on such principal amount at a rate per annum equal to the interest component of the amount such Lender would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Lender). 5.06 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. Without limiting the obligations of the Company under Section 5.01 hereof (but without duplication), if as a result of any Regulatory Change or any risk-based capital guideline or other requirement heretofore or hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basle Accord there shall be imposed, modified or deemed applicable any tax, reserve, special deposit, capital adequacy or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder and the result shall be to increase the cost to any Lender or Lenders of issuing (or purchasing or maintaining participations in) or maintaining its obligation hereunder to issue (or purchase participations in) any Letter of Credit hereunder or reduce any amount receivable by any Lender hereunder in respect of any Letter of Credit (which increases in cost, or reductions in amount receivable, shall be the result of such Lender's or Lenders' reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, upon demand by such Lender or Lenders (through the Administrative Agent), the Company shall pay immediately to the Administrative Agent for account of such Lender or Lenders, from time to time as specified by such Lender or Lenders (through the Administrative Agent), such additional amounts as shall be sufficient to compensate such Lender or Lenders (through the Administrative Agent) for such increased costs or reductions in amount. A statement as to such increased costs or reductions in amount incurred by any such Lender or Lenders, submitted by such Lender or Lenders to the Company shall be conclusive in the absence of manifest error as to the amount thereof, PROVIDED that the determination of such increased costs or reductions are made on a reasonable basis. 5.07 U.S. TAXES. (a) The Company agrees to pay to each Lender that is not a U.S. Person such additional amounts as are necessary in order that the net payment of any amount due to such non-U.S. Person hereunder after deduction for or withholding in respect of any U.S. Taxes imposed with respect to such payment (or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will not be less than the amount stated herein to be then due and payable, PROVIDED that the foregoing obligation to pay such additional amounts shall not apply: (i) to any payment to a Lender hereunder unless such Lender is, on the Amendment Effective Date (or on the date it becomes a Lender as provided in Section 11.06(b) hereof) and on the date of any change in the Applicable Lending Office of such Lender, either entitled to submit a Form 1001 (relating to such Lender and entitling it to a complete exemption from withholding on all interest to be received by it CREDIT AGREEMENT 45 -40- hereunder in respect of the Loans) or Form 4224 (relating to all interest to be received by such Lender hereunder in respect of the Loans), or (ii) to any U.S. Taxes imposed solely by reason of the failure by such non-U.S. Person to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the United States of America of such non-U.S. Person if such compliance is required by statute or regulation of the United States of America as a precondition to relief or exemption from such U.S. Taxes. For the purposes of this Section 5.07(a), (w) "FORM 1001" shall mean Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the Department of the Treasury of the United States of America, (x) "FORM 4224" shall mean Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States) of the Department of the Treasury of the United States of America (or in relation to either such Form such successor and related forms as may from time to time be adopted by the relevant taxing authorities of the United States of America to document a claim to which such Form relates), (y) "U.S. PERSON" shall mean a citizen, national or resident of the United States of America, a corporation, partnership or other entity created or organized in or under any laws of the United States of America, or any estate or trust that is subject to Federal income taxation regardless of the source of its income and (z) "U.S. TAXES" shall mean any present or future tax, assessment or other charge or levy imposed by or on behalf of the United States of America or any taxing authority thereof or therein. (b) Within 30 days after paying any amount to the Administrative Agent or any Lender from which it is required by law to make any deduction or withholding, and within 30 days after it is required by law to remit such deduction or withholding to any relevant taxing or other authority, the Company shall deliver to the Administrative Agent for delivery to such non-U.S. Person evidence satisfactory to such Person of such deduction, withholding or payment (as the case may be). Section 6. CONDITIONS PRECEDENT. 6.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of the amendment and restatement of the Existing Credit Agreement provided for hereby is subject to the receipt by the Administrative Agent of the following documents, each of which shall be satisfactory to the Administrative Agent (and to the extent specified below, to each Lender) in form and substance: (a) CORPORATE DOCUMENTS. The following documents, each certified as indicated below: (i) a copy of the charter, as amended and in effect, of the Company certified as of a recent date by the Secretary of State of the State of Delaware (or, if there have been no CREDIT AGREEMENT 46 -41- modifications to such charter from the copy thereof delivered by the Company pursuant to the Existing Credit Agreement, a certificate of the Secretary or an Assistant Secretary of the Company to that effect), and a certificate from such Secretary of State dated as of a recent date as to the good standing of and charter documents filed by the Company; (ii) a certificate of the Secretary or an Assistant Secretary of the Company, dated the Amendment Effective Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of the Company as amended and in effect at all times from the date on which the resolutions referred to in clause (B) below were adopted to and including the date of such certificate (or if there have been no modifications to such by-laws from the copy thereof delivered by the Company pursuant to the Existing Credit Agreement, a certificate of the Secretary or an Assistant Secretary of the Company to that effect), (B) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors of the Company authorizing the execution, delivery and performance of the amendment and restatement of the Existing Credit Agreement and such other of the Basic Documents to which the Company is or is intended to be a party and the extensions of credit hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the charter of the Company has not been amended since the date of the certification thereto furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer of the Company executing the amendment and restatement of the Existing Credit Agreement and such other of the Basic Documents to which the Company is intended to be a party and each other document to be delivered by the Company from time to time in connection therewith (and the Administrative Agent and each Lender may conclusively rely on such certificate until it receives notice in writing from the Company to the contrary); and (iii) a certificate of another officer of the Company as to the incumbency and specimen signature of the Secretary or Assistant Secretary, as the case may be, of the Company. (b) OFFICER'S CERTIFICATE. A certificate of a senior officer of the Company, dated the Amendment Effective Date, to the effect that (i) no Default shall have occurred and be continuing and (ii) the representations and warranties made by the Company in Section 7 hereof, and in each of the other Basic Documents, are true and correct on and as of the Amendment Effective Date with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date). (c) OPINION OF COUNSEL TO THE COMPANY. An opinion, dated the Amendment Effective Date, of Ropes & Gray, counsel to the Company, in form and substance satisfactory to the Administrative Agent (and the Company hereby instructs such counsel to deliver such opinions to the Lenders and the Administrative Agent). CREDIT AGREEMENT 47 -42- (d) OPINION OF SPECIAL NEW YORK COUNSEL TO CHASE. An opinion, dated the Amendment Effective Date, of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase, in form and substance satisfactory to the Administrative Agent. (e) FINANCIAL INFORMATION. True, correct and complete copies of the financial statements, projections and other information referred to in Section 7.02 hereof. (f) APPROVALS AND CONSENTS. Evidence that all necessary governmental and third party filings, licenses, permits, consents and approvals have been obtained by the Company and are in full force and effect on the Amendment Effective Date. (g) PAYMENT OF FEES AND EXPENSES. Evidence that (i) all principal of and interest on, and all other amount owing in respect of, the loans made by the Existing Lenders under the Existing Credit Agreement shall have been paid in full and (ii) all fees and expenses payable to the Existing Lenders and the Administrative Agent under the Existing Credit Agreement accrued to the Amendment Effective Date and unpaid and such fees as the Company shall have agreed to pay or deliver to the Administrative Agent in connection herewith, including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase in connection with the negotiation, preparation, execution and delivery of the amendment and restatement of the Existing Credit Agreement and the Notes and the other Basic Documents and the extensions of credit hereunder (to the extent that statements for such fees and expenses have been delivered to the Company) shall have been paid in full. (h) GOVERNMENTAL PROCEEDINGS; ETC. Evidence that no litigation or similar proceeding is threatened by any governmental agency or authority or any other person with respect to the execution and delivery of the amendment and restatement of the Existing Credit Agreement, the Notes and the other Basic Documents, and the consummation of the transactions herein or therein contemplated which, in each case, the Lenders shall reasonably determine is likely to have a material adverse effect on (i) the assets, business, operations, or condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole or (ii) the timely payment of the Loans and interest thereon or the enforceability of the Basic Documents or the rights and remedies thereunder. (i) LEVERAGE RATIO. A certificate of a senior officer of the Company, dated the Amendment Effective Date, setting forth the Leverage Ratio as at the Amendment Effective Date. (j) SECURITY DOCUMENTS. The Security Documents duly executed and delivered by the parties thereto, together with (x) stock certificates representing all of the shares of each Domestic Subsidiary that is a Material Subsidiary directly owned by the Company (except for B/E Advanced Thermal Technologies, Inc.) and not less than 65% of the shares of each Foreign Subsidiary that is a Material Subsidiary directly owned by the Company, together with undated stock powers (or the equivalent with respect to the Foreign Subsidiaries) duly signed in blank, (y) the limited liability company certificates representing all of the ownership interest in In- CREDIT AGREEMENT 48 -43- Flight Entertainment, LLC, together with an undated transfer power duly signed in blank and (z) such Uniform Commercial Code financing statements as the Administrative Agent shall request. (k) SENIOR NOTES. A certificate of a senior financial officer of the Company, dated the Amendment Effective Date, stating that the Company's 9-3/4% Senior Notes due 2003 have been fully redeemed. (l) OTHER DOCUMENTS. Such other documents as the Administrative Agent or any Lender or special New York counsel to Chase may reasonably request. 6.02 INITIAL AND SUBSEQUENT EXTENSIONS OF CREDIT. The obligation of the Lenders to make any Loan or otherwise extend any credit to the Company upon the occasion of each borrowing or other extension of credit hereunder (including the initial borrowing) is subject to the further conditions precedent that: (a) Both immediately prior to the making of such Loan or other extension of credit and also after giving effect thereto and to the intended use thereof: (i) no Default shall have occurred and be continuing; (ii) the representations and warranties made by the Company in Section 7 hereof, and in each of the other Basic Documents, shall be true and correct on and as of the date of the making of such Loan or other extension of credit with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date). Each notice of borrowing or request for the issuance of a Letter of Credit by the Company hereunder shall constitute a certification by the Company to the effect set forth in the preceding sentence (both as of the date of such notice or request and, unless the Company otherwise notifies the Administrative Agent prior to the date of such borrowing or issuance, as of the date of such borrowing or issuance); and (b) The Administrative Agent shall have received a certificate of a senior financial officer of the Company setting forth in reasonable detail the computations necessary to demonstrate that both immediately prior to the making of such Loan or other extension of credit and immediately after giving effect thereto, the Company is or will be in compliance with Section 1010 of the Senior Subordinated Indentures. Section 7. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Lenders that: 7.01 CORPORATE EXISTENCE. Each of the Company and its Subsidiaries: (a) is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which CREDIT AGREEMENT 49 -44- the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could have a Material Adverse Effect. 7.02 FINANCIAL CONDITION. (a) The Company has heretofore furnished to each of the Lenders (i) the consolidated balance sheet of the Company and its Subsidiaries as at February 22, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows of the Company and its Subsidiaries for the fiscal year ended on said date, with the opinion thereon of Deloitte & Touche, and (ii) the consolidated balance sheet of the Company and its Subsidiaries as at November 29, 1997 and the related consolidated statements of earnings, stockholders' equity and cash flows of the Company and its Subsidiaries for the fiscal quarters ended on such date and for the three fiscal quarters ended on such date. All such financial statements present fairly, in all material respects, the financial position of the Company and its Subsidiaries as at, and the results of operations for the fiscal year and fiscal quarter, ended on said date, all in accordance with generally accepted accounting principles and practices applied on a consistent basis (subject, in the case of such financial statements as at November 29, 1997, to normal year-end audit adjustments). Neither the Company nor any of its Subsidiaries has on the Restatement Date any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheets as at said dates. (b) Since February 22, 1997, there has been no material adverse change in the financial condition, operations, business or prospects of the Company and its Subsidiaries from that set forth in said financial statements as at said date. 7.03 LITIGATION. Except as disclosed to the Lenders in writing prior to the Amendment Effective Date, there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of the Company) threatened against the Company or any of its Subsidiaries which, if adversely determined, could have a Material Adverse Effect. 7.04 NO BREACH. None of the execution and delivery of this Agreement and the Notes and the other Basic Documents, the consummation of the transactions herein and therein contemplated or compliance with the terms and provisions hereof and thereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of the Company, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which the Company or any of its Subsidiaries is a party (including, without limitation, the Senior Subordinated Indentures) or by which any of them or any of their Property is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or (except for Liens created pursuant to the Security Documents) result in the creation or imposition of any Lien upon any Property of the Company or any of its Subsidiaries pursuant to the terms of any such agreement or instrument. CREDIT AGREEMENT 50 -45- 7.05 ACTION. The Company has all necessary corporate power, authority and legal right to execute, deliver and perform its obligations under each of the Basic Documents; the execution, delivery and performance by the Company of each of the Basic Documents have been duly authorized by all necessary corporate action on its part (including, without limitation, any required shareholder approvals); and this Agreement has been duly and validly executed and delivered by the Company and constitutes, and each of the Notes and the other Basic Documents to which it is a party when executed and delivered (in the case of the Notes, for value) will constitute, its legal, valid and binding obligation, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 7.06 APPROVALS. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are necessary for the execution, delivery or performance by the Company of the Basic Documents to which it is a party or for the legality, validity or enforceability hereof or thereof, except for filings and recordings in respect of the Liens created pursuant to the Security Documents. 7.07 USE OF CREDIT. Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock. 7.08 ERISA. Each Plan, and, to the knowledge of the Company, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, and no event or condition has occurred and is continuing as to which the Company would be under an obligation to furnish a report to the Lenders under Section 8.01(f) hereof. 7.09 TAXES. The Company and its Domestic Subsidiaries are members of an affiliated group of corporations filing consolidated returns for Federal income tax purposes, of which the Company is the "common parent" (within the meaning of Section 1504 of the Code) of such group. Except as set forth in Schedule VI hereto, the Company and its Domestic Subsidiaries have filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company or any of its Domestic Subsidiaries. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. The Company has not given or been requested to give a waiver of the statute of limitations relating to the payment of Federal, state, local and foreign taxes or other impositions. CREDIT AGREEMENT 51 -46- 7.10 INVESTMENT COMPANY ACT. Neither the Company nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.12 MATERIAL AGREEMENTS AND LIENS. (a) Part A of Schedule I hereto is a complete and correct list, as of the Restatement Date, of each credit agreement, loan agreement, indenture, purchase agreement, guarantee, letter of credit or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guarantee by, the Company or any of its Subsidiaries the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $1,000,000, and the aggregate principal or face amount outstanding or that may become outstanding under each such arrangement is correctly described in Part A of said Schedule I. (b) Part B of Schedule I hereto is a complete and correct list, as of the Restatement Date, of each Lien securing Indebtedness the aggregate principal or face amount of which equals or exceeds $1,000,000 of any Person and covering any Property of the Company or any of its Subsidiaries, and the aggregate amount of such Indebtedness secured (or which may be secured) by each such Lien and the Property covered by each such Lien is correctly described in Part B of said Schedule I. 7.13 ENVIRONMENTAL MATTERS. Except as set forth in Schedule II hereto, each of the Company and its Subsidiaries has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being or as proposed to be conducted, except to the extent failure to have any such permit, license or authorization would not have a Material Adverse Effect. All of the permits, licenses and authorizations that have been obtained are in full force and effect and each of the Company and its Subsidiaries is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith would not have a Material Adverse Effect. In addition, except as set forth in Schedule II hereto: (a) To the Company's knowledge after due inquiry, no written notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending CREDIT AGREEMENT 52 -47- or threatened by any governmental or other entity with respect to any alleged failure by the Company or any of its Subsidiaries to have any environmental, health or safety permit, license or other authorization required under any Environmental Law in connection with the conduct of the business of the Company or any of its Subsidiaries or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any Release of any Hazardous Materials generated by the Company or any of its Subsidiaries. (b) Neither the Company nor any of its Subsidiaries owns, operates or leases a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act of 1976, as amended, or under any comparable state or local statute; and (i) to the Company's knowledge after due inquiry, no PCB Transformers (as defined in the Toxic Substances Control Act, 15 U.S.C. ss.1601, et seq., as amended, and the regulations relating thereto) are present at any site or facility owned, operated or leased by the Company or any of its Subsidiaries; (ii) to the Company's knowledge after due inquiry, no asbestos or asbestos-containing materials is present at any site or facility owned, operated or leased by the Company or any of its Subsidiaries; (iii) to the Company's knowledge after due inquiry, there are no underground storage tanks or surface impoundments for Hazardous Materials, active or abandoned, at any site or facility owned, operated or leased by the Company or any of its Subsidiaries; and (iv) to the Company's knowledge after due inquiry, no Hazardous Materials have been Released by the Company or any of its Subsidiaries at, on or under any site or facility now owned, operated or leased by the Company or any of its Subsidiaries in a reportable quantity established by any Environmental Law. (c) To the Company's knowledge after due inquiry, neither the Company nor any of its Subsidiaries has transported or arranged for the transportation of any Hazardous Material to any location that is listed on the National Priorities List ("NPL") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by the Environmental Protection Agency, or listed in the Comprehensive Environmental Response and Liability Information System, as provided for by 40 C.F.R. ss. 300.5 ("CERCLIS"), or on any similar state or local list or that is the subject of Federal, state or local enforcement actions or other investigations that may lead to Environmental Claims against the Company or any of its Subsidiaries. (d) No Liens are presently recorded with the appropriate land records under or pursuant to any Environmental Laws on any site or facility owned, operated or leased by the Company or any of its Subsidiaries, and to the Company's knowledge no government action has been taken or is in process that could subject any such site or facility to such Liens. Neither the Company nor any of its Subsidiaries would be required to place any notice or restriction relating CREDIT AGREEMENT 53 -48- to the presence of Hazardous Materials at any site or facility owned by it in any deed to the real property on which such site or facility is located. (e) There have been no environmental investigations, written studies, audits, tests, reviews or other analyses conducted by or that are in the possession of the Company or any of its Subsidiaries in relation to any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries which have not been made available to the Lenders. 7.14 CAPITALIZATION. The authorized capital stock of the Company consists, on the Restatement Date, of an aggregate of 31,000,000 shares consisting of (i) 30,000,000 shares of common stock, par value $0.01 per share, of which 22,891,918 shares were, as at February 28, 1998 duly and validly issued and outstanding, each of which shares is fully paid and nonassessable and (ii) 1,000,000 shares of preferred stock, par value $0.01 per share, of which no shares were outstanding as at February 28, 1998. As of the Restatement Date the Company is registered with the Securities and Exchange Commission under the Securities Exchange Act, and its shares of common stock are publicly owned and traded on the NASDAQ National Market System. As of the Restatement Date, (x) except for options to purchase 2,902,001 shares of the common stock of the Company, there are no outstanding Equity Rights with respect to the Company and (y) there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital stock of the Company nor are there any outstanding obligations of the Company or any of its Subsidiaries to make payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market value or equity value of the Company or any of its Subsidiaries. 7.15 SUBSIDIARIES, ETC. (a) Set forth in Part A of Schedule III hereto is a complete and correct list, as of the Restatement Date, of all of the Subsidiaries of the Company, together with, for each such Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary, (iii) the nature of the ownership interests held by each such Person and the percentage of ownership of such Subsidiary represented by such ownership interests and (iv) the total book value of the assets of each such Subsidiary as of November 29, 1997. Except as disclosed in Part A of Schedule III hereto, (x) each of the Company and its Subsidiaries owns, free and clear of Liens (other than Liens created pursuant to the Security Documents), and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it in Part A of Schedule III hereto, (y) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and (z) there are no outstanding Equity Rights with respect to such Person. (b) Set forth in Part B of Schedule III hereto is a complete and correct list, as of the Restatement Date, of all Investments (other than Investments disclosed in Part A of said Schedule III hereto) of $1,000,000 or more held by the Company or any of its Subsidiaries in any Person and, for each such Investment, (x) the identity of the Person or Persons in which such Investment has been made, (y) the nature of such Investment and (z) the amount of such CREDIT AGREEMENT 54 -49- Investment. Except as disclosed in Part B of Schedule III hereto, each of the Company and its Subsidiaries owns, free and clear of all Liens (other than Liens created pursuant to the Security Documents), all such Investments. (c) Except as set forth in Schedule III hereto, none of the Subsidiaries of the Company is, on the Restatement Date, subject to any indenture, agreement, instrument or other arrangement of the type described in the last sentence of Section 8.17 hereof. 7.16 TITLE TO ASSETS. The Company owns and has on the Restatement Date, and will own and have on the Amendment Effective Date, good and marketable title (subject only to Liens permitted by Section 8.06 hereof) to the Properties shown to be owned in the most recent financial statements referred to in Section 7.02 hereof (other than Properties disposed of in the ordinary course of business or otherwise permitted to be disposed of pursuant to Section 8.05 hereof). The Company owns and has on the Restatement Date, and will own and have on the Amendment Effective Date, good and marketable title to, and enjoys on the Restatement Date, and will enjoy on the Amendment Effective Date, peaceful and undisturbed possession of, all Properties (subject only to Liens permitted by Section 8.06 hereof) that are necessary for the operation and conduct of its businesses. 7.17 COMPLIANCE WITH LAW. Except as set forth in Schedule IV hereto, each of the Company and its Subsidiaries is in compliance with all applicable laws, rules, regulations and orders of, and all applicable restrictions imposed by, all governmental authorities or bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its Property (including Environmental Laws), except such noncompliance as would not, in the aggregate, have a Material Adverse Effect on the business, properties, assets, operations, condition (financial or otherwise), or prospects of the Company and its Subsidiaries, taken as a whole. 7.18 TRUE AND COMPLETE DISCLOSURE. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Company to the Administrative Agent or any Lender prior to the Amendment Effective Date in connection with the negotiation, preparation or delivery of this Agreement and the other Basic Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole (together with the Information Memorandum which the Lenders acknowledge contains projections based on certain assumptions therein stated) do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished on or after the Amendment Effective Date by the Company and its Subsidiaries to the Administrative Agent and the Lenders in connection with this Agreement and the other Basic Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to the Company that could have a Material Adverse Effect that has not been disclosed herein, in the other Basic Documents or in a report, financial statement, exhibit, CREDIT AGREEMENT 55 -50- schedule, disclosure letter or other writing furnished to the Lenders for use in connection with the transactions contemplated hereby or thereby. 7.19 YEAR 2000. Substantially all reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the Company's computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which the Company's systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be materially completed by July 1, 1999. The cost to the Company of such reprogramming and testing and of the reasonable foreseeable consequences of year 2000 to the Company (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or a Material Adverse Effect. Nothing herein shall preclude the Company from making the foregoing representation after the making of an Acquisition of any Person that is not in compliance with the above, so long as the Company has prepared a plan prior to such Acquisition that sets forth, in the reasonable judgment of the chief financial officer of the Company, the action that the Company has taken or proposes to take to bring such Person into compliance with the above. Section 8. COVENANTS OF THE COMPANY. The Company covenants and agrees with the Lenders and the Administrative Agent that, so long as any Commitment, Loan or Letter of Credit Liability is outstanding and until payment in full of all amounts payable by the Company hereunder: 8.01 FINANCIAL STATEMENTS, ETC. The Company shall deliver to each of the Lenders: (a) as soon as available and in any event within 60 days after the end of each of the first three quarterly fiscal periods of each fiscal year of the Company, consolidated statements of earnings, stockholders' equity and cash flows of the Company and its Subsidiaries, for such period and for the period from the beginning of the respective fiscal year to the end of such period, setting forth in each case in comparative form the corresponding consolidated figures for the corresponding period in the preceding fiscal year, and the related consolidated balance sheet of the Company and its Subsidiaries, as at the end of such period, setting forth in comparative form the corresponding consolidated figures for the last day of the preceding fiscal year, accompanied by a certificate of a senior financial officer of the Company, which certificate shall state that said consolidated financial statements present fairly, in all material respects, the consolidated financial condition and results of operations of the Company and its Subsidiaries, in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 105 days after the end of each fiscal year of the Company, consolidated and consolidating statements of operations and stockholders' equity of the Company and its Subsidiaries, and consolidated statements of cash flows of the Company and its Subsidiaries, for such fiscal year and the related consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such fiscal CREDIT AGREEMENT 56 -51- year, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the preceding fiscal year, and accompanied, (i) in the case of said consolidated statements and balance sheet of the Company, by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements present fairly, in all material respects, the consolidated financial condition and results of operations of the Company and its Subsidiaries as at the end of, and for, such fiscal year in accordance with generally accepted accounting principles, and a report of such accountants stating that, in making the examination necessary for their opinion, nothing came to their attention, except as specifically stated, that caused them to believe that the Company had failed to comply with Sections 8.09, 8.10, 8.11 and 8.12 hereof, or any other provisions hereof, insofar as they relate to accounting matters, and (ii) in the case of said consolidating statements and balance sheets, by a certificate of a senior financial officer of the Company which certificate shall state that said consolidating financial statements fairly present the respective individual unconsolidated financial condition and results of operations of the Company and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such fiscal year; (c) as soon as available and in any event within 105 days after the end of each fiscal year of the Company, statements of information concerning net sales, operating earnings, depreciation and amortization of each division of the Company and its Subsidiaries (including, without limitation, the Seating Products Division, Galley Products Division, In-Flight Entertainment Division and Service Division) for such period setting forth in each case in comparative form the corresponding figures for the preceding fiscal year; (d) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which the Company shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (e) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (f) as soon as possible, and in any event within ten days after the Company knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of the Company setting forth details respecting such event or condition and the action, if any, that the Company or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (PROVIDED that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without CREDIT AGREEMENT 57 -52- limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan; (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by the Company or an ERISA Affiliate to terminate any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by the Company or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by the Company or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and (vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Company or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (g) promptly after the Company knows or has reason to believe that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company has taken or proposes to take with respect thereto; (h) Within 10 Business Days after the date of any Acquisition and at the time of delivery of the financial statements for the first four Fiscal Dates thereafter, PRO FORMA consolidated statements of earnings of the Company and its Subsidiaries for the relevant Calculation Period and related PRO FORMA consolidated balance sheet items necessary for the PRO FORMA calculation of compliance with the covenants in this Agreement of the Company and its Subsidiaries as of the last day of each fiscal quarter of the Company occurring during such Calculation Period, prepared as though such Acquisition had occurred, and any Funded Debt CREDIT AGREEMENT 58 -53- incurred or assumed by the Company or any of its Subsidiaries in connection with such Acquisition had been incurred or assumed, on the first day of such Calculation Period; (i) with the delivery of the financial statements pursuant to Sections 8.01(a) and 8.01(b) hereof, a statement of a senior financial officer of the Company (A) listing each Disposition by the Company and its Subsidiaries that occurred during the quarterly fiscal period ending on the date of such financial statements if the Net Available Proceeds thereof exceeded $100,000 and (B) setting forth in reasonable detail the Net Available Proceeds of each such Disposition and the aggregate Net Available Proceeds since the first day of the then current Recapture Period; and (j) from time to time such other information regarding the financial condition, operations, business or prospects of the Company or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Lender or the Administrative Agent may reasonably request. The Company will furnish to each Lender, at the time it furnishes each set of financial statements pursuant to paragraph (a), (b) or (h) above, a certificate of a senior financial officer of the Company (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken or proposes to take with respect thereto) and (ii) setting forth in reasonable detail (x) the computations necessary to determine whether the Company is in compliance with Sections 8.07(e), 8.07(g), 8.08(f), 8.08(h), 8.09, 8.10, 8.11 and 8.12 hereof, and (y) the Interest Coverage Ratio and the Leverage Ratio as of the end of the respective quarterly fiscal period, fiscal year or Calculation Period. 8.02 LITIGATION. The Company will promptly give to each Lender notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Company or any of its Subsidiaries, except proceedings which, if adversely determined, would not have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company will give to each Lender notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, the Company or any of its Subsidiaries and notice of any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations, other than any Environmental Claim or alleged violation which, if adversely determined, would not have a Material Adverse Effect. 8.03 EXISTENCE, ETC. The Company will, and will cause each of its Subsidiaries to: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (PROVIDED that nothing in this Section 8.03 shall prohibit any transaction expressly permitted under Section 8.05 hereof); CREDIT AGREEMENT 59 -54- (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; (d) maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) keep adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied; and (f) permit representatives of any Lender or the Administrative Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or the Administrative Agent (as the case may be). 8.04 INSURANCE. The Company will, and will cause each of its Subsidiaries to, keep insured by financially sound and reputable insurers all Property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations. 8.05 PROHIBITION OF FUNDAMENTAL CHANGES. The Company will not, nor will it permit any of its Subsidiaries to, enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution) or Dispose of all or substantially all of its Property. The Company will not, nor will it permit any of its Subsidiaries to, to make any Acquisition except for Investments permitted under Section 8.08 hereof. Notwithstanding the foregoing provisions of this Section 8.05: (a) any Subsidiary of the Company may be merged or consolidated with or into: (i) the Company if the Company shall be the continuing or surviving corporation or (ii) any other such Subsidiary; PROVIDED that (x) if any such transaction shall be between a Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned Subsidiary shall be the continuing or surviving corporation; (b) subject to Section 8.14 hereof, the Company or any Subsidiary of the Company may make any Acquisition; PROVIDED that immediately prior to and after giving effect to any such Acquisition, (i) no Default shall have occurred and be continuing, (ii) not more than $25,000,000 of the proceeds of the Series A Loans then outstanding shall have been applied, CREDIT AGREEMENT 60 -55- directly by the Company or indirectly through a Subsidiary, to the purchase price of one or more Acquisitions; and (c) the Company or any Subsidiary of the Company may make any Acquisition from any Subsidiary of the Company in each case for consideration that is not in excess of the fair market value of the Property acquired in such Acquisition as determined in good faith by the chief financial officer of the Company. 8.06 LIMITATION ON LIENS. The Company will not, nor will it permit any of its Domestic Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except: (a) Liens created pursuant to the Security Documents; (b) Liens outstanding on the Restatement Date and listed in Part B of Schedule I hereto; (c) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or which are being contested in good faith and by appropriate proceedings if, unless the amount thereof is not material with respect to it or its financial condition, adequate reserves with respect thereto are maintained on the books of the Company or the affected Domestic Subsidiaries, as the case may be, in accordance with GAAP; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings and Liens securing judgments but only to the extent, for an amount and for a period not resulting in an Event of Default under Section 9(h) hereof; (e) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (f) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the Property subject thereto or interfere with the ordinary conduct of the business of the Company or any of its Domestic Subsidiaries; CREDIT AGREEMENT 61 -56- (h) Liens on Property of any corporation which becomes a Domestic Subsidiary of the Company after the Restatement Date, PROVIDED that such Liens are in existence at the time such corporation becomes a Domestic Subsidiary of the Company and were not created in anticipation thereof; (i) subject to the restrictions contained in the Security Documents, Liens upon real and/or tangible personal Property and/or software and license rights with respect to software (including, without limitation, software and license rights with respect to software under the GE Lease Agreement) acquired after the Restatement Date (by purchase, construction or otherwise) by the Company or any of its Domestic Subsidiaries other than in connection with any Acquisition by the Company or any of its Domestic Subsidiaries, each of which Liens either (A) existed on such Property before the time of its acquisition and was not created in anticipation thereof, or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such Property; PROVIDED that no such Lien shall extend to or cover any Property of the Company or such Domestic Subsidiary other than the Property so acquired and improvements thereon; and PROVIDED, FURTHER, that the principal amount of Indebtedness secured by any such Lien shall at no time exceed 100% of the fair market value (as determined in good faith by a senior financial officer of the Company) of such Property at the time it was acquired (by purchase, construction or otherwise); (j) additional Liens upon real and/or tangible personal Property of the Company or any of its Domestic Subsidiaries created after the Restatement Date, PROVIDED that the aggregate Indebtedness secured thereby and incurred on and after the Restatement Date shall not exceed $20,000,000 in the aggregate at any one time outstanding; and (k) any extension, renewal or replacement of the foregoing, PROVIDED, however, that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or Property (other than a substitution of like Property). 8.07 INDEBTEDNESS. The Company will not, nor will it permit any of its Subsidiaries to, create, incur or suffer to exist any Indebtedness except: (a) Indebtedness to the Lenders hereunder; (b) Indebtedness outstanding or committed on the Restatement Date and, if equal to or in excess of $1,000,000, listed in Part A of Schedule I hereto and any extension, renewal or replacement thereof; (c) Indebtedness of Subsidiaries of the Company to the Company to the extent contemplated by Section 8.08(d) hereof; (d) Indebtedness of the Company to its Subsidiaries and Indebtedness of Subsidiaries of the Company to other Subsidiaries of the Company; CREDIT AGREEMENT 62 -57- (e) Indebtedness of the Company and its Subsidiaries secured by Liens permitted under Sections 8.06(i) and 8.06(j) hereof; (f) Guarantees by any Subsidiary of the Company of Indebtedness of the Company or any Subsidiary of the Company; (g) unsecured Indebtedness that has no regularly scheduled maturity or mandatory prepayments on or before the Series A Commitment Termination Date, that does not include required prepayments (including, without limitation, as a result of a change of control or asset sale) on terms less favorable to the Lenders than the Senior Subordinated Indentures, and that is subordinated in right of payment to the Loans at least to the extent provided in the Senior Subordinated Indentures; and (h) additional unsecured Indebtedness of the Company and its Subsidiaries up to but not exceeding in the aggregate $40,000,000 at any one time outstanding; PROVIDED that any such Indebtedness of any such individual Subsidiary may not exceed $10,000,000 in the aggregate at any one time outstanding. 8.08 INVESTMENTS. The Company will not, nor will it permit any of its Subsidiaries to, make or permit to remain outstanding any Investments except: (a) Investments outstanding on the Restatement Date and identified in Schedule III Part B hereto; (b) operating deposit accounts with banks; (c) Permitted Investments; (d) Investments by the Company in Subsidiaries of the Company in the ordinary course of business; PROVIDED that the aggregate amount of the Investments by the Company or any of its Subsidiaries in the Specified Subsidiaries shall not exceed $5,000,000 at any one time outstanding; PROVIDED FURTHER, that the Company will not at any time transfer any Property to any one or more Subsidiaries which, together with all Property so transferred since the Restatement Date, has a book value at the time of such transfer in excess of 5% of Adjusted Net Worth as of the most recent Fiscal Date (not including Property that is subject to a Lien in favor of the Administrative Agent for the benefit of the Lenders); (e) subject to the first proviso to clause (d) above, Investments by Subsidiaries of the Company in other Subsidiaries of the Company and in the Company in the ordinary course of business; (f) Interest Rate Protection Agreements so long as the aggregate credit exposure under all Interest Rate Protection Agreements calculated at the time any Interest Rate Protection Agreement is entered into does not exceed $10,000,000; CREDIT AGREEMENT 63 -58- (g) Investments permitted by clause (b) of the last sentence of Section 8.05 hereof; and (h) Investments of the Company and its Subsidiaries (i) in corporations, companies, limited liability companies, partnerships and other entities in each case that are not, or do not thereby become, Subsidiaries of the Company ("Minority-Owned Entities") or (ii) representing obligations of customers owing to the Company and its Subsidiaries in respect of the deferred purchase price of products or services sold or the leasing of products to customers ("Customer Obligations"), in each case in the ordinary course of business of the Company and its Subsidiaries as provided for in Section 8.14 hereof and on such terms as the management of the Company may determine in its reasonable business judgment, PROVIDED that the aggregate amount of such Customer Obligations that are not fully secured (whether by a perfected Lien on, or an indefeasible title retention to, the products so sold or leased, or otherwise) PLUS the aggregate fair market value of all Property (whether now owned or hereafter acquired) of the Company or any of its Subsidiaries (as determined in good faith by the chief financial officer of the Company) sold, assigned, transferred or otherwise disposed of on or after the Restatement Date to any such Minority-Owned Entities shall not exceed in the aggregate at any one time outstanding the greater of (i) $25,000,000 and (ii) 5% of Adjusted Net Worth. 8.09 RESTRICTED PAYMENTS. The Company will not, nor will it permit any of its Subsidiaries to, declare or make any Restricted Payment at any time; PROVIDED that (i) the Company may make Restricted Payments in an amount up to but not exceeding (A) $25,000,000 in the aggregate PLUS (B) in any fiscal year of the Company, an aggregate amount up to but not exceeding 25% of the net earnings of the Company for the immediately preceding fiscal year ("AVAILABLE NET EARNINGS"), PROVIDED that any portion of Available Net Earnings not used for Restricted Payments in any fiscal year (the "CARRY-OVER AMOUNT") may be used for Restricted Payments in the immediately succeeding fiscal year only, for which purpose Restricted Payments in any fiscal year shall be deemed to have been made first from Available Net Earnings, and only thereafter from any Carry-Over Amount, such Restricted Payments set forth in clauses (i)(A) and (B) hereof not to exceed $50,000,000 in the aggregate, and (ii) any Subsidiary of the Company may make Restricted Payments to the Company from time to time. 8.10 LEVERAGE RATIO. The Company will not permit the Leverage Ratio to exceed the following respective ratios at any time during the following respective periods: CREDIT AGREEMENT 64 -59- Period Ratio ------ ----- From (but not including) the Fiscal Date in November 1997 through the Fiscal Date in August 1998 5.25 to 1 From (but not including) the Fiscal Date in August 1998 through the Fiscal Date in February 1999 4.90 to 1 From (but not including) the Fiscal Date in February 1999 through the Fiscal Date in February 2000 4.50 to 1 From (but not including) the Fiscal Date in February 2000 through the Fiscal Date in February 2001 4.00 to 1 Thereafter 3.50 to 1 8.11 ADJUSTED NET WORTH. The Company will not at any date permit Adjusted Net Worth to be less than the sum of (a) $150,000,000 PLUS (b) 75% of the aggregate amount of Net Available Proceeds of Equity Issuances received after November 29,1997 PLUS (c) 75% of the sum of consolidated net earnings of the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) for each fiscal quarter of the Company ending after November 29, 1997; PROVIDED that consolidated net earnings for any fiscal quarter in which there is a consolidated net loss shall be deemed to be zero. 8.12 INTEREST COVERAGE RATIO. The Company will not permit the Interest Coverage Ratio to be less than the following respective ratios during the following respective periods: CREDIT AGREEMENT 65 -60- Period Ratio ------ ----- From (but not including) the Fiscal Date in November 1997 through the Fiscal Date in August 1998 2.00 to 1 From (but not including) the Fiscal Date in August 1998 through the Fiscal Date in February 1999 2.25 to 1 From (but not including) the Fiscal Date in February 1999 through the Fiscal Date in February 2000 2.50 to 1 From (but not including) the Fiscal Date in February 2000 through the Fiscal Date in February 2001 2.75 to 1 Thereafter 3.00 to 1 8.13 [INTENTIONALLY OMITTED.] 8.14 LINES OF BUSINESS. Neither the Company nor any of its Subsidiaries shall engage to any substantial extent in any line or lines of business activity other than the business of designing, manufacturing, distributing, selling, leasing and servicing products used in the interior of airplanes, buses and trains and servicing and acting as a broker in the sales and leases of such products together with any other business reasonably related to the foregoing. 8.15 TRANSACTIONS WITH AFFILIATES. Except as set forth in Schedule VII hereto or as expressly permitted by this Agreement, the Company will not, nor will it permit any of its Subsidiaries to, directly or indirectly: (a) make any Investment in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any Property to an Affiliate; (c) merge into or consolidate with or purchase or acquire Property from an Affiliate; or (d) enter into any other transaction directly or indirectly with or for the benefit of an Affiliate (including, without limitation, guarantees and assumptions of obligations of an Affiliate); PROVIDED that (x) any Affiliate who is an individual may serve as a director, officer or employee of the Company or any of its Subsidiaries and receive reasonable compensation for his or her services in such capacity and (y) the Company and its Subsidiaries may enter into transactions (other than extensions of credit by the Company or any of its Subsidiaries to an Affiliate) providing for the leasing of Property, the rendering or receipt of services or the purchase or sale of inventory and other Property in the CREDIT AGREEMENT 66 -61- ordinary course of business if the monetary or business consideration arising therefrom would be substantially as advantageous to the Company and its Subsidiaries as the monetary or business consideration which would obtain in a comparable transaction with a Person not an Affiliate. 8.16 USE OF PROCEEDS. The Company will use the proceeds of (i) the Series A Loans hereunder solely to finance ongoing working capital and other capital requirements of the Company and to finance Acquisitions (subject to clause (b) of the last sentence of Section 8.05) (in compliance with all applicable legal and regulatory requirements) and (ii) the Series B Loans hereunder solely to finance Acquisitions (subject to clause (b) of the last sentence of Section 8.05); provided that neither the Administrative Agent nor any Lender shall have any responsibility as to the use of any of such proceeds. 8.17 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES. (a) The Company will, and will cause each of its Subsidiaries to, take such action from time to time as shall be necessary to ensure that the Company and each of its Subsidiaries at all times owns (subject only to the Lien of the Security Documents) at least the same percentage of the issued and outstanding shares of each class of stock or partnership or other ownership interest of each of its Subsidiaries as is owned on the Restatement Date (or, with respect to any Subsidiary acquired or organized after the date hereof, as of the date of such acquisition or organization). Without limiting the generality of the foregoing, none of the Company nor any of its Subsidiaries shall sell, transfer, pledge or otherwise dispose of any shares of stock or partnership or other ownership interest in any Subsidiary owned by them, nor permit any Subsidiary to issue any shares of stock of any class or partnership or other ownership interest whatsoever to any Person (other than to the Company or the immediate parent of such Subsidiary which is a Wholly Owned Subsidiary of the Company). In the event that (a) any such additional shares of stock or partnership or other ownership interest shall be issued by any such Subsidiary or (b) the Company shall directly or indirectly create any new Material Subsidiary or Acquire any additional Material Subsidiary and shall thereby become the owner, directly or indirectly, of the shares of capital stock or partnership or other ownership interest of such new or additional Material Subsidiary, the Company agrees forthwith to deliver to the Administrative Agent pursuant to security documents satisfactory to the Banks, any shares, certificates of ownership, membership interests or other evidence of ownership, or other securities received as a result therefrom (together with undated stock or other powers executed in blank) and shall give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the judgment of the Administrative Agent) to create, preserve or validate the security interest created therein, including, without limitation, causing any or all of the Collateral (as defined in the Security Agreement and the In-Flight Guarantee and Security Agreement, respectively) to be transferred of record into the name of the Administrative Agent; PROVIDED that if any such Material Subsidiary is organized under the laws of a jurisdiction other than the United States of America or a State thereof, the Company need not pledge to the Administrative Agent more than 65% of the capital stock, partnership or other ownership interest in such Material Subsidiary. CREDIT AGREEMENT 67 -62- (b) The Company will not permit any of its Subsidiaries to enter into, after the Restatement Date, any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of Indebtedness, the granting of Liens, the declaration or payment of dividends, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition of Property. 8.18 MODIFICATIONS OF CERTAIN DOCUMENTS. The Company will not consent to (i) any modification, supplement or waiver of any of the provisions of the Senior Subordinated Indentures or (ii) to the creation of any class of preferred stock that has a mandatory dividend or redemption date prior to the Series A Commitment Termination Date; PROVIDED that any Senior Subordinated Indenture may be amended in connection with, and to facilitate, the purchase, redemption, prepayment, defeasance or other retirement in full of the Indebtedness issued pursuant thereto, which purchase, redemption, prepayment, defeasance or other retirement is permitted hereunder. 8.19 ENVIRONMENTAL MATTERS. (a) The Company will, and will cause each of its Subsidiaries to, comply with all Environmental Laws applicable to the Company and each of its Subsidiaries, except to the extent that failure to comply with such laws would not have a Material Adverse Effect, and shall obtain, at or prior to the time required by applicable Environmental Laws, all environmental, health and safety permits, licenses and other authorizations necessary for its operations and maintain such authorizations in full force and effect. (b) If the Company discovers evidence of the presence of any Hazardous Materials in any amount that is required to be reported under Environmental Law, the Company will promptly clean-up such Hazardous Materials or take such other remedial action as is (a) required by law or (b) deemed necessary by the Company in its reasonable determination, such determination to be based in part on the advice of independent environmental consultants acceptable to the Company and the Administrative Agent. (c) The Company shall promptly furnish to the Administrative Agent all written notices of any Environmental Claims received by the Company or any of its Subsidiaries with respect to any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations issued thereunder in connection with the ownership, operation or use of any site or facility or the operation of their businesses or the presence or Release of Hazardous Substances, which Environmental Claim if determined adversely to the Company would have a Material Adverse Effect. 8.20 SECURITY FOR LOANS. The Company shall, no later than 90 days following the request by the Majority Lenders, file in each governmental office or agency in each appropriate jurisdiction as owner of record of each of the Foreign Trademarks identified on Annex 4 to the Security Agreement. CREDIT AGREEMENT 68 -63- 8.21 REDEMPTION OF SENIOR SUBORDINATED INDEBTEDNESS. Except as permitted by Section 8.09 hereof, the Company will not prepay, redeem, effect a defeasance or covenant defeasance or otherwise retire any of the Indebtedness issued pursuant to the Senior Subordinated Indentures. Section 9. EVENTS OF DEFAULT. If one or more of the following events (herein called "EVENTS OF DEFAULT") shall occur and be continuing: (a) The Company shall (i) default in the payment of any principal of any Loan or any Reimbursement Obligation when due (whether at stated maturity or upon mandatory or optional prepayment) or (ii) default in the payment of any interest on any Loan, any fee or any other amount payable by it hereunder or under any other Basic Document when due (whether at stated maturity or upon mandatory or optional prepayment or otherwise) and such default shall have continued unremedied for three or more Business Days; or (b) The Company or any of its Subsidiaries shall default in the payment when due of any principal of or interest on any of its other Indebtedness aggregating $5,000,000 or more, or in the payment when due of any amount aggregating $5,000,000 or more under any Interest Rate Protection Agreement; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness or any event specified in any Interest Rate Protection Agreement shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or to have the interest rate thereon reset to a level so that securities evidencing such Indebtedness trade at a level specified in relation to the par value thereof or, in the case of an Interest Rate Protection Agreement, to permit the payments owing under such Interest Rate Protection Agreement to be liquidated in an amount aggregating $5,000,000 or more; or (c) Any representation, warranty or certification made or deemed made herein or in any other Basic Document (or in any modification or supplement hereto or thereto) by the Company, or any certificate furnished to any Lender or the Administrative Agent pursuant to the provisions hereof or thereof shall prove to have been false or misleading in any material respect as of the time made or furnished; or (d) The Company shall default in the performance of any of its obligations under any of Sections 8.01(g), 8.05, 8.06, 8.07, 8.08, 8.09, 8.10, 8.11 or 8.12 hereof or the Company shall default in the performance of any of its obligations under Section 5.02 of the Security Agreement; or the Company shall default in the performance of any of its other obligations in this Agreement or any other Basic Document and such default shall continue unremedied for a period of thirty days after notice thereof to the Company by the Administrative Agent or any CREDIT AGREEMENT 69 -64- Lender (through the Administrative Agent); or In-Flight shall default in the performance of any of its obligations under Section 6.02 of the In-Flight Guarantee and Security Agreement; or (e) The Company or any of its Subsidiaries shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) The Company or any of its Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) A proceeding or case shall be commenced, without the application or consent of the Company or any of its Subsidiaries, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Company or such Subsidiary or of all or any substantial part of its Property, or (iii) similar relief in respect of the Company or such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Company or such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or (h) A final judgment or judgments for the payment of money in excess of $5,000,000 in the aggregate (exclusive of judgment amounts fully covered by insurance where the insurer has admitted liability in respect of such judgment) or in excess of $20,000,000 in the aggregate (regardless of insurance coverage) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Company or any of its Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company or the relevant Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) An event or condition specified in Section 8.01(f) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company or any ERISA Affiliate shall incur or in the opinion of the Majority Lenders shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which would constitute, in the determination of the Majority Lenders, a Material Adverse Effect; or CREDIT AGREEMENT 70 -65- (j) A reasonable basis shall exist for the assertion against the Company or any of its Subsidiaries of (or there shall have been asserted against the Company or any of its Subsidiaries) claims or liabilities, whether accrued, absolute or contingent, based on or arising from the generation, storage, transport, handling or disposal of Hazardous Materials by the Company or any of its Subsidiaries or Affiliates, or any predecessor in interest of the Company or any of its Subsidiaries or Affiliates, or relating to any site or facility owned, operated or leased by the Company or any of its Subsidiaries or Affiliates, which claims or liabilities (insofar as they are payable by the Company or any of its Subsidiaries but after deducting any portion thereof which is reasonably expected to be paid by other creditworthy Persons jointly and severally liable therefor), in the judgment of the Majority Lenders are reasonably likely to be determined adversely to the Company or any of its Subsidiaries, and the amount thereof is, singly or in the aggregate, reasonably likely to have a Material Adverse Effect; or (k) Any "person" or "group" (as such terms are defined in Sections 13(d) and 14(d) of the Securities Exchange Act (other than Amin or Robert Khoury, their lineal descendants or trusts established by such Persons for their respective lineal descendants)) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 30% or more of the aggregate voting rights of the outstanding capital stock of the Company (on a fully diluted basis); or during any consecutive 25-month period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by the stockholders of the Company was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (l) Except for expiration in accordance with its terms, any of the Security Documents shall be terminated or shall cease to be in full force and effect, for whatever reason; THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (f) or (g) of this Section 9 with respect to the Company, the Administrative Agent may, by notice to the Company, terminate the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Company hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 or 5.06 hereof) to be forthwith due and payable (PROVIDED that (x) if so requested by the Majority Series A Lenders, the Administrative Agent shall take such action with respect to the Series A Commitments and/or the Series A Loans, Reimbursement Obligations and such interest and other amounts to the extent owed to the Series A Lenders and (y) if so requested by the Majority Series B Lenders, the Administrative Agent shall take such action with respect to the Series B Commitments and the Series B Loans and such interest and other amounts to the extent owed to the Series B Lenders), whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities CREDIT AGREEMENT 71 -66- of any kind, all of which are hereby expressly waived by the Company; and (2) in the case of the occurrence of an Event of Default referred to in clause (f) or (g) of this Section 9 with respect to the Company, the Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Company hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 or 5.06 hereof) shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company. In addition, upon the occurrence and during the continuance of any Event of Default (if the Administrative Agent has declared the principal amount then outstanding of, and accrued interest on, the Series A Loans and all other amounts payable by the Company hereunder and under the Notes to be due and payable), the Company agrees that it shall, if requested by the Administrative Agent or the Majority Series A Lenders through the Administrative Agent (and, in the case of any Event of Default referred to in clause (f) or (g) of this Section 9 with respect to the Company, forthwith, without any demand or the taking of any other action by the Administrative Agent or such Lenders) provide cover for the Letter of Credit Liabilities by paying to the Administrative Agent immediately available funds in an amount equal to the then aggregate undrawn face amount of all Letters of Credit, which funds shall be held by the Administrative Agent in the Collateral Account as collateral security in the first instance for the Letter of Credit Liabilities and be subject to withdrawal only as therein provided. Section 10. THE ADMINISTRATIVE AGENT. 10.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby irrevocably appoints and authorizes the Administrative Agent to act as its agent hereunder and under the other Basic Documents with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement and of the other Basic Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent (which term as used in this sentence and in Section 10.05 and the first sentence of Section 10.06 hereof shall include reference to its affiliates and its own and its affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Basic Documents, and shall not by reason of this Agreement or any other Basic Document be a trustee for any Lender; (b) shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any other Basic Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Basic Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Note or any other Basic Document or any other document referred to or provided for herein or therein or for any failure by the Company or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Basic Document; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Basic Document or under any other document or instrument referred to or provided for herein or therein or in CREDIT AGREEMENT 72 -67- connection herewith or therewith, except for its own gross negligence or willful misconduct. The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a notice of the assignment or transfer thereof shall have been filed with the Administrative Agent, together with the consent of the Company to such assignment or transfer (to the extent provided in Section 11.06(b) hereof). 10.02 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including, without limitation, any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. As to any matters not expressly provided for by this Agreement or any other Basic Document, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Majority Lenders or, if provided herein, in accordance with the instructions given by the Majority Series A Lenders, the Majority Series B Lenders or all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. 10.03 DEFAULTS. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Administrative Agent has received notice from a Lender or the Company specifying such Default and stating that such notice is a "Notice of Default". In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall (subject to Section 10.07 hereof) take such action with respect to such Default as shall be directed by the Majority Lenders or, if provided herein, the Majority Series A Lenders or the Majority Series B Lenders, PROVIDED that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Majority Lenders, the Majority Series A Lenders, the Majority Series B Lenders or all of the Lenders. 10.04 RIGHTS AS A LENDER. With respect to its Commitments and the Loans made by it, Chase (and any successor acting as Administrative Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. Chase (and any successor acting as Administrative Agent) and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with the Company (and any of its Subsidiaries or Affiliates) as if it were not acting as the Administrative Agent, and Chase and its affiliates may accept fees and other consideration CREDIT AGREEMENT 73 -68- from the Company for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 10.05 INDEMNIFICATION. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed under Section 11.03 hereof, but without limiting the obligations of the Company under said Section 11.03, and including in any event any payments under any indemnity that the Administrative Agent is required to issue to any bank referred to in Section 4.02 of the Security Agreement or Section 5.02 of the In-Flight Guarantee and Security Agreement to which remittances in respect of Accounts, as defined therein, are to be made) ratably in accordance with the aggregate principal amount of the Loans and Reimbursement Obligations held by the Lenders (or, if no Loans or Reimbursement Obligations are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Administrative Agent (including by any Lender) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Basic Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that the Company is obligated to pay under Section 11.03 hereof, and including also any payments under any indemnity that the Administrative Agent is required to issue to any bank referred to in Section 4.02 of the Security Agreement or Section 5.02 of the In-Flight Guarantee and Security Agreement to which remittances in respect of Accounts, as defined therein, are to be made, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, PROVIDED that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 10.06 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Company of this Agreement or any of the other Basic Documents or any other document referred to or provided for herein or therein or to inspect the Properties or books of the Company or any of its Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Company or any of its Subsidiaries (or any of their affiliates) that may come into the possession of the Administrative Agent or any of its affiliates. CREDIT AGREEMENT 74 -69- 10.07 FAILURE TO ACT. Except for action expressly required of the Administrative Agent hereunder and under the other Basic Documents, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 10.05 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 10.08 RESIGNATION OR REMOVAL OF ADMINISTRATIVE AGENT. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Company, and the Administrative Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, after consultations with the Company, appoint a successor Administrative Agent, that shall be a bank which has an office in New York, New York with a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 10 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. 10.09 CONSENTS UNDER BASIC DOCUMENTS. Except as otherwise provided in Section 11.04 hereof with respect to this Agreement, the Administrative Agent may, with the prior consent of the Majority Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Basic Documents, PROVIDED that, without the consent of each Lender, the Administrative Agent shall not (except as provided herein or in the Security Documents) release any collateral or otherwise terminate any Lien under the Security Agreement, or agree to additional obligations being secured by such collateral security (unless the Lien for such additional obligations shall be junior to the Lien in favor of the other obligations secured by such Security Documents), except that no such consent shall be required, and the Administrative Agent is hereby authorized, to release any Lien covering Property which (a) is the subject of a Disposition of Property permitted hereunder or to which the Majority Lenders have consented, (b) consists of the membership interests in In-Flight to which release the Majority Lenders have consented or (c) consists of shares of any Subsidiary of the Company that is no longer a Material Subsidiary. 10.10 COLLATERAL SUB-AGENTS. Each Lender by its execution and delivery of this Agreement agrees, as contemplated by Section 4.03 of the Security Agreement and Section 5.02 of the In-Flight Guarantee and Security Agreement, that, in the event it shall hold any Permitted CREDIT AGREEMENT 75 -70- Investments referred to therein, such Permitted Investments shall be held in the name and under the control of such Lender, and such Lender shall hold such Permitted Investments as a collateral sub-agent for the Administrative Agent thereunder. The Company by its execution and delivery of this Agreement hereby consents to the foregoing. 10.11 DOCUMENTATION AGENT. The Documentation Agent identified on the front cover page of this Agreement shall have no duties or responsibilities hereunder other than as a Bank hereunder. Section 11. MISCELLANEOUS. 11.01 WAIVER. No failure on the part of the Administrative Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 11.02 NOTICES. All notices, requests and other communications provided for herein and under the Security Documents (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telecopy) delivered to the intended recipient at (i) in the case of the Company and the Administrative Agent, the "Address for Notices" specified below its name on the signature pages hereof) and (ii) in the case of each of the Lenders, the address (or telecopy number) set forth in its Administrative Questionnaire; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 11.03 EXPENSES, ETC. The Company agrees to pay or reimburse each of the Lenders and the Administrative Agent for paying: (a) all reasonable out-of-pocket costs and expenses of the Administrative Agent (including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase), in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Basic Documents and the extension of credit hereunder and (ii) any modification, supplement or waiver of any of the terms of this Agreement or any of the other Basic Documents; (b) all reasonable costs and expenses of the Lenders and the Administrative Agent (including, without limitation, reasonable counsels' fees) in connection with (i) any Default and any enforcement or collection proceedings resulting therefrom or in connection with the negotiation of any restructuring or "work-out" (whether or not consummated), or the obligations of the Company hereunder and (ii) the enforcement of this Section 11.03; and (c) all transfer, stamp, documentary, intangibles or other similar taxes, assessments or charges levied by any CREDIT AGREEMENT 76 -71- governmental or revenue authority in respect of this Agreement or any of the other Basic Documents or any other document referred to herein or therein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by any Basic Document or any other document referred to therein. The Company hereby agrees (i) to indemnify the Administrative Agent and each Lender and their respective directors, officers, employees, attorneys and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them (including, without limitation, any and all losses, liabilities, claims, damages or expenses incurred by the Administrative Agent to any Lender, whether or not the Administrative Agent or any Lender is a party thereto) arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to the extensions of credit hereunder or any actual or proposed use by the Company or any of its Subsidiaries of the proceeds of any of the extensions of credit hereunder, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified) and (ii) not to assert any claim against the Administrative Agent, any Lender, any of their affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to any of the transactions contemplated herein or in any other Basic Document. Without limiting the generality of the foregoing, the Company will (x) indemnify the Administrative Agent for any payments that the Administrative Agent is required to make under any indemnity issued to any bank referred to in Section 4.02 of the Security Agreement or Section 5.02 of the In-Flight Guarantee and Security Agreement to which remittances in respect to Accounts, as defined therein, are to be made and (y) indemnify the Administrative Agent and each Lender from, and hold the Administrative Agent and each Lender harmless against, any losses, liabilities, claims, damages or expenses described in the preceding sentence (but excluding, as provided in the preceding sentence, any loss, liability, claim, damage or expense incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified) arising under any Environmental Law as a result of the past, present or future operations of the Company or any of its Subsidiaries (or any predecessor in interest to the Company or any of its Subsidiaries), or the past, present or future condition of any site or facility owned, operated or leased by the Company or any of its Subsidiaries (or any such predecessor in interest), or any Release or threatened Release of any Hazardous Materials from any such site or facility, including any such Release or threatened Release which shall occur during any period when the Administrative Agent or any Lender shall be in possession of any such site or facility following the exercise by the Administrative Agent or any Lender of any of its rights and remedies hereunder or under any of the Security Documents but only to the extent that such Release or threatened Release is directly or indirectly attributable to facts, circumstances or Releases of Hazardous Materials existing prior to the date of such possession. CREDIT AGREEMENT 77 -72- 11.04 AMENDMENTS, ETC. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be modified or supplemented only by an instrument in writing signed by the Company, the Administrative Agent and the Majority Lenders, or by the Company and the Administrative Agent acting with the consent of the Majority Lenders, and any provision of this Agreement may be waived by the Majority Lenders or by the Administrative Agent acting with the consent of the Majority Lenders; PROVIDED that: (a) no modification, supplement or waiver shall, unless by an instrument signed by all of the Lenders or by the Administrative Agent acting with the consent of all of the Lenders: (i) increase, or extend the term of any of the Commitments, or extend the time or waive any requirement for the reduction or termination of any of the Commitments, (ii) extend the date fixed for the payment of principal of or interest on any Loan, the Reimbursement Obligations or any fee hereunder, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon or any fee is payable hereunder, (v) alter the rights or obligations of the Company to prepay Loans, (vi) alter the terms of this Section 11.04, (vii) modify the definition of the term "Majority Lenders", "Majority Series A Lenders" or "Majority Series B Lenders", or modify in any other manner the number or percentage of the Lender required to make any determinations or waive any rights hereunder or to modify any provision hereof, or (viii) waive any of the conditions precedent set forth in Section 6 hereof; (b) any modification or supplement of Section 10 hereof shall require the consent of the Administrative Agent; and (c) notwithstanding the above, (i) Sections 2.01(a), 2.03, 2.04(a), 2.05(i) and 5.06, may be modified or supplemented only by an instrument in writing signed by the Company, the Administrative Agent and the Series A Lenders, or by the Company and the Administrative Agent acting with the consent of the Series A Lenders, and any such provision may be waived by the Series A Lenders or by the Administrative Agent acting with the consent of the Series A Lenders, and (ii) Sections 2.01(b), 2.04(b) and 2.05(ii) may be modified or supplemented only by an instrument in writing signed by the Company, the Administrative Agent and the Series B Lenders, or by the Company and the Administrative Agent acting with the consent of the Series B Lenders, and any such provision may be waived by the Series B Lenders or by the Administrative Agent acting with the consent of the Series B Lenders. 11.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 11.06 ASSIGNMENTS AND PARTICIPATIONS. (a) The Company may not assign any of its rights or obligations hereunder or under the Notes without the prior consent of all of the Lenders and the Administrative Agent. (b) Each Lender may assign any of its Loans, its Notes, its Commitments, and, if such Lender is a Series A Lender, its Letter of Credit Interest (but only with the consent of the Company and the Administrative Agent and, in the case of a Series A Commitment or a Letter of Credit Interest, the Issuing Lender, which consents in the case of the Company and the Administrative Agent shall not be unreasonably withheld or delayed); PROVIDED that (i) any such consent by the Company shall not be unreasonably withheld, (ii) no such consent by the Company or the Administrative Agent shall be required in the case of any assignment to another CREDIT AGREEMENT 78 -73- Lender; (iii) any such partial assignment shall be in an amount at least equal to $5,000,000; (iv) unless the Company and the Administrative Agent shall otherwise consent (which consents shall not be unreasonably withheld or delayed), each such assignment by a Lender of its Series A Loans, Series A Note, Series A Commitment or Letter of Credit Interest shall be made in such manner so that the same percentage of its Series A Loans, Series A Note, Series A Commitment and Letter of Credit Interest, Series B Loans, Series B Note and Series B Commitment is assigned to the respective assignee; and (v) unless the Company and the Administrative Agent shall otherwise consent (which consents shall not be unreasonably withheld or delayed), each such assignment by a Lender of its Series B Loans, Series B Note or Series B Commitment shall be made in such manner so that the same percentage of its Series B Loans, Series B Note and Series B Commitment, Series A Loans, Series A Note, Series A Commitment and Letter of Credit Interest is assigned to the respective assignee. Upon execution and delivery by the assignee to the Company, the Administrative Agent and the Issuing Lender of an instrument in writing pursuant to which such assignee agrees to become a "Lender" hereunder (if not already a Lender) having the Commitment(s), Loans, and, if applicable, Letter of Credit Interest specified in such instrument, and upon consent thereto by the Company, the Administrative Agent and the Issuing Lender, to the extent required above, the assignee shall have, to the extent of such assignment (unless otherwise provided in such assignment with the consent of the Company, the Administrative Agent and the Issuing Lender), the obligations, rights and benefits of a Lender hereunder holding the Commitment(s), Loans and, if applicable, Letter of Credit Interest (or portions thereof) assigned to it (in addition to the Commitment(s), Loans and Letter of Credit Interest, if any, theretofore held by such assignee) and the assigning Lender shall, to the extent of such assignment, be released from the Commitment(s) (or portion(s) thereof) so assigned. Upon each such assignment the assigning Lender shall pay the Administrative Agent an assignment fee of $3,000. (c) A Lender may sell or agree to sell to one or more other Persons a participation in all or any part of any Loans or Letter of Credit Interest held by it, or in its Commitments, in which event each purchaser of a participation (a "PARTICIPANT") shall be entitled to the rights and benefits of the provisions of Section 8.01(j) hereof with respect to its participation in such Loans, Letter of Credit Interest and Commitments as if (and the Company shall be directly obligated to such Participant under such provisions as if) such Participant were a "Lender" for purposes of said Section, but, except as otherwise provided in Section 4.07(c) hereof, shall not have any other rights or benefits under this Agreement or any Note or any other Basic Document (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreements executed by such Lender in favor of the Participant). All amounts payable by the Company to any Lender under Section 5 hereof in respect of Loans, Letter of Credit Interest held by it, and its Commitments, shall be determined as if such Lender had not sold or agreed to sell any participations in such Loans, Letter of Credit Interest and Commitments, and as if such Lender were funding each of such Loan, Letter of Credit Interest and Commitments in the same way that it is funding the portion of such Loan, Letter of Credit Interest and Commitments in which no participations have been sold. In no event shall a Lender that sells a participation agree with the Participant to take or refrain from taking any action hereunder or under any other Basic Document except that such Lender may agree with the Participant that it will not, without the consent of the Participant, agree to (i) increase or extend the term, or extend the time or waive CREDIT AGREEMENT 79 -74- any requirement for the reduction or termination, of such Lender's related Commitment, (ii) extend the date fixed for the payment of principal of or interest on the related Loan or Loans, Reimbursement Obligations or any portion of any fee hereunder payable to the Participant, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon, or any fee hereunder payable to the Participant, to a level below the rate at which the Participant is entitled to receive such interest or fee, (v) alter the rights or obligations of the Company to prepay the related Loans or (vi) consent to any modification, supplement or waiver hereof or of any of the other Basic Documents to the extent that the same, under Section 10.10 or 11.04 hereof, requires the consent of each Lender. (d) In addition to the assignments and participations permitted under the foregoing provisions of this Section 11.06, any Lender may assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (e) A Lender may furnish any information concerning the Company or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 11.12(b) hereof. (f) Anything in this Section 11.06 to the contrary notwithstanding, no Lender may assign or participate any interest in any Loan or Reimbursement Obligation held by it hereunder to the Company or any of its Affiliates or Subsidiaries without the prior written consent of each Lender. 11.07 SURVIVAL. The obligations of the Company under Sections 5.01, 5.05, 5.06, 5.07 and 11.03 hereof and the obligations of the Lenders under Sections 10.05 and 11.12 hereof shall survive the repayment of the Loans and Reimbursement Obligations and the termination of the Commitments. In addition, each representation and warranty made, or deemed to be made by a notice of any extension of credit (whether by means of a Loan or a Letter of Credit), herein or pursuant hereto shall survive the making of such representation and warranty, and no Lender shall be deemed to have waived, by reason of making any extension of credit hereunder (whether by means of a Loan or a Letter of Credit), any Default which may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Lender or the Administrative Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made. 11.08 CAPTIONS. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. CREDIT AGREEMENT 80 -75- 11.09 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and the Notes shall be governed by, and construed in accordance with, the law of the State of New York. The Company hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), and any other appellate court in the State of New York, for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Company irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. 11.11 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11.12 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY. (a) The Company acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Company or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by any Lender or by one or more subsidiaries or affiliates of such Lender and the Company hereby authorizes each Lender to share any information delivered to such Lender by the Company and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, to any such subsidiary or affiliate, it being understood that any such subsidiary or affiliate receiving such information shall be bound by the provisions of clause (b) below as if it were a Lender hereunder. (b) Each Lender and the Administrative Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, any non-public information supplied to it by the Company pursuant to this Agreement which is identified by the Company as being confidential at the time the same is delivered to the Lenders or the Administrative Agent, PROVIDED that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Lenders or the Administrative Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Administrative Agent or any other Lender (or to Chase Securities Inc.), (v) in connection with any litigation to which any one or more of the Lenders or the CREDIT AGREEMENT 81 -76- Administrative Agent is a party, (vi) to a subsidiary or affiliate of such Lender as provided in clause (a) above or (vii) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Lender a Confidentiality Agreement substantially in the form of Exhibit B hereto; PROVIDED, FURTHER, that (x) unless specifically prohibited by applicable law or court order, each Lender and the Administrative Agent shall, prior to disclosure thereof, notify the Company of any request for disclosure of any such non-public information (A) by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) or (B) pursuant to legal process and (y) in no event shall any Lender or the Administrative Agent be obligated or required to return any materials furnished by the Company. CREDIT AGREEMENT 82 -77- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. BE AEROSPACE, INC. By________________________________ Title: Address for Notices: BE Aerospace, Inc. 1400 Corporate Center Way Wellington, Florida 33414 Attention: Jeffrey P. Holtzman, Vice President and Treasurer Telecopier No.: (561) 791-3966 Telephone No.: (561) 791-5000 with a copy to: Ropes & Gray One International Place Boston, MA 02110 Attention: Winthrop G. Minot, Esq. Telecopier No.: (617) 951-7050 Telephone No.: (617) 951-7000 CREDIT AGREEMENT 83 -78- LENDERS THE CHASE MANHATTAN BANK By________________________________ Title: NATIONSBANK, N.A. By________________________________ Title: CREDIT LYONNAIS ATLANTA AGENCY By________________________________ Title: LASALLE BUSINESS CREDIT, INC. By________________________________ Title: CREDIT AGREEMENT 84 -79- THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By________________________________ Title: THE FUJI BANK AND TRUST COMPANY By________________________________ Title: WACHOVIA BANK, N.A. By________________________________ Title: AMSOUTH BANK By________________________________ Title: THE BANK OF NEW YORK By________________________________ Title: CREDIT AGREEMENT 85 -80- DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, CAYMAN ISLAND BRANCH By________________________________ Title: By________________________________ Title: FIRST UNION NATIONAL BANK By________________________________ Title: SUNTRUST BANK, SOUTH FLORIDA, N.A. By________________________________ Title: ABN AMRO BANK N.V. By________________________________ Title: By________________________________ Title: CREDIT AGREEMENT 86 -81- THE CHASE MANHATTAN BANK, as Administrative Agent By________________________________ Title: Address for Notices to Chase as Administrative Agent: The Chase Manhattan Bank Loan and Agency Services Group 1 Chase Manhattan Plaza New York, New York 10081 CREDIT AGREEMENT 87 Annex 1
Series A Series B Total Bank Commitment Commitment Commitments - ---- ------------ ------------ ------------ The Chase Manhattan Bank $ 11,000,000 $ 11,000,000 $ 22,000,000 NationsBank, N.A $ 10,000,000 $ 10,000,000 $ 20,000,000 Credit Lyonnais Atlanta Agency $ 9,500,000 $ 9,500,000 $ 19,000,000 LaSalle Business Credit, Inc. $ 9,500,000 $ 9,500,000 $ 19,000,000 The Long-Term Credit Bank $ 9,500,000 $ 9,500,000 $ 19,000,000 of Japan, Ltd. The Fuji Bank and Trust Company $ 9,500,000 $ 9,500,000 $ 19,000,000 Wachovia Bank, N.A $ 9,500,000 $ 9,500,000 $ 19,000,000 Amsouth Bank $ 6,000,000 $ 6,000,000 $ 12,000,000 The Bank of New York $ 6,000,000 $ 6,000,000 $ 12,000,000 DG Bank Deutsche Genossenschaftsbank $ 6,000,000 $ 6,000,000 $ 12,000,000 Cayman Island Branch First Union National Bank $ 6,000,000 $ 6,000,000 $ 12,000,000 SunTrust Bank, South Florida, N.A $ 6,000,000 $ 6,000,000 $ 12,000,000 ABN Amro Bank N.V $ 1,500,000 $ 1,500,000 $ 3,000,000 Total $100,000,000 $100,000,000 $200,000,000
ANNEX 1 TO CREDIT AGREEMENT 88 SCHEDULE I MATERIAL AGREEMENTS AND LIENS [SEE SECTIONS 7.12 AND 8.07(b)] Part A - MATERIAL AGREEMENTS 1. [Intentionally Omitted] 2. Loan agreements dated February 24, 1993 between the Company's subsidiary Flight Equipment and Engineering Limited, an English corporation ("FEEL"), and Barclays Bank PLC ("BARCLAYS"), as amended, providing for an overdraft facility in the aggregate principal amount of (pound)3,000,000. 3. Guarantee dated February 24, 1993 by the Company to Barclays limited to (pound)2,750,000 of the Indebtedness of FEEL described in Item 2 above. 4. Guarantee as of March 1, 1993 of Aircraft Furnishing Limited ("AFL") in an unlimited amount of the Indebtedness of FEEL described in described in Item 2 above. 5. Loan agreement between Royal Inventum B.V. and ING Bank dated July 14, 1993 in the aggregate principal amount of Dfl. 2,000,000. 6. Demand Promissory Note dated August 27, 1993 from Aero Holdings Acquisition Corp. (now known as Acurex Corporation) to the Company in the aggregate principal amount of approximately $2,000,000. 7. Acquisition Agreement among the Company, Elinor T. Nordskog and Nordskog Industries, Inc. dated July 27, 1993. (Acquisition purchase price adjustments unknown) 8. Purchase Agreement dated October 26, 1993 between the Company and Thomas P. McCaffrey and Kerry J. McCaffrey, Trustees of the Thomas P. and Kerry J. McCaffrey Living Trust, Dated August 3, 1990 pursuant to which the trust sold certain residential property located in San Clemente, California to the Company, and the Company, among other things, assumed Indebtedness which, as of the date hereof, is outstanding to Countrywide Funding Corporation in the aggregate principal amount of $457,484. 9. Capitalized lease obligations of FEEL and AFL for machinery and equipment in the aggregate amount of $945,000. 10. Indebtedness of FEEL to the Company in an aggregate principal amount not in excess of (pound)3,369,541. 11. Indebtedness of BE Aerospace (Netherlands) B.V. to the Company in an aggregate principal amount not in excess of Dfls. 49,385,000. SCHEDULE I TO CREDIT AGREEMENT 89 -2- 12. Indenture dated as of January 24, 1996 between the Company and First National Bank of Connecticut, as trustee, in connection with $100,000,000 of 9-7/8% Senior Subordinated Notes due 2006. 13. Acquisition Agreement dated as of December 14, 1995, among the Company, Burns Aerospace Corporation, Eagle Industrial Products Corporation, Eagle Industries, Inc. and Great American Management and Investment, Inc. (Acquisition purchase price adjustment unknown.) SCHEDULE I TO CREDIT AGREEMENT 90 -3- Part B - LIENS SCHEDULE I TO CREDIT AGREEMENT 91 SCHEDULE II HAZARDOUS MATERIALS [SEE SECTION 7.13] SCHEDULE II TO CREDIT AGREEMENT 92 SCHEDULE III SUBSIDIARIES AND INVESTMENTS [SEE SECTIONS 7.17 AND 8.08(a)] Part A - SUBSIDIARIES Jurisdiction of Percentage Subsidiary Organization Owners Of Ownership - ---------- ------------ ------ ------------ BE Aerospace Barbados BEA 100% International, Ltd. BE Aerospace (UK) England BEA 100% Limited ("BEA-UK") Flight Equipment and England BEA-UK 100% Engineering Limited BE Aerospace England BEA-UK 100% (Services), Limited Aircraft Furnishing England AFL 99.00% Limited ("AFL") 1.00% Fort Hill Aircraft Northern AFL 100% Limited ("AFL") Ireland AFI Holdings Northern AFL 100% Limited Ireland BE Aerospace France BEA 98.00% (France) S.A.R.L. K.A.D. 1.00% Companies, Inc. 1.00% Marc Leveille (director) BE Aerospace Delaware BEA 100% (U.S.A.), Inc. BE Aerospace Netherlands BEA 90% (Netherlands) B.V. BEA (U.S.A.) 10% ("BEA-NETH") SCHEDULE III TO CREDIT AGREEMENT 93 -2- Royal Inventum B.V. Netherlands BEA-Neth 96.60%* Tepaco Properties B.V. Netherlands BEA-Neth 100% Acurex Corporation Delaware BEA 100% Nordskog Industries, California BEA 100% Inc. - -------------------- * The balance of these shares were lost prior to the sale of the shares of this entity to BEA. SCHEDULE III TO CREDIT AGREEMENT 94 -3- Part B - INVESTMENTS In addition to the Investments set forth in Part A above, as of the date hereof the Company has the following outstanding Investments: a. an Investment in a Middle East sales office in an amount not to exceed $200,000; b. an Investment in a residential property in San Clemente, California in an amount of approximately $600,000; and c. Money Market Funds in the amount, as of May 23, 1997, of approximately $35M. Finally, each of the matters described in Items 3, 5, 9 and 10 of Part A of Schedule I constitutes an Investment in or by FEEL, AFL and the Company, as the case may be. SCHEDULE III TO CREDIT AGREEMENT 95 SCHEDULE IV APPROVALS AND COMPLIANCE None, except compliance with certain Environmental Laws disclosed in the materials set forth in Schedule II hereto. SCHEDULE IV TO CREDIT AGREEMENT 96 SCHEDULE V EXISTING LETTERS OF CREDIT Letter of Credit No. Amount Outstanding Expiry Date -------------------- ------------------ ----------- Total Letters of Credit Outstanding $ SCHEDULE V TO CREDIT AGREEMENT 97 SCHEDULE VI TAXES None. SCHEDULE VI TO CREDIT AGREEMENT 98 SCHEDULE VII TRANSACTIONS WITH AFFILIATES Under a Supply Agreement dated April 17, 1990 with Applied Extrusion Technologies, Inc., a Delaware corporation ("AET"), the Company purchases from AET its requirements of injection-molded plastic parts for use in the manufacture of passenger control units and other products for installation in commercial aircraft for the period ending March 31, 1998. Under that agreement, AET has agreed to use its best efforts at all times to maintain available and in good working order a sufficient number and variety of injection molding machines to satisfy the Company's orders as received and to use its best efforts to initiate production within three days of receipt of an order or, in emergency situations, on the date on which the order is received. The price to be paid by the Company to AET for products purchased under the Supply Agreement is an amount which results in a 33-1/3% gross margin to AET, after including in AET's standard cost for such products, all direct and indirect costs of labor, materials, equipment and overhead. Purchases by the Company under this agreement for the fiscal year ended on February 22, 1997 were approximately $1,642,000. Mr. Amin J. Khoury is a director and significant stockholder of AET and serves as its Chairman and Chief Executive Officer. Messrs. Richard G. Hamermesh and Hansjoerg Wyss, directors of BE Aerospace, Inc. are also directors of AET. SCHEDULE VII TO CREDIT AGREEMENT EX-10.14 4 CHESHAM, ENGLAND LEASE DATED OCTOBER 1, 1973 1 THIS LEASE made the first day of October One thousand nine hundred and seventy-three BETWEEN Drawheath LIMITED whose registered office is at 15 London EC2 (hereinafter called "the Lessor" on the one part and THE PENINSULAR AND ORIENTAL STEAM NAVIGATION COMPANY whose principal office is at P & O Building Leadenhall Street, London EC3 (hereinafter called "the Lessee") of the other part. WITNESSETH as follows:-- 1. (a) UNLESS the contract otherwise requires the following expressions bear the meanings assigned to them as follows:-- "The Lessor" means the estate owner of the reversion immediately expectant on the term hereby granted; "The Lessee" includes the Lessee's successors in title and permitted assigns; "The demised premises" means the land described in the First Schedule hereto and each and every part thereof together with any buildings and each and every part thereof now or hereafter erected or in the course of erection thereon or on any part thereof and includes the appurtenances fixtures fittings and rights hereby demised; "The Town and Country Planning Acts" means the Town and Country Planning Act 1971 the Town and Country Planning (Amendment) Act 1972 and any Act or Acts for -1- 2 the time being in force amending or replacing the same and includes any order instrument regulation direction or plan made or issued thereunder or deriving validity therefrom and any future legislation or items such as aforesaid of a like nature or effect; and "These presents" means this Lease; (b) These presents shall unless the context otherwise requires be construed as follows: Where there is more than one person for the time being included in the expression "the Lessee" covenants and obligations at any time expressed to be made or assumed by the party in question are made and are to be construed as made by all such persons jointly and severally and covenants and obligations made or assumed by any party shall be binding on and enforceable against his personal representatives. And the term hereby granted shall be computed for all purposes from the date of commencement specified in Clause 2 hereof. 2. IN consideration of the rent and covenants on the part of the Lessee and conditions hereinafter reserved and contained the Lessor HEREBY DEMISES unto the Lessee ALL THAT the land and premises described in the First Schedule hereto TOGETHER with the appurtenances thereto belonging and the fixtures and fittings thereon in the nature of Landlord's fixtures and fittings TO HOLD the same unto the Lessee SUBJECT to and with the benefit as far as the Lessor has power to grant the same of the provisions contained in the document specified or referred -2- 3 to in the Second Schedule hereto for the term of Twenty-five years from the First day of September One thousand nine hundred and seventy-three YIELDING AND PAYING therefor during the said term and so in proportion for any less time than a year the clear yearly rent of FORTY THOUSAND POUNDS (L40,000) (subject to revision and increase in accordance with the provisions in that behalf hereinafter contained) such rent to be paid in advance without any deductions (except such as may be obligatory by Statute or Order) by equal quarterly payments on the usual quarter days the first payment being a proportionate amount in respect of the period from and including the Eighth day of September One thousand nine hundred and seventy three to the quarter day next following to be made on the execution hereof. 3. The Lessee HEREBY COVENANTS with the Lessor as follows: (1) To pay the rent hereby reserved and made payable and as from time to time so revised and increased (if such be the case) at the times and in manner aforesaid without any deductions (except as aforesaid); (2) To pay and discharge all existing and future rates taxes duties charges assessments impositions and outgoings whatsoever of an annual or recurring and non-capital nature (whether parliamentary parochial local or of any other description) which are new or may at any time hereafter be assessed charged levied or imposed upon or payable in respect of the demised premises or assessed charged -3- 4 levied or imposed upon or payable by any estate owner landlord tenant or occupier in respect thereof; (3) To comply at the Lessee's expense with every notice order requisition direction or other thing given made or issued by a competent authority affecting the demised premises or the user of the demised premises by the Lessee whether the same is addressed to or served upon the Lessor or Lessee or any other landlord tenant or occupier or any other person whatsoever and of which the Lessee becomes aware; (4) To deliver to the Lessor free of charge a copy of every notice order requisition direction or other thing given made or issued to or by a competent authority affecting the demised premises or the user of the demised premises as soon as the Lessee becomes aware thereof; (5) To paint all the outside wood iron and other work of the demised premises previously or usually painted or which ought to be painted with two coats at least of good quality oil or synthetic paint in a proper and workmanlike manner on such occasions as the Lessor may reasonably require and not less than once in every third year of the said term and during the last year thereof (however-determined) and at the same time with every such painting to clean make good and treat with a suitable preservative the rough cast -4- 5 metal or stucco work wherever necessary in like manner; (6) To paint all the inside wood iron and other work of the demised premises previously or usually painted with two coasts at least of good quality oil or synthetic paint in a proper and workmanlike manner on such occasions as the Lessor may reasonably require and not less than once in every fifth year of the said term and during the last year thereof (however determined) and at the same times with every such painting in like manner to wash stop paper whitewash distamper colour and decorate the parts of the interior of the demised premises previously or usually so treated; (7) To cleanse and keep in good and tenantable repair and condition and as to the whole or part rebuild as appropriate and keep clean the demised premises (including the exterior and structure) and the water ventilation sanitary and central heating apparatus and the walls fences roads sewers drains and appurtenances thereof with all necessary reparations and cleansing and rebuilding works and amendments whatsoever; (8) To keep and maintain the land of the demised premises not covered by buildings in a neat and tidy condition clear of all rubbish and free from weeds including the cutting or grassed areas and maintenance of borders and to lop top and cut back roots or fell and grub up roots of all trees on the demised premises as may from time to time be -5- 6 necessary in the proper management of the demised premises and also well and substantially to maintain the fences erected along the boundaries of the demised premises marked "T" within such boundaries on the plan (if any) thereof; (9) To pay all reasonable expenses (including Solicitors' costs and Surveyors and other professional fees) which may be incurred by the Lessor in the preparation and service of a notice under Section 148 or 147 of the Law of Property Act 1925 or any statutory modification or re-enactment thereof for the time being in force notwithstanding that forfeiture (if applicable) be avoided otherwise than by relief granted by the Court; (10) To yield up unto the Lessor at the expiration or sooner determination of the said term so painted treated repaired cleansed maintained amended and kept as aforesaid the demised premises and the keys and all additions and improvements made thereto in the meantime and all fixtures of every king in or upon the demised premises or which during the said term may be affixed or fastened to or upon the same except Tenant's or trade fixtures and in accordance also with the covenants and conditions contained or imposed in or by virtue of any licence granted by the Lessor hereunder and prior to the expiration or sooner determination of the said term in case any -6- 7 of the Lessor's fixtures and fittings shall be missing broken damaged or destroyed forthwith to replace them with others of a similar character and of equal value and in the event of any alterations having been made during the said term to the demised premises to reinstate the demised premises (if and as so required by the Lessor) to the condition in which they were prior to the making of such alterations and in any event to remove any moulding sign writing or painting of the name or business of the Lessee and other persons from the demised premises and make good any damage caused to the demised premises by such removal or removal of the Lessee's fixtures fittings furniture and effects; (11) To permit the Lessor and its agents at any reasonable time or times by prior appointment in writing with the Lessee (except in case of emergency) to enter and examine the demised premises to ensure that nothing has been done therein which constitutes or may in the reasonable opinion of the Lessor tend to constitute a breach of any of the covenants contained in these presents and to examine the state and condition of the demised premises; (12) Duly and immediately to remedy repair and make good all breaches and defects of which notice in writing shall be given by the Lessor to the Lessee and which the Lessee shall be liable to remedy repair or make good under the covenants contained -7- 8 in these presents. And in case the Lessee shall make default in so doing within three calendar months after the date of any such notice it shall be lawful (but not obligatory) for the Lessor without prejudice to the right of re-entry hereinafter contained to enter upon the demised premises and to remedy repair and make good the same at the cost of the Lessee which cost together with the Lessor's proper expenses (including Surveyors' and other professional fees) thereby incurred shall be paid by the Lessee to the Lessor on demand; (13) To permit the Lessor and its agents at any reasonable time or times by prior appointment in writing with the Lessee to enter the demised premises and to take schedules or inventories of the fixtures and things to be yielded up at the expiration or determination of the said term; (14) To permit the Lessor and its agents and workmen and (if authorised by the Lessor the tenants and occupiers of any adjoining or neighbouring premises or their respective agents and workmen at any reasonable time or times to enter upon the demised premises by prior appointment in writing with the Lessee (except in case of emergency) for executing repairs additions or alterations to or upon any adjoining or neighbouring premises or for making repairing maintaining renewing connecting or cleansing any pipes drains channels watercourses sewers wires or cables belonging to or leading to or from the same the person entering making good to the -8- 9 Lessee all damage thereby occasioned to the demised premises (but no liability save in respect of such entry by the Lessor shall accrue against the Lessor); (15) To permit the Lessor at any time during the last six months of the said term (howsoever determined) if it so desires to affix and retain without interference upon any suitable parts of the demised premises in a conspicuous place notices for re-letting or selling the same (causing thereby as little interference as possible with the Lessee's business) and to permit all persons with written authority from the Lessor or the Lessor's agents at reasonable times of the day by prior appointment with the Lessee to view the demised premises; (16) (a) Not without the Lessor's consent to erect or permit or suffer to be erected any new building or erection on the demised premises; (b) Not without the Lessor's consent (such consent not to be unreasonably withheld) to make or permit or suffer to be made any alterations or additions in or to the said land and premises or any building or erection which may be erected thereon other than such as in the opinion of the Lessor constitute internal and non-structural alterations or additions to be said premises; (17) Not to use or permit or suffer the demised premises to be used for residential purposes or as sleeping accommodation or as agricultural land as -9- 10 defined by the Agricultural Holdings Act 1948 or any Act or Acts for the time being in force amending or replacing the same; (18) Not to use or permit or suffer the demised premises to be used for any noisy noisome offensive or dangerous trade art manufacture business or occupation or for any illegal or immoral purpose nor to do or permit or suffer to be done on the demised premises any act matter or thing whatsoever which may be or in the opinion of the Lessor's Managing Agents tend to become an annoyance nuisance damage disturbance inconvenience or to the prejudice of the Lessor or the owners or occupiers of any adjoining or neighbouring premises or the neighbourhood and without prejudice to the generality of the foregoing not to use or permit the demised premises to be used otherwise then as an Industrial Building with ancillary offices. Provided that no representation or warranty is or has prior to the date hereof been given or made by or on behalf of the Lessor that any such use is or will be or will remain a permitted use under the Town and Country Planning Acts nor shall any consent which the Lessor may in its discretion give to any change of use be taken as including any such representation or warranty. And to notify the Lessor of any proposed change of user of the demised premises or any part thereof within the - 10 - 11 category of user hereby authorised; (19) Not without the consent in writing of the Lessor first obtained (such consent not to be unreasonably withheld) to affix place or display or permit or suffer anything to be fixed placed or displayed to or on the forecourts or roofs of the demised premises; (20) Subject and without prejudice to sub-Clause (17) of this Clause:-- (a) not to do or omit or permit or suffer to be done or omitted any act or thing on or in relation to the demised premises or the user of the demised premises the doing or omission of which shall be or may in the reasonable opinion of the Lessor constitute a contravention of the Town and Country Planning Acts; (b) to comply with the requirements of the Factories Act 1961 and/or the Offices Shops and Railway Premises Act, 1963 (as the case may be) or any Act or Acts of Parliament amending or replacing the same in respect of the demised premises or the user thereof whether the obligation to comply be imposed upon the Lessor or Lessee and at all times to indemnify and the Lessee accordingly hereby indemnifies the Lessor against any breach or non-observance thereof; and (c) unless the Lessor shall otherwise direct to execute not later than in the last year of the said term (howsoever determined) or sooner if requisite all such works as are or may under or - 11 - 12 in pursuance of the Town and Country Planning Acts or any other Act or Acts of Parliament already or hereafter to be passed be directed or required by any Borough Council or local public or other competent authority to be executed at any time upon or in respect of the demised premises or the user thereof (including without prejudice to the generality of the foregoing the provision and maintenance of fire escapes and toilet facilities and elimination of smoke effluvia vapour and grit) And at all times to conform in all respects with the provisions of any regulations made under any general or local Act of Parliament which may be applicable to the demised premises or the user thereof And not to do or omit or permit or suffer to be done or omitted on the demised premises any act or thing whereby the Lessor may become liable to pay any penalty imposed or to bear the whole or part of nay expense incurred under any such direction requirement Act or regulation as aforesaid. (21) Not to carry on or suffer upon the demised premises any trade business or occupation in any manner or do or suffer any other thing which may make void or voidable any policy for the insurance of the demised premises against fire or any other risk for the time being required by the Lessor to be covered by the policy hereinafter referred to or render any increased or extra premium payable for such insurance -12- 13 (without in the latter event first having paid every such increased or extra premium) And to carry out in accordance with the directions of the insurers of the demised premises such works as may reasonably be required by them for the better protection of the demised premises; (22) In the event of the demised premises being destroyed or damaged to give notice thereof immediately to the Lessor stating whether and to what extent such destruction or damage was brought about directly or indirectly by any of the perils in respect of which the Leasee shall or ought to affect insurance pursuant to these presents; (23) To insure and keep the demised praises insured at the Leasee's own expense but as agent for the Lessor in the joint names of the Lessor and the Lessee and such other names (if any) as the Lessor shall require against loss or damage by fire aircraft flood impact and such other rises as the Lessor may from time to time require in the full reinstatement value thereof for the time being including cost of site clearance (the sum insured to be in any event not less than such amount as shall from time to time be notified to the Leasee by the Lessor as representing in their opinion the sum in which the demised premises ought for the time being to be insured but if such sum should be an undervalue the liability of the Lessee to insure for the full value shall not -13- 14 be affected) with professional fees on such value at the scales for time being in force of the Royal Institute of British Architects and the Royal Institution of Chartered Surveyors and also against less of three years' rent of the demised premises at the rate of the time being payable (but if the same is subject to review at such rate as shall be required by the Lessor in respect of the years for which the same is to be reviewed) and against damage or breakage of plate glass third party risks and property owner's liability as shall for the time being be appropriate with the Friends' Provident Life Office of 7 Leadenhall Street London EC3 or such other insurers and through such agency as shall be nominated by the Lessor from time to time under a policy including a reinstatement clause and free from any condition of avoidance on breach of warranty And whenever and wheresoever the Lessor shall reasonably so require to produce to the Lessor the policy of insurance (and provide the Lessor with a duplicate thereof if so requested) and the receipt for the current year's premium And forthwith as agent for the Lessor to lay out all moneys received under such insurance (except in respect of less of rent) and at the Lessee's own expense such other money as shall be necessary in well and substantially rebuilding and reinstating the demised premises in a workmanlike manner to the reasonable satisfaction of the Lessor and in accordance with drawings and -14- 15 specifications submitted to and approved by the Lessor. And the costs of any independent professional valuation of the demised premises which may in case of dispute be required by the Lessor for the purpose of this sub-clause (but not oftener than once in any five consecutive years) shall be paid by the Lessor to the Lessor on demand. PROVIDED ALWAYS that if the demised premises shall be destroyed or damaged by any of the insured risks than (unless the insurance shall be vitiated by some act or default of the Lessee) the whole or a proportionate part of the rent hereby reserved according to the nature and extent of the damage sustained shall be suspended until the demised premises shall have been reinstated and made ready for use and occupation and a fair proportion of the rent for the quarter in which such damage or destruction shall occur shall be refunded to the Lessee such refund to be calculated on a day to day basis and if any dispute shall arise between the Lessor and the Lessee in regard to the amount of the abatement to be made in the said rent or the period for which the said rent or any part thereof shall be suspended the same shall be referred to the arbitration or decision of an independent surveyor to be nominated by the parties hereto or (in default of agreement) by the President for the time being of the Royal Institution of Chartered Surveyors on the application of either party and such reference shall be deemed to be a submission to Arbitration under the provisions of the Arbitration Act 1950 or any -15- 16 statutory modification or re-enactment thereof for the time being in force; (24) Not without the consent in writing of the Lessor first obtained to hold or permit or suffer to be held upon the demised premises any sale by auction public exhibition political meeting show spectacle or gambling; (25) Not to keep or permit or suffer to be kept on the demised premises any material of a dangerous combustible explosive radio-active or offensive nature except in accordance with the provisions of any relevant Act or Acts of Parliament for the time being in force and after due notice to the insurers of the demised premises and payment of every increased or extra insurance premium which ought to be paid; (26) Not to fix to or place upon or permit or suffer to be fixed to or placed upon the demised premises any machinery article or substance which in the opinion of the Lessor may be liable to damage or overload the structure or floors of the buildings included in the demised premises or any adjoining or neighbouring buildings; (27) Not without the consent in writing of the Lessor first obtained (such consent not to be unreasonably withheld) to affix or display or permit or suffer to be affixed or displayed to or on the demised premises any sign boarding poster placard or advertisement whatsoever which shall be visible from the outside of the demised premises except such means of identification and other -16- 17 notices as aforesaid as shall in the opinion of the Lessor be reasonably necessary in connection with the use and occupation of the demised premises for the time being. Provided that it is and shall be the sole responsibility of the Lessee irrespective of consent having been given (or waived) by the Lessor to apply for and obtain the consent of the appropriate planning authority and every other consent necessary for any sign boarding poster placard or advertisement whatsoever which from time to time shall require any such consent; (28) Not to permit or suffer any owner of any adjoining or neighbouring property to acquire any rights of way light or air or other easements over the demised premises but as soon as the Lessee becomes aware thereof to inform the Lessor of any act or thing which might result in the acquisition of any right or privilege over the demised premises (for the purpose of enabling the Lessor if the Lessor thinks fit to do anything necessary for preventing the acquisition of any such right or privilege and to permit the Lessor and its agents to enter and examine the demised premises accordingly) and at the request and cost of the Lessor to take consent to or join with the Lessor in taking such steps or action as may be reasonably required by the Lessor for preventing any such right or privilege from being acquired; (29) (a) Not to assign or underlet the demised premises in any part less than the whole; (b) Not to underlet the demised premises except - 17 - 18 at the full rack rental value for the time being without taking a fine or premium or any other similar consideration; (c) Not to permit the occupation or possession of the demised premises or any part thereof at a rent or for a payment or consideration less than the full rack rental value for the time being; (d) To procure that any intended assignee of the demised premises shall covenant as a lessee by Deed supplemental hereto direct with the Lessor to pay the rent and observe and perform all the covenants on the part of the Lessee and conditions reserved and contained in these presents; (e) To ensure that in any permitted mediate or immediate underlease (i) the rent shall be subject to review in an upward direction only at such times as to coincide with the rent review provided for under this Lease and (ii) the underlessee shall covenant in such manner as to be enforceable by the Lessor not to deal in any manner with the premises therein comprised or any part thereof or permit any dealing therewith which shall be inconsistent with the provisions of this sub-clause and (iii) the covenants on the part of the Lessee herein contained (save for payment of rent) so far as the same affect the demised premises or part thereof comprised in any such mediate or immediate underlease shall be enforceable by the Lessor in case of default as -18- 19 well against the underlessee as against the Lessee; (f) Upon every application for consent required by this sub-clause to disclose to the Lessor such information as to the terms proposed as the Lessor may require; (g) Subject to and without prejudice to the generality of the foregoing not to assign transfer underlet share or part with the possession of the demised premises or permit the creation or assignment of any sub-underlease or other derivative mediate or immediate estate or interest whatsoever or permit any sharing or parting with possession of or under any such mediate or immediate estate or interest in the demised premises subject for the time being to a permitted mediate or immediate underlease thereof without in each and every such case the previous consent in writing of the Lessor which shall not be unreasonably withheld PROVIDED ALWAYS that nothing contained in this sub-clause (29) shall prevent the Lessee from subletting the demised premises to or permitting the same to be occupied by Scott Parking and Warehousing Co. Limited or any other subsidiary or associated company of the Lessee; (30) Within one month of every assignment transfer underlease or charge affecting the demised premises or any devolution of the estate of the Lessee therein or two months of the like affecting and every surrender terminating any derivative mediate or immediate estate or interest in the demised premises or any part thereof or any devolution of such estate or interest to give notice -19- 20 in writing with particulars thereof to the Lessor and produce such assignment transfer underlease or charge or the Probate of the Will or Letters of Administration or other document or evidence of such devolution or surrender or a certified copy thereof (if and as they so require) and pay to them in respect of every such assignment transfer underlease change devolution or surrender a registration fee of Two pounds ten pence; (31) To keep the Lessor fully and effectually indemnified at all times and the Lessee hereby indemnifies the Lessor accordingly against all costs claims liabilities actions and expenses (whether alleged or demanded by the owners or occupiers of any adjoining or neighbouring properties or other parties) arising through the Lessee's use or occupation of the demised premises the existence of any articles belonging to the Lessee in or about the demised premises or the execution of any works by the Lessee upon the demised premises except in so far as the same may be due solely to the Lessor's own act or default or the act or default of the Lessor's agents thereunto duly and specifically authorised acting as such within the scope of such authority; (32) To perform and observe all the covenants conditions and provisions relating to the demised premises referred to in the Second Schedule hereto; (33) To pay to the Lessor upon the commencement of the term hereby created the Lessor's Solicitors' costs and expenses in connection with the preparation and completion of - 20 - 21 these presents including the Counterpart and all stamp duties thereon; THE Lessor HEREBY COVENANTS that the Lessee paying the rent hereby reserved and made payable and as from time to time revised and increased (if such be the case) and performing and observing the several covenants conditions and agreements herein contained and on the Lessee's part to be performed and observed shall and may peaceably and quietly hold and enjoy the demised premises during the term hereby granted without any lawful interruption or disturbance from or by the Lessor or any person claiming under or in trust for the Lessor. 6. PROVIDED ALWAYS AND IT IS HEREBY EXPRESSLY AGREED as follows:- (1) (a) That the Lessor shall be entitled by notice in writing given to the Lessee at any time during the review period (as hereinafter defined) to call for a review of the yearly rent payable to the Lessor in respect of the demised premises and if upon review it shall be found that the commercial yearly rent (as hereinafter defined) of the demised premises at the review date (as hereinafter defined) next following the commencement of the review period in question shall on the occasion of such review be greater in amount then the yearly rent hereinbefore reserved (as revised and increased if such be the case on any previous review) and for the time being payable then as from the review - 21 - 22 date in question the amount of the yearly rent payable to the Lessor in respect of the demised premises shall be increased in manner following and thenceforth the said rent shall be paid by the Lessee at such increased rate to the Lessor; (b) for the purposes of this sub-Clause the following expressions bear the meanings assigned to them as follows:- "The review period" means in the first instance the period commencing twelve months immediately preceding the expiration of the Fifth year of the said term and in the second instance and successively thereafter the period commencing twelve months immediately preceding the expiration of every following Fifth year of the said term and includes (as the context admits) all or any one or more of such periods; "The review date" means in he first instance the date of expiration of the Fifth year of the said term and thereafter successively the date of expiration of each and every subsequent Fifth year of the said term; "The commercial yearly rent" means the clear yearly rent at which the demised premises assuming the due performance and observance of the covenants on the part of the Lessees and conditions contained in these premises might reasonably be expected to be let at the review date by a willing landlord in the open market with vacant possession and without premium or any other consideration than that evidence by execution of a lease thereof to -22- 23 a willing tenant for a term equal to the residue then unexpired of the term hereby granted by a lease in the same terms in all other respects as these presents (including this sub-clause) there being disregarded: (i) any effect on rent of the fact that the Lessee or any other person may have been in occupation of the demised premises; and (ii) any goodwill attached to the demised premises by reason of the user of the demised premises by the Lessee or any other person or the purposes for which the demised premises may have been used; and (iii) any effect on rent of any improvement of the demised premises or any part thereof carried out by the Lessee at the Lessee's expense otherwise than in pursuance of any obligation imposed by Statute or by the terms of this Lease. (c) With effect from the review date the amount of the yearly rent payable under this Lease shall be increased to the amount of the commercial yearly rent PROVIDED ALWAYS AND IT IS HEREBY AGREED that the yearly rent payable hereunder from and after the review date during the residue of the term hereby granted shall at no time be less in amount than the yearly rent for the time being subject to review; (d) Such review as aforesaid shall first be made by the Lessor and the Lessee or their respective Surveyors in collaboration but if no agreement as to the amount of the increase (if any) to be made in the said -23- 24 yearly rent shall have been reached between the parties within the months after the date of the Lessor's notice calling for such review the question whether there shall be an increase in the said yearly rent and if so what will be the amount of the increased yearly rent shall be referred at the request of either party to the decision of an independent Surveyor (who shall act and be deemed to act as an expert and not as an arbitrator) to be appointed (in default of agreement between the parties) on the request of either party by the President for the time being of the Royal Institution of Chartered Surveyors and whose fees shall be borne and paid by the parties hereto in such shares and in such manner as the said Surveyor shall determine; (e) Should the amount of the increase (if any) to be made in the said yearly rent not be agreed or decided before the review date in question the Lessee shall pending such agreement or decision continue to pay rent at the rate for the time being applicable and subject to review and on such agreement or decision being reached or made any necessary adjustment shall forthwith be made retrospectively in favour of the Lessor from such review date and the difference between the amount of rent actually received and the amount so due to the Lessor in respect of the period down to the date of payment of such difference to the -24- 25 Lessor shall be paid by the Lessee to the Lessor on the due date for payment of rent next following the demand made; (f) The Lessor and the Lessee HEREBY MUTUALLY COVENANT that if and whenever it shall be agreed or decided that the yearly rent payable hereunder shall be increased they shall if required by and at the expense of the Lessor forthwith execute a Deed supplemental hereto specifying and confirming the revised rent payable hereunder and that with affect from the relevant review date the Lessee will pay the yearly rent as so varied; and (g) Should any such review at any time be restrained or restricted by any Act of Parliament instrument regulation order or public or local policy than upon the same being raised relaxed or modified and on every such occasion the Lessor shall be at liberty to call for an intermediate review in manner hereinbefore provided mutatis mutandis by not less than three months notice in writing to the Lessee for which purpose the date of service of such notice shall constitute the commencement of the review period and the date of expiration thereof shall constitute the review date; (h) Notwithstanding the prior provisions of this Clause if the yearly rent hereinbefore reserved and for the time being payable hereunder shall not have been reviewed at a review date than the Lessor shall at any time thereafter have the right to review the said rent upon giving to the -25- 26 Lessee not less than one month's notice in writing of its intention so to do and if the Lessor shall give to the Lessee a notice as aforesaid then from and after the date therein specified (which shall be a date not earlier than one month from the date of service of the said notice) the year rent shall be increased to an amount which shall represent the commercial yearly rent of the demised premises at the date specified in the said notion and the amount thereof shall be agreed between the Lessor and the Lessee or determined in accordance with sub-Clause (d) or this Clause; (2) Any notice shall be sufficiently serviced on the Lessee if left addressed to the Lessee at the demised premises or the Lessee's last known address or registered office or if it shall be sent by prepaid registered or recorded delivery post addressed to the Lessee there. Any notice shall be sufficiently served on the Lessor if left addressed or sent by prepaid registered or recorded delivery post to it at its registered office. Any notice sent by post as aforesaid shall be deemed to be received by the addressee at the time when it ought in due course of post to be delivered and subject as aforesaid the provisions of Section 195 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1952 shall apply to all notices hereunder; (3) If the rent hereby reserved or any part thereof shall be in arrear for Twenty one days after the same shall become due (whether legally demanded or not) or if there -26- 27 shall be a breach of any of the covenants or agreements on part of the Lessee or conditions contained in these presents or if the Lessee shall go into liquidation (other than a voluntary liquidation for the purpose of amalgamation or reconstruction) or have a winding up order made against it or shall enter into a composition with its creditors have a Receiving Order made against it or be adjudicated a bankrupt or if the Lessee shall suffer any distress or execution to be levied on the demised premises or the contents thereof or shall take the benefit of any Act for the relief of debtors then and in any such case the Lessor or its agents may forthwith (or at any time thereafter) re-enter upon the demised premises or any part thereof in the name of the whole whereupon the said term shall absolutely determine without prejudice to any rights of the Lessor in respect of arrears of rent or other subsisting breach of any condition or covenant or agreement on the part of the Lessee. I N W I T N E S S whereof the Lessor and the Lessee have caused their respective Common Seals to be hereunto affixed the day and year first above written. THE FIRST SCHEDULE above referred to ALL THAT piece of parcel of land situate in the Parish of Chesham in the County of Buckinghamshire having frontages on the northerly side to Nashleigh Hill on the westerly side to Preston Hill and in part on the southerly side to Cherry Tree Walk formerly known as Nashleigh Works but now known -27- 28 as The Childrens Centre Nashleigh Hill Chesham all which piece or parcel of land comprises 1.75 acres or thereabouts and is shown for identification only edged red on the plan annexed hereto. THE SECOND SCHEDULE above referred to ------------------------------------- This demise is subject to and with the benefit (so far as applicable) of the covenants conditions and provisions contained in a Conveyance dated 13th May 1984 and made between Nora May Day of the one part and Allied Ironfounders Limited of the other part. (THE COMMON SEAL of DRAWHEATH (LIMITED was hereunto affixed (in the presence of: Director Secretary -28- 29 [INSERT GRAPH 1] 30 DATED 1st 1978 --------------------------- DRAWHEATH LIMITED -to- THE PENINSULAR AND ORIENTAL STEAM NAVIGATION COMPANY --------------------------- L E A S E -of- Nashleigh Works, Nashleigh Hill, Chesham, Buckinghamshire. ------------------------------- EX-10.15 5 UTRECHT, THE NETHERLANDS LEASE DATED 12/15/88 1 TENANCY AGREEMENT The undersigned: Mr. N.W. Dijkhuizen, acting in this case in his capacity as director of the Stichting Pensioanfonds Produktschappen Voedselvoorsiening (Pension Fund Foundation for Food Supply Commodity Boards), domiciled at The Hague, Duinweg 25, and as such legally representing this Foundation, to be named hereinafter lessor, and Mr N. de Jager, M.Sc., acting in this case in his capacity as director of the private company Koninklijke Pabriek Inventum B.V., having its seat at Bilthoven, Lijenseveg 101, and as such legally representing this private company, to be named hereinafter tenant, declare having made a tenancy agreement on 15th December 1988 with regard to: office/industrial building under construction, in conformity with the attached brief technical description dated 19th December 1989 by Esbouw Projectmanagement B.V., ref.: Es/ar/8825/18, initialled by the parties, letters dated 16th January 1989 ref.: Es/aj/8825/05 and 12th April 1989 ref.: Es/aj/8825/05 from Esbouw to Inventum B.V., the drawings of the firm of architects Alberts en van Huut B.V., numbers 88027-W01 up to and including W07, dated 19th December 1989, and the construction drawing(s) of High Tech Raadgevende Ingenieurs b.v. (High Tech Consulting Engineers b.v.), nr.: 88290 pages A and B, dated 30th March 1989, as well as the adjoining building plot of about 1,555 m2 of surface standing and situated on Parkerbann 20 at Nieuvegein, as indicated by red shading in so far as the office/industrial building is concerned, and by yellow shading in respect of the building plot (see attached ground plan(s)), all this well known to the parties. to be named hereinafter the property hired as well as the drawings by Hoogendoorn B.V., dated 14-12-1989, the pages 1-01-1-2 and the drawings of Radiar B.V. (air conditioning system) P.12863A dated 14-12-1989, P.12863 B, P.12863 F, P.12863 EZ, P.12863 E and the drawing Compressed Air Line ground floor dated 18-12-1989. Drawings of the Electische Installatie (electric installation) Sielman B.V., dated 20-11-1989, pages 1 up to and including 3, and the drawings KO-1, Hk1-2 K1-3, LO-1 dated 20-11-1989. Tenant's initials: Lessor's initials: -1- 2 Furthermore, they have agreed upon the following: GENERAL 1.1 This contract commits the undersigned to comply with statutory provisions, as well as with local regulations and customs, with regard to letting and hiring, to the extent that it does not deviate from them. 1.2 This contract forms an integral part of the general terms and conditions deposited at the office of the court at Utrecht on 10th April 1984, where registered under number 230/84. The undersigned declare having received a copy thereof and to be fully familiar with its contents. These general terms and conditions are held to verbally form part of this contract and are binding upon the undersigned, subject to any explicit deviation therefrom in the clauses to be expressed below, or if application thereof is not feasible with regard to the property hired. TENANCY - OPTION AND EXTENSION 2.1. This contract has been made for the period of 5 years commencing on 1st December 1989 and expiring on 30th November 1994. 2.2 Tenant is entitled to 5 optional years, commencing on 1st December 1994 and thus expiring on 30th November 1999. Tenant is held to use his right of option, unless he notifies the lessor by registered letter with acknowledgement of receipt or writ that he does not want to use this right, at least 12 months before the above date of commencement, thus before or on 30th November 1993. Tenant's initials: Lessor's initials: -2- 3 RENT 3.1. The initial rent shall amount to NLG 324,682.--, in words: three hundred twenty four thousand six hundred eighty two guilders per year excluding V.A.T., payable in advance in 4 instalments, each of 3 months, each amounting to NLG 81,170.50 excluding V.A.T., the first being due on 1st January 1990, without prejudice to what is laid down in clause 4. The above initial rent includes the rent of the adjoining building plot of about 1,555 m2 area, as well as the rent increase covering the additional work and the reduced amount of work carried out at the tenant's request for the lessor's account, as specified on the enclosed list dated 19th December, 1989. The letters dated 16th January 1989 ref.: Es/aj/8825/05 from Esbouv to Inventum B.V. and dated 25th April 1989 nr.: 1050 from the lessor to Inventum B.V. is hereby annulled, however only as regards the financial consequence already worked up in the above list. In view of the commencement date of this contract, the first payment shall be made covering the period from 1st December 1989 till 1st January 1990, and amounts to NLG 27,056.80 excluding V.A.T., in words: twenty seven thousand fifty six guilders and eighty cents. Any appeal for a discount or a set-off against a claim which the tenant believes to have or may obtain against the lessor, shall be ruled out. 3.2. On the other hand the lessor and the tenant mutually agree that the lessor shall charge the tenant for value added tax on the rent referred to in paragraph 1. Adaptation and Revision of rent 4. The rent referred to in paragraph 1 of clause 3 shall be adjusted each year, for the first time as at 1st December 1990, in accordance with what is laid down in clauses IIC and IID of the general terms and conditions, on the understanding that the rent shall never be lower than the initial rent. Tenant's initials: Lessor's initials: -3- 4 SERVICE CHARGE 5.1. The tenant shall owe to the lessor, each time payable 3 months in advance, an amount of NLG 2,500.--, in words: two thousand five hundred guilders per quarter excluding V.A.T. by way of advance to be settled on account against the cost of the following marked supplies and services: * maintenance and periodic inspection of heating system(s). * maintenance and periodic inspection of (mechanical) exhaust system(s) * maintenance and periodic inspection of triple mechanical ventilation * maintenance and periodic inspection of lift installation * maintenance of premises, gardens, drainage, including replacement of plants * clerical expenses of 5%. 5.2. if a tenant is debited for service charge V.A.T. shall be payable. USE 6. The property hired is exclusively destined for use as office/industrial accommodation for the purpose of operations being carried out by the tenant, as described in the attached copy of extract from the Register of Business Names of the Chamber of Commerce. SECURITY 7. On signing this contract the tenant shall make available to the lessor a bank guarantee of NLG 96,000.--, in words: ninety six thousand guilders including V.A.T. Tenant's initials: Lessor's initials: -4- 5 LIABILITY B.1. The lessor shall not be liable for the consequences of apparent or latent defects to the property hired, nor for consequential loss to the tenant, nor for damage to persons or property of the tenant or of any third party, nor for any other damage whatsoever, except in the case of damage due to the condition of the property hired, to the extent that the lessor can in such case be blamed for gross negligence. B.2. The tenant shall indemnify the lessor against any third party claim in respect of damage to people or goods present in the property hired, caused as a consequence of any defect as described above. CHARGES PUBLIC UTILITIES 9. Any charge connected with the supply and use of water, gas and electricity including standing charges in the property hired, shall run for the tenant's account, as also any expense connected with a transformer unit, if required, or with the reinforcing of the existing unit. The respective charges shall be paid by the tenant directly to the relevant utilities. SPECIAL REGULATIONS Commencement date payment of rent e.g. of service charges The rent and the service charges shall be due as at 1st December 1989. Tenant's initials: Lesssor's initials: -5- 6 DELIVERY DATES AND DELIVERY/INSPECTION REPORT The property hired shall be delivered on 19th December 1999. On delivery of the property hired by the lessor to the tenant, the lessor and the tenant shall arrange for the property hired to be inspected to ascertain whether the property hired has been delivered in conformity with the attached appendices. The tenant shall not refuse to sign the inspection report on unreasonable grounds. The lessor shall repair to the tenant's satisfaction the shortcomings/defects recorded in the inspection report, if possible within 30 days from date of inspection. The inspection report shall serve as delivery report on expiry of the tenancy agreement, on the understanding that in the case of shortcomings/defects the inspection report to be drawn up on completion of repairs shall be accepted as such. Tenant's initials: Lessor's initials: -6- 7 RIGHT TO PURCHASE a. Should the tenant, during the currency of this tenancy agreement, but latest before 30th November 1994, wish to proceed to buy the property hired sufficiently well known to the parties, the tenant shall be entitled to purchase. b. If intending to buy the property hired, the tenant shall notify the lessor of his decision to use his right to purchase, latest within 30th November 1994 by registered letter send to the lessor. Then, notwithstanding a termination of hire as referred to in paragraph 2 of clause 2, the present tenancy contract shall remain in full force until the date of transfer. Such purchase shall take place at the market value of the property hired then prevailing, increased by V.A.T., on the understanding that same shall at no time be lower than the cost of acquisition paid by the lessor, which to include also the cost increased by V.A.T. for the technical and/or architectural facilities supplied at the tenant's request, to the extent that same shall not yet have been paid out of the rental. This market value shall be fixed by three estate agents. Of these three agents one shall be appointed by each of the parties within a fortnight from the date on which either of the parties shall have received a respective request from the other party. A third agent shall be nominated by the two agents within eight days from the date of acceptance of their appointment. The judgment passed by the third agent shall be decisive failing agreement among the agents on the market value to be established. If either of the parties fails to nominate an estate agent or failing the two nominated agents to agree on the appointment of a third agent, then the willing party could ask the chairman of the Chamber of Commerce and Factories of the district in which the estate is located, to nominate, in the first instance, two estate agents and, in the second instance, one agent. The fees of the agents shall be borne by the parties on a fifty-fifty basis. The agents shall issue their report within six weeks from their definite nomination. The charges and transfer tax due on the sale and delivery of the property hired/sold shall run for the tenant's/buyer's account. Tenant's initials: Lessor's initials: -7- 8 The tenant/buyer now for then irrevocably authorizes the lessor/vendor to lodge on his behalf a petition of option because of taxed delivery. If the petition is not granted, or if, due to the tenant's/buyer's failure, the petition is not lodged or lodged too late, the selling price shall be increased by the amount of the V.A.T., which would have been due had the petition been granted c.q. (timely) lodged. c. If the tenant uses his right to purchase, the deed of conveyance shall be executed as soon as possible before a civil law notary to be nominated by the lessor; such deed shall contain the terms and conditions normally included by this civil law notary in deeds of conveyance. The purchase price and whatever to which the tenant, as purchaser, shall be bound, shall be settled by the latter when passing the deed, on pain of forfeiture of any preferential right and without prejudice to the lessor's rights to damages. d. The lessor shall not be empowered to sell the property hired to any third party within the above period of time, thus before 30th November 1994, unless with the tenant's consent. e. Failing the tenant to make use of his right to purchase, the right to purchase shall become extinct and the lessor shall be free to sell the property hired to a third party on expiry of the above period, thus from 1st December 1994, while the tenant shall continue to be bound to his tenancy agreement, without prejudice to what is laid down in clauses 2.1. 2.2. and 4. f. Any notification referred to above shall be made by registered letter, of which only the date shall be decisive. g. Under this clause by sale it is understood that assets brought in or transferred/sold within companies also belonging to the lessor's concern, shall not be included. Tenant's initials: Lessor's initials: -8- 9 CLAUSE IV PARAGRAPH C: Contrary to what is laid down in Paragraph C of clause IV of the General Terms and Conditions, the parties agree on the following: The words "or his legal predecessor" shall be annulled. CLAUSE V PARAGRAPH C: Contrary to what is laid down in Paragraph C of Clause V of the General Terms and Conditions, the parties agree on the following: the first line from "Without" up to and including "lend", shall be annulled and replaced by the following: SUBLET The tenant has obtained the lessor's permission to lend or sublet the property hired wholly or partially to group companies, provided: a. such group companies, are, in the lessor's judgement, sufficiently solvent. b. no regulations and conditions are stipulated with group companies that are in conflict with those laid down in this contract. c. the time of hiring in the sublet agreements coincides with the time of hiring of this contract. d. if the right involved is used, the tenant informs the lessor of the names of the group companies and the conditions stipulated. The lessor's consent shall not be refused for other than objectively business-inspired reasons. Tenant's initials: Lessor's initials: -9- 10 CLAUSE V PARAGRAPH E: Contrary to what is laid down in Paragraph E of clause V of the General Terms and Conditions, the parties agree on the following: Instead of the first and second sentences shall be read: The lessor grants permission to the tenant to provide advertisements and/or signs on the following conditions and without prejudice to what is otherwise stipulated in this tenancy agreement, namely: - - if available, the plans and/or the specification on the subject shall be submitted to the lessor for his approval; - - the tenant shall ensure that the required licence(s) and/or exemption(s), if required, are obtained; its/their refusal or withdrawal shall not at any time cause the annulment or nullification of the tenancy agreement nor any other action against the lessor; the tenant shall be liable to ensure that in executing the works any pertinent requisites imposed or to be imposed by the authorities are complied with; - - any costs and risks, including the risk of underinsurance, connected with the advertisements and/or signs to be provided to the property hired, shall run for the tenant's account; - - if, consequent upon the advertisements and/or signs provided, the premium of the fire insurance of the property hired and/or properties adjoining should be increased, such increase shall run for the tenant's account; - - any damage c.q. consequential damage, maintenance, renewal, repairs and liability claims of third parties with regard to the advertisements and/or signs provided shall be for the tenant's rink and account; - - the relevant advertisements and/or signs provided by the tenant in, to and/or on the property hired, shall, on expiry of the tenancy (be causes to) be removed by the tenant. The 3rd sentence shall be read as follows "shall (fit) non relevant aerials and piping on or to the property hired". Tenant's initials: Lessor's initials: -10- 11 OF THE GENERAL TERMS AND CONDITIONS THE FOLLOWING CLAUSES SHALL NOT BE APPLICABLE: Clause I Clause II Paragraph E: Clause IX Clause X MADE in triplicate and signed on 19th December 1989. TENANT: LESSOR: Koninklijke Fabrick Inventur Stichting Pensioenfonds B.V. Produktschappen Voednel- voorsiening sgd.: illegible sgd.: illegible Nr N. de Jager Mr N.W. Dijkhuisen -11- 12 GENERAL TERMS AND CONDITIONS I. GENERAL: lodged at the office of the court of Utrecht on 10th April 1984, where registered under number 230/84. The Lessor guarantees that the consent required for this tenancy agreement has been obtained from the mortgagees. II. RENT A. The rent shall be paid in legal Dutch currency or by remittance into a bank or Girobank account to be indicated by the lessor. Payment shall be made such as to enable the lessor to dispose of the money latest on the due date of the respective instalment of rent. B. Whenever it is agreed that value added tax shall be charged, the following shall apply; _ The tenant irrevocably authorizes the lessor to lodge the petition, also in his, the tenant's, name, referred to in subsection b, fifth, of paragraph 1 of section 11 of the 1968 Sales Tax Act, to the effect that value added tax may be charged on the rent referred to in paragraph 1 clause 3 of the tenancy agreement. _ In the event the lessor proves that dismissal of the above petition is due to the tenant, the rent shall be increased by the amount of value added tax that would be payable if the petition had been granted. The same shall apply if the petition is granted as at a later date than the date asked for, albeit only for the period expiring on the date of commencement of the taxed letting. _ In the event the tenant proves that dismissal of the petition is due to the lessor, the rent referred to in paragraph 1 of clause 3 of the tenancy agreement shall not be increased by value added tax. _ The value added tax due shall be paid simultaneously with the rent. In the event of a sale of the property hired by the lessor, the new owner and tenant shall be bound to what has been agreed between the lessor and the tenant with regard to the value added tax, unless the new owner and tenant should agree to the contrary. Tenant's initials: Lessor's initials: -1- 13 c. The annual adjustment of the rent shall take place in accordance with the modification of the price-index figure of family consumption, series of wage-earning families having in 1985 a family income below the maximum wage level for entitlement to national health insurance, fixed by the Central Statistical Office on the most recent time basis. The new rent shall be obtained each time by multiplying the current rent in force until the date of adjustment of this ruling rent by a factor to be obtained by dividing the average price-index figure of the calendar year preceding the date of adjustment of the rent by the average price-index figure of the calendar year preceding the date of commencement of the then prevailing rent and by rounding off the figure so obtained to three decimal places. Consequently, the new rent shall be: price-index figure for the calendar year preceding the date of commencement of the new rent prevailing rent X ____________________________________________________________ price-index figure for the calendar year preceding the date of commencement of the rent in force. D. If the Central Statistical Office suspends the announcement of the said price-index figure or changes the basis of its calculation, a possibly comparable index figure shall be applied. In the case of difference of opinion on this matter, the willing party may ask the Central Statistical Office for a judgment that shall be binding upon the parties. Any expenses connected therewith shall be borne by the parties on a fifty-fifty basis. Tenant's initials: Lessor's initials: -2- 14 E. If either of the parties wants to make use of the power to revise the rent, he shall notify the other party accordingly by registered letter with acknowledgement of receipt latest six months prior to the date on which the revision shall become effective. Failing the parties to come to an understanding within two months from receipt of the notice referred to above, the rent shall be fixed by three estate agents, members of the Dutch Association of Estate Agents NVM. Of these three agents each party shall nominate one within a fortnight from the date on which a party shall have received a request to this end from the other party. The third agent shall be nominated by these two agents within eight days from their acceptance of the nomination. The judgment of third agent shall be decisive failing agreement between the agents on the rent to be fixed. Failing one of the parties to nominate an agent or failing both nominated agents to agree on the nomination of a third agent, the willing party may ask the nomination from the chairman of the Chamber of Commerce and Factories of the district in which the estate is located, in the first instance of the two agents and in the second instance of one agent. The agents' fees shall be borne by the parties on a fifty-fifty basis. The agents shall issue their report within six weeks from definite nomination. III. SERVICE CHARGES A. The amount payable by the tenant in advance for the additional supplies and services may before the time specified be modified by the lessor on the basis of a reasonable calculation. Tenant's initials: Lessor's initials: -3- 15 B. The tenant shall be obliged to supply the lessor each year with a specified summary of the expenses referred to in the preceding paragraph. Any differential between the expenses actually incurred and the amounts paid by the tenant by way of advance, shall be settled within one month from the issue of the specified summary. C. On giving notice to the tenant, the lessor may, if in the letter's opinion there is a reason for it, extend, reduce or annul the supplies and services both in terms of type and volume. IV. THE PROPERTY HIRED A. The tenant shall arrange to obtain licences and/or exemptions, if required, for the conduct of business, while their cancellation or withdrawal can never cause the tenancy agreement to be annulled or nullified nor any other action against the lessor. B. If the lessor and/or co-tenant(s) should be charged with a higher premium for fire insurance in connection with the nature and/or conduct of tenant's business, the tenant shall refund to the lessor and/or co-tenant(s) such extra premium calculated in respect of the aggregate insured sum. The lessor shall be free in fixing the sum to be insured, in electing the insurance company/companies and in judging the fairness of the premium due. C. Any taxes and duties due for items fitted by the tenant or his legal predecessor, the property tax for account of factual use as well as the costs of water consumption shall run for the tenant's account, even to the extent that the assessments c.q. invoices are made out in the name of the lessor. D. In the event any alterations and/or changes to or in the property hired are necessary, whether or not on the strength of regulations made by the authorities, in connection with the purpose described in clause 6 of the tenancy agreement, than the provisions under paragraph D of clause V shall apply, the expenses involved being for the tenant's account. Tenant's initials: Lessor's initials: -4- 16 V. THE USE A. The tenant declares to be sufficiently familiar with the property hired, not requiring any further description thereof. The lessor shall not be liable for the consequences of apparent or latent defects of the property hired. Such defects shall also include the defective functioning or failure to function of the piping and installations serving for the supply and discharge of heat, water and electricity. B. The tenant shall use the property hired as a tenant should and in conformity with the purpose stated in clause 6 of the tenancy agreement, while, in addition, he shall, in line with this purpose, provide and keep it provided with adequate inventory c.q. the required fittings and furniture. The tenant shall not be free without written consent from the lessor, to change the purpose of the property hired. The tenant shall be obliged to take care that he, or any third party working for his and/or any member of the household, causes no inconvenience to users of the premises involved c.q. the adjoining premises. The tenant undertakes to conduct his business as a tenant should. C. Without the previous written consent of the lessor, the tenant shall not have the property hired used, neither wholly nor partly, by any third party or sublet it to any third party. In the event the tenancy rights fall under an undivided estate, the transfer of the tenancy rights, following allotment in the case of partition of property, shall take place only with previous written consent of the lessor. The tenant shall, without the previous written consent from the lessor, be prohibited from bringing any tenancy right under the present contract into a company, partnership and the like, or from making use of his tenancy rights in each company or partnership. Tenant's initials: Lessor's initials: -5- 17 D. The tenant shall not provide, change or remove anything in or to the property hired, nor to the piping and discharge systems belonging to it, unless with the previous explicit written consent of the lessor. The tenant shall be liable to ensure that in carrying out the works, the pertinent requisites made or to be made by the authorities are complied with, and also that any licences required shall be obtained. Whatever the tenant shall have provided, changed or removed in or to the property hired, and this entirely for his own risk and account, shall be left intact by him on expiry of the tenancy without the tenant's right to claim any corresponding compensation from the lessor. Any exception to this rule shall be valid only if, in granting the consent referred to in the first sentence of this section, the lessor shall have reserved his right to require the tenant, on expiry of the tenancy, to bring the property hired in the condition in which it was on commencement of the tenancy agreement. E. The tenant shall not provide any advertisements or signs without having obtained the explicit written consent of the lessor. The lessor shall for himself and/or for third parties reserve the right to provide advertisements to or on the property hired or the complex to which the property hired belongs, to the extent that this shall not affect the tenant's conduct of business c.q. causes him inconvenience. Without the explicit written consent of the lessor, no aerials and piping shall be provided on or to the property hired. The tenant shall forfeit a penalty of NLG 250.-- for each day on which he maintains an aerial and/or a pipeline without the previous written consent of the lessor. The tenant shall ensure that no people are allowed on the roof and that no objects are put on it. No items shall be provided in or to the property hired that may cause damage to it. Tenant's initials: Lessor's initials: -6- 18 VI. MAINTENANCE AND REPAIRS A. The tenant shall be obliged to continue keeping in proper state of maintenance the object hired, including the sanitary jettings, which he has accepted in good condition, with pipelines and discharge system, and to have the chimneys swept for his account. The tenant shall, for his own account, substitute as soon as possible by quite identical new panes, all glass panes of the property hired, including plate glass windows or shop-windows, which should break or be damaged during the tenancy. In the case of frost or snow the tenant shall take all steps to avoid damage to the property hired or to property of any third party, in particular he shall during frosty weather take all measures to prevent heating systems and/or hot water plants (if and when available in the property hired), pipeline and discharge systems from freezing. The tenant shall be liable for the proper and professional maintenance and use of all facilities and installations existing in or to the property hired. B. The repairs referred to in section 1619 of the Civil Code as running for the tenant's account shall also include those to door/window furniture, sanitary fittings, electric installation and gas plant, awnings, partition walls, ceiling covering, as well as ventilating and airconditioning plant(s) and central heating system(s) (including the renewal of radiator cocks). In the event the lessor wants to institute investigations into the advisability to have repairs carried out as referred to in clause 1591 of the Civil Code, or if he wants to have such repairs prepared or carried out, or if works have to be done on behalf of other tenants or occupants, the tenant shall be obliged to give the lessor, or the person reporting to him in the name of the lessor, as soon as possible but latest within 24 hours from receiving the notice to be given to the tenant on the part of the lessor, access to this effect to the property hired and to enable him to carry out the intended investigations and/or the works deemed necessary by the lessor, without being entitled to make any condition in this respect nor to require any consideration. This shall hold good regardless of the duration of such works. Tenant's initials: Lessor's initials: -7- 19 VII. DEFAULT A. If the tenant, on written demand, is in default in the fulfilment of any obligation imposed on him by the law, the local regulations and customs and/or the present contract, the lessor shall be entitled to notify him to terminate the tenancy forthwith before expiry, without giving any further notice or judicial interposition to this effect being required, so far as permitted by law. Alternatively, in the event of the above demand, such notification may already take place conditionally, namely if such demand is ignored. The costs of demand and notification shall run for the tenant's account, the former also if on its receipt the tenant as yet complies with his obligations. B. The tenant shall be bound to compensate the lessor for any damage sustained by the latter due to the default and/or the termination of tenancy before expiry referred to above, without prejudice to both parties' obligation to meet with any liability that should occur for each of them until the expiry of the tenancy. C. Any cost, both in and out of court, caused to the lessor by the tenant's default against any of the clauses of this contract, shall run for the tenant's account. Any extrajudicial costs running for the tenant's account, shall, in the case of default in payment of the rent, be fixed by the parties at at least 15% of the rent due for payment. D. In the case of non-payment of rent the lessor shall be entitled, without any demand and/or giving further notice being required, to charge an interest of 1% per month (or part of a month) on the rent in arrears. E. These stipulations shall leave intact the lessor's power to demand at law, under the provisions of section 1302 of the Civil Code, annulment of the tenancy agreement on the ground of default by the tenant, coupled with indemnification and clearance of the property hired. Tenant's initials: Lessor's initials: -8- 20 VIII. SECURITY AND/OR BANK GUARANTEE A. The security c.q. bank guarantee shall serve as security: - - for whatever the tenant, under the present contract or its extension, if any, shall become due to the lessor or his successor(s) in title, (including any indemnification to be for the tenant's account as well as the interest and costs referred to in clause VII). - - as well as for any financial damage sustained by the lessor in the case of termination of the tenancy agreement before its expiry, due to the tenant's bankruptcy, to the extent that no recovery against the tenant and/or the estate shall be possible. B. If during the currency of the tenancy agreement the lessor is forced to call on the security c.q. bank guarantee, the tenant shall pay same up as soon as possible but anyway within two weeks. C. The bank guarantee shall remain valid until at least three months from expiry of the tenancy agreement. D. No interest shall be paid on the security. E. The tenant shall not be entitled to require any amount due to the lessor to be set off against the security. F. On expiry of the tenancy, the clearance and the delivery, the lessor shall fix as soon as possible the amount of his claims, and, so far as possible after setting off same against the security, pay over the balance of the security to the tenant, c.q. give his consent to the tenant to withdraw the bank guarantee. IX. DELIVERY The tenant shall renounce the rights which he may enforce against the lessor, in the event the latter is unable to place the property hired at the tenant's disposal on the agreed date, provided this is due to any act or default of a third party, if and to the extent that the lessor cannot reasonably be blamed for this. Tenant's initials: Lessor's initials: -9- 21 X. APARTMENTS A. If, at the time of concluding the present tenancy agreement, the property hired forms part of a building belonging to a cooperative society or being split up in apartments, the tenant undertakes to comply with any commitment resulting from the use and the rules and/or regulations. B. The tenant to be conversant with those rules and/or regulations and to have received a copy thereof. C. If, during the currency of the present tenancy agreement, the building, of which the property hired forms part, comes into the ownership of a cooperative society or is split up into apartments, the tenant undertakes to comply with all corresponding commitments resulting from the rules and/or regulations, to the extent that some shall not be contrary to the provisions of the present tenancy agreement. XI. TERMINATION OF THE TENANCY AND A POSSIBLE PURCHASE A. For a period of twelve months prior to termination of the tenancy, and also in the case of an intended private or public sale, and at any rate from the date on which notice of termination of the tenancy agreement is given, the tenant shall be obliged to permit the property hired to be inspected from 14.00 to 16.00 hours on every Tuesday and Thursday, alternatively, if local customs so require, on two other days of the week and, in addition, on the date of the public sale, as well as to permit notices of the public sale, selling or letting boards or notices being put up. B. On termination of the tenancy, the tenant shall be obliged to timely vacate the property and, with due observance of clause V D, to place same in good condition and properly cleaned at the lessor's disposal, as well as to hand the keys over to the lessor. C. If, on termination of the tenancy, the lessor should not receive the keys in time, he shall be entitled to gain entrance into the property hired at the tenant's expense, without prejudice to the tenant's obligation to indemnify him for any damage that should occur due to this failure. Tenant's initials: Lessor's initials: -10- 22 D. Any items which the tenant should leave behind in the property hired once the tenancy has expired, shall be deemed to have been abandoned by him to the lessor. The lessor shall be entitled to dispose of such items as his property, without being required to pay any corresponding compensation to the tenant or without being accountable to him in this respect, without prejudice to the lessor's right to remove such items at the tenant's expense. XII. DOMICILE The tenant declares to continue electing domicile in the property hired for any notices etc. which the lessor should wish to give in connection with the execution of this agreement (including termination of the tenancy before expiry, annulment and clearance). Tenant's initials: Lessor's initials: -11- 23 CHAMBER OF COMMERCE AND FACTORIES FOR UTRECHT AND DISTRICT FILE NUMBER; 1132 0 PAGE 1 IN THE REGISTER OF BUSINESS NAMES OF THE CHAMBER OF COMMERCE AND FACTORIES FOR UTRECHT AND DISTRICT IS ENTERED UNDER NUMBER 1132 THE COMPANY UNDER THE STYLE OF KONINKLIJKE FABRIEK INVENTUM B.V. LEGAL FORM : PRIVATE COMPANY NAME OF THE COMPANY : KONINKLIJKE FABRIEK INVENTUM B.V. PLACE OF BUSINESS : DE BILT DATE MEMORANDUM OF ASSOCIATION : 22ND MAY 1915 DATE LATEST MODIFICATION ARTICLES OF ASSOCIATION : 2ND MARCH 1982 AUTHORIZED CAPITAL : NLG 5,000,000 SUBSCRIBED CAPITAL : NLG 2,802,000 PAID-UP CAPITAL : NLG 2,802,000 ADDRESS OF THE COMPANY : LEYENSEWEG 101, 3721 BC BILTHOVEN DATE OF ESTABLISHMENT OF THE COMPANY 22ND MAY 1915 : 2ND MARCH 1982. DATE OF CONTINUATION OF THE COMPANY BY THE PRIVATE COMPANY : 2ND MARCH 1982. DESCRIPTION OF BUSINESS: MANUFACTURE OF INSTRUMENTS AND ELECTRIC DEVICES PEOPLE EMPLOYED IN THE ENTIRE BUSINESS : CAT. 8 (100 UP TO AND INCLUDING 199 EMPLOYED PERSONS) - -------------------------------------------------------------------------------- MANAGEMENT: ????, DE, NICOLAAS, N.SC., RESIDING AT VOORSCHOTEN, NADURONEG 4, BORN AT ???, ON 7TH AUGUST 1940 OF DUTCH NATIONALITY COMMENCED DUTIES ON : 15TH JANUARY 1989 TITLE OF THIS MANAGER : DIRECTOR COMPETENT ALL BY HIMSELF (COMPETENT INDIVIDUALLY) - -------------------------------------------------------------------------------- SUPERVISORY DIRECTORS: (???) 20TH JANUARY 1989 24 CHAMBER OF COMMERCE AND FACTORIES FOR UTRECHT AND DISTRICT FILE NUMBER: 1132 0 PAGE 2 BRINK, VAN DEN, GIJSBERTUS, LL.M., RESIDING AT HILVERSUM, PARKLAAN 7; BORN AT ZEIST, ON 3OTH MAY 1946 DUTCH NATIONALITY COMMENCED DUTIES ON: 26TH OCTOBER 1987 OFFICE: SUPERVISORY DIRECTOR BRINKERT, JACOB WILLEM, M.SC., RESIDING AT LEUSDEN, GEULNIJK 12, BORN AT THE HAGUE ON 15TH DECEMBER 1931 DUTCH NATIONALITY COMMENCED DUTIES ON: 15TH JANUARY 1989 OFFICE: SUPERVISORY DIRECTOR - --------------------------------------------------------------------- PERSON(S) HOLDING A POWER OF ATTORNEY: ???; HENDRIKUS, FREDERIKUS, ANTONIUS, RESIDING AT HUSSOM, JANSLAAN, ST. ??, BORN AT HUSSUM ON 13TH JULY 1954 DUTCH NATIONALITY COMMENCED DUTIES ON: 7TH MARCH 1988 TITLE OF THIS DEPUTY MANAGER: HEAD OF FINANCIAL DEPARTMENT LIMITED POWER OF ATTORNEY (SEE FILE OF REGISTER OF BUSINESS NAMES) VALID ONLY IF PROVIDED BY THE CHAMBER WITH AN ORIGINAL SIGNATURE. UTRECHT, 20TH JANUARY 1989 WE CERTIFY THIS TO BE A TRUE COPY OF ITS ORIGINAL SEEN BY US sgd.: illegible 25 FILE NUMBER 1132 CHAMBER OF COMMERCE AND FACTORIES FOR UTRECHT AND DISTRICT EXTRACT FROM THE REGISTER OF BUSINESS NAMES APPENDIX WITH REGARD TO THE SUBSIDIARY ESTABLISHMENTS: - ------------------------------------------------------ Trade name : Koninklijke Fabriek Inventum B.V. Present business : Factory of instruments and electric devices. Place of business : Wolvega, Weststellingwerf municipality, Industrieweg 15. Date of establishment : 15th July 1957. Utrecht, 20th January 1989 WE CERTIFY THIS TO BE A TRUE COPY OF ITS ORIGINAL SEEN BY US agd.: illegible Only valid if provided with an original signature. 26 [INSERT GRAPH 2] 27 ESBOUW Inventum B.V. En/aj/8825/05 Postbus 4 3720 AA BILTHOVEN Attention: Mr J.W. Brinkert Re: Newbuilding office with industrial accommodation at Nieuwegein-Plettenburg. Woarden, 15th January 1988 Dear Mr Brinkert, Enclosed herewith is the summary of the additional work as discussed at Bilthoven on 16-12-1988, on which we already had a preliminary discussion with the investor and on which which we have offered. The offer now in the hands of the investor includes the following additional works: Architectural Amendment plan in respect of our offer dated 16-06-1988, according to drawing 88027-D0-1 dated 14-12-1988, including additional costs Extra rent totalling NLG 34,500.00 Installations (excl. transformers c.a.) Electrical equipment connection machinery, mechanical exhaustion and pickling shop, extension central heating system in connection with several rooms, higher temperatures and extra groups. Provisional sum plumbing and electrics on behalf of the laboratory in the amount of NLG 16,500.-- excluding V.A.T. Triple mechanical ventilation top cooling prepared by means of empty cooler section. Drawings and calculations installation consultant. Extra rent totalling NLG 29,500.00 Total extra rent architecture and installation NLG 64,000.00 28 E S B O U W The total rent excluding acquisition of extra land: offer dated 16th June 1988 NLG 216,000.00 excl.v.a.t.p.a. additional work dated 16th Dec.1988 NLG 64,000.00 excl.v.a.t.p.a. -------------- Total rent NLG 280,000.00 excl.v.a.t.p.a. The acquisition of about 1,555 m2 of extra land will entail, as indicated in the letter of intent dated 15th December 1988, an extra rent of NLG 24,750.-- excl.v.a.t.p.a. As advised by us on 16-12-1988, any extra regulations to be imposed by the authorities and/or public utilities, and also any additional requirement on your part, both from an architectural and installation-technical point of view, have not been included. On acceptance of the aforegoing by the investor, the latter will conclude a tenancy agreement with you, with due observance of the above letter of intent. The building scheme has already been lodged by us with the municipal authorities for the purpose of obtaining the building licence. We trust that the above information will be satisfactory for your purpose and will visit you at 09.00 hours on 27th January 1989 for a co-ordinating meeting. Yours faithfully, Esbouw Projectmanagement B.V. sgd.: illegible H. Esschandal -2- 29 E S B O U W Inventum B.V. Es/aj/8825/08 Postbus 4 3720 AA BILTHOVEN Attention: Mr J.B.A. van Wijk Re: Newbuilding industrial building Inventair at Nieuwegein. Woarden, 12th April 1989 Dear Mr van Wijk, With reference to our statement made during the meeting of 16th December 1988 that the amendments required by you, as reproduced on the drawing no. 88027-DO-1 dated 14-12-1988, had still to be looked into by our designer to establish their consequences, we have now pleasure in enclosing the construction drawings no. 88290 pages A and B dated 16-03-89 and 15-03-1989. Due to the changed column lay-out in connection with the routing and machine scheduling as well as the addition of the extra intermediate floors and the fitting of a roof structure on behalf of the mechanical ventilation, the quantity of steel has increased by approximately 35,000 kilos. The extra charge involved will in terms of annual rent amount to NLG 8,850. - excluding V.A.T. We Trust that the above information will be sufficient for your purpose. Yours faithfully, Esbouw Projectmanagement B.V. egd.: illegible H. Esschandal c.c.: SPPV, Mr. N.W. Dijkuizen. 30 Appendix belonging to the tenancy agreement between 1. STICHTING PENSIOENFONDS PRODUKTSCHAPPEN VOEDSELVOORZIENING, to be named hereinafter the lessor, and 2. KONINKLIJKE FABRIEK INVENTUM B.V., to be named hereinafter the tenant, dated 15th December 1988 covering the office/ industrial building to be developed, together with the adjoining building plot of about 1,555 m2 surface in the zoning plan Plattenburg-De Wiers at Nieuwegein, sufficiently well known to the parties. Whereas: - - a purchase contract was signed on 19th December 1988 between the lessor and the Nieuwegein municipality with regard to a plot of industrial premises of about 4,255 m2, located in the zoning plan Plattenburg -De Wiers, known as Jutphaas municipality, section D, nr. 1881 and 1882 (partially), on part of which the aforesaid office/industrial building will be errected; - - the following commitments imposed by the municipality are applicable to the present tenancy agreement, for which reference is made to the aforesaid purchase contract, in which, among other things, it is stated verbally as follows: Clause 9 (use): The purchased property, including the completed buildings referred to under a of clause B, shall be used exclusively for the exercise of industrial purposes. Tenant's initials: Lessor's initials: 31 CLAUSE II (tolerating commitment): The purchaser shall accept that piles, cables, wires, insulators, rosettes, designatory boards and pipelines for public purposes are fitted and maintained on, in, at or over the purchased property and the buildings to be erected on it, in places where and the manner in which manner the mayor and aldermen shall deem it necessary; regarding the said places and in which manner previous consultations shall be held with the purchaser. The purchaser shall be obliged to leave intact whatsoever is fitted on the strength of this stipulation. CLAUSE 12 (rights in rem): The parties undertake to mutually grant, in the notarial deed of conveyance c.q. by separate instrument(s), the power of attorney to create any such easement c.q. right in rem, including those referred to in subsection b, paragraph 3, section 5 of Hindrance Act Private Law, at the expense of/to the benefit of the adjoining premises remaining the property of the municipality, c.q. the sold property, which easements c.q. rights in rem are deemed necessary by the municipality c.q. the purchaser, among other things, due to the nature, location and construction of the building complex. CLAUSE 14 (parking): For his own use and for visitors the purchaser shall - without prejudice to what is laid down in this respect in the municipal building law - realize and maintain on his own premises, built-in or built-out, adequate parking places. Discharging and loading and any other forwarding activities shall take place on his own premises. Tenant's initials: Lessor's initials: 32 CLAUSE 16 (retail trade): The purchaser undertakes towards the municipality not to afford facilities on the property purchased or part of it, for performing any acts of retail trade nor for causing them to be performed. By acts of retail trade shall be understood: to offer for sale, including sales display, to sell and/or supply goods, in the ordinary course of business, to the ultimate consumer and/or user. CLAUSE 17 (perpetual clauses): a. Unless the mayor and aldermen have permitted to deviate from what is laid down in this clause, any clause of this agreement, in so far as such clause has not lost its effect by its nature and currency, shall be imposed with each whole or partial alienation of the property purchased and of the buildings to be erected on it, each creation of real rights of enjoyment on it, each letting and giving the free use, in favour of any successor in ownership or claimant of the real right of enjoyment, on pain of a penalty up to the amount of the purchase money, payable by the offender to the municipality forthwith, without any notice of default or judicial interposition being required, by the mere fact of a default against or non-compliance with such clause, all this in favour of Nieuwegein municipality, which accepts these clauses already now for then and expresses to insist on their observance. Such amount shall be paid within a fortnight from receiving a written demand to this effect from the mayor and aldermen, an the understanding that at no time any explicit notion giving shall be required. b. All conditions stipulated above together with this clause shall continue to apply also to reconstruction and repairs of the property sold to the extent that such time the conditions are still in force. Tenant's initials: Lessor's initials: 33 CLAUSE 18 (penalty clause): In the case of non-compliance with or default against of the clauses of this purchase contract or of the instruments resulting therefrom, the mayor and aldermen of Nieuwegein municipality may impose upon the purchaser c.q. his successors in title a penalty of NLG 10,000.-- (ten thousand guilders) for each default or non-compliance and of NLG 1,000.-- (one thousand guilders) for each day or apart of a day on which such default or non-compliance continues, without any notice giving or demand being required , by the mere fact of such default or non-compliance, without prejudice to the municipality's right to demand compliance and indemnification over and above the penalties. The penalty shall be due and payable forthwith and shall be forfeited by the mere fact of the non-compliance or default itself or by the mere expiry of the period of time stipulated, without any notice giving being required, all this without prejudice to the right to demand repairs, modification or removal of what has taken place contrary to what is laid down in this contract; in case the municipality's demand for repairs or removal is not fulfilled within the period of time fixed by the mayor and aldermen in a notice issued to this effect, the required repairs, modification or removal of what has taken place contrary to what is laid down in this contract; in case the municipality's demand for repairs or removal is not in a notice issued to this effect, the required repairs, modification or removal may, without prejudice to what is stipulated on the strength of the aforegoing, be affected by or on behalf of the municipality, at the expense of the offender or his successors in title, and his premises and buildings may be entered upon to this effect by persons designated by the mayor and aldermen for the purpose. Tenant's initials: Lessor's initials: 34 THE PARTIES DECLARE THE FOLLOWING: 1. The lessor declares to impose on the tenant all clauses stated above and to commit the latter to punctual observance of these clauses towards Nieuvegein municipality. 2. The tenant declares to be familiar with the clauses referred to and to consider them as forming an integral part of the tenancy agreement and to undertake punctual observance thereof towards Nieuwegein municipality, and the lessor, now acting as voluntarily looking after the interests of Nieuwegein municipality, accepts the aforegoing for and on behalf of this municipality. MADE in triplicate and signed on 19th December 1989. LESSOR: TENANT: Stichting pensionfonds Koninklijke fabriek produktschappen voedsel- Inventum B.V. voorziening sgd.: illegible sgd.: illegible Mr. N.W. Dijkhuizen Mr. N. de Jager, M.Sc. 35 _______________________________________________________________________________ B & F PROPERTY MANAGEMENT B.V. _______________________________________________________________________________ Inventum Postbus 4 3720 AA BILTHOVEN Amsterdam, 2nd September 1992 Re: adjustment rent Parkerbaan, of Nieuwegein. Dear Sirs, In accordance with what is laid down in the tenancy agreement signed with you in respect of the above object, the rent will be adjusted every year on 1st December on the basis of the price-index figure of family consumption, series of wage-earning families, as published by the Central Statistical Office. Proceeding from the clause included in the tenancy agreement we have calculated the new yearly rent as follows: - - index figure calendar year 1991 - 107.7 (1985=100) - - index figure calendar year 1990 - 103.7 (1985=100) New rent: 107.7/103.7 - 1.039 x NLG 336,456.17 = NLG 349,577.96 Per quarter: NLG 87,394.49. The next rent invoices will be based directly on the new yearly rent. We trust that our information is sufficient for your purpose. Yours faithfully, sgd.: illegible B & F PROPERTY MANAGEMENT B.V. 36 APPENDIX belonging to the tenancy agreement between 1. STICHTING PENSIOENFONDS PRODUKTSCHAPPEN VOEDSELVOORZIENING, to be named hereinafter the lessor, and 2. KONINKLIJKE FABRIEN INVENTUM B.V., to be named hereinafter the tenant, dated 15th December 1988 covering the office/industrial building to be developed, together with the adjoining building plot of approximately 1,555 m2 surface, in the zoning plan Plettenburg-De Wiers at Nieuwegein, sufficiently well known to the parties. WHEREAS: - -- a purchase contract was signed on 19th December 1988 between the lessor and Nieuwegein municipality with regard to a plot of industrial premises of about 4,255 m2, located in the zoning plan Plettenburg-De Wiers, known as Jutphaas municipality, section D, nr. 1881 and 1882 (partially), on part of which the aforesaid office/industrial building will be erected; - -- the following commitments imposed by the municipality are applicable to the present tenancy agreement, for which reference is made to the aforesaid purchase contract, in which, among other things, it is stated verbally as follows: CLAUSE 9 (use): The property purchased, including the completed buildings referred to under a of clause 8, shall be used exclusively for the exercises of industrial purposes. Tenants's initials: Lessor's initials: 37 CLAUSE II (tolerating commitment): The purchaser shall accept that piles, cables, wires, insulators, rosettes, designatory boards and pipelines for public purposes are fitted and maintained on, in, at or over the purchased property and the buildings to be erected on it, in places where and the manner in which the mayor and aldermen shall deem it necessary; regarding the said places and in which manner previous consultations shall be held with the purchaser. The purchaser shall be obliged to leave intact whatsoever is fitted on the strength of this stipulation. CLAUSE 12 (rights in rem): The parties undertake to mutually grant, in the notarial deed of conveyance c.q. by separate instrument(s), the power of attorney to create any such easement c.q. right in rem, including those referred to in subsection b, paragraph 3, section 5 of Hindrance Act Private Law, at the expense of/to the benefit of the adjoining premises remaining the property of the municipality, c.q. the sold property, which easements c.q. rights in rem are deemed necessary by the municipality c.q. the purchaser, among other things, due to the nature, location and construction of the building complex. CLAUSE 14 (parking): For his own use and for visitors the purchaser shall - without prejudice to what is laid down in this respect in the municipal building law - realize and maintain on his own premises, built-in or built-out, adequate parking places. Discharging and loading and any other forwarding activities shall take place on his own premises. Tenant's initials: Lessor's initials: 38 CLAUSE 16 (retail trade): The purchaser undertakes towards the municipality not to afford facilities on the property purchased or part of it, for performing any acts of retail trade nor for causing them to be preformed. By acts of retail trade shall be understood: to offer for sale, including sales display, to sell and/or supply goods, in the ordinary course of business, to the ultimate consumer and/or user. CLAUSE 17 (perpetual clauses): a. Unless the mayor and aldermen have permitted to deviate from what is laid down in this clause, any clause of this agreement, in so far as such clause has not lost its effect by its nature and currency, shall be imposed with each whole or partial alienation of the property purchased and of the buildings to be erected on it, each creation of real rights of enjoyment on it, each letting and giving the free use, in favour of any successor in ownership or claimant of the real right of enjoyment, on pain of a penalty up to the amount of the purchase money, payable by the offender to the municipality forthwith, without any notice of default or judicial interposition being required, by the mere fact of a default against or non-compliance with such clause, all this in favour of Nieuwegein municipality, which accepts these clauses already now for then and expresses to insist on their observance. Such amount shall be paid within a fortnight from receiving an written demand to this effect from the mayor and aldermen, on the understanding that at no time any explicit notice giving shall be required. b. All conditions stipulated above together with this clause shall continue to apply also to reconstruction and repairs of the property sold, to the extent that at such time the conditions are still in force. Tenant's initials: Lessor's initials: 39 CLAUSE 18 (penalty clause): In the case of non-compliance with or default against any of the clauses of this purchase contract or of the instruments resulting therefrom, the mayor and alderman of Nieuwegein municipality may impose upon the purchaser e.g. his successors in title a penalty of NLG 10,000. -- (ten thousand guilders) for each default or non-compliance and of NLG 1,000. -- (one thousand guilders) for each day or part of a day on which such default or non-compliance continues, without any notice giving or demand being required, by the mere fact of such default or non-compliance, without prejudice to the municipality's right to demand compliance and indemnification over and above the penalties. The penalty shall be due and payable forthwith and shall be forfeited by the mere fact of the non-compliance or default itself or by the mere expiry of the period of time stipulated, without any notice giving being required, all this without prejudice to the right to demand repairs, modification or removal of what has taken place contrary to what is laid down in this contract; in case the municipality's demand for repairs or removal is not fulfilled within the period of time fixed by the mayor and alderman in a notice issued to this effect, the required repairs, modification or removal may, without prejudice to what is stipulated on the strength of the aforegoing, be effected by or on behalf of the municipality, at the expense of the offender or his successors in title, and his premises and buildings may be entered upon to this effect by persons designated by the mayor and alderman for the purpose. Tenant's initials: Lessors' initials: 40 the parties declare the following: 1. The lessor declares to impose on the tenant all clauses stated above and to commit the latter to punctual observance of these clauses towards Nieuwegein municipality. 2. The tenant declares to be familiar with the clauses referred to and to consider them as forming an integral part of the tenancy agreement and to undertake punctual observance thereof towards Nieuwegein municipality, and the lessor, now acting as voluntarily looking after the interests of Nieuwegein municipality, accepts the aforegoing for and on behalf of this municipality. MADE in triplicate and signed on 19th December 1989. Lessor: Tenant: Stichting pensioenfonds Koninklijke fabriek produktschappen voedsel- Inventum B.V. voorsiening sgd.: illegible sgd.: illegible Mr N.W. Dijkhuizen Mr N. de Jager, M.Sc. 41 19/12/1989 Additional works/reduced amount of works Rear/minsferaerken SPPV/inventum
Inventum SPPV SPPV Inventum SPPV SPPV in huur niet in huur in huur niet in huur on hire not on hire on hire not on hire _______________________________________________________________________________ SB 1 (1,178.00) SB 1 40,434.00 2 11,598.00 2 7,186.00 3 64,900.00 3 23,128.00 4 6,930.00 4,213.00 4,214.00 4 14,170.00 5 3,252.00 5 0.00 6 0.00 0.00 6 4,711.00 7 0.00 0.00 7 16,716.00 8 9,749.00 8 24,268.00 9 0.00 9 18,264.00 10 9,749.00 10 2,342.00 11 6,996.00 11 1,926.00 12 35,739.00 12 3,873.00 13 (8,847.00) 13 11,584.00 14 (1,249.00) 14 11,688.00 15 (3,600.00) 15 214.00 16 1,449.00 16 4,546.00 17 1,400.00 17 6,375.00 18 1,320.00 18 15,827.00 19 3,000.00 19 10,089.00 20 11,034.00 20 3,599.00 21 16,956.00 21 7,472.00 22 576.00 22 0 23 3,079.00 23 0 24 2,950.00 25 0 =================================== ===================================== SVG 83,167.00 191,449.00 4,214.00 SVG 216,497.00 11,688.00 0.00 (Totalling) latest 279,844.00 123,137.00 4,214.00
Rate of rent increase Nsurverhogingspercentage 9.99 11,002.53 Modification of plan Plemuljziging 64,000.00 Modification of construction Konstruktiouijziging 8,850.09 --------- excl. btw Yearly rent adjustment Rewreamposing par jaar 83,932.33 Basic rent per year Insiskuur per jaar 214,000.00 Land Bread 24,750.00 ---------- per year excl. V.A.T. 327,682.33 per jaar excl. btw per quarter excl. V.A.T. 87,170.50 per tuartusi excl. btw
EX-10.16 6 UTRECHT, THE NETHERLANDS LEASE DATED 1/31/92 1 lease for industrial space according to the model laid down by the Council for Real Estate in October 1988. Reference to this model shall only be permitted if the text filled in, added or deviating is clearly recognisable as such. Preferably any additions and deviations are to be included under the heading "special provisions". The undersigned: G.W. van de Grift Onroarend Goed B.V. established/residing in Soest, at Kerkstraat 19, P.O. Box 268, 3760 AC SOEST, tel. 02155 - 14691, and/or Mr yet to be specified, hereinafter called: "lessor" and Koninklijke Fabrick Inventum, for the purposes of this matter legally represented by its managing director N. de Jager M.Sc. established/residing in Bilthoven at Layenseweg 101, P.O. BOX 4, 3720 AA BIL'HOVEN, tel. 030 - 290855, hereinafter called: "leasee", have entered into the following lease: Object, purpose, floor load 1.1 This agreement relates to the object hereinafter called "the property hired", locally known as Galvanibaan/Struktuurbaan in Nieuwegein, all this in accordance with a provisional building plan of August 1991 and specifications and drawings to elaborated in conformity with that plan for an industrial pavilion with offices, standing and located at Plettenburg in Nieuwegein, Galvanibaan/Struktuurbaan, in accordance with the cadastral map and also the finishing level in the letter of 26th August 1991 from Schoeman Makelaars to Inventum B.V. and has been indicated in more detail on the drawing and/or description of the hired property attached to this instrument and signed by the parties. -1- 2 1.2 The lessee shall use the property hired only as office and industrial space for its Inventair aviation division. 1.3 The maximum permissible load of the floors of the property hired is: a. on the ground floor 2,000 kg/m2 b. of the other spaces 450 kg/m2 Conditions 2.1 This agreement also comprises: a. The general provisions for the lease of an industrial space, filed at the office of the clerk of the District Court of The Hague on 12th April 1989 and registered there under number 58/1989, hereinafter called "general provisions". These general provisions are known to the parties. The lessee has received a copy of them. b. The provisions of the property division agreement, the corresponding rules of division of ownership and any bye-laws determined, in so far as these provisions apply and if the property hired forms part of a building or complex that has been divided into apartments. 2.2 The rules following from 2.1 shall apply except in so far as they are deviated from in the following provisions or application in respect of the property hired is not possible. Duration, renewal and termination. 3.1 This agreement has been entered into for a 10-year (ten-year) period, commencing on the first of the month following the month in which the delivery of the newly built property hired has been made. 3.2 During the period mentioned in 3.1 the parties cannot terminate the agreement before the agreed time by giving notice. For termination at the end of this period notice will have to be given in accordance with 3.4. 3.3 If the period mentioned in 3.1 ends without notice in accordance with 3.2 the agreement shall continue for a following 5-year (five-year) period, so until 15 years after the lease commenced in accordance with the above-mentioned scheme. The agreement shall only end at that time, however, if notice is given in accordance with 3.4. If such notice is not given the agreement shall continue for a following 1-year (one-year) period and so on, but always subject to notice in accordance with 3.4 by the end of a following period. 3.4 The agreement can only be terminated by writ or registered letter and with observance of at least 12 (twelve) -2- 3 months' notice before expiry of the current period. 3.5 This article shall leave intact the provisions under 7 of the general provisions. Obligation to pay, period of payment. 4.1 The lessee's obligation to pay consists of: - - the rent - - the value added tax legally due on this rent and this charge or an amount corresponding to it as referred to under 5. 4.2 The rent shall be F1 573,000.00 on an annual basis say FIVE HUNDRED AND SEVENTY-THREE THOUSAND GUILDERS. After expiry of 12 months, for the first time 12 months after the date of commencement of the lease and so on, the rent shall be raised in accordance with article 4 of the general provisions. 4.3 The charge for additional supplies and services shall be determined in accordance with article 11 of the general provisions and a system of advance payments with later settlement shall be applied to this charge, as indicated there. 4.4 The rent and the advance on the charge for additional supplies and services and the value added tax or the corresponding amount shall be payable in advance, always before or on the first day of the period to which the payment relates. 4.5 For every lease period of 3 (three) month(s) - - the rent shall be F1 143,250.00 - - the advance on the charge for heating or hot water supply n.a. - - the advance on the charge for additional supplies and services n.a. so that the lessee has to pay in total F1 143,250.00 say ONE HUNDRED AND FORTY-THREE THOUSAND TWO HUNDRED AND FIFTY GUILDERS to be increased by the legally due value added tax or the corresponding amount as referred to under 5. 4.6 In view of the date of commencement of this agreement the first period of payment shall relate to a period yet to be fixed and the amount payable for this first period is yet to be determined, to be increased by the legally due value added tax or the corresponding amount as referred to under 5. The lessee shall pay this amount before or on the date of delivery of the hired property to the lessee. -3- 4 Value added tax 5.1 All the amounts mentioned in this agreement shall be exclusive of value added tax on the rent. The lessee shall owe value added tax on the rent and the charge for additional supplies and services. The value added tax shall be charged by the lessor and must be paid simultaneously with the rent and the charge for additional supplies and services, or the advance thereon. 5.2 The lessee hereby grants an irrevocable power of attorney to the lessor to submit a request as referred to in Section 11(1)(b)(5) of the Income Tax Act 1968 (taxed lease option) on his behalf as well. On request he shall co-sign this request within fourteen days after he has received it for the purpose from the lessor and shall put it at the lessor's disposal again. 5.3 If the request is not submitted within the period set for it by law or is not granted, the lessee shall owe not only the rent and the charge for additional supplies and services or the advance thereon but also an amount that corresponds to the amount in value added tax that would have been payable if the request had been granted. The same shall apply if the request is granted with effect from a later date than the one requested, albeit only during the period that ends with the commencing date of the taxed lease. 5.4 If the lessee proves that the lessor is to blame for the request not being submitted in time or not being granted, the amount corresponding to the value added tax referred to under 5.3 shall not be payable. 5.5 If the lessor alienates the property hired or the building or complex of which the property hired forms part and the new owner also chooses a taxed lease, the lessor shall also be bound by the provisions of this article. SPECIAL PROVISIONS: RENT: The above-mentioned rent of F1 573,000.00 shall include a component of F1 26,000.00 as rent payable for the reserve building site. If during the lease period the lessee wishes to proceed to extension of the property hired and built, a new rent shall be fixed in consultation with the lessor on which occasion the basic rent shall be fixed at F1 547,000.00 say: FIVE HUNDRED AND FORTY-SEVEN THOUSAND GUILDERS exclusive of indexations. -4- 5 LEASEE'S SECURITY: Van de Grift Holding B.V. shall guarantee timely commencement of building, finishing and also timely completion of the property hired. All this in conformity with the attached copy of the Inventair building plan schedule as prepared on 20th November 1991 by the architect. Stagnation in the timely issue of the building permit as a result of government procedures to be followed shall exclusively at the risk of lessee and lessor. Bank guarantee 7.1 in respect of the security to be given by the lessee the provisions of the general provisions under a shall apply. 7.2 The amount referred to under 8.1 of the general provisions is hereby fixed between the parties at F1 679,000.00 say SIX HUNDRED AND SEVENTY-NINE THOUSAND GUILDERS to be filed at the latest 14 days after the signing of this agreement Manager 8. Until the lessor states otherwise Van de Grift Onroarend Goed B.V. shall act as manager. Appendixes 9. This agreement is accompanied by the following appendixes - - the general provisions as referred to in 2.2.a - - the drawing of the property hired attached to this agreement and signed by the parties - - the description of the property hired attached to this agreement and signed by the parties - - the bank guarantee as referred to under 7. Special provisions Thus drawn up and signed in -fold place Soest place Soest date 31st January 1992 date 31st January 1992 (Lessor) (Lessee) (signed) illegible (signed) illegible (signed) illegible (signed) illegible -5- 6 Inventum Attn. Mr J. de Jager M.Sc. P.O. Box 4 3720 AA BILTHOVEN Soeat, 26th August 1991 Subject: new accommodation of Inventair in Nieuwegein/Bilthoven Dear Mr De Jager Following our talks, the confirmation of your interest to the Mayor and Aldermen of the Municipality of De Bilt and exchange of your provisional programme of desires, contractor Van de Grift will be pleased to conclude a contract for work with you on the basis of the following principal starting points: 1. Van de Grift is willing to make a general plan and to make a specified quotation. 2. On the basis of the specified quotation, the foundation expenses and the lease to be offered by you we shall bring in an investor who is prepared to buy the realized plan. 3. Rent per sq.m. of hall space Nieuwegein F1 90.00 Rent per sq.m. of office space Nieuwegein F1 165.00 Rent per sq.m. of hall space Bilthoven F1 90.00 Rent per sq.m. of office space Bilthoven F1 180.00 4. Finishing level: Office space including partitions to 80 running metres for every 100 sq.m. of office space, ceilings, lighting, central heating, sanitation space, exclusive of floor covering and sun protection. Hall space: free height from 5.50 metres, free span 12 metres, insulated sheet piling sections, steel construction, concrete floor 2,000 kg/sp.m. Electrical lighting, heating by means of heaters, Parapet 1.20 metres. 5. Development of Bilthoven/Nieuwegein. The choice of the place of establishment depends on internal and external factors. At this state the parties are concentrating on both locations. In the middle of September 1991 you will choose which final place of establishment we are going to develop. 7 6. From the date of the final choice arrangements will be made about risk, loss of interest etc. The plan will be further developed for the two locations and we trust that we are of service to you with this confirmation. After provisional determination of the foundation expenses and the investment value you will be offered a lease. With kind regards, Yours faithfully "SCHOEMAN SOEST B.V." (signed) illegible B.J.A.N. Majoor -2- 8
Schedule Invantair building plant Nieuwegein Your ref. a: neiuwegein Soest, 20th November 1991 1. 1st December 91 1.1 Consultation principal/architect (2 mos.) about elaboration of building proposal into final design 1.2 Details p.v.a./finishing level 1.3 Consultation with fire department, urban development and building inspectorate 1.4 Financial examination 2. 1st March 1992 2.1 Submission of building (6 mos.) application 2.2 Start of preparatory work for building - specification - specification drawings - work drawings 1st September 1992 2.3 Ultimate date for grant of building permit 3. 1st September 1992 3.1 start of structural work (after (4 mos.) construction industry holiday) 1st January 1993 3.2 start of finishing (3 mos.) 1st April 1993 3.3 completion (2 months' margin) for fitters 1st June 1993 3.4 start of furnish/moving Final completion / commencing date of lease 1st June 1992 1st July 1993 3.5 start of production by Invantair For approval: (signed) illegible (signed) illegible 31st January 1992 Lessor Lessee
9 General provisions of lease for industrial space according to the model laid down by the Council for Real Estate and filed at the office of the clerk of the District Court of The Hague on 12th April 1989 and registered there under number 58/1989. The headings above the articles of these general provisions are only intended to make them easier to read. So the contents and tenor of the article included under a certain heading are not limited to that heading. The property hired 1.1 The property hired shall also include the installations and facilities present, in so far as they are owned by the lessor and are described in the signed description belonging to the agreement. 1.2 The property hired shall be delivered and accepted in the condition as indicated in the signed description belonging to the agreement, or failing that the one in which it is at the time of delivery. If desired, the lessor may make changes or facilities in or at the property hired, at his expense, after consultation with the lessee. Purpose and use Use 2.1 The lessee must use the property hired -- during the whole period of the agreement -- actually, properly and himself only in accordance with the purpose indicated in the lease and with observance of existing real rights and requirements imposed or yet to be imposed by the authorities or the public utilities. He must provide it with sufficient furniture and fixtures and keep it so provided. 2.2 The lessee shall conduct himself in accordance with the provisions of the law and the local ordinances and also in accordance with the customs concerning hiring and letting, the prescriptions of the authorities, the public utilities, if applicable of the agency for Sprinkler protection and the insurers, and also in accordance with the oral and written instructions given by or on behalf of the lessor in the interest of a proper use of the property hired and the indoor and outdoor spaces, installations and facilities of the building or complex of which the property hired forms part, especially including those in respect of maintenance, appearance, sound level, order, fire safety, parking behaviour and the proper functioning of the building or complex of which the property hired forms part. The lessee shall always see to any operations and measures required for the purpose as soon as possible. 2.3 The lessee shall not cause other users of the same building or complex any nuisance or inconvenience and shall 10 see to it that any third parties present with his approval and also his or their visitors do not do so either. The lessor shall not be obliged to enforce observance of this. But he does remain empowered to do so. Nuisance and inconvenience shall also include radio and television reception and the operation of other electrical appliances. 2.4 If the property hired comprises shopping space or other industrial space in the sense of Section 1624 of the Civil Code, the lessee shall be obliged to keep the property hired open for the public in accordance with the nature of the business carried on by him in it and actually to carry on his business in it: - - If the property hired forms part of a shopping centre, shopping arcade or other group of shops during the opening hours of that shopping centre or that shopping arcade or that group of shops, including so-called late openings; - - if the property hired does not form part of a shopping centre or that shopping arcade or that group of shops, during the opening hours determined by the competent authority or failing that the customary opening hours for similar or at any rate comparable spaces. Licences 2.5.3 The lessee himself must see to compliance with the requirements including the possession of licences, permits, exemptions etc. in connection with the conduct of his business or profession in the property hired, including those in pursuance of the Nuisance Act and environmental laws. If those requirement are not or no longer complied with this shall never give the lessee occasion for rescission or annulment of the lease or for any other action against the lessor. 2.5.2 If any alterations or facilities at or in the property hired are necessary in connection with 2.5.1., by order of the authorities or otherwise, it shall be the lessee's liability, without prejudice to the provisions under 2.9, that the requirements made or to be made by the authorities are met in the execution of the work, and also that any licences required are obtained while the cost of the alterations or facilities shall be for the lessee's account. Associations 2.6.1 If an association or another group of lessees or users of the building or complex of which the property hired forms part - for instance a shopkeepers' association or an -2- 11 association of users of factory halls in an industrial estate -- recognized by the lessor exists or is formed, the lessee shall be obliged to become a member of it immediately and to stay a member for the whole duration of the agreement and also to pay any amounts for his account because of this association or group on first demand. 2.6.2. For the period that the lessee is not a member he shall owe the lessor the same amounts as those that he would owe as a member of the association or group. The lessor shall be obliged to pass on these amounts immediately to the association or group. The lessee shall not be permitted to cooperate in the creation of rules, decisions and the like of an association or group of lessees or users that conflict with the lease. Advertising 2.7 The lessor shall be entitled, after consultation with the lessee, both for his own benefit and for the benefit of the lessee or third parties, to use the roofs, outer facades, gardens and grounds of the property hired and of the building or complex of which the property hired forms part for (illuminated) advertising, signs and otherwise. When exercising this right the lessor shall take account of the lessee's interests that are justified in his opinion. The lessee shall be obliged to allow the work and facilities and shall never have any action against the lessor in the matter. Apartments 2.8.1. If the building or complex of which the property hired forms part is divided into apartments the lessee shall be obliged to observe the prescriptions following from the property division agreement, articles and rules concerning the use. The same shall apply if the building or complex is or becomes the property of a cooperative society. 2.8.2. The lessor shall be obliged, in so far as this is within his control, not to cooperate in prescriptions that are in conflict with the lease. 2.8.3 The lessor shall see to it that the lessee is given the prescriptions concerning use referred to under 2.8.1. Prohibitions and rules of order 2.9.1 The lessee shall not be permitted: a. to have materials that constitute a danger to the environment in, on at or in the direct vicinity of the property hired, including those that spread odours, constitute a fire hazard or are explosive, unless they -3- 12 belong to the normal stock in trade; b. to subject the floors of the property hired or of the building or complex of which the property hired forms part to higher loads than are permissible from an angle of building technology or have been indicated in the agreement; c. to use the property hired in such a manner that as a result of this use soil or other environmental pollution occurs, damage may be done to the property hired or the appearance of the property hired can be harmed, also including the use of means of transport that may damage the floors; d. to make alterations or facilities in or at the property hired that are contrary to the prescriptions of the authorities and of the public utilities or contrary to the conditions under which the owner of the property hired has acquired the ownership of the property hired or contrary to other real rights or that lead to nuisance for other lessees or neighbours or hinder them in their use. 2.9.2. Without the lessor's prior written approval the lesses shall not be permitted: a. to make alterations or facilities in or at the property hired, also including the making of noles, however small, in the facades. b. to instal or have things, including name indications, advertising, signs, notices, publications, buildings, structures, soaffolds, packing, goods, vending machines, lighting, sun screans, aerials wits accessories, flag poles etc. on, at or in the direct vicinity of the property hired or to make windows non/transparent; c. to enter or allow others to enter the services and installation spaces, the roof terraces, roofs, gutters and spaces and places not intended for communal use of the property hired or of the building or complex of which the property hired forms part; d. to perform any acts in connection with the central installations; e. to park means of transport in other places than those designated for the purpose. 2.9.3 The lessee shall be obliged to keep fire hydrants and fire hose reals and also escape routes in the property hire free from obstructions at all times, also those that serve as an escape route for other users of the building. In the event of a calamity the lessee must unable any other users to use the escape routes designated for them in so far as they are -4- 13 located in the property hired. Likewise in the event of a calamity the lessee shall be entitled to use the escape routes designated for him, even in so far as they are not located in the property hired. 2.9.4 If a lift is part of the property hired or if the property hired can be reached by lift, the lessee and visitors can only make use of this lift at their own risk. All instructions given or yet to be given by or on behalf of the lessor, the installer of the lift or the authorities must be fallowed carefully. If and as long as this is necessary the lessor can put the lift installation out of operation without giving the lessee any right to compensation or reduction of the rent. 2.9.5 If the property hired forms part of a building or complex the above provisions shall also apply, in so far as applicable, to the spaces of that building or complex not hired. 2.9.6 The lessor may attach conditions to his approval and can withdraw his approval at all times, unless it has been agreed differently. Subletting 3.1 Without the lessor's prior written approval the lessee shall not be authorised to let, sublet or surrender the use of part of all of the property hired to third parties, or to assign all of some of the leasing rights to third parties or to bring them into a partnership, company or legal person, or to allot the leasing rights, in so far as they belong to a community, in the event of partition and distribution thereof. 3.2 Any approval given by or on behalf of the lessor shall be once-only and shall not hold good for other or following cases. 3.3 The lessor shall be entitled to attach conditions to his approval. 3.4 Irrespective whether the lessor has given approval the lessee shall remain severally liable, without prejudice to liability of third parties, for the performance of the obligations under the lease. The lessee shall see to it that a third party that obtains leasing or user rights also accepts the liabilities resulting from the lease for the lessee or user. 3.5 If the lessee acts contrary to the provisions of this article he shall forfeit to the lessor for every calendar day that the infringement lasts a time claimable at once and not susceptible of nitigation, equal to twice the daily rent effective for the lessee at that time without prejudice to the lessor's right to demand performance or rescission owing to -5- 14 default and also compensation. Rent increase 4.1 If it has been agreed in the lease that the rent shall be raised periodically this increase shall be affected on the basis of the annual price index number for family consumption, series for employees' families with a family income below the wage limit of the compulsory health insurance in 1985 (1985 - 100), published by the Netherlands Central Bureau of Statistics (CBS). The adjusted rent shall be calculated in accordance with the formula: the adjusted rent is equal to the applicable rent multiplied by the index number for the calendar year preceding the year in which the adjusted rent takes effect, divided by the index number for the calendar year preceding the date of commencement of the applicable rent. 4.2 The rent shall not be adjusted if the adjustment should lead to a rent lower than the last one applicable. 4.3 The adjusted rent shall apply, even if the adjustment is not communicated to the lessee. 4.4 If the CBS discontinues publication of the said price index number or changes the basis of its calculation, an index number that is as comparable as possible shall be used. If there is disagreement on the subject the willing party can ask the managing director of the CBS for an opinion that shall be binding on the parties. Any expenses involved in this shall be borne by the parties, each for half. End of the lease or use 5.1 At the end of the lease and also at the end of the use, the lessee shall be obliged to deliver the hired property to the lessor to the lessor's satisfaction in the original condition -- being the condition laid down in the description drawn up at the start and signed as mentioned in 2.1 and failing that in good condition -- entirely vacated and free of use and user rights and properly cleaned and to hand over all the keys to the lessor. At his own expense the lessee shall be obliged to remove all matters that have been installed by him in, at or on the property hired or have been taken over by him from the previous lessee or user unless the parties agree differently on the subject. For matters not removed the lessor shall not owe the lessee any payment. 5.2 If the lessee has terminated the use in a timely or untimely fashion without having handed over the keys to the lessor, the lessor shall be entitled to consider the lease ended, to gain access to the property hired at the lessee's expense and to take possession thereof, without the lessee -6- 15 having any right to compensation or anything else as a result. 5.3 All the goods which the lessee has apparently abandoned by leaving them behind in the property hired when he actually left the property hired can be removed by the lessor, at the lessor's discretion, without any liability on his part, at the lessee's expense, unless the lessor knows that the following lessee has taken over the goods. In such a case the lessor's conduct shall be with the lessee's approval and shall be regarded between the parties as not being in conflict with Section 138 of the Criminal Code. 5.4 In due time before the end of the issue or the use the parties are to inspect the hired property together, lay down their findings in an inspection report and agree in writing in what way any repairs appearing necessary during that inspection and the maintenance in arrear, in so far as they are for account of the lessee, shall be performed for account of the lessee. 5.5 If the lessee does not cooperate in the inspection and the report in a reasonable time the lessor's inspection and his report of his findings shall be considered binding between the parties. 5.6 The lessee must have performed the repairs mentioned in the inspection report and the maintenance whose performance is for his account in a timely fashion before the end of the lease to the lessor's satisfaction. 5.7 If the written agreement referred to in 5.4 is not brought about within a reasonable period and also if the lessee does not or not sufficiently fulfil the obligations resulting from that agreement within a reasonable period set by the lessor, the lessor shall be entitled, after summons and notice of default, to carry out the relevant work for account of the lessee. 5.8 For the time involved in the performance of the said repairs and the maintenance in arrear referred to in 5.6 and 5.7, counting from the date of the end of the lease, the lessee shall owe the lessor an amount calculated in accordance with the current rent and charge for additional supplies and services, without prejudice to the lessor's claim on compensation of the further damage and expenses. 5.9 The provisions applicable under 5.4 through 5.8 shall apply accordingly if the inspection is only carried out after the property hired has been vacated by the lessee. Damage 6.1 The lessee shall be obliged to take the necessary suitable measures immediately to prevent and limit damage to the property hired -- and in so far as he has any possibility -7- 16 of doing so to the building or complex of which the property hired forms part and the adjacencies -- such as damage as a result of short circuit, fire, leakage, storm, frost, inflow or outflow of gases or liquids, including measures to prevent damage as a result of any weather condition. Moreover the lessee shall be obliged to inform the lessor forthwith if such damage or an event as referred to in 6.3 occurs or is about to occur. 6.2 The lessee shall be liable to the lessor for all damage and losses caused to or undergone by the property hired unless the lessee proves that he, the persons whom he has admitted to the property hired, his personnel and the persons for whom he is liable are not to blame in the matter. 6.3 The lessor shall not be liable for damage caused to the person or goods of the lessee or of third parties -- and the lessee indemnifies the lessor for claims of third parties in the matter -- by the occurrence and the consequences of visible and invisible defects to the property hired or the building or complex of which the property hired forms part or arisan owing to the occurrence and the consequences of weather conditions, of stagnation in the accessibility of the property hired, of stagnation in the supply of gas, water, electricity, heat, ventilation or air conditioning, of breakdown of the installations and equipment, of inflow and outflow of gases or liquids, of fire, explosion and other events, of interruption in the enjoyment of the lease and of interruption or shortcomings in the supplies and services, everything except in the event of damage is a result of gross culpability or serious negligence by the lessor in respect of the condition of the property hired or of the building or complex of which the property hired form part. 6.4 The lessor shall never be liable for consequential loss of the lessee or for damage as a result of the activities of other lessees or of impediments in the use of the property hired that is caused by third parties. Early termination, default 7.1 If the lessee - - does not pay the rent and the charge for additional supplies and services at the fixed times, - - discontinues his profession or business in the hired property entirely or for an important part, - - fails to observe any other provision of the lease, - - does not satisfy any condition attached to approval given by the lessor, - - loses the free disposal of his capital or part of it, not being a natural person, loses his legal -8- 17 personality, is wound up or liquidated in fact, - - files a petition for an official moratorium or in bankruptcy, - - is declared bankrupt, - - offers a compromise outside bankruptcy or - - if goods of the lessee are attached, the lessor shall be entitled to give notice to terminate the lease immediately before the agreed time or, in so far as the law allows this, to declare the lease terminated with immediate effect, without any notice of default being required. 7.2 The lessee shall be in default by the mere lapse of a certain period or by the mere occurrence of a circumstance as mentioned above. 7.3 The lessee shall be obliged to pay the lessor for all damage, expenses and interests as a result of a circumstance referred to in 7.1 and as a result of early termination of the lease, also in the event of bankruptcy and an official moratorium. That damage shall at any rate include the rent, the charge for additional supplies and services, including the heating charges, the value added tax (VAT) and the other amounts payable according to the lease until the original contractual final date of the lease, the expenses of relating and also all expenses of measures both in and out of court incurred by the lessor, including those of legal aid in connection with a circumstance as stated in 7.1. 7.4 The provisions under 7.1 through 7.3 do not exclude the lessor's power to exercise his other rights, including his right to demand performance with compensation or rescission with vacation and compensation by virtue of the provisions of Section 1302 of the Civil Code or Section 39 of the Bankruptcy Act. 7.5 If the lessee fails to do things the lessor himself shall be entitled automatically and without judicial interposition to (have others) perform them at his discretion at the lessee's expense and risk. Bank guarantee 8.1 As security for the proper fulfilment of his obligations from the lease the lessee shall give the lessor a bank guarantee to the lessor's satisfaction at the time when the lease is signed, amounting to a sum yet to be determined in the lease, related to the lessee's obligation of payment to the lessor, increased by the applicable value added tax (VAT). This bank guarantee must also be valid for the renewals of the lease including any amendments thereof, must remain valid until three months after termination of the lease and must -9- 18 also apply to the lessor's legal successors. 8.2 The lessee shall not be entitled to set off any amount against the bank guarantee. 8.3 If the bank guarantee has been used, the lessee shall provide a new bank guarantee to the original amount on the lessor's first demand. 8.4 After an upward adjustment of the rent, of the charge for supplies and services or the advance thereon and of the applicable value added tax the lessee shall be obliged to provide a new bank guarantee on the lessor's first demand to an amount adjusted to the new obligation of payment increased by the applicable value added tax (VAT). 8.5 Prior to the commencement of any new lease period on the strength of a lease renewal, the lessee shall provide a new bank guarantee on the lessor's first demand to an amount adjusted to the new obligation of payment increased by the applicable value added tax (VAT). 8.6 If the lessee does not meet the obligations described in this article he shall forfeit to the lessor for every transgression a fine immediately claimable and not susceptible of mitigation to the amount of Fl 500.00 for every calendar day that he remains in default after the default has been pointed out to him by registered letter. Maintenance For the lessor's account 9.1 Unless it is a matter of operations that must be considered minor and daily repairs in the sense of the law (Sect. 2519 of the Dutch Civil Code) or operations on matters that have not been installed by or on behalf of the lessor, the lessor shall bear the cost of a. maintenance, repair and renewal of structural parts of the property hired, such as foundations, columns, beams, structural floors, roofs, roof terraces, bearing walls, outside facades (with the exception of window panes); b. maintenance, repair and renewal of stairs, stair treads, lines, sewers, drains, gutters, outside frames, etc., without prejudice to the provisions under 9.2.1.; c. repair and renewal of installations, such as the lift, central heating and fire hydrant booster installations; d. outdoor paintwork. For the lessee's account 9.2 The lessee shall bear the cost of all other maintenance, repair and renewals such as: a. internal maintenance not being maintenance as referred -10- 19 to under 9.1, and also the external maintenance if and in so far as it is a matter of operations that must be considered minor and daily maintenance in the sense of the law (Sect. 1618 of the Dutch Civil Code), all this without prejudice to the further provisions here; b. the expenses of a service subscription for the installations serving the property hired or the building or complex of which the property hired forms part such as a lift, fire hydrant booster or central heating installation, or at any rate in so far as those expenses are due for: - - performing periodical preventive maintenance including the performance of inspection work and keeping moving parts operational (corrective maintenance); - - replacing parts that are subject to rapid wear and that must be replaced during almost every maintenance job; - - removing breakdowns outside normal office hours; - - performing minor repairs; - - everything that can furthermore be considered minor and daily maintenance in the sense of the law (Sect. 1619 of the Dutch Civil Code); c. renewal of lamps, broken (plate glass) windows, glass doors and glass partitions; d. maintenance of fences, gardens and grounds; e. maintenance, repair and renewal in similar design of ironmongery, taps, switches, wall sockets, bell installations, lighting (including fixture), sun screen, floor covering, soft furnishing, window panes, interior paintwork, sinks, sanitation, mirrors, cisterns; f. cleaning work of the property hired both internally and externally, which shall also include the cleaning of windows, frames and facades and at least the cleaning of gutters and the sweepings of chimneys once a year, and also the unplugging of pits, sewers and drains; g. maintenance, repair and renewal of matters that have not been installed by or on behalf of the lessor; h. maintenance, repair and renewal that have become necessary owing to the actions or omissions of the lessee himself, his personnel, of those persons for whom he is liable and of those persons whom he has admitted to the property hired. 9.3 If upon being summoned to do so, the lessee fails to perform or have others perform maintenance, repair or renewal at his expense -- or if the lessor's opinion such work has -11- 20 been done in an injudicious or poor manner -- the lessor shall be entitled, after summons and notice of default, to perform or have other perform them at the lessee's expense and risk. If the operations for the lessee's account cannot brook delay the lessor shall be entitled to perform them or have them performed immediately at the lessee's expense. 9.4 If the lessor considers it necessary to perform or have others perform maintenance, repair, renovation or other operations to the property hired or the building or complex of which the property hired forms part or to adjacencies or if they are necessary in connection with requirements or measures of the authorities or public utilities, the lessee shall admit the persons necessary to perform those operations and those measures in the property hired and shall allow those operations and measures and any nuisance without being able to claim any compensation or reduction of the obligation to pay or dissolution of the lease in return, even if all this takes more than forty days. If possible the lessor shall consult with the lessee about the time of execution of the operations. Access of lessor 10.1 The lessor and all persons to be appointed by him shall be entitled to have access to the property hired -- apart from emergencies -- after prior notification at any time on working days between 08.00 hours and 17:30 hours for inspection of the condition of the property hired, for the operations and measures mentioned under 1.2, 2.7 and 9 and for valuations. 10.2 In the event of an intended sale or auction of the property hired, and during one year before the end of the lease the lessee shall be obliged without any compensation, after prior notification by the lessor or his attorney, to provide an opportunity to view the hired property during at least two working days a week and he shall allow the customary "for sale" or "to let" signs or posters on or at the property hired. Charges for energy etc. and for supplies and services 11.1 In addition to the rent the lessee shall bear the charges for the consumption of water and energy for the property hired, including the expenses of entering into an agreement for supply and meter rent, and also any other expenses and fines that are charged by the public utilities. The lessee himself must conclude the supply contracts with the relevant bodies, unless the property hired has no separate connections and the lessor takes care of these matters as part of the agreed supplies and services. 11.2 If no additional supplies and services are agreed, the -12- 21 lessee shall take care of all matters and performances as mentioned below at his own expense and risk and to the lessor's satisfaction. In that case the lessee himself shall conclude service contracts in connection with the installations, to be approved beforehand by the lesser. 11.3 If additional supplies and services have been agreed, the lessor shall fix the charge payable for it by the lessee on the basis of the costs that are involved in the supplies and services and the related administrative work. In so far as the property hired forms part of a building or complex and the supplies and services also relate to other parts belonging to it, the lessor shall fix the lessee's share in the charges for those supplies and services that he believes to be reasonable. In that connection the lessor need not make any allowance for the circumstance that the lessee does not use one or more of these supplies and services. If one or more parts of the building or complex are not being used, the lessor shall see to it, when fixing the lessee's share, that it does not become higher than when the building or complex would be fully used. 11.4 Every year the lessor shall furnish the lessee with a categorized review of the charges for the supplies and services, stating the method of calculation thereof and, in so far as applicable, the lessee's share in those charges. 11.5 Any amount underpaid by the lessee or overcharged by the lessor, according to the review for the relevant period, taking account of advances, shall be paid as yet or refunded within one month after production of the review. If the accuracy of the review is contested this shall not suspend this obligation. 11.6 The lessor shall be entitled to limit or extend the supplies and services after consultation with the lessee. In that connection or otherwise he can adjust the advance payable by the lessee on the charge for supplies and services to the costs expected by him. 11.7 If the supply of heat or hot water is among the supplies and services the lessor shall be entitled to adapt the method of determining the consumption and corresponding lessee's share in the charge for consumption, after consultation with the lessee. If the consumption of heat or hot water is determined on the basis of consumption meters and the malfunctioning of these meters should cause any conflict about the lessee's share in the supply charges, the statement of the presumable share by a company specializing in measuring and determining the heat consumed, consulted by the lessor, shall be binding. This shall also apply to damage, destruction or fraud in connection with meters, irrespective of any other rights that the lessor should have in that case vis-a-vis the -13- 22 lessee, such as the right to repair or renewal of the maters and compensation of the loss suffered. Expenses 12. In all cases in which the lessor has a summons, notice of default or writ served on the lessee, or in the event of legal actions against the lessee to compel him to perform this agreement or to vacate the property hired, the lessee shall be obliged to pay the lessor all the expenses, both in and out of court -- with the exception of legal costs to be paid by the lessor in pursuance of a final court order. The expenses incurred shall be fixed beforehand between the parties at an amount that is not lower than the customary rate that is used by bailiffs Payments 13.1 Payment of the rent and of any other dues payable under this agreement shall be made at the latest on the due day in legal Dutch tender -- without any discount, deduction or net-off against a claim that the lessee has or believes to have on the lessor -- at the lessor's office or by payment into or transfer to an account yet to be stated by the lessor. The lessor shall be free to change the place or method of payment by means of a written statement to the lessee. The lessor shall be entitled to determine from which outstanding claim under the lease a payment received by him from the lessee shall be deducted. 13.2 If an amount payable by the lessee on the strength of the lease is not paid promptly on the due date, the lessee shall forfeit to the lessor, automatically, for each instance that he is in default, from the due date, a fine immediately claimable and not susceptible of mitigation to the amount of 2% a month of the amount due with a minimum of Fl 250.00 per calendar month, with any part of a month counting as a full month. Taxes, burdens, levies, premiums, etc. 14.1 The following charges shall be paid by the lessee even if the lessor receives assessments for them: a. the real estate tax in respect of the actual use of the property hired and the actual shared use of the service spaces, general spaces and so-called sommunal spaces; b. other existing or future taxes, sufferance taxes, burdens, levies and dues in respect of the property hired and of property of the lessee: c. environmental levies including the pollution levy for surface waters and the contribution to cleaning charges -14- 23 for waste water and amounts on the strength of environmental protection in any other levy. 14.7 If as a result of the nature or performance of the lessee's profession or business a higher fire insurance premium than usual is charged for building or contents of the property hired or complex of which the property hired forms part to the lessor or other lessees of the building or complex, the lessee shall pay the excess above the normal premium to the lessor or those other lessees. The lessor and other lessees shall be free in the choice of the insurance company, the determination of the sum insured and also in the assessment of the reasonability of the premium due. Several liability and indivisibility 15.1 If different (natural or legal) persons have bound themselves as lessees they shall always be severally and independently liable for the whole to the lessor for all commitments resulting from the lease and they shall not be entitled to rely on the provisions of the Sections 1460 (1) and 1476 of the Civil Code. 15.2 The commitments from the lease shall be indivisible, also as far as the lessee's heirs and legal successors are concerned. Untimely availability 16. If the property hired is not available on the agreed commencing date of the lease because the property hired has not been completed in time, the previous user has not vacated it in time or the lessor has not yet obtained the permits to be obtained by him from the authorities, the lessee shall not owe any rent or charge for additional supplies and services until the date of availability and his other obligations and the agreed periods shall advance accordingly. The lessor shall inform the lessee of an impending delay at least a month beforehand, if possible. The lessor shall not be liable for any damage, of whatever nature, that the lessee could suffer if the property hired cannot be delivered on the agreed date. The lessee cannot claim any rescission unless the late delivery has been caused by deliberate actions or omissions of the lessor and entails such a delay that it cannot be expected of the lessee in reason that the agreement be maintained (without amendment). -15- 24 Domicile 17. In respect of everything relating to the lease the lessee shall choose domicile in the property hired. Manager, complaints 18.1 If a manager has been or is appointed by the lessor, the lessee shall contact the manager about all matters relating to the agreement. 18.2 The lessee shall submit complaints and wishes in writing. In urgent cases this can be done orally. In such cases the lessee shall confirm such a complaint or wish in writing as soon as possible. -16- EX-10.33 7 A. KHOURY EMPLOYMENT AGREEMENT 1 AGREEMENT This Agreement is made and entered into in Wellesley, Massachusetts by and between BE Avionics, Inc., a Delaware corporation ("BEA"), and Amin J. Khoury ("Khoury"), as of January 1, 1992. FOR AND IN CONSIDERATION OF THE MUTUAL PROMISES, TERMS, PROVISIONS AND CONDITIONS CONTAINED IN THIS AGREEMENT, the parties hereby agree as follows: 1. ARRANGEMENT. Khoury shall provide to BEA, and BEA shall accept from Khoury, the services, set forth in Paragraph 3.2, subject to the terms and conditions set forth in this Agreement. 2. TERM. Khoury shall provide, and BEA shall purchase, the services hereunder for a term (the "Service Term") of ten (10) years, commencing on the date hereof and ending on December 31, 2001 (the "Expiration Date"). 3. CAPACITY, PERFORMANCE, ETC. 3.1. CAPACITY. Khoury shall serve BEA (i) as its Chief Executive Officer, and (ii) as its Chairman of the Board, or in such other Board capacity as the Board may designate from time to time, but only upon agreement with Khoury. 3.2. SERVICES. In the capacities set forth in Paragraph 3.1 above, Khoury shall be retained by BEA and shall perform such duties and responsibilities on behalf of BEA as Khoury and the Board shall by mutual agreement from time to time determine. 3.3. PERFORMANCE. During the Service Term, Khoury shall use his business judgment, skill and knowledge to the advancement of BEA's interests and to the discharge of his duties and responsibilities hereunder. 4. COMPENSATION AND BENEFITS. 4.1. BASE FEE. As consideration for his services performed during the Service Term, BEA agrees to pay Khoury a base fee of $360,000 per annum (the "Base Fee") , payable in accordance with the payroll practices of BEA for its executives generally, but in no event less frequently than monthly, and subject to increase from time to time by the Board, in its sole discretion; PROVIDED, HOWEVER, that the Base Fee shall be increased on January 1 of each year by an amount not less than the amount determined by applying to the Adjusted Base Fee (as defined below) as in effect for the next preceding year the percentage increase in the U.S. Bureau of Labor Statistics Consumer Price Index Revised - Urban Wage Earners and Clerical 2 Workers - National - All Items (1982-84 = 100) (the "Index") for the preceding twelve months, from December to December (the Base Fee as adjusted from time to time shall be referred to as the "Adjusted Base Fee"). In no event shall such adjustment reduce the Adjusted Base Fee below $360,000.00 per year. If the Bureau of Labor Statistics does not issue the Index on or before January 1 of any year for the preceding twelve months, December to December, any adjustments to either the Base Fee or the Adjusted Base Fee shall be made retroactive to the beginning of the appropriate adjustment period after the Index is so issued. If the Index is no longer issued, the Board and Khoury shall agree upon a substitute adjustment index issued by such agency. 4.2. BONUSES. Khoury may receive bonuses from BEA when, as and if determined from time to time by the Board. Any such bonuses paid to Khoury shall be in addition to the Adjusted Base Fee. 4.3. BENEFITS. At BEA's expense, during the Service Term Khoury shall be treated for benefit purposes as a BEA employee and shall be entitled to participate in any and all employee benefit plans, medical insurance plans, life insurance plans, disability income plans, incentive compensation plans and other benefit plans, other than retirement plans, as may be from time to time in effect for executives of BEA generally. 4.4. BUSINESS EXPENSES. BEA shall pay or reimburse Khoury during the Service Term for all reasonable business expenses incurred or paid by him in the performance of his services, subject to reasonable substantiation and documentation. 5. PROPRIETARY RIGHTS AND NON-COMPETITION. Khoury acknowledges that BEA is engaged in a continuous program of research, development and production in connection with its business, present and future, and hereby covenants as follows: 5.1. CONFIDENTIALITY. Khoury will maintain in confidence and will not disclose or use, either during or after the Service Term, any proprietary or confidential information or know-how belonging to BEA ("Proprietary Information"), whether or not in written form, except to the extent required to perform duties on behalf of BEA. For purposes of this Agreement, "Proprietary Information" shall mean any information, not generally known in the relevant trade or industry, which was obtained from BEA, or which was learned, discovered, developed, conceived, originated or prepared by Khoury in connection with this Agreement. Such Proprietary Information includes, without limitation, software, technical and business information relating to BEA's inventions or products, research and development, production processes, manufacturing and engineering processes, machines and equipment, finances, customers, marketing and production and future business plans, information belonging to customers or suppliers of BEA disclosed incidental to Khoury's performance under this -2- 3 Agreement, and any other information which is identified as confidential by BEA, but only so long as the same is not generally known in the relevant trade or industry. 5.2. INVENTIONS. 5.2.1. DEFINITION OF INVENTIONS. For purposes of this Agreement, "Inventions" shall mean any new or useful art, discovery, contribution, finding or improvement, whether or not patentable, and all related know-how. Inventions shall include, without limitation, all designs, discoveries, formulae, processes, manufacturing techniques, semiconductor designs, computer software, inventions, improvements and ideas. 5.2.2. DISCLOSURE AND ASSIGNMENT OF INVENTIONS. Khoury will promptly disclose and describe to BEA all Inventions which he may solely or jointly conceive, develop, or reduce to practice during the Service Term (i) which relate at the time of conception, development, or reduction to practice of the Invention to BEA's business or actual or demonstrably anticipated research or development, (ii) which were developed, in whole or in part, on BEA's time or with the use of any of BEA's equipment, supplies, facilities or trade secret information, or (iii) which resulted from any work performed by Khoury for BEA (the "BEA Inventions"). Khoury hereby assigns all of his right, title and interest worldwide in the BEA Inventions and in all intellectual property rights based upon the BEA Inventions; PROVIDED, HOWEVER, that Khoury does not assign or agree to assign any Inventions, whether or not relating in any way to the BEA business or demonstrably anticipated research and development, which were made by him prior to the date of this Agreement, or which were developed by him independently during the term of this Agreement and not under the conditions stated in subparagraph (ii) above. 5.3. DOCUMENTS AND MATERIALS. Upon termination of this Agreement or at any other time upon BEA's request, Khoury will promptly deliver to BEA, without retaining any copies, all documents and other materials furnished to him by BEA, prepared by him for BEA or otherwise relating to BEA's business, including, without limitation, all written and tangible material in his possession incorporating any Proprietary Information. 5.4. COMPETITIVE EMPLOYMENT. During the Service Term and for a period of two (2) years thereafter (collectively, the "Extended Term"), Khoury will not engage in any employment, consulting, or other activity in any business competitive with BEA without BEA's written consent, which consent shall not be unreasonably withheld; PROVIDED, HOWEVER, because Khoury has other existing commitments, a list of which is attached hereto, services rendered to those entities will in no event be deemed competitive with BEA; PROVIDED, FURTHER, that nothing in this Section 5.4 shall preclude Khoury from serving as a director of any other corporation. -3- 4 5.5. NON-SOLICITATION. During the Extended Term, Khoury will not solicit or encourage, or cause others to solicit or encourage, any employees of BEA to terminate their employment with BEA. 5.6. ACTS TO SECURE PROPRIETARY RIGHTS. 5.6.1. FURTHER ACTS. Khoury agrees to perform, during and after the Service Term, all acts deemed necessary or desirable by BEA to permit and assist it, at its expense, in perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the BEA Inventions. Such acts may include, without limitation, execution of documents and assistance or cooperation in the registration and enforcement of applicable patents and copyrights or other legal proceedings. 5.6.2. APPOINTMENT OF ATTORNEY-IN-FACT. In the event that BEA is unable, for any reason whatsoever, to secure Khoury's signature to any lawful and necessary document required to apply for or execute any patent, copyright or other applications with respect to any BEA Inventions (including improvements, renewals, extensions, continuations, divisions or continuations in part thereof), Khoury hereby irrevocably appoints BEA and its duly authorized officers and agents as his agents and attorneys-in-fact to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by him, intending hereby to create a so-called "durable power" which will survive any subsequent disability. 5.7. NO CONFLICTING OBLIGATIONS. Khoury's performance of this Agreement does not breach and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him. 5.8. CORPORATE OPPORTUNITIES. Khoury agrees that he will first present to the Board, for its acceptance or rejection on behalf of BEA, any opportunity to create or invest in any company which is or will be involved in equipping or furnishing airplane cabin interiors, which comes to his attention and in which he, or any affiliate, might desire to participate. If the Board rejects the same or fails to act thereon in a reasonable time, Khoury shall be free to invest in, participate or present such opportunity to any other person or entity. 5.9. SPECIFIC PERFORMANCE. Khoury acknowledges that a breach of any of the promises or agreements contained herein could result in irreparable and continuing damage to BEA for which there may be no adequate remedy at law, and BEA shall be entitled to seek injunctive relief and/or a decree for specific performance, and such other relief as may be proper (including monetary damages if appropriate). -4- 5 6. TERMINATION AND COMPENSATION THEREON. 6.1. TERMINATION DATE. The term "Termination Date" shall mean the earlier of (i) the Expiration Date or (ii) if Khoury's services to BEA are terminated (A) by his death, then the date of his death, or (B) by his incapacity, then the date on which such termination is to be effective pursuant to the notice of termination to be given by BEA pursuant to Section 6.3 hereof. 6.2. DEATH. This Agreement shall terminate upon the death of Khoury. In such event, BEA shall pay to such person as Khoury from time to time may designate in a notice filed with BEA, or, if no such person shall have been so designated, to his estate, (i) all fees earned, but not yet paid, hereunder and (ii) the Retirement Compensation as hereinafter provided. 6.3. INCAPACITY. If, in the reasonable judgement of the Board, as a result of Khoury's incapacity due to physical or mental illness or otherwise, Khoury shall for at least nine (9) consecutive months during the term of this Agreement have been unable to perform his duties under this Agreement, BEA may terminate this Agreement, and Khoury's services hereunder, by notice to Khoury. In such event, BEA shall pay the Retirement Compensation to Khoury, and (to the extent legally practicable) extend to him the applicable fringe benefits referred to in Section 4.3 hereof until the Expiration Date. Any dispute between the Board and Khoury with respect to Khoury's incapacity shall be settled by reference to a competent medical authority mutually agreed to by the Board and Khoury, the decision of which authority shall be binding on all parties. 6.4. RETIREMENT COMPENSATION. In recognition that Khoury will not be eligible for any retirement plan to be offered by BEA to its executives (as provided in Section 4.3), upon the occurrence of the earlier of the Expiration Date or the Termination Date (such earlier date referred to as the "Cessation Date"), Khoury shall be entitled to retirement compensation ("Retirement Compensation") equal to the Adjusted Base Fee in effect immediately prior to the Cessation Date for each year of service by Khoury to BEA, such service having commenced as of August 1, 1987 ("Commencement Date"), with a ratable adjustment should Khoury's final period of service be less than a full year, and payable as provided in Section 6.5. 6.5. PAYMENT OF RETIREMENT COMPENSATION. Retirement Compensation shall be paid to Khoury in monthly installments, the first installment to be due and payable on the first day of the month next beginning after the Cessation Date, except that if the Cessation Date falls on or after the twentieth day of a month, such first installment shall be paid on the first day of the second month next beginning, and in either instance, monthly on the same day of each succeeding month, for that number of months equal to the number of months elapsed from the Commencement Date through the Cessation Date. The amount of each monthly installment -5- 6 shall be equal to one-twelfth (1/12th) of the Adjusted Base Fee in effect as of the Cessation Date. Notwithstanding the foregoing, Khoury, or his personal representative if Khoury is deceased or incapable, physically or mentally, of so acting, may elect to receive the entire Retirement Compensation, or the remaining unpaid balance thereof, in a lump sum upon written notice to the Board. In such event, the Board may determine the time of payment of such amount, not to exceed ninety (90) days from the date of such notice, and the monthly installments due and payable up to such date shall continue to be paid, except that the lump sum to be paid shall be present-valued using the lowest Prime Rate reported in the Wall Street Journal on the first business day after the Board is sent notice of such election, and if no such Prime Rate is then being published by the Wall Street Journal, then the rate announced by the largest New York City bank as its prime or base rate shall be used. 7. WITHHOLDING. All payments made by BEA under this Agreement shall be reduced by any tax or other amounts required to be withheld by BEA under applicable law. 8. ASSIGNMENT. Neither BEA nor Khoury may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party; PROVIDED, HOWEVER, that BEA may assign its rights and obligations under this Agreement without the consent of Khoury if BEA shall hereafter effect a reorganization, consolidate with, or merge into any other entity or transfer all or substantially all of its properties or assets to any other person or entity. This Agreement shall inure to the benefit of and be binding upon BEA, Khoury and their respective successors, executors, administrators, heirs and permitted assigns. 9. INDEMNIFICATION. To the maximum extent permitted under Delaware law as from time to time in effect, BEA hereby agrees to indemnify Khoury and hold him harmless from, against and in respect of any and all damages, deficiencies, actions, suits, proceedings, demands, assessments, judgments, claims, losses, costs, expenses, obligations and liabilities arising from or related to the performance of this Agreement by Khoury. 10. WAIVER. The waiver by any party hereto of a breach of any provision of this Agreement by any other party will not operate or be construed as a waiver of any other or subsequent breach by such other party. 11. SEVERABILITY. If any part of this Agreement is found invalid or unenforceable, that part will be amended to achieve as nearly as possible the same economic effect as the original provision, and the remainder of this Agreement will remain in full force. -6- 7 12. NOTICES. Any notice or other communication in connection with this Agreement shall be deemed to be delivered if in writing, addressed as provided below and actually delivered at said address. If to Khoury, to him at the following address: c/o The K.A.D. Companies, Inc. 36 Washington Street Suite 190 Wellesley Hills, Massachusetts 02181 If to BEA, to it at the following address: 1601 East Chestnut Avenue Santa Ana, California 92702 Attention: President or to such other person or address as to which either party may notify the other in accordance with this Section 12. 13. ARBITRATION. In the event of a dispute between the parties as to the meaning or interpretation of this Agreement, or the performance of either party hereunder, either party may submit the matter for arbitration in Boston, Massachusetts, to the American Arbitration Association, which is expressly permitted and required hereby, to include the reasonable costs of arbitration, including attorney fees, of the prevailing party, in its decision. If the non-prevailing party should then fail to comply with such decision, the reasonable costs of enforcement, including attorneys fees, shall be paid to the prevailing party. Such costs shall specifically include any judicial proceeding to confirm such decision. 14. SURVIVAL. The obligations of Khoury pursuant to Section 5 hereof and the obligations of BEA pursuant to Section 6 hereof shall each survive termination of this Agreement. 15. MISCELLANEOUS. This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior and current understandings and agreements, whether written or oral. This Agreement may be amended or modified only by a written instrument signed by Khoury and by a duly authorized representative of BEA. This Agreement may be executed in any number of counterparts which together shall constitute one instrument and shall be governed by and construed in accordance with the laws (other than the conflicts of laws rules) of the Commonwealth of Massachusetts. -7- 8 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. ----------------------------------- AMIN J. KHOURY BE AVIONICS, INC. By --------------------------------- Robert J. Khoury, duly authorized -8- EX-10.35 8 R. KHOURY EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made as of this 1st day of March, 1992 by and between BE Avionics, Inc., a Delaware corporation (the "Company" or "Employer"), and Robert J. Khoury (the "Executive"). RECITALS 1. The Executive has been employed by the Employer as President. 2. The services and ability of the Executive have constituted a major factor in the growth and development of the Employer. 3. The Employer desires to continue to employ and retain the Executive and to make secure for itself the experience, abilities and services of the Executive and to prevent the loss of such experience, services and abilities. 4. In consideration of the employment to be provided hereby and the amounts to be paid as provided herein, the Executive desires to be employed by the Employer and to agree with the Employer as further provided herein. NOW THEREFORE, the parties hereto hereby agree as follows: 1. EMPLOYMENT. The Employer shall employ the Executive, and the Executive shall perform services for and continue in the employment of the Employer, for a period of six (6) years (the "Employment Period") commencing on March 1, 1992 and ending on February 28, 1997 (the "Expiration Date") unless such employment shall have been sooner terminated as hereinafter set forth. In consideration of such employment and in consideration of any subsequent retention as a consultant as provided in Section 4(f) hereof, the Executive has concurrently executed a Proprietary Rights Agreement, a copy of which is attached as Exhibit A hereto. 2. POSITION AND DUTIES. The Executive shall serve in the capacity of President, Cabin Products Division or in such other executive position as the Board of Directors of the Company may designate from time to time (but only upon agreement with the Executive), shall be accountable to, and shall have such other powers, duties and responsibilities, consistent with his capacity, as the Board of Directors and the Executive shall by mutual agreement from time to time determine. The Executive shall perform and discharge, faithfully, diligently and to the best of his ability, such duties and responsibilities. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company. 3. COMPENSATION. 2 (a) SALARY. During each year of the Employment Period, the Executive shall receive an annual salary (the "Salary") of $200,000. Such rate shall be subject to adjustment from time to time by the Board of Directors; PROVIDED, HOWEVER, that it shall at no time be adjusted below $200,000. The Salary shall be payable biweekly or in accordance with the Company's current payroll practices. Except as otherwise provided in this Agreement, the Salary shall be pro-rated for any period of service less than a full year. (b) INCENTIVE BONUS. During each year of the Employment Period, the Executive shall receive an incentive bonus for such year as determined in advance by the Board of Directors of the Company at the end of the year, which bonus shall not exceed 100% of the Salary. (c) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by him on behalf of the Employer. (d) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to participate in or receive benefits under any life or disability insurance, health, pension, retirement and accident plans or arrangements made generally available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. In accordance with the Company policy, the Executive shall also be entitled to paid vacation in any fiscal year during the Employment Period as well as all paid holidays given by the Company to its employees. (e) AUTOMOBILE. Without limiting the generality of the foregoing, during the Employment Period, the Executive shall be furnished with a Company-owned automobile or an automobile allowance, at the discretion of the Company. 4. TERMINATION AND COMPENSATION THEREON. (a) TERMINATION DATE. The term (the "Termination Date") shall mean the earlier of (i) the Expiration Date or (ii) if the Executive's employment is terminated (A) by his death, the date of his death, or (B) for any other reason, the date on which such termination is to be effective pursuant to the notice of termination given by the party terminating the employment relationship. (b) DEATH. The Executive's employment hereunder shall terminate upon his death. In such event, the Company shall pay to such person as the Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to his estate, an amount equal to the Salary that would have been due to the Executive had this Agreement been in effect from the date of his death until the Expiration Date. -2- 3 (c) INCAPACITY. If in the reasonable judgment of the Board of Directors of the Company, as a result of the Executive's incapacity due to physical or mental illness or otherwise, the Executive shall for at least six consecutive months during the term of this Agreement have been unable to perform his duties under this Agreement on a full-time basis, the Company may terminate the Executive's employment hereunder by notice to the Executive. In such event, the Employer shall continue to pay the Executive his Salary (at the rate in effect as of the Termination Date) and (to the extent legally practicable) extend to him the applicable fringe benefits referred to in Section 3(d) hereof until the Expiration Date. The Company's obligation to pay the Executive his Salary and extend to him such benefits shall terminate if the Executive subsequently takes other employment to the extent of the Executive's salary and benefits from such other employment. Any dispute between the Board of Directors of the Company and the Executive with respect to the Executive's incapacity shall be settled by reference to a competent medical authority mutually agreed to by the Board of Directors and the Executive, whose decision shall be binding on all parties. (d) RETIREMENT. If the Executive terminates his employment hereunder or under any renewal hereof on or after his fifty-fifth birthday and after at least 10 years of service to the Company, then the Company shall pay to the Executive (or in the event of the Executive's death after such termination, to such person as the Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to his estate) for ten successive years after such termination an annual sum equal to one-half TIMES the Executive's annual salary for the three fiscal years most recently completed immediately preceding such termination. Notwithstanding the termination of the Employment Period by the Executive in accordance with this Section 4(d), the obligations of the Company pursuant to this Section 4(d) shall survive such termination. (e) TERMINATION BY THE COMPANY. The Company may terminate the Executive's employment hereunder for "cause". For purposes of this Agreement, "cause" shall mean (A) the Executive's material failure, refusal or neglect to perform and discharge his duties and responsibilities hereunder (including duties prescribed by the Board of Directors pursuant to Section 2), other material breach of the terms hereof, or breach of his fiduciary duties as an officer or member of the Board of Directors of the Company or any subsidiary or affiliate thereof, as applicable, or (B) a felony conviction or a conviction for any crime involving the Executive's personal dishonesty or moral turpitude. If the Executive's employment is terminated pursuant to this Section 4(e), the Employer shall have no further obligations to the Executive hereunder after the Termination Date, except for unpaid Salary and benefits accrued through the Termination Date. (f) CONSULTING PERIOD UPON TERMINATION. If the Company (i) terminates the Executive's employment hereunder prior to the Expiration Date for any reason whatsoever or (ii) fails to extend the Executive's employment hereunder for a period of at least three years beyond the Expiration Date at his then current Salary and otherwise on the terms and -3- 4 conditions set forth herein, then the Company shall have the option, at its sole discretion, of retaining the Executive as a consultant to perform such services as the Company may reasonably request, in consideration for which services the Company shall continue to pay the Executive the same Salary and (to the extent legally practicable) extend to him the applicable fringe benefits referred to in Section 3(d), as in effect on the Termination Date (in the case of (i) above) or the Expiration Date (in the case of (ii) above) for the period commencing on the Termination Date or Expiration Date and ending on the date five years after the Expiration Date or on such earlier date as the Company may otherwise specify by at least two weeks' prior written notice (the "Consulting Period"). 5. AMENDMENTS. No amendment to this Agreement or any schedule hereto shall be effective unless it shall be in writing and signed by each party hereto. 6. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally or three days after being mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Employer, to it at: c/o The K.A.D. Companies, Inc. 36 Washington Street, Suite 190 Wellesley, MA 02181 Attention: Amin J. Khoury with copies to Ropes & Gray One International Place Boston, Massachusetts 02110 Attention: C. Dean Dusseault (ii) if to the Executive, to him at: 975 Sunshine Lane Altamonte Springs, FL 32714 7. ENTIRE AGREEMENT. This Agreement and the Proprietary Rights Agreement of even date herewith constitute the entire agreement among the parties hereto pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties. -4- 5 8. MISCELLANEOUS. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. This Agreement may be executed in any number of counterparts which together shall constitute one instrument and shall be governed and construed in accordance with the laws (other than the conflict of laws rules) of the State of Florida and shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. -5- 6 IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first written above. BE AVIONICS, INC. By:___________________________ Amin J. Khoury Chairman of the Board ROBERT J. KHOURY ------------------------------ -6- 7 Exhibit A PROPRIETARY RIGHTS AND CONSULTING AGREEMENT This Agreement is intended to set forth in writing my responsibility to BE Avionics, Inc. (the "Company") during my employment with the Company, during any subsequent consulting period and thereafter. I recognize that the Company is engaged in a continuous program of research, development, and production respecting its business, present and future. As part of my employment with the Company and any subsequent consultancy, I have certain obligations relating to confidential information of the Company and inventions which I develop during my employment or consultancy. In return for my employment by the Company, I acknowledge and agree that: 1. AGREEMENT; EFFECTIVE DATE. I have today executed an Employment Agreement of even date herewith (the "Employment Agreement") between the Company and myself. In return for my employment pursuant thereto and any subsequent consulting pursuant to Section 4(f) thereof, I agree to abide by the terms of this Proprietary Rights Agreement during my employment with the Company and any subsequent Consulting Period (as defined in Section 4(f) of the Employment Agreement). This Proprietary Rights Agreement shall be effective on March 1, 1992 and shall continue in effect throughout my employment and the Consulting Period, if any (the "Agreement Period"). 2. CONFIDENTIALITY. I will maintain in confidence and will not disclose or use, either during or after the Agreement Period, any proprietary or confidential information or know-how belonging to the Company ("Proprietary Information"), whether or not in written form, except to the extent required to perform duties on behalf of the Company. Proprietary Information refers to any information, not generally known in the relevant trade or industry, which was obtained from the Company, or which was learned, discovered, developed, conceived, originated or prepared by me in the scope of my employment or consultancy. Such Proprietary Information includes, but is not limited to, the Company's inventions or products, research and development, production processes, manufacturing and engineering processes, machines and equipment, finances, customers, marketing, and production and future business plans, information belonging to customers or suppliers of the Company disclosed incidental to my employment or consultancy and any other information which is identified as confidential by the Company. -1- 8 3. INVENTIONS. 3.1. DEFINITION OF INVENTIONS. As used in this Agreement, the term "Invention" means any new or useful art, discovery, contribution, finding or improvement, whether or not patentable, and all related know-how. Inventions include, but are not limited to, all designs, discoveries, formulas, processes, manufacturing techniques, semiconductor designs, computer software, inventions, improvements and ideas. 3.2. DISCLOSURE AND ASSIGNMENT OF INVENTIONS. (a) I will promptly disclose and describe to the Company all Inventions which I may solely or jointly conceive, develop, or reduce to practice during the Agreement Period (i) which relate, at the time of conception, development, or reduction to practice of the Invention, to the Company's business or actual or demonstrably anticipated research or development, (ii) which were developed, in whole or in part, on the Company's time or with the use of any of the Company's equipment, supplies, facilities or trade secret information, or (iii) which resulted from any work I performed for the Company (the "Company Inventions"). I assign all my right, title, and interest worldwide in the Company Inventions and in all intellectual property rights based upon the Company Inventions. However, I do not assign or agree to assign any Inventions relating in any way to the Company business or demonstrably anticipated research and development which were made by me prior to my employment with the Company, which Inventions, if any, are identified on Exhibit "A" to this Agreement. Exhibit "A" contains no confidential information. I have no rights in any Inventions other than the inventions specified in Exhibit "A". If no such list is attached, I have no such Inventions or I grant an irrevocable, nonexclusive, royalty-free, worldwide license to the Company to make, use and sell Inventions developed by me prior to my employment with the Company. (b) I recognize that Inventions relating to my activities while working for the Company and conceived or made by me, alone or with others, within one (1) year after termination of the Agreement Period may have been conceived in significant part while I was retained by the Company. Accordingly, I agree that such Inventions shall be presumed to have been conceived during my employment or consultancy with the Company and are to be assigned to the Company as a Company Invention unless and until I have established the contrary. I agree to disclose promptly in writing to the Company all Inventions made or conceived by me for one (1) year after the Agreement Period, whether or not I believe such Inventions are subject to this Agreement, to permit a determination by the Company as to whether or not the Inventions should be the property of the Company. Any such information will be received in confidence by the Company. 4. DOCUMENTS AND MATERIAL. Upon termination of my employment with the Company (regardless of whether or not the Company retains me as a consultant) or at any other time upon the Company's request, I will promptly deliver to the Company, without retaining any -2- 9 copies, all documents and other materials furnished to me by the Company, prepared by me for the Company or otherwise relating to the Company's business, including without limitation all written and tangible material in my possession incorporating any Proprietary Information. 5. COMPETITIVE EMPLOYMENT. During the Agreement Period, I will not engage in any employment, consulting, or other activity in any business competitive with the Company without the Company's written consent. 6. NON-SOLICITATION. During the Agreement Period and for a period of two (2) years thereafter, I will not solicit or encourage, or cause others to solicit or encourage, any employees of the Company to terminate their employment with the Company. 7. ACTS TO SECURE PROPRIETARY RIGHTS. 7.1. FURTHER ACTS. I agree to perform, during and after the Agreement Period, all acts deemed necessary or desirable by the Company to permit and assist it, at its expense, in perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the Company Inventions. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in the registration and enforcement of applicable patents and copyrights or other legal proceedings. 7.2. APPOINTMENT OF ATTORNEY-IN-FACT. In the event that the Company is unable for any reason whatsoever to secure my signature to any lawful and necessary document required to apply for or execute any patent, copyright or other applications with respect to any Company Inventions (including improvements, renewals, extensions, continuations, divisions or continuations in part thereof), I hereby irrevocably appoint the Company and its duly authorized officers and agents as my agents and attorneys-in-fact to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by me. 8. NO CONFLICTING OBLIGATIONS. My performance of this Agreement does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me prior to my employment with the Company. I will not disclose to the Company, or induce the Company to use, any confidential or proprietary information or material belonging to any previous employer or other person or entity. I am not a party to any other agreement which will interfere with my full compliance with this Agreement. I will not enter into any agreement, whether written or oral, conflicting with the provisions of this Agreement. 9. SURVIVAL. Notwithstanding the termination of the Agreement Period, Sections 2, 3.2, 4, 6 and 7 hereof shall survive such termination. This Agreement does not in any way restrict my -3- 10 right or the right of the Company to terminate my employment at any time, for any reason or for no reason. I understand, however, that only the Company may terminate my consultancy, in its sole discretion, by at least two (2) weeks written notice. 10. SPECIFIC PERFORMANCE. A breach of any of the promises or agreements contained herein will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law, and the Company shall be entitled to injunctive relief and/or a decree for specific performance, and such other relief as may be proper (including monetary damages if appropriate). 11. WAIVER. The waiver by the Company of a breach of any provision of this Agreement by me will not operate or be construed as a waiver of any other or subsequent breach by me. 12. SEVERABILITY. If any part of this Agreement is found invalid or unenforceable, that part will be amended to achieve as nearly as possible the same economic effect as the original provision, and the remainder of this Agreement will remain in full force. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the State of Florida. 14. ENTIRE AGREEMENT. This Agreement, the Exhibits to this Agreement and the Employment Agreement of even date herewith constitute the entire agreement between the parties relating to this subject matter and supersede all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral. This Agreement may be amended or modified only with the written consent of both me and the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever. -4- 11 15. ASSIGNMENT. This Agreement may be assigned by the Company. I may not assign or delegate my duties under this Agreement without the Company's prior written approval. This Agreement shall be binding upon my heirs, successors, and permitted assignees. EMPLOYEE: Date: March 1, 1992 _________________________ Signature ------------------------- Printed Name BE AVIONICS, INC. Date: March 1, 1992 By:______________________ Title:___________________ -5- EX-10.37 9 M. LANZA EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made as of this 1st day of March, 1992 by and between BE Avionics, Inc., a Delaware corporation (the "Company" or "Employer"), and Marco Lanza (the "Executive"). RECITALS 1. The Executive has been employed by the Employer as Vice President, Marketing and Product Development. 2. The services and ability of the Executive have constituted a major factor in the growth and development of the Employer. 3. The Employer desires to continue to employ and retain the Executive and to make secure for itself the experience, abilities and services of the Executive and to prevent the loss of such experience, services and abilities. 4. In consideration of the employment to be provided hereby and the amounts to be paid as provided herein, the Executive desires to be employed by the Employer and to agree with the Employer as further provided herein. NOW THEREFORE, the parties hereto hereby agree as follows: 1. EMPLOYMENT. The Employer shall employ the Executive, and the Executive shall perform services for and continue in the employment of the Employer, for a period of five (5) years (the "Employment Period") commencing on March 1, 1992 and ending on February 28, 1997 (the "Expiration Date"), unless such employment shall have been sooner terminated as hereinafter set forth. In consideration of such employment and in consideration of any subsequent retention as a consultant as provided in Section 4(e) hereof, the Executive has concurrently executed a Proprietary Rights Agreement, a copy of which is attached as Exhibit A hereto. 2. POSITION AND DUTIES. The Executive shall serve in the capacity of President, Inflight Entertainment Division or in such other executive position as the Board of Directors of the Company may designate from time to time, shall be accountable to, and shall have such other powers, duties and responsibilities, consistent with his capacity, as may from time to time be prescribed by the Board of Directors. The Executive shall perform and discharge, faithfully, diligently and to the best of his ability, such duties and responsibilities. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company. 2 3. COMPENSATION. (a) SALARY. During each year of the Employment Period, the Executive shall receive an annual salary (the "Salary") of $150,000. Such rate shall be subject to adjustment from time to time by the Board of Directors; PROVIDED, HOWEVER, that it shall at no time be adjusted below $150,000. The Salary shall be payable biweekly or in accordance with the Company's current payroll practices. Except as otherwise provided in this Agreement, the Salary shall be pro-rated for any period of service less than a full year. (b) INCENTIVE BONUS. During each year of the Employment Period, the Executive shall receive an incentive bonus for such year as determined in advance by the Board of Directors of the Company at the end of the year, which bonus shall not exceed 100% of the Salary. (c) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by him on behalf of the Employer. (d) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to participate in or receive benefits under any life or disability insurance, health, pension, retirement and accident plans or arrangements made generally available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. In accordance with the Company policy, the Executive shall also be entitled to paid vacation in any fiscal year during the Employment Period as well as all paid holidays given by the Company to its employees. (e) AUTOMOBILE. Without limiting the generality of the foregoing, during the Employment Period, the Executive shall be furnished with a Company-owned automobile or an automobile allowance, at the discretion of the Company. 4. TERMINATION AND COMPENSATION THEREON. (a) TERMINATION DATE. The term (the "Termination Date") shall mean the earlier of (i) the Expiration Date or (ii) if the Executive's employment is terminated (A) by his death, the date of his death, or (B) for any other reason, the date on which such termination is to be effective pursuant to the notice of termination given by the party terminating the employment relationship. (b) DEATH. The Executive's employment hereunder shall terminate upon his death. In such event, the Company shall pay to such person as the Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to his estate, an amount equal to the Salary that would have been due to the Executive had this Agreement been in effect from the date of his death until the Expiration Date. -2- 3 (c) INCAPACITY. If in the reasonable judgment of the Board of Directors of the Company, as a result of the Executive's incapacity due to physical or mental illness or otherwise, the Executive shall for at least six consecutive months during the term of this Agreement have been unable to perform his duties under this Agreement on a full-time basis, the Company may terminate the Executive's employment hereunder by notice to the Executive. In such event, the Employer shall continue to pay the Executive his Salary (at the rate in effect as of the Termination Date) and (to the extent legally practicable) extend to him the applicable fringe benefits referred to in Section 3(d) hereof until the Expiration Date. The Company's obligation to pay the Executive his Salary and extend to him such benefits shall terminate if the Executive subsequently takes other employment to the extent of the Executive's salary and benefits from such other employment. Any dispute between the Board of Directors of the Company and the Executive with respect to the Executive's incapacity shall be settled by reference to a competent medical authority mutually agreed to by the Board of Directors and the Executive, whose decision shall be binding on all parties. (d) TERMINATION BY THE COMPANY. The Company may terminate the Executive's employment hereunder for "cause". For purposes of this Agreement, "cause" shall mean (A) the Executive's material failure, refusal or neglect to perform and discharge his duties and responsibilities hereunder (including duties prescribed by the Board of Directors pursuant to Section 2), other material breach of the terms hereof, or breach of his fiduciary duties as an officer or member of the Board of Directors of the Company or any subsidiary or affiliate thereof, as applicable, or (B) a felony conviction or a conviction for any crime involving the Executive's personal dishonesty or moral turpitude. If the Executive's employment is terminated pursuant to this Section 4(d), the Employer shall have no further obligations to the Executive hereunder after the Termination Date, except for unpaid Salary and benefits accrued through the Termination Date. (e) CONSULTING PERIOD UPON TERMINATION. If the Company (i) terminates the Executive's employment hereunder prior to the Expiration Date for any reason whatsoever or (ii) fails to extend the Executive's employment hereunder for a period of at least three years beyond the Expiration Date at his then current Salary and otherwise on the terms and conditions set forth herein, then the Company shall have the option, at its sole discretion, of retaining the Executive as a consultant to perform such services as the Company may reasonably request, in consideration for which services the Company shall continue to pay the Executive the same Salary and (to the extent legally practicable) extend to him the applicable fringe benefits referred to in Section 3(d), as in effect on the Termination date (in the case of (i) above) or the Expiration Date (in the case of (ii) above) for the period commencing on the Termination Date or Expiration Date and ending on the date five years after the Expiration Date or on such earlier date as the Company may otherwise specify by at least two weeks' prior written notice (the "Consulting Period"). 5. AMENDMENTS. No amendment to this Agreement or any schedule hereto shall be effective unless it shall be in writing and signed by each party hereto. -3- 4 6. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally or three days after being mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Employer, to it at: c/o The K.A.D. Companies, Inc. 36 Washington Street, Suite 190 Wellesley, MA 02181 Attention: Amin J. Khoury with copies to Ropes & Gray One International Place Boston, Massachusetts 02110 Attention: C. Dean Dusseault (ii) if to the Executive, to him at: 1601 East Chestnut Ave. Santa Ana, CA 92701 7. ENTIRE AGREEMENT. This Agreement and the Proprietary Rights Agreement of even date herewith constitute the entire agreement among the parties hereto pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties. 8. MISCELLANEOUS. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. This Agreement may be executed in any number of counterparts which together shall constitute one instrument and shall be governed and construed in accordance with the laws (other than the conflict of laws rules) of The State of California and shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. -4- 5 IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first written above. BE AVIONICS, INC. By:___________________________ Amin J. Khoury Chairman of the Board MARCO LANZA ------------------------------ -5- 6 Exhibit A PROPRIETARY RIGHTS AND CONSULTING AGREEMENT This Agreement is intended to set forth in writing my responsibility to BE Avionics, Inc. (the "Company") during my employment with the Company, during any subsequent consulting period and thereafter. I recognize that the Company is engaged in a continuous program of research, development, and production respecting its business, present and future. As part of my employment with the Company and any subsequent consultancy, I have certain obligations relating to confidential information of the Company and inventions which I develop during my employment or consultancy. In return for my employment by the Company, I acknowledge and agree that: 1. AGREEMENT; EFFECTIVE DATE. I have today executed an Employment Agreement of even date herewith (the "Employment Agreement") between the Company and myself. In return for my employment pursuant thereto and any subsequent consulting pursuant to Section 4(e) thereof, I agree to abide by the terms of this Proprietary Rights Agreement during my employment with the Company and any subsequent Consulting Period (as defined in Section 4(e) of the Employment Agreement). This Proprietary Rights Agreement shall be effective on March 1, 1992 and shall continue in effect throughout my employment and the Consulting Period, if any (the "Agreement Period"). 2. CONFIDENTIALITY. I will maintain in confidence and will not disclose or use, either during or after the Agreement Period, any proprietary or confidential information or know-how belonging to the Company ("Proprietary Information"), whether or not in written form, except to the extent required to perform duties on behalf of the Company. Proprietary Information refers to any information, not generally known in the relevant trade or industry, which was obtained from the Company, or which was learned, discovered, developed, conceived, originated or prepared by me in the scope of my employment or consultancy. Such Proprietary Information includes, but is not limited to, the Company's inventions or products, research and development, production processes, manufacturing and engineering processes, machines and equipment, finances, customers, marketing, and production and future business plans, information belonging to customers or suppliers of the Company disclosed incidental to my employment or consultancy and any other information which is identified as confidential by the Company. -1- 7 3. INVENTIONS. 3.1. DEFINITION OF INVENTIONS. As used in this Agreement, the term "Invention" means any new or useful art, discovery, contribution, finding or improvement, whether or not patentable, and all related know-how. Inventions include, but are not limited to, all designs, discoveries, formulas, processes, manufacturing techniques, semiconductor designs, computer software, inventions, improvements and ideas. 3.2. DISCLOSURE AND ASSIGNMENT OF INVENTIONS. (a) I will promptly disclose and describe to the Company all Inventions which I may solely or jointly conceive, develop, or reduce to practice during the Agreement Period (i) which relate, at the time of conception, development, or reduction to practice of the Invention, to the Company's business or actual or demonstrably anticipated research or development, (ii) which were developed, in whole or in part, on the Company's time or with the use of any of the Company's equipment, supplies, facilities or trade secret information, or (iii) which resulted from any work I performed for the Company (the "Company Inventions"). I assign all my right, title, and interest worldwide in the Company Inventions and in all intellectual property rights based upon the Company Inventions. However, I do not assign or agree to assign any Inventions relating in any way to the Company business or demonstrably anticipated research and development which were made by me prior to my employment with the Company, which Inventions, if any, are identified on Exhibit "A" to this Agreement. Exhibit "A" contains no confidential information. I have no rights in any Inventions other than the inventions specified in Exhibit "A". If no such list is attached, I have no such Inventions or I grant an irrevocable, nonexclusive, royalty-free, worldwide license to the Company to make, use and sell Inventions developed by me prior to my employment with the Company. (b) I recognize that Inventions relating to my activities while working for the Company and conceived or made by me, alone or with others, within one (1) year after termination of the Agreement Period may have been conceived in significant part while I was retained by the Company. Accordingly, I agree that such Inventions shall be presumed to have been conceived during my employment or consultancy with the Company and are to be assigned to the Company as a Company Invention unless and until I have established the contrary. I agree to disclose promptly in writing to the Company all Inventions made or conceived by me for one (1) year after the Agreement Period, whether or not I believe such Inventions are subject to this Agreement, to permit a determination by the Company as to whether or not the Inventions should be the property of the Company. Any such information will be received in confidence by the Company. 3.3. NON-ASSIGNABLE INVENTIONS. This Agreement does not apply to an Invention which qualifies fully as a Non-Assignable Invention under the provision of Section 2870 of the California Labor Code. -2- 8 4. DOCUMENTS AND MATERIAL. Upon termination of my employment with the Company (regardless of whether or not the Company retains me as a consultant) or at any other time upon the Company's request, I will promptly deliver to the Company, without retaining any copies, all documents and other materials furnished to me by the Company, prepared by me for the Company or otherwise relating to the Company's business, including without limitation all written and tangible material in my possession incorporating any Proprietary Information. 5. COMPETITIVE EMPLOYMENT. During the Agreement Period, I will not engage in any employment, consulting, or other activity in any business competitive with the Company without the Company's written consent. 6. NON-SOLICITATION. During the Agreement Period and for a period of two (2) years thereafter, I will not solicit or encourage, or cause others to solicit or encourage, any employees of the Company to terminate their employment with the Company. 7. ACTS TO SECURE PROPRIETARY RIGHTS. 7.1. FURTHER ACTS. I agree to perform, during and after the Agreement Period, all acts deemed necessary or desirable by the Company to permit and assist it, at its expense, in perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the Company Inventions. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in the registration and enforcement of applicable patents and copyrights or other legal proceedings. 7.2. APPOINTMENT OF ATTORNEY-IN-FACT. In the event that the Company is unable for any reason whatsoever to secure my signature to any lawful and necessary document required to apply for or execute any patent, copyright or other applications with respect to any Company Inventions (including improvements, renewals, extensions, continuations, divisions or continuations in part thereof), I hereby irrevocably appoint the Company and its duly authorized officers and agents as my agents and attorneys-in-fact to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by me. 8. NO CONFLICTING OBLIGATIONS. My performance of this Agreement does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me prior to my employment with the Company. I will not disclose to the Company, or induce the Company to use, any confidential or proprietary information or material belonging to any previous employer or other person or entity. I am not a party to any other agreement which will interfere with my full compliance with this Agreement. I will not enter into any agreement, whether written or oral, conflicting with the provisions of this Agreement. -3- 9 9. SURVIVAL. Notwithstanding the termination of the Agreement Period, Sections 2, 3.2, 4, 6 and 7 hereof shall survive such termination. This Agreement does not in any way restrict my right or the right of the Company to terminate my employment at any time, for any reason or for no reason. I understand, however, that only the Company may terminate my consultancy, in its sole discretion, by at least two (2) weeks written notice. 10. SPECIFIC PERFORMANCE. A breach of any of the promises or agreements contained herein will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law, and the Company shall be entitled to injunctive relief and/or a decree for specific performance, and such other relief as may be proper (including monetary damages if appropriate). 11. WAIVER. The waiver by the Company of a breach of any provision of this Agreement by me will not operate or be construed as a waiver of any other or subsequent breach by me. 12. SEVERABILITY. If any part of this Agreement is found invalid or unenforceable, that part will be amended to achieve as nearly as possible the same economic effect as the original provision, and the remainder of this Agreement will remain in full force. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California as applied to agreements entered into and to be performed entirely within California between California residents. 14. CHOICE OF FORUM. The parties hereby submit to the jurisdiction of, and waive any venue objections against, the United States District Court for Los Angeles/Orange County, and the Superior and Municipal Courts of the State of California, Orange County, in any litigation arising out of this Agreement. 15. ENTIRE AGREEMENT. This Agreement, the Exhibits to this Agreement and the Employment Agreement of even date herewith constitute the entire agreement between the parties relating to this subject matter and supersede all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral. This Agreement may be amended or modified only with the written consent of both me and the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever. 16. ASSIGNMENT. This Agreement may be assigned by the Company. I may not assign or delegate my duties under this Agreement without the Company's prior written approval. This Agreement shall be binding upon my heirs, successors, and permitted assignees. EMPLOYEE: Date: March 1, 1992 _________________________ -4- 10 Signature ------------------------- Printed Name BE AVIONICS, INC. Date: March 1, 1992 By:______________________ Title:___________________ -5- 11 LIMITED EXCLUSION NOTIFICATION THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the above Agreement between you and the Company does not require you to assign to the Company, any invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on your own time, and (a) which does not relate (1) to the business of the Company or (2) to the Company's actual or demonstrably anticipated research or development, or (b) which does not result from any work performed by you for the Company. This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. I ACKNOWLEDGE RECEIPT of a copy of this notification. ------------------------- Signature ------------------------- Printed Name of Employee Dated:___________________ Witnessed by: - ------------------------------ - ------------------------------ Representative Dated:________________________ -6- 12 EXHIBIT "A" PRIOR INVENTION -7- EX-10.39 10 G. BERNARD JEWELL EMPLOYMENT AGREEMENT 1 EXECUTION COUNTERPART EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made as of this 1st day of April, 1992 by and between BE Avionics, Inc., a Delaware corporation (the "Company" or "Employer"), and G. Bernard Jewell (the "Executive"). RECITALS 1. The Employer desires to employ the Executive as Group Vice President - - Marketing and Product Development. 2. The Employer desires to retain the Executive and to make secure for itself the experience, abilities and services of the Executive and to prevent the loss of such experience, services and abilities. 3. The Executive has submitted to a physical examination by a physician approved by the Company, and the Company has received the results of such examination. 4. In consideration of the employment to be provided hereby and the amounts to be paid as provided herein, the Executive desires to be employed by the Employer and to agree with the Employer as further provided herein. NOW THEREFORE, the parties hereto hereby agree as follows: 1. EMPLOYMENT. The Employer shall employ the Executive, and the Executive shall perform services for and continue in the employment of the Employer, for a period of three (3) years commencing on the date hereof (the "Employment Period"), which Employment Period shall be extended after the third anniversary of the date hereof from year to year thereafter, provided that this Agreement shall expire upon twelve (12) months notice from either the Company or the Executive, which notice may first be given on the second anniversary of the date hereof and subsequently on each anniversary thereafter (such date of expiration referred to hereinafter as the "Expiration Date"), unless such employment shall have been sooner terminated as hereinafter set forth. In consideration of such employment and in consideration of any subsequent retention as a consultant as provided in Section 4(e) hereof, the Executive has concurrently executed a Proprietary Rights Agreement, a copy of which is attached as Exhibit A hereto. 2. POSITION AND DUTIES. The Executive shall serve in the capacity of Group Vice President Marketing and Product Development or in such other executive position as the Chief Executive Officer of the Company or the Board of Directors of the Company may designate from time to time, shall be accountable to, and shall have such other powers, duties and responsibilities, 2 consistent with his capacity, as may from time to time be prescribed by the Chief Executive Officer or the Board of Directors. The Executive shall perform and discharge, faithfully, diligently and to the best of his ability, such duties and responsibilities. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Company. 3. COMPENSATION. (a) SALARY. During each year of the Employment Period, the Executive shall receive an annual salary (the "Salary") of $100,000. Such rate shall be subject to adjustment from time to time by the Board of Directors; PROVIDED, HOWEVER, that it shall at no time be adjusted below $100,000. The Salary shall be payable biweekly or in accordance with the Company's current payroll practices. Except as otherwise provided in this Agreement, the Salary shall be pro-rated for any period of service less than a full year. (b) INCENTIVE BONUS. During each year of the Employment Period, the Executive shall receive an incentive bonus (the "Bonus") for such year as determined in advance by the Board of Directors of the Company at the end of the year, which bonus shall not exceed 100% of the Salary. The Bonus shall be payable as follows: (i) the Company shall pay the Executive fifty percent (50%) of the Bonus in cash at the end of the fiscal year in which such Bonus was earned and (ii) the Company shall pay the Executive the remaining unpaid Bonus in five equal annual installments commencing on the first anniversary of the Expiration Date. (c) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by him on behalf of the Employer. (d) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to participate in or receive benefits under any life or disability insurance, health, pension, retirement and accident plans or arrangements made generally available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements with such modifications as the Company deems reasonably necessary in light of the results of the physical examination referred to above. In accordance with the Company policy, the Executive shall also be entitled to paid vacation in any fiscal year during the Employment Period as well as all paid holidays given by the Company to its employees. (e) AUTOMOBILE. Without limiting the generality of the foregoing, during the Employment Period, the Executive shall be furnished with an automobile either owned or leased by the Company or an automobile allowance, at the discretion of the Company. -2- 3 (f) STOCK OPTION GRANTS. During the Employment Period, the Executive shall be entitled to receive grants of options to purchase up to 35,000 shares of the Company's Common Stock. (g) MOVING EXPENSES, ETC. In connection with the Executive's relocation from Pfafftown, North Carolina, the Executive will transfer to the Company all right, title and interest in and to his house located in such town, and the Company will (i) retain a qualified appraiser to value such house; (ii) retain a qualified broker to sell such house; (iii) advance to the Executive the greater of (i) the appraised value of such house MINUS any indebtedness secured thereby and (ii) an amount equal to $92,000 (being the Executive's equity in such house), PROVIDED THAT, if the net cash proceeds (after deducting any indebtedness secured by such house, together with any fees or expenses but without deducting brokerage fees) from the sale of such house are less than such amount advanced, the Executive shall promptly thereafter remit to the Company the amount of such difference; and (iv) reimburse the Executive for all reasonable moving expenses incurred as a result of his relocation from North Carolina, including expenses relating to (A) moving personal property, and (B) food and lodging for the Executive and his wife prior to the Executive's purchase of a replacement house. 4. TERMINATION AND COMPENSATION THEREON. (a) TERMINATION DATE. The term (the "Termination Date") shall mean the earlier of (i) the Expiration Date or (ii) if the Executive's employment is terminated (A) by his death, the date of his death, or (B) for any other reason, the date on which such termination is to be effective pursuant to the notice of termination given by the party terminating the employment relationship. (b) DEATH. The Executive's employment hereunder shall terminate upon his death. In such event, the Company shall pay to such person as the Executive shall have designated in a notice filed with the Company, or, if no such person shall have been designated, to his estate, an amount equal to the Salary that would have been due to the Executive had this Agreement been in effect from the date of his death until the Expiration Date. (c) INCAPACITY. If in the reasonable judgment of the Board of Directors of the Company, as a result of the Executive's incapacity due to physical or mental illness or otherwise, the Executive shall for at least six consecutive months during the term of this Agreement have been unable to perform his duties under this Agreement on a full-time basis, the Company may terminate the Executive's employment hereunder by notice to the Executive. In such event, the Employer shall continue to pay the Executive his Salary (at the rate in effect as of the Termination Date) and (to the extent legally practicable) extend to him the applicable fringe benefits referred to in Section 3(d) hereof until the Expiration Date. The Company's obligation to pay the Executive his Salary and extend to him such benefits shall terminate if the Executive subsequently takes other employment to the extent of the Executive's salary and benefits from such other employment. Any dispute between the Board of Directors of the -3- 4 Company and the Executive with respect to the Executive's incapacity shall be settled by reference to a competent medical authority mutually agreed to by the Board of Directors and the Executive, whose decision shall be binding on all parties. (d) TERMINATION BY THE COMPANY. The Company may terminate the Executive's employment hereunder for "cause". For purposes of this Agreement, "cause" shall mean (A) the Executive's material failure, refusal or neglect to perform and discharge his duties and responsibilities hereunder (including duties prescribed by the Board of Directors pursuant to Section 2), other material breach of the terms hereof, or breach of his fiduciary duties as an officer or member of the Board of Directors of the Company or any subsidiary or affiliate thereof, as applicable, or (B) a felony conviction or a conviction for any crime involving the Executive's personal dishonesty or moral turpitude. If the Executive's employment is terminated pursuant to this Section 4(d), the Employer shall have no further obligations to the Executive hereunder after the Termination Date, except for unpaid Salary and benefits accrued through the Termination Date. (e) CONSULTING PERIOD UPON TERMINATION. If the Company (i) terminates the Executive's employment hereunder prior to the Expiration Date for any reason whatsoever or (ii) fails to extend the Executive's employment hereunder for a period of at least three years beyond the Expiration Date at his then current Salary and otherwise on the terms and conditions set forth herein, then the Company shall have the option, at its sole discretion, of retaining the Executive as a consultant to perform such services as the Company may reasonably request, in consideration for which services the Company shall continue to pay the Executive fifty percent (50%) of his Salary and (to the extent legally practicable) extend to him the applicable fringe benefits referred to in Section 3(d), as in effect on the Termination Date (in the case of (i) above) or the Expiration Date (in the case of (ii) above) for the period commencing on the Termination Date or Expiration Date and ending on the date three years after the Expiration Date or on such earlier date as the Company may otherwise specify by at least two weeks' prior written notice (the "Consulting Period"). 5. AMENDMENTS. No amendment to this Agreement or any schedule hereto shall be effective unless it shall be in writing and signed by each party hereto. 6. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally or three days after being mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Employer, to it at: c/o The K.A.D. Companies, Inc. 36 Washington Street, Suite 190 Wellesley, MA 02181 -4- 5 Attention: Amin J. Khoury with copies to Ropes & Gray One International Place Boston, Massachusetts 02110 Attention: C. Dean Dusseault (ii) if to the Executive, to him at: ----------------------------- ----------------------------- ----------------------------- 7. ENTIRE AGREEMENT. This Agreement and the Proprietary Rights Agreement of even date herewith constitute the entire agreement among the parties hereto pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties. 8. MISCELLANEOUS. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. This Agreement may be executed in any number of counterparts which together shall constitute one instrument and shall be governed and construed in accordance with the laws (other than the conflict of laws rules) of the State of Florida and shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. -5- 6 IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date first written above. BE AVIONICS, INC. By:______________________ Amin J. Khoury Chairman of the Board G. BERNARD JEWELL ------------------------- -6- 7 Exhibit A PROPRIETARY RIGHTS AND CONSULTING AGREEMENT This Agreement is intended to set forth in writing my responsibility to BE Avionics, Inc. (the "Company") during my employment with the Company, during any subsequent consulting period and thereafter. I recognize that the Company is engaged in a continuous program of research, development, and production respecting its business, present and future. As part of my employment with the Company and any subsequent consultancy, I have certain obligations relating to confidential information of the Company and inventions which I develop during my employment or consultancy. In return for my employment by the Company, I acknowledge and agree that: 1. AGREEMENT; EFFECTIVE DATE. I have today executed an Employment Agreement of even date herewith (the "Employment Agreement") between the Company and myself. In return for my employment pursuant thereto and any subsequent consulting pursuant to Section 4(e) thereof, I agree to abide by the terms of this Proprietary Rights Agreement during my employment with the Company and any subsequent Consulting Period (as defined in Section 4(e) of the Employment Agreement). This Proprietary Rights Agreement shall be effective on April ___, 1992, the first day of my employment with the Company, and shall continue in effect throughout my employment and the Consulting Period, if any (the "Agreement Period"). 2. CONFIDENTIALITY. I will maintain in confidence and will not disclose or use, either during or after the Agreement Period, any proprietary or confidential information or know-how belonging to the Company ("Proprietary Information"), whether or not in written form, except to the extent required to perform duties on behalf of the Company. Proprietary Information refers to any information, not generally known in the relevant trade or industry, which was obtained from the Company, or which was learned, discovered, developed, conceived, originated or prepared by me in the scope of my employment or consultancy. Such Proprietary Information includes, but is not limited to, the Company's inventions or products, research and development, production processes, manufacturing and engineering processes, machines and equipment, finances, customers, marketing, and production and future business plans, information belonging to customers or suppliers of the Company disclosed incidental to my employment or consultancy and any other information which is identified as confidential by the Company. -1- 8 3. INVENTIONS. 3.1. DEFINITION OF INVENTIONS. As used in this Agreement, the term "Invention" means any new or useful art, discovery, contribution, finding or improvement, whether or not patentable, and all related know-how. Inventions include, but are not limited to, all designs, discoveries, formulas, processes, manufacturing techniques, semiconductor designs, computer software, inventions, improvements and ideas. 3.2. DISCLOSURE AND ASSIGNMENT OF INVENTIONS. (a) I will promptly disclose and describe to the Company all Inventions which I may solely or jointly conceive, develop, or reduce to practice during the Agreement Period (i) which relate, at the time of conception, development, or reduction to practice of the Invention, to the Company's business or actual or demonstrably anticipated research or development, (ii) which were developed, in whole or in part, on the Company's time or with the use of any of the Company's equipment, supplies, facilities or trade secret information, or (iii) which resulted from any work I performed for the Company (the "Company Inventions"). I assign all my right, title, and interest worldwide in the Company Inventions and in all intellectual property rights based upon the Company Inventions. However, I do not assign or agree to assign any Inventions relating in any way to the Company business or demonstrably anticipated research and development which were made by me prior to my employment with the Company, which Inventions, if any, are identified on Exhibit "A" to this Agreement. Exhibit "A" contains no confidential information. I have no rights in any Inventions other than the inventions specified in Exhibit "A". If no such list is attached, I have no such Inventions or I grant an irrevocable, nonexclusive, royalty-free, worldwide license to the Company to make, use and sell Inventions developed by me prior to my employment with the Company. (b) I recognize that Inventions relating to my activities while working for the Company and conceived or made by me, alone or with others, within one (1) year after termination of the Agreement Period may have been conceived in significant part while I was retained by the Company. Accordingly, I agree that such Inventions shall be presumed to have been conceived during my employment or consultancy with the Company and are to be assigned to the Company as a Company Invention unless and until I have established the contrary. I agree to disclose promptly in writing to the Company all Inventions made or conceived by me for one (1) year after the Agreement Period, whether or not I believe such Inventions are subject to this Agreement, to permit a determination by the Company as to whether or not the Inventions should be the property of the Company. Any such information will be received in confidence by the Company. 4. DOCUMENTS AND MATERIAL. Upon termination of my employment with the Company (regardless of whether or not the Company retains me as a consultant) or at any other time upon the Company's request, I will promptly deliver to the Company, without retaining any copies, all documents and other materials furnished to me by the Company, prepared by me for -2- 9 the Company or otherwise relating to the Company's business, including without limitation all written and tangible material in my possession incorporating any Proprietary Information. 5. COMPETITIVE EMPLOYMENT. During the Agreement Period, I will not engage in any employment, consulting, or other activity in any business competitive with the Company without the Company's written consent. 6. NON-SOLICITATION. During the Agreement Period and for a period of two (2) years thereafter, I will not solicit or encourage, or cause others to solicit or encourage, any employees of the Company to terminate their employment with the Company. 7. ACTS TO SECURE PROPRIETARY RIGHTS. 7.1. FURTHER ACTS. I agree to perform, during and after the Agreement Period, all acts deemed necessary or desirable by the Company to permit and assist it, at its expense, in perfecting and enforcing the full benefits, enjoyment, rights and title throughout the world in the Company Inventions. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in the registration and enforcement of applicable patents and copyrights or other legal proceedings. 7.2. APPOINTMENT OF ATTORNEY-IN-FACT. In the event that the Company is unable for any reason whatsoever to secure my signature to any lawful and necessary document required to apply for or execute any patent, copyright or other applications with respect to any Company Inventions (including improvements, renewals, extensions, continuations, divisions or continuations in part thereof), I hereby irrevocably appoint the Company and its duly authorized officers and agents as my agents and attorneys-in-fact to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or other rights thereon with the same legal force and effect as if executed by me. 8. NO CONFLICTING OBLIGATIONS. My performance of this Agreement does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me prior to my employment with the Company. I will not disclose to the Company, or induce the Company to use, any confidential or proprietary information or material belonging to any previous employer or other person or entity. I am not a party to any other agreement which will interfere with my full compliance with this Agreement or the Employment Agreement. I will not enter into any agreement, whether written or oral, conflicting with the provisions of this Agreement or the Employment Agreement. 9. SURVIVAL. Notwithstanding the termination of the Agreement Period, Sections 2, 3.2, 4, 6 and 7 hereof shall survive such termination. This Agreement does not in any way restrict my right or the right of the Company to terminate my employment at any time, for any reason or -3- 10 for no reason. I understand, however, that only the Company may terminate my consultancy, in its sole discretion, by at least two (2) weeks written notice. 10. SPECIFIC PERFORMANCE. A breach of any of the promises or agreements contained herein will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law, and the Company shall be entitled to injunctive relief and/or a decree for specific performance, and such other relief as may be proper (including monetary damages if appropriate). 11. WAIVER. The waiver by the Company of a breach of any provision of this Agreement by me will not operate or be construed as a waiver of any other or subsequent breach by me. 12. SEVERABILITY. If any part of this Agreement is found invalid or unenforceable, that part will be amended to achieve as nearly as possible the same economic effect as the original provision, and the remainder of this Agreement will remain in full force. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the State of Florida. 14. ENTIRE AGREEMENT. This Agreement, the Exhibits to this Agreement and the Employment Agreement of even date herewith constitute the entire agreement between the parties relating to this subject matter and supersede all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral. This Agreement may be amended or modified only with the written consent of both me and the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever. -4- 11 15. ASSIGNMENT. This Agreement may be assigned by the Company. I may not assign or delegate my duties under this Agreement without the Company's prior written approval. This Agreement shall be binding upon my heirs, successors, and permitted assignees. EMPLOYEE: Date: April 1, 1992 ___________________________ Signature -------------------------- Printed Name BE AVIONICS, INC. Date: April 1, 1992 By:_________________________ Title:____________________ -5- 12 EXHIBIT "A" PRIOR INVENTION -6- EX-10.43 11 SAVINGS PLAN FINANCIAL STATEMENTS 1 BE AEROSPACE, INC. SAVINGS PLAN FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996, SUPPLEMENTAL SCHEDULES, AND INDEPENDENT AUDITORS' REPORT 2 BE AEROSPACE, INC. SAVINGS PLAN TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS: Statements of net assets available for benefits as of December 31, 1997 and 1996 2 Statements of changes in net assets available for benefits for the years ended December 31, 1997 and 1996 3 Notes to financial statements 4 SUPPLEMENTAL SCHEDULES PROVIDED PURSUANT TO THE DEPARTMENT OF LABOR'S RULES AND REGULATIONS: Line 27a - Schedule of assets held for investment purposes as of December 31, 1997 13 Line 27d - Schedule of reportable transactions for the year ended December 31, 1997 14 All other schedules required by the Department of Labor are omitted because of the absence of the conditions under which they are required. 3 INDEPENDENT AUDITORS' REPORT The Administrative Committee BE Aerospace, Inc. Savings Plan Wellington, Florida We were engaged to audit the financial statements and supplemental schedules of BE Aerospace, Inc. Savings Plan (the Plan) as of December 31, 1997 and 1996, and for the years then ended, listed in the Table of Contents. These financial statements and supplemental schedules are the responsibility of the Plan's management. As permitted by Section 2520.103-8 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, the Plan administrator instructed us not to perform, and we did not perform, any auditing procedures with respect to the investment information summarized in Note 2 and certain information in Notes 3 and 4 that was certified by PW Trust Company, the trustee of the Plan, except for comparing the information with the related information included in the financial statements and supplemental schedules. We have been informed by the Plan administrator that the trustee holds the Plan's investment assets and executes investment transactions. The Plan administrator has obtained certifications from the trustee that the information as of and for the years ended December 31, 1997 and 1996 provided to the Plan administrator by the trustee is complete and accurate. Because of the significance of the information that we did not audit, we are unable to express, and do not express, an opinion on the accompanying financial statements and supplemental schedules taken as a whole. The form and content of the information included in the financial statements and supplemental schedules, other than that derived from the information certified by the trustee, have been audited by us in accordance with generally accepted auditing standards and, in our opinion, are presented in compliance with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. April 24, 1998 4 BE AEROSPACE, INC. SAVINGS PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS AS OF DECEMBER 31, 1997 AND 1996 - --------------------------------------------------------------------------------
1997 1996 ASSETS - Investments, at fair value (Note 3): Investment in the PW Trust Company Pooled Trusts (Note 2) $39,878,562 $31,645,268 BE Aerospace, Inc. common stock (Note 2) 6,390,953 5,939,236 Participant loans receivable 102,236 133,783 ----------- ----------- Total investments 46,371,751 37,718,287 EMPLOYER CONTRIBUTIONS RECEIVABLE 128,318 237,825 CASH AND CASH EQUIVALENTS (Note 2) 36,467 189,965 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $46,536,536 $38,146,077 =========== ===========
See independent auditors' report and notes to financial statements. 2 5 BE AEROSPACE, INC. SAVINGS PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 - --------------------------------------------------------------------------------
1997 1996 NET ASSETS AVAILABLE FOR BENEFITS, beginning of year $38,146,077 $23,275,706 ADDITIONS TO NET ASSETS ATTRIBUTED TO: Investment income: Net appreciation in fair value of investments (Notes 2 and 3) 5,262,288 6,841,934 Interest and dividends (Note 2) 21,482 93,585 ----------- ----------- Total investment income 5,283,770 6,935,519 Contributions and rollovers (Note 1) 7,275,773 12,124,167 ----------- ----------- Total additions to net assets 12,559,543 19,059,686 DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: Distributions to participants or their beneficiaries 3,768,400 3,901,531 Plan administrative expenses 361,581 256,790 Loan repayments 39,103 30,994 ----------- ----------- Total deductions from net assets 4,169,084 4,189,315 ----------- ----------- NET INCREASE 8,390,459 14,870,371 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS, end of year $46,536,536 $38,146,077 =========== ===========
See independent auditors' report and notes to financial statements. 3 6 BE AEROSPACE, INC. SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 - -------------------------------------------------------------------------------- 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Plan - Effective August 1, 1988, BE Aerospace, Inc. (the Company) adopted the BE Aerospace, Inc. Savings Plan (formerly the BE Aerospace, Inc. Savings and Profit Sharing Plan and Trust) (the Plan), a defined contribution retirement plan designed to qualify under Internal Revenue Code (IRC) Section 401(a) and 401(k) for the cash or deferred arrangement part of the Plan. Under the Plan, contributions are made on behalf of employees (participants) who choose to defer a portion of their total gross pay. Effective December 1994, the Plan was amended to allow participants to make a contribution election from 2% to 15%. Elective contributions under a qualified cash or deferred arrangement are treated as employer contributions. Company contributions are made in the Company common stock (the Stock). Participants 55 years old or older have the option of receiving the matching contribution in cash. The Stock is held by the trustee and adjusted to fair value as determined by published market prices. Resulting unrealized gains and losses are included in the statement of changes in net assets available for benefits. In January 1996, the Company purchased Burns Aerospace, Inc. from Eagle Industries. Former Burns Aerospace, Inc. employees who transferred to the Company and were participants under the Eagle Industries 401(k) Plan were cashed out of the Eagle plan, and their distributions totaling $7,154,260 were rolled over into the Plan. Termination Benefits and Vesting - Upon termination of employment with the Company, participants are immediately vested in their contributions and are entitled to receive all vested contributions, with 100% vesting after five years of service. Forfeitures - Forfeited nonvested account balances are used to reduce future employer contributions. Cash and Cash Equivalents - Cash and cash equivalents consist of highly-liquid investments with initial maturities of 90 days or less. Investment in the PW Trust Company Pooled Trusts - The investment in the PW Trust Company Pooled Trusts (the Trusts) consists primarily of guaranteed insurance contracts (GICs) and certain debt and equity securities held by the Trusts. It is the policy of the Trusts to hold GIC investments until maturity. GIC investments are stated at contract value that approximates their fair value at December 31, 1997 and 1996, as determined by quoted or published market prices. All other investments are stated at their fair value. 4 7 BE AEROSPACE, INC. SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED) - -------------------------------------------------------------------------------- Income Tax - The Plan is intended to be qualified under 401(a) of the IRC of 1986 and is intended to be exempt from taxation under 501(a) of the IRC. The Plan received a favorable IRS determination letter dated October 23, 1996. The Plan has been amended since receiving the determination letter. However, the Plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC and the related trust was tax exempt as of the financial statement date. Therefore, no provision of income taxes has been included in the Plan's financial statements. Benefits Payable - Benefits under the Plan are distributed upon retirement, death, disability or termination of employment. At December 31, 1997, payables to participants totaled $43,133. There were no benefits payable at December 31, 1996. Administrative Expenses - Administrative expenses are paid by the Plan. 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 periods. Actual results could differ from those estimates. The foregoing description of the Plan provides only general information. Participants should refer to the Plan document for a more complete description of the Plan's provisions. 2. INFORMATION CERTIFIED BY TRUSTEE (UNAUDITED) Plan investments are held by PW Trust Company, the trustee. The following is a summary of the unaudited information regarding the Plan, included in the Plan's financial statements and supplemental schedules, that was prepared by the trustee and reported to the Plan administrator. The Company has obtained certifications from the trustee that such information is complete and accurate. 5 8 BE AEROSPACE, INC. SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED) - -------------------------------------------------------------------------------- a. Assets held at fair value as of December 31:
1997 1996 Investments, at fair value: GIC Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan $ 9,647,288 $10,209,520 Balanced Value Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 6,983,055 6,252,891 Capital Growth Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 11,148,710 8,525,566 Strategic Balance Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 3,048,384 1,941,631 Strategic Growth Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 4,726,181 2,944,103 Target Value Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 3,893,093 1,771,557 Overseas Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 431,851 BE Aerospace, Inc. common stock 6,390,953 5,939,236 ----------- ----------- Total investments 46,269,515 37,584,504 Cash and cash equivalents - Money Market Fund 36,467 189,965 ----------- ----------- $46,305,982 $37,774,469 =========== ===========
6 9 BE AEROSPACE, INC. SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED) - -------------------------------------------------------------------------------- b. Changes in net assets available for benefits for the years ended December 31:
1997 1996 Investment income: Net appreciation in fair value of investments $5,262,288 $6,841,934 Interest and dividends 21,482 93,585 ---------- ---------- Total investment income $5,283,770 $6,935,519 ========== ==========
c. Line 27a - Schedule of assets held for investment purposes as of December 31, 1997, excluding participant loan data obtained from the Company (see supplemental schedule) d. Line 27d - Schedule of reportable transactions for the year ended December 31, 1997 (see supplemental schedule) 3. INVESTMENTS Investments consist of the following:
AS OF DECEMBER 31, 1997 -------------------------- FAIR COST VALUE GIC Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan $ 8,285,706 $ 9,647,288 Balanced Value Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 4,585,451 6,983,055 Capital Growth Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 7,340,587 11,148,710 Strategic Balance Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 2,554,079 3,048,384 Strategic Growth Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 4,019,957 4,726,181 Target Value Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 3,392,434 3,893,093 Overseas Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 437,462 431,851 BE Aerospace, Inc. common stock 3,401,478 6,390,953 Participant loans receivable 102,236 102,236 ----------- ----------- $34,119,390 $46,371,751 =========== ===========
7 10 BE AEROSPACE, INC. SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED) - --------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996 -------------------------- FAIR COST VALUE GIC Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan $ 8,943,004 $10,209,520 Balanced Value Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 4,537,113 6,252,891 Capital Growth Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 5,903,640 8,525,566 Strategic Balance Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 1,814,099 1,941,631 Strategic Growth Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 2,751,358 2,944,103 Target Value Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 1,622,011 1,771,557 BE Aerospace, Inc. common stock 2,344,546 5,939,236 Participant loans receivable 133,783 133,783 ----------- ----------- $28,049,554 $37,718,287 =========== ===========
Investments are in the custody of the trustee under a trust agreement with the Plan. The trustee has no authority, however, for the purchase or sale of investments. During the years ended December 31, 1997 and 1996, the Plan's investments appreciated in fair value by $5,262,288 and $6,841,934, respectively. 8 11 BE AEROSPACE, INC. SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED) - -------------------------------------------------------------------------------- 4. STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
DECEMBER 31, 1997 SUPPLEMENTAL INFORMATION BY FUND ------------------------------------------------------------------------------------ BALANCED CAPITAL STRATEGIC STRATEGIC TARGET GIC VALUE GROWTH BALANCE GROWTH VALUE ------------ ------------ ------------ ------------ ------------ ------------ NET ASSETS AVAILABLE FOR BENEFITS, beginning of year $ 10,242,926 $ 6,272,522 $ 8,552,004 $ 1,958,799 $ 2,975,820 $ 1,788,273 ADDITIONS TO NET ASSETS ATTRIBUTED TO: Investment income: Net appreciation (depreciation) in fair value of investments (Notes 2 and 3) 617,592 1,159,170 1,979,922 418,420 624,311 548,827 Interest and dividends (Note 2) Total investment income (loss) 617,592 1,159,170 1,979,922 418,420 624,311 548,827 Contributions and rollovers 1,043,732 685,079 991,533 690,171 1,130,643 905,439 ------------ ------------ ------------ ------------ ------------ ------------ Total additions to net assets 1,661,324 1,844,249 2,971,455 1,108,591 1,754,954 1,454,266 DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: Distributions to participants or their beneficiaries 1,684,714 565,669 578,400 121,775 228,034 192,063 Plan administrative expenses 44,372 82,056 120,721 30,683 45,461 36,553 Loan repayments Total deductions from net assets 1,729,086 647,725 699,121 152,458 273,495 228,616 ------------ ------------ ------------ ------------ ------------ ------------ NET (DECREASE) INCREASE (67,762) 1,196,524 2,272,334 956,133 1,481,459 1,225,650 ACCOUNT TRANSFERS (513,903) (481,072) 317,114 131,998 255,008 869,598 ------------ ------------ ------------ ------------ ------------ ------------ NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 9,661,261 $ 6,987,974 $ 11,141,452 $ 3,046,930 $ 4,712,287 $ 3,883,521 ============ ============ ============ ============ ============ ============ DECEMBER 31, 1997 SUPPLEMENTAL INFORMATION BY FUND ----------------------------------------------------------- BE AEROSPACE CASH AND COMMON PARTICIPANT CASH OVERSEAS STOCK LOANS EQUIVALENTS TOTAL ------------ ------------ ------------ ------------ ------------ NET ASSETS AVAILABLE FOR BENEFITS, beginning of year $ -- $ 6,031,985 $ 133,783 $ 189,965 $ 38,146,077 ADDITIONS TO NET ASSETS ATTRIBUTED TO: Investment income: Net appreciation (depreciation) in fair value of investments (Notes 2 and 3) (7,856) (78,098) 5,262,288 Interest and dividends (Note 2) 7,556 13,926 21,482 ------------ ------------ ------------ Total investment income (loss) (7,856) (78,098) 7,556 13,926 5,283,770 Contributions and rollovers 200,311 1,628,865 7,275,773 ------------ ------------ ------------ Total additions to net assets 192,455 1,550,767 7,556 13,926 12,559,543 DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: Distributions to participants or their beneficiaries 2,049 395,696 3,768,400 Plan administrative expenses 1,735 361,581 Loan repayments 39,103 39,103 ------------ ------------ Total deductions from net assets 3,784 395,696 39,103 4,169,084 ------------ ------------ ------------ ------------ NET (DECREASE) INCREASE 188,671 1,155,071 (31,547) 13,926 8,390,459 ACCOUNT TRANSFERS 243,598 (654,917) (167,424) ------------ ------------ ------------ NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 432,269 $ 6,532,139 $ 102,236 $ 36,467 $ 46,536,536 ============ ============ ============ ============ ============
The Plan maintains a holding account that allows for the future distributions of cash and cash equivalents and liabilities to the appropriate fund. 9 12 BE AEROSPACE, INC. SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED) STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS BY FUND FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
DECEMBER 31, 1996 SUPPLEMENTAL INFORMATION BY FUND ------------------------------------------------------------------------------ BALANCED CAPITAL STRATEGIC STRATEGIC TARGET GIC VALUE GROWTH BALANCE GROWTH VALUE NET ASSETS AVAILABLE FOR BENEFITS, beginning of year $ 8,102,104 $5,338,952 $7,058,665 $ 112,724 $ 432,832 $ 141,630 ADDITIONS TO NET ASSETS ATTRIBUTED TO: Investment income: Net appreciation (depreciation) in fair value of investments (Notes 2 and 3) 577,917 810,880 1,541,361 147,610 216,857 170,099 Interest and dividends (Note 2) Total investment income (loss) 577,917 810,880 1,541,361 147,610 216,857 170,099 Contributions and rollovers 790,168 475,334 667,774 508,101 898,060 463,152 ------------ ---------- ---------- ---------- ---------- ---------- Total additions to net assets 1,368,085 1,286,214 2,209,135 655,711 1,114,917 633,251 DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: Distributions to participants or their beneficiaries 1,703,992 648,171 689,249 193,832 198,348 182,567 Plan administrative expenses 39,860 69,730 96,996 14,366 22,986 12,104 Loan repayments Total deductions from net assets 1,743,852 717,901 786,245 208,198 221,334 194,671 ------------ ---------- ---------- ---------- ---------- ---------- NET (DECREASE) INCREASE (375,767) 568,313 1,422,890 447,513 893,583 438,580 ACCOUNT TRANSFERS 2,516,589 365,257 70,449 1,398,562 1,649,405 1,208,063 ------------ ---------- ---------- ---------- ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 10,242,926 $6,272,522 $8,552,004 $1,958,799 $2,975,820 $1,788,273 ============ ========== ========== ========== ========== ==========
DECEMBER 31, 1996 SUPPLEMENTAL INFORMATION BY FUND -------------------------------------------------- BE AEROSPACE CASH AND COMMON PARTICIPANT CASH STOCK LOANS EQUIVALENTS TOTAL NET ASSETS AVAILABLE FOR BENEFITS, beginning of year $1,772,161 $ 38,932 $ 277,706 $23,275,706 ADDITIONS TO NET ASSETS ATTRIBUTED TO: Investment income: Net appreciation (depreciation) in fair value of investments (Notes 2 and 3) 3,377,210 6,841,934 Interest and dividends (Note 2) 93,585 93,585 ----------- ----------- Total investment income (loss) 3,377,210 93,585 6,935,519 Contributions and rollovers 1,167,318 7,154,260 12,124,167 ---------- ----------- ----------- Total additions to net assets 4,544,528 7,247,845 19,059,686 DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: Distributions to participants or their beneficiaries 285,372 3,901,531 Plan administrative expenses 748 256,790 Loan repayments 30,994 30,994 --------- ----------- Total deductions from net assets 285,372 30,994 748 4,189,315 ---------- --------- ----------- ----------- NET (DECREASE) INCREASE 4,259,156 (30,994) 7,247,097 14,870,371 ACCOUNT TRANSFERS 668 125,845 (7,334,838) ---------- --------- ----------- NET ASSETS AVAILABLE FOR BENEFITS, end of year $6,031,985 $ 133,783 $ 189,965 $38,146,077 ========== ========= =========== ===========
The Plan maintains a holding account that allows for the future distribution of cash and cash equivalents and liabilities to the appropriate fund. 10 13 BE AEROSPACE, INC. SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED) STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND AS OF DECEMBER 31, 1997 (UNAUDITED)
DECEMBER 31, 1997 SUPPLEMENTAL INFORMATION BY FUND - ------------------------------------------------------------------------------------------------------------------------------- BALANCED CAPITAL STRATEGIC STRATEGIC TARGET GIC VALUE GROWTH BALANCE GROWTH VALUE ASSETS: Investments, at fair value (Note 3): Investment in the PW Trust Company Pooled Trusts (Note 2) $9,647,288 $6,983,055 $ 11,148,710 $ 3,048,384 $ 4,726,181 $ 3,893,093 BE Aerospace, Inc. common stock (Note 2) Participant loans receivable Total investments 9,647,288 6,983,055 11,148,710 3,048,384 4,726,181 3,893,093 EMPLOYER CONTRIBUTIONS RECEIVABLE 13,973 4,919 (7,258) (1,454) (13,894) (9,572) CASH AND CASH EQUIVALENTS (Note 2) NET ASSETS AVAILABLE FOR BENEFITS $9,661,261 $6,987,974 $ 11,141,452 $ 3,046,930 $ 4,712,287 $ 3,883,521 ========== ========== ============ =========== =========== ===========
DECEMBER 31, 1997 SUPPLEMENTAL INFORMATION BY FUND - -------------------------------------------------------------------------------------------------------------------- BE AEROSPACE CASH AND COMMON PARTICIPANT CASH OVERSEAS STOCK LOANS EQUIVALENTS TOTAL ASSETS: Investments, at fair value (Note 3): Investment in the PW Trust Company Pooled Trusts (Note 2) $431,851 $ - $ - $ - $39,878,562 BE Aerospace, Inc. common stock (Note 2) 6,390,953 6,390,953 Participant loans receivable 102,236 102,236 -------- ----------- Total investments 431,851 6,390,953 102,236 46,371,751 EMPLOYER CONTRIBUTIONS RECEIVABLE 418 141,186 128,318 CASH AND CASH EQUIVALENTS (Note 2) 36,467 36,467 -------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $432,269 $6,532,139 $102,236 $ 36,467 $46,536,536 ======== ========== ======== ======== ===========
11 14 BE AEROSPACE, INC. SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED) - ------------------------------------------------------------------------------- STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS BY FUND AS OF DECEMBER 31, 1996 (UNAUDITED)
DECEMBER 31, 1996 SUPPLEMENTAL INFORMATION BY FUND - ---------------------------------------------------------------------------------------------------------------------------- BALANCED CAPITAL STRATEGIC STRATEGIC TARGET GIC VALUE GROWTH BALANCE GROWTH VALUE ASSETS: Investments, at fair value (Note 3): Investment in the PW Trust Company Pooled Trusts (Note 2) $10,209,520 $6,252,891 $8,525,566 $1,941,631 $2,944,103 $1,771,557 BE Aerospace, Inc. common stock (Note 2) Participant loans receivable Total investments 10,209,520 6,252,891 8,525,566 1,941,631 2,944,103 1,771,557 EMPLOYER CONTRIBUTIONS RECEIVABLE 33,406 19,631 26,438 17,168 31,717 16,716 CASH AND CASH EQUIVALENTS (Note 2) NET ASSETS AVAILABLE FOR BENEFITS $10,242,926 $6,272,522 $8,552,004 $1,958,799 $2,975,820 $1,788,273 =========== ========== ========== ========== ========== ==========
DECEMBER 31, 1997 SUPPLEMENTAL INFORMATION BY FUND - ---------------------------------------------------------------------------------------------------- BE AEROSPACE CASH AND COMMON PARTICIPANT CASH STOCK LOANS EQUIVALENTS TOTAL ASSETS: Investments, at fair value (Note 3): Investment in the PW Trust Company Pooled Trusts (Note 2) $ -- $ -- $ -- $31,645,268 BE Aerospace, Inc. common stock (Note 2) 5,939,236 5,939,236 Participant loans receivable 133,783 133,783 -------- ----------- Total investments 5,939,236 133,783 37,718,287 EMPLOYER CONTRIBUTIONS RECEIVABLE 92,749 237,825 CASH AND CASH EQUIVALENTS (Note 2) 189,965 189,965 ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $6,031,985 $133,783 $ 189,965 $38,146,077 ========== ======== =========== ===========
12 15 SUPPLEMENTAL SCHEDULE PROVIDED PURSUANT TO THE DEPARTMENT OF LABOR'S RULES AND REGULATIONS 16 BE SAVINGS AEROSPACE, INC. PLAN LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AS OF DECEMBER 31, 1997 - --------------------------------------------------------------------------------
UNITS/ CURRENT RATES COST VALUE GIC Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 479,427,218 $ 8,285,706 $ 9,647,288 Balanced Value Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 217,217,383 4,585,451 6,983,055 Capital Growth Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 487,926,766 7,340,587 11,148,710 Strategic Balance Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 180,448,902 2,554,079 3,048,384 Strategic Growth Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 266,425,324 4,019,957 4,726,181 Target Value Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan 218,665,473 3,392,434 3,893,093 Overseas Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plans 32,462,378 437,462 431,851 BE Aerospace, Inc. common stock 238,354 3,401,478 6,390,953 Participant loans receivable 6 to 13% 102,236 102,236 ----------- ----------- $34,119,390 $46,371,751 =========== ===========
13 17 BE SAVINGS AEROSPACE, INC. PLAN LINE 27d - SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1997 - --------------------------------------------------------------------------------
NUMBER PURCHASE SELLING COST OF OF UNITS PRICE PRICE ASSET SOLD NET GAIN GIC Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan - 442 transactions 341,331.669 $2,869,736 $4,051,447 $3,516,261 $535,186 Strategic Growth Portfolio of the PW Trust Company Pooled Trust for Employee Benefits Plan - 287 transactions 209,424.493 $2,357,213 $1,234,848 $1,104,396 $130,452
14 EX-10.44 12 EMPLOYEE STOCK PURCHASE PLAN FINANCIAL STATEMENTS 1 BE AEROSPACE, INC. 1994 EMPLOYEE STOCK PURCHASE PLAN FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997 AND INDEPENDENT AUDITORS' REPORT 2 BE AEROSPACE, INC. 1994 EMPLOYEE STOCK PURCHASE PLAN TABLE OF CONTENTS
PAGE INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS: Statements of net assets available for benefits as of February 28, 1998 and 1997 2 Statements of changes in net assets available for benefits for the years ended February 28, 1998 and 1997 3 Notes to financial statements for the years ended February 28, 1998 and 1997 4
All schedules pursuant to the Department of Labor's rules and regulations are omitted because of the absence of the conditions under which they are required. 3 INDEPENDENT AUDITORS' REPORT The Administrative Committee BE Aerospace, Inc. 1994 Employee Stock Purchase Plan Wellington, Florida We have audited the accompanying statements of net assets available for benefits of BE Aerospace, Inc. 1994 Employee Stock Purchase Plan (the Plan) as of February 28, 1998 and 1997, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's Administrative Committee. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 financial statements present fairly, in all material respects, the net assets available for benefits of BE Aerospace, Inc. 1994 Employee Stock Purchase Plan as of February 28, 1998 and 1997, and the changes in net assets available for benefits for the years then ended in conformity with generally accepted accounting principles. April 24, 1998 4 BE AEROSPACE, INC. 1994 EMPLOYEE STOCK PURCHASE PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS AS OF FEBRUARY 28, 1998 AND 1997
1998 1997 ASSETS - Cash and cash equivalents $859,217 $339,119 LIABILITIES - Stock subscribed 854,147 337,974 -------- -------- NET ASSETS AVAILABLE FOR BENEFITS $ 5,070 $ 1,145 ======== ========
See notes to financial statements. 2 5 BE AEROSPACE, INC. 1994 EMPLOYEE STOCK PURCHASE PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997
1998 1997 NET ASSETS AVAILABLE FOR BENEFITS, beginning of period $ 1,145 $ 462 ADDITIONS TO NET ASSETS ATTRIBUTED TO - Participant payroll deductions 1,462,575 599,468 DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO - Purchase of BE Aerospace common stock 1,458,650 598,785 ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS, end of period $ 5,070 $ 1,145 ========== ==========
See notes to financial statements. 3 6 BE AEROSPACE, INC. 1994 EMPLOYEE STOCK PURCHASE PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Plan - Effective April 1, 1994, BE Aerospace, Inc. (the Company) adopted the BE Aerospace, Inc. 1994 Employee Stock Purchase Plan (the Plan). The Company is the Plan sponsor. All employees (participants) with a minimum of 90 days service, who generally complete a minimum of 20 hours of service per week, are eligible to participate. Under the Plan, contributions are made on behalf of participants who choose to contribute from 2% to 15% of their total gross pay. Common stock of the Company is purchased every six months on approximately February 28 and August 31 (Option Period). The purchase price is 85% of the lesser of the fair value of either the first day or last day of each Option Period. Participants are allocated a pro rata share of stock consistent with the balance of the participant account. The stock is then issued by the Plan transfer agent, Boston Equiserve, directly to the participant. The maximum number of shares available for each option period to an individual is the largest whole number of shares which, when multiplied by the fair market value of the Company stock at the beginning of the option period, produces a dollar amount of $12,500 or less. Stock Subscribed - The Plan issues the stock to participants subsequent to the end of each Option Period but dated the last day of the Option Period. Therefore, a liability for stock purchased by the Plan but not yet distributed to the participants has been reflected as stock subscribed in the accompanying statements of net assets available for benefits as of February 28, 1998 and 1997. Stock purchased by the Plan for the years ended February 28, 1998 and 1997 was 63,463 and 47,930 shares, respectively. Termination Benefits and Vesting - Upon termination of employment with the Company, a participant is entitled to receive all contributions not yet used to acquire stock of the Company. Cash and Cash Equivalents - Cash and cash equivalents consist of highly-liquid investments purchased with original maturities of 90 days or less. Income Tax - The Plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code of 1986. Plan assets consist of cash not yet used to purchase common stock. Such cash remains an asset of the Company until used to purchase common stock. Accordingly, Plan assets are not held in trust; therefore, the Plan is not subject to income tax. 4 7 Administrative Expenses - Administrative expenses have been paid directly by the Company and, accordingly, are not reflected in the Plan's financial statements. There is no written agreement requiring the Company to pay these expenses, and the Company may elect to stop paying Plan expenses at any time. 2. PLAN TERMINATION Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan. EX-21 13 SUBSIDIARIES OF THE REGISTRANT 1 BE AEROSPACE, INC. Subsidiaries
BUSINESS OR TYPE OWNER AND PERCENTAGE DATE ACQUIRED STATE OR COUNTRY NAME OF OPERATIONS OF OWNERSHIP OR CREATED OF INCORPORATION ---- ------------- ------------ ---------- ---------------- BE Aerospace (UK) Holdings Limited Holding company B/E - 100% March-98 England BE Aerospace (UK) Limited Seat manufacturer BE Aerospace (Holdings)-100% March-98 Northern Ireland BE Aerospace International Ltd Shell company Acurex Corporation - 100% August-93 Barbados BE Aerospace (France) S.A.R.L. Trading company B/E - 98% May-92 France Burns Aerospace SARL (France) Trading company B/E - 100% January-96 France BE Aerospace (Sales & Services) BV Service company B/E Aerospace Netherlands BV June-92 England AFI Holdings Limited Inactive BE Aerospace (UK) Limited February-93 Northern Ireland Fort Hill Aircraft Limited Inactive BE Aerospace (UK) Limited February-93 England BE Aerospace (U.S.A.), Inc. Holding company B/E - 100% April-93 Delaware BE Aerospace (Netherlands) B.V. Holding company B/E-90% / B/E (USA)-10% April-93 Netherlands Royal Inventum B.V. Galley insert manufacturer B/E (Netherlands) BV - 100% April-93 Netherlands B/E Harris Live TV, LLC Live TV systems IFE - 51% June-05 California Puritan-Bennett Aero Systems Co. Oxygen Systems-WEMAC B/E - 100% April-98 Delaware B/E Aerospace Services, Inc. Maintenance & Repair B/E - 100% November-97 Delaware In-Flight Entertainment, LLC Aircraft Entertainment B/E - 100% November-97 Delaware Systems
2 BE AEROSPACE, INC. Subsidiaries
Business or type Owner and Percentage Date Acquired State or Country Name of Operations of Ownership or Created of Incorporation ---- ------------- ------------ ---------- ---------------- B/E Advanced Thermal Technologies, Inc. Temperature Control Units B/E - 100% December-97 Delaware Acurex Corporation Galley products B/E - 100% August-93 Delaware Nordskog Industries, Inc. Galley products B/E - 100% August-93 California Aerospace Interiors, Inc. Maintenance & Repair B/E - 100% March-98 Texas B/E Intellectual Property, Inc. Intangibles company B/E - 100% March-98 Delaware B/E Intellectual Property, LLC Inactive B/E - 100% Delaware
3 BE AEROSPACE, INC. Subsidiaries
BUSINESS OR TYPE OWNER AND PERCENTAGE DATE ACQUIRED STATE OR COUNTRY NAME OF OPERATIONS OF OWNERSHIP OR CREATED OF INCORPORATION ---- ------------- ------------ ---------- ---------------- Tepaco Properties B.V. Sales and service BEA-90% / BEA (USA)-10% April 1993 Netherlands company Nordskog Industries, Inc. Galley structures and BEA-100% August 1993 California inserts manufacturer Acurex Corporation Galley inserts manu- BEA-100% August 1993 Delaware facturer BE Aerospace International, Ltd. Foreign sales corporation Acurex-100% August 1993 Barbados (formerly known as Acurex Foreign Sales Company, Ltd.) Burns Aerospace Aircraft seating manufacturer BEA-100% January 1996 Delaware
EX-23 14 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Nos. 333-14037, 33-48119, 33-72194 and 33-82894 on Form S-8 of B/E Aerospace, Inc. of our reports dated April 15, 1998 (B/E Aerospace, Inc.), April 24, 1998 (B/E Aerospace, Inc. Savings and Profit Sharing Plan and Trust for the year ended December 31, 1997) and April 24, 1998 (B/E Aerospace 1994 Employee Stock Purchase Plan for the year ended February 28, 1998), appearing in this Annual Report on Form 10-K of B/E Aerospace, Inc. for the year ended February 28, 1998. Costa Mesa, California May 26, 1998 EX-27.1 15 FINANCIAL DATA SCHEDULE
5 1,000 YEAR FEB-28-1998 FEB-28-1998 164,685 0 90,121 (2,190) 121,728 382,213 151,715 (47,894) 681,757 119,709 349,557 0 0 229 196,546 681,757 487,999 487,999 309,094 429,330 0 0 22,765 35,904 5,386 30,518 0 8,956 0 21,562 0.96 0.92 (note: non-recurring in oth exp consistent with FY96; integration/ consolidation of European seating bus.)
EX-27.2 16 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 3-MOS 3-MOS YEAR FEB-28-1998 FEB-28-1998 FEB-28-1998 FEB-22-1997 MAY-31-1997 AUG-30-1997 NOV-29-1997 FEB-22-1997 44,223 56,876 58,221 44,149 0 0 0 0 70,951 76,997 82,666 78,353 (3,877) (3,479) (2,696) (4,864) 98,171 97,986 113,869 92,900 5,001 234,102 258,995 213,319 129,561 134,189 144,925 123,916 (39,315) (42,251) (46,172) (36,028) 491,793 510,521 546,711 491,089 83,469 89,416 105,713 91,145 225,461 225,446 225,339 225,402 0 0 0 0 0 0 0 0 220 227 228 219 (56,593) (50,890) (38,606) 165,542 491,793 510,521 546,711 491,089 113,846 233,689 362,687 412,379 113,846 233,689 362,687 412,379 72,783 148,477 230,825 270,557 99,547 204,491 317,025 369,981 0 0 0 0 0 0 0 0 6,130 11,531 16,899 27,167 8,169 17,667 28,763 15,231 1,226 2,647 4,311 1,522 6,943 15,020 24,452 13,709 0 0 0 0 0 0 0 0 0 0 0 0 6,943 15,020 24,452 13,709 0.32 0.68 1.10 0.77 0.30 0.64 1.04 0.72
EX-27.3 17 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 3-MOS 3-MOS YEAR FEB-22-1997 FEB-22-1997 FEB-22-1997 FEB-24-1996 MAY-25-1996 AUG-31-1996 NOV-30-1996 FEB-24-1996 6,151 14,188 13,670 15,376 0 0 0 0 68,579 64,497 75,391 59,215 (5,156) (4,562) (5,236) 4,973 72,645 77,518 89,419 72,569 150,688 159,779 177,609 149,808 113,920 120,403 124,302 113,929 (30,002) (33,516) (36,192) (27,572) 428,925 443,340 458,758 433,586 99,951 97,497 100,666 107,279 272,104 282,058 282,107 0 0 0 0 0 0 0 0 0 165 169 167 164 45,792 51,975 66,198 43,993 428,925 443,340 458,758 433,586 97,302 200,328 308,158 232,582 97,302 200,328 308,158 232,582 64,755 133,342 204,655 160,061 88,775 182,267 278,054 274,027 0 0 0 0 0 0 0 0 6,935 14,399 21,845 18,636 1,592 3,662 8,259 (60,081) 159 366 825 0 1,433 3,296 7,434 (60,081) 0 0 0 0 0 0 0 0 0 0 0 (22,332) 1,433 3,296 7,434 (82,413) 0.09 0.20 0.44 (5.15) 0.08 0.19 0.41 (5.15)
EX-99.1 18 RISK FACTORS 1 EXHIBIT 99.1 RISK FACTORS DEPENDENCE UPON CONDITIONS IN THE AIRLINE INDUSTRY The Company's principal customers are the world's commercial airlines. As a result, the Company's business is directly dependent upon the financial condition of the world's commercial airlines. 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, there can be no assurance that the current financial strength of the airline industry will continue or that the airlines will maintain or increase expenditures on cabin interior products for refurbishments or new aircraft. Recently, turbulence in the financial and currency markets of many Pacific Rim countries has led to uncertainty with respect to the economic outlook for these countries. Although not all carriers have been affected by the current economic events in the Pacific Rim, certain carriers could cancel or defer their existing orders and future orders from airlines in these countries may be adversely affected. 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-fight entertainment system developed by B/E. Development of the MDDS required substantial investment by the Company and third parties in research, development and engineering. Earnings contributions from this product will depend, to a significant extent, on the Company's 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, profitability manufacture and deliver, on a timely basis, other technologically advanced, reliable high-quality products, which can be readily integrated into complex cabin interior configurations. 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 competitors in the market for new passenger entertainment products, including individual seat video and in-flight entertainment and cabin management systems, Matsushita Electronics and Rockwell Collins, have significantly greater technological capabilities and financial and marketing resources than the Company. ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE The Company has substantial indebtedness and, as a result, significant debt service obligations. As of February 28, 1998, the Company had approximately $383 million aggregate amount of indebtedness outstanding, representing 53% of total capitalization. 2 The degree of the Company's leverage could have important consequences to purchasers or holders of its shares of common stock, 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 indentures governing the Company's 9 7/8% Notes, 8% Notes and 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 9 7/8% Notes and 8% 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 9 7/8% Notes and 8% 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. CUSTOMER DELIVERY REQUIREMENTS The commercial aircraft cabin interior products industry is currently experiencing a period of rapid growth. Since February 1997, the Company has experienced a 33% increase in its backlog. The ability of the Company to receive new contract awards and to deliver its existing backlog is dependent upon its (and its suppliers') ability to ramp-up deliveries to meet the recent surge in demand. Although the Company believes it has sufficient manufacturing capacity to meet customer demand, and each of its acquired businesses have previously delivered products at a significantly higher level, there can be no assurance that the Company, or its suppliers, will be able to meet the increased product delivery requirements. ABILITY TO INTEGRATE ACQUIRED BUSINESSES Since 1987, B/E has acquired eleven 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 the recent and any future acquisitions and to achieve cost efficiencies. Although B/E has been successful in the past in doing so, there can be no assurance that the Company 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. -----END PRIVACY-ENHANCED MESSAGE-----