<PAGE>
OFFER TO EXCHANGE
[LOGO OF BE AEROSPACE APPEARS HERE]
ALL OUTSTANDING 9 7/8% SENIOR
SUBORDINATED NOTES DUE 2006
($100,000,000 AGGREGATE PRINCIPAL
AMOUNT OUTSTANDING)
FOR
9 7/8% SERIES B SENIOR SUBORDINATED
NOTES DUE 2006 OF
BE AEROSPACE, INC.
----------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON MAY 14, 1996, UNLESS EXTENDED
----------------
BE Aerospace, Inc., a Delaware corporation ("BEA"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 9 7/8% Series B
Senior Subordinated Notes due 2006, (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for each $1,000 principal amount of the
outstanding 9 7/8% Senior Subordinated Notes due February 1, 2006 (the "Old
Notes") of the Company of which $100,000,000 aggregate principal amount is
outstanding. The New Notes and the Old Notes are collectively referred to
herein as the "Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be May 14, 1996, unless the Exchange Offer is
extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the business day prior to the
Expiration Date, unless previously accepted for payment. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain conditions
which may be waived by the Company and to the terms and provisions of the
Registration Rights Agreement (as defined herein). See "The Exchange Offer."
Old Notes may be tendered only in denominations of $1,000 and integral
multiples thereof. The Company has agreed to pay the expenses of the Exchange
Offer.
The New Notes will be obligations of the Company entitled to the benefits of
the Indenture (as defined herein) relating to the Old Notes. The form and terms
of the New Notes are identical in all material respects to the form and terms
of the Old Notes except that the New Notes have been registered under the
Securities Act. Following the completion of the Exchange Offer, none of the
Notes will be entitled to the benefits of the Registration Rights Agreement
relating to contingent increases in the interest rates provided for pursuant
thereto. See "The Exchange Offer."
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is April 11, 1996.
<PAGE>
The New Notes will bear interest from January 24, 1996. Holders of Old Notes
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Old Notes accrued
from January 24, 1996 to the date of the issuance of the New Notes. Interest
on the New Notes is payable semi-annually on February 1 and August 1 of each
year, commencing August 1, 1996, accruing from January 24, 1996 at a rate of 9
7/8% per annum.
The New Notes will be redeemable at the option of the Company, in whole or
in part, at any time on or after February 1, 2001 at the redemption prices set
forth herein, together with accrued and unpaid interest, if any, to the date
of redemption. In addition, upon the occurrence of a Change of Control (as
defined), each holder of the New Notes shall have the option to require the
Company to make an offer to repurchase such holder's Notes at a redemption
price of 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption.
Proceeds from the offering of the Old Notes (the "Offering") were used by
BEA to finance its acquisition (the "Acquisition") of Burns Aerospace
Corporation ("Burns"), a subsidiary of Eagle Industries, Inc., to repay
indebtedness of BEA and to pay certain fees and expenses. See "Use of
Proceeds." In addition, contemporaneously with such Acquisition, BEA amended
its bank credit facility to provide additional liquidity. The Offering
occurred simultaneously with the Acquisition.
The New Notes are unsecured senior subordinated obligations of BEA and will
be subordinated in right of payment to all existing and future Senior
Indebtedness (as defined) of BEA, including indebtedness under its 9 3/4%
Senior Notes due 2003 (the "Senior Notes") and its Bank Credit Facility (as
defined). In addition, the New Notes will be effectively subordinated to the
obligations of BEA's subsidiaries. As of November 25, 1995, after giving pro
forma effect to the Offering, the application of the net proceeds therefrom
and the Acquisition, the aggregate outstanding amount of Senior Indebtedness
of BEA would have been approximately $162 million and the aggregate
outstanding amount of indebtedness of BEA's subsidiaries would have been
approximately $15.5 million.
As of the date of this Prospectus there was no Indebtedness for money
borrowed ranking pari passu with the New Notes. The ability of the Company to
incur such pari passu Indebtedness in the future is limited by the provisions
of the Indenture relating to the New Notes. See "Description of New Notes--
Certain Covenants--Limitation on Indebtedness." The Company believes that, as
of the date of the Acquisition, and assuming financial terms similar to those
of the Notes, the amount of such pari passu indebtedness which could have been
incurred would not exceed approximately $66 million.
Old Notes initially purchased by qualified institutional buyers, as defined
pursuant to Rule 144A under the Securities Act ("Qualified Institutional
Buyers"), were initially represented by a single, global Note in registered
form, registered in the name of a nominee of The Depository Trust Company
("DTC"), as depository and two certificates registered in the name of Merrill
Lynch & Co. The New Notes exchanged for Old Notes represented by the global
Note will be represented by a single, global New Note in registered form,
registered in the name of the nominee of DTC, unless the beneficial holders
thereof request otherwise. The global New Note will be exchangeable for New
Notes in registered form, in denomination of $1,000 and integral multiples
thereof. See "Description of the New Notes--Book-Entry Delivery and Form."
Based on no action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer in exchange for the Old
Notes may be offered for resale, resold and otherwise transferred by any
holder thereof (other than (i) a broker-dealer who purchased such Old Notes
directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that the holder is acquiring the New
Notes in its ordinary course of business and is not participating, and has no
arrangement or understanding with any person to participate, in the
distribution of the New Notes. Holders of Old Notes wishing to accept the
Exchange Offer must represent to the Company that such conditions have been
met. This Prospectus may not be used by broker-dealers in connection with the
resale of Old Notes.
2
<PAGE>
Each broker-dealer that receives New Notes in exchange for Old Notes held
for its own account, as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, such broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by such broker-dealer in connection with resales of
New Notes received in exchange for Old Notes. The Company has agreed that, for
a period of 180 days after the Expiration Date, it will make this Prospectus
and any amendment or supplement to this Prospectus available to any such
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company believes that no registered holder of the Old Notes is an
affiliate (as such term is defined in Rule 405 under the Securities Act) of
the Company.
The Company will not receive any proceeds from the Exchange Offer, and no
underwriter is being utilized in connection with the Exchange Offer.
Upon completion of the Exchange Offer, Old Notes which have not been
exchanged for New Notes will remain outstanding. See "Risk Factors--
Consequences of Failure to Exchange."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
Prior to the Exchange Offer, there has been no public market for the Old
Notes or New Notes. If a market for the New Notes should develop, the New
Notes could trade at a discount from their principal amount. The Company does
not intend to list the New Notes on a national securities exchange or to apply
for quotation of the New Notes through the National Association of Securities
Dealers Automated Quotation System. There can be no assurance that an active
public market for the New Notes will develop.
The Company has been advised by Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Stanley & Co. Incorporated, the initial purchasers
(the "Initial Purchasers") of the Old Notes, that, following completion of the
Exchange Offer, they intend to make a market in the New Notes; however, such
entities are under no obligation to do so and any market activities with
respect to the New Notes may be discontinued at any time.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus the
following documents or information filed with the Commission:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
February 25, 1995 (the "Form 10-K") filed May 25, 1995, as amended by the
Company's Annual Report on Form 10-K/A filed July 11, 1995;
(b) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 25, 1995 (the "November 10-Q") filed January 8, 1996;
(c) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 26, 1995 filed October 10, 1995 (the "August 10-Q");
(d) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 27, 1995 filed July 10, 1995 (the "May 10-Q");
(e) The Company's Current Report on Form 8-K dated December 14, 1995
filed December 28, 1995;
(f) the Company's Current Report on Form 8-K dated January 24, 1996 filed
February 7, 1996; and
3
<PAGE>
(g) all documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act of 1934, as amended (the "Exchange Act")
after the date of this Prospectus and prior to the termination of the
offering made hereby.
Any statement contained herein or in any documents incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for the purpose of this Prospectus to the extent that a subsequent
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE
UPON WRITTEN OR ORAL REQUEST FROM THOMAS P. MCCAFFREY, CHIEF FINANCIAL OFFICER
OF THE COMPANY AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES LOCATED AT 1400
CORPORATE WAY, WELLINGTON, FLORIDA 33414, TELEPHONE NUMBER (407) 791-5000. IN
ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY MAY 9, 1996.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files periodic reports, proxy statements and
other information with the Commission. Reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Suite 1400, Northwestern Atrium Center, 14th Floor, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto and reference is
hereby made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the securities
offered hereby. Statements contained herein concerning the provisions of any
documents filed as an exhibit to the Registration Statement or otherwise filed
with the Commission are not necessarily complete, and in each instance
reference is made to the copy of such document so filed. Each such statement
is qualified in its entirety by such reference.
The Indenture (as defined) provides that the Company will furnish copies of
the periodic reports required to be filed with the Commission under the
Exchange Act to the holders of the Notes. If the Company is not subject to the
periodic reporting and informational requirements of the Exchange Act, it
will, to the extent such filings are accepted by the Commission, and whether
or not the Company has a class of securities registered under the Exchange
Act, file with the Commission, and provide the Trustee and the holders of the
Notes within 15 days after such filings with, annual reports containing the
information required to be contained in Form 10-K promulgated under the
Exchange Act, quarterly reports containing the information required to be
contained in Form 10-Q promulgated under the Exchange Act and from time to
time such other information as is required to be contained in Form 8-K
promulgated under the Exchange Act. If filing such reports with the Commission
is not accepted by the Commission or prohibited by the Exchange Act, the
Company will also provide copies of such reports, at its cost, to prospective
purchasers of the Notes promptly upon written request.
4
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the related notes, appearing elsewhere in this Prospectus. As used in
the Prospectus, unless the context otherwise requires, "BE Aerospace" or "BEA"
refers to BE Aerospace, Inc., a Delaware corporation, "Burns Aerospace" or
"Burns" refers to Burns Aerospace Corporation, a Delaware corporation; as it
existed immediately prior to the Acquisition, and "the Company" refers to BEA
as it exists following the acquisition of Burns. References herein to fiscal
year end relate to a February fiscal year end for BEA (for example, fiscal 1995
refers to BEA's fiscal year ended February 25, 1995) and a December 31 fiscal
year end for Burns. The statement of operations information presented herein on
a pro forma basis gives effect to the Acquisition and the Offering, including
the application of the net proceeds therefrom as described under "Use of
Proceeds", as if they had occurred at the beginning of fiscal 1995. Market
share information presented herein does not include markets in the former
Soviet Union and will vary, sometimes significantly, from year to year. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
THE COMPANY
BE Aerospace is the world's largest supplier of commercial aircraft cabin
interior products, serving virtually all major airlines with a broad line of
products including aircraft seats, galley products and structures and
individual passenger inflight entertainment systems. In addition, BEA provides
upgrade, maintenance and repair services for the interior products it supplies,
as well as for those supplied by other manufacturers. The Company was
incorporated in 1987 and has acquired nine businesses since that time,
including Burns, for an aggregate purchase price of approximately $293 million.
See "The Acquisition" and Note 2 of Notes to BEA's Consolidated Financial
Statements.
BEA is the largest supplier of airline seats in the world, offering an
extensive line of first class, business class, tourist class and commuter
seats, with a market share (after giving effect to the Acquisition) of
approximately 50% of the worldwide seating market based on fiscal 1995 unit
sales. The Company is also the world's largest supplier of galley products,
offering complete galley systems for both narrow and wide body aircraft. In
addition, the Company is a leading supplier of passenger entertainment and
service systems. Recently, the Company has introduced a state-of-the-art, fully
interactive individual passenger inflight entertainment system which has the
capacity to offer numerous movies on demand, telecommunications, gaming,
Nintendo (R), Sega (R) and PC-based games, inflight shopping and, in the
future, live television, among other services.
BEA's substantial installed base provides significant ongoing revenues from
replacements, repairs and spare parts. These revenues, along with its position
as a low cost producer, enabled BEA to maintain its operating profitability
during the several-year period prior to 1994, despite one of the most serious
economic downturns ever suffered by the airline industry. During this period,
airlines sought to conserve cash by reducing or deferring scheduled cabin
interior refurbishment and upgrade programs and purchases of new aircraft.
Since early 1994, the airlines have experienced a significant turnaround in
operating results, with the domestic airline industry achieving record
operating earnings during the first nine months of 1995. The airline cabin
interior products industry business cycle, however, generally lags that of the
commercial airlines because of the airlines' practice of gradually implementing
refurbishment and replacement programs. Consequently, only in the past nine
months has BEA begun to experience growth in its backlog of seating and galley
products, representing the first time in over two years that BEA has seen
growth of new seating orders in excess of shipments. The Company believes that
it is well positioned to continue to benefit from the growth in airline
profitability.
5
<PAGE>
COMPETITIVE STRENGTHS
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
. Leading Market Share and Significant Installed Base. Management believes
that the Company has achieved the leading global market positions in
each of its major product categories. The Company believes these market
shares enable it to maintain significant competitive advantages in
serving its customers. The Company also believes that the small size of
the total potential market in each product category, together with its
large shares of such markets, serve as a deterrent to new market
entrants. Furthermore, because of economies of scale, in part
attributable to such large market shares and its approximate $1.8
billion installed base of cabin interior equipment (valued at
replacement prices), the Company believes it is among the lowest cost
producers in the cabin interior products industry. The Company believes
that its large installed base gives it a significant advantage over
competitors in obtaining orders for retrofit and refurbishment programs,
principally because of the tendency of the airlines to purchase
equipment for such programs from the original supplier.
. Broadest Product Line in the Industry. Management believes the Company
offers more products for the cabin interiors of commercial aircraft than
any other manufacturer. With an established reputation for quality,
service and product innovation, the Company enjoys broad recognition
among the world's commercial airlines. The Company believes that it is
the only supplier in the industry with the technology, manufacturing
capability and capacity and breadth of products and services to meet
industry demands for an integrated approach to the development, testing
and sourcing of cabin interior products.
. Technological Leadership/New Product Development. Management believes
that the Company is a technological leader in its industry, which
contributes to its market leadership. The Company has state-of-the-art
facilities and what it believes to be the largest R&D organization in
the industry, with BEA employing approximately 420 engineers. The
Company 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. Through its on-site customer
engineers, the Company expects to be able more efficiently to design and
integrate products which address the requirements of its customers. The
Company believes that the introduction of innovative products enables it
to gain early entrant advantages and substantial market shares.
. High Growth New Business Opportunity. The Company believes that in the
future, interactive entertainment systems will be installed on
essentially all wide body, and with the advent of live broadcast
inflight television, many narrow body planes. The Company's
sophisticated Multi-Media Distribution System ("MDDS") has the
capability to offer numerous movies on demand, telecommunications,
gaming, Nintendo (R), Sega (R) and PC-based games, inflight shopping
and, in the future, live television, among other services, although each
airline will select the package of features it considers most attractive
to offer. This system has been tested for British Airways ("British
Air") in flight simulations in excess of a thousand hours, and was first
installed on a limited basis on a British Air Boeing 747-400 in November
1995. The Company expects that, upon the successful completion of a
commercial testing period, British Air will install the MDDS in all
classes of service in approximately 80 wide body British Air planes over
the next several years. The Company expects sales of this system to
account for a significant percentage of revenues in the future.
. Proven Track Record of Integration. The Company has as one of its key
corporate objectives the continual expansion of its product lines and
market shares through strategic acquisitions within the aircraft cabin
interior products industry. The Company has purchased nine businesses
over the last seven years, for an aggregate purchase price of
approximately $293 million. The Company maintains a highly disciplined
approach in evaluating acquisitions, looking for opportunities to
consolidate
6
<PAGE>
engineering, manufacturing and marketing activities, as well as
rationalizing product lines. Since 1989, BEA has integrated each of the
additional businesses by reducing the number of operating facilities
acquired from 14 to six and consolidating personnel at the acquired
businesses, resulting in headcount reductions of approximately 800
employees. The Company is implementing a similar integration plan in
connection with the Acquisition consisting of, among other things, the
reduction of headcount by approximately 300 employees. The integration
plan, when fully implemented, is expected to reduce costs by an
estimated $17 million per annum. See "Unaudited Pro Forma Combined
Financial Information".
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) remaining the
technological leader, as well as significantly growing its installed base of
products, in the developing individual passenger inflight entertainment
market, (iv) enhancing its position in the growing upgrade, maintenance,
inspection and repair services market and (v) pursuing selective strategic
acquisitions in the commercial aircraft cabin interior products industry.
THE ACQUISITION
TERMS OF THE ACQUISITION
Pursuant to an acquisition agreement, dated December 14, 1995, among BEA,
Burns, Eagle Industries, Inc. ("Eagle") and certain affiliates of Eagle (the
"Acquisition Agreement"), BEA acquired all of the outstanding capital stock of
Burns, a subsidiary of Eagle. The purchase price for the Acquisition was $42.5
million in cash, subject to certain post-closing adjustments. The purchase
price represents a multiple of 0.4x and 5.9x of Burns' latest twelve months
sales and EBITDA before management fees and other expenses, respectively,
without taking into account the impact of $11.9 million of identified cost
savings expected to be realized in the initial year after completion of the
Acquisition. See "Unaudited Pro Forma Combined Financial Information" for the
fiscal year ended February 25, 1995.
FINANCING
The estimated sources and uses of funds for the Acquisition as if the
Acquisition had occurred on November 25, 1995, are as follows (dollars in
thousands):
<TABLE>
<S> <C>
SOURCES
Notes offered pursuant to the Offering.......................... $100,000
--------
Total Sources................................................. $100,000
========
USES
Repayment of unsecured bank borrowings and a portion of existing
bank credit facility........................................... $ 49,800
Purchase Price.................................................. 42,500
Estimated Fees and Expenses..................................... 7,700
--------
Total Uses.................................................... $100,000
========
</TABLE>
7
<PAGE>
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $100 million aggregate
principal amount of Old Notes for an equal aggregate principal amount of New
Notes. The New Notes will be obligations of the Company entitled to the
benefits of the Indenture relating to the Old Notes. The form and terms of the
New Notes are the same as the form and terms of the Old Notes except that the
New Notes have been registered under the Securities Act, and hence are not
entitled to the benefits of the certain registration rights (the "Registration
Rights") granted under a certain registration rights agreement (the
"Registration Rights Agreement") relating to the contingent increases in the
interest rates provided for pursuant thereto.
The Exchange Offer................ $1,000 principal amount of New Notes will
be issued in exchange for each $1,000 prin-
cipal amount of Old Notes validly tendered
pursuant to the Exchange Offer. As of the
date hereof, $100 million in aggregate
principal amount of Old Notes are outstand-
ing. The Company will issue the New Notes
to tendering holders of Old Notes on or
promptly after the Expiration Date.
Resale of the New Notes........... Based on an interpretation by the staff of
the Commission set forth in no-action let-
ters issued to third parties, including
"Exxon Capital Holdings Corporation"
(available May 13, 1988), "Morgan Stanley &
Co. Incorporated" (available June 5, 1991),
"Mary Kay Cosmetics, Inc." (available June
5, 1991) and "Warnaco, Inc." (available Oc-
tober 11, 1991), the Company believes that
New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be of-
fered for resale, resold and otherwise
transferred by any holder thereof (other
than (i) a broker-dealer who purchased such
Old Notes directly from the Company for re-
sale pursuant to Rule 144A or any other
available exemption under the Securities
Act or (ii) a person that is an "affiliate"
of the Company within the meaning of Rule
405 under the Securities Act) without com-
pliance with the registration and prospec-
tus delivery provisions of the Securities
Act provided that the holder is acquiring
the New Notes in its ordinary course of
business and is not participating, and has
no arrangement or understanding with any
person to participate, in the distribution
of the New Notes. In the event that the
Company's belief is inaccurate, holders of
New Notes who transfer New Notes in viola-
tion of the prospectus delivery provisions
of the Securities Act and without an exemp-
tion from registration thereunder may incur
liability under the Securities Act. The
Company does not assume or indemnify hold-
ers against such liability, although the
Company does not believe that any such lia-
bility should exist.
Each broker-dealer that receives New Notes
in exchange for Old Notes held for its own
account, as a result of market-making ac-
tivities or other trading activities, must
acknowledge that it will deliver a prospec-
tus in connection
8
<PAGE>
with any resale of such New Notes. The Let-
ter of Transmittal states that by so ac-
knowledging and by delivering a prospectus,
such broker-dealer will not be deemed to
admit that it is an "underwriter" within
the meaning of the Securities Act. This
Prospectus, as it may be amended or supple-
mented from time to time, may be used by
such broker-dealer in connection with re-
sales of New Notes received in exchange for
Old Notes. The Company has agreed that, for
a period of 180 days after the date of this
Prospectus, it will make this Prospectus
and any amendment or supplement to this
Prospectus available to any such broker-
dealer for use in connection with any such
resales. See "Plan of Distribution."
The Company believes that no registered
holder of the Old Notes is an affiliate (as
such term is defined in Rule 405 of the Se-
curities Act) of the Company.
This Exchange Offer is not being made to,
nor will the Company accept surrenders for
exchange from, holders of Old Notes in any
jurisdiction in which this Exchange Offer
or the acceptance thereof would not be in
compliance with the securities or blue sky
laws of such jurisdiction.
Expiration of Exchange Offer...... 5:00 p.m., New York City time, on May 14,
1996, unless the Exchange Offer is extend-
ed, in which case the term "Expiration
Date" means the latest date and time to
which the Exchange Offer is extended. See
"The Exchange Offer--Expiration Date; Ex-
tensions; Amendments."
Accrued Interest on the New Notes
and the Old Notes................ The New Notes will bear interest from Janu-
ary 24, 1996. Holders of Old Notes whose
Old Notes are accepted for exchange will be
deemed to have waived the right to receive
any payment in respect of interest on such
Old Notes accrued from January 24, 1996 to
the date of the issuance of the New Notes.
Consequently, holders who exchange their
Old Notes for New Notes will receive the
same interest payment on August 1, 1996
(the first interest payment date with re-
spect to the Old Notes and the New Notes)
that they would have received had they not
accepted the Exchange Offer. See "The Ex-
change Offer--Interest on the New Notes."
Termination of the Exchange
Offer............................ The Company may terminate the Exchange Of-
fer if it determines that its ability to
proceed with the Exchange Offer could be
materially impaired due to any legal or
governmental action, any new law, statute,
rule or regulation or any interpretation of
the staff of the Commission of any existing
law, statute, rule or regulation. The Com-
pany does not expect any of the foregoing
conditions to occur, al-
9
<PAGE>
though there can be no assurance that such
conditions will not occur. Holders of Old
Notes will have certain rights against the
Company under the Registration Rights
Agreement should the Company fail to con-
summate the Exchange Offer. See "The Ex-
change Offer--Termination."
Procedures for Tendering Old
Notes............................ Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a fac-
simile thereof, in accordance with the in-
structions contained herein and therein,
and mail or otherwise deliver such Letter
of Transmittal, or such facsimile, together
with the Old Notes to be exchanged and any
other required documentation to Fleet Na-
tional Bank, as Exchange Agent, at the ad-
dress set forth herein and therein or ef-
fect a tender of Old Notes pursuant to the
procedures for book-entry transfer as pro-
vided for herein. See "The Exchange Offer--
Procedures for Tendering."
By executing the Letter of Transmittal,
each holder will represent to the Company
that, among other things, (i) the New Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such New
Notes, whether or not such person is the
holder, (ii) neither the holder nor any
such other person has an arrangement or un-
derstanding with any person to participate
in the distribution of such New Notes and
(iii) neither the holder nor any such other
person is an "affiliate," as defined in
Rule 405 under the Securities Act, of the
Company.
Special Procedures for Beneficial
Holders.......................... Any beneficial holder whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender in the Ex-
change Offer should contact such registered
holder promptly and instruct such regis-
tered holder to tender on its behalf. If
such beneficial holder wishes to tender on
his own behalf, such beneficial holder
must, prior to completing and executing the
Letter of Transmittal and delivering its
Old Notes, either make appropriate arrange-
ments to register ownership of the Old
Notes in such holder's name or obtain a
properly completed bond power from the reg-
istered holder. The transfer of record own-
ership may take considerable time. See "The
Exchange Offer--Procedures for Tendering."
Guaranteed Delivery Procedures.... Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliv-
ery their Old Notes (or who cannot complete
the procedure for book-entry transfer on a
timely basis) and a properly completed Let-
ter of Transmittal or any other
10
<PAGE>
documents required by the Letter of Trans-
mittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes
according to the guaranteed delivery proce-
dures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights................. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City
time, on the business day prior to the Ex-
piration Date, unless previously accepted
for exchange. See "The Exchange Offer--
Withdrawal of Tenders."
Acceptance of Old Notes and
Delivery of New Notes............ Subject to certain conditions (as summa-
rized above in "Termination of the Exchange
Offer" and described more fully under the
"The Exchange Offer--Termination"), the
Company will accept for exchange any and
all Old Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date.
The New Notes issued pursuant to the Ex-
change Offer will be delivered promptly
following the Expiration Date. See "The Ex-
change Offer--General."
Certain Tax Consideration......... The exchange pursuant to the Exchange Offer
will generally not be a taxable event for
federal income tax purposes. See "Certain
Federal Tax Considerations."
Exchange Agent.................... Fleet National Bank, the Trustee under the
Indenture, is serving as exchange agent
(the "Exchange Agent") in connection with
the Exchange Offer. The address of the Ex-
change Agent is: Fleet National Bank Corpo-
rate Trust Operations, 777 Main Street,
Lower Level, Hartford, CT 06115, Attention:
Patricia Williams. For information with re-
spect to the Exchange Offer, the telephone
number for the Exchange Agent is (860) 986-
1271 and the facsimile number for the Ex-
change Agent is (860) 986-7908.
Use of Proceeds................... There will be no cash proceeds payable to
the Company from the issuance of the New
Notes pursuant to the Exchange Offer. The
proceeds to the Company from the sale of
the Old Notes were approximately $96.25
million, net of the Initial Purchasers'
discount and certain fees and expenses re-
lating to the offering of the Old Notes.
Such proceeds were used to pay the cash
purchase price for the Acquisition. The
balance was used to repay certain indebted-
ness of the Company and to pay fees and ex-
penses incurred in connection with the Ac-
quisition. See "Use of Proceeds."
11
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
Notes Offered..................... $100 million principal amount of 9 7/8% Se-
nior Subordinated Notes due 2006.
Maturity Date..................... February 1, 2006.
Interest Payment Dates............ February 1 and August 1 of each year, com-
mencing August 1, 1996.
Optional Redemption............... The Notes are redeemable at the option of
the Company, in whole or in part, on or af-
ter February 1, 2001, at the redemption
prices set forth herein, together with ac-
crued and unpaid interest to the date of
redemption.
Mandatory Redemption.............. None.
Change of Control................. Upon the occurrence of a Change of Control,
each holder of the Notes shall have the op-
tion to require the Company to repurchase
such holder's Notes at a redemption price
equal to 101% of the principal amount
thereof, plus accrued interest to the date
of redemption, pursuant to a Change of Con-
trol Offer to be made by the Company. See
"Description of the New Notes--Certain Def-
initions" for the definition of a Change of
Control.
Ranking........................... The Notes are unsecured senior subordinated
obligations of the Company and are subordi-
nated to all existing and future Senior In-
debtedness of the Company, including in-
debtedness under the Senior Notes and the
Bank Credit Facility. As of November 25,
1995, after giving pro forma effect to the
Offering, the application of the net pro-
ceeds therefrom and the Acquisition, the
aggregate outstanding principal amount of
Senior Indebtedness of the Company would
have been approximately $162 million. In
addition, the Notes will be effectively
subordinated to the obligations of the
Company's subsidiaries. As of November 25,
1995, after giving pro forma effect to the
Offering, the application of the net pro-
ceeds therefrom and the Acquisition, the
Company's subsidiaries would have had ap-
proximately $15.5 million of indebtedness
outstanding. Subject to certain limita-
tions, the Company and its Restricted Sub-
sidiaries may incur additional indebtedness
in the future. See "Risk Factors--Adverse
Consequences of Financial Leverage" and
"Description of the New Notes--Subordina-
tion,--Limitation on Indebtedness, and--
Limitation on Other Senior Subordinated In-
debtedness."
Certain Covenants................. The Indenture contains certain covenants,
including, without limitation, covenants
with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation
on other
12
<PAGE>
senior subordinated indebtedness; (iii)
limitation on restricted payments; (iv)
limitation on issuances and sales of re-
stricted subsidiary stock; (v) limitation
on transactions with affiliates; (vi) limi-
tation on liens securing pari passu or sub-
ordinated indebtedness; (vii) limitation on
disposition of proceeds of asset sales;
(viii) limitation on guarantees of indebt-
edness by restricted subsidiaries;
(ix) limitation on dividends and other pay-
ment restrictions affecting restricted sub-
sidiaries; and (x) restrictions on mergers
and certain transfers of assets. See "De-
scription of the New Notes--Certain Cove-
nants."
Registration Rights............... In connection with the sale of the Old
Notes, the Company agreed in the Registra-
tion Rights Agreement to use its best ef-
forts to (i) file within 30 days, and cause
to become effective within 90 days, of the
date of original issue of the Old Notes,
the registration statement (the "Registra-
tion Statement") of which this Prospectus
is a part with respect to a registered of-
fer to exchange the Old Notes (the "Ex-
change Offer") for the New Notes with terms
identical in all material respects to the
Old Notes and (ii) cause the Exchange Offer
to be consummated within 120 days of the
original issue of the Old Notes.
In the event that any changes in law or the
applicable interpretations of the staff of
the Commission do not permit the Company to
effect the Exchange Offer, or if for any
other reason the Exchange Offer is not con-
summated within 120 days following the date
of the original issue of the Old Notes, or
if any holder of the Old Notes (other than
the Initial Purchasers) is not eligible to
participate in the Exchange Offer, or upon
the request of any Initial Purchaser under
certain circumstances, the Company will use
its best efforts to cause to become effec-
tive by the 120th day after the original
issue of the Old Notes a shelf registration
statement pursuant to the Securities Act
with respect to the resale of the Old Notes
(the "Shelf Registration Statement") and to
keep the Shelf Registration Statement ef-
fective until three years after the effec-
tive date thereof (or until one year after
such effective date if such Shelf Registra-
tion Statement is filed at the request of
the Initial Purchasers under certain cir-
cumstances).
In the event that either (i) the Registra-
tion Statement is not filed with the Com-
mission on or prior to the 30th calendar
day following the date of original issue of
the Old Notes, (ii) the Registration State-
ment is not declared effective on or prior
to the 90th calendar day following the date
of original issue of the Old Notes or (iii)
the Exchange Offer is not consummated or a
Shelf Registration Statement with
13
<PAGE>
respect to the Old Notes is not declared
effective on or prior to the 120th calendar
day following the date of original issue of
the Old Notes, the interest rate borne by
the Notes shall be increased by one-half of
one percent per annum following such 30-day
period in the case of clause (i) above,
following such 90-day period in the case of
clause (ii) above, or following such 120-
day period in the case of clause
(iii) above. The aggregate amount of such
increase from the original interest rate
pursuant to these provisions will in no
event exceed one-half of one percent per
annum. Upon (x) the filing of the registra-
tion statement for the Exchange Offer after
the 30-day period described in clause (i)
above, (y) the effectiveness of the Regis-
tration Statement after the 90-day period
described in clause (ii) above or (z) the
consummation of the Exchange Offer or the
effectiveness of a Shelf Registration
Statement, as the case may be, after the
120-day period described in clause (iii)
above, the interest rate borne by the Old
Notes from the date of such filing, effec-
tiveness or the day before the date of con-
summation, as the case may be, will be re-
duced to the original interest rate if the
Company is otherwise in compliance with
such requirements. See "Exchange Offer."
For further information regarding the New Notes, see "Description of the New
Notes."
Risk Factors...................... See "Risk Factors" for a discussion of cer-
tain factors which should be considered by
prospective investors in evaluating an in-
vestment in the New Notes.
14
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below and on the following two pages are summary pro forma
financial information for the Company and summary historical financial
information for BEA and Burns.
COMPANY UNAUDITED PRO FORMA
The unaudited pro forma financial information for the Company set forth below
has been derived from the unaudited pro forma financial information included
elsewhere in this Prospectus and gives effect to the Acquisition, the Offering
and the application of net proceeds therefrom. See "Unaudited Pro Forma
Combined Financial Information." The pro forma statement of operations data for
the nine months ended November 25, 1995 and the fiscal year ended February 25,
1995 gives effect to the Acquisition and the Offering as if they had occurred
on February 27, 1994. THE PRO FORMA FINANCIAL INFORMATION DOES NOT INCLUDE ANY
ADJUSTMENTS FOR THE ELIMINATION OF CERTAIN COSTS, WHICH MAY BE MATERIAL, which
management estimates will be eliminated in connection with the Acquisition. The
pro forma balance sheet data gives effect to the Acquisition and the Offering
as if they had occurred on November 25, 1995. The unaudited pro forma financial
information does not necessarily represent what the Company's financial
position and results of operations would have been if the Acquisition and the
Offering had actually been completed as of the dates indicated and is not
intended to project the Company's financial position or results of operations
for any future period. The following summary financial information should be
read in conjunction with the historical financial statements of BEA and Burns
and the unaudited pro forma financial information for the Company and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
NOVEMBER 25, 1995 FEBRUARY 25, 1995
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
UNAUDITED STATEMENT OF OPERATIONS DATA(A):
Sales..................................... $244,001 $322,841
Cost of sales............................. 172,831 226,470
Gross profit.............................. 71,170 96,371
Selling, general and administrative ex-
penses................................... 34,114 42,516
Research and development.................. 15,504 17,780
Operating earnings (loss)................. 8,865 (503)
Interest expense, net..................... 17,524 21,989
Net loss.................................. (5,196) (13,496)
Net loss per share........................ $ (0.32) $ (0.84)
Common and common equivalent shares....... 16,111 16,075
Ratio of earnings to fixed charges(b)..... NM(c) NM(c)
UNAUDITED PRO FORMA BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........................... $120,928
Total assets.............................. 487,322
Long term debt............................ 258,369
Stockholders' equity...................... 123,140
</TABLE>
- -------
(A) THE PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA DO NOT REFLECT
MANAGEMENT'S ESTIMATES OF NET COST SAVINGS EXPECTED TO BE REALIZED UPON THE
ACQUISITION. SUCH EXPECTED COST SAVINGS FOR THE NINE MONTHS ENDED NOVEMBER
25, 1995 AND THE FISCAL YEAR ENDED FEBRUARY 25, 1995 ARE ESTIMATED AT
APPROXIMATELY $13.0 MILLION AND $11.9 MILLION, RESPECTIVELY. SEE "UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION." NO ASSURANCE CAN BE GIVEN AS TO
THE ULTIMATE AMOUNT OF NET COST SAVINGS THAT WILL ACTUALLY BE REALIZED.
(b) For purposes of computing this ratio, earnings consist of earnings before
income taxes and fixed charges. Fixed charges consists of interest expense,
capitalized interest, amortization of deferred debt issuance costs and that
portion of rental expense deemed representative of the interest factor.
(c) Pro forma earnings (as defined in (b)) would have been insufficient to
cover fixed charges by approximately $8.7 million and $22.4 million for the
nine months ended November 25, 1996 and fiscal year ended February 25,
1995, respectively.
15
<PAGE>
BEA--HISTORICAL
The following table sets forth historical financial information of BEA. The
financial data as of and for the fiscal years ended February 25, 1995, February
26, 1994 and February 27, 1993 have been derived from financial statements
which have been audited by BEA's independent auditors. The financial data as of
and for the nine months ended November 25, 1995 and November 26, 1994 have been
derived from financial statements which are unaudited, but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for such periods. Operating results for the nine months
ended November 25, 1995 and November 26, 1994 are not necessarily indicative of
results that may be expected for a full year. The following financial
information is qualified by reference to, and should be read in conjunction
with, the BEA historical financial statements, including notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
-------------------------- ---------------------------------------
NOVEMBER 25, NOVEMBER 26, FEBRUARY 25, FEBRUARY 26, FEBRUARY 27,
1995 1994 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales............... $168,233 $170,045 $229,347 $203,364 $198,019
Cost of sales........... 113,740 114,082 154,863 136,307 137,690
-------- -------- -------- -------- --------
Gross profit............ 54,493 55,963 74,484 67,057 60,329
Operating expenses:
Selling, general and
administrative....... 25,247 23,898 31,787 28,164 21,698
Research and
development.......... 11,591 8,900 12,860 9,876 11,299
Amortization expense.. 6,910 7,627 9,954 7,599 4,551
Other expenses (a).... 4,300 23,736 23,736 -- --
-------- -------- -------- -------- --------
Operating earnings
(loss)................. 6,445 (8,198) (3,853) 21,418 22,781
Interest expense, net... 12,386 11,080 15,019 12,581 3,955
-------- -------- -------- -------- --------
Earnings (loss) before
income taxes (benefit)
and extraordinary
item................... (5,941) (19,278) (18,872) 8,837 18,826
Income taxes (benefit).. (2,198) (6,747) (6,806) 3,481 6,676
-------- -------- -------- -------- --------
Earnings (loss) before
extraordinary item..... (3,743) (12,531) (12,066) 5,356 12,150
Extraordinary item, net
of tax effect.......... -- -- -- -- (522)
-------- -------- -------- -------- --------
Net earnings (loss)..... $ (3,743) $(12,531) $(12,066) $ 5,356 $ 11,628
======== ======== ======== ======== ========
Earnings (loss) before
extraordinary item..... $ (0.23) $ (0.78) $ (0.75) $ 0.35 $ 1.03
Extraordinary item...... -- -- -- -- (.05)
-------- -------- -------- -------- --------
Net earnings (loss) per
common share........... $ (0.23) $ (0.78) $ (0.75) $ 0.35 $ 0.98
======== ======== ======== ======== ========
Common and common
equivalent shares...... 16,111 16,075 16,021 15,438 11,847
Ratio of earnings to
fixed charges(b)....... NM(c) NM(c) NM(c) 1.7x 5.7x
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $106,758 $ 65,855 $ 76,563 $ 76,874 $133,661
Total assets............ 405,992 358,771 379,954 375,009 314,055
Long-term debt.......... 208,169 162,260 172,693 159,170 127,743
Stockholders' equity.... 123,140 124,657 125,331 133,993 107,974
</TABLE>
- --------
(a) In fiscal 1996, in anticipation of the Acquisition, BEA recorded a charge
to earnings of $4.3 million related to costs associated with the
integration and consolidation of the Company's European seating business.
In fiscal 1995, BEA charged to earnings approximately $23.7 million
primarily related to intangible assets and inventories associated with
BEA's earlier generations of passenger entertainment systems.
(b) For purposes of computing this ratio, earnings consist of earnings before
extraordinary items, income taxes and fixed charges. Fixed charges consist
of interest expense, capitalized interest, amortization of deferred debt
issuance costs and that portion of rental expense deemed representative of
the interest factor.
(c) Earnings were insufficient to cover fixed charges by approximately $5.9
million, $19.3 million and $18.9 million for the nine months ended November
25, 1995 and November 26, 1994 and the fiscal year ended February 25, 1995,
respectively.
16
<PAGE>
BURNS--HISTORICAL
The following table sets forth certain historical financial information of
Burns. The statement of operations data for each of the years in the three year
period ended December 31, 1994 have been derived from Burns' financial
statements which have been audited by Burns' independent auditors. The
financial data for the nine months ended September 30, 1995 and 1994 have been
derived from financial statements which are unaudited, but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for such periods. Operating results for the nine months
ended September 30, 1995 and 1994 are not necessarily indicative of results
that may be expected for a full year. The table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the financial statements of Burns and related notes and other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
--------------------------- --------------------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1994 1993 1992
------------- ------------- ------------ ------------ ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales............... $75,768 $69,213 $93,494 $66,902 $98,185
Cost of sales........... 62,014 56,475 75,880 55,176 83,856
------- ------- ------- ------- -------
Gross profit............ 13,754 12,738 17,614 11,726 14,329
Operating expenses:
Selling, general and
administrative....... 8,867 8,102 10,729 8,948 10,150
Management fees(a).... 2,280 3,359 3,359 1,434 1,675
Research, development
and engineering...... 1,716 1,132 1,615 1,389 1,448
Amortization expense.. 1,125 1,134 1,509 1,507 1,500
Other (income)
expenses............. 83 313 738 (231) 255
------- ------- ------- ------- -------
Operating loss.......... (317) (1,302) (336) (1,321) (699)
Interest expense,
net(b)................. 5,875 4,649 6,374 4,203 4,133
------- ------- ------- ------- -------
Loss before income taxes
(benefit) and
cumulative effect of
change in accounting
principle.............. (6,192) (5,951) (6,710) (5,524) (4,832)
Income taxes (benefit).. (1,960) (2,074) (2,200) (1,268) (730)
------- ------- ------- ------- -------
Loss before cumulative
effect of change in
accounting principle... (4,232) (3,877) (4,510) (4,256) (4,102)
Cumulative effect of
change in accounting
principle, net of tax
effect................. -- -- -- (1,897) --
------- ------- ------- ------- -------
Net loss................ $(4,232) $(3,877) $(4,510) $(6,153) $(4,102)
======= ======= ======= ======= =======
Net loss per share...... $ (4.23) $ (3.88) $ (4.51) $ (6.15) $ (4.10)
======= ======= ======= ======= =======
</TABLE>
- --------
(a) Represents management fees paid to Eagle which, on a pro forma basis, will
be eliminated and cost allocations for which no direct benefit was
received.
(b) Burns participated in its parent's cash management system under which its
cash funding requirements were met by its parent and, therefore, Burns
itself did not have any indebtedness to nonaffiliates. Interest expense
appearing on the Burns financial statements is attributable to intercompany
indebtedness.
17
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider carefully the following factors before purchasing
the Notes offered hereby.
ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
As of November 25, 1995, after giving pro forma effect to the Offering, the
application of the net proceeds therefrom and the Acquisition, the Company
would have had approximately $262 million aggregate amount of indebtedness
outstanding, representing 68% of total capitalization. See "Use of Proceeds"
and "Capitalization."
The degree of the Company's leverage could have important consequences to
purchasers of the Notes, 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; (iii)
requiring all of the indebtedness incurred under the Bank Credit Facility to
be repaid prior to the time any principal payments are required on the Notes;
and (iv) increasing the Company's vulnerability to adverse economic and
industry conditions. In addition, since borrowings under the Bank Credit
Facility will be at variable rates of interest, the Company will be vulnerable
to increases in interest rates. The Company may incur additional indebtedness
in the future, although its ability to do so will be restricted by the
indenture governing the Notes (the "Indenture"), the indenture governing the
Senior Notes (the "Senior Note Indenture") and the Bank Credit Facility. 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 Bank Credit Facility, the Senior Note Indenture and the Indenture
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. See "Description of Certain Indebtedness" and "Description of the
Notes--Certain Covenants." The Bank Credit Facility also requires the Company
to meet certain financial ratios and tests. A failure to comply with the
obligations contained in the Bank Credit Facility, the Senior Note Indenture
or the Indenture could result in an event of default under the Bank Credit
Facility, the Senior Note Indenture or the Indenture, respectively, which
could permit acceleration of the related debt and acceleration of debt under
other instruments that may contain cross-acceleration or cross-default
provisions.
SUBORDINATION OF THE NOTES; ASSET ENCUMBRANCES
The Notes are subordinated in right of payment in full to all existing and
future Senior Indebtedness of the Company, which includes all indebtedness
under the Bank Credit Facility and the Senior Notes. As of November 25, 1995,
on a pro forma basis after giving effect to the Offering, the application of
the net proceeds therefrom and the Acquisition, the aggregate amount of Senior
Indebtedness of the Company would have been approximately $162 million. In
addition, following consummation of the Offering and the Acquisition,
approximately $71 million was available under the Bank Credit Facility which,
if borrowed, would be included as Senior Indebtedness. Further, the Notes will
be effectively subordinated to indebtedness of the Company's subsidiaries. As
of November 25, 1995, on a pro forma basis after giving effect to the
Offering, the application of the net proceeds therefrom and the Acquisition,
the aggregate amount of indebtedness of the Company's subsidiaries would have
been approximately $15.5 million. See "Description of Certain Indebtedness."
In the event of the liquidation, dissolution, reorganization or any similar
proceeding regarding the Company, the assets of the Company will be available
to pay obligations on the Notes only after Senior Indebtedness of the
18
<PAGE>
Company has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on all or any of the Notes. In addition, the
Company may not pay principal of, premium, if any, or interest on the Notes or
purchase, redeem or otherwise retire the Notes, if any principal, premium, if
any, or interest on any Designated Senior Indebtedness (as defined) is not
paid when due (whether at final maturity, upon scheduled installment,
acceleration or otherwise) unless such default has been cured or waived or
such Designated Senior Indebtedness has been repaid in full. In addition,
under certain circumstances, if any non-payment default exists with respect to
Designated Senior Indebtedness, the Company may not make any payments on the
Notes for a specified period of time, unless such default is cured or waived
or such Designated Senior Indebtedness has been repaid in full. See
"Description of the New Notes--Subordination."
In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Notes are not secured by any of the Company's
assets. The obligations of the Company under the Bank Credit Facility are
secured by substantially all the Company's assets. In addition, one of the
Company's senior financing arrangements is secured by real estate in
Litchfield, Connecticut and Wellington, Florida. If the Company becomes
insolvent or is liquidated, or if payment under the Bank Credit Facility or
such other senior financing arrangement is accelerated, the lenders under the
Bank Credit Facility or such other facility, as the case may be, would be
entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to such agreement. Accordingly, such lenders will
have a prior claim with respect to such assets. See "Description of Certain
Indebtedness."
CHANGE OF CONTROL
Upon a Change of Control (as defined) (see "Description of the New Notes--
Certain Definitions"), the Company is required to offer to purchase all
outstanding Notes. The Company, in such circumstance, would also be required
to offer to purchase the Senior Notes and may be required immediately to repay
the outstanding principal of, and pay any accrued interest on, the loans made
under the Bank Credit Facility and pay any other amounts owed by the Company
thereunder. In the case of any such offer to purchase the outstanding Notes,
there can be no assurance that the Company would be able to repay amounts
outstanding under these other debt agreements or obtain necessary consents
thereunder in order to consummate such purchase. Any such requirement to offer
to purchase outstanding Notes may result in the Company having to refinance
the indebtedness outstanding under these agreements. There can be no assurance
that the Company would be able to refinance such indebtedness or, if such
refinancing were to occur, that such refinancing would be on terms favorable
to the Company. See "Description of the New Notes."
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges was negative during certain
periods, as stated in the financial statements of the Company and related
notes and other financial information included elsewhere in this Prospectus,
as a result of expenses which the Company believes to be non-recurring. Should
the Company's ratio of earnings to fixed charges be negative in future
periods, this could result in a breach of certain covenants under the Bank
Credit Facility, which could permit acceleration of the related debt and debt
under the Senior Note Indenture, the Indenture or other instruments which may
contain cross-acceleration or cross-default provisions. See "Adverse
Consequences of Financial Coverage."
DEPENDENCE UPON CONDITIONS IN THE AIRLINE INDUSTRY
The Company's customers are the world's commercial airlines. As a result,
the Company's business is directly dependent upon the conditions in the highly
cyclical and competitive commercial airline industry. In the late 1980's and
early 1990's 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 is
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currently experiencing an economic turnaround, with significantly improved
results, although the levels of airline spending on refurbishment and new
aircraft purchases continue to be below the levels experienced in the mid-
1980's. Due to the volatility of the airline industry, there can be no
assurance that the recent profitability of the airline industry will continue
or that the airlines will maintain or increase expenditures on cabin interior
products for refurbishments or new aircraft.
In addition, the airline industry is undergoing a process of consolidation
and significantly increased competition. Such consolidation could result in a
reduction in future aircraft orders as overlapping routes are eliminated and
airlines seek greater economies through higher aircraft utilization. Increased
airline competition may also result in airlines seeking to reduce costs by
promoting greater price competition from airline cabin interior products
manufacturers, thereby adversely affecting the Company's revenues and margins.
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 market for new passenger entertainment products, including
individual seat video and inflight entertainment and cabin management systems,
has attracted competitors such as GEC PLC/Plessey Limited, Hughes Avicom,
Matsushita Electronics and Sony Transcom, each of which has significantly
greater technological capabilities and financial and marketing resources than
the Company. See "Business--Competition."
ABILITY TO INTEGRATE ACQUIRED BUSINESSES
Since 1989, BEA has acquired eight companies, thereby substantially
increasing its size. In January 1996, BEA acquired Burns, which significantly
augmented the Company's aircraft seating business. The Company also intends to
consider future 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
effectively integrate the Burns acquisition, as well as future acquisitions,
and to achieve cost efficiencies. Although BEA has been successful in the past
in doing so, there can be no assurance that it will continue to be successful.
NEW PRODUCT INTRODUCTIONS AND TECHNOLOGICAL CHANGE
Airlines are currently 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 are increasingly seeking sophisticated inflight
entertainment systems, such as the interactive individual passenger inflight
entertainment system, the MDDS, recently developed by BEA, which the Company
expects will provide a significant percentage of its future revenues. The
future success of the Company will depend, to a significant extent, on its
ability to successfully manufacture and deliver on a timely basis its MDDS
product and to have such product perform at the level expected by BEA's
customers and their passengers, as well as the Company's ability to continue
to develop, profitably manufacture and deliver, on a timely basis,
technologically advanced, reliable, high-quality products which can be readily
integrated into complex cabin interior configurations. See "Business--Products
and Services."
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REGULATION
The Federal Aviation Administration (the "FAA") prescribes standards and
licensing requirements for aircraft components, including virtually all
commercial airline cabin interior products, and licenses component repair
stations within the United States. Comparable agencies regulate these matters
in other countries. If the Company fails to obtain a required license for one
of its products or services or loses a license previously granted, the sale of
the subject product or service would be prohibited by law until such license
is obtained or renewed. In addition, designing new products to meet existing
FAA requirements and retrofitting installed products to comply with new FAA
requirements can be both expensive and time-consuming. See "Business--
Government Regulation."
CERTAIN LEGAL PROCEEDINGS
BEA has been advised that the U.S. Attorney's Office for the District of
Connecticut, in conjunction with the Department of Commerce and the U.S.
Customs Service, is conducting a grand jury investigation focused on possible
non-compliance by BEA with certain statutory and regulatory provisions
relating to export licensing and controls. The investigation relates primarily
to the sale of passenger seats and related spare parts for civilian commercial
passenger aircraft to Iran Air from 1992 through mid-1995. BEA has been
advised that it is a target of the investigation; however, neither it nor any
current or former directors, officers, or employees have been charged in
connection with the investigation. The investigation is at an early stage and,
while the Company intends to defend itself vigorously, the ultimate outcome of
the investigation cannot presently be determined. An adverse outcome could
have a material adverse effect upon the operations and/or financial condition
of the Company.
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The Notes are new securities for which there currently is no trading market
and there can be no assurance as to the liquidity of any market for the Notes
that may develop, the ability of holders of the Notes to sell their Notes, or
the prices at which holders of the Notes would be able to sell their Notes. If
such markets were to exist, the Notes could trade at prices higher or lower
than their initial purchase prices depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. Although the Initial Purchasers have informed the Company
that they currently intend to make a market in the Notes, the Initial
Purchasers are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Notes. The
Notes are eligible for trading in the Private Offerings, Resale and Trading
through Automatic Linkages (PORTAL) market. The Company does not intend to
apply for listing of the Notes on any securities exchange or for quotation on
the National Association of Securities Dealers Automated Quotation System.
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered Old Notes that are not exchanged for New Notes pursuant to the
Exchange Offer will remain restricted securities. Old Notes will continue to
be subject to the following restrictions on transfer: (i) Old Notes may be
resold only if registered pursuant to the Securities Act, if an exemption from
registration is available thereunder, or if neither such registration nor such
exemption is required by law, (ii) Old Notes shall bear a legend restricting
transfer in the absence of registration or an exemption therefrom and (iii) a
holder of Old Notes who desires to sell or otherwise dispose of all or any
part of its Old Notes under an exemption from registration under the
Securities Act, if requested by the Company, must deliver to the Company an
opinion of independent counsel experienced in Securities Act matters,
reasonably satisfactory in form and substance to the Company, that such
exemption is available.
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THE COMPANY
BE Aerospace is the largest supplier of commercial aircraft cabin interior
products in the world, serving virtually all major airlines with a broad line
of products including aircraft seats, galley products and structures and
individual passenger inflight entertainment systems. BEA's executive offices
are located at 1400 Corporate Center Way, Wellington, Florida 33414 and its
telephone number is (407) 791-5000.
THE ACQUISITION
TERMS OF THE ACQUISITION
The following summary of the material provisions of the Acquisition
Agreement is subject to, and is qualified in its entirety by reference to, all
of the provisions of the Acquisition Agreement, including the definitions
therein of certain terms. The Acquisition Agreement is available for
inspection as described under "Available Information."
Under the Acquisition Agreement, BEA acquired all of the outstanding capital
stock of Burns for a purchase price of $42.5 million in cash, subject to
certain post-closing adjustments. The purchase price represents a multiple of
0.4x and 5.9x of Burns' latest twelve months sales and EBITDA before
management fees and other expenses, respectively, without taking into account
the impact of approximately $11.9 million of identified cost savings expected
to be realized in the initial year after completion of the Acquisition. The
Acquisition Agreement provides for a dollar-for-dollar post-closing adjustment
of the purchase price for the Acquisition to the extent Burns' Adjusted
Capital (as defined), based upon a balance sheet prepared post-closing, is
greater or less than $40,832,000, the Adjusted Capital reflected on Burns'
balance sheet as of June 30, 1995. Any such post-closing adjustment payable by
the Company is expected to be paid from borrowings under the Company's Bank
Credit Facility or from internally generated funds.
The Acquisition Agreement contains certain customary representations,
warranties and covenants. With certain exceptions, the representations and
warranties of Eagle, Burns' sole stockholder, expire 18 months after the date
of the Closing. The Acquisition Agreement requires Eagle to indemnify BEA,
subject to certain limitations, for inaccuracies in the representations and
warranties made by Eagle in the Acquisition Agreement, for any breach by Eagle
of the Acquisition Agreement and in respect of certain taxes and environmental
liabilities.
The Acquisition Agreement also contains a non-competition agreement pursuant
to which Eagle and certain of its affiliates agree to refrain from, for a
period of five years after the Closing, owning, operating or having any
financial interest in any business or activity which is the same as or
substantially the same as that of Burns.
FINANCING
The Acquisition purchase price was funded through the Offering. In
connection with the Acquisition and the Offering, BEA completed a Consent
Solicitation to amend certain covenants contained in the indenture related to
the Senior Notes and to obtain a waiver of one such covenant. In addition,
concurrently with the Offering, the Company amended its existing bank credit
facility to provide additional liquidity. The Bank Credit Facility totals $100
million and consists of a $25 million Reducing Revolver and the $75 million
Revolving Facility. The Reducing Revolver is collateralized by all of the
issued and outstanding capital stock of Acurex Corporation, a wholly owned
subsidiary of BEA, and has a five year maturity, with the commitments of the
lenders thereunder reducing during such five year period, and the Revolving
Facility is collateralized by all of the Company's accounts receivable, all of
its inventory and substantially all of its other personal property and has a
five year maturity. The Bank Credit Facility contains customary affirmative
covenants, negative covenants and conditions of borrowing. Upon the
consummation of the Acquisition and the Offering, indebtedness in an aggregate
principal amount of approximately $29 million, including letters of credit
amounting to approximately $6 million, will be outstanding under the Bank
Credit Facility. The consummation of the Offering, the Bank
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Credit Facility and the Acquisition occurred concurrently. Following the
consummation of the Acquisition, BEA immediately merged Burns into BEA.
USE OF PROCEEDS
The proceeds to BEA from the sale of the Old Notes were $96,250,000, net of
Initial Purchasers' discount and certain fees and expenses relating to the
Offering. Such proceeds were used to pay the purchase price for the
Acquisition, to repay certain unsecured indebtedness of BEA and a portion of
BEA's indebtedness under its pre-Acquisition bank credit facility and to pay
fees and expenses incurred in connection with the Acquisition, the Bank Credit
Facility and the Consent Solicitation. The unsecured indebtedness repaid by
BEA accrued interest at a rate of 8 3/4% per annum as of November 25, 1995 and
amounts outstanding under BEA's pre-Acquisition bank credit agreement accrued
interest at a weighted average rate of 7.70% per annum as of November 25,
1995. See "Summary--The Acquisition--Financing" and "Description of Certain
Indebtedness."
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes, the purchasers thereof became
entitled to the benefits of certain registration rights. Pursuant to the
Registration Rights Agreement, the Company agreed to (i) file within 30 days,
and cause to become effective within 90 days of the date of original issue of
the Old Notes, the Registration Statement of which this Prospectus is a part
with respect to the exchange of the Old Notes for the New Notes and (ii) cause
the Exchange Offer to be consummated within 120 days of the original issue of
the Old Notes. The New Notes have terms identical in all material respects to
the terms of the Old Notes. However, in the event that any changes in law or
applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer or, if for any other reason the Exchange
Offer is not consummated within 120 days following the date of the original
issue of the Old Notes, or if any holder of the Old Notes (other than the
Initial Purchasers) is not eligible to participate in the Exchange Offer, or
upon the request of any Initial Purchaser under certain circumstances, the
Company has agreed to use its best efforts to cause to become effective by the
120th day after the original issue of the Old Notes, a Shelf Registration
Statement with respect to the resale of the Old Notes and to keep the Shelf
Registration Statement effective until three years after the effective date
thereof (or until one year after such effective date if such Shelf
Registration Statement is filed at the request of the Initial Purchasers under
certain circumstances). The Company also had agreed that in the event that
either (i) the Registration Statement is not filed with the Commission on or
prior to the 30th calendar day following the date of the original issue of the
Old Notes or (ii) the Registration Statement is not declared effective on or
prior to the 90th calendar day following the date of the original issue of the
Old Notes or (iii) the Exchange Offer is not consummated or a Shelf
Registration Statement is not declared effective on or prior to the 120th
calendar day following the original issue of the Old Notes, the interest rate
borne by the Old Notes shall be increased by one-half of one percent per annum
after such 30 day period in the case of clause (i) above or after such 90 day
period in the case of clause (ii) above or after such 120 day period in the
case of clause (iii) above. The aggregate amount of such increase from the
original interest rate pursuant to those provisions will in no event exceed
one-half of one percent per annum. Upon (x) the effectiveness of the
Registration Statement after the 90 day period in clause (ii) above or (y) the
consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, after the 120 day period outlined
in clause (iii) above, the interest rate borne by the Old Notes from the date
of such filing or effectiveness or the day before the date of consummation, as
the case may be, will be reduced to the original interest rate if the Company
is otherwise in compliance with such requirements.
In the event the Exchange Offer is consummated, the Company will not be
required to file a Shelf Registration Statement relating to the registration
of any outstanding Old Notes other than those held by persons not eligible to
participate in the Exchange Offer, and the interest rate on such Old Notes
will remain at its initial level of 9 7/8%. The Exchange Offer shall be deemed
to have been consummated upon the earlier to occur of
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(i) the Company having exchanged New Notes for all outstanding Old Notes
(other than Old Notes held by persons not eligible to participate in the
Exchange Offer) pursuant to the Exchange Offer and (ii) the Company having
exchanged, pursuant to the Exchange Offer, New Notes for all Old Notes that
have been tendered and not withdrawn on the Expiration Date. Upon
consummation, holders of Old Notes seeking liquidity in their investment would
have to rely on exemptions to registration requirements under the securities
laws, including the Securities Act. See "Risk Factors."
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes properly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer in denominations of $1,000 and integral
multiples thereof.
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other than (i) a broker-dealer
who purchased such Old Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery requirements of the Securities Act provided that the
holder is acquiring the New Notes in its ordinary course of business and is
not participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Holders of Old Notes
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met.
Each broker-dealer that receives New Notes in exchange for Old Notes held
for its own account, as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, such broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by such broker-dealer in connection with resales of
New Notes received in exchange for Old Notes. The Company has agreed that, for
a period of 180 days after the Expiration Date, it will make this Prospectus
and any amendment or supplement to this Prospectus available to any such
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
As of the date of this Prospectus, $100 million aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes initially purchased by Qualified
Institutional Buyers to be issued and transferable in book entry form through
the facilities of DTC, acting as depositary. The New Notes will also be
issuable and transferable in book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of April 9, 1996 (the "Record Date").
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. See "--Exchange Agent." The Exchange Agent will act as agent
for the tendering holders of Old Notes for the purpose of receiving New Notes
from the Company and delivering New Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expenses, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of
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Old Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Fees and Expenses."
EXPIRATION DATES; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean May 14, 1996 unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "--Termination" shall have occurred and shall have been waived by
the Company (if permitted to be waived by the Company), by giving oral or
written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner deemed by it
to be advantageous to the holders of the Old Notes. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Old Notes of such amendment.
Without limiting the manner to which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the Exchange Offer, the Company shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement, other than
by making a timely release to the Dow Jones New Service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from January 24, 1996, payable semiannually
on February 1 and August 1 of each year commencing on August 1, 1996, at the
rate of 9 7/8% per annum. Holders of Old Notes whose Old Notes are accepted
for exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued from January 24, 1996 until the
date of the issuance of the New Notes. Consequently holders who exchange their
Old Notes for New Notes will receive the same interest payment on August 1,
1996 (the first interest payment date with respect to the Old Notes and the
New Notes) that they would have received had they not accepted the Exchange
Offer.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes (unless such tender is being effected pursuant to the procedure for
book-entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Old Notes by causing DTC
to transfer such Old Notes into the Exchange Agent's account in accordance
with DTC's procedure for such transfer. Although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
the Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received or confirmed by the Exchange Agent at its addresses set forth
herein under "--Exchange Agent"
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prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF
DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
The method of delivery of Old Notes and the Letters of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes
should be sent to the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder' with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder,
or any person whose Old Notes are held of record by DTC who desires to deliver
such Old Notes by book-entry transfer at DTC.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
holder's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office of correspondent in
the United States or
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Exchange Act (an "Eligible Institution") unless the Old Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanies by appropriate bond powers which authorize such person to tender
the Old Notes on behalf of the registered holder, in either case signed as the
name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted wit the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by the Company in its sold discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not properly tendered or any Old Notes the Company's acceptance
of which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the absolute right to waive any irregularities or
conditions of tender as to
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particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes
nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Old Notes unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date, or, as set forth under "Termination," to terminate the
Exchange Offer and (b) to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers may differ from the terms of the
Exchange Offer.
By tendering, each holder of Old Notes will represent to the Company that,
among other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the holder, that neither the Holder
nor any other person has an arrangement or understanding with any person to
participate in the distribution of the New Notes and that neither the holder
nor any such other person is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act.
GUARANTEED DELIVERY PROCEDURES
Holders how wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal, or any other required documents to the Exchange Agent prior to
the Expiration Date, or if such Holder cannot complete the procedure for book-
entry transfer on a timely basis, may effect a tender if;
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within five business days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Old Notes to be tendered in proper form for
transfer and any other documents required by the Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a book-
entry transfer into the Exchange Agent's account at DTC of Old Notes
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior
to the Expiration Date, unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York
27
<PAGE>
City time, on the business day prior to the Expiration Date and prior to
acceptance for exchange thereof by the Company. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or numbers and principal amount of such Old
Notes), (iii) be signed by the Depositor in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents
of transfer sufficient to permit the Trustee with respect to the Old Notes to
register the transfer of such Old Notes into the name of the Depositor
withdrawing the tender and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions
as to the validity, form and eligibility (including time of receipt) for such
withdrawal notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer
and no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly rendered. Any Old Notes which have been tendered but
which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be rendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange New Notes for, any Old Notes
not therefore accepted for exchange, and may terminate or amend the Exchange
Offer as provided herein before the acceptance of such Old Notes if: (i) any
action or proceeding is instituted or threatened in any court or by or before
any governmental agency with respect to the Exchange Offer, which, in the
Company's judgment, might materially impair the Company's ability to proceed
with the Exchange Offer or (ii) any law, statute, rule or regulation is
proposed, adopted or enacted, or any existing law, statute rule or regulation
is interpreted by the staff of the Commission or court of competent
jurisdiction in a manner, which, in the Company's judgment, might materially
impair the Company's ability to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of
the Exchange Offer, subject to the rights of such holders of tendered Old
Notes to withdraw their tendered Old Notes, or (iii) waive such termination
event with respect to the Exchange Offer and accept all properly tendered Old
Notes that have not been withdrawn. If such waiver constitutes a material
change in the Exchange Offer, the Company will disclose such change by means
of a supplement to this Prospectus that will be distributed to each registered
holder of Old Notes, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders of the Old
Notes, if the Exchange Offer would otherwise expire during such period.
28
<PAGE>
EXCHANGE AGENT
Fleet National Bank, the Trustee under the Indenture, has been appointed as
Exchange Agent for the Exchange Offer. Questions and requests for assistance
and requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent addressed as follows:
By Mail or Hand Delivery: Fleet National Bank
Corporate Trust Operations
777 Main Street, Lower Level
Hartford Connecticut 06115
Attention: Patricia Williams
Facsimile Transmission: (860) 986-7908
Confirm by Telephone: (860) 986-1271
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, Letters of
Transmittal and related documents to the beneficial owners of the Old Notes
and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Notes tendered, or if tendered Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other person) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
holder.
29
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the historical capitalization of BEA as
of November 25, 1995 and (ii) the pro forma capitalization of the Company as
of such date giving effect to the Acquisition, the Offering and the
application of the net proceeds therefrom. See "Use of Proceeds" and "The
Acquisition." The table should be read in conjunction with the "Unaudited Pro
Forma Combined Financial Information" and the financial statements and related
notes thereto of BEA included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF NOVEMBER
25, 1995
---------------------------
HISTORICAL PRO FORMA
----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current maturities of
long-term debt................................... $ 3,730(a) $ 3,730
Long-term debt, excluding current maturities:
Bank indebtedness............................... 83,169(a) 33,369
Senior Notes.................................... 125,000 125,000
Notes offered hereby............................ -- 100,000
----------- -----------
Total long-term debt.......................... 208,169 258,369
Stockholders' equity
Preferred Stock, $.01 par value, 1,000,000
shares authorized; no shares issued and
outstanding ................................... -- --
Common Stock, $.01 par value 30,000,000 shares
authorized;
16,179,345 shares issued and outstanding....... 161 161
Additional paid-in capital...................... 120,098 120,098
Retained earnings............................... 3,671 3,671
Cumulative currency translation adjustment...... (790) (790)
----------- -----------
Total stockholders' equity...................... 123,140 123,140
----------- -----------
Total capitalization.......................... $335,039 $ 385,239
=========== ===========
</TABLE>
- --------
(a) The portion represented by bank indebtedness consists of approximately $61
million of secured indebtedness under the Company's pre-Acquisition bank
credit facility, $43 million of which was repaid with the proceeds from
the Offering, a $10 million unsecured bank borrowing which was repaid with
the proceeds from the Offering and $15.5 million of other secured
indebtedness. See "Description of Certain Indebtedness."
30
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined statements of operations and unaudited pro
forma combined balance sheet give effect to the Acquisition on a purchase
accounting basis, the Offering and the application of the net proceeds
therefrom, all of which occurred on January 24, 1996. The pro forma combined
statement of operations for the fiscal year ended February 25, 1995 is
comprised of the results of BEA for the fiscal year ended February 25, 1995
and the results of Burns for the year ended December 31, 1994. The pro forma
combined statement of operations for the nine months ended November 25, 1995
is comprised of the results of BEA for the nine months ended November 25, 1995
and the results of Burns for the nine months ended September 30, 1995. The pro
forma combined balance sheet as of November 25, 1995 has been prepared by
combining the consolidated balance sheet of BEA as of November 25, 1995 with
the balance sheet of Burns as of September 30, 1995.
The pro forma combined statements of operations for the fiscal year ended
February 25, 1995 and the nine months ended November 25, 1995 assume that the
Acquisition and the Offering occurred on February 27, 1994. The pro forma
combined balance sheet as of November 25, 1995 assumes that the Acquisition
and the Offering occurred on November 25, 1995. The pro forma combined
statements of operations and balance sheet do not purport to represent the
results of operations or financial position of the Company had the
transactions and events assumed therein occurred on the dates specified, nor
are they necessarily indicative of the results of operations that may be
achieved in the future.
The Company has specifically identified cost reductions resulting from a
business integration plan which is being implemented. The business integration
plan contemplates (i) the elimination of duplicate executive, sales and
marketing, research and engineering and administrative functions at Burns,
(ii) shifting Burns' seat assembly operations to BEA's facilities and (iii)
shifting certain of BEA's seating fabrication operations to Burns. The cost
reductions presented below for cost of sales, selling, general and
administrative expense and research and development expense are comprised of
labor and overhead expenses that are expected to be eliminated in conjunction
with the implementation of the business integration plan. The Company's
business integration plan provides for the events generating the cost
reductions to occur in phases, beginning in the initial year. Therefore,
expected cost savings for the initial fiscal year will reflect only a portion
of the expected ongoing annual savings. Eagle allocated management fees to
Burns under a cost sharing arrangement that was terminated in conjunction with
the Acquisition. Management estimates that it will incur approximately $750 of
incremental annual costs to operate Burns as a division of the Company. Had
the Acquisition occurred on February 27, 1994 and the phase-in of the business
integration plan commenced as of such date, the expected cost reductions, for
the fiscal year ended February 25, 1995 would have been as follows:
<TABLE>
<S> <C>
Cost of sales.................................................... $5,400
Selling, general and administrative.............................. 5,300
Research and development......................................... 1,200
Reduction of management fees, net of incremental costs........... 2,600
</TABLE>
Upon full implementation of the integration plan, the Company estimates
aggregate annual cost reductions from the business integration plan as
follows:
<TABLE>
<S> <C>
Cost of sales................................................... $10,400
Selling, general and administrative............................. 5,500
Research and development........................................ 1,500
Reduction of management fees, net of incremental costs.......... 1,900
</TABLE>
NONE OF THE ABOVE COST SAVINGS ARE REFLECTED IN THE ACCOMPANYING PRO FORMA
STATEMENT OF OPERATIONS.
In conjunction with the implementation of the business integration plan, as
of March 15, 1996 the Company had implemented the following initiatives and
actions: (i) provided notice to employees and the applicable union of a plant
closure (ii) met with employees in other affected locations to describe the
pending reductions in force as a result of the shifting of certain processes
between the two plants and (iii) eliminated certain redundant executive, sales
& marketing, research and engineering and administration personnel. As of
March 15, 1996, the Company had eliminated 108 positions, resulting in
approximately $7.2 million of annualized cost reductions. No assurance can be
given as to the amount of costs that will actually be incurred or cost savings
that will actually be realized.
31
<PAGE>
The pro forma adjustments are based on management's preliminary assumptions
regarding purchase accounting adjustments. The actual allocation of the
purchase price will be adjusted to the extent that actual amounts, as
determined by independent appraisals, differ from management's estimates in
accordance with FAS No. 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises." Management is not aware of any contingencies which may
affect the allocation of the purchase price other than as set forth in the
accompanying pro forma combined balance sheet.
The pro forma combined financial information is based upon certain
assumptions and adjustments described in the notes to the pro forma financial
statements. The pro forma combined financial information should be read in
conjunction with the historical financial statements, and related notes, of
BEA and Burns contained elsewhere herein.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 25, 1995
------------------------------------------------------
ADJUSTED
BEA BURNS COMBINED ADJUSTMENTS PROFORMA
-------- ------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............... $229,347 $93,494 $322,841 $ -- $322,841
Cost of sales........... 154,863 75,880 230,743 (968)(a) 226,470
(3,305)(b)
-------- ------- -------- ------ --------
Gross profit............ 74,484 17,614 92,098 4,273 96,371
Operating expenses:
Selling, general and
administrative....... 31,787 10,729 42,516 42,516
Management fees....... -- 3,359 3,359 3,359
Research and develop-
ment................. 12,860 1,615 14,475 3,305 (b) 17,780
Amortization ......... 9,954 1,509 11,463 (109)(a) 11,354
Other expenses........ 23,736 738 24,474 -- 24,474
-------- ------- -------- ------ --------
Total operating ex-
penses................. 78,337 17,950 96,287 3,196 99,483
-------- ------- -------- ------ --------
Operating earnings
(loss)................. (3,853) (336) (4,189) 1,077 (3,112)
Interest expense, net... 15,019 6,374 (e) 21,393 (6,374)(c) 21,989
6,970 (d)
-------- ------- -------- ------ --------
Loss before income taxes
(benefit).............. (18,872) (6,710) (25,582) 481 (25,101)
Income taxes (benefit).. (6,806) (2,200) (9,006) (1,034)(e) (10,040)
-------- ------- -------- ------ --------
Net loss ............... $(12,066) $(4,510) $(16,576) $1,515 $(15,061)
======== ======= ======== ====== ========
</TABLE>
- -------
(a) Reflects adjustments to depreciation and amortization based on the
preliminary purchase accounting allocation related to property, plant and
equipment and intangible assets acquired in connection with the
Acquisition and the difference between depreciation expense recorded by
Burns and that determined under the methods used by the Company. The
Company uses periods of 20 years for manufacturing facilities, five to
seven years for machinery and equipment and 20 years for intangible
assets.
(b) Reflects adjustments to reclassify certain Burns expenses in a manner
consistent with BEA's financial presentation, in which BEA classifies
certain engineering related expenditures as a component of research and
development as compared to a component of cost of sales.
(c) Burns participated in its parent's cash management system under which its
cash funding requirements were met by its parent and, therefore, Burns
itself did not have any indebtedness to nonaffiliates. Interest expense
appearing on the Burns Financial Statements is attributable to interest on
intercompany indebtedness.
(d) Represents the additional interest expense for the year ended February 25,
1995 that would have been incurred had the Acquisition and the Offering
taken place on February 27, 1994. The additional interest expense of $596
is calculated on the basis of the sum of (A) interest at the rate of
9.875% on the purchase price and estimated fees and expenses as set forth
under "Use of Proceeds", plus (B) the difference between interest at the
rate of 9.875% on the amount of bank borrowings repaid as set forth under
"Use of Proceeds" and the actual amount of interest incurred thereon, less
(C) interest incurred on the intercompany indebtedness of Burns owed to
Eagle which was forgiven upon consummation of the Acquisition.
(e) Adjustments to reflect income tax effects assuming a combined state and
federal statutory income tax rate of 40%.
32
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NOVEMBER 25, 1995
------------------------------------------------------
ADJUSTED
PRO
BEA BURNS COMBINED ADJUSTMENTS FORMA
-------- ------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............... $168,233 $75,768 $244,001 $ -- $244,001
Cost of sales........... 113,740 62,014 175,754 (726)(a) 172,831
(2,197)(b)
-------- ------- -------- ------ --------
Gross profit............ 54,493 13,754 68,247 2,923 71,170
Operating expenses:
Selling, general and
administrative....... 25,247 8,867 34,114 34,114
Management fees....... -- 2,280 2,280 2,280
Research and develop- 11,591 1,716 13,307 15,504
ment................. 2,197 (b)
Amortization.......... 6,910 1,125 8,035 (81)(a) 7,954
Other expenses........ 4,300 83 4,383 -- 4,383
-------- ------- -------- ------ --------
Total operating ex-
penses............. 48,048 14,071 62,119 2,116 64,235
-------- ------- -------- ------ --------
Operating earnings...... 6,445 (317) 6,128 807 6,935
Interest expense, net... 12,386 5,875 (e) 18,261 (5,875)(c) 17,524
5,138 (d)
-------- ------- -------- ------ --------
Earnings (loss) before
income taxes
(benefit).............. (5,941) (6,192) (12,133) 1,544 (10,589)
Income taxes (benefit).. (2,198) (1,960) (4,158) (77) (e) (4,235)
-------- ------- -------- ------ --------
Net loss................ $ (3,743) $(4,232) $ (7,975) $1,621 $ (6,354)
======== ======= ======== ====== ========
</TABLE>
- --------
(a) Reflects adjustments to depreciation and amortization based on the
preliminary purchase accounting allocation related to property, plant and
equipment and intangible assets acquired in connection with the
Acquisition and the difference between depreciation expense recorded by
Burns and that determined under the methods used by the Company. The
Company uses periods of 20 years for manufacturing facilities, five to
seven years for machinery and equipment and 20 years for intangible
assets.
(b) Reflects adjustments to reclassify certain Burns expenses in a manner
consistent with BEA's financial presentation, in which BEA classifies
certain engineering related expenditures as a component of research and
development as compared to a component of cost of sales.
(c) Burns participated in its parent's cash management system under which its
cash funding requirements were met by its parent and, therefore, Burns
itself did not have any indebtedness to nonaffiliates. Interest expense
appearing on the Burns financial statements is attributable to the
intercompany indebtedness.
(d) Represents the additional interest expense for the nine months ended
November 25, 1995 that would have been incurred had the Acquisition and
the Offering taken place on February 27, 1994. The interest expense
difference of $(737) is calculated on the basis of the sum of (A) interest
at the rate of 9.875% on the purchase price and estimated fees and
expenses as set forth under "Use of Proceeds", plus (B) the difference
between interest at the rate of 9.875% on the amount of bank borrowings
repaid as set forth under Use of Proceeds and the actual amount of
interest incurred theron, less (C) interest incurred on the intercompany
indebtedness of Burns owed to Eagle which will be forgiven upon
consummation of the Acquisition.
(e) Adjustments to reflect income tax effects assuming a combined state and
federal statutory income tax rate of 40%.
33
<PAGE>
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
BEA AS OF BURNS AS OF PRO FORMA
NOVEMBER 25, SEPTEMBER 30, COMBINED
1995 1995 ADJUSTMENTS BALANCE
------------ ------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash .................... $ 5,348 $ 81 $ -- $ 5,429
Accounts receivable...... 44,118 1,793 15,637 (c) 61,548
Inventories.............. 103,905 16,880 -- 120,785
Deferred income taxes.... 5,945 -- -- 5,945
Other current assets..... 8,758 1,759 -- 10,517
-------- -------- --------
Total current assets... 168,074 20,513 204,224
Net property and equip-
ment..................... 66,529 18,257 (7,500)(b) 77,286
Intangibles and other as-
sets..................... 171,389 55,932 7,700 (a) 205,812
18,500 (b)
(47,709)(c)
-------- -------- --------
$405,992 $ 94,702 $487,322
======== ======== ========
LIABILITIES & STOCKHOLD-
ERS' EQUITY:
Liabilities:
Accounts payable......... $ 33,704 $ 7,564 $ -- $ 41,268
Other current liabili-
ties.................... 21,258 7,416 7,000 (b) 35,674
Income taxes payable..... 2,624 -- -- 2,624
Current portion of long-
term debt............... 3,730 -- -- 3,730
-------- -------- --------
Total current liabili-
ties.................. 61,316 14,980 83,296
Long-term bank debt....... 83,169 -- (49,800)(a) 33,369
Long-term debt (Senior
Notes and Notes offered
hereby).................. 125,000 -- 100,000 (a) 225,000
Deferred income taxes..... 10,032 -- -- 10,032
Advances from affiliate... -- 82,856 (82,856)(c) --
Other long-term liabili-
ties..................... 3,335 5,150 4,000 (b) 12,485
-------- -------- --------
Total Liabilities...... 282,852 102,986 364,182
Stockholders' equity
Preferred stock.......... -- -- -- --
Common stock............. 161 1 (1)(c) 161
Additional paid-in capi-
tal..................... 120,098 -- -- 120,098
Retained earnings (defi-
cit)..................... 3,671 (8,285) 8,285 (c) 3,671
Cumulative currency trans-
lation adjustment........ (790) -- -- (790)
-------- -------- --------
Total stockholders' eq-
uity.................. 123,140 (8,284) 123,140
-------- -------- --------
$405,992 $ 94,702 $487,322
======== ======== ========
</TABLE>
34
<PAGE>
- -------
(a) Reflects the incurrence of debt required to finance the Acquisition and
the net cash resulting from such borrowings after payment of the purchase
price and acquisition costs as follows:
<TABLE>
<S> <C>
Gross proceeds from the Offering................................. $100,000
Offering discount, consent, bank amendment and acquisition re-
lated fees...................................................... (7,700)
Repayment of unsecured bank borrowings and a portion of the ex-
isting bank credit facility..................................... (49,800)
Cost of Acquisition.............................................. (42,500)
</TABLE>
(b) The Acquisition was accounted for as a purchase pursuant to APB Opinion
No. 16, "Business Combinations." The purchase cost was allocated to the
assets and the liabilities of the Burns based on their relative fair
values. Such allocations are subject to final determination based on
valuations and other studies to be performed prior to the Closing. The
final values may differ from those set forth below.
Purchase cost:
<TABLE>
<S> <C>
Cash............................................................. $ 42,500
Purchase accounting reserves..................................... 11,000
Less estimated book value of net assets to be purchased.......... (42,500)
--------
Excess of purchase cost over book value.......................... $ 11,000
========
Allocation of excess of purchase cost over book value to assets
of the Company:
Property, plant and equipment, net............................... $ (7,500)
Other assets, primarily patents, processes, trademarks and other
intellectual properties......................................... 18,500
--------
Total............................................................ $ 11,000
========
</TABLE>
Purchase accounting reserves include the costs to implement the business
integration plan, including severance, relocation, systems conversion and
other business acquisition related costs.
(c) Eliminates advances from affiliates and Burns' intangible assets as of the
Closing and reflects the purchase of Burns' trade accounts receivable held
in trust pursuant to Eagle's existing asset securitization program.
35
<PAGE>
SELECTED FINANCIAL INFORMATION OF BEA
On February 28, 1992, BEA acquired from The Pullman Company certain assets
and liabilities of PTC Aerospace, Inc. ("PTC") and Aircraft Products Company
("APC") and changed its fiscal year-end to the last Saturday in February. On
April 2, 1992, BEA acquired the stock of Flight Equipment Engineering Limited
("FEEL"). During fiscal year 1994, BEA completed the following acquisitions:
On April 29, 1993, BEA acquired all of the stock of Royal Inventum, B.V.
("Inventum"); on August 23, 1993, BEA acquired all of the stock of Nordskog
Industries ("Nordskog"); on August 26, 1993, BEA acquired all of the stock of
Acurex Corporation ("Acurex"); and on October 13, 1993, BEA acquired
substantially all of the assets of Philips Airvision ("Airvision"). Each of
BEA's acquisitions has been accounted for as a purchase, and the results of
the acquired businesses are included in BEA's historical financial data from
the date of acquisition. The financial data for the fiscal years ended
February 25, 1995, February 26, 1994 and February 27, 1993, the seven months
ended February 29, 1992 and the fiscal years ended July 28, 1991 and July 29,
1990 have been derived from financial statements which have been audited by
BEA's independent auditors. The financial data for the nine months ended
November 25, 1995 and November 26, 1994 have been derived from financial
statements which are unaudited, but, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for such
periods. Operating results for the nine months ended November 25, 1995 and
November 26, 1994 are not necessarily indicative of results that may result
for a full year. The following financial information is qualified by reference
to, and should be read in conjunction with, the financial statements,
including notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED SEVEN MONTHS YEAR YEAR
-------------------------- --------------------------------------- ENDED ENDED ENDED
NOVEMBER 25, NOVEMBER 26, FEBRUARY 25, FEBRUARY 26, FEBRUARY 27, FEBRUARY 29, JULY 28, JULY 29,
1995 1994 1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------ -------- --------
(UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales............... $168,233 $170,045 $229,347 $203,364 $198,019 $12,192 $24,278 $22,944
Cost of sales........... 113,740 114,082 154,863 136,307 137,690 5,626 10,645 11,375
-------- -------- -------- -------- -------- -------- ------- -------
Gross profit............ 54,493 55,963 74,484 67,057 60,329 6,566 13,633 11,569
Operating expenses:
Selling, general and
administrative........ 25,247 23,898 31,787 28,164 21,698 4,871 (b) 3,609 3,425
Research and develop-
ment.................. 11,591 8,900 12,860 9,876 11,299 1,324 1,809 1,952
Amortization expense... 6,910 7,627 9,954 7,599 4,551 3,707 (b) 1,246 1,303
Other expenses......... 4,300(a) 23,736(a) 23,736(a) -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------- -------
Operating earnings
(loss)................. 6,445 (8,198) (3,853) 21,418 22,781 (3,336) 6,969 4,889
Interest (income) ex-
pense, net............. 12,386 11,080 15,019 12,581 3,955 (743) (211) 1,564
-------- -------- -------- -------- -------- -------- ------- -------
Earnings (loss) before
income taxes (benefit)
and extraordinary
item................... (5,941) (19,278) (18,872) 8,837 18,826 (2,593) 7,180 3,325
Income taxes (benefit).. (2,198) (6,747) (6,806) 3,481 6,676 (860) 2,478 1,012
-------- -------- -------- -------- -------- -------- ------- -------
Earnings (loss) before
extraordinary item..... (3,743) (12,531) (12,066) 5,356 12,150 (1,733) 4,702 2,313
Extraordinary item, net
of tax effect.......... -- -- -- -- (522)(c) -- -- 723
-------- -------- -------- -------- -------- -------- ------- -------
Net earnings (loss)..... $ (3,743) $(12,531) $(12,066) $5,356 $ 11,628 $ (1,733) $ 4,702 $ 1,590
======== ======== ======== ======== ======== ======== ======= =======
Net earnings (loss) per
common share:
Continuing operations.. $ (0.23) $ (0.78) $ (0.75) $ 0.35 $ 1.03 $ (0.18) $ 0.65 $ 0.43
Extraordinary item, net
of tax effect......... -- -- -- -- (0.05) -- -- (0.14)
-------- -------- -------- -------- -------- -------- ------- -------
Net earnings (loss) per
common share........... $ (0.23) $ (0.78) $ (0.75) $ 0.35 $ 0.98 $ (0.18) $ 0.65 $ 0.29
======== ======== ======== ======== ======== ======== ======= =======
Common and common
equivalent shares...... 16,111 16,075 16,021 15,438 11,847 9,604 7,248 5,425
BALANCE SHEET DATA
(END OF PERIOD):
Working capital......... $106,758 $ 65,855 $ 76,563 $ 76,874 $133,661 $ 27,367 $13,500 $ 7,361
Total assets............ 405,992 358,771 379,954 375,009 314,055 135,330 26,034 21,348
Long-term debt.......... 208,169 162,260 172,693 159,170 127,743 40,500 -- 1,627
Stockholders' equity.... 123,140 124,657 125,331 133,993 107,974 57,057 22,467 16,194
</TABLE>
- -------
(a) In fiscal 1996, in anticipation of the Acquisition, BEA recorded a charge
to earnings of $4.3 million related to costs associated with the
integration and consolidation of the Company's European seating
operations. In fiscal 1995, the Company charged to earnings $23.7 million
of expenses primarily related to intangible assets and inventories
associated with the Company's earlier generations of passenger
entertainment systems.
(b) During the seven months February 29, 1992, approximately $3.1 million of
nonrecurring expenses related to a writedown of intangible assets and $2.1
million of costs associated with the Company's acquisitions were charged
to amortization expense and selling, general and administrative expenses,
respectively.
(c) As a result of the sale of Senior Notes in 1993, the Company wrote off the
unamortized portion of certain debt issuance costs related to its prior
credit agreement.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
BEA has become the world's leading supplier of commercial aircraft interior
products through the strategic acquisitions of seating, inflight passenger
entertainment and services systems ("PESS") and galley products businesses.
BEA's products include an extensive line of first, business, tourist class and
commuter seats, complete galley systems including coffee and beverage makers,
ovens, liquid containers and refrigeration equipment, well as a line of
inflight entertainment products including the recently introduced MDDS. BEA
markets and sells its products to its customers, the airlines, through an
integrated worldwide approach, focused by airline and encompassing BEA's
entire product line.
BEA's revenues are generally derived from two primary sources: new aircraft
deliveries and refurbishment or upgrade programs for the airlines' existing
worldwide fleets. BEA believes its large installed base of products, estimated
to be approximately $1.8 billion as of November 25, 1995 (valued at
replacement prices), gives it a significant advantage over competitors in
obtaining orders for refurbishment programs, principally due to the tendency
of the airlines to purchase equipment for such programs from the original
supplier. With the exception of spare parts sales, BEA's revenues are
generated from programs initiated by the airlines which may vary significantly
from year to year in terms of size, mix of products and length of delivery. As
a result, BEA's revenues and margins may fluctuate from period to period based
upon the size and timing of the program and the type of products sold.
Historically, BEA 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. Changes in revenues by classes of product are the result of acquisitions
and volume demand in the industry, as more fully described in the Discussion
and Analysis that follows. 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, BEA experienced declines in the number of both new
orders and refurbishments.
The Company's customers are the world's commercial airlines. As a result,
the Company's business is directly dependent upon the conditions in the
commercial airline industry. In the late 1980's and early 1990's 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 is currently
experiencing an economic turnaround, with significantly improved results,
although the levels of airline spending on refurbishment and new aircraft
purchases continue to be below the levels experienced in the mid 1980's. A
number of world's airlines have placed significant orders for new aircraft
over the past 12 months, and some industry sources are now predicting that new
aircraft deliveries will increase by 10-15% per year over the next several
years. The Company stands to benefit from this trend to the extent that it
maintains its market shares and the airlines in fact continue to take
deliveries of a greater number of new aircraft. Due to the volatility of the
airline industry, there can be no assurance that the recent profitability of
the airline industry will continue or that the airlines will maintain or
increase expenditures on cabin interior products for refurbishments or new
aircraft.
Since early 1994, the airlines have experienced a significant turnaround in
operating results, with the domestic airline industry achieving record
operating earnings during the first nine months of 1995. The airline cabin
interior products industry business cycle, however, generally lags that of the
commercial airlines because of the airlines' practice of gradually
implementing refurbishment and replacement programs. Consequently, only in the
past nine months has BEA begun to experience growth in its backlog of seating
and galley products,
37
<PAGE>
representing the first time in over two years BEA has seen growth of new
seating orders in excess of shipments. Management believes that the growth in
backlog, which has historically preceded growth in BEA's revenues, is an early
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. The Company expects the recent backlog growth to begin to be reflected
in its operations beginning in its fiscal year commencing February 26, 1996 as
the products are delivered.
Notwithstanding the industry declines in recent years, BEA 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, BEA completed
the following acquisitions: 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. On August 23, 1993, the
Company acquired all of the capital stock of Nordskog, an industry pioneer in
galley structures and inserts. On August 26, 1993, the Company acquired all of
the capital stock of Acurex, the leading worldwide supplier of commercial
aircraft refrigeration products. On October 13, 1993, the Company acquired
substantially all of the assets and certain of the liabilities of Airvision, a
manufacturer of inflight entertainment equipment. 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 will significantly impact BEA's results of operations.
Management believes the incremental cash flow arising from Burns' existing
operations and further supplemented by the cost savings expected to be
realized upon the business combination will be substantial. BEA believes there
are significant opportunities and synergies in acquiring Burns. See "Unaudited
Pro Forma Combined Financial Information". Burns was one of the three leading
North American suppliers of commercial aircraft passenger seats, with a base
of airline customers that is largely complementary to that of BEA. BEA's and
Burns' approximate share of the worldwide seating products market are 30% and
20%, respectively, based on fiscal 1995 unit sales. In addition, seat
manufacturing capacity utilization at both Burns and BEA is approximately 50%.
By consolidating engineering, marketing, administration and manufacturing
operations of the two companies, BEA will be able to reduce fixed costs,
thereby enhancing its low cost position. Management believes that the combined
company also will have among the most advanced manufacturing facilities in the
commercial airline seating products industry. Following the Acquisition, the
Company will have a substantial base of prestigious airline customers,
including British Air, Cathay Pacific, Lufthansa, Singapore, United, JAL,
Southwest, KLM, Northwest, Delta and others.
BEA's business strategy is to maintain its market leadership position
through various initiatives, including new product development. Over the past
several years, new product development expenditures by BEA have increased and
have primarily consisted of costs related to the development of the MDDS, with
the balance attributable to its seating products and galley businesses. BEA
expenses its research, development and engineering costs as they are incurred,
except for costs related to the enhancement of existing products under
purchase orders from customers, which, following the completion of a working
prototype, are capitalized and included as a component of the inventories
associated with such programs. As the products are shipped, the costs are
deducted from inventories. As of November 25, 1995, approximately $45.1
million of such development costs were included in inventories and were
primarily related to the development of the MDDS. Management believes that the
majority of the engineering costs associated with the development of MDDS have
been incurred and any incremental spending necessary to complete the system
will be largely incurred by February 1996. Thereafter, Management expects its
development spending, as a percentage of sales, will return to historical
levels.
38
<PAGE>
RESULTS OF OPERATIONS--NINE MONTHS ENDED NOVEMBER 25, 1995 COMPARED WITH THE
NINE MONTHS ENDED NOVEMBER 26, 1994
Sales for the nine months ended November 25, 1995 were $168,233,000 or
$1,812,000 lower than sales of $170,045,000 for the comparable period in the
prior year. Sales in the current year were negatively impacted by a 10-week
strike at Boeing, which ended December 14, 1995.
At November 25, 1995 the Company's backlog stood at $369 million,
approximately 41% of which management believes to be deliverable in fiscal
1997, compared with a backlog of $331 million at February 25, 1995. During the
past nine months, for the first time in over two years, the airlines placed
orders for the Company's seating and galley products in excess of its shipment
levels, resulting in an increase in its seating and galley products backlog.
These orders, however, are not expected to materially impact the Company's
revenues until fiscal 1997 when they begin to be deliverable to the airlines.
Gross profit was $54,493,000 or 32% of sales, for the nine months ended
November 25, 1995 and was $1,470,000, or 3%, lower than gross profit for the
comparable period in the prior year of $55,963,000, which represented 33% of
sales. The decrease in gross profit is the result of the lower sales volume
along with the mix of products sold during the period.
Selling, general and administrative expenses were $25,247,000, or 15% of
sales, for the nine months ended November 25, 1995. This was $1,349,000 higher
than the comparable period in the prior year of $23,898,000 or 14% of sales,
principally due to higher promotional and selling costs associated with BEA's
participation in biannual industry trade show ($589,000) as well as higher
medical benefits costs incurred ($347,000) in the third quarter of fiscal
1996.
Research and development expenses were $11,591,000, or 7% of sales, for the
nine months ended November 25, 1995. For the comparable period in the prior
year, research and development expense was $8,900,000 or 5% of sales. The
increase in research and development expense during the current period is
primarily related to testing for the MDDS ($800,000), as well as research and
development for seating products ($1,685,000).
Amortization expense for the nine months ended November 25, 1995 of
$6,910,000 was $717,000 less than the amount recorded in the first nine months
of fiscal 1995 as a result of the lower level of intangible assets amortized
in the current period.
Other expenses were $4,300,000 for the nine months ended November 25, 1995
and relate to costs associated with the integration and consolidation of the
Company's European seating business in conjunction with the planned
acquisition of Burns. Other expenses for the nine months ended November 24,
1994 were $23,736,000 and related primarily to a charge associated with BEA's
earlier generations of passenger entertainment systems.
Operating earnings before other expenses for the nine month period ended
November 25, 1995 declined to $10,745,000 from $15,538,000 in the comparable
period of the prior year. This decrease was largely due to lower sales, a
lower gross margin and higher levels of research and development and selling,
general and administrative expenses.
Interest expense, net was $12,386,000 for the nine months ended November 25,
1995 or $1,306,000 higher than the net interest expense of $11,080,000
recorded for the comparable period in the prior year, and was principally due
to the increase in BEA's long-term outstanding debt during the current period
to finance the increase in inventory associated with the growth in the
Company's backlog.
Income tax benefit for the nine months ended November 25, 1995 was
($2,198,000) or 37% of loss before income taxes, as compared to income tax
benefit of ($6,747,000), or 35% of loss before income taxes, in the first nine
months of fiscal 1995.
The net loss of ($3,743,000) or ($.23) per share for the nine months ended
November 25, 1995 was $8,788,000 or $.55 per share less than the loss of the
prior year, primarily as a result of higher other expenses in the prior year.
39
<PAGE>
RESULTS OF OPERATIONS--YEAR ENDED FEBRUARY 25, 1995 (FISCAL 1995) COMPARED
WITH YEAR ENDED FEBRUARY 26, 1994 (FISCAL 1994)
Sales for the year ended February 25, 1995 were $229,347,000 or 13% higher
than sales of $203,364,000 in the prior year. The increase in sales was
primarily related to the results of operations of businesses acquired at the
end of the second quarter of fiscal 1994. The level of activity in the cabin
interior products industry continued to reflect the depressed conditions
within the airline industry.
At February 25, 1995, BEA's backlog stood at $331 million, up from $241
million at February 26, 1994. Substantially all of the growth in backlog was
attributable to BEA's inflight entertainment products; backlog for BEA's
seating and galley products continued to decline through fiscal 1995 as a
result of the depressed conditions present in the airline industry.
Gross profit was $74,484,000, or 32% of sales, for the year ended February
25, 1995 and was $7,427,000, or 11%, greater than the prior year's gross
profit of $67,057,000, which represented 33% of sales. The increase in gross
profit during the fiscal year ended February 25, 1995 was in large part the
result of higher revenues associated with the businesses acquired at the end
of the second quarter of fiscal 1994.
Selling, general and administrative expenses were $31,787,000, or 14% of
sales, for the year ended February 25, 1995. This was $3,623,000, or 13%,
higher than the selling, general and administrative expenses for the
comparable period in the prior year of $28,164,000 (14% of sales), principally
due to the acquisitions completed during fiscal 1995.
Research and development expenses were $12,860,000, or 6% of sales, for the
fiscal year ended February 25, 1995. For the prior year, research and
development expenses were $9,876,000, or 5% of sales. The increase in research
and development was attributable to BEA's ongoing new product development
programs.
Amortization expense for the fiscal year ended February 25, 1995 of
$9,954,000 was $2,355,000, or 31%, higher than the amount recorded in the
prior year, and was due to the acquisitions completed during fiscal 1995.
Other expenses consisted of a charge of $23,736,000 related primarily to
intangible assets and inventories associated with BEA's earlier generations of
passenger entertainment systems. The introduction of BEA's MDDS, which BEA
expects to become the industry's standard for inflight passenger and service
entertainment, has captured the dominant market share with it receiving
contract awards from major airlines totaling more than $150 million during the
fiscal year ended February 25, 1995. The MDDS also caused major carriers to
convert programs for earlier products of BEA to the MDDS and has resulted in
two of BEA's principal competitors offering to develop for the airlines
systems similar to BEA's MDDS. These events caused the inflight entertainment
industry to re-evaluate its product offerings and, in the process, have
impaired the value of certain of its assets. As a result, BEA has written down
certain of its assets principally related to its earlier systems.
Principally due to the other expenses described above, BEA recorded a net
operating loss of ($3,853,000) for the fiscal year ended February 25, 1995, as
compared to operating earnings of $21,418,000 in the prior year. Operating
earnings for the period before the special charge mentioned above were
$19,883,000.
Net interest expense of $15,019,000 for the fiscal year ended February 25,
1995 was $2,438,000, or 19%, higher than the prior year. This increase was the
result of an increase in the amount of BEA's long-term debt outstanding, as
well as higher interest rates.
An income tax benefit of ($6,806,000) (36% of the loss before income taxes)
was recognized principally as the result of the charge described above. Income
tax expense for the fiscal year ended February 26, 1994 was $3,481,000 or 39%
of earnings before income taxes.
The net loss for fiscal 1995 was $(12,066,000) or $(.75) per share as
compared to net earnings of $5,356,000 or $.35 per share in the prior year,
principally due to the charge.
40
<PAGE>
RESULTS OF OPERATIONS--YEAR ENDED FEBRUARY 26, 1994 (FISCAL 1994) COMPARED
WITH YEAR ENDED FEBRUARY 27, 1993 (FISCAL 1993)
Sales for the fiscal year ended February 26, 1994 were $203,364,000 or 3%
higher than sales of $198,019,000 for the prior year. Decreases in sales of
seating and galley products were more than offset by revenues from the
acquisitions completed during fiscal 1994. The sales performance during fiscal
1994 reflected the steep decline in new aircraft shipments to the airlines
generally, the delays by the airlines in placing orders associated with BEA's
refurbishment, retrofit and spares programs and the timing of scheduled
shipments within its backlog.
At February 26, 1994, BEA's backlog stood at $241 million, which was up from
$191 million at February 27, 1993, but reflects a decline of approximately $11
million from the prior quarter. This reversal in backlog growth and actual
decrease versus the backlog level at November 27, 1993 reflected the airline
environment in which programs were deferred by the airlines due to their
financial status.
Gross profit was $67,057,000, or 33% of sales, for fiscal 1994 and was
$6,728,000, or 11%, higher than the prior year's gross profit of $60,329,000,
which represented 30% of sales. The increase in gross profit during fiscal
1994 was due principally to revenue mix and lower manufacturing costs
associated with certain products.
Selling, general and administrative expenses were $28,164,000, or 14% of
sales, for fiscal 1994. This was $6,466,000, or 30%, higher than selling,
general and administrative expenses for the prior year of $21,698,000 (11% of
sales), principally due to the acquisitions completed during fiscal 1994.
Research and development expenses were $9,876,000, or 5% of sales, for
fiscal 1994. Research and development expenses were $11,299,000, or 6% of
sales, for the prior year. The change in spending between the years is
reflective of the status of BEA's various research and development programs.
Amortization expense for fiscal 1994 of $7,599,000 was $3,048,000, or 67%,
higher than the amount recorded in fiscal 1993. The increase in amortization
expense was due to higher levels of intangible assets resulting from the
acquisitions completed during fiscal 1994.
Operating earnings for the fiscal year ended February 24, 1994 were
$21,418,000 or $1,363,000 less than the prior year.
Net interest expense of $12,581,000 for fiscal 1994 was $8,626,000, or 218%,
higher than net interest expense of $3,955,000 recorded for the prior year,
and was due to the increase in BEA's long-term debt outstanding during fiscal
1994, principally related to the issuance of the Senior Notes. The proceeds
from the sale of BEA's Senior Notes that had not been deployed in its business
were invested in interest-bearing cash equivalents during fiscal 1994 at an
average rate of approximately 3%. Interest income related to these cash
equivalents during fiscal 1994 was $1,506,000.
Income tax expense for fiscal 1994 was $3,481,000, or 39% of earnings before
income taxes, as compared to a tax rate of 35% for fiscal 1993. The increase
in the effective tax rate during 1994 increase was due principally to the
nondeductible portion of amortization expense associated with the acquisitions
completed by BEA during fiscal 1994.
Net earnings were $5,356,000 or $.35 per share for fiscal 1994 as compared
to $11,628,000 or $.98 per share in the prior year. The decrease in earnings
per share reflects the impact of lower net earnings, as well as a 30% increase
in the number of common and common equivalent shares from year to year.
41
<PAGE>
BURNS' RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED
WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1994
Net sales for the nine months ended September 30, 1995 were $75,768,000 or
10% higher than net sales of $69,213,000 for the comparable period in the
prior year. The increase was primarily attributable to the introduction of new
business class and tourist class seating programs. In addition, Burns
commenced delivery in 1995 under a contract from a major international airline
to supply a large retrofit program utilizing the new business class product.
Gross profit was $13,754,000, or 18% of net sales, for the nine months ended
September 30, 1995 and was $1,016,000, or 8%, higher than gross profit for the
comparable period in the prior year of $12,738,000 which represented 18% of
net sales. The increase in gross profit was the result of higher net sales,
partially offset by launch costs associated with the introduction of new
business class and tourist class seating programs during 1995.
Operating income before management fees decreased by $94,000 to $1,963,000,
from $2,057,000 in the 1994 period, due to the increased sales volume being
offset by additional development costs for the new convertible seating and the
new tourist class seat.
Management fees to affiliate were $2,280,000 for the nine months ended
September 30, 1995 or $1,079,000 less than the $3,359,000 charged to Burns in
the 1994 period.
Net interest expense was $5,875,000 for the nine months ended September 30,
1995, or $1,226,000 higher than the net interest expense of $4,649,000
recorded for the comparable period in the prior year. Interest expense of
Burns was attributable to intercompany indebtedness. The increase was due to
higher average balances due to affiliates and higher average interest rates.
Income tax benefit for the nine months ended September 30, 1995 was
($1,960,000), or 32% of loss before income taxes, as compared to income tax
benefit of ($2,074,000), or 35% of loss before income taxes for the comparable
period in 1994.
Burns' net loss of ($4,232,000) for the nine months ended September 30, 1995
was $355,000 greater than the net loss of ($3,877,000) in the comparable
period in 1994, primarily as a result of the increase in net interest expense,
offset in part by the decrease in management fees to affiliate.
BURNS' RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR
ENDED DECEMBER 31, 1993
Net sales for the year ended December 31, 1994 were $93,494,000 or 40%
higher than net sales of $66,902,000 in the prior year. The increase was
primarily attributable to the introduction of a convertible seat which permits
conversion of airline seats between tourist and business classes.
Gross profit was $17,614,00, or 19% of net sales, for 1994 and was
$5,888,000, or 50%, higher than gross profit for 1993 of $11,726,000, which
represented 18% of net sales. The increase in gross profit is the result of
higher net sales based on the number of units shipped.
Operating income before management fees increased by $2,910,000 to
$3,023,000, from $113,000 in 1993, due to the increased gross profit,
partially offset by increased selling, general and administrative expenses and
a litigation-related charge of approximately $850,000.
Management fees to affiliate were $3,359,000 in fiscal 1994, or 134% higher
than $1,434,000 in fiscal 1993. The management fees have been charged to Burns
by its parent on an annual basis in the third quarter of every year.
42
<PAGE>
Net interest expense of $6,374,000 for the year ended December 31, 1994 was
$2,171,000, or 52%, higher than the prior year. The increase was due to higher
weighted average interest rates, partially offset by lower average balances
due to affiliates.
Income tax benefit for fiscal 1994 was ($2,200,000), or 33% of loss before
income taxes, as compared to income tax benefit of ($1,268,000), or 23% of
loss before income taxes for fiscal 1993.
Burns' net loss of ($4,510,000) for fiscal 1994 was $1,643,000 better than
the net loss of ($6,153,000) in fiscal 1993, primarily as a result of
increased gross profit and the non-recurrence of the changes in accounting
principles in 1993 (as described below), partially offset by the increase in
management fees and net interest expense.
BURNS' RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1993, COMPARED WITH YEAR
ENDED DECEMBER 31, 1992
Net sales for the year ended December 31, 1993 were $66,902,000 or 32% lower
than net sales of $98,185,000 in the prior year. The decrease was primarily
attributable to a steep decline in new aircraft deliveries as well as the
conclusion of a major fleet retrofit program involving tourist class seats
that started in 1991. Tourist class seat and cabin maintenance and upgrade
services decreased $21,000,000 and $4,100,000, respectively.
Gross profit was $11,726,000, or 18% of net sales, for 1993 and was
$2,603,000, or 18%, lower than gross profit for 1992 of $14,329,000, which
represented 15% of net sales. The decrease in gross profit is the result of
lower net sales along with additional product launch costs incurred during the
period.
Operating income before management fees decreased by $863,000 to $113,000,
from $976,000 in 1992, due to the decreased gross profit, partially offset by
decreased selling, general and administrative expenses.
Management fees to affiliate were $1,434,000 in fiscal 1993, or 14% lower
than $1,675,000 in fiscal 1992.
Net interest expense of $4,203,000 for the year ended December 31, 1993 was
$70,000, or 2%, higher than the prior year.
Income tax benefit for fiscal 1993 was ($1,268,000), or 23% of loss before
income taxes, as compared to income tax benefit of ($730,000), or 15% of loss
before income taxes for fiscal 1992. The 1992 period benefitted from the
utilization of net operating losses arising in prior periods.
Effective January 1, 1993, Burns adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
resulted in a decrease in net deferred tax assets of $1,800,000 and a
corresponding charge of $1,800,000. In addition, effective December 31, 1993,
Burns adopted Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits," resulting in an increase in long-term
liabilities of $97,000 and a corresponding charge of $97,000.
Burns' net loss of ($6,153,000) for fiscal 1993 was $2,051,000 greater than
the net loss of ($4,102,000) in fiscal 1992, primarily as a result of the
change in accounting principles described above.
LIQUIDITY AND CAPITAL RESOURCES
BEA's primary requirements for working capital have been directly related to
its accounts receivable and inventory levels, costs associated with the design
and development of the MDDS and other products and scheduled interest payments
on its indebtedness. BEA's working capital was $106,758,000 as of November 25,
1995 compared to $76,563,000 as of February 25, 1995.
In October 1993, BEA obtained credit facilities aggregating $85,000,000. The
credit facilities are comprised of two revolving lines of credit, initially
aggregating $40,000,000 and $45,000,000. The $40,000,000 revolving
43
<PAGE>
line of credit is collateralized by the stock of a wholly owned subsidiary and
may be borrowed and repaid in $1,000,000 increments and has decreasing
availability through November 1998. The $45,000,000 revolving line of credit
may be borrowed in $1,000,000 increments, is subject to borrowing base
calculations set forth in the credit facility agreement, is collateralized by
substantially all BEA's assets and is due and payable in full in November
1998. The credit facilities bear interest at prime plus .50% or, at BEA's
option, LIBOR plus 1.75%, in each case, subject to BEA's credit rating. As of
November 25, 1995, the availability under the $40,000,000 revolving line of
credit had been reduced to $28,000,000, resulting in a total credit facility
aggregating $73,000,000, of which $61,000,000 was outstanding.
Contemporaneously with the Offering the Company's existing credit facilities
were replaced with the Bank Credit Facility described below.
The Company's liquidity requirements consist primarily of working capital
needs and scheduled payments of interest on its indebtedness and costs
associated with integrating the Burns Acquisition. As a result of the
Acquisition, the Company will have significantly increased cash requirements
for the payment of interest on its outstanding borrowings. Based on interest
rates in effect upon completion of the Acquisition, assuming no changes in
borrowings under the Bank Credit Facility, cash requirements for debt service
would be approximately $26.4 million, $26.2 million, $26.2 million, $26.1
million and $46 million for fiscal years 1997 through 2001, respectively. No
principal payments are required for any of the borrowings under the Old Notes,
New Notes and Bank Credit Facility until February, 2001 at which time any
unpaid principal under the Bank Credit Facility will be due and payable.
At February 25, 1995, the Company's cash and cash equivalents were
$8,319,000 compared to $13,738,000 at February 26, 1994 and $14,270,000 at
February 27, 1993. Cash used in operating activities in the nine months ended
November 25, 1995 was $22,980,000 and cash provided by operating activities in
1995 was $2,056,000 compared to $5,791,000 in 1994 and $5,405,000 in 1993. The
primary source of cash during the nine months ended November 25, 1995 was a
non-cash charge for depreciation and amortization of $14,003,000 which was
offset by a use of cash for inventory of $32,722,000. The primary sources of
cash from operations were non-cash charges for depreciation and amortization
and changes in intangible assets. Significant changes in operating assets
during 1995 were the increase in inventories of $16,863,000 million offset by
a decrease in accounts receivable of $6,226,000 and an increase in accounts
payable of $7,295,000. Significant changes in operating assets during 1994
were the increase in inventories and accounts receivable of $4,153,000 and
$3,188,000, respectively and the decrease in other liabilities of $9,071,000
offset by an increase in accounts payable of $6,056,000. Significant changes
in operating assets during 1993 were the increase in accounts receivable of
$11,655,000 and the decrease in other liabilities of $7,202,000.
The Company's capital expenditures were $13,654,000 during the nine months
ended November 25, 1995 and $12,172,000, $11,002,000 and $7,343,000 in 1995,
1994 and 1993, respectively. Also, the Company used cash in certain
acquisitions amounting to $107,506,000 and $18,300,000 in 1994 and 1993,
respectively.
The Company's net borrowings (payments) amounted to $36,310,000 during the
nine months ended November 25, 1995 and $12,953,000, $116,495,000 and
$(6,495,000) during 1995, 1994 and 1993, respectively. The Company also raised
$40,061,000 during 1993 in proceeds from the sale of stock.
Contemporaneously with the Offering the Company amended its existing credit
facilities by increasing the aggregate principal amount that may be borrowed
thereunder to $100,000,000 (the "Bank Credit Facility"). The Bank Credit
Facility consists of the $25,000,000 Reducing Revolver and the $75,000,000
Revolving Facility. The amount of the Reducing Revolver will be reduced
automatically by 12.5% on April 19, 1999 and on each of the seven succeeding
quarterly anniversaries of such date. The Reducing Revolver is collateralized
by all of the issued and outstanding capital stock of Acurex and has a five
year maturity, with the commitments of the lenders thereunder reducing during
such five year period, and the Revolving Facility is collateralized by all of
the Company's accounts receivable, all of its inventory and substantially all
of its other personal property and has a five year maturity. The Bank Credit
Facility contains customary affirmative covenants, negative covenants and
conditions of borrowing. At November 25, 1995, the Company also had a
$10,000,000 unsecured borrowing facility which was repaid in connection with
the execution of the Bank Credit Facility. The net proceeds of the Offering
were used in part to repay all the unsecured indebtedness of BEA and a portion
of the borrowings
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outstanding under existing credit facilities. See "Use of Proceeds".
Borrowings under the Bank Credit Facility were used to refinance the remaining
borrowings under BEA's pre-Acquisition credit facilities. Upon the
consummation of the Acquisition and the Offering indebtedness in an aggregate
principal amount of approximately $29,000,000, including letters of credit
amounting to approximately $6,000,000, will be outstanding under the Bank
Credit Facility. See "Description of Certain Indebtedness."
The Company expects that its capital expenditures for the fourth quarter of
fiscal 1996 will be approximately $4,000,000. These capital expenditures will
relate principally to maintenance of operations and development of new product
applications. During the next two fiscal years, the Company expects that
annual capital expenditures will be approximately $14,000,000 per year.
The Company believes that cash flow from operations and availability under
the Bank Credit Facility provide adequate funds for its working capital needs,
planned capital expenditures and debt services obligations through the term of
the Bank Credit Facility. The Company believes that it will be able to
refinance the Bank Credit Facility prior to its termination, although there
can be no assurance that it will be able to do so. The Company's ability to
fund its operations and make planned capital expenditures, to make scheduled
payments and to refinance its indebtedness depends on its future operating
performance and cash flow, which, in turn, are subject to prevailing economic
conditions and to financial, business and other factors, some of which are
beyond its control.
The foregoing statements include forward-looking statements which involve
risks and uncertainties. The Company's actual experience may differ materially
from that discussed above. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors" as well as future
events that have the effect of reducing the Company's available cash balances,
such as unexpected operating losses or capital expenditures or cash
expenditures related to possible future acquisitions.
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BUSINESS
INDUSTRY OVERVIEW
The commercial aircraft cabin interior products industry encompasses a broad
range of products and services, including not only aircraft seating products,
passenger entertainment and service systems, and food and beverage preparation
and storage systems, but also lavatories, lighting systems, evacuation
equipment and overhead bins. Management estimates that the industry had annual
sales in excess of one billion dollars during fiscal 1995.
Historically, revenues in the cabin interior products industry have been
derived from five sources: (i) new installation programs in which airlines
purchase new equipment to outfit a newly delivered aircraft; (ii) retrofit
programs in which airlines purchase new components to overhaul completely the
interiors of aircraft already in service; (iii) refurbishment programs in
which airlines purchase components and services to improve the appearance and
functionality of certain cabin interior equipment; (iv) spare parts; and (v)
technology upgrades. The retrofit and refurbishment cycles for commercial
aircraft cabin interior products differ by product category. Aircraft seating
typically has a refurbishment cycle of one to two years and a retrofit cycle
of seven to eight years, although in recent years these periods have tended to
be extended. See "--Recent Industry Conditions." Galley structures and
products are periodically upgraded or repaired, and require a continual flow
of spare parts, but may be retrofitted only once or twice during the life of
the aircraft.
The various product categories currently manufactured by the Company
include:
. AIRCRAFT SEATS. This is the largest single product category in the
industry and includes first class, business class, tourist class and
commuter seats. Prices range from $750 to $10,000 per seat. Management
estimates that the aggregate size of the worldwide aircraft seat market
(including spare parts) during fiscal 1995, which still reflected
depressed economic conditions stemming from the recent airline industry
downturn, was in excess of $400 million, and has ranged as high as
approximately $510 million in the past five years. Approximately 14
companies worldwide, including the Company, supply aircraft seats,
although the Company and three other competitors share approximately 90%
of the market.
. PASSENGER ENTERTAINMENT AND SERVICE SYSTEMS. 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. Individual passenger
inflight entertainment systems currently range in price from
approximately $2,500 to $7,000 per seat. Prices for PCUs range from
$18,000 to $115,000 per aircraft. Management estimates that the aggregate
size of the worldwide PESS market was approximately $210 million during
fiscal 1995. Industry sources expect the PESS market to increase
substantially in the near term as individual passenger entertainment
systems become common inflight entertainment equipment in first, business
and tourist classes on wide body, and with the advent of live broadcast
inflight television, many narrow body aircraft. PESS products are
currently supplied by approximately five companies worldwide, including
the Company.
. GALLEY PRODUCTS. This product category includes complete galley systems
for both narrow and wide body aircraft, including a wide selection of
coffee and beverage makers, water boilers, ovens, liquid containers, air
chillers, wine coolers and other refrigeration equipment and other galley
components. Prices for coffee makers and ovens range from $3,000 to
$10,000. Prices for aircraft refrigeration products range from $13,000 to
$28,000. Prices for complete aircraft galley systems range from $120,000
for narrow body aircraft to $1,000,000 for wide body aircraft. Management
estimates that the aggregate size of the worldwide galley equipment
market during fiscal 1995 was in excess of $240 million and has ranged as
high as approximately $300 million during the past five years. Sales of
galley products tend to correlate closely with deliveries of new aircraft
to the airlines. Approximately 38 companies worldwide, including BEA,
supply galley equipment to the airline industry.
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The Company operates in the commercial aircraft cabin interior products
segment of the commercial airlines supplier industry. Revenues for similar
classes of products or services within this business segment nine months ended
November, 1995 and 1994 and for the three most recent years are presented
below:
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
NOVEMBER FISCAL YEAR
--------- ---------------------
1995 1994 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Seating Products............................... $68 $75 $100 $99 $118
Galley Products................................ 58 58 81 59 39
Passenger Entertainment and Service Systems.... 24 27 34 36 39
Services....................................... 18 10 14 9 2
</TABLE>
RECENT INDUSTRY CONDITIONS
The Company's principal customers are the world's commercial airlines. The
airlines, particularly the U.S. carriers, incurred record losses during the
three-year period ended December 31, 1993. The losses incurred during the
downturn seriously impaired airline balance sheets and negatively influenced
airline purchasing decisions with respect to both new aircraft and
refurbishment programs. The domestic airlines in large part returned to
profitable operations during calendar 1994 and have started to restore their
balance sheets since then through cash generated from operations and debt and
equity placements. Further, in the first calendar quarter of 1995 the airframe
manufacturers began receiving 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 Current Market Outlook
published by the Boeing Commercial Airplane Group in 1995 (the "Boeing
Report"), the world commercial passenger aircraft fleet, as of the end of
1994, consisted of 10,629 aircraft, including 3,087 aircraft with fewer
than 120 seats, 5,207 aircraft with between 120 and 240 seats and 2,335
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 $6.7 billion at the end of 1994. 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 2014, increasing annual revenue passenger miles
from approximately 1.3 trillion in 1993 to approximately 3.8 trillion by
2014. The Company believes, based upon industry sources, that the
airlines are already experiencing extremely high load factors, and that a
significant number of new aircraft will need to be purchased to meet this
projected growth in air travel. According to the Boeing Report, the
worldwide fleet of commercial passenger aircraft is consequently
projected to expand from approximately 10,600 at the end of 1994 to
approximately 14,600 by the end of 2004. According to Airbus Industrie
Global Market Forecast published in March 1995 (the "Airbus Industrie
Report"), the worldwide installed seat base is expected to increase from
approximately 1.6 million passenger seats at the end of 1994 to
approximately 4.0 million passenger seats at the end of 2014. The
expanding worldwide fleet will generate additional revenues from new
installation programs, and the increase in the size of the installed base
will generate additional and continual retrofit, refurbishment and spare
parts revenue.
. Wide Body Aircraft Orders. Orders for wide body, long-haul aircraft
constitute an increasing share of total new airframe orders. The Airbus
Industrie Report estimates that approximately 7,300 new wide body
aircraft will be introduced into the world commercial aircraft fleet
between 1994 and 2014, increasing the wide body portion of the worldwide
aircraft fleet from 28% in 1994 to an estimated 46% by 2014. Wide body
aircraft currently carry up to three times the number of seats as narrow
body aircraft, and because of multiple classes of service, including
large first class and business class configurations, the Company's
average revenue per seat on wide body aircraft is also higher. Aircraft
crews on wide body aircraft may make and serve between 300 and 900 meals
and may brew and serve more than 2,000 cups of coffee on a single flight.
As a result, wide body aircraft may require as much as seven times the
dollar value of
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cabin interior products as narrow body aircraft, as well as products which
are technically more sophisticated and typically more expensive. Further,
individual passsenger inflight entertainment systems are installed
principally on wide body aircraft. Airlines are increasingly demanding
such systems for long-haul flights to attract and retain customers,
especially as the quality of inflight 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 entertainment systems will be installed on
essentially all wide body, and, with the advent of live broadcast inflight
television, many narrow body planes covering all classes of service
(first, business and tourist).
. New Product Development. The commercial aircraft cabin interior products
industry is engaged in intensive development and marketing efforts for a
number of new products, including convertible seats, interactive
individual passenger entertainment systems, advanced telecommunications
equipment and new galley equipment. Interactive video technology provides
a passenger with a wide range of computer capabilities, which are
designed to accept information generated by the passenger and communicate
such information to the cabin crew for assisting passengers and crew with
food service selection, the purchase of duty-free goods, information in
connection with the arrival time, connecting flights, gate and other
passenger information, as well as facilitate effective on-board inventory
control and provide individual entertainment. New cabin interior products
will generate new installation and retrofit revenues as well as service
revenues from equipment maintenance, inspection and repair.
. Growing Upgrade, Maintenance, Inspection and Repair Service
Markets. Historically, the airlines have relied on their airframe and
engine mechanics to repair or replace cabin interior products that have
become damaged or otherwise non-functional. As cabin interior product
configurations have become increasingly sophisticated and the airline
industry increasingly competitive, the airlines have begun to outsource
such services in order to increase productivity and reduce costs and
overhead. Outsourced services include product upgrades (such as the
installation of a telecommunications module or individual passenger
entertainment unit in an aircraft seat not originally designed to
accommodate such equipment), cabin interior product maintenance and
inspection, as well as other repair services.
COMPETITIVE STRENGTHS AND BUSINESS STRATEGY
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
. Leading Market Share and Significant Installed Base. Management believes
that the Company has achieved the leading global market positions in
each of its major product categories, with market shares, based upon
industry sources, of approximately 50% in aircraft seats (pro forma for
the Acquisition), 90% in coffee makers, 90% in refrigeration equipment
and 50% in ovens, in each case based on fiscal 1995 unit sales, and 33%
in individual passenger inflight entertainment systems, determined on
the basis of installed base as of October 1995. The Company believes
these market shares enable it to maintain significant competitive
advantages in serving its customers, including manufacturing
efficiencies and greater product development and marketing resources.
The Company also believes that the small size of the total potential
market in each product category, together with its large shares of such
markets serve as a deterrent to new market entrants. For example, the
total potential annual market for coffee makers, ovens and refrigeration
equipment are each less than $25 million, with the Company's shares of
such markets ranging from 50% to 90%. Furthermore, because of economies
of scale, in part attributable to such large market shares and its
approximate $1.8 billion installed base of cabin interior equipment
(valued at replacement prices), the Company believes it is among the
lowest cost producers in the cabin interior products industry. The
Company believes that its large installed base gives it a significant
advantage over competitors in obtaining orders for retrofit and
refurbishment programs, principally because of the tendency of the
airlines to purchase equipment for such programs from the original
supplier. In addition, because of the need for compatible spare parts at
airline maintenance depots and the desire of airlines to maximize fleet
commonality, a single vendor is typically used for all aircraft of the
same type operated by a particular airline.
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. Broadest Product Line in the Industry. Management believes the Company
offers more products for the cabin interiors of commercial aircraft than
any other manufacturer. With an established reputation for quality,
service and product innovation, the Company enjoys broad recognition
among the world's commercial airlines. The Company maintains a constant
dialogue with a wide array of existing and potential customers, enabling
it to become aware of emerging industry trends and needs and thereby to
play a major 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. The Company
believes that it is the only supplier in the industry with the
technology, manufacturing capability and capacity and breadth of
products and services to meet these industry demands.
. Technological Leadership/New Product Development. Management believes
that the Company is a technological leader in its industry, which
contributes to its market leadership. The Company has state-of-the-art
facilities and what it believes to be the largest R&D organization in
the industry, with BEA employing approximately 420 engineers. The
Company 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. Through its on-site customer
engineers, the Company expects to be able more efficiently to design and
integrate products which address the requirements of its customers. The
Company believes that the introduction of innovative products enables it
to gain early entrant advantages and substantial market shares. An
example of such a product introduction is the Company's original
individual passenger inflight entertainment system, introduced in 1992,
which offers a selection of preprogrammed movies. The Company believes
that, in terms of shipments, it is the market leader, having sold more
individual passenger inflight entertainment systems than any of its
competitors. The next generation of this product is the Company's
recently introduced interactive individual passenger inflight
entertainment system, the MDDS, which it believes is superior to
existing operational systems in terms of performance, reliability,
weight, heat generation, and flexibility to adapt to changing
technology. Other recent new product developments include a
cappuccino/espresso maker, a refrigerated quick chill wine cooling
system and a constant pressure cooking oven which the Company believes
substantially improves the appearance, aroma and taste of airline food.
. High Growth New Business Opportunity. Airlines are increasingly
demanding individual passenger inflight entertainment systems for long-
haul flights to attract and retain customers, especially as the quality
of inflight 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 the services
used. For these reasons, the Company believes that in the future,
interactive entertainment systems will be installed on essentially all
wide body, and with the advent of live broadcast inflight television,
many narrow body planes. The Company's sophisticated MDDS has the
capability to offer numerous movies on demand, telecommunications,
gaming, Nintendo (R), Sega (R) and PC-based games, inflight shopping
and, in the future, live television, among other services, although each
airline will select the package of features it considers most attractive
to offer. This system has been tested for British Air in flight
simulations in excess of a thousand hours, and was first installed on a
limited basis on a British Air Boeing 747-400 in November 1995. The
Company expects that, upon the successful completion of a commercial
testing period, British Air will install the MDDS in all classes of
service in approximately 80 wide body British Air planes over the next
several years. The Company expects sales of this system to account for a
significant percentage of revenues in the future. Based on an estimated
current average sale price per seat of $2,500 to $7,000 for individual
passenger inflight entertainment systems, and the world's current wide
body fleet of approximately 2,500 planes that management believes are
appropriate for installation of such systems, the total market potential
for all such systems is estimated to be between $2 billion and $6
billion.
. Proven Track Record of Integration. The Company has as one of its key
corporate objectives the continual expansion of its product lines and
market shares through strategic acquisitions within the
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aircraft cabin interior products industry. BEA has purchased eight
businesses over the last seven years, for an aggregate purchase price of
approximately $250 million. The Company maintains a highly disciplined
approach in evaluating acquisitions, looking for opportunities to
consolidate engineering, manufacturing and marketing activities, as well
as rationalizing product lines. Since 1989, BEA has integrated each of
the additional businesses by reducing the number of operating facilities
acquired from 14 to six and consolidating personnel at the acquired
businesses, resulting in headcount reductions of approximately 800
employees. Upon the acquisition of Burns, the Company is implementing a
similar integration plan consisting of, among other things, the
reduction of headcount by approximately 300 employees. The integration
plan, when fully implemented, is expected to reduce costs by an
estimated $17 million per annum. See "Unaudited Pro Forma Combined
Financial Information".
The Company's business strategy is to maintain its leadership position and
best serve its airline customers by (i) offering the broadest and most
integrated product line in the industry for both new product sales and follow-
on products and services; (ii) pursuing a worldwide marketing approach focused
by airline and encompassing the Company's entire product line; (iii) remaining
the technological leader, as well as significantly growing its installed base
of products in the developing inflight individual passenger entertainment
market; (iv) enhancing its position in the growing upgrade, maintenance,
inspection and repair services market; and (v) pursuing selective strategic
acquisitions in the commercial aircraft cabin interior products industry.
PRODUCTS AND SERVICES
BE Aerospace is the largest supplier of commercial aircraft cabin interior
products in the world, serving virtually all major airlines with a broad line
of products including aircraft seats, galley products and structures and
individual passenger inflight entertainment systems. In addition, BEA provides
upgrade, maintenance and repair services for the interior products it
supplies, as well as for those supplied by other manufacturers. Over half of
BEA's revenues and over 65% of its operating earnings in fiscal 1995 were
derived from repair and refurbishment and sales of spare parts largely
relating to its approximate $1.8 billion installed base of currently in-
service products (valued at replacement prices), and the balance from sales of
products to be installed on newly delivered aircraft.
Seating Products
The Company is the world's leading supplier of aircraft seats, offering a
wide selection of first class, business class, tourist class and commuter
seats. A typical seat sold by the Company includes the seat frame, cushions,
armrests and tray table, together with a variety of optional features such as
inflight entertainment systems, oxygen masks and telephones. Management
estimates that the Company has an aggregate installed base of aircraft seats,
valued at replacement prices, of approximately $938 million comprised of more
than 670,000 seats, of which $343 million and 245,000 seats are attributable
to Burns.
. TOURIST CLASS. The Company is the leading supplier of tourist class seats
in both the U.S. and worldwide markets. BEA has designed tourist class
seats which incorporate features not previously utilized in that class,
such as top-mounted passenger control units, footrests and improved
oxygen systems.
. FIRST AND BUSINESS CLASSES. First class and business class seats are
generally larger, heavier and more complicated in design, and are
substantially more expensive than other types of aircraft seats. The
Company's first class seats and certain of its business class seats are
equipped with an articulating bottom cushion suspension system,
sophisticated hydraulic leg-rests and large tables.
. CONVERTIBLE SEATS. The Company has developed two types of seats which can
be converted from a tourist class triple-row seat to a business class
double-row seat with minimal conversion complexity. Convertible seats
allow airline customers to optimize the ratio of business class to
tourist class seats for a given aircraft configuration.
. COMMUTER SEATS. The Company is the leading supplier 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.
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. SPARES. Aircraft seats are exposed to significant stress in the course of
normal passenger activity, and certain seat parts are particularly
susceptible to damage from continued use. As a result, a significant
market exists for spare parts.
Passenger Entertainment and Service Systems
The Company is a significant supplier of PESS products, having the leading
share of the market for PCUs and related wiring and harness assemblies. In
addition, it 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. Management estimates that
the Company has the largest installed base of PESS products in the world,
which, valued at replacement prices, is approximately $215 million.
. INDIVIDUAL PASSENGER ENTERTAINMENT. The Company offers both its
sophisticated MDDS and its original BE 2000 video system. Management
believes that its MDDS has significant advantages over competitive
systems in terms of performance, reliability, weight, heat generation and
flexibility to adapt to changing technology. This system was first
installed on a limited basis on a British Air Boeing 747-400 in November
1995.
. PCUS, WIRING AND HARNESS ASSEMBLIES. The Company's PCU product line is
the broadest in the industry, including over 300 different designs which
are functionally similar but differ widely due to the style preferences
and technical requirements of the various airlines. Wiring and harness
assemblies (which stabilize installed wiring) are sold as a package with
PCUs and vary as widely as PCU types.
. DISTRIBUTION SYSTEMS. The Company has manufactured hard-wired audio
(since 1963) and video distribution systems (since 1992) and is currently
the principal supplier of such systems to the airline industry. The
Company also offers frequency division multiplex distribution systems
which deliver substantially improved audio performance compared to
competitors' multiplex systems.
Galley Structures and Inserts
The Company is a leading supplier of galley products, offering complete
galley systems for both narrow and wide body aircraft, as well as a wide
selection of coffee and beverage makers, water boilers, ovens, liquid
containers, refrigeration equipment and other galley components. Management
estimates that the Company has an aggregate installed base of galley
structures and inserts, valued at replacement prices, of approximately $983
million.
. GALLEY STRUCTURES. Galley structures are generally custom designed to
accommodate the unique product specifications and features required by a
particular carrier. Galley structures require intensive design and
engineering work and are among the most sophisticated and expensive of
the aircraft's cabin interior products. The Company provides a variety of
galley structures, closets and class dividers, emphasizing sophisticated
and higher value-added galleys for wide body aircraft.
. COFFEE MAKERS. The Company is the leading supplier of aircraft coffee
makers, with equipment currently installed in virtually every type of
aircraft for almost every major airline. The Company manufactures a broad
line of coffee makers, coffee warmers and water boilers including the
Flash Brew Coffee Maker, with the capability to brew 54 ounces of coffee
in one minute, a Combi(TM) unit which will brew coffee or boil water for
tea while utilizing 25% less electrical power than traditional 5,000-watt
water boilers, and a newly introduced cappuccino/espresso maker.
. OVENS. The Company is a significant supplier of a broad line of
specialized ovens, including high-heat efficiency ovens, high-heat
convection ovens, and warming ovens. The Company's newest offering, the
DS-2000 Steam Oven represents a new method of preparing food inflight by
maintaining constant temperature and moisture in the food. It addresses
the airlines' needs to provide a wider range of foods than can be
prepared by convection ovens.
. REFRIGERATION EQUIPMENT. The Company is the worldwide industry leader in
the design, manufacture, and supply of commercial aircraft refrigeration
equipment. The Company recently introduced a self-contained wine and
beverage chiller, the first unit specifically designed to rapidly chill
wine and beverages on board an aircraft.
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Upgrade, Maintenance, Inspection and Repair Services
The Company is an active participant in the growing upgrade, maintenance,
inspection and repair services market. Management believes that the Company's
broad and integrated product line and close relationships with its airline
customers position the Company to become a leading service provider in this
market. The Company believes that this market offers a significant opportunity
for growth. Most participants in this market are small, and management
believes that the Company is the only major product manufacturer in the
industry currently participating in this market.
. UPGRADE. The Company provides a variety of upgrade services for cabin
interior products. For example, the Company has begun to install
individual passenger video and telecommunications modules in seat backs
and center consoles which were otherwise not originally designed for such
products. The Company has this capability regardless of whether it
manufactures the product or whether the product is produced by others.
. MAINTENANCE, INSPECTION AND REPAIR. These services are provided at
selected airports on an overnight or between scheduled flights basis, or
at seven service centers maintained by the Company. The Company has been
engaged by several airlines to remove entire sets of aircraft seats, wash
and repair them and reinstall the seats within a one-week period. In
addition, the Company offers maintenance and repair services which may be
provided on an overnight basis when an aircraft is not flying or at the
airport gate in the period between an aircraft's scheduled flights.
During this process, cabin interior products are checked by Company
employees for damage and functionality and are repaired or replaced with
available spares. Frequently, the spare part is a Company product, even
if the original part was supplied by another manufacturer.
RESEARCH AND DEVELOPMENT
The Company works closely with commercial airlines to improve existing
products and identify customers' emerging needs. BEA's expenditures in
research and development totaled $11,591,000 (unaudited), $12,860,000,
$9,876,000 and $11,299,000 for the nine months ended November 25, 1995 and the
fiscal years ended February 25, 1995, February 26, 1994 and February 27, 1993,
respectively. Burns' expenditures for research and development during the nine
months ended September 30, 1995 and its past three fiscal years were $421,000
(unaudited), $326,000, $300,000 and $196,000, respectively. BEA employs
approximately 420 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 electrical and
mechanical design skills but also substantial expertise in materials
composition and custom cabin interior layout design.
MARKETING AND CUSTOMERS
The Company markets and sells its products directly to virtually all of the
world's major airlines. BEA has a sales and marketing organization of 163
persons, along with 19 independent sales representatives, while Burns has 15
sales and marketing personnel and 12 independent sales representatives and
distributors. BEA sales to non-US airlines were $83,610,000 (unaudited),
$114,511,000, $85,239,000 and $91,541,000 for the nine months ended November
25, 1995 and the fiscal years ended February 25, 1995, February 26, 1994 and
February 27, 1993, or approximately 50%, 50%, 42% and 46%, respectively, of
net sales during such periods. Sales by Burns to non-US airlines were
$45,721,000 (unaudited), $53,799,000, $25,360,000 and $40,202,000 for the nine
months ended September 30, 1995 and the years ended December 31, 1994, 1993
and 1992 or 60%, 58%, 38% and 41%, respectively, of net sales during such
periods. See Notes 14 and 16 of Notes to BEA's Consolidated Financial
Statements for further information with respect to exports and foreign
operations.
Airlines select suppliers of cabin interior products primarily on the basis
of custom design capabilities, product quality and performance, prompt
delivery, after-sales service and price. BEA 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.
52
<PAGE>
The Company believes that its integrated worldwide marketing approach,
focused by airline and encompassing the Company's entire product line, is
preferred by airlines. Led by a BEA senior executive, teams representing each
product line serve designated airlines which together account for
approximately 60% of the purchases of products manufactured by BEA. These
airline customer teams have developed customer specific strategies to meet
each airlines' product and service needs. The Company also staffs "on-site"
customer engineers at major airlines and airframe manufacturers to represent
its entire product line and work closely with the customers to develop
specifications for each successive generation of products required by the
airlines. These engineers help customers integrate the wide range of cabin
interior products and assist in obtaining the applicable regulatory
certification for each particular product or cabin configuration. Through its
on-site customer engineers, the Company expects to be able more efficiently to
design and integrate products which address the requirements of its customers,
and thereby gain market share. The Company provides program management
services, integrating all on-board cabin interior equipment and systems,
including installation and FAA certification, allowing airlines to
substantially reduce costs. The Company believes that it is one of the only
suppliers in the commercial aircraft cabin interior products industry with the
size, resources, breadth of product line and global product support capability
to operate in this manner.
No customer accounted for more than 10% of BEA's revenues in the nine months
ended November 25, 1995 or during the fiscal years ended February 25, 1995 or
February 26, 1994. During the year ended February 27, 1993, sales to one
customer were $21,185,000, accounting for approximately 11% of BEA's total
revenues, and no other customer accounted for more than 10% of such revenues.
For the nine months ended September 30, 1995 and the year ended December 31,
1994, sales by Burns to one customer were $26.0 million and $33.7 million,
respectively, accounting for approximately 34% and 36% of total sales for such
periods. No customer accounted for more than 10% of Burns' revenues for the
years ended December 31, 1993 and 1992. Because of differing schedules of
various airlines for purchases of new aircraft and for retrofit and
refurbishment of existing aircraft, that portion of the Company's revenues
attributable to particular airlines varies from year to year.
BACKLOG
Management estimates that BEA's backlog at November 25, 1995 was
approximately $369 million, approximately 41% of which management believes to
be deliverable in fiscal 1997, compared with a backlog of $331 million on
February 25, 1995. Burns management estimated that Burns' backlog at November
30, 1995 was approximately $72 million, approximately 56% of which is believed
to be deliverable in 1996, compared with a backlog of $72 million on December
31, 1994.
CUSTOMER SERVICE
The Company believes that it provides the highest level of customer service
available in the commercial aircraft cabin interior products industry and that
such service is a critical factor in the Company's success. The key elements
of such service include (i) rapid response to requests for engineering
designs, price quotes and technical specifications; (ii) flexibility with
respect to customized features; (iii) on-time delivery;
(iv) immediate availability of spare parts for a broad range of products; and
(v) prompt attention to customer problems, including on-site customer
training. Customer service is particularly important to airlines due to the
high cost to the airlines of late delivery, malfunctions and other problems.
WARRANTY AND PRODUCT LIABILITY
The Company warrants its products, or specific components thereof, for
periods ranging from one to seven years, depending upon product type and
component. The Company generally establishes reserves for product warranty
expense on the basis of the ratio of warranty costs incurred by the product
over the warranty period to sales of the product over the warranty period.
Actual warranty costs reduce the warranty reserve as they are incurred.
Management periodically reviews the adequacy of accrued product warranty
reserves. Revisions of accrued product warranty reserves are recognized in the
period in which such revisions are determined.
53
<PAGE>
In addition, due to the nature of the Company's products, the Company
currently carries product liability insurance. The Company believes that its
insurance is generally sufficient to cover product liability claims.
COMPETITION
The commercial aircraft cabin interior products market is relatively
fragmented with a number of competitors in each of the individual product
categories. Due to the global nature of the commercial airline industry,
competition in product categories comes from both US and foreign
manufacturers. However, as aircraft cabin interiors have become increasingly
sophisticated and technically complex, airlines have demanded higher levels of
engineering support and customer service than many smaller cabin interior
products suppliers can provide. At the same time, airlines have recognized
that cabin interior product suppliers must be able to integrate a wide range
of products, including sophisticated electronic components, particularly in
wide body aircraft. Management believes that these increasing demands of
airlines upon their suppliers will result in a number of suppliers leaving the
cabin interior products industry and a consolidation of those suppliers which
remain. The Company has participated in this consolidation through strategic
acquisitions and internal growth and intends to continue to participate in the
consolidation.
The Company's principal competitors for seating products include Group
Zodiac S.A., Keiper Recaro GmbH, and a number of other producers in the
European community and Japan. The Company's principal competitors for PESS
products are Matsushita Electronics ("MAS") and Hughes Avicom ("Hughes") as to
PCUs, and MAS, Hughes and GEC PLC/Plessey Limited as to individual seat video
systems. The Company's primary competitors for galley systems are JAMCO
Limited, and Buderus Sell GmbH (a subsidiary of Metallgesellschaft A.G.). See
"Risk Factors--Competition."
MANUFACTURING AND RAW MATERIALS
The Company's manufacturing operations consist of both the in-house
manufacturing of component parts and subassemblies and the assembly of Company
specified and designed component parts which are purchased from outside
vendors. The Company maintains state-of-the-art facilities, and management has
an on-going strategic manufacturing improvement plan utilizing focused
factories and cellular production technologies in which each of the product
lines is manufactured in a dedicated factory. Management expects that
continuous improvement from implementation of this plan for each of its
product lines will occur over the next several years and should lower
production costs, cycle times and inventory requirements and at the same time
improve product quality and customer response.
GOVERNMENT REGULATION
The FAA prescribes standards and licensing requirements for aircraft
components, and licenses component repair stations within the United States.
Comparable agencies regulate such matters in other countries. The Company
holds several FAA component certificates and performs component repairs at a
number of its US facilities under FAA repair station licenses. The Company
also holds an approval issued by the UK Civil Aviation Authority to design,
manufacture, inspect and test aircraft seating products in Leighton Buzzard,
England and in Kilkeel, Northern Ireland and the necessary approvals to
design, manufacture, inspect, test and repair its galley products in
Nieuwegein, The Netherlands and to inspect test and repair products at its six
service centers throughout the world.
In March 1992, the FAA adopted Technical Standard Order C127 which requires
that all seats on certain new generation commercial aircraft installed after
such date be certified to meet a number of new safety requirements, including
an ability to withstand a 16G force. Management understands that the FAA plans
to adopt in the near future additional regulations which will require that
within the next five years all seats, including those on existing older
commercial aircraft which are subject to the FAA's jurisdiction, will have to
comply with similar seat safety requirements. The Company has developed a
number of seat models which meet these new seat safety regulations.
54
<PAGE>
PATENTS
BEA and Burns currently hold 31 and 24 United States patents, respectively,
and 81 and 8 foreign patents, respectively, covering a variety of products.
However, the Company believes that the termination, expiration or infringement
of one or more of such patents would not have a material adverse effect on the
business or prospects of the Company.
LEGAL PROCEEDINGS
BEA has been advised that the U.S. Attorney's Office for the District of
Connecticut, in conjunction with the Department of Commerce and the U.S.
Customs Service, is conducting a grand jury investigation focused on possible
non-compliance by BEA with certain statutory and regulatory provisions
relating to export licensing and controls. The investigation relates primarily
to the sale of passenger seats and related spare parts for civilian commercial
passenger aircraft to Iran Air from 1992 through mid-1995. BEA has been
advised that it is a target of the investigation; however, neither it nor any
current or former directors, officers, or employees have been charged in
connection with the investigation. The investigation is at an early stage and,
while the Company intends to defend itself vigorously, the ultimate outcome of
the investigation cannot presently be determined. An adverse outcome could
have a material adverse effect upon the operations and/or financial condition
of the Company.
EMPLOYEES
As of November 1995, BEA had approximately 1,992 employees, while Burns
employed an estimated 779 persons. Approximately 65% and 81% of BEA and Burns
employees, respectively, are engaged in manufacturing, 17% and 10% in
engineering, research and development, respectively, and 17% and 9% in sales,
marketing, product support and general administration, respectively. None of
the Company's employees is represented by a union with the exception of 60
employees at its Netherlands facility and approximately 58% of the employees
of Burns. BEA and Burns consider their employee relations to be good.
PROPERTY
As of January 15, 1996, BEA had fifteen principal facilities, where it
leased or owned an aggregate of approximately 799,100 square feet of space,
while Burns had two principal facilities, where it leased or owned an
aggregate of approximately 353,700 square feet of space. The following table
describes the principal facilities and indicates the location, function and
approximate size of each:
<TABLE>
<CAPTION>
FACILITY SIZE
LOCATION PRODUCTS AND FUNCTION (SQ. FEET) OWNERSHIP
-------- --------------------- ------------- ---------
<C> <S> <C> <C>
BEA
---
CORPORATE
Wellington, Florida Corporate headquarters, finance, marketing
sales, service division headquarters 17,700 Owned
SEATING PRODUCTS
Litchfield, Connecticut Manufacturing, service, research and
development, sales support, finance and
warehousing; seating products division
headquarters 147,700 Owned
Leighton Buzzard, England Manufacturing, service, research and
development, sales support, finance and
warehousing 114,000 Owned(a)
Kilkeel, Northern Ireland Manufacturing, service, research and
development, sales support, finance and
warehousing 64,500 (b)
GALLEY PRODUCTS
Anaheim, California Manufacturing, service, research and
development, sales support, finance and
warehousing 57,100 Leased
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
FACILITY SIZE
LOCATION PRODUCTS AND FUNCTION (SQ. FEET) OWNERSHIP
-------- --------------------- ------------- ---------
<C> <S> <C> <C>
BEA
---
Delray Beach, Florida Manufacturing, service, research and
development, sales support, finance and
warehousing; galley products division
headquarters 52,000 Owned
Jacksonville, Florida Manufacturing, service, engineering, and
warehousing 75,000 Owned
Nieuwegein, The Netherlands Manufacturing, service, research and
development, sales support, finance and
warehousing 39,000 Leased
PESS PRODUCTS
Irvine, California Manufacturing, service, research and
development, sales support, finance and
warehousing; in-flight entertainment
division headquarters 106,700 Leased
Longwood, Florida Manufacturing and service 30,000 Leased
SERVICES
Garden Grove, California Upgrade, maintenance, inspection and repair 46,300 Leased
Burnsville, Minnesota Upgrade, maintenance, inspection and repair 7,200 Leased
Linden, New Jersey Upgrade, maintenance, inspection and repair 5,800 Leased
Redmond, Washington Upgrade, maintenance, inspection and repair 2,100 Leased
Chesham, England Upgrade, maintenance, inspection and repair 34,000 Owned(a)
BURNS
-----
Winston-Salem, North Carolina Corporate headquarters, finance, marketing,
sales and manufacturing 264,800 Owned
Inglewood, California Manufacturing and service, sales support,
finance, and warehousing 88,900 Leased
</TABLE>
- --------
(a) BEA's owned properties in England were mortgaged to Barclays Bank PLC to
collateralize credit facilities of FEEL in an aggregate amount of up to
approximately (Pounds)7.2 million.
(b) Approximately 38,500 square feet of the Kilkeel, Northern Ireland
facilities are owned with the balance leased.
The Company believes that its facilities are suitable for their present
intended purposes and adequate for the Company's present and anticipated level
of operations. As a result of recent conditions in the airline industry as
described above under "Recent Industry Conditions", BEA'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 a significant
improvement in the degree of utilization in the Company's facilities.
56
<PAGE>
MANAGEMENT
The following table sets forth information regarding the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Amin J. Khoury 57 Chairman of the Board
Robert J. Khoury 53 Vice Chairman of the Board, Chief Executive Officer
and Director
Paul E. Fulchino 49 President, Chief Operating Officer and Director
Marco C. Lanza 39 Executive Vice President, Marketing and Product
Development
Thomas P. McCaffrey 42 Vice President, Chief Financial Officer and Assistant
Secretary
Edmund J. Moriarty 51 Vice President, General Counsel and Secretary
Jeffrey P. Holtzman 40 Treasurer and Assistant Secretary
G. Bernard Jewell 53 President, Services Division
E. Ernest Schwartz 59 President, Galley Products Division
Arthur H. Lipton 57 President, Inflight Entertainment Division
Jim C. Cowart 43 Director+
Richard G. Hamermesh 47 Director*+
Brian H. Rowe 64 Director
Hansjoerg Wyss 60 Director*
</TABLE>
- --------
* Member, Audit Committee.
+ Member, Stock Option and Compensation Committee.
The Company's Restated Certificate of Incorporation provides that the Board
of Directors is classified into three classes, as nearly as equal in number as
possible, so that each director (after a transitional period) will serve for
three years, with one class of directors being elected each year. The Board is
currently comprised of three Class I Directors (Brian H. Rowe, Jim C. Cowart
and Paul E. Fulchino), two Class II Directors (Robert J. Khoury and Hansjoerg
Wyss) and two Class III Directors (Amin J. Khoury and Richard G. Hamermesh).
The terms of the Class I, Class II and Class III Directors expire upon the
election and qualification of successor directors at annual meetings of
stockholders held following the end of fiscal years 1998, 1996 and 1997,
respectively. The non-management directors receive compensation of $2,500 per
calendar quarter. The executive officers of the Company are elected annually
by the Board of Directors following the annual meeting of stockholders and
serve at the discretion of the Board of Directors.
Amin J. Khoury has been Chairman of the Board of the Company since July 1987
and was Chief Executive Officer until April 1, 1996. Since 1986, Mr. Khoury
has also been the Managing Director of The K.A.D. Companies, Inc., an
investment, venture capital and consulting firm ("K.A.D."). Mr. Khoury is
currently the Chairman of the Board of Directors of Applied Extrusion
Technologies, Inc., a manufacturer of oriented polypropylene films used in
consumer products labeling and packaging applications, and a member of the
Board of Directors of Brooks Automation, Inc., the leading manufacturer in the
U.S. of vacuum central wafer handling systems for semiconductor manufacturing
and Aurora, Inc., a leading provider of components and service to computer
service organizations. Mr. Khoury is employed by the Company pursuant to a
ten-year Employment Agreement dated as of January 1, 1992. 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 a nine-
year Employment Agreement dated as of March 1, 1992 with Mr. Khoury. 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
57
<PAGE>
Consulting, Inc. ("Mercer"), a 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 major airlines. The Company has entered into a
three-year employment agreement dated as of April 1, 1996 with Mr. Fulchino
under which Mr. Fulchino receives a base salary of $450,000, subject to
increases as determined from time to time by the Board of Directors and
subject to cost of living increases calculated by reference to the Consumer
Price Index. Mr. Fulchino also is entitled to receive an annual incentive
bonus as determined by the Board of Directors, which shall not exceed 100% of
his then current salary. In the event of Mr. Fulchino's death or incapacity,
Mr. Fulchino (or, in the event of his death, his designee) will continue to
receive his then current salary (and in the case of disability, benefits) for
the balance of the term of the contract. If a change of control of the Company
results in the termination of his employment or if Mr. Fulchino resigns
following such a change of control because of a change in his position or
responsibilities, or his compensation or benefits are terminated or reduced,
Mr. Fulchino will receive a lump sum payment equal to two times his then
current salary. If the Company terminates his employment agreement for cause,
the Company will have no further obligations to him, except for unpaid salary
and benefits accrued through the date of termination.
Marco C. Lanza has been the Executive Vice President, Marketing and Product
Development since January 1994. From March 1992 through January 1994, Mr.
Lanza was President of the Inflight Entertainment Division of the Company.
From 1987 through February 1992, Mr. Lanza was Vice President, Marketing and
Product Development, of the Company. The Company has entered into a three-year
Employment Agreement with Mr. Lanza extending through December 31, 1999.
Thomas P. McCaffrey has been Vice President and Chief Financial Officer
since May 1993. From August 1989 through May 1993, Mr. McCaffrey was an Audit
Director with Deloitte & Touche LLP, and from 1976 through 1989 served in
several capacities, including Audit Partner, with Coleman & Grant. The Company
has entered into a three-year Employment Agreement with Mr. McCaffrey
extending through December 31, 1999 in which he agrees to serve as Chief
Financial Officer of the Company.
Edmund J. Moriarty has been Vice President, General Counsel and Secretary
since November 16, 1995. From 1991 to 1995, Mr. Moriarty served as Vice
President and General Counsel to Rollins, Inc., a national service company.
From 1982 through 1991, Mr. Moriarty served as Vice President and General
Counsel to Old Ben Coal Company, a wholly owned coal subsidiary of The
Standard Oil Company.
Jeffrey P. Holtzman has been Treasurer since September 1993. From June 1986
to July 1993, Mr. Holtzman served in several capacities at FPL Group, Inc.,
including Assistant Treasurer and Manager of Financial Planning. Mr. Holtzman
previously worked for Mellon Bank, Gulf Oil and Arthur Young & Company.
G. Bernard Jewell has been President of the Company's Services division
since January 1994. From April 1992 through January 1994, Mr. Jewell was Group
Vice President, Marketing and Product Development of the Company. From 1988 to
1992, Mr. Jewell was President of Burns Aerospace, Inc., a manufacturer of
commercial aircraft cabin interior products.
E. Ernest Schwartz has been President of the Galley Products Division of the
Company since March 1992. From 1986 through February 1992, Mr. Schwartz was
President of Aircraft Products Company, which was acquired by the Company in
1992.
Arthur H. Lipton has been the President of the Inflight Entertainment
Division since July, 1995. From 1990-1995 Mr. Lipton was the Senior Vice
President and General Manager of the Wyse Technology Display Division. Prior
to that he was with the Xerox Corporation for 20 years with his last position
being Vice President and General Manager of their Imaging Business Unit.
Jim C. Cowart has been a Director of the Company since November 1989. Since
January 1993, Mr. Cowart has been the Chairman of the Board of Directors and
Chief Executive Officer of Aurora Electronics, Inc. Since
58
<PAGE>
January 1992, Mr. Cowart has also been a Director of Aurora Management, Inc.,
a private capital firm retained by the Company for strategic planning,
competitive analysis, financial relations and other services. From 1987 until
1991, Mr. Cowart was a general partner of Capital Resource Partners, a private
capital investment manager. From 1982 to 1987, Mr. Cowart was a Senior Vice
President of Investment Banking at Shearson Lehman Brothers and was the
President of Shearson Venture Capital, Inc.
Richard G. Hamermesh has been a Director of the Company since July 1987.
Since August 1987, Dr. Hamermesh has been the Managing Partner of the Center
for Executive Development, an independent management consulting company, and
from December 1986 to August 1987, Dr. Hamermesh was an independent
consultant. Prior to such time, Dr. Hamermesh was on the faculty at the
Harvard Business School. Dr. Hamermesh is also a Director of Applied Extrusion
Technologies, Inc.
Brian H. Rowe has been a Director of the Company since July 1995. Mr. Rowe
is currently Chairman Emeritus of GE Aircraft Engines, a principal business
unit of the General Electric Company, where he also served as Chairman of the
Board from September, 1993 through December, 1994 and as President from 1990
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 December,
1995, Mr. Rowe has also been a Director of Steward & Stevenson Services, Inc.,
a custom packager of engine systems, and Textron Inc., a manufacturer of
mechanical devices for aircraft and other applications.
Hansjoerg Wyss has been a Director of the Company since October 1989. Since
1977, Mr. Wyss has been a Director and the President and Chief Executive
Officer of Synthes (U.S.A.) and Synthes (Canada), Ltd., manufacturers and
distributors of orthopedic implants and instruments. Mr. Wyss is also a
Director of Applied Extrusion Technologies, Inc.
CERTAIN TRANSACTIONS AND PROCEEDINGS
In 1990, the Company adopted a policy whereby any transactions between the
Company and its officers, directors, principal stockholders or other
affiliates will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties on an arm's-length basis, and such
transactions will be approved by a majority of the Company's independent and
disinterested directors.
The Company has entered into a Supply Agreement dated April 17, 1990 with
Applied Extrusion Technologies, Inc., a Delaware corporation ("AET"), pursuant
to which the Company has agreed to purchase 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 day 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 during the nine months ended November 25, 1995, were approximately
$1,041,000. Mr. Amin J. Khoury is a director of AET and serves as its
Chairman. Messrs. Richard G. Hamermesh and Hansjoerg Wyss, directors of BEA,
are also directors of AET.
59
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto set forth certain information with
respect to the beneficial ownership of the Company's Common Stock as of
December 1, 1995 by (i) each person who is known to the Company to
beneficially own more than 5% of the outstanding shares of Common Stock of the
Company; (ii) each of the chief executive officer and the four other most
highly paid executive officers of the Company in fiscal 1995 (collectively,
the "Named Executive Officers") and each director of the Company; and (iii)
all Named Executive Officers and directors of the Company as a group. Except
as otherwise indicated, each of the stockholders named below has sole voting
and investment power with respect to the shares of Common Stock beneficially
owned:
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
------------------------
NUMBER PERCENT OF
OF OUTSTANDING
NAMES SHARES SHARES(A)
----- --------- -----------
<S> <C> <C>
Wellington Management Company....................... 1,875,800 11.6
75 State Street
Boston, MA 02109
State of Wisconsin Investment Board................. 1,585,000 9.8
P.O. Box 7842
Madison, WI 53707
Sanford C. Bernstein & Co........................... 1,434,000 8.8
1 State Street Plaza
New York, NY 10004
Dimensional Fund Advisors........................... 915,300 5.6
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Columbia Management Company......................... 881,200 5.4
1300 Southwest 6th Street
Portland, OR 97207
Amin J. Khoury+*.................................... 782,961(b) 4.6
Marco C. Lanza+..................................... 197,086(c) 1.2
Hansjorg Wyss*...................................... 188,609(d) 1.1
Jim C. Cowart*...................................... 173,000(e) **
Robert J. Khoury+*.................................. 158,084(f) **
Richard G. Hamermesh*............................... 61,001(g) **
Thomas P. McCaffrey+................................ 51,137(h) **
E. Ernest Schwartz+................................. 43,500(i) **
Brian H. Rowe*...................................... -0- --
All Directors and Named Executive Officers as a
group (10 persons)................................. 1,665,378(j) 9.2
</TABLE>
- --------
+Named Executive Officer
*Director of the Company
**Less than 1 percent
(a) The number of shares of Common Stock deemed outstanding includes: (i)
16,238,322 shares of Common Stock outstanding as of December 1, 1995; and
(ii) shares of Common Stock subject to outstanding stock options which are
exercisable by the named individual or group in the next sixty days
(commencing December 1, 1995).
(b) Represents shares issuable upon the exercise of stock options exercisable
in the next sixty days and shares owned through the Company 401(k) plan.
(c) Includes 152,500 shares issuable upon the exercise of stock options
exercisable in the next sixty days and shares owned through the Company
401(k) plan. Excludes options to purchase 47,500 shares of Common Stock
which are not exercisable in the next sixty days.
(d) Includes 47,500 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 7,500
shares of Common Stock which are not exercisable in the next sixty days.
60
<PAGE>
(e) Includes 20,000 shares acquired by a profit sharing plan in which Mr.
Cowart has a fifty percent interest and 150,000 shares issuable upon the
exercise of stock options exercisable in the next sixty days. Excludes
options to purchase 15,000 shares of Common Stock which are not
exercisable in the next sixty days.
(f) Includes 157,500 shares issuable upon the exercise of stock options
exercisable in the next sixty days and shares owned through the Company
401(k) plan. Excludes options to purchase 42,500 shares of Common Stock
which are not exercisable in the next sixty days.
(g) Includes 2,000 shares held in trusts for the benefit of Mr. Hamermesh's
two children, of which trust Mr. Hamermesh and his wife are trustees and
in which shares Mr. Hamermesh disclaims all beneficial interest. Also
includes 47,500 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 17,500
shares of Common Stock which are not exercisable in the next sixty days.
(h) Includes 47,500 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 22,500
shares of Common Stock which are not exercisable in the next sixty days.
(i) Includes 42,500 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 7,500
shares of Common Stock which are not exercisable in the next sixty days.
(j) Includes 1,427,800 shares issuable upon the exercise of stock options
exercisable in the next sixty days. Excludes options to purchase 137,500
shares of Common Stock which are not exercisable in the next sixty days.
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DESCRIPTION OF THE NEW NOTES
The Old Notes were issued and the New Notes will be issued under an
indenture to be dated as of January 24, 1996 (the "Indenture") between the
Company, as issuer, and Fleet National Bank, as trustee (the "Trustee"), a
copy of the form of which will be made available to prospective purchasers of
the Notes upon request. Upon the issuance of the New Notes, the Indenture will
be subject to and governed by the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The following summary of the material provisions of
the Indenture does not purport to be complete and is subject to, and qualified
in its entirety by, reference to the provisions of the Indenture, including
the definitions of certain terms contained therein and those terms made part
of the Indenture by reference to the Trust Indenture Act.
GENERAL
The New Notes will be unsecured, senior subordinated obligations of the
Company limited to $100,000,000 aggregate principal amount. The New Notes will
be issued solely in exchange for an equal principal amount of Old Notes
pursuant to the Exchange Offer. The form and terms of the New Notes will be
identical in all material respects to the form and terms of the Old Notes
except that: (i) the New Notes will have been registered under the Securities
Act (ii) the Registration Rights and contingent interest reset provisions
applicable to the Old Notes are not applicable to the New Notes. The New Notes
will be issued only in registered form without coupons, in denominations of
$1,000 and integral multiples thereof. (Section 302) Principal of, premium, if
any, and interest on the Notes will be payable, and the Notes will be
transferable (subject to compliance with transfer restrictions imposed by
applicable securities laws for so long as the Notes are not registered for
resale under the Securities Act), at the corporate trust office or agency of
the Trustee in The City of New York maintained for such purposes at 14 Wall
Street, New York, New York 10005. (Sections 301 and 305) In addition, interest
may be paid, at the option of the Company, by check mailed to the Person
entitled thereto as shown on the Note Register. (Section 309) No service
charge will be made for any transfer, exchange or redemption of Notes, except
in certain circumstances for any tax or other governmental charge that may be
imposed in connection therewith. (Section 305)
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Notes will mature on February 1, 2006. Except as otherwise described
below, each Note will bear interest at the applicable rate set forth on the
cover page hereof from January 24, 1996 or from the most recent interest
payment date to which interest has been paid, payable in cash semiannually in
arrears on February 1 and August 1 of each year, commencing August 1, 1996, to
the Person in whose name the Note (or any predecessor Note) is registered in
the Note Register at the close of business on the January 15 or July 15 next
preceding such interest payment date.
As discussed under "Exchange Offer," pursuant to the Registration Rights
Agreement, the Company has agreed for the benefit of the holders of the Old
Notes, at the Company's cost, either (i) to effect a registered Exchange Offer
under the Securities Act to exchange the Old Notes for Exchange Notes, which
will have terms identical in all material respects to the Old Notes (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions) or (ii) in the event that any changes in law or applicable
interpretations of the staff of the Commission do not permit the Company to
effect the Exchange Offer, or if for any other reason the Exchange Offer is
not consummated within 120 days following the date of the original issue of
the Old Notes, or if any holder of the Old Notes (other than the Initial
Purchasers) is not eligible to participate in the Exchange Offer, or upon the
request of any Initial Purchaser in certain circumstances, to register the Old
Notes for resale under the Securities Act through a Shelf Registration
Statement. In the event that either (a) the Registration Statement is not
filed with the Commission on or prior to the 30th calendar day following the
date of original issue of the Old Notes, (b) the Registration Statement has
not been declared effective on or prior to the 90th calendar day following the
date of original issue of the Old Notes or (c) the Exchange Offer is not
consummated or a Shelf Registration Statement is not declared effective on or
prior to the 120th calendar day following the date of original issue of the
Old Notes, the interest rate borne by the Old Notes shall be increased by one-
half of
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one percent per annum following such 30-day period in the case of (a) above,
following such 90-day period in the case of clause (b) above or following such
120-day period in the case of clause (c) above. The aggregate amount of such
increase from the original interest rate pursuant to these provisions will in
no event exceed one-half of one percent per annum. Upon (x) the filing of the
Registration Statement after the 30-day period described in clause (a) above,
(y) the effectiveness of the Registration Statement after the 90-day period
described in clause (b) above or (z) the consummation of the Exchange Offer or
the effectiveness of a Shelf Registration Statement, as the case may be, after
the 120-day period described in clause (c) above, the interest rate borne by
the Notes from the date of such filing, effectiveness or consummation, as the
case may be, will be reduced to the original interest if the Company is
otherwise in compliance with this paragraph. See "Exchange Offer."
Notes that remain outstanding after the consummation of the Exchange Offer
and New Notes issued in connection with the Exchange Offer will be treated as
a single class of securities under the Indenture.
SUBORDINATION
The payment of the principal of, premium, if any, interest on and all other
amounts owing in respect of, the Notes will be subordinated, as set forth in
the Indenture, in right of payment to the prior payment in full in cash or
cash equivalents of all Senior Indebtedness; provided, however, that the Notes
shall rank equal with, or prior to, all existing and future unsecured
indebtedness of the Company that is subordinated to any Senior Indebtedness.
(Section 1301)
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in connection therewith, relating to the Company or to its creditors, as such,
or its assets, or any liquidation, dissolution or other winding-up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or any assignment for the benefit of creditors or
any other marshalling of assets or liabilities of the Company (except in
connection with the consolidation or merger of the Company or its liquidation
or dissolution following the conveyance, transfer or lease of its properties
and assets substantially as an entirety upon the terms and conditions
described under "Merger, Consolidation and Sale of Assets, etc." below), the
holders of Senior Indebtedness will first be entitled to receive payment in
full in cash or cash equivalents of all amounts due on or in respect of all
Senior Indebtedness, or provision shall be made for such payment in cash or
cash equivalents, before the holders of the Notes will be entitled to receive
any payment or distribution of any kind or character (other than any payment
or distribution in the form of equity securities or subordinated securities of
the Company or any successor obligor provided for by a plan of reorganization
or readjustment that, in the case of any such subordinated securities, are
subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding to at least the same extent as the Notes are so
subordinated (such equity securities or subordinated securities hereinafter
being "Permitted Junior Securities")) on account of principal of (or premium,
if any) or interest on the Notes; and any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or securities
(other than a payment or distribution in the form of Permitted Junior
Securities) by set-off or otherwise, to which the holders or the Trustee would
be entitled but for the provisions of the Indenture shall be paid by the
liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holders of Senior Indebtedness or their
representative or representatives ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness to the extent necessary
to make payment in full in cash or cash equivalents of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness. (Section 1302)
No payment (other than any payments made pursuant to the provisions
described under "--Defeasance or Covenant Defeasance of Indenture" from monies
or U.S. Government Obligations previously deposited with the Trustee) or
distribution of any assets of the Company of any kind or character, whether in
cash, property or securities (other than Permitted Junior Securities), may be
made by or on behalf of the Company on account of principal of (or premium, if
any) or interest on the Notes or on account of the purchase, redemption or
other acquisition of Notes upon the occurrence of any default in payment of
Designated Senior Indebtedness
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(a "Payment Default") until such Payment Default shall have been cured or
waived in writing or shall have ceased to exist or such Designated Senior
Indebtedness shall have been discharged or paid in full in cash or cash
equivalents. (Section 1303(a))
No payment (other than any payments made pursuant to the provisions
described under "--Defeasance or Covenant Defeasance of Indenture" from monies
or U.S. Government Obligations previously deposited with the Trustee) or
distribution of any assets of the Company of any kind or character, whether in
cash, property or securities (other than Permitted Junior Securities), may be
made by or on behalf of the Company on account of principal (or premium, if
any) or interest on the Notes or on account of the purchase, redemption or
other acquisition of Notes for the period specified below (a "Payment Blockage
Period") upon the occurrence of any default or event of default with respect
to any Designated Senior Indebtedness other than any Payment Default pursuant
to which the maturity thereof may be accelerated (a '"Non-payment Default")
and after the receipt by the Trustee of written notice thereof from the Agent
Bank or any other representative of a holder of Designated Senior
Indebtedness. (Section 1303(b))
The Payment Blockage Period will commence upon the date of receipt by the
Trustee of written notice from the Agent Bank or such other representative of
the Designated Senior Indebtedness in respect of which the Non-payment Default
exists and shall end on the earliest of (i) 179 days thereafter (provided any
Designated Senior Indebtedness as to which notice was given shall not
theretofore have been accelerated), (ii) the date on which such Non-payment
Default is cured, waived or ceased to exist or such Designated Senior
Indebtedness is discharged or paid in full in cash or cash equivalents or
(iii) such Payment Blockage Period shall have been terminated by written
notice to the Company or the Trustee from the Agent Bank or such other
representative initiating such Payment Blockage Period, after which the
Company will resume making any and all required payments in respect of the
Notes, including any missed payments. In any event, not more than one Payment
Blockage Period may be commenced during any period of 365 consecutive days. No
event of default with respect to Designated Senior Indebtedness that existed
or was continuing on the date of the commencement of any Payment Blockage
Period will be, or can be made, the basis for the commencement of a subsequent
Payment Blockage Period, unless such default has been cured or waived for a
period of not less than 90 consecutive days subsequent to the commencement of
such initial Payment Blockage Period (it being acknowledged that any breach of
any financial covenant for a period commencing after the date of commencement
of such Payment Blockage Period which would give rise to a Non-payment Default
pursuant to any provision under which a Non-payment Default previously existed
or was continuing shall constitute a new Non-payment Default for this
purpose).
Failure by the Company to make any required payment in respect of the Notes
when due or within any applicable grace period, whether or not occurring
during a Payment Blockage Period, would result in an Event of Default and,
thereafter, holders of the Notes would have the right to accelerate the
maturity thereof. See "--Events of Default."
By reason of such subordination, in the event of liquidation, receivership,
reorganization or insolvency of the Company, creditors of the Company who are
holders of Senior Indebtedness may recover more, ratably, than the holders of
the Notes, and assets which would otherwise be available to pay obligations in
respect of the Notes will be available only after all Senior Indebtedness has
been paid in full in cash or cash equivalents, at which time there may not be
sufficient assets remaining to pay any amounts due on any or all of the Notes.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on (including interest accruing after the filing of a petition by or against
the Company under any bankruptcy laws) and all other amounts due on or in
connection with any Indebtedness of the Company, whether outstanding on the
date of the Indenture or thereafter created, incurred or assumed, unless, in
the case of any particular Indebtedness, the instrument creating or evidencing
the same or pursuant to which the same is outstanding expressly provides that
such Indebtedness shall not be senior in right of payment to the Notes.
Without limiting the generality of the foregoing, "Senior Indebtedness" shall
include the principal of (and premium, if any, on) and interest (including
interest accruing after the occurrence of an event of default or after the
filing of a petition by or against the Company under any
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bankruptcy law) on all Indebtedness, and all other amounts and obligations of
every nature of the Company from time to time owed under, the Bank Credit
Agreement and the Senior Notes. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the Notes, (ii)
Indebtedness of the Company that is expressly subordinated in right of payment
to any Indebtedness of the Company, (iii) Indebtedness of the Company that by
operation of law is subordinate to any general unsecured obligations of the
Company, (iv) that portion of any Indebtedness of the Company that at the time
of incurrence is incurred in violation of any covenant of the Indenture, (v)
any liability for federal, state or local taxes or other taxes, owed or owing
by the Company, (vi) trade accounts payable owed or owing by the Company,
(vii) Indebtedness of the Company to any Subsidiary or any other Affiliate of
the Company, (viii) Redeemable Capital Stock of the Company and (ix)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 of the United States Code is without recourse to
the Company or any Subsidiary.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under the
Bank Credit Agreement and the Senior Notes and (ii), following the full
repayment of indebtedness under the Bank Credit Agreement and the termination
of the commitments thereunder, any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding of at
least $17 million and is specifically designated in the instrument evidencing
such Senior Indebtedness as "Designated Senior Indebtedness" by the Company.
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after February 1, 2001, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest to the redemption date, if redeemed
during the 12-month period beginning on February 1 of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001.......................................................... 104.94%
2002.......................................................... 102.47%
2003 and thereafter........................................... 100.00%
</TABLE>
In addition, as described below, (a) upon the occurrence of a Change of
Control, the Company is obligated to make an offer to purchase all outstanding
Notes at a redemption price of 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of purchase and (b) upon certain sales
or other dispositions of assets, the Company may be obligated to make offers
to purchase Notes with a portion of the Net Cash Proceeds of such sales or
other dispositions at a redemption price of 100% of the principal amount
thereof plus accrued and unpaid interest to the date of purchase. See "Certain
Covenants--Change of Control" and "--Limitation on Disposition of Proceeds of
Asset Sales." (Section 1101)
Selection and Notice. In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes for redemption will be made by
the Trustee on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate; provided, however, that no Note of a principal
amount of $1,000 or less shall be redeemed in part. Notice of redemption shall
be mailed by first-class mail at least 30 but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption and accepted for payment. (Sections 1104, 1105, 1107 and 1108)
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CERTAIN COVENANTS
The Indenture will contain, among others, the covenants described below.
Limitation on Indebtedness. (a) The Indenture will provide that the Company
will not create, incur, issue, assume, guarantee or in any manner become
directly or indirectly liable for the payment of, or otherwise incur
(collectively, "incur"), any Indebtedness (including any Acquired
Indebtedness), other than Permitted Indebtedness, unless (x) the Company's
Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters
immediately preceding the incurrence of such Indebtedness, taken as one period
(and after giving pro forma effect to: (i) the incurrence of such Indebtedness
and (if applicable) the application of the net proceeds therefrom, including
to refinance other Indebtedness, as if such Indebtedness was incurred and the
application of such proceeds occurred at the beginning of such four-quarter
period; (ii) the incurrence, repayment or retirement of any other Indebtedness
by the Company or its Restricted Subsidiaries since the first day of such
four-quarter period as if such Indebtedness was incurred, repaid or retired at
the beginning of such four-quarter period; and (iii) notwithstanding clause
(d) of the definition of Consolidated Adjusted Net Income, the acquisition
(whether by purchase, merger or otherwise) or disposition (whether by sale,
merger or otherwise) of any company, entity or business acquired or disposed
of by the Company or its Restricted Subsidiaries, as the case may be, since
the first day of such four-quarter period, as if such acquisition or
disposition occurred at the beginning of such four-quarter period, reflecting,
in the case of such an acquisition, any amount attributable to 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 Commission, as if such elimination of operating expense or
the realization of such cost reduction were achieved at the beginning of such
four-quarter period), would have been at least equal to 2.0 to 1 and (y) if
such Indebtedness is Subordinated Indebtedness, such Indebtedness shall have
an Average Life longer than the Average Life of the Notes and a final Stated
Maturity of principal later than the final Stated Maturity of principal of the
Notes.
(b) The Company will not permit any Restricted Subsidiary to incur any
Indebtedness (including any Acquired Indebtedness), other than Permitted
Subsidiary Indebtedness, unless (x) the Company's Consolidated Fixed Charge
Coverage Ratio for the four full fiscal quarters immediately preceding the
incurrence of such Indebtedness, taken as one period (and after giving pro
forma effect to the matters referred to in clauses (i), (ii) and (iii) in the
parenthetical in paragraph (a) of the "Limitation on Indebtedness" covenant),
would have been at least equal to 3.0 to 1, and (y) any Restricted Subsidiary
which incurs any Indebtedness pursuant to clause (x) of this paragraph (b)
shall Guarantee the Notes in compliance with clause (i) of paragraph (b) and
clauses (i)(A), (ii) and (iii) of paragraph (a) of the "Limitation on
Guarantees of Indebtedness by Restricted Subsidiaries" covenant. (Section
1010)
Limitation on Other Senior Subordinated Indebtedness. The Indenture will
provide that the Company will not, and will not permit any Restricted
Subsidiary to, incur, create, assume, guarantee or in any other manner become
directly or indirectly liable with respect to or responsible for, or permit to
remain outstanding, any Indebtedness, other than the Notes, that is
subordinate or junior in right of payment to any Senior Indebtedness unless
such Indebtedness is also pari passu with, or subordinate in right of payment
to, the Notes pursuant to subordination provisions substantially similar to
those contained in the Indenture. (Section 1019)
Limitation on Restricted Payments. (a) The Indenture will provide that the
Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, take the following actions:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable in shares of its Capital Stock or in options,
warrants or other rights to purchase such Capital Stock, but excluding
dividends or distributions payable in Redeemable Capital Stock or in
options, warrants or other rights to purchase Redeemable Capital Stock),
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any options, warrants or other rights to
acquire such Capital Stock,
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(iii) make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to a scheduled principal
payment, scheduled sinking fund payment or maturity, any Pari Passu
Indebtedness or Subordinated Indebtedness,
(iv) make any Investment (other than any Permitted Investment) in any
Person, or
(v) incur any guarantee of Indebtedness of any Affiliate, including any
Unrestricted Subsidiary (other than with respect to (a) guarantees of
Indebtedness of any wholly-owned Restricted Subsidiary by the Company or
(b) guarantees of Indebtedness of the Company by any Restricted
Subsidiary),
(such payments or other actions described in (but not excluded from) clauses
(i) through (v) are collectively referred to as "Restricted Payments"), unless
at the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, as determined by
the Board of Directors of the Company, whose determination shall be conclusive
and evidenced by a Board Resolution), (1) no Default or Event of Default shall
have occurred and be continuing, (2) the Company could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Indebtedness" covenant, and (3) the aggregate amount of all
Restricted Payments declared or made after the date of the Indenture shall not
exceed the sum of (A) 50% of the aggregate cumulative Consolidated Adjusted
Net Income of the Company accrued on a cumulative basis during the period
beginning on the first day after the date of the Indenture and ending on the
last day of the Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment (or, if such aggregate cumulative Consolidated
Adjusted Net Income shall be a loss, minus 100% of such loss), plus (B) the
aggregate net cash proceeds received after the date of the Indenture by the
Company from the issuance or sale (other than to any Restricted Subsidiary) of
shares of Capital Stock of the Company (other than Redeemable Capital Stock)
or warrants, options or rights to purchase such shares of Capital Stock of the
Company, plus (C) the aggregate net cash proceeds received after the date of
the Indenture by the Company from the issuance or sale (other than to any
Restricted Subsidiary) of debt securities that have been converted into or
exchanged for Capital Stock of the Company (other than Redeemable Capital
Stock) to the extent such debt securities were originally sold for cash,
together with the aggregate cash received by the Company at the time of such
conversion or exchange, plus (D) to the extent not otherwise included in the
Company's Consolidated Adjusted Net Income, the net reduction in Investments
in Unrestricted Subsidiaries resulting from the payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers
of assets, in each case to the Company or a Restricted Subsidiary after the
date of the Indenture from any Unrestricted Subsidiary or from the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued
in each case as provided in the definition of Investment), not to exceed in
the case of any Unrestricted Subsidiary the total amount of Investments (other
than Permitted Investments), after the date of the Indenture in such
Unrestricted Subsidiary by the Company and its Restricted Subsidiaries, plus
(E) $10 million.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (with respect to
clauses (ii), (iii), (iv), (v) and (vi) below) no Default or Event of Default
shall have occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such declaration complied
with the provisions of paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or
out of the net cash proceeds of, a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of shares of Capital Stock
(other than Redeemable Capital Stock) of the Company;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness (other than
Redeemable Capital Stock) in exchange for or out of the net cash proceeds
of a substantially concurrent issuance and sale (other than to a Restricted
Subsidiary) of shares of Capital Stock (other than Redeemable Capital
Stock) of the Company;
(iv) the repurchase of any Subordinated Indebtedness of the Company at a
purchase price not greater than 101% of the principal amount of such
Subordinated Indebtedness in the event of a Change of Control
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pursuant to a provision similar to the "Change of Control" covenant;
provided that prior to such repurchase the Company has made the Change of
Control Offer as provided in such covenant with respect to the Notes and
has repurchased all Notes validly tendered for payment in connection with
such Change of Control Offer;
(v) the purchase, redemption or other acquisition or retirement for value
of Subordinated Indebtedness (other than Redeemable Capital Stock) in
exchange for, or out of the net cash proceeds of a substantially concurrent
incurrence (other than to a Restricted Subsidiary) of, Indebtedness of the
Company so long as (A) the principal amount of such new Indebtedness does
not exceed the principal amount (or, if such Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as
of the date of determination) of the Indebtedness being so purchased,
redeemed, acquired or retired, plus the amount of any premium required to
be paid in connection with such refinancing pursuant to the terms of the
Subordinated Indebtedness refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing, plus the amount of expenses of the Company incurred in
connection with such refinancing, (B) such new Indebtedness is subordinated
to the Notes to the same extent as the Notes are subordinated to Senior
Indebtedness and (C) such new Indebtedness has an Average Life longer than
the Average Life of the Notes and a final Stated Maturity of principal
later than the final Stated Maturity of principal of the Notes; and
(vi) the purchase, redemption or other acquisition or retirement for
value of shares of Common Stock of the Company issued pursuant to non-
qualified options granted under stock option plans of the Company, in order
to pay withholding taxes due as a result of income recognized upon the
exercise of such options; provided that (1) the Company is required, by the
terms of such plans, to effect such purchase, redemption or other
acquisition or retirement for value of such shares and (2) the aggregate
consideration paid by the Company for such shares so purchased, redeemed or
otherwise acquired or retired for value does not exceed $2 million during
any fiscal year of the Company.
The actions described in clauses (i), (ii), (iii), (iv) and (vi) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a) (provided that any dividend paid pursuant to clause (i) of this paragraph
(b) shall reduce the amount that would otherwise be available under clause (3)
of paragraph (a) when declared, but not also when subsequently paid pursuant
to such clause (i)) and the actions described in clause (v) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph (b) and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a).
(c) In computing Consolidated Adjusted Net Income of the Company under
clause (3)(A) of paragraph (a) above, (1) the Company shall use audited
financial statements for the portions of the relevant period for which audited
financial statements are available on the date of determination and unaudited
financial statements and other current financial data based on the books and
records of the Company for the remaining portion of such period and (2) the
Company shall be permitted to rely in good faith on the financial statements
and other financial data derived from the books and records of the Company
that are available on the date of determination. If the Company makes a
Restricted Payment which, at the time of the making of such Restricted Payment
would in the good faith determination of the Company be permitted under the
requirements of the Indenture, such Restricted Payment shall be deemed to have
been made in compliance with the Indenture notwithstanding any subsequent
adjustments made in good faith to the Company's financial statements affecting
Consolidated Adjusted Net Income of the Company for any period. (Section 1011)
Limitation on Issuances and Sales of Restricted Subsidiary Stock. The
Indenture will provide that the Company (i) will not permit any Restricted
Subsidiary to issue any Capital Stock (other than to the Company or a wholly-
owned Restricted Subsidiary) and (ii) will not permit any Person (other than
the Company or a wholly-owned Restricted Subsidiary) to own any Capital Stock
of any Restricted Subsidiary; provided, however, that this covenant shall not
prohibit (1) the issuance and sale of all, but not less than all, of the
issued and outstanding
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Capital Stock of any Restricted Subsidiary owned by the Company or any of its
Restricted Subsidiaries in compliance with the other provisions of the
Indenture, or (2) the ownership by directors of director's qualifying shares
or the ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law. (Section 1012)
Limitation on Transactions with Affiliates. The Indenture will provide that
the Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction with, or
for the benefit of, any Affiliate of the Company or any beneficial owner of 5%
or more of any class of the Company's Capital Stock at any time outstanding
("Interested Persons"), unless (i) such transaction is among the Company and
wholly-owned Restricted Subsidiaries or (ii) (A) such transaction is on terms
that are no less favorable to the Company, or such Restricted Subsidiary, as
the case may be, than those which could have been obtained in an arm's length
transaction with third parties who are not Interested Persons and (B) such
transaction has been approved by the Board of Directors (including a majority
of the Disinterested Directors); provided, however, that this covenant will
not restrict (1) the Company from paying reasonable and customary regular
compensation and fees to directors of the Company or any Restricted Subsidiary
who are not employees of the Company or any Restricted Subsidiary and (2) the
performance of the Company's obligations under the AET Contract. (Section
1013)
Limitation on Liens Securing Pari Passu Indebtedness or Subordinated
Indebtedness. (a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to
exist any Lien (other than Permitted Liens) securing Pari Passu Indebtedness
or Subordinated Indebtedness of the Company on or with respect to any of its
property or assets, including any shares of stock or indebtedness of any
Restricted Subsidiary, whether owned at the date of the Indenture or
thereafter acquired, or any income, profits or proceeds therefrom, or assign
or otherwise convey any right to receive income thereon, unless (x) in the
case of any Lien securing Pari Passu Indebtedness of the Company, the Notes
are secured by a Lien on such property, assets or proceeds that is senior in
priority to or pari passu with such Lien and (y) in the case of any Lien
securing Subordinated Indebtedness of the Company, the Notes are secured by a
Lien on such property, assets or proceeds that is senior in priority to such
Lien.
(b) The Company will not permit any Restricted Subsidiary to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) securing Indebtedness of such Restricted Subsidiary that is
pari passu or subordinate in right of payment to the Guarantee of such
Subsidiary, on or with respect to any of such Restricted Subsidiary's
properties or assets, including any shares of stock or Indebtedness of any
Subsidiary of such Restricted Subsidiary, whether owned at the date of the
Indenture or thereafter acquired, or any income, profits or proceeds
therefrom, or assign or otherwise convey any right to receive income thereon,
unless (x) in the case of any Lien securing Indebtedness of the Restricted
Subsidiary that is pari passu in right of payment to the Guarantee of such
Restricted Subsidiary, such Guarantee is secured by a Lien on such property,
assets or proceeds that is senior in priority to or pari passu with such Lien
and (y) in the case of any Lien securing Indebtedness of the Restricted
Subsidiary that is subordinate in right of payment to the Guarantee of such
Restricted Subsidiary, such Guarantee is secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien. (Section 1014)
Change of Control. Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer to purchase all of the then outstanding
Notes (a "Change of Control Offer"), and shall purchase, on a business day
(the "Change of Control Purchase Date") not more than 70 nor less than 60 days
following the Change of Control, all of the then outstanding Notes validly
tendered pursuant to such Change in Control Offer, at a purchase price (the
"Change of Control Purchase Price") equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date. The Change of Control Offer is required to remain open for at
least 20 Business Days and until the close of business on the Change of
Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each Noteholder
and the Banks notice of the Change of Control Offer, which notice
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shall govern the terms of the Change of Control Offer and shall state, among
other things, the procedures that Noteholders must follow to accept the Change
of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by Noteholders
seeking to accept the Change of Control Offer. The Bank Credit Agreement
prohibits the purchase of the Notes by the Company prior to full repayment of
indebtedness under the Bank Credit Agreement and the termination of the
commitments thereunder and, upon a Change of Control, all amounts outstanding
under the Bank Credit Agreement may become due and payable. In addition, under
the terms of the indenture governing the Senior Notes, the repurchase of the
Notes by the Company would constitute a restricted payment that may be
prohibited at the time of a Change of Control. There can be no assurance that
in the event of a Change of Control the Company will be able to obtain the
necessary consents from the lenders under the Bank Credit Agreement, or, if
necessary, from the holders of the Senior Notes, to consummate a Change of
Control Offer. The failure of the Company to make or consummate the Change of
Control Offer or pay the Change of Control Purchase Price when due would
result in an Event of Default and would give the Trustee and the holders of
the Notes the rights described under "--Events of Default."
One of the events which constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (which is the governing law
of the Indenture) to represent a specific quantitative test. As a consequence,
in the event holders of the Notes elect to require the Company to purchase the
Notes and the Company elects to contest such election, there can be no
assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require the Company to purchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a transaction defined
as a Change of Control. See "--Certain Definitions" for the definition of
"Change of Control."
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and
the Company is required to purchase Notes as described above. (Section 1015)
Limitation on Disposition of Proceeds of Asset Sales. (a) The Indenture will
provide that the Company will not, and will not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) such Asset Sale is for not
less than the Fair Market Value of the assets sold (as determined by the Board
of Directors of the Company, whose determination shall be conclusive and
evidenced by a Board Resolution) and (ii) the consideration received by the
Company or the relevant Restricted Subsidiary in respect of such Asset Sale
consists of at least 75% cash or Cash Equivalents; provided that the Company
and its Restricted Subsidiaries may engage in Asset Sales for consideration
not in the form of cash or Cash Equivalents in amounts in excess of that
permitted in this clause (ii), so long as (x) such excess consideration is in
the form of Fully Traded Common Stock, (y) the aggregate Fair Market Value of
such Fully Traded Common Stock received by the Company and its Restricted
Subsidiaries (measured as of the date of receipt) from all Asset Sales in
reliance on this proviso since the date of the Indenture that has not been
converted into cash or Cash Equivalents does not exceed $10 million and (z)
any Fully Traded Common stock that is converted into cash or Cash Equivalents
shall be applied as provided in paragraphs (b) and (c) of this "Limitation on
Disposition of Proceeds of Asset Sales" covenant.
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(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may use the Net Cash Proceeds thereof, within 12 months after such
Asset Sale, to (i) repay or prepay any then outstanding Senior Indebtedness of
the Company or Indebtedness of any Restricted Subsidiary or (ii) invest (or
enter into a legally binding agreement to invest) in properties and assets to
replace the properties and assets that were the subject of the Asset Sale or
in properties and assets that will be used in businesses of the Company or its
Restricted Subsidiaries, as the case may be, existing on the Closing Date or
in businesses reasonably related thereto. If any such legally binding
agreement to invest such Net Cash Proceeds is terminated, then the Company
may, within 90 days of such termination or within 12 months of such Asset
Sale, whichever is later, invest such Net Cash Proceeds as provided in clauses
(i) or (ii) (without regard to the parenthetical contained in such clause
(ii)) above. The amount of such Net Cash Proceeds not so used as set forth
above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company shall, within 15 business days, make an offer to purchase (an "Excess
Proceeds Offer") from all holders of Notes, on a pro rata basis, in accordance
with the procedures set forth below, the maximum principal amount (expressed
as a multiple of $1,000) of Notes that may be purchased with the Excess
Proceeds. The offer price as to each Note shall be payable in cash in an
amount equal to 100% of the principal amount of such Note plus accrued and
unpaid interest, if any, to the date such Excess Proceeds Offer is
consummated. To the extent that the aggregate principal amount of Notes
tendered pursuant to an Excess Proceeds Offer is less than the Excess
Proceeds, the Company may use such deficiency for general corporate purposes.
If the aggregate principal amount of Notes validly tendered and not withdrawn
by holders thereof exceeds the Excess Proceeds, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset to zero. (Section 1016)
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries. (a) The
Indenture will provide that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to
the Indenture providing for a Guarantee of payment of the Notes by such
Restricted Subsidiary except that (A) if the Notes are subordinated in right
of payment to such Indebtedness, the Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee with
respect to such Indebtedness substantially to the same extent as the Notes are
subordinated to such Indebtedness under the Indenture and (B) if such
Indebtedness is by its express terms subordinated in right of payment to the
Notes, any such guarantee of such Restricted Subsidiary with respect to such
Indebtedness shall be subordinated in right of payment to such Restricted
Subsidiary's Guarantee with respect to the Notes substantially to the same
extent as such Indebtedness is subordinated to the Notes; (ii) such Restricted
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as
a result of any payment by such Restricted Subsidiary under its Guarantee;
(iii) such Restricted Subsidiary shall appoint CT Corporation in New York City
as its agent for the service of process; and (iv) such Restricted Subsidiary
shall deliver to the Trustee an Opinion of Counsel to the effect that (A) such
appointment of CT Corporation is valid, (B) such Guarantee of the Notes has
been duly executed and authorized and (C) such Guarantee of the Notes
constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be limited by
bankruptcy, insolvency or similar laws (including, without limitation, all
laws relating to fraudulent transfers) and except insofar as enforcement
thereof is subject to general principles of equity; provided that this
paragraph (a) shall not be applicable to any Guarantee of any Restricted
Subsidiary that (x) existed at the time such Person became a Restricted
Subsidiary of the Company and (y) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company.
(b) Notwithstanding the foregoing and the other provisions of the Indenture,
any Guarantee by a Restricted Subsidiary of the Notes shall provide by its
terms that it shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the
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Company's Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by
the Indenture) or (ii) the release or discharge of the Guarantee which
resulted in the creation of such Guarantee, except a discharge or release by
or as a result of payment under such Guarantee. (Section 1017)
Limitation on Dividends and other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that the Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary of the Company to (a)
pay dividends, in cash or otherwise, or make any other distributions on or in
respect of its Capital Stock or any other interest or participation in, or
measured by, its profits, (b) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary of the Company, (c) make loans or advances to the
Company or any other Restricted Subsidiary of the Company, (d) transfer any of
its properties or assets to the Company or any other Restricted Subsidiary of
the Company or (e) guarantee any Indebtedness of the Company or any other
Restricted Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) customary
non-assignment provisions of any lease governing a leasehold interest of the
Company or any Restricted Subsidiary of the Company, (iii) any agreement or
other instrument of a Person acquired by the Company or any Restricted
Subsidiary of the Company in existence at the time of such acquisition (but
not created in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired, (iv)
any agreement in existence on the Closing Date (to the extent of any
encumbrances or restrictions in existence thereunder on the Closing Date) and
(v) any agreement providing for the incurrence of Indebtedness of Restricted
Subsidiaries pursuant to either clause (x) of paragraph (b) of the "Limitation
on Indebtedness" covenant or clause (vii) of the definition of Permitted
Subsidiary Indebtedness; provided that any Restricted Subsidiary that becomes
subject to any such encumbrances or restrictions pursuant to this clause (v)
shall Guarantee the Notes in compliance with the provisions of clause (i) of
paragraph (b) and clauses (A)(i), (ii) and (iii) of paragraph (a) of the
"Limitation on Guarantees of Indebtedness by Restricted Subsidiaries"
covenant. (Section 1018)
Reports. The Indenture will require that the Company file on a timely basis
with the Commission, to the extent such filings are accepted by the Commission
and whether or not the Company has a class of securities registered under the
Exchange Act, the annual reports, quarterly reports and other documents that
the Company would be required to file if it were subject to Section 13 or 15
of the Exchange Act. The Company will also be required (a) to file with the
Trustee, and provide to each holder of Notes, without cost to such holder,
copies of such reports and documents within 15 days after the date on which
the Company files such reports and documents with the Commission or the date
on which the Company would be required to file such reports and documents if
the Company were so required and (b) if filing such reports and documents with
the Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective holder of Notes promptly upon written request.
(Section 1009)
MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.
The Company will not, in any transaction or series of transactions, merge or
consolidate with or into, or sell, assign, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets as an
entirety to, any Person or Persons, and the Company will not permit any
Restricted Subsidiary to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, transfer, lease or other disposition of
all or substantially all of the properties and assets of the Company and its
Restricted Subsidiaries on a consolidated basis to any other Person or
Persons, unless at the time and after giving effect thereto (i) either (A) if
the transaction or transactions is a merger or consolidation, the Company
shall be the surviving Person of such merger or consolidation, or (B) the
Person formed by such consolidation or into which the Company or such
Restricted Subsidiary is merged or to which the properties and assets of the
Company or such Restricted Subsidiary, as the case may be, substantially as an
entirety, are sold, assigned, transferred, leased or otherwise disposed of
(any such surviving Person or transferee Person being the
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"Surviving Entity") shall be a corporation organized and existing under the
laws of the United States of America, any state thereof or the District of
Columbia and shall expressly assume by a supplemental indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture, and, in each
case, the Indenture shall remain in full force and effect; (ii) immediately
before and immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing and the Company or the Surviving
Entity, as the case may be, after giving effect to such transaction or series
of transactions on a pro forma basis, could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation
on Indebtedness" covenant; and (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis, the Consolidated
Net Worth of the Company or the Surviving Entity, as the case may be, is at
least equal to the Consolidated Net Worth of the Company immediately before
such transaction or series of transactions. (Section 801)
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in the form and substance reasonably satisfactory
to the Trustee, an Officers' Certificate stating that such consolidation,
merger, transfer, lease or other disposition and the supplemental indenture in
respect thereto comply with the requirements under the Indenture and an
Opinion of Counsel stating that the requirements of clause (i) of the
preceding paragraph have been complied with.
Upon any consolidation or merger or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties
and assets of the Company in accordance with the immediately preceding
paragraphs in which the Company is not the continuing obligor under the
Indenture, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture with
the same effect as if such successor had been named as the Company therein.
When a successor assumes all the obligations of its predecessor under the
Indenture or the Notes, the predecessor shall be released from those
obligations; provided that in the case of a transfer by lease, the predecessor
shall not be released from the payment of principal and interest on the Notes.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, when
due and payable, on any of the Notes; or
(ii) default in the payment of an installment of interest on any of the
Notes, when due and payable, for 30 days; or
(iii) default in the performance or breach of the provisions of the
"Merger, Consolidation and Sale of Assets" section of the Indenture, the
failure to make or consummate a Change of Control Offer in accordance with
the provisions of the "Change of Control" covenant or the failure to make
or consummate an Excess Proceeds Offer in accordance with the provisions of
the "Limitation on Disposition of Proceeds of Asset Sales" covenant; or
(iv) the Company or any Guarantor shall fail to perform or observe any
other term, covenant or agreement contained in the Notes, any Guarantee or
the Indenture (other than a default specified in (i), (ii) or (iii) above)
for a period of 30 days after written notice of such failure requiring the
Company to remedy the same shall have been given (x) to the Company by the
Trustee or (y) to the Company and the Trustee by the holders of 25% in
aggregate principal amount of the Notes then outstanding; or
(v) default or defaults under one or more mortgages, bonds, debentures or
other evidences of Indebtedness under which the Company or any Significant
Subsidiary then has outstanding Indebtedness in excess of $5 million,
individually or in the aggregate, and either (a) such Indebtedness is
already due and
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payable in full or (b) such default or defaults have resulted in the
acceleration of the maturity of such Indebtedness; or
(vi) one or more final judgments, orders or decrees of any court or
regulatory or administrative agency of competent jurisdiction for the
payment of money in excess of $5 million, either individually or in the
aggregate, shall be entered against the Company or any of its Significant
Subsidiaries or any of their respective properties and shall not be
discharged or fully bonded and there shall have been a period of 60 days
after the date on which any period for appeal has expired and during which
a stay of enforcement of such judgment, order or decree shall not be in
effect; or
(vii) (A) any holder of at least $5 million in aggregate principal amount
of secured Indebtedness of the Company or of any Significant Subsidiary as
to which a default has occurred and is continuing shall commence judicial
proceedings (which proceedings shall remain unstayed for 5 Business Days)
to foreclose upon assets of the Company or any Significant Subsidiary
having an aggregate Fair Market Value, individually or in the aggregate, in
excess of $5 million or shall have exercised any right under applicable law
or applicable security documents to take ownership of any such assets in
lieu of foreclosure or (B) any action described in the foregoing clause (A)
shall result in any court of competent jurisdiction issuing any order for
the seizure of such assets; or
(viii) any Guarantee ceases to be in full force and effect or is declared
null and void or any Guarantor denies that it has any further liability
under any Guarantee, or gives notice to such effect (other than by reason
of the termination of the Indenture or the release of any such Guarantee in
accordance with the Indenture) and such condition shall have continued for
a period of 30 days after written notice of such failure requiring the
Guarantor and the Company to remedy the same shall have been given (x) to
the Company by the Trustee or (y) to the Company and the Trustee by the
holders of 25% in aggregate principal amount of the Notes then outstanding;
or
(ix) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
(Section 501)
If an Event of Default (other than as specified in clause (ix) above) shall
occur and be continuing, the Trustee, by notice to the Company, or the holders
of at least 25% in aggregate principal amount of the Notes then outstanding,
by notice to the Trustee and the Company, may declare the principal of,
premium, if any, and accrued interest on all of the outstanding Notes due and
payable immediately, upon which declaration all amounts payable in respect of
the Notes shall be immediately due and payable, provided, however, that, for
so long as the Bank Credit Agreement is in effect, such declaration shall not
become effective until the earlier of (i) five Business Days following
delivery of notice to the Agent Bank of the intention to accelerate the Notes
or (ii) the acceleration of any Indebtedness under the Bank Credit Agreement.
If an Event of Default specified in clause (ix) above occurs and is
continuing, then the principal of, premium, if any, and accrued interest on
all of the outstanding Notes shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any holder of Notes. (Section 502)
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration if (a) the Company has paid or deposited with the
Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee
under the Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, (ii) all overdue interest
on all Notes, (iii) the principal of and premium, if any, on any Notes which
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Notes, and (iv) to the extent that
payment of such interest is lawful, interest upon overdue interest at the rate
borne by the Notes which has become due otherwise than by such declaration of
acceleration; (b) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction; and (c) all Events of Default,
other than the nonpayment of principal of, premium, if any, and interest on
the Notes that has become due solely by such declaration of acceleration, have
been cured or waived. (Section 502)
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The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may on behalf of the holders of all the Notes waive any past
defaults under the Indenture, except a default in the payment of the principal
of, premium, if any, or interest on any Note, or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each Note outstanding. (Section 513)
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 15 days after receipt of such
notice and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note. (Section 507)
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee under the Indenture is not under any obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Noteholders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the Indenture.
(Sections 512 and 602)
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 5 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of such Notes if a committee of its Trust Officers in good
faith determines that withholding the notice is in the interest of the
Noteholders. (Section 601)
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Guarantors of their
respective obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within ten
days of any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company and the Guarantors with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes, except for (i) the rights of holders of outstanding Notes to receive
payment in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations to issue
temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes and maintain an office or agency
for payments in respect of the Notes, (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and (iv) the defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect
to terminate the obligations of the Company and any Guarantor with respect to
certain covenants that are set forth in the Indenture, some of which are
described under "Certain Covenants" above, and any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the Notes ("covenant defeasance"). The Company is permitted to
exercise defeasance or covenant defeasance only with the consent of the Banks.
(Sections 1202 and 1203)
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In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if any,
and interest on the outstanding Notes to redemption or maturity; (ii) the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such defeasance or covenant defeasance had not occurred (in the case of
defeasance, such opinion must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable federal income tax laws);
(iii) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit; (iv) such defeasance or covenant defeasance shall
not cause the Trustee to have a conflicting interest with respect to any
securities of the Company or any Guarantor; (v) such defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a
default under, any material agreement or instrument to which the Company or
any Guarantor is a party or by which it is bound; (vi) the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; and (vii) the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
satisfactory to the Trustee, which, taken together, state that all conditions
precedent under the Indenture to either defeasance or covenant defeasance, as
the case may be, have been complied with. (Section 1204)
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company or any Guarantor has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Notes
not theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together
with irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may
be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel satisfactory to the Trustee, which,
taken together, state that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with. (Section 401)
AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the consent of
the Noteholders, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act of 1939, or making any change that
does not adversely affect the rights of any Noteholder; provided, however,
that the Company has delivered to the Trustee an Opinion of Counsel stating
that such change does not adversely affect the rights of any Noteholder. Other
amendments and modifications of the Indenture or the Notes may be made by the
Company and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of
the holder of each outstanding Note affected thereby, (i) reduce the principal
amount of, extend the fixed maturity of or alter the redemption provisions of,
the Notes, (ii) change the currency in which any Notes or any premium or the
interest thereon is payable, (iii) reduce the
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percentage in principal amount of outstanding Notes that must consent to an
amendment, supplement or waiver or consent to take any action under the
Indenture or the Notes, (iv) modify the "Limitation on Other Senior
Subordinated Indebtedness" covenant or any of the provisions in the Indenture
relating to the subordination of the Notes in a manner adverse to the holders;
(v) impair the right to institute suit for the enforcement of any payment on
or with respect to the Notes, (vi) waive a default in payment with respect to
the Notes, (vii) alter the Company's obligation to purchase the Notes in
accordance with the Indenture or waive any default in the performance thereof,
(viii) reduce or change the rate or time for payment of interest on the Notes,
or (ix) release any Guarantor from any of its obligations under its Guarantee
or the Indenture other than in accordance with the terms of the Indenture.
(Sections 901 and 902) The ability of the Company to amend the Indenture will
be restricted by the terms of the Bank Credit Agreement.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent Person would exercise under the circumstances in the
conduct of such Person's own affairs. (Section 602)
The Indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein contain limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined) it must eliminate such conflict
or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person or (b) existing at the
time such Person becomes a subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a subsidiary).
"AET" means Applied Extrusion Technologies, Inc., a Delaware corporation.
"AET Contract" means the supply contract between the Company and AET, dated
April 17, 1990 and expiring March 31, 1998, as in effect on the date of the
Indenture.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person and, in the case of the
Company and its Restricted Subsidiaries, also means AET and The K.A.D.
Companies, Inc.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary or any Restricted Subsidiary shall be merged with or
into the Company or any Restricted Subsidiary or (b) the acquisition by the
Company or any Restricted Subsidiary of the assets of any Person which
constitute all or substantially all of the assets of such Person or any
division or line of business of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or a wholly-owned Restricted
Subsidiary, in one or a series of related transactions, of (a) any
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Capital Stock of any Restricted Subsidiary held by the Company or any
Restricted Subsidiary; (b) all or substantially all of the properties and
assets of any division or line of business of the Company or any Restricted
Subsidiary; or (c) any other properties or assets of the Company or any
Restricted Subsidiary other than in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include any sale,
issuance, conveyance, transfer, lease or other disposition of properties or
assets (i) that is governed by the provisions of the Indenture governing
"Merger, Consolidation and Sale of Assets," (ii) to an Unrestricted
Subsidiary, if permitted under the "Limitation on Restricted Payments"
covenant or (iii) having a Fair Market Value of less than $250,000.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years from such date to the date or dates of each
successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount
of each such principal payment by (b) the sum of all such principal payments.
"Bank Credit Agreement" means the Credit Agreement dated as of October 29,
1993, amended and restated as of May 18, 1994, between the Company and the
Banks as in effect on the date hereof and as such Agreement may be amended,
restated, supplemented, replaced, substituted or otherwise modified from time
to time.
"Banks" means the banks and other financial institutions from time to time
that are lenders under the Bank Credit Agreement.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of the Indenture,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America is pledged in
support thereof); (ii) certificates of deposit or acceptances with a maturity
of 180 days or less of any financial institution that is a member of the
Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; and (iii) commercial paper with a
maturity of 180 days or less issued by a corporation that is not an Affiliate
of the Company and is organized under the laws of any state of the United
States or the District of Columbia and rated at least A-1 by S&P or at least
P-1 by Moody's.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) 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 securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 40% of the total
Voting Stock of the Company; (b) the Company consolidates with, or merges with
or into, another Person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any Person, or
any Person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where (i) the outstanding Voting Stock of the
Company is converted into or exchanged for (1) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or (2)
cash, securities and other property in an amount which could be paid by the
Company as a Restricted Payment under the Indenture and (ii) immediately after
such transaction no "person"
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or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act) is 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 securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 40% of the total Voting Stock of
the surviving or transferee corporation; (c) during any consecutive two-year
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
such Board of Directors or whose nomination for 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 (d) any final order, judgment or decree of a court of competent
jurisdiction shall be entered against the Company decreeing the dissolution or
liquidation of the Company.
"Closing Date" means the date of the closing of the offering of the Notes.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however
designated and whether voting or nonvoting) of, such Person's common stock,
whether outstanding at the Closing Date or issued after the Closing Date, and
includes, without limitation, all series and classes of such common stock.
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and its Restricted Subsidiaries for such
period as determined in accordance with GAAP, adjusted by excluding (a) net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to asset dispositions, (c) the net income (or
net loss) of any Person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any of its
Restricted Subsidiaries has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company or its
Restricted Subsidiaries in cash by such other Person during such period, (d)
net income (or net loss) of any Person combined with the Company or any of its
Restricted Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (e) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that net income is not
at the date of determination permitted, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders and (f) income resulting from transfers of
assets received by the Company or any Restricted Subsidiary from an
Unrestricted Subsidiary.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (a) the sum of Consolidated Adjusted Net Income,
Consolidated Interest Expense, Consolidated Tax Expense and Consolidated Non-
cash Charges, in each case, for such period, of such Person and its
subsidiaries on a consolidated basis, all determined in accordance with GAAP,
to (b) the sum of such Consolidated Interest Expense for such period; provided
that (i) in making such computation, the Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness computed on a pro forma
basis and bearing a floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
period, (ii) in making such computation, the Consolidated Interest Expense of
such Person attributable to interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period, and
(iii) notwithstanding clauses (i) and (ii) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Rate Protection Obligations, shall be deemed
to have accrued at the rate per annum resulting after giving effect to the
operation of such agreements. If such Person or any of its subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the above
clause shall give effect to
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the incurrence of such guaranteed Indebtedness as if such Person or such
subsidiary had directly incurred or otherwise assumed such guaranteed
Indebtedness.
"Consolidated Income Tax Expense" means, with respect to any Person for any
period, the provision for federal, state, local and foreign income taxes of
such Person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such
Person and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest
portion of any deferred payment obligation, (d) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and (e) all accrued interest, (ii) the interest component
of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Subsidiaries during such period as determined
on a consolidated basis in accordance with GAAP and (iii) the aggregate
dividends paid or accrued on Preferred Stock of such Person or its
Subsidiaries, to the extent such Preferred Stock is owned by Persons other
than such Person and its Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated stockholders' equity of such Person less the amount of such
stockholders' equity attributable to Redeemable Capital Stock or treasury
stock of such Person and its Subsidiaries, as determined in accordance with
GAAP.
"Consolidated Non-cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Subsidiaries reducing Consolidated Adjusted Net Income
of such Person and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver
a resolution of the Board of Directors under the Indenture, a member of the
Board of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions.
"Eligible Inventories" as of any date means the consolidated inventories of
the Company and its Restricted Subsidiaries (net of any reserve) on the basis
of the method of accounting (either last in/first out or first in/first out)
used by the Company in the preparation of its financial statements included in
the latest Form 10-K filed by the Company under the Securities Act, as shown
on a consolidated balance sheet of the Company and its Restricted
Subsidiaries, all in accordance with GAAP.
"Eligible Receivables" as of any date means the consolidated accounts
receivables (net of any reserve) of the Company and its Restricted
Subsidiaries that are not more than 60 days past their due date and that were
entered into on normal payment terms as shown on a consolidated balance sheet
of the Company and its Restricted Subsidiaries, all in accordance with GAAP.
"Event of Default" has the meaning set forth under "Events of Default"
herein.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction.
"FEEL" means Flight Equipment and Engineering Limited, an English
corporation.
"Fully Traded Common Stock" means Common Stock issued by any corporation if
(A) such Common Stock is listed on either The New York Stock Exchange, The
American Stock Exchange, The London Stock
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Exchange or the Nasdaq National Market; provided that such Common Stock is
freely tradeable under the Securities Act (or, in the case of The London Stock
Exchange, any applicable law, rule or regulation) upon issuance; and (B) such
Common Stock does not constitute more than 15% of the issued and outstanding
Common Stock of such corporation held by Persons other than 10% holders of
such Common Stock and Affiliates and insiders of such corporation.
"GAAP" means generally accepted accounting principles, consistently applied,
that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as may be approved by a
significant segment of the accounting profession of the United States of
America, which are applicable as of the Closing Date.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantee" means any guarantee of any Indebtedness of the Company incurred
by any Restricted Subsidiary pursuant to (1) paragraph (a) of the "Limitation
on Guarantees of Indebtedness by Restricted Subsidiaries" covenant, (2) clause
(v) of the "Limitation on Dividends and other Payment Restrictions Affecting
Restricted Subsidiaries" covenant, (3) clause (y) of paragraph (b) of the
"Limitation on Indebtedness" covenant, or (4) clause (ii) of the definition of
Permitted Investment. When used as a verb, "Guarantee" shall have a
corresponding meaning.
"Guarantor" means any Restricted Subsidiary which incurs a Guarantee.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such Person in connection with any letters of credit, bankers' acceptance or
other similar credit transaction and in connection with any agreement to
purchase, redeem, exchange, convert or otherwise acquire for value any Capital
Stock of such Person, or any warrants, rights or options to acquire such
Capital Stock, now or hereafter outstanding, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (b) all obligations of such Person evidenced
by bonds, notes, debentures or other similar instruments, if, and to the
extent, any of the foregoing would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (c) all indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade accounts payable arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such Person, (e) all Indebtedness referred to
in the preceding clauses of other Persons and all dividends of other Persons,
the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness (the amount of such
obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (f) all guarantees by such
Person of Indebtedness referred to in this definition, (g) all Redeemable
Capital Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (h) all
obligations of such Person under or in respect of currency exchange contracts
and Interest Rate Protection Obligations and (i) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of
such Person of the types referred to in clauses (a) through (h) above. For
purposes hereof, the "maximum fixed repurchase price" of any
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Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the fair market value of such Redeemable
Capital Stock, such fair market value shall be determined in good faith by the
board of directors of the issuer of such Redeemable Capital Stock.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other Person. In addition, the
Fair Market Value of the net assets of any Restricted Subsidiary of the
Company at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary shall be deemed to be an "Investment" made by the
Company in such Unrestricted Subsidiary at such time. "Investments" shall
exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A Person shall be deemed to own subject to a Lien any
property which such Person 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.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale and (iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP consistently applied against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers' Certificate
delivered to the Trustee.
"Pari Passu Indebtedness" means Indebtedness of the Company which is pari
passu with the Notes.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Company under the Bank Credit Agreement in an
aggregate principal amount at any one time outstanding not to exceed the
greater of (i) the commitment under the Bank Credit
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Agreement on the date of the Indenture and (ii) the sum of 80% of the
aggregate amount of Eligible Receivables and 50% of the aggregate amount of
Eligible Inventory, measured as of the most recent fiscal quarter preceding
the time such Indebtedness is incurred;
(ii) Indebtedness of the Company under the Notes;
(iii) Indebtedness of the Company outstanding on the date of the
Indenture (other than Indebtedness incurred pursuant to clause (i) of this
definition);
(iv) obligations of the Company pursuant to Interest Rate Protection
Obligations, which obligations do not exceed the aggregate principal amount
of the Indebtedness covered by such Interest Rate Protection Obligations
and obligations under currency exchange contracts entered into in the
ordinary course of business;
(v) Indebtedness of the Company to any wholly-owned Restricted
Subsidiaries;
(vi) Indebtedness of the Company consisting of guarantees, indemnities or
obligations in respect of purchase price adjustments in connection with the
acquisition or disposition of assets, including, without limitation, shares
of Capital Stock of Restricted Subsidiaries;
(vii) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company of any Indebtedness of the Company incurred pursuant to clauses
(ii) and (iii) of this definition, including any successive refinancings by
the Company, so long as (A) any such new Indebtedness shall be in a
principal amount that does not exceed the principal amount (or, if such
Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination)
so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing, plus the amount of
expenses of the Company incurred in connection with such refinancing, (B)
in the case of any refinancing of Pari Passu Indebtedness or Subordinated
Indebtedness, such new Indebtedness is made pari passu with or subordinate
to the Notes at least to the same extent as the Indebtedness being
refinanced and (C) such new Indebtedness has an Average Life longer than
the Average Life of the Notes and a final Stated Maturity later than the
final Stated Maturity of the Notes; and
(viii) Indebtedness in an aggregate principal amount not in excess of $30
million at any one time outstanding, less the amount of Permitted
Subsidiary Indebtedness then outstanding pursuant to clause (vii) of the
definition thereof.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or wholly-owned Restricted
Subsidiaries; provided that if the Company shall make any Investment in FEEL
in excess of $1 million, FEEL shall Guarantee the Notes in compliance with
paragraph (b) and clauses (i) (A) and (ii) of paragraph (a) of the "Limitation
on Guarantees of Indebtedness by Restricted Subsidiaries" covenant; (iii)
Investments in an amount not to exceed $15 million at any one time
outstanding; or (iv) Investments by the Company or any Restricted Subsidiary
of the Company in another Person, if as a result of such Investment (A) such
other Person becomes a wholly-owned Restricted Subsidiary or (B) such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a wholly-owned Restricted
Subsidiary.
"Permitted Liens" means the following types of Liens:
(a) Liens on any property or assets of a Restricted Subsidiary granted in
favor of the Company or any Restricted Subsidiary;
(b) Liens securing the Notes;
(c) Liens securing the Guarantees;
(d) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or any Restricted Subsidiary;
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provided that any such Lien does not extend to any property or assets of
the Company or any Restricted Subsidiary other than the assets acquired in
connection with the incurrence of such Acquired Indebtedness; and
(e) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (d); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect that the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets.
"Permitted Subsidiary Indebtedness" means any of the following:
(i) Indebtedness of any Restricted Subsidiary outstanding on the date of
the Indenture;
(ii) obligations of any Restricted Subsidiary pursuant to Interest Rate
Protection Obligations, which obligations do not exceed the aggregate
principal amount of the Indebtedness covered by such Interest Rate
Protection Obligations;
(iii) Indebtedness of any Restricted Subsidiary to any wholly owned
Restricted Subsidiary of the Company or to the Company;
(iv) Indebtedness of any Restricted Subsidiary consisting of guaranties,
indemnities or obligations in respect of purchase price adjustments in
connection with the acquisition or disposition of assets, including,
without limitation, shares of Capital Stock of Restricted Subsidiaries;
(v) any renewals, extensions, substitutions, refinancings or replacements
(each, for purposes of this clause, a "refinancing") by any Restricted
Subsidiary of any Indebtedness of such Restricted Subsidiary incurred
pursuant to clause (i) of this definition, including any successive
refinancings by such Restricted Subsidiary, so long as any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined
by such Restricted Subsidiary as necessary to accomplish such refinancing,
plus the amount of expenses of such Restricted Subsidiary incurred in
connection with such refinancing and such new Indebtedness has an Average
Life longer than the Average Life of the Notes and a final Stated Maturity
later than the final Stated Maturity of the Notes;
(vi) Indebtedness (as defined in clauses (e) and (f) of the definition of
Indebtedness) to the Noteholders incurred pursuant to provisions of the
Indenture;
(vii) Indebtedness in an amount not to exceed $30 million at any one time
outstanding, less the amount of Permitted Indebtedness then outstanding
pursuant to clause (viii) of the definition thereof; and
(viii) Guarantees of Indebtedness of the Company permitted under the
"Limitation on Guarantees of Indebtedness by Restricted Subsidiaries"
covenant.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued
after the Closing Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible
into or exchangeable for debt securities at any time prior to such final
Stated Maturity.
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"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard and Poor's Corporation and its successors.
"Senior Notes" means the 9 3/4% Senior Notes due 2003 of the Company issued
under the Senior Notes Indenture.
"Significant Subsidiary" of the Company means any Restricted Subsidiary of
the Company that is a "significant subsidiary" as defined in Rule 1.02(v) of
Regulation S-X under the Securities Act, and in any event shall include any
Guarantor.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) a corporation a majority
of whose Voting Stock is at the time, directly or indirectly, owned by such
Person, by one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person
performing similar functions). Unless specifically provided to the contrary
herein, Unrestricted Subsidiaries shall not be included in the definition of
Subsidiaries for any purpose of the Indenture (other than for the purposes of
the definition of "Unrestricted Subsidiary" herein).
"Unrestricted Subsidiary" means (1) any Subsidiary of the Company which at
the time of determination shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (2) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns, or holds any Lien on, any
property of the Company or any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated; provided that either (x) the
Subsidiary to be designated has total assets of $1,000 or less at the time of
its designation or (y) immediately after giving effect to such designation,
the Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "Limitation on Indebtedness" covenant. The Board
of Directors may designate any Unrestricted Subsidiary to be a Subsidiary;
provided that immediately after giving effect to such designation, the Company
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "Limitation on Indebtedness" covenant.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
"wholly owned" with respect to any Subsidiary, means any Subsidiary of any
Person of which at least 99% of the outstanding Capital Stock is owned by such
Person or another wholly-owned Subsidiary of such Person. For purposes of this
definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Subsidiary.
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BOOK-ENTRY DELIVERY AND FORM
The certificates representing the Old Notes were issued in fully registered
form, without coupons. The Certificates representing the New Notes will be
issued in fully registered form, without coupons. Except as described in the
next paragraph, the New Notes will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York ("DTC"), and registered in the
name of Cede & Co., as DTC's nominee in the form of a global Note certificate
or will remain in the custody of the Trustee pursuant to a FAST Balance
Certificate Agreement between DTC and the Trustee.
Old Notes originally purchased by or transferred to (i) institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act) who are not "qualified institutional buyers" (as defined
in Rule 144A under the Securities Act ("QIBS") or (ii) any other Persons who
are not QIBs (collectively, "Non-Global Purchasers") were issued in registered
form without coupons (the '"Certificated Notes"). Upon the transfer to a QIB
of Certificated Notes initially issued to a Non-Global Purchaser, such
Certificated Notes will be exchanged for an interest in the global Note
certificate or in the New Notes in the custody of the Trustee representing the
principal amount of notes being transferred.
The Old Notes initially sold to QIBs were represented by a single global
Note (the "Book-Entry Old Notes") in definitive fully registered form without
coupons, registered in the name of the nominee of DTC, as depositary. The
Book-Entry Old Notes, to the extent directed by the holders thereof in their
Letters of Transmittal, will be exchanged through book-entry electronic
transfer for a new single global New Note in definitive fully registered form
without coupons registered in the name of a nominee of DTC, as depositary (the
"Book-Entry New Notes"). The global New Note will, upon request, be
exchangeable for other New Notes in definitive, fully registered form, without
coupons, in accordance with DTC's customary procedures. The global New Note
will also be exchangeable in certain other limited circumstances. The Company,
the Trustee and any agent thereof will be entitled to treat DTC's nominee as
the sole owner and holder of the unexchanged portion of the global Note for
all purposes.
In connection with the issuance of the Book-Entry New Notes, DTC will credit
on its book-entry registration and transfer system the respective principal
amounts of Book-Entry New Notes represented by the global New Note deposited
with it to the accounts of institutions that have accounts with DTC or its
nominee ("participants"). Ownership of beneficial interests in Book-Entry New
Notes will be limited to participants or persons that may hold beneficial
interests through participants. Ownership of beneficial interests in Book-
Entry New Notes will be shown on, and the transfer of those ownership
interests will be effected only through, records maintained by DTC (with
respect to participants' interests) or such participants (with respect to the
owners of beneficial interests in the Book-Entry New Notes).
So long as DTC or its nominee is the registered holder and owner of a global
New Note representing the Book-Entry New Notes, DTC or such nominee, as the
case may be, will be considered the sole owner and holder of the related Book-
Entry New Notes for all purposes of such New Notes and for all purposes under
the Indenture. However, neither DTC nor Cede & Co. will consent or vote with
respect to the New Notes or Old Notes. Under its usual procedures, DTC mails
an Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those direct
participants to whose accounts the New Notes or Old Notes are credited on the
record date. Unless DTC notifies the Company that is unwilling or unable to
continue as depositary for such Book-Entry New Notes, DTC ceases to be
clearing agency registered under the Exchange Act, the Company delivers to the
Trustee a written notice that all Book-Entry New Notes shall be exchangeable
or an Event of Default (as defined in the Indenture) or event that after
notice or lapse of time, or both, would become an Event of Default, has
occurred and is continuing with respect to the New Notes, owners of beneficial
interests in the Book-Entry New Notes will not be entitled to have the New
Notes represented by the global New Notes registered in their names and will
not be considered to be the owners or holders of any New Notes under the
Indenture or such Book-Entry New Notes, except as otherwise described herein.
Payment of principal of (and premium, if any) and interest on Book-Entry New
Notes will be made to DTC or its nominee, as the case may be, as the
registered owner and holder thereof. All payments of principal of (and
premium, if any) and interest on Book-Entry New Notes held by DTC will be made
by the Company to DTC in immediately available funds, and in turn by DTC to
participants in immediately available fund.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Prior to the Acquisition, the Company had bank credit facilities that
aggregated $85 million. Concurrently with the Offering, BEA amended its
existing credit facilities by increasing the aggregate principal amount that
may be borrowed thereunder to $100 million. The Bank Credit Facility, which
became effective concurrently with the closing of the Offering, consists of
the $25 million Reducing Revolver and the $75 million Revolving Facility. The
Reducing Revolver is collateralized by all of the issued and outstanding
capital stock of Acurex and has a five year maturity with the commitments of
the lenders thereunder reducing during such five year period and the Revolving
Facility is collateralized by all of the Company's accounts receivable, all of
its inventory and substantially all of its other personal property and has a
five year maturity. In addition, the Bank Credit Facility contains customary
affirmative covenants, negative covenants and conditions of borrowing. The
Company also repaid a $10 million unsecured borrowing as described below. On
the date of final maturity of the Reducing Revolver and the Revolving
Facility, all remaining amounts then outstanding under the Bank Credit
Facility were required to be repaid. The Bank Credit Facility became effective
upon the closing of the Offering and the Acquisition. Upon the consummation of
the Acquisition and the Offering, indebtedness in an aggregate principal
amount of approximately $29 million, including letters of credit amounting to
approximately $6 million, were outstanding under the Bank Credit Facility. The
credit facilities bear interest at prime plus .50% or, at BEA's option, LIBOR
plus 1.75%, in each case, subject to BEA's credit rating.
The Company also has outstanding the $125 million of Senior Notes, which are
senior unsecured obligations of the Company ranking equally with future senior
unsecured obligations of the Company. The interest on the Senior Notes is
payable semiannually in arrears on March 1 and September 1 of each year. The
Senior Notes are redeemable at the option of the Company, in whole or in part,
on or after March 1, 1998 at predetermined redemption prices, together with
accrued and unpaid interest to the date of redemption. In addition, upon a
Change of Control, the Company is obligated to make an offer to purchase all
outstanding Senior Notes at a redemption price of 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of purchase. Similarly,
upon the sale or disposition of certain assets, the Company may be obligated
to make offers to purchase the Senior Notes with a portion of the cash
proceeds from such sale or disposition at a redemption price of 100% of the
principal amount thereof, plus accrued and unpaid interest to date of
purchase.
BEA is also party to a Term Loan Agreement with Nationsbank of Florida
pursuant to which it entered into two separate term loans in the amounts of
(a) $1.5 million for the purposes of providing long-term financing for a
dynamic test facility at its Litchfield, CT site (the "Litchfield Term Loan")
and (b) $2.5 million for the purpose of providing long-term financing for its
corporate headquarters located in Wellington, FL (the "Wellington Term Loan").
The Litchfield Term Loan and the Wellington Term Loan bear interest at the
prime rate plus one percent (1%) or the LIBOR rate plus 2.25%, or both. The
principal amount of the Litchfield Term Loan is to be repaid in twenty-four
equal installments of $62,500 each, payable quarterly on the last day of
February, May, August and November, with the last such installment due in
November 2001. The Litchfield Term Loan is secured primarily by a mortgage
covering the real estate at the Litchfield site and any improvements thereto.
The principal amount of the Wellington Term Loan is to be repaid in twenty-
four equal installments of $31,250 each, payable quarterly on the last day of
February, May, August and November, with a final principal installment of
$1.75 million due on the last business day in December 2001. The Wellington
Term Loan is secured primarily by a mortgage covering the real estate at the
Wellington site and any improvements thereto.
During fiscal 1994, FEEL, a subsidiary of BEA, entered into revolving lines
of credit and a term loan agreement aggregating $13 million (the "FEEL Credit
Agreement"). The FEEL Credit Agreement is collateralized by substantially all
of the assets of FEEL. Aggregate borrowings outstanding under the FEEL Credit
Agreement were approximately $11.5 million as of November 25, 1995.
Inventum, another subsidiary of BEA, 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 November 25, 1995.
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CERTAIN FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the material United States federal
income tax consequences applicable to the exchange of Old Notes for New Notes,
and the ownership and disposition of New Notes, by United States Holders (as
defined below) who exchange Old Notes for New Notes pursuant to the Exchange
Offer, as well as the principal United States federal income and estate tax
consequences of the ownership of New Notes by Foreign Holders (as defined
below) who acquire New Notes pursuant to the Exchange Offer. This discussion
is based on the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect or
proposed on the date hereof and all of which are subject to change at any
time, possibly with retroactive effect, and to different interpretations. In
particular, the discussion is based in part on certain proposed regulations
issued in December 1992 concerning the tax treatment of exchanges and
modifications of debt instruments (the "1992 Proposed Regulations"). The 1992
Proposed Regulations are proposed to be effective for debt instruments issued
more than 30 days after such regulations are issued as final regulations.
Until issued as final (or temporary) regulations, such regulations are not
binding on the Internal Revenue Service ("IRS") and could be withdrawn,
replaced or modified at any time, possibly with retroactive effect. This
discussion does not address the tax consequences to subsequent purchasers of
New Notes or to persons who purchased Old Notes from an initial holder at a
price other than the face amount of such Note, and is limited to holders that
hold the New Notes as capital assets, within the meaning of section 1221 of
the Code. This discussion also does not address the tax consequences to
nonresident aliens or foreign corporations that are subject to United States
federal income tax on a net basis on income realized with respect to a New
Note because such income is effectively connected with the conduct of a U.S.
trade or business. Such holders are generally taxed in a similar manner to
United States Holders; however, certain special rules apply. Moreover, this
discussion does not address all of the tax consequences that may be relevant
to particular purchasers in light of their personal circumstances, or to
certain types of purchasers (such as certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities or persons who have
hedged a risk of owning New Notes).
HOLDERS EXCHANGING OLD NOTES FOR NEW NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF OLD
NOTES FOR NEW NOTES AND THE CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF
NEW NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR ANY STATE,
LOCAL OR FOREIGN TAX LAWS, AS WELL AS WITH RESPECT TO THE POSSIBLE EFFECTS OF
ANY CHANGES (OR PROPOSED CHANGES) IN APPLICABLE TAX LAWS OR INTERPRETATIONS
THEREOF.
UNITED STATES FEDERAL INCOME TAXATION OF UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of an Old
Note or a New Note, as appropriate, that is, for United States federal income
tax purposes, (a) a citizen or resident of the United States, (b) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof or (c) an
estate or trust the income of which is subject to United States federal income
taxation regardless of source.
Exchange of Old Notes for New Notes
The exchange by a United States Holder of an Old Note for a New Note will
not constitute a taxable exchange of the Old Note if the economic terms of the
New Note (including the interest rate) are identical to the economic terms of
the Old Note. Under the 1992 Proposed Regulations, even if the interest rate
on the New Note were not equal to the interest rate on the Old Note as a
result of an increase in the interest rate of the Old Note prior to the
exchange as described under "The Exchange Offer," the exchange of the Old Note
for the New Note would not be treated as a taxable exchange, as such change in
interest rate would occur pursuant to the original terms of the Old Note.
Accordingly, in the absence of any change in law or the modification or
withdrawal of the 1992 Proposed Regulations, the Company intends to take the
position that in the circumstances
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described in the preceding sentence, the exchange of an Old Note for a New
Note pursuant to the Exchange Offer will not constitute a taxable exchange of
the Old Note.
Assuming the exchange of an Old Note for a New Note pursuant to the Exchange
Offer is not treated as a taxable exchange for federal income tax purposes,
the New Note received by a United States Holder would be treated as a
continuation of the Old Note in the hands of such holder. As a result, there
should be no federal income tax consequences to United States Holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer, and a
United States Holder should have the same adjusted basis and holding period in
the New Notes immediately after the exchange as it had in the Old Notes
immediately before the exchange.
Payment of Interest on New Notes
Interest paid or payable on a New Note will be taxable to a United States
Holder as ordinary interest income, generally as received or accrued, in
accordance with such holder's method of accounting for federal income tax
purposes.
Sale, Exchange or Retirement of New Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a New Note, a United States Holder will generally recognize
taxable gain or loss equal to the difference between the sum of cash plus the
fair market value of all other property received on such disposition (except
to the extent such cash or property is attributable to accrued but unpaid
interest, which will be taxable as ordinary income) and such holder's adjusted
tax basis in the New Note. A United States Holder's adjusted tax basis in a
New Note generally will equal the cost to such holder of the Old Note
exchanged for such New Note, reduced by any principal payments received by
such holder on the New Note.
Gain or loss recognized on the disposition of a New Note generally will be
capital gain or loss and will be long-term capital gain or loss if, at the
time of such disposition, the United States Holder's holding period for the
New Note (which would include such holder's holding period in the Old Note
exchanged therefor) is more than one year.
Backup Withholding and Information Reporting
"Backup" withholding and information reporting requirements apply to certain
payments of principal, premium, if any, and interest on a New Note, and to
payments of the proceeds of the sale or redemption of New Notes before
maturity, to certain non-corporate United States holders. The Company, its
agent, a broker, the Trustee or any paying agent, as the case may be, will be
required to withhold from any payment that is subject to backup withholding a
tax equal to 31% of such payment if a United States Holder fails to furnish
its taxpayer identification number (social security or employer identification
number), to certify that such number is correct, to certify that such holder
is not subject to backup withholding, or to otherwise comply with the
applicable requirements of the backup withholding rules. Any amounts withheld
under the backup withholding rules from a payment to a United States Holder
will be allowed as a credit against such holder's United States federal income
tax liability, and may entitle the holder to a refund, provided that the
required information is furnished to the IRS.
UNITED STATES TAXATION OF FOREIGN HOLDERS OF NEW NOTES
Payment of Interest on New Notes
In general, payments of interest received by any holder that is not a United
States Holder (a "Foreign Holder") will not be subject to a United States
federal withholding tax, provided that (a)(i) the holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (ii) the holder is not a
controlled foreign corporation that is related to the Company actually or
constructively through stock ownership and (iii) either (x) the beneficial
owner of the New Note, under penalties of perjury, provides the Company or its
agent with the beneficial owner's name and address and
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certifies that it is not a United States Holder on IRS Form W-8 (or a suitable
substitute form) or (y) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business (a "financial institution") holds the New Note and
certifies to the Company or its agent under penalties of perjury that such a
Form W-8 (or a suitable substitute) has been received by it from the
beneficial owner or qualifying intermediary and furnishes the Company a copy
thereof or (b) the Foreign Holder is entitled to the benefits of an income tax
treaty under which the interest on the New Notes is exempt from United States
withholding tax and the Foreign Holder or such Holder's agent provides a
properly executed IRS Form 1001 claiming the exemption. Payments of interest
not exempt from U.S. federal withholding tax as described above will be
subject to such withholding tax at a rate of 30% (subject to reduction under
an applicable income tax treaty).
Sale, Exchange or Retirement of New Notes
A Foreign Holder generally will not be subject to United States federal
income tax (and generally no tax will be withheld) with respect to gain
realized on the sale, exchange, redemption, retirement at maturity or other
disposition of New Notes, unless the Foreign Holder is an individual who is
present in the United States for a period or periods aggregating 183 or more
days in the taxable year of the disposition and certain other conditions are
met.
Backup Withholding and Information Reporting
Under current Treasury regulations, backup withholding and information
reporting on IRS Form 1099 do not apply to payments made by the Company or a
paying agent to Foreign Holders if the certification described under "United
States Taxation of Foreign Holders of New Notes--Payment of Interest on New
Notes" is received, provided that the payor does not have actual knowledge
that the holder is a United States Holder. If any payments of principal and
interest are made to the beneficial owner of a New Note by or through the
foreign office of a foreign custodian, foreign nominee or other foreign agent
of such beneficial owner, or if the foreign office of a foreign "broker" (as
defined in applicable United States Treasury Department regulations) pays the
proceeds of the sale of a New Note or a coupon to the seller thereof, backup
withholding and information reporting will not apply. Information reporting
requirements (but not backup withholding) will apply, however, to payments by
a foreign office of a broker that is a United States person, that derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States, or that is a "controlled foreign corporation"
(generally, a foreign corporation controlled by certain United States
shareholders) with respect to the United States, unless the broker has
documentary evidence in its records that the holder is a Foreign Holder and
certain other conditions are met, or the holder otherwise establishes an
exemption. Payment by a United States office of a broker is subject to both
backup withholding at a rate of 31% and information reporting unless the
holder certifies under penalties of perjury that it is a Foreign Holder, or
otherwise establishes an exemption. A Foreign Holder may obtain a refund of,
or a credit against such holder's U.S. federal income tax liability for, any
amounts withheld under the backup withholding rules, provided the required
information is furnished to the IRS.
In addition, in certain circumstances interest on a New Note owned by a
Foreign Holder will be required to be reported annually on IRS Form 1042S, in
which case such form will be filed with the IRS and furnished to the Foreign
Holder.
The foregoing description of the procedures for withholding tax on interest
payments and associated backup withholding and information reporting rules are
currently being reviewed by the IRS and are expected to be the subject of new
proposed regulations. The expected proposed regulations may propose changes to
the treatment for Foreign Holders described above.
Federal Estate Taxes
Subject to applicable estate tax treaty provisions, New Notes held at the
time of death (or theretofore transferred subject to certain retained rights
or powers) by an individual who at the time of death is a Foreign
90
<PAGE>
Holder will not be included in such holder's gross estate for United States
federal estate tax purposes provided that the individual does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resales. In
addition, the Company agreed that it would not for a period of 120 days from
the date of the Offering Memorandum (the "Offering Memorandum") distributed in
connection with the sale of the Old Notes, directly or indirectly offer, sell,
grant any options to purchase or otherwise dispose of any debt securities
other than in connection with this Exchange Offer.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
New Notes offered hereby will be passed upon for the Company by Ropes & Gray,
Boston, Massachusetts.
EXPERTS
The financial statements of BEA included in this Prospectus and the related
financial statement schedule included elsewhere in the Registration Statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and elsewhere in the Registration Statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The audited financial statements of Burns Aerospace as of December 31, 1994
and December 31, 1993, and for each of the three years in the period ended
December 31, 1994, appended hereto as part of this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as set forth
in their report dated November 27, 1995, which report is also appended hereto.
91
<PAGE>
BE AEROSPACE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BE AEROSPACE, INC.
NINE MONTHS ENDED NOVEMBER 25, 1995 AND NOVEMBER 26, 1994
Consolidated Balance Sheet, November 25, 1995 (Unaudited) .............. F-2
Consolidated Statements of Operations for the Nine Months Ended November
25, 1995 and November 26, 1994 (Unaudited)............................. F-3
Consolidated Statements of Cash Flows for the Nine Months Ended November
25, 1995 and November 26, 1994 (Unaudited)............................. F-4
Notes to Consolidated Financial Statements for the Nine Months Ended
November 25, 1995 and November 26, 1994 (Unaudited).................... F-5
FISCAL YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27,
1993
Independent Auditors' Report............................................ F-7
Consolidated Balance Sheets, February 25, 1995 and February 26, 1994.... F-8
Consolidated Statements of Operations for the Years Ended February 25,
1995, February 26, 1994 and February 27, 1993.......................... F-9
Consolidated Statements of Stockholders' Equity for the Years Ended
February 25, 1995, February 26, 1994 and February 27, 1993............. F-10
Consolidated Statements of Cash Flows for the Years Ended February 25,
1995, February 26, 1994 and February 27, 1993.......................... F-11
Notes to Consolidated Financial Statements for the Years Ended February
25, 1995, February 26, 1994 and February 27, 1993...................... F-12
BURNS AEROSPACE CORPORATION
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
Balance Sheets, September 30, 1995 and September 30, 1994 (Unaudited)... F-26
Statements of Income for the Nine Months Ended September 30, 1995 and
September 30, 1994 (Unaudited)......................................... F-27
Statements of Cash Flows for the Nine Months Ended September 30, 1995
and September 30, 1994 (Unaudited)..................................... F-28
Notes to Financial Statements for the Nine Months Ended September 30,
1995 and September 30, 1994 (Unaudited)................................ F-29
FISCAL YEARS ENDED DECEMBER 31, 1994, DECEMBER 31, 1993 AND DECEMBER 31,
1992
Report of Independent Public Accountants................................ F-30
Balance Sheets, December 31, 1994 and December 31, 1993................. F-31
Statements of Income for the Years Ended December 31, 1994, December 31,
1993 and December 31, 1992............................................. F-32
Statements of Stockholders' Equity for the Years Ended December 31,
1994, December 31, 1993 and December 31, 1992.......................... F-33
Statements of Cash Flows for the Years Ended December 31, 1994, December
31, 1993 and December 31, 1992......................................... F-34
Notes to Financial Statements for the Years Ended December 31, 1994,
December 31, 1993 and December 31, 1992................................ F-35
</TABLE>
F-1
<PAGE>
BE AEROSPACE, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 25,
ASSETS 1995
------ ------------
(UNAUDITED)
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 5,348
Accounts receivables--trade, less allowance for doubtful
accounts of
$3,980 (November 25, 1995) and $4,034 (February 25, 1995)...... 44,118
Inventories, net................................................ 103,905
Deferred income taxes........................................... 5,945
Other current assets............................................ 8,758
--------
Total current assets........................................ 168,074
PROPERTY AND EQUIPMENT, net..................................... 66,529
INTANGIBLES AND OTHER ASSETS, net............................... 171,389
--------
$405,992
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable................................................ $ 33,704
Accrued expenses................................................ 21,258
Income taxes payable............................................ 2,624
Current portion of long-term debt............................... 3,730
--------
Total current liabilities................................... 61,316
LONG-TERM DEBT LESS CURRENT PORTION............................... 208,169
DEFERRED INCOME TAXES............................................. 10,032
OTHER LIABILITIES................................................. 3,335
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares authorized; no
shares outstanding.............................................
Common stock, $.01 par value; 30,000,000 shares authorized;
16,238,322 (November 25, 1995) and 16,095,790 (February 25,
1995) issued................................................... 161
Additional paid-in capital...................................... 120,098
Retained earnings............................................... 3,671
Cumulative foreign exchange translation adjustment.............. (790)
--------
Total stockholders' equity.................................. 123,140
--------
$405,992
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
BE AEROSPACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
NOVEMBER 25, NOVEMBER 26,
1995 1994
------------ ------------
<S> <C> <C>
NET SALES............................................. $168,233 $170,045
COST OF SALES......................................... 113,740 114,082
-------- --------
GROSS PROFIT.......................................... 54,493 55,963
OPERATING EXPENSES:
Selling, general and administrative................. 25,247 23,898
Research and development............................ 11,591 8,900
Amortization expense................................ 6,910 7,627
Other expenses (Note 2)............................. 4,300 23,736
-------- --------
Total operating expenses........................... 48,048 64,161
-------- --------
OPERATING EARNINGS (LOSS) 6,445 (8,198)
INTEREST EXPENSE, net................................. 12,386 11,080
-------- --------
LOSS BEFORE INCOME TAX BENEFIT........................ (5,941) (19,278)
INCOME TAX BENEFIT.................................... (2,198) (6,747)
-------- --------
NET LOSS.............................................. $ (3,743) $(12,531)
======== ========
NET LOSS PER COMMON SHARE............................. $ (.23) $ (.78)
-------- --------
COMMON AND COMMON EQUIVALENT SHARES................... 16,111 16,075
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BE AEROSPACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
NOVEMBER 25, NOVEMBER 26,
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (3,743) $(12,531)
Adjustments to reconcile net loss to net cash flows
provided by operating activities:
Depreciation and amortization.......................... 14,003 11,584
Change in intangible assets............................ -- 10,130
Deferred income taxes.................................. (94) (6,645)
Non cash employee benefit plan contributions........... 1,062 668
Changes in operating assets and liabilities:
Accounts receivable................................... 3,541 6,294
Inventories........................................... (32,722) (4,627)
Income tax refunds receivable......................... -- 1,934
Other current assets.................................. 72 (979)
Accounts payable...................................... (1,495) 229
Income taxes payable.................................. 1,058 673
Other liabilities..................................... (4,518) (3,963)
-------- --------
Net cash flows provided by (used in) operating
activities.......................................... (22,980) 2,767
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (13,654) (9,960)
Change in other assets, net............................. (2,586) (5,350)
-------- --------
Net cash flows used in investing activities............ (16,240) (15,310)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving lines of credit.......... 36,310 3,108
-------- --------
Effect of exchange rate changes on cash flows............ (61) 160
-------- --------
Net decrease in cash and cash equivalents................ (2,971) (9,275)
Cash and cash equivalents, beginning of period........... 8,319 13,738
-------- --------
Cash and cash equivalents, end of period................. $ 5,348 $ 4,463
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for interest.................... $ 15,355 $ 14,335
Cash paid during period for income taxes, net........... 104 950
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 25, 1995 AND NOVEMBER 26, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. BASIS OF PRESENTATION:
The information set forth in these consolidated financial statements as of
November 25, 1995 and for the nine-month periods ended November 25, 1995 and
November 26, 1994 is unaudited and may be subject to normal year-end
adjustments. In the opinion of management, the unaudited consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial position of BE
Aerospace, Inc. (the "Company" or "BEA") for the periods indicated. Results of
operations for the interim period ended November 25, 1995 are not necessarily
indicative of the results of operations for the full fiscal year. For further
information, including information with regard to conditions in the airline
industry and their possible impact on the Company, please refer to the
Company's annual report on Form 10-K for the fiscal year ended February 25,
1995, as amended.
The accompanying consolidated financial statements consolidate all of the
Company's subsidiaries. All significant intercompany transactions have been
eliminated. Certain amounts in the prior years' Consolidated Financial
Statements have been reclassified to conform to the current fiscal year's
presentation.
Certain information normally included in footnote disclosures to the annual
consolidated financial statements has been condensed or omitted in accordance
with the rules and regulations of the Securities and Exchange Commission.
NOTE 2. OTHER EXPENSES
Other expenses for the nine months ended November 25, 1995 relate to costs
associated with the integration and consolidation of the Company's European
seating business. Other expenses for the nine months ended November 26, 1994
relate to intangible assets and inventories associated with the Company's
earlier generations of passenger entertainment systems, which were impaired as
a result of the introduction of the Company's recently introduced interactive
individual seat video system, MDDS.
NOTE 3. CONTINGENCIES
BEA has been advised that the U.S. Attorney's Office for the District of
Connecticut, in conjunction with the Department of Commerce and the U.S.
Customs Service, is conducting a grand jury investigation focused on possible
non-compliance by BEA with certain statutory and regulatory provisions
relating to export licensing and controls. The investigation relates primarily
to the sale of passenger seats and related spare parts for civilian commercial
passenger aircraft to Iran Air from 1992 through mid-1995. BEA has been
advised it is a target of the investigation; however, neither it nor any
current or former directors, officers, or employees have been charged in
connection with the investigation. The investigation is at an early stage and,
while the Company intends to defend itself vigorously, the ultimate outcome of
the investigation cannot presently be determined. An adverse outcome could
have a material adverse effect upon the operations and/or financial condition
of the Company.
NOTE 4. SUBSEQUENT EVENT
On December 14, 1995, the Company signed a definitive agreement to acquire
Burns Aerospace Corporation for a cash purchase price of $42,500, subject to
certain adjustments, all in cash. The acquisition of Burns will be funded with
a portion of the proceeds of the Offering. Completion of the acquisition is
subject
F-5
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED NOVEMBER 25, 1995 AND NOVEMBER 26, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
to a number of conditions, including completion of due diligence and obtaining
satisfactory financing. In conjunction with the planned Burns acquisition, the
Company is amending its existing credit facilities by increasing the aggregate
principal amount thereunder to $100,000. The amended credit facility is
expected to be subject to customary affirmative covenants, negative covenants
and conditions of borrowing, will be collateralized by substantially all of
the Company's personal property and will have a five-year maturity. The
amended credit facility will become effective upon the closing of the Offering
and the acquisition of Burns.
NOTE 5. NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board (FASB) Issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation." The Company has determined that it will not change to the
fair value method and will continue to use Accounting Principle Board Opinion
No. 25 for measurement and recognition of employee stock based transactions.
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". The Statement is effective for fiscal years
beginning after December 15, 1995. The Company does not believe that the
adoption of the new standard will have a material effect on the Company's
financial statements.
F-6
<PAGE>
BE AEROSPACE, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BE Aerospace, Inc.
Wellington, Florida
We have audited the accompanying consolidated balance sheets of BE
Aerospace, Inc. and subsidiaries as of February 25, 1995 and February 26,
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
25, 1995. Our audits also included the financial statement schedule on page F-
25. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of BE Aerospace, Inc. and
subsidiaries as of February 25, 1995 and February 26, 1994, and the results of
their operations and their cash flows for each of the three years in the
period ended February 25, 1995, 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 21, 1995
F-7
<PAGE>
BE AEROSPACE, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 25, FEBRUARY 26,
ASSETS 1995 1994
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 8,319 $ 13,738
Accounts receivable--trade, less allowance for
doubtful accounts of
$4,034 (1995) and $2,208 (1994)................... 48,915 57,090
Inventories, net................................... 71,347 53,390
Deferred income taxes.............................. 6,502 5,462
Income tax refund receivable....................... 1,019 1,934
Other current assets............................... 6,415 4,746
-------- --------
Total current assets........................... 142,517 136,360
PROPERTY AND EQUIPMENT, net........................ 60,304 52,684
INTANGIBLES AND OTHER ASSETS, net.................. 177,133 185,965
-------- --------
$379,954 $375,009
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable................................... $ 35,164 $ 27,999
Accrued liabilities................................ 26,123 27,677
Current portion of long-term debt.................. 4,667 3,810
-------- --------
Total current liabilities...................... 65,954 59,486
-------- --------
LONG-TERM DEBT..................................... 172,693 159,170
DEFERRED INCOME TAXES.............................. 11,212 17,773
OTHER LIABILITIES.................................. 4,764 4,587
COMMITMENTS AND CONTINGENCIES (Note 9).............
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding.................
Common stock, $.01 par value; 30,000,000 shares
authorized; 16,095,790 (1995) and 15,985,454
(1994) shares issued.............................. 160 159
Additional paid-in capital......................... 119,209 118,357
Retained earnings.................................. 7,418 19,484
Cumulative foreign exchange translation
adjustment........................................ (1,456) (4,007)
-------- --------
Total stockholders' equity..................... 125,331 133,993
-------- --------
$379,954 $375,009
======== ========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
BE AEROSPACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
FEBRUARY 25, FEBRUARY 26, FEBRUARY 27,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES.............................. $ 229,347 $203,364 $198,019
COST OF SALES.......................... 154,863 136,307 137,690
--------- -------- --------
GROSS PROFIT........................... 74,484 67,057 60,329
OPERATING EXPENSES:
Selling, general and administrative.. 31,787 28,164 21,698
Research and development............. 12,860 9,876 11,299
Amortization of intangible assets.... 9,954 7,599 4,551
Other expenses....................... 23,736
--------- -------- --------
Total operating expenses............. 78,337 45,639 37,548
--------- -------- --------
OPERATING EARNINGS (LOSS).............. (3,853) 21,418 22,781
INTEREST EXPENSE, net.................. 15,019 12,581 3,955
--------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES
(BENEFIT) AND EXTRAORDINARY ITEM...... (18,872) 8,837 18,826
INCOME TAXES (BENEFIT)................. (6,806) 3,481 6,676
--------- -------- --------
EARNINGS (LOSS) BEFORE EXTRAORDINARY
ITEM.................................. (12,066) 5,356 12,150
EXTRAORDINARY ITEM--Loss on
extinguishment of debt, net of tax
benefit of $282....................... (522)
--------- -------- --------
NET EARNINGS (LOSS).................... $ (12,066) $ 5,356 $ 11,628
========= ======== ========
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) before extraordinary
item................................ $ (0.75) $ 0.35 $ 1.03
Extraordinary item................... (0.05)
--------- -------- --------
Net earnings (loss).................. $ (0.75) $ 0.35 $ 0.98
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
BE AEROSPACE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CURRENCY TOTAL
-------------- PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT EQUITY
------ ------ ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 29,
1992................... 10,535 $105 $ 54,452 $ 2,500 $ -- $ 57,057
Issuance of common
stock.................. 3,631 36 40,321 40,357
Exercise of stock
options................ 473 5 2,438 2,443
Tax benefit from
exercise of
nonstatutory stock
options................ 1,244 1,244
Common stock
repurchased............ (33) (299) (299)
Net earnings............ 11,628 11,628
Foreign currency
translation
adjustment............. (4,456) (4,456)
------ ---- -------- -------- ------- --------
BALANCE, FEBRUARY 27,
1993................... 14,606 146 98,156 14,128 (4,456) 107,974
Issuance of common
stock.................. 1,272 12 19,080 19,092
Exercise of stock
options................ 107 1 963 964
Tax benefit from
exercise of non-
statutory stock
options................ 158 158
Net earnings............ 5,356 5,356
Foreign currency
translation
adjustment............. 449 449
------ ---- -------- -------- ------- --------
BALANCE, FEBRUARY 26,
1994................... 15,985 159 118,357 19,484 (4,007) 133,993
Sale of stock under
employee stock purchase
plan................... 15 132 132
Employee benefit plan
matching contribution.. 96 1 720 721
Net loss................ (12,066) (12,066)
Foreign currency
translation
adjustment............. 2,551 2,551
------ ---- -------- -------- ------- --------
BALANCE, FEBRUARY 25,
1995................... 16,096 $160 $119,209 $ 7,418 $(1,456) $125,331
====== ==== ======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
BE AEROSPACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
FEBRUARY 25, FEBRUARY 26, FEBRUARY 27,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)...................... $ (12,066) $ 5,356 $11,628
Adjustments to reconcile net earnings
(loss) to net cash flows provided by
operating activities:
Depreciation and amortization........... 16,146 13,115 7,986
Change in intangible assets............. 8,588
Deferred income taxes................... (6,764) 1,657 1,499
Non cash employee benefit plan
contributions.......................... 721
Loss on extinguishment of debt.......... 804
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable..................... 6,226 (3,188) (11,655)
Inventories............................. (16,863) (4,153) 1,981
Income tax refunds receivable........... 915 (1,934) 797
Other current assets.................... (1,500) (2,047) (100)
Accounts payable........................ 7,295 6,056 (333)
Other liabilities....................... (642) (9,071) (7,202)
--------- -------- -------
Net cash flows provided by operating
activities............................. 2,056 5,791 5,405
--------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and
equipment............................... (12,172) (11,002) (7,343)
Change in other assets................... (8,610) (5,077) (5,839)
Change in other liabilities..............
Acquisitions............................. (107,506) (18,300)
--------- -------- -------
Net cash flows used for investing
activities............................. (20,782) (123,585) (31,482)
--------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving lines of
credit.................................. 9,080 15,505
Proceeds from issuance of stock, net of
repurchases............................. 132 964 40,061
Principal payments on long-term debt..... (13,514) (32,001)
Proceeds from long-term debt............. 3,873 130,010 10,000
--------- -------- -------
Net cash flow provided by financing
activities............................. 13,085 117,460 33,565
--------- -------- -------
Effect of exchange rate changes on cash
flows................................... 222 (198) (373)
--------- -------- -------
Net (decrease) increase in cash and cash
equivalents............................. (5,419) (532) 7,115
Cash and cash equivalents, beginning of
year.................................... 13,738 14,270 7,155
--------- -------- -------
Cash and cash equivalents, end of year... $ 8,319 $ 13,738 $14,270
--------- -------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid (received) during year for:
Interest................................ $ 16,664 $ 7,524 $ 3,819
Income taxes--net....................... (1,096) 2,918 4,879
SCHEDULE OF NONCASH TRANSACTIONS:
Tax benefit upon exercise of nonstatutory
stock options........................... 158 1,244
Liabilities assumed and accrued
acquisition costs incurred in connection
with the acquisitions................... 19,954 20,186
Liabilities incurred in connection with
purchase of land and buildings.......... 4,000 4,932
Common stock issued in connection with
the acquisitions........................ 19,100 2,440
Issuance of Senior Notes (Note 7)........ 124,019
Debt issue costs......................... 1,409 4,125
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation--
BE Aerospace, Inc. (the "Company") designs, manufactures, sells and services
a broad line of commercial aircraft cabin interior products consisting of a
broad range of aircraft seating products, passenger entertainment and service
systems, and galley products, including structures as well as all food and
beverage storage and preparation equipment.
As described in Note 2, the Company has completed several business
combinations, all accounted for using purchase accounting. On February 28,
1992, the Company acquired from the Pullman Company all of the assets and
certain of the liabilities of PTC Aerospace, Inc. (PTC) and Aircraft Products
Company (APC) (collectively, the Business Unit). Following the acquisition of
the Business Unit, the Company changed its name to BE Aerospace, Inc. On April
2, 1992, the Company, through its Dutch holding company, acquired all of the
outstanding stock of Flight Engineering and Equipment Limited (FEEL) and
substantially all of the operating assets of JFB Engineering Limited (JFB),
both English corporations. On April 30, 1993, the Company acquired all of the
outstanding stock of Royal Inventum B.V., a Dutch corporation (Inventum). On
August 26, 1993, the Company acquired all of the outstanding stock of Acurex
Corporation, a California corporation (Acurex) and, on August 23, 1993, the
Company acquired all of the outstanding stock of Nordskog Industries, Inc., a
California corporation (Nordskog). On October 13, 1993, the Company acquired
substantially all of the assets and certain of the liabilities of Philips
Airvision of Valencia, California (Airvision), a division of Philips
Electronics Corporation, North America Corporation.
Consolidation--
The accompanying financial statements consolidate the accounts of BE
Aerospace, Inc. and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
Income Taxes--
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, the Company provides deferred income taxes for temporary differences
between amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes.
Warranty Costs--
Estimated costs related to product warranties are accrued at the time
products are sold.
Revenue Recognition--
Sales of assembled products, equipment or services are recorded on the date
of shipment or, if required, upon acceptance by the customer. The Company
sells its products primarily to airlines worldwide, including occasional sales
collateralized by letters of credit in countries where customary payment terms
exceed one year. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses. Actual losses
have been within management's expectations.
Cash Equivalents--
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
F-12
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Intangible Assets--
The Company amortizes intangible assets using the straight-line method based
on the estimated economic lives of the assets, which range from 7-30 years.
The Company annually evaluates the carrying value of the intangible assets
versus the cash benefit expected to be realized and adjusts for any impairment
of value. As discussed in Note 15, the Company introduced a new product to the
inflight entertainment industry, causing the industry in general to re-
evaluate its product offerings and, in the process, impairing the value of
certain assets, including certain earlier Company technology. Accordingly,
certain intangible assets related to these product offerings were written down
to their estimated realizable value.
Research and Development--
Research and development expenditures are expensed as incurred.
Earnings (Loss) per Common Share--
Earnings (loss) per common share amounts are computed using the weighted--
average number of common and common equivalent (where not antidilutive) shares
outstanding during each period. The number of weighted average shares of
common stock outstanding amounted to 16,021,000, 15,438,000 and 11,847,000,
for the years ended February 25, 1995, February 26, 1994 and February 27, 1993
respectively.
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. ACQUISITIONS
The Company completed a number of acquisitions during the year ended
February 26, 1994 (1994 Acquisitions) and the year ended February 27, 1993
(1993 Acquisitions) which are described below. Funds for the 1994 Acquisitions
were obtained from proceeds of the long-term debt issuance described in Note
7. Funds for the 1993 Acquisitions were obtained from the proceeds from the
issuance of additional common stock and long-term debt.
1994 ACQUISITIONS
Inventum--On April 30, 1993, the Company acquired all of the capital stock
of Inventum which designs, manufactures, sells and services galley inserts
such as ovens, beverage makers, and water boilers to commercial airlines
located primarily in Europe and the Pacific Rim. The aggregate acquisition
cost of $39,964 includes the payment of $33,095 to the seller, the assumption
of approximately $3,614 of liabilities, plus related acquisition costs and
certain purchase accounting reserves.
Acurex--On August 26, 1993, the Company acquired all of the outstanding
capital stock of Acurex which designs, manufactures, sells and services
aircraft refrigeration appliances such as chillers, refrigeration units and
wine chillers to commercial airlines worldwide. The aggregate acquisition cost
of $70,454 includes the payment
F-13
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
of $45,000 to the seller, the assumption of approximately $2,507 of
liabilities, the issuance of 1,272,728 shares of the Company's common stock to
the sellers, valued at $15.00 per share, plus related acquisition costs and
certain purchase accounting reserves.
Nordskog--On August 23, 1993, the Company acquired all of the outstanding
capital stock of Nordskog which designs, manufactures, sells and services
aircraft galley structures and inserts to commercial airlines worldwide. The
aggregate acquisition cost of $25,402 includes a cash payment of $17,158 to
the seller, the assumption of approximately $2,374 of liabilities, plus
related acquisition costs and certain purchase accounting reserves.
Airvision--On October 13, 1993, the Company acquired substantially all of
the assets and certain of the liabilities of Airvision which designs,
manufactures, sells and services in-seat video products, including interactive
video for commercial airlines worldwide. The aggregate acquisition cost of
$16,601 includes the payment of $12,253 to the seller, the assumption of
approximately $1,640 of liabilities, plus related acquisition costs and
certain purchase accounting reserves.
The aggregate purchase price for the 1994 Acquisitions has been allocated to
the net assets acquired based on appraisals and management's estimates as
follows:
<TABLE>
<S> <C>
Cash and cash equivalents.......................................... $ 4,403
Receivables........................................................ 14,403
Inventories........................................................ 21,392
Property and equipment............................................. 5,424
Intangible and other assets........................................ 106,799
--------
$152,421
========
</TABLE>
1993 ACQUISITIONS
In April 1992, the Company acquired all of the outstanding capital stock of
FEEL for approximately $12,600 cash, 100,000 shares of the Company's common
stock at a per share price of $13.50 and the assumption of approximately
$18,086 of liabilities. FEEL designs, manufactures, sells and services custom-
designed seating for commercial aircraft. In addition, in April 1992, through
FEEL, the Company acquired substantially all of the operating assets of JFB
for approximately $5,700 cash, 64,000 shares of the Company's common stock at
a per share price of $13.50 and the assumption of approximately $2,100 of
certain liabilities. JFB's principal line of business is the manufacture of
custom-engineered components for FEEL. The Company also acquired an option to
purchase the land and buildings used by FEEL and JFB for approximately
$10,000. This option was exercised on March 2, 1993.
3. INVENTORIES
Inventories are valued at the lower of cost or market using the weighted
average cost method. Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Raw materials................................................ $23,675 $34,973
Work-in-process.............................................. 39,131 13,365
Finished goods............................................... 8,541 5,052
------- -------
$71,347 $53,390
======= =======
</TABLE>
F-14
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, and depreciated and amortized
generally on the straight-line method over their estimated useful lives of
three to 20 years (term of lease as to leasehold improvements). Property and
equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
LIVES
(YEARS) 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Land, buildings and im-
provements............. 15-20 $31,920 $22,902
Machinery............... 5-12 29,743 18,850
Tooling................. 3-5 10,324 9,349
Furniture and equip-
ment................... 3-5 7,075 6,656
Construction in pro-
gress.................. -- 4,880
------- -------
79,062 62,637
Less accumulated depre-
ciation and amortiza-
tion................... (18,758) (9,953)
------- -------
$60,304 $52,684
======= =======
</TABLE>
5. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following:
<TABLE>
<CAPTION>
STRAIGHT-LINE
AMORTIZATION
PERIOD (YEARS) 1995 1994
-------------- -------- --------
<S> <C> <C> <C>
Covenants not-to-compete................ 14 $ 9,198 $ 10,174
Product technology, production plans and
drawings............................... 7-20 56,774 58,897
Replacement parts annuity............... 20 26,042 24,075
Product approvals and technical manu-
als.................................... 20 13,909 19,218
Goodwill................................ 30 68,651 68,382
Debt issue costs........................ 10 5,662 5,535
Trademarks and patents.................. 20 9,114 8,387
Other................................... 9,482 4,692
-------- --------
198,832 199,360
Less accumulated amortization........... (21,699) (13,395)
-------- --------
$177,133 $185,965
======== ========
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accrued product warranties.................................. $ 2,969 $ 2,578
Accrued salaries, vacation and related benefits............. 5,502 2,667
Accrued acquisition expenses................................ 2,507 6,647
Accrued interest............................................ 6,694 6,368
Accrued income taxes........................................ 1,642
Other accrued liabilities................................... 6,809 9,417
------- -------
$26,123 $27,677
======= =======
</TABLE>
F-15
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Senior notes............................................. $124,215 $124,117
Revolving lines of credit................................ 36,000 15,000
Term loan................................................ 16,577 12,000
Other long-term debt..................................... 568 11,863
-------- --------
177,360 162,980
Less current portion of long-term debt................... (4,667) (3,810)
-------- --------
$172,693 $159,170
======== ========
</TABLE>
In October 1993, the Company obtained new credit facilities with a group of
banks, initially aggregating $85,000, consisting of a $40,000 term loan and a
$45,000 revolving line of credit (the "1993 Credit Facilities"). In April
1994, the term loan was converted to a revolving line of credit. As of
February 25, 1995, the 1993 Credit Facilities consist of two revolving lines
of credit (the "Series A Revolver" and "Series B Revolver"). The Series B
Revolver may be borrowed and repaid in $1,000 increments and has decreasing
availability with the remaining balances due November 1998. At February 25,
1995 the maximum borrowings available under the Series B Revolver were
$32,500. The Series A Revolver may be borrowed in $1,000 increments and is
subject to borrowing base calculations set forth in the credit facilities
agreement. At February 25, 1995, the maximum borrowings available under the
Series A revolver were $45,000. The 1993 Credit Facilities bear interest at
prime (as defined) plus 1/2% or LIBOR plus 1 3/4%, at the option of the
Company. This rate is subject to change in the event of a change in the
Company's credit rating by Moody's Investor Services or Standard & Poor's.
The Series B Revolver is collateralized by the stock of Acurex. The Series A
Revolver is collateralized by substantially all of the Company's assets and is
all due and payable in November 1998. The terms of the 1993 Credit Facilities
include a number of financial and other restrictive covenants. The Company was
in compliance with all loan covenants as of February 25, 1995. The 1993 Credit
Facilities also collateralized outstanding letters of credit aggregating
$2,969 as of February 25, 1995.
On February 24, 1993, the Company sold $125,000 of 9 3/4% Senior Notes (the
"Senior Notes"), which were priced to yield 9 7/8%. The Company received the
proceeds from the Senior Notes on March 3, 1993 and utilized $32,545 thereof
to repay the outstanding balance of the Company's then outstanding bank
obligations. The unamortized portion of the associated debt issue costs of
approximately $804 was written off and reflected as an extraordinary item, net
of tax effects of $282, in the accompanying statement of operations for the
year ended February 27, 1993.
The Senior Notes are senior unsecured obligations of the Company, ranking
equally with any future senior obligations of the Company and mature on March
1, 2003. Interest on the Senior Notes is payable semi-annually in arrears on
March 1 and September 1 of each year. The Senior Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after March 1,
1998 at predetermined redemption prices, together with accrued and unpaid
interest through the date of redemption. Upon a change of control (as
defined), each holder of the Senior Notes may require the Company to
repurchase such holder's Senior Notes at 101% of the
F-16
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
principal amount thereof, plus accrued and unpaid interest to the date of such
purchase. The Senior Notes contain certain restrictive covenants, all of which
were met by the Company as of February 25, 1995, including limitations on
future indebtedness, restricted payments, transactions with affiliates, liens,
dividends, mergers and transfers of assets.
Terms of the Senior Notes provide that, among other things, the payment of
cash dividends on Common Stock is limited to a cumulative amount that equals
fifty percent of the Company's consolidated adjusted net income since the date
of the Senior Notes' issuance, plus the sum of $10,000 and other equity
adjustments (as defined therein). The payment of cash dividends may only be
made if the Company is not in default under the terms of the Indenture. The
1993 Credit Facilities also contain restrictions on the cumulative amount of
dividends that may be paid. As of February 25, 1995, cash dividends of $1,339
could have been declared by the Company.
During fiscal 1994, the Company entered into revolving line of credit and
term loan agreements aggregating $13,300 (the FEEL Credit Agreement). The FEEL
Credit Agreement is collateralized by substantially all of the assets of FEEL.
Borrowings may be made under the line of credit provided FEEL is in compliance
with certain covenants, all of which were met by FEEL as of February 25, 1995.
Aggregate borrowings outstanding under the FEEL Credit Agreement were
approximately $12,041 as of February 25, 1995. Such borrowings will be repaid
in pounds sterling.
During fiscal 1994, the Company also entered into a revolving line of credit
agreement for approximately $1,000 (the Inventum Credit Agreement). The
Inventum Credit Agreement is collateralized by substantially all of the assets
of Inventum. Borrowings may be made under the line of credit provided Inventum
is in compliance with certain covenants, all of which were met by Inventum as
of February 25, 1995. There were no borrowings outstanding under the Inventum
Credit Agreement as of February 25, 1995.
During fiscal 1995, the Company entered into term loan agreements
aggregating $4,000 which are collateralized by two of the Company's recently
constructed properties. These term loans bear interest at prime (as defined)
plus 1/2% or LIBOR plus 1 3/4%, at the option of the Company and contain
certain restrictive covenants, all of which were met by the Company as of
February 25, 1995.
Maturities of long-term debt are as follows:
Fiscal year ending February:
<TABLE>
<S> <C>
1996................................................................ $ 4,667
1997................................................................ 2,083
1998................................................................ 37,508
1999................................................................ 1,508
2000................................................................ 1,508
Thereafter.......................................................... 130,086
--------
$177,360
========
</TABLE>
F-17
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Current:
Federal............................................. $ (786) $1,408 $2,856
State............................................... 105 139 948
Foreign............................................. 639 277 1,373
------- ------ ------
(42) 1,824 5,177
------- ------ ------
Deferred:
Federal............................................. (5,146) 155 1,145
State............................................... (904) 266 67
Foreign............................................. (714) 1,236 287
------- ------ ------
(6,764) 1,657 1,499
------- ------ ------
$(6,806) $3,481 $6,676
======= ====== ======
</TABLE>
The difference between income tax expense (benefit) and the amount computed
by applying the statutory U.S. federal income tax rate then in effect consists
of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Statutory U.S. federal income tax expense
(benefit)....................................... $(6,605) $3,093 $6,400
State income taxes, net.......................... (519) 264 670
Goodwill amortization............................ 708 290 10
Research and development credit.................. (600) (100)
Foreign Sales Corporation tax benefit............ (353) (281) (715)
Other, net....................................... 563 115 411
------- ------ ------
$(6,806) $3,481 $6,676
======= ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Bad debt reserves....................................... $ 1,415 $ 538
Inventory reserves...................................... 2,396 1,027
Inventory costs capitalized for tax purposes............ 815 794
Warranty reserves....................................... 663 918
Acquisition reserves.................................... 855 1,731
Accrued vacation........................................ 699 578
Other................................................... (341) (124)
-------- --------
Net current deferred income tax assets.................. $ 6,502 $ 5,462
======== ========
Depreciation............................................ $ (1,904) $ (1,841)
Intangible assets....................................... (15,164) (16,906)
Net operating loss carryforward......................... 3,708
Research credit carryforward............................ 600
Other................................................... 1,548 974
-------- --------
Net noncurrent deferred income tax liabilities.......... $(11,212) $(17,773)
======== ========
</TABLE>
F-18
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
As of February 25, 1995, the Company had $9,135 of federal operating loss
carryforwards which expire in 2010, federal research credit carryforwards of
$600 which expire in 2010, and alternative minimum tax credit carryforwards of
$269 which have no expiration date.
The Company has not provided for any residual U.S. income taxes on the
approximately $5,406 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.
9. COMMITMENTS AND CONTINGENCIES
Leases--
The Company leases certain of its office, manufacturing and service
facilities under operating leases which expire at various times through August
2003. Rent expense for fiscal 1995, 1994 and 1993 was approximately $2,276,
$2,091 and $2,372, respectively. Future payments under leases with terms
currently greater than one year are as follows:
<TABLE>
<S> <C>
Year ending February:
1996................................................................. $ 3,697
1997................................................................. 2,694
1998................................................................. 1,499
1999................................................................. 643
2000................................................................. 485
Thereafter........................................................... 1,797
-------
$10,815
=======
</TABLE>
Contingencies--
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 $360, adjusted annually for changes in the consumer price index (as
defined) per year through 2001, as well as a deferred compensation benefit
equal to the aggregate annual compensation earned through termination and
payable thereafter. Such deferred compensation will be payable in equal
monthly installments over the same number of years it was earned.
The other agreement provides for an officer to receive annual minimum
compensation of $200, and an incentive bonus not to exceed 100% of the
officer's then-current salary through 1998. In addition, if the officer
terminates his employment on or after August 1997, the Company is obligated to
pay the officer annually, as deferred compensation, an amount equal to 50% of
the officer's annual salary (as defined) for a period of ten years from the
date of termination.
The Company has other employment agreements with certain key members of
management that provide for aggregate minimum annual base compensation of
$540, expiring on various dates through 1998.
F-19
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Supply Agreement--
The Company has entered into a supply agreement with Applied Extrusion
Technologies, Inc. ("AET"), a related party by way of common management. Under
this agreement, the Company has agreed to purchase its requirements for
certain component parts through April 1998 at a price that results in a 33
1/3% gross margin to AET. The Company's purchases under this contract for the
years ended February 25, 1995, February 26, 1994 and February 27, 1993, were
$984, $1,040 and $1,245, respectively.
10. PROFIT-SHARING PLAN
In August 1988, the Company established a non-qualified contributory profit-
sharing plan. Effective August 1, 1989, this plan was amended to incorporate a
401(k) Plan which permits the Company to match a portion of employee
contributions and to make profit-sharing contributions to all participants (as
defined). Commencing in 1995, the Company's 401(k) Plan was amended to permit
the Company's matching contribution to be made in common stock of the Company.
The Company recognized expenses of $757, $585, and $1,216 related to this plan
for the years ended February 25, 1995, February 26, 1994 and February 27,
1993, respectively.
11. STOCKHOLDERS' EQUITY
In December 1992, the Company successfully completed a public offering of
3,000,000 shares of its common stock at $12.00 per share and, in January 1993,
the underwriters for that offering exercised their overallotment option by
purchasing an additional 450,000 shares of the Company's common stock. The net
proceeds to the Company, after deducting various offering expenses, were
$38,116. The Company used $26,650 of these proceeds to prepay a portion of its
long-term debt (Note 7). Had the sale of stock and repayment of long-term debt
occurred at the beginning of fiscal 1993, weighted average shares outstanding,
net earnings per share before extraordinary item and net earnings per share
would have been 13,671,000, $0.95 and $0.91, respectively.
Stock Option Plans--
The Company has various stock option plans, including the 1989 Stock Option
Plan, the 1991 Directors Stock Option Plan and the 1992 Share Option Scheme
(collectively the "Option Plans"), under which shares of the Company's common
stock may be granted to key employees and directors of the Company. The Option
Plans provide for granting key employees options to purchase the Company's
common stock. Options are granted at the discretion of the compensation and
stock option committee of the Board of Directors, and the option term cannot
exceed ten years. Options granted generally vest at the rate of 25% per year
from the date of grant and are exercisable to the extent vested.
During fiscal 1993, the Board of Directors approved the granting of options
outside of the qualified stock option plans to the Company's chairman and
chief executive officer, principals of Aurora Management, Inc. (Aurora) (Note
13), one of the members of the Board of Directors, and a former board member,
covering 775,000, 200,000, 100,000 and 110,000 shares, respectively. These
options were granted at an exercise price of $12.25, $12.25, $12.25 and $12.50
per share, respectively, which were the fair market values as of the grant
date.
In April 1993, the compensation and stock option committee of the Board of
Directors reviewed the exercise prices of the options then outstanding,
current market conditions, as well as other factors, and deemed it appropriate
to re-price 1,365,500 options with exercise prices ranging from $12.00 to
$14.00 per share to $8.75 per share, which was the fair market value as of
that date.
F-20
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth options granted, cancelled, forfeited and
outstanding:
<TABLE>
<CAPTION>
FEBRUARY 25, 1995 FEBRUARY 26, 1994 FEBRUARY 27, 1993
----------------------- ----------------------- ------------------------
OPTION PRICE OPTION PRICE OPTION PRICE
OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE
--------- ------------ --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of period.............. 2,493,162 $ .81-$13.00 2,215,112 $ .81-$14.00 1,116,612 $ .81-$13.00
Options granted........ 484,500 $7.44-$ 8.75 404,500 $8.75-$11.75 1,594,000 $11.75-$14.00
Options exercised...... (375) $ .81 (106,450) $8.75-$ 9.50 (473,250) $ .81-$ 9.50
Options forfeited...... (106,000) $8.25-$11.75 (20,000) $8.75-$12.25 (22,250) $ 9.50-$12.25
--------- --------- ---------
Outstanding, end of
period................. 2,871,287 $ .81-$13.00 2,493,162 $ .81-$13.00 2,215,112 $ .81-$14.00
========= ========= =========
</TABLE>
12. EMPLOYEE STOCK PURCHASE PLAN
The Company established a qualified Employee Stock Purchase Plan during
fiscal 1995, 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 15,065
shares of stock during fiscal 1995 pursuant to this plan at an average price
per share of $7.01.
13. RELATED PARTY TRANSACTIONS
Aurora, a private capital firm, has provided assistance to the Company in
developing its acquisition program, the acquisitions of the Business Unit,
FEEL and AFL, Inventum, Nordskog and Acurex as well as in its 1992 equity
offering, strategic planning, competitive analysis and financial relations.
During fiscal 1993 and 1994, the Company had an arrangement with Aurora under
which Aurora was entitled to receive reimbursement for its reasonable expenses
and to receive a monthly retainer of $20 which was credited against any fees
earned for services rendered related to certain transactions, including $100
for each acquisition consummated in fiscal 1994. This arrangement was
terminated effective July 1993. Aurora earned approximately $300 during the
year ended February 26, 1994 related to the 1994 Acquisitions as well as
approximately $400 for other services during the year ended February 27, 1993
related to the FEEL and AFL acquisitions, the 1992 equity offering and 1993
debenture offering. The Company also granted to Aurora's principals, as
consideration for services to the Company in connection with certain
financings, options to purchase an aggregate of 200,000 shares of the
Company's common stock at a price equal to fair market value at the date of
grant. A member of the Company's Board of Directors is a part owner of Aurora.
Chemical Venture Partners (CVP) also provided assistance to the Company in
identifying and negotiating the acquisition of the Business Unit. As
compensation, during fiscal 1993, the Company issued 17,138 shares of its
common stock to CVP. A former member of the Company's Board of Directors was a
principal in CVP.
14. EXPORT SALES AND MAJOR CUSTOMERS
Export sales from the United States to customers in foreign countries
amounted to approximately $61,645 $44,058, and $65,680 in fiscal 1995, 1994,
and 1993, respectively. Total sales to all customers in foreign countries
amounted to approximately $114,511, $85,239 and $91,541 in fiscal 1995, 1994
and 1993, respectively. Total sales to Europe amounted to 23%, 28% and 28% in
fiscal 1995, 1994 and 1993, respectively. Total sales to Asia amounted to 21%,
18% and 15% in fiscal 1995, 1994 and 1993, respectively. Major customers
(i.e., customers representing more than 10% of total sales) change from year
to year depending on the level of refurbishment activity and/or the level of
new aircraft purchases by such customers. Sales to one major customer were
approximately $21,185 in fiscal 1993 (there were no major customers in fiscal
1995 and 1994).
F-21
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. OTHER EXPENSES
Other expenses consisted of a charge related primarily to intangible assets
($10,835) and inventories ($11,216) associated with the Company's passenger
entertainment systems. The introduction of the Company's MDDS interactive
video system, which the Company expects to become the industry's standard for
inflight passenger and service entertainment, has captured the dominant market
share with contract awards from the major airlines totaling more than $150,000
during the past nine months. The MDDS system also has recently caused major
carriers to convert programs for earlier products to the Company's MDDS system
and has caused two of the Company's principal competitors to offer to develop
for the airlines systems similar to the Company's MDDS system. These events
have caused the inflight entertainment industry to re-evaluate its product
offerings and, in the process, have impaired the value of certain of its
assets. As a result, the Company has written down certain of its assets,
including certain customer-specific inventories and other assets.
16. FOREIGN OPERATIONS
Geographic Area--
The Company operated principally in two geographic areas, the United States
and Europe during the years ended February 25, 1995, February 26, 1994 and
February 27, 1993. 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 operating results for the years ended February
25, 1995, February 26, 1994 and February 27, 1993 and identifiable assets as
of February 25, 1995, February 26, 1994 and February 27, 1993 by geographic
area.
<TABLE>
<CAPTION>
1995 UNITED STATES EUROPE CONSOLIDATED
- ---- ------------- ------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers........... $170,542 $58,805 $229,347
Gross profit.............................. 56,296 18,188 74,484
Selling, general and administrative and
amortization expenses.................... 32,183 9,558 41,741
Research and development.................. 9,834 3,026 12,860
Other expenses............................ 23,736 23,736
Interest expense, net..................... 11,835 3,184 15,019
Loss before income taxes.................. (18,578) (294) (18,872)
Identifiable assets....................... 279,402 100,552 379,954
<CAPTION>
1994 UNITED STATES EUROPE CONSOLIDATED
- ---- ------------- ------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers........... $156,638 $46,726 $203,364
Gross profit.............................. 51,401 15,656 67,057
Selling, general and administrative and
amortization expenses.................... 27,288 8,475 35,763
Research and development.................. 7,783 2,093 9,876
Interest expense, net..................... 11,424 1,157 12,581
Earnings before income taxes.............. 4,814 4,023 8,837
Identifiable assets....................... 280,827 94,182 375,009
</TABLE>
F-22
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 UNITED STATES EUROPE CONSOLIDATED
- ---- ------------- ------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers............ $159,865 $38,154 $198,019
Gross profit............................... 50,365 9,964 60,329
Selling, general and administrativeand am-
ortization expenses....................... 23,446 2,803 26,249
Research and development................... 9,381 1,918 11,299
Interest expense, net...................... 3,662 293 3,955
Earnings before income taxes and
extraordinary item........................ 13,876 4,950 18,826
Identifiable assets........................ 269,051 45,004 314,055
</TABLE>
17. FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial
instruments at February 25, 1995 and February 26, 1994 is made in accordance
with the requirements of SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been determined
by the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
The carrying amounts of cash and cash equivalents, accounts receivable--
trade, and accounts payable are a reasonable estimate of their fair values.
Except for the Company's Senior Notes, which have a carrying value and fair
value of $124,215 and $120,938, respectively, at February 25, 1995, the
carrying amount of long-term debt approximates fair value because the
obligations either bear interest at floating rates or compare favorably with
fixed rate obligations that would be available to the Company.
The fair value information presented herein is based on pertinent
information available to management as of February 25, 1995. 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 1995 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 25, 1995
--------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales..................................... $57,567 $55,197 $57,281 $59,302
Gross profit.................................. 18,887 18,408 18,668 18,521
Net earnings (loss)........................... 1,074 964 (14,569) 465
Net earnings (loss) per common share.......... .07 .06 (.90) .03
</TABLE>
F-23
<PAGE>
BE AEROSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Summarized quarterly financial data for fiscal 1994 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 26, 1994
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales....................................... $47,803 $45,103 $50,696 $59,762
Gross profit.................................... 14,795 14,787 17,445 20,030
Net earnings.................................... 1,569 1,689 565 1,533
Net earnings per common share................... .11 .11 .03 .10
</TABLE>
F-24
<PAGE>
BE AEROSPACE, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 25, 1995, FEBRUARY 26, 1994 AND FEBRUARY 27, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE BALANCE
AT BEGINNING AT END
OF YEAR EXPENSES OTHER DEDUCTIONS OF YEAR
------------ -------- ------ ---------- -------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS:
Allowance for doubtful ac-
counts:
1995..................... $2,208 $3,119 $1,293 $ 4,034
1994..................... 1,304 774 $ 650 (1) 520 2,208
1993..................... 879 296 364 (2) 235 1,304
Reserve for obsolete in-
ventories:
1995..................... $7,557 $2,787 $2,754 (1) $2,434 $10,664
1994..................... 2,885 1,880 4,452 (1) 1,660 7,557
1993..................... 3,100 3,108 257 (2) 3,580 2,885
INCLUDED IN LIABILITIES:
Accrued product warran-
ties:
1995..................... $2,388 $2,544 $ 666 (1) $2,629 $ 2,969
1994..................... 1,856 1,926 (184) 1,210 2,388
1993..................... 2,297 1,147 203 (2) 1,791 1,856
</TABLE>
- --------
(1) 1994 acquisitions
(2) FEEL acquisition
F-25
<PAGE>
BURNS AEROSPACE CORPORATION
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
------
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash ............................................. $ 81 $ 51
Accounts receivable, net ......................... 1,793 --
Inventories, net ................................. 16,880 13,291
Other current assets ............................. 1,759 3,397
------- -------
Total current assets ......................... 20,513 16,739
Property, plant and equipment, net ................. 18,257 19,455
Goodwill ........................................... 52,108 53,230
Other assets ....................................... 3,824 3,261
------- -------
Total assets ................................. $94,702 $92,685
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Accounts payable ................................. $ 7,564 $ 8,003
Accrued liabilities .............................. 7,416 9,579
------- -------
Total current liabilities .................... 14,980 17,582
Advances from affiliate ............................ 82,856 74,602
Other long-term liabilities ........................ 5,150 4,553
------- -------
Total liabilities ............................ 102,986 96,737
------- -------
Stockholder's equity:
Common stock par value $1.00 per share, 1,000
shares
authorized, issued and outstanding............... 1 1
Retained deficit ................................. (8,285) (4,053)
------- -------
Total stockholder's equity ................... (8,284) (4,052)
------- -------
Total liabilities and stockholder's equity
........................................... $94,702 $92,685
======= =======
</TABLE>
The accompanying notes to financial statementsare an integral part of these
statements.
F-26
<PAGE>
BURNS AEROSPACE CORPORATION
CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
Net sales.................................................. $ 75,768 $ 69,213
Cost of sales.............................................. 62,014 56,475
-------- --------
Gross earnings........................................... 13,754 12,738
Selling, general and administrative expenses............... 8,867 8,102
Research, development and engineering ..................... 1,716 1,132
Amortization expense....................................... 1,125 1,134
Other expenses, net........................................ 83 313
Management fees to affiliate............................... 2,280 3,359
-------- --------
Operating loss........................................... (317) (1,302)
Net interest expense to affiliate.......................... 5,875 4,649
-------- --------
Loss before income taxes................................... (6,192) (5,951)
Income tax benefit......................................... (1,960) (2,074)
-------- --------
Net loss................................................... $ (4,232) $ (3,877)
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-27
<PAGE>
BURNS AEROSPACE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1994
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (4,232) $ (3,877)
Adjustments to reconcile net loss to net cash flow from
operating activities:
Depreciation and Amortization.............................. 2,973 2,835
Deferred income taxes provision (benefit).................. 507 (886)
Proceeds from sale of accounts receivable.................. -- 7,227
Cash effects of:
Changes in other working capital balances and other long-
term liabilities......................................... (6,256) 9,909
-------- ---------
Net cash flows from (used in) operating activities......... (7,008) 15,208
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contribution........................................ -- 4,031
Capital expenditures........................................ (642) (627)
Other....................................................... (574) (320)
-------- ---------
Net cash from (used in) investing activities............... (1,216) 3,084
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from (payments to) affiliate .................. 8,254 (17,014)
-------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS.......................... 30 1,278
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............... 51 78
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................... $ 81 $ 1,356
======== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-28
<PAGE>
BURNS AEROSPACE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited Condensed Financial Statements of Burns Aerospace
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for a complete set of financial statements. In
the opinion of management, all adjustments considered necessary, consisting
only of normal recurring adjustments are included for fair presentation.
Operating results for the nine months ended September 30, 1995 are not
necessarily indicative of results that may be expected for the full year. The
unaudited Condensed Financial Statements for the nine months ended September
30, 1995 and 1994 should be read in conjunction with the audited Financial
Statements of the Company for the year ended December 31, 1994.
NOTE 2. INVENTORIES
Inventory consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials and supplies...................... $10,736 $ 8,670
Work in process................................. 6,074 4,551
Finished goods.................................. 70 70
------- -------
$16,880 $13,291
======= =======
</TABLE>
NOTE 3. SUBSEQUENT EVENT
Eagle Industries, Inc., the Company's parent, is currently pursuing the sale
of the Company. There can be no assurance that the sale will be consummated.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Eagle Industries, Inc.:
We have audited the accompanying balance sheets of Burns Aerospace
Corporation as of December 31, 1994 and 1993, and the related statements of
income, stockholder's equity and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Burns Aerospace
Corporation as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting
principles.
As explained in Note 1 to the financial statements, effective January 1,
1993, the Company adopted the requirements of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". As explained in
Note 1 to the financial statements, effective December 31, 1993, the Company
adopted the requirements of Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits".
Arthur Andersen LLP
Chicago, Illinois,
November 27, 1995
F-30
<PAGE>
BURNS AEROSPACE CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
------ -----------------
1994 1993
------- --------
<S> <C> <C>
Current assets:
Cash ..................................................... $ 51 $ 78
Accounts receivable, net ................................. -- 9,381
Inventories, net ......................................... 13,291 14,440
Other current assets ..................................... 3,397 3,181
------- --------
Total current assets ................................. 16,739 27,080
Property, plant and equipment, net ......................... 19,455 20,727
Goodwill ................................................... 53,230 54,736
Other assets ............................................... 3,261 533
------- --------
Total assets ......................................... $92,685 $103,076
======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Accounts payable ......................................... $ 8,003 $ 3,661
Accrued liabilities ...................................... 9,579 4,372
------- --------
Total current liabilities ............................ 17,582 8,033
Advances from affiliate .................................... 74,602 92,592
Other long-term liabilities ................................ 4,553 6,024
------- --------
Total liabilities .................................... 96,737 106,649
------- --------
Stockholder's Equity:
Common stock par value $1.00 per share, 1,000 shares
authorized, issued and outstanding at December 31, 1994
and
10,000 shares authorized, 5,000 shares issued and
outstanding
at December 31, 1993 .................................... 1 5
Paid-in capital .......................................... -- 13,311
Retained deficit ......................................... (4,053) (16,889)
------- --------
Total stockholder's equity ........................... (4,052) (3,573)
------- --------
Total liabilities and stockholder's equity ......... $92,685 $103,076
======= ========
</TABLE>
The accompanying notes to financial statementsare an integral part of these
statements.
F-31
<PAGE>
BURNS AEROSPACE CORPORATION
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Net sales.......................................... $93,494 $66,902 $98,185
Cost of sales...................................... 75,880 55,176 83,856
------- ------- -------
Gross earnings................................... 17,614 11,726 14,329
Selling, general and administrative expenses....... 10,729 8,948 10,150
Research, development and engineering.............. 1,615 1,389 1,448
Amortization....................................... 1,509 1,507 1,500
Other (income) expenses, net....................... 738 (231) 255
Management fees to affiliate....................... 3,359 1,434 1,675
------- ------- -------
Operating loss................................... (336) (1,321) (699)
Net interest expense to affiliate.................. 6,374 4,203 4,133
------- ------- -------
Loss before income taxes........................... (6,710) (5,524) (4,832)
Income tax benefit................................. (2,200) (1,268) (730)
------- ------- -------
Loss before cumulative effect of change in
accounting principles............................. (4,510) (4,256) (4,102)
Cumulative effect of change in accounting
principles........................................ -- (1,897) --
------- ------- -------
Net loss........................................... $(4,510) $(6,153) $(4,102)
======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-32
<PAGE>
BURNS AEROSPACE CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ------- --------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991......................... $ 5 $13,311 $ (6,634)
Net loss............................................ -- -- (4,102)
--- ------- --------
BALANCE AT DECEMBER 31, 1992......................... 5 13,311 (10,736)
Net loss............................................ -- -- (6,153)
--- ------- --------
BALANCE AT DECEMBER 31, 1993......................... 5 13,311 (16,889)
Net loss............................................ -- -- (4,510)
Recapitalization.................................... (4) (13,311) 17,346
--- ------- --------
BALANCE AT DECEMBER 31, 1994......................... $ 1 $ -- $ (4,053)
=== ======= ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-33
<PAGE>
BURNS AEROSPACE CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(4,510) $(6,153) $(4,102)
Adjustments to reconcile net income to net cash flow
from operating activities:
Depreciation and amortization....................... 3,800 3,733 3,262
Deferred income tax provision (benefit)............. (864) 493 (1,013)
Cumulative effect of change in accounting
principles......................................... -- 1,897 --
Proceeds from sale of accounts receivable........... 7,227 -- --
Cash effects of:
Decrease in accounts receivable..................... 2,154 4,269 850
Decrease in inventories............................. 1,149 1,038 2,386
(Increase) decrease in other current assets......... (428) 1,127 (243)
Increase (decrease) in accounts payable, accrued
liabilities and other long-term assets............. 6,153 (2,658) (2,402)
------- ------- -------
Net cash from (used in) operating activities........ 14,681 3,746 (1,262)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contribution................................. 4,031 -- --
Capital expenditures................................. (696) (446) (1,299)
Other................................................ (53) (70) (646)
------- ------- -------
Net cash from (used in) investing activities........ 3,282 (516) (1,945)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from (payments to) affiliate ........... (17,990) (3,198) 3,158
------- ------- -------
CHANGE IN CASH AND CASH EQUIVALENTS................... (27) 32 (49)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 78 46 95
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 51 $ 78 $ 46
------- ------- -------
------- ------- -------
NET CASH PAID (RECEIVED) DURING THE PERIOD FOR:
Interest to affiliate................................ $ 6,374 $ 4,203 $ 4,133
Income taxes to (from) affiliate..................... $(1,336) $(1,761) $ 272
</TABLE>
The accompany notes to financial statements are an integral part of these
statements.
F-34
<PAGE>
BURNS AEROSPACE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--
Burns Aerospace Corporation (the "Company") is an indirect wholly-owned
subsidiary of Eagle Industries, Inc. ("Eagle").
Inventories--
Inventories are stated at the lower of cost or market. Cost includes raw
materials, labor and manufacturing overhead. The last-in, first-out ("LIFO")
method of inventory valuation is used for 77% and 66% of inventory at December
31, 1994 and 1993, respectively. The first-in first-out ("FIFO") method of
inventory valuation is used for the remaining inventory.
Property, Plant and Equipment--
Property, plant and equipment is stated at cost. The straight-line method is
used to provide for depreciation over the estimated useful lives of the
assets.
Goodwill--
Goodwill is amortized on a straight-line basis over forty years. Accumulated
amortization was $7.9 million and $6.4 million at December 31, 1994 and 1993,
respectively.
The recoverability of unamortized goodwill is based on operating income and
cash flow. Whenever current operating income is not sufficient to recover
current amortization of goodwill or when events and circumstances indicate
that future operating income and cash flow may be negatively affected, the
recoverability is evaluated based upon the estimated future operating income
and undiscounted cash flow during the remaining period of goodwill
amortization.
Contract Accounting--
Contracts are accounted for under program accounting whereby sales are
recognized as products are shipped and cost of sales are estimated as the
average cost of the units to be produced under an existing contract. Changes
in estimates in costs and profits are recognized in the period in which they
are determinable using the cumulative catch-up method of accounting. Any
anticipated losses on contracts are charged to operations as soon as they are
determinable. Inventoriable costs include tooling and engineering costs
directly attributable or allocable to a sold contract. Expenditures related to
research, development and certain engineering costs associated with new
programs are expensed as incurred. Research and development expenses were
$326,000, $300,000 and $196,000 for the years ended December 31, 1994, 1993
and 1992, respectively.
Postemployment Benefits--
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS
No. 112") effective December 31, 1993. By adopting this standard, the Company
increased its other long-term liabilities by $97,000 and recorded a
corresponding pretax charge of $97,000 reflected as a "Cumulative effect of
change in accounting principle".
Income Taxes--
The Company is included in Eagle's consolidated U.S. federal income tax
return. Under the terms of a tax sharing arrangement with Eagle, the Company
computes and pays to Eagle its liability for U.S. federal income taxes as if
the Company filed a separate U.S. federal income tax return. The Company files
separate state income tax returns.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109") effective
January 1, 1993 which resulted in a decrease in the net deferred tax assets of
$1.8 million and a corresponding charge of $1.8 million, reflected as a
F-35
<PAGE>
BURNS AEROSPACE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
"Cumulative effect of change in accounting principle". This new standard
changed the Company's method of accounting for income taxes from the deferred
method required under APB No. 11 to the asset and liability method. If it is
more likely than not that some portion or all of a deferred tax asset will not
be realized, a valuation allowance is recognized.
2. EMPLOYEE RETIREMENT AND BENEFIT PLANS
The Company maintains defined contribution plans for hourly employees
covered by collective bargaining agreements, hourly employees not covered by
collective bargaining agreements and salaried employees. Employer
contributions to these plans were $1,036,000, $746,000 and $988,000 for the
years ended December 31, 1994, 1993 and 1992, respectively. Company
contributions to the plan for hourly employees covered by a collective
bargaining agreement are determined as a percentage of the participants' base
compensation and vest over a period of seven years. Company contributions to
the plan for hourly employees not covered by a collective bargaining agreement
are based on a percentage of the employees' contributions and earnings and
vest over a period of seven years. Company contributions to an Eagle sponsored
plan for salaried employees are determined as a percentage of employee
contributions and are fully vested at all times.
3. INCOME TAXES
The Company's Financial Statements reflect the following deferred tax assets
and liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993 1992
------ ------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Inventory reserves...................................... $1,036 $1,614 $1,591
Receivables reserves.................................... 462 426 630
Insurance reserves...................................... 434 533 674
Other................................................... 867 606 583
------ ------ ------
$2,799 $3,179 $3,478
====== ====== ======
Deferred tax liabilities:
Property, plant and equipment basis difference.......... $4,144 $5,388 $5,194
====== ====== ======
</TABLE>
F-36
<PAGE>
BURNS AEROSPACE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
3. INCOME TAXES--(CONTINUED)
The components of loss before income taxes and the components of the
provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1994 1993 1992
------- -------------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Loss before income taxes....................... $ 6,710 $ 5,524 $4,832
======= ======= ======
Provision (benefit) for income taxes:
Current:
U.S. federal................................. $(1,372) $(1,798) $ 247
U.S. state................................... 36 37 36
------- ------- ------
(1,336) (1,761) 283
------- ------- ------
Deferred:
U.S. federal.................................. (450) 510 (837)
U.S. state.................................... (414) (17) (176)
------- ------- ------
(864) 493 (1,013)
------- ------- ------
Total......................................... $(2,200) $(1,268) $ (730)
======= ======= ======
</TABLE>
Reconciliation of income taxes computed at the U.S. federal statutory rate
to the consolidated benefit for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1994 1993 1992
------- -------------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. federal statutory rate.................. 35% 35% 34%
======= ======= =======
Income taxes at U.S. federal statutory rate.. $(2,349) $(1,933) $(1,643)
U.S. state income taxes, net of U.S. federal
tax benefit................................. (246) 13 (100)
Nondeductible amortization................... 528 527 510
NOL utilization.............................. -- -- 570
Other........................................ (133) 125 (67)
------- ------- -------
Benefit for income taxes.................... $(2,200) $(1,268) $ (730)
======= ======= =======
Effective income tax rate................... 32.8% 23.0% 15.1%
======= ======= =======
</TABLE>
F-37
<PAGE>
BURNS AEROSPACE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
4. BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials and supplies.......................... $ 8,670 $ 6,896
Work in process..................................... 4,551 7,222
Finished goods...................................... 70 322
----------- -----------
Total.............................................. $ 13,291 $ 14,440
=========== ===========
Other current assets:
Deferred taxes...................................... $ 2,688 $ 2,900
Non-trade receivables............................... 843 23
Other............................................... (134) 258
----------- -----------
Total.............................................. $ 3,397 $ 3,181
=========== ===========
Property, plant and equipment:
Land................................................ $ 2,070 $ 2,070
Buildings........................................... 10,765 10,702
Machinery and equipment............................. 16,275 15,311
Construction in progress............................ 220 228
Less accumulated depreciation....................... (9,875) (7,584)
----------- -----------
Total.............................................. $ 19,455 $ 20,727
=========== ===========
Accrued liabilities:
Wages and benefits.................................. $ 3,494 $ 1,370
Insurance reserves.................................. 1,026 784
Reserve for preference claims....................... 600 600
Customer cancellation reserve....................... -- 600
Warranty............................................ 986 286
Other............................................... 3,473 732
----------- -----------
Total.............................................. $9,579 $ 4,372
=========== ===========
</TABLE>
5. RELATED PARTY TRANSACTIONS
Accounts Receivable--
In January 1994, Eagle entered into an asset securitization program (the
"Securitization") whereby it sells certain of its accounts receivable on a
limited recourse and continuous basis, including those of the Company. Under
this program, the Company sells accounts receivable to Eagle daily for a
purchase price payable in cash. As a result of the Securitization, the Company
sold all of its accounts receivable to Eagle. The proceeds from the sale of
the receivables reduced advances from affiliate.
F-38
<PAGE>
BURNS AEROSPACE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
5. RELATED PARTY TRANSACTIONS--(CONTINUED)
Advances from Affiliate--
Eagle makes advances to the Company for general corporate purposes. Eagle
provides centralized treasury functions and financing for the Company
including funding of their U.S. cash needs for processing of accounts payable
items. Fluctuations in the balance of advances from affiliate are primarily a
function of daily cash activity associated with net disbursements for payments
of invoices offset by the sale of accounts receivable and prior to January
1994, receipts from customer payments. In addition, payments made to Eagle for
allocations of corporate expenses and payments in accordance with a tax
sharing agreement are included in advances from affiliate.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average amounts outstanding....................... $77,890 $95,802 $87,995
Maximum amounts outstanding....................... 92,016 99,337 92,019
Weighted average interest rate.................... 8.2% 4.4% 4.7%
======= ======= =======
</TABLE>
Recapitalization--
In January 1994, Eagle completed a refinancing (the "Refinancing") of
substantially all of its outstanding debt and entered into a credit facility
with a group of banks. The credit facility is secured by substantially all of
the property, plant and equipment, inventory and certain receivables of Eagle,
including those of the Company. In connection with the Refinancing, the
Company was recapitalized, resulting in changes to the components of
stockholder's equity.
Management Fees to Affiliate--
Eagle provides strategic direction, financial management and other corporate
administrative services to the Company. The management fees are charged to the
Company on an annual basis based on the Company's pro rata share of net sales
to total net sales of Eagle. Management believes that the allocation method is
reasonable. Management fees were $3,359,000, $1,434,000 and $1,675,000 in
1994, 1993 and 1992, respectively.
Insurance--
The Company participates in an Eagle sponsored self-insurance program which
includes coverage for medical, workers' compensation, product liability, auto
and general liability insurance for which the Company incurred charges of
$682,000, $848,000 and $894,000 in 1994, 1993 and 1992, respectively, for
medical insurance and $1,166,000, $710,000 and $612,000 in 1994, 1993 and
1992, respectively, for workers' compensation, product liability, auto and
general liability insurance. The Company has recorded insurance reserves of
$1,436,000 and $1,601,000 at December 31, 1994 and 1993, respectively.
6. COMMITMENTS AND CONTINGENCIES
The Company conducts manufacturing operations at various leased facilities
and also leases warehouses, office space, computers and office equipment. Most
of the realty leases contain renewal options and escalation clauses. Total
rent expense, including related real estate taxes, amounted to $1,681,000,
$2,064,000 and $1,920,000 for the years ended December 31, 1994, 1993 and
1992, respectively.
F-39
<PAGE>
BURNS AEROSPACE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
6. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Future minimum lease payments required as of December 31, 1994 (Dollars in
thousands):
<TABLE>
<S> <C>
1995................................................ $ 796
1996................................................ 762
1997................................................ 244
1998 and thereafter................................. --
-------
$ 1,802
=======
</TABLE>
The Company is involved in several lawsuits and environmental matters
arising in the ordinary course of business. However, it is the opinion of the
Company's management, based upon the advice of legal counsel, that these
lawsuits are either without merit, are covered by insurance, or are adequately
reserved for in the Financial Statements, and that the ultimate disposition of
pending litigation will not be material in relation to the Company's financial
position and results of operations.
7. BUSINESS SEGMENT INFORMATION
The Company's current operations are in one industry segment, manufacturing
and distribution of commercial airline seating for the commercial aviation
market. The business is influenced primarily by worldwide capital spending in
the aviation industry.
The Company's revenues, operating income and identifiable assets are
predominantly related to its U.S. operations and no other geographic area
accounts for more than 10% of revenue, operating income or total assets. Sales
to one customer accounted for 36% of total sales for the year ended December
31, 1994. No customer accounted for more than 10% of total sales for the years
ended December 31, 1993 and 1992. Sales to foreign carriers represented 58%,
38% and 41% of total sales for the years ended December 31, 1994, 1993 and
1992, respectively.
8. SUBSEQUENT EVENT
Eagle is currently pursuing the sale of the Company. There can be no
assurance that the sale will be consummated.
F-40
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND
THE ACCOMPANYING LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM-
PANY OR THE EXCHANGE AGENT. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER
OF TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL, OR A SOLICITA-
TION OF AN OFFER TO BUY, THE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TO-
GETHER, NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference.......................... 3
Available Information.................................................... 4
Summary.................................................................. 5
Risk Factors............................................................. 18
The Company.............................................................. 22
The Acquisition.......................................................... 22
Use of Proceeds.......................................................... 23
The Exchange Offer....................................................... 23
Capitalization........................................................... 30
Unaudited Pro Forma Combined Financial Information....................... 31
Selected Financial Information of BEA.................................... 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business................................................................. 46
Management............................................................... 57
Certain Transactions and Proceedings..................................... 59
Security Ownership of Certain Beneficial Owners and Management........... 60
Description of the New Notes............................................. 62
Description of Certain Indebtedness...................................... 87
Certain Federal Tax Considerations....................................... 88
Plan of Distribution..................................................... 91
Legal Matters............................................................ 91
Independent Auditors..................................................... 91
Index to Consolidated Financial Statements............................... F-1
</TABLE>
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$100,000,000
EXCHANGE OFFER
BE AEROSPACE, INC.
[LOGO OF BE AEROSPACE APPEARS HERE]
9 7/8% SENIOR SUBORDINATED
NOTES
DUE 2006
----------------
PROSPECTUS
----------------
APRIL 11, 1996
- --------------------------------------------------------------------------------
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