<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________________to_______________________.
Commission file number 1-6711.
-------
OEA, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2362379
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization.)
34501 East Quincy Avenue, P. O. Box 100488, Denver, Colorado 80250
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (303) 693-1248
-----------------------------
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered:
Common Stock, Par Value $0.10 New York Stock Exchange
- --------------------------------------- --------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
----------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of October 27, 1998. Common Stock, $.10 par value - $185,109,548.
The number of shares outstanding of the issuer's classes of common stock as
of October 27, 1998. Common Stock $.10 par value - 20,594,757.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be dated
on or before January 30, 1999, are incorporated by reference into Part III.
(A definitive proxy statement will be filed with the Commission within the
prescribed period.)
<PAGE>
PART I
ITEM 1 - BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
OEA, Inc. ("OEA" or the "Company") is a leader in the development and
production of high-reliability, propellant-actuated devices for the
automotive and aerospace industries. The foundation of OEA's growth is our
core know-how (over 2,000 man years of experience) in propellants, interior
ballistics and related mechanical design. Founded in 1957, OEA's first three
decades of growth came from developing and producing the aerospace industry's
largest selection of propellant-actuated devices for (1) escape systems for
military aircraft, (2) satellites and satellite launchers and (3) missiles.
Our growth over the last decade came from applying our aerospace know-how to
the automotive air bag market. OEA began producing air bag initiators in 1987
and has since delivered over 110 million initiators. By 1996 OEA had the
financial resources to begin manufacturing air bag inflators. Our know-how
allowed us to deliver 3 million inflators in our first year of production.
These inflators were the industry's first production inflators which were
environmentally friendly and generated no smoke or dust, and were low-cost as
well. OEA has headquarters 20 miles southeast of Denver, Colorado and employs
1,500 people in manufacturing facilities in Colorado, Utah, California and
France.
OEA was organized as a Delaware corporation on October 1, 1969. Its
predecessor, Ordnance Engineering Associates, Inc., an Illinois corporation,
was organized on July 13, 1957, and was merged into OEA on December 3, 1969.
OEA's automotive operations are carried out through its Automotive Safety
Products Division, including its French subsidiary, Pyroindustrie S.A. OEA's
aerospace activities are carried out through its subsidiary OEA Aerospace,
Inc. The Company's principal executive offices are located at 34501 East
Quincy Avenue, Denver, Colorado 80250 and its telephone number at such
address is (303) 693-1248.
GLOSSARY OF TERMS
PROPELLANT (SOLID PROPELLANT): A chemical mixture which can be ignited to
produce gas rapidly and controllably.
AIR BAG INITIATOR: The air bag system's smallest propellant-actuated device,
weighing about 5 grams and containing about 1/10 gram of propellant, which is
ignited by an electrical signal (from the car's crash-sensing system) to
activate the air bag inflator.
PROPELLANT-ACTUATED DEVICE: A device which operates by the ignition of
propellant. OEA's air bag inflators, air bag initiators and aircraft escape
system components are propellant-actuated devices.
AIR BAG INFLATOR: The air bag system's largest propellant-actuated device,
weighing from 200 grams to 1,500 grams. When activated by the initiator, the
inflator produces gas to inflate the air bag.
<PAGE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
(in thousands)
<TABLE>
<CAPTION>
FY 1998 FY 1997 FY 1996
-------- -------- --------
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS
Automotive $195,891 $168,869 $115,587
Nonautomotive 49,484 42,688 37,223
-------- -------- --------
Total $245,375 $211,557 $152,810
-------- -------- --------
-------- -------- --------
INTER-SEGMENT SALES OR TRANSFERS
Automotive $2 $20 $123
Nonautomotive 240 141 139
-------- -------- --------
Total $242 $161 $262
-------- -------- --------
-------- -------- --------
OPERATING PROFIT
Automotive $ (8,765) $45,522 $33,284
Nonautomotive 3,177 4,037 5,782
-------- -------- --------
Total $ (5,588) $49,559 $39,066
-------- -------- --------
-------- -------- --------
IDENTIFIABLE ASSETS
Automotive $276,063 $275,153 $157,569
Nonautomotive 52,696 56,403 45,639
-------- -------- --------
Total $328,759 $331,556 $203,208
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
AUTOMOTIVE SAFETY PRODUCTS
The Company established a separate Automotive Safety Products division in
1989 to take advantage of technologies developed in its aerospace activities
to meet the rapid growth in demand for automotive air bags and related
technologies. OEA designs, tests, develops, and manufactures
propellant-actuated devices for use in automotive safety products, which are
currently single-stage hybrid inflators (passenger, driver, and side-impact)
and electric initiators. These are sold to automotive module and inflator
manufacturers, respectively, which, in turn, sell their products directly to
automobile manufacturers. The automotive segment accounted for approximately
80%, 80%, and 76% of the Company's net sales for fiscal years 1998, 1997, and
1996, respectively, and is expected to continue to represent a similar
percentage of the Company's sales in the future.
In an air bag system, an initiator activates an inflator, which produces gas
to inflate the air bag. OEA has designed a low-cost single-stage "hybrid"
inflator which uses a combination of compressed gas and a non-azide
propellant. These hybrid inflators are favored over sodium azide inflators
because they are smokeless and non-toxic, using a propellant that is very
insensitive under normal handling conditions. Two of the major inflator
manufacturers (Autoliv and TRW) have historically relied, and continue to
rely, on sodium azide inflators. Management believes that as demand continues
to shift away from sodium azide inflators, the air bag system manufacturers
will utilize more outside suppliers, such as the Company, to meet their
inflator needs, instead of building new manufacturing facilities.
OEA's strategy is to become a world leader in inflator manufacturing by
taking advantage of its advanced technology to produce a high-quality product
at the lowest possible cost. Management believes that by staking out the
low-cost position it will encourage air bag system manufacturers to utilize
OEA's capacity, instead of reinvesting in costly expansions of their inflator
manufacturing capabilities. OEA recently announced significant new supply
agreements with two major customers which are expected to generate
approximately $21 million of additional revenue annually over the next four
years on increased inflator sales volumes of approximately 1.1 million per
year.
The demand for air bag components (both domestic and worldwide) is expected
to grow over the next few years, with additional air bag products (E.G.,
thorax, knee bolsters and window "curtains") and increased demand for frontal
and side air bags. Further, it is expected that demand will increase for
"smart" air bags, with multiple initiators, to adjust air bag inflation for
the severity of the impact and the characteristics and position of the
occupant. The Company believes that as a result of its technology position it
is well-positioned to compete effectively in this market environment.
OEA is also involved in the development of additional automotive safety
products that take advantage of its inflator and initiator technologies, such
as seatbelt pretensioners, which tighten seatbelts in a collision.
The Company has made a substantial capital investment in highly automated
equipment to produce inflators in its Denver facilities and to produce
initiators in two manufacturing facilities located in Tremonton, Utah and
Les Mureaux, France. The Company's new inflator production facility became
fully operational late in fiscal 1998. Management believes that this highly
<PAGE>
automated approach may enable it to achieve a low manufacturing cost position
which enhances its competitive ability.
Raw materials used by the Company include stamped and machined parts and
commercially available propellants. The Company is not dependent upon any one
source for purchased materials because alternate sources of supply are
available in the marketplace.
The Company's single-stage hybrid inflator is covered by several patents,
including a patent for use of its low-cost propellant. Some of the patents
have been issued and others are pending relating to technology used in its
inflators. The initiator business is not dependent upon patented items,
trademarks, franchises, concessions, or licenses.
The Company's business is not seasonal.
Automotive segment inventories decreased $15.0 million during the year to
$28.0 million at July 31, 1998. This represents a "normalization" of
inventory after the fiscal 1998 launch of three new inflators (second
generation passenger, driver, and side-impact). Customer payments are due on
a current basis and extended terms or collateral have not been required.
The Company's customers providing more than 10% of consolidated sales for the
fiscal year ended July 31, 1998 were Takata Corporation with 33%, Delphi
Interior & Lighting (a division of General Motors) with 15%, and Daicel
Chemical Industries, Ltd. with 12%. The loss of any of these customers would
have a materially adverse effect on the Company.
There is no particular relationship between the Company and its customers
other than that of supplier/customer, except for the following:
1. An agreement with Daicel Chemical Industries, Ltd., Tokyo, Japan,
for the transfer of technology and manufacture of OEA's automotive
air bag initiators for the Asian market, and
2. An agreement with Daicel Chemical Industries, Ltd., Tokyo, Japan,
for the transfer of technology and manufacture of OEA's single-stage
(i.e., not "smart") hybrid inflators for passenger, driver and
side-impact automotive air bags for manufacture in Asia for the Asian
market. The initial annual fixed royalty payment for this fifteen year
agreement was received in 1995. Daicel began the manufacture of OEA's
second generation passenger inflator in August 1998, and OEA will
receive variable royalty payments on these units.
Auto manufacturers generally change designs every three to five years. The
Company receives annual blanket purchase orders, but deliveries are specified
by customers on weekly releases for deliveries over the next 10 to 12 weeks.
Because this is the accepted practice in the automotive industry, the amount
of backlog at any given time is not representative of annual sales.
The Company believes it is the larger of only two independent inflator
manufacturers in the world not affiliated with, or owned by, an air bag
module manufacturer. This independence gives the Company wide latitude to
sell to all module manufacturers. By fiscal year 2000, OEA's Inflator
division could be the largest customer of the OEA Initiator division.
The Company is aware of five major inflator manufacturers in the world:
Autoliv (merged with Morton International), TRW, Takata, BAICO (owned by
Atlantic Research Corporation) and the Company. Autoliv and TRW currently
dominate the worldwide market for air bag systems and
<PAGE>
produce a high percentage of their components internally. However, Autoliv
and TRW's internal inflator capacity is dominated by sodium azide-type
inflators. Sodium azide inflators use sodium azide as their propellant and
are being phased out in favor of newer technologies, including the Company's
hybrid inflators.
There are two major automotive initiator manufacturers in the United States:
Special Devices, Inc. and the Company. Additionally, there are four major
automotive initiator manufacturers in Europe: Davey Bickford Smith, Nouvelle
Cartoucherie de Survilliers (owned by Autoliv), Patvag and Pyroindustrie
(wholly owned by OEA). The Company is currently one of the world's leading
producers of initiators for automotive air bags.
Other companies may enter the automotive inflator and initiator markets;
however, substantial financial resources, development, and qualification time
would be required to achieve design and product verification. Contracts are
generally awarded based upon competitive price, product reliability and
production capacity. The Company believes that the major automotive
manufacturers, in an effort to encourage price competition, are providing
increased business opportunities to smaller second tier suppliers, and that
this will provide increased opportunity to the Company to utilize its unused
capacity.
The estimated amounts spent by the automotive segment during each of the last
three fiscal years for customer-sponsored and Company-sponsored research and
development activities were:
<TABLE>
<CAPTION>
Customer- Company-
Sponsored Sponsored
--------- ----------
<S> <C> <C>
Fiscal year 1998 $ - $1,373,000
Fiscal year 1997 200,000 1,428,000
Fiscal year 1996 500,000 4,400,000
</TABLE>
Compliance with federal, state, and local provisions regulating the discharge
of materials into the environment is not expected to materially affect
capital expenditures, earnings, or the competitive position of the Company or
its subsidiaries.
The Company, together with its consolidated subsidiaries and divisions,
employs approximately 1,075 people in its automotive segment.
NONAUTOMOTIVE PRODUCTS
OEA Aerospace, Inc. designs, develops, and manufactures propellant and
explosive-actuated devices used in (1) personnel escape systems in high-speed
aircraft, (2) separation and release devices for space vehicles and aircraft,
(3) devices for control, separation, ejection, and jettison of missiles, and
(4) flexible linear-shaped charges, mild detonating cord systems and other
energy transfer systems. The principal customers for such products are the
United States Government and major aircraft and aerospace companies. Other
products and services include propellant-actuated valves, fluid control
systems, and the largest neutron radiography inspection operation of its kind.
Sales are made directly to the customer. OEA's nonautomotive segment
accounted for approximately 20%, 20% and 24% of the Company's net sales for
fiscal years 1998, 1997, and 1996, respectively, and is expected to continue
to represent a similar percentage of the Company's sales in the future.
<PAGE>
OEA's nonautomotive products are produced in Fairfield, California. A smaller
test facility is located in San Ramon, California.
OEA's nonautomotive segment customers are primarily in the defense and space
fields under prime government contracts. The major portion of this business
comes from subcontracts which are generally awarded to OEA on a fixed-price
basis. Each new contract involves either the design and manufacture of a new
product to meet a specific requirement, or a follow-on order for additional
items previously manufactured under other contracts. Inasmuch as the
Company's nonautomotive business involves constant development and
engineering of products required by its customers, it would be inappropriate
to classify each new item as a new product.
Raw materials used by the Company's nonautomotive segment include aluminum,
inconel, monel, molybdenum, rubbers, copper, alloy and stainless steel,
ceramics, silver, titanium alloys, certain commercially available and
special-order propellants and explosives, elastomeric seals and
epoxy-sealants. This segment is not dependent upon any one source for
purchased materials because alternate sources of supply are available in the
marketplace.
OEA's nonautomotive business is not dependent upon patented items,
trademarks, franchises, concessions, or licenses thereunder. The Company does
not pay any substantial royalties or similar payments in connection with any
patents or license agreements.
OEA's nonautomotive business is not seasonal.
Products are manufactured to order and are shipped according to specified
contract delivery dates. Nonautomotive segment inventories decreased $0.8
million during the year to $26.6 million at July 31, 1998.
Customer payments are reasonably prompt and extended terms or collateral have
not been required.
The Company did not have a customer providing more than 10% of consolidated
sales in the nonautomotive segment for the fiscal year ended July 31, 1998.
Transactions with the United States Government are with several procurement
agencies and/or prime contractors. Although the loss of all government
contracts would have an adverse effect, the loss of any one agency or prime
contract would not have a materially adverse effect on the Company.
There is no particular relationship between the Company's nonautomotive
segment and its customers other than that of supplier/customer.
The Company's nonautomotive funded backlog of orders as of July 31, 1998, was
$39.3 million. The Company estimates that $1.8 million of its backlog will
not be recorded as a sale within its fiscal year ending July 31, 1999.
The majority of the nonautomotive business of the Company with the United
States Government is subject to termination of contracts for the convenience
of the United States Government. Such termination, however, is an unusual
occurrence. In addition, a significant portion of the Company's nonautomotive
sales for the current and prior years is subject to audit by the Defense
Contract Audit Agency. Such audits may occur at any time up to three years
after contract completion.
<PAGE>
Other companies, both larger and smaller than the Company, also have
capabilities and resources to design and develop similar items. The Company
is aware of nine competitors in its nonautomotive field of propellant and
explosive devices. No individual competitor dominates the field. The Company
believes it is in a good competitive position.
On new development and qualification programs, contract awards are based upon
technical and competitive price proposals. Subsequent production awards are
both negotiated with the customer and subject to competitive bid.
The estimated amounts spent by the nonautomotive segment during each of the
last three fiscal years for customer-sponsored and Company-sponsored research
and development activities were:
<TABLE>
<CAPTION>
Customer- Company-
Sponsored Sponsored
---------- ---------
<S> <C> <C>
Fiscal year 1998 $2,100,000 $153,000
Fiscal year 1997 3,400,000 45,000
Fiscal year 1996 2,600,000 50,000
</TABLE>
Compliance with federal, state, and local provisions regulating the discharge
of materials into the environment is not expected to materially affect
capital expenditures, earnings, or competitive position of the Company or its
subsidiaries.
The Company, together with its subsidiaries and divisions, employs
approximately 450 people in its nonautomotive segment.
<PAGE>
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
(in thousands)
<TABLE>
<CAPTION>
SALES TO UNAFFILIATED CUSTOMERS FY 1998 FY 1997 FY 1996
------- ------- -------
<S> <C> <C> <C>
United States $126,777 131,201 $117,386
Foreign Sales
Asia 83,307 66,901 23,822
Europe 18,974 12,724 10,209
Other 16,317 731 1,393
-------- ------- --------
Total Foreign Sales 118,598 80,356 35,424
-------- ------- --------
Total Sales $245,375 211,557 $152,810
-------- ------- --------
-------- ------- --------
</TABLE>
Notes:
(1) There were no sales or transfers between the geographic areas reported
above.
(2) It is not possible, under the existing accounting systems, to isolate
profits and identifiable assets by geographic areas.
<PAGE>
ITEM 2 - PROPERTIES
The Company's properties are located in Arapahoe County, Colorado (near
Denver); Fairfield, California; San Ramon, California; Tremonton/Garland,
Utah; and Les Mureaux, France.
The Arapahoe County facilities are located on 960 acres of land which the
Company owns. In fiscal year 1998, automotive operations were conducted in
various one-story brick and steel buildings containing 400,000 square feet of
floor space in the aggregate. This includes a 173,000 square foot inflator
manufacturing facility which was completed in December 1996.
The Fairfield, California, facilities are occupied by OEA Aerospace, Inc., a
wholly owned subsidiary of the Company. Its operations are conducted in
twenty buildings containing 180,000 square feet of floor space in the
aggregate, located on 515 acres of land which the Company owns. All parts of
the various buildings are occupied and used in the operations of the
Company's business.
The San Ramon, California, property consists of a 10,000 square foot steel
building situated on approximately one acre of land which the Company owns.
It is occupied by Aerotest Operations, Inc., a wholly owned subsidiary of OEA
Aerospace, Inc., which conducts neutron radiography therein. Also contained
in this building, as a part of the premises, is a 250-kilowatt nuclear
reactor used in the process.
The property in Tremonton/Garland, Utah, consists of a 66,000 square foot
manufacturing facility located on 160 acres which the Registrant owns. This
facility will accommodate the growing demand for air bag initiators and other
automotive safety products for the foreseeable future.
The property in Les Mureaux, France, consists of a 34,600 square foot
manufacturing facility located on 6 acres and is occupied by Pyroindustrie
S.A.. In 1997 the Company purchased a 74 acre parcel of land upon which a new
inflator facility is being built. The existing and new facilities will
accommodate the growing demand for air bag initiators and inflators for the
European market for the foreseeable future.
The above-described properties are considered suitable and adequate for the
Company's operations.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings which are required to be
reported herein. From time to time the Company is subject to minor lawsuits
incidental to its operations. The Company believes it has meritorious
defenses to all lawsuits in which it is currently a defendant and will
vigorously defend against them. The resolution of current lawsuits,
regardless of the outcome, will not have a material adverse effect on the
Company's results of operations or financial position.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $0.10 par value, is traded on the New York
Stock Exchange, New York, New York, under the symbol "OEA."
The following table presents the high and low sales prices, as reported in
the consolidated transaction reporting system, for the periods indicated.
These prices do not include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
FISCAL YEAR 1998 HIGH LOW
---------------- ---- ---
<S> <C> <C>
1st Quarter $41.63 $32.81
2nd Quarter 41.25 26.63
3rd Quarter 29.56 16.63
4th Quarter 19.75 12.75
FISCAL YEAR 1997 HIGH LOW
---------------- ---- ---
1st Quarter $42.50 $34.00
2nd Quarter 50.63 36.88
3rd Quarter 50.50 32.63
4th Quarter 40.88 34.00
</TABLE>
The approximate number of holders of record of OEA's issued and outstanding
shares at October 19, 1998, was 982.
The Board of Directors has declared dividends during the last three fiscal
years as follows:
<TABLE>
<CAPTION>
AMOUNT
DECLARED PAYABLE PER SHARE
-------- ------- ---------
<S> <C> <C>
November 3, 1995 December 8, 1995 $.25
November 1, 1996 December 10, 1996 .30
November 3, 1997 December 10, 1997 .33
</TABLE>
Any future cash dividends will depend on future earnings, capital
requirements and the Company's financial condition and other factors deemed
relevant by the Board of Directors. The Company's credit facility includes
financial covenants that could, in certain circumstances, limit the Company's
ability to pay dividends in the future.
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
Consolidated Summary of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales $245,375 211,557 152,810 129,211 109,893
Operating Profit (Loss) (5,588) 49,559 39,066 34,927 30,071
Earnings (Loss) Before Minority
Interest and Income Taxes (13,931) 55,304 40,683 36,226 29,465
Minority Interest -- -- 25 519 --
Income Taxes 4,655 (19,863) (15,165) (15,469) (11,513)
-------- ------- ------- ------- -------
Net Earnings (Loss)
Before Cumulative Effect of a
Change in Accounting Principle (9,276) 35,441 25,543 21,276 17,952
Cumulative Effect of a
Change in Accounting Principle (10,040) -- -- -- --
-------- ------- ------- ------- -------
Net Earnings (Loss) $(19,316) 35,441 25,543 21,276 17,952
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Basic Earnings (Loss) Per Share
Before Cumulative Effect of a
Change in Accounting Principle $(.45) 1.73 1.25 1.04 .88
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Basic Earnings (Loss) Per Share $(.94) 1.73 1.25 1.04 .88
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Cash Dividends Per Share $.33 .30 .25 .20 .15
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Weighted Average Number of
Shares Outstanding During Year 20,581 20,540 20,499 20,480 20,439
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Total Number of Shares
Outstanding at Year End 20,595 20,552 20,514 20,487 20,466
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
<PAGE>
Balance Sheet Data at July 31,
(in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current Assets $117,578 127,319 77,579 74,871 62,389
Current Liabilities $31,461 36,031 33,524 12,160 8,883
Working Capital $86,117 91,288 44,055 62,711 53,506
Working Capital Ratio 3.7 to 1 3.5 to 1 2.3 to 1 6.2 to 1 7.0 to 1
Total Assets $328,759 331,556 203,208 160,902 135,315
Shareholders' Equity $161,506 186,778 160,448 140,352 121,854
Book Value Per Share $7.84 9.09 7.82 6.85 5.95
</TABLE>
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27E of the Securities Exchange Act of 1934, as amended, including
statements regarding Company strategy, its soundness, the inflator and
initiator market, inflator and initiator demand, sales volume increases, the
benefits of cost reduction programs and improved manufacturing processes,
implementation of ERP systems, correction of quality issues, capacity
utilization, new technologies and products, improved customer relations, and
year 2000 compliance, as well as other statements or implications regarding
future events. Actual results or events may differ materially from these
forward-looking statements depending on a variety of factors. Reference is
made to the cautionary statements reported on Form 8-K filed on June 4, 1998
for a description of various factors that might cause OEA's actual results to
differ materially from those contemplated by such forward-looking statements.
FUTURE OUTLOOK
In July 1998, William R. Barker was appointed to the newly created executive
position of President of the Automotive Safety Products division. He is
responsible for all aspects of the Company's inflator and initiator business
worldwide.
Under Mr. Barker's direction, OEA's Automotive Safety Products division is
focusing on a Four Phase Approach to growth. The first step is to
aggressively attack the cost structure and reduce operating costs in all
areas. This will be essential to offset the 23% weighted average inflator
price reduction that became effective August 1, 1998. The second step is to
obtain new business for OEA's current products. Initial new business awards
were announced in September 1998 totaling 1.1 million inflators and $21.0
million on an annualized basis. With this new business, the utilization of
OEA's new 173,000 square foot inflator production facility is expected to
increase from 20% in the fiscal 1998 fourth quarter to 62% in the fiscal 1999
fourth quarter. The third step is to aggressively market new technology such
as dual-stage ("smart") inflators and micro-gas generators for use in seat
belt pretensioner systems. OEA's dual-stage ("smart") inflator was the first
in the industry to receive preliminary approval from General Motors. The
fourth step is to identify other commercially viable pyrotechnic products for
automotive or other applications. Initial progress on this step is believed
to be approximately one year away. The Company will also opportunistically
analyze potential strategic acquisitions for OEA's Automotive Safety Products
division, on a case-by-case basis.
RESULTS OF OPERATIONS
FISCAL YEAR 1998 VS. 1997
NET SALES
Net sales for fiscal year 1998 were $245.4 million, as compared to fiscal
1997 net sales of $211.6 million. The $33.8 million increase from the prior
year reflects a 16% sales increase in both the automotive and nonautomotive
segments of the Company's business. Automotive segment sales increased $27.0
million to $195.9 million in fiscal 1998, primarily due to a $48.4 million
increase in inflator sales (5.6 million units in fiscal 1998, as compared to
2.9 million units in fiscal 1997), partially offset by a $21.4 million
decrease in initiator sales. The increased inflator
<PAGE>
sales reflect continued strong customer acceptance of the Company's inflator
program and increased demand for air bags from both domestic and foreign
automobile manufacturers. The reduced initiator sales resulted from a
temporary (one year) reduction in demand from a major customer. Management
believes initiator volumes will return to expected levels in the coming year
as this customer has agreed to significantly increase its commitments for
fiscal 1999 (see "Settlement of Legal Claim" below for further detail).
Nonautomotive segment sales increased $6.8 million to $49.5 million in fiscal
1998 primarily due to increases in engineering development contracts and the
Delta satellite launcher program. Management expects continued increases in
automotive unit sales in fiscal year 1999, with modest dollar sales increases
as a result of price decreases on its current initiator and inflator products.
COST OF SALES
Cost of sales for fiscal year 1998 was $238.6 million, as compared to fiscal
1997 cost of sales of $153.2 million. Automotive segment cost of sales was
$194.8 million in fiscal 1998, as compared to $116.5 million in the prior
year. This increase primarily reflects increased inflator volume, partially
offset by reduced initiator volume; a parts shortage resulting in periodic
production shut-downs on the Company's passenger inflator lines; the impact
of the General Motors strike; increased overhead and other costs associated
with the Company's new inflator production facility, which was only running
at a 20% utilization level by the fiscal 1998 fourth quarter; and $19.0
million in one-time charges (see "One-Time Charges" below).
Additionally, automotive segment cost of sales was impacted by the adoption
of the AICPA's Statement of Position 98-5, "Reporting the Costs of Start-up
Activities." This resulted in expensing previously capitalized inflator
start-up costs of $6.7 million in fiscal 1998, partially offset by the
reversal of capitalized start-up amortization expense in the amount of $3.7
million. Refer to "Cumulative Effect of a Change in Accounting Principle"
below for further detail on Statement of Position 98-5.
Nonautomotive segment cost of sales was $43.8 million in fiscal 1998, as
compared to $36.6 million in the prior year. This increase primarily reflects
increased sales, testing and replacement costs relating to a TLX (energy
transfer line) performance issue and $1.4 million in one-time charges (see
"One-Time Charges" below). The cause of the TLX performance problem was
quickly identified and corrected and product shipments have resumed.
GROSS MARGIN
Gross margin was $6.8 million (2.8% of net sales) for fiscal 1998, as
compared to $58.4 million (27.6% of net sales) for fiscal 1997. Automotive
segment gross margin was $1.1 million (0.6% of net automotive sales) for
fiscal 1998, as compared to $52.3 million (31.0% of net automotive sales) for
fiscal 1997. This decrease in gross margin was primarily due to the increased
inflator costs as discussed above, lower leverage of fixed initiator costs
due to reduced volume, adoption of the AICPA's Statement of Position 98-5
relating to start-up costs and $19.0 million in one-time charges (see
"One-Time Charges" below). Excluding the adoption of SOP 98-5 and the
one-time charges, automotive segment gross margin would have been $23.1
million (9.4% of net sales) for fiscal 1998. Management expects that
automotive gross margin will be tight in the first half of fiscal 1999 as a
result of price decreases, but that cost reductions undertaken in recent
months will take effect and begin to be reflected in improved gross margins
in the second half of the fiscal year.
<PAGE>
Nonautomotive segment gross margin was $5.7 million (11.6% of net
nonautomotive sales) for fiscal 1998, as compared to $6.1 million (14.3% of
net nonautomotive sales) for fiscal 1997. Excluding the $1.4 million one-time
charge, nonautomotive segment gross margins would have been $7.1 million
(14.4% of net sales) for fiscal 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for fiscal year 1998 were $10.9 million
(4.4% of net sales), as compared to $7.4 million (3.5% of net sales), for
fiscal year 1997. This increase was primarily due to a $1.8 million one-time
charge related to the settlement of a legal claim (see "One-Time Charges"
below) and to costs of establishing an infrastructure to service the European
inflator market at the Company's French subsidiary, Pyroindustrie. Excluding
the one-time charge, general and administrative expenses as a percentage of
net sales would have been 3.7% for fiscal 1998.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $1.5 million for both fiscal year 1998
and fiscal year 1997. Research and development costs are expected to increase
significantly in fiscal year 1999 as the Company continues to develop and
refine new products such as dual-stage inflators used in "smart" air bags,
micro-gas generators used in seat belt pretensioner systems, and other
advanced inflators.
OPERATING PROFIT (LOSS)
The Company experienced a $5.6 million operating loss for fiscal year 1998
(-2.3% of net sales), as compared to an operating profit of $49.6 million
(23.4% of net sales) for fiscal year 1997. Excluding the adoption of SOP 98-5
and the one-time charges, operating profit would have been $19.7 million
(8.0% of net sales) for fiscal year 1998.
OTHER INCOME AND (EXPENSE)
Total other income/(expense) was an $8.3 million expense for fiscal year
1998, as compared to $5.7 million of income in the prior year. Fiscal 1998
includes a $4.7 million one-time charge for the disposal of idle and obsolete
automotive segment equipment (see "One-Time Charges" below), while fiscal
1997 includes $3.2 million in income for the sale of the Company's foreign
joint venture, Pyrospace S.A. The remaining difference is primarily due to
interest expense, which was $6.5 million in fiscal 1998, as compared to $0.1
million in fiscal 1997. Interest costs have increased due to the Company's
higher debt level and the significant reduction in capitalized interest in
fiscal 1998. The Company made substantial capital asset acquisitions (i.e.,
building and equipment) in fiscal 1997 for which related interest costs were
capitalized. These assets were placed in service by fiscal 1998; therefore,
interest costs were expensed, not capitalized in fiscal 1998.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" (SOP 98-5). This Statement requires entities to expense costs of
start-up activities as they are incurred and to report the initial adoption
as a cumulative effect of a change in accounting principle as described in
Accounting
<PAGE>
Principles Board Opinion No. 20, "Accounting Changes." Start-up activities
are defined broadly as those one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility, or commencing some new
operation.
SOP 98-5 is effective for fiscal years beginning after December 15, 1998.
However, in July 1998 the Company elected to adopt it retroactively to the
first quarter of fiscal 1998. Accordingly, the fiscal 1998 quarterly
financial statements have been restated to expense start-up costs in the net
amount of $3.0 million for the twelve months ended July 31, 1998 (see "Cost
of Sales" above). Additionally, the Company wrote off in the first quarter
the net book value ($10.0 million) of its start-up and related costs included
in the scope of SOP 98-5 as a one-time adjustment referred to as a Cumulative
Effect of a Change in Accounting Principle. The total after-tax amount of
these adjustments was $12.2 million for fiscal year 1998.
NET EARNINGS (LOSS)
The Company recorded a $19.3 million net loss for fiscal year 1998 (-7.9% of
net sales), as compared to net earnings of $35.4 million (16.8% of net sales)
for fiscal year 1997. Basic earnings (loss) per share was ($.94) for fiscal
1998, as compared to $1.73 for fiscal 1997. Excluding the adoption of SOP
98-5 and the one-time charges, net earnings would have been $10.0 million and
basic earnings per share would have been $.49 for fiscal year 1998.
ONE-TIME CHARGES
The Company recognized one-time charges in fiscal 1998 of $17.2 million, net
of taxes, or $.83 per share. Explanations of the more significant charges are
detailed below.
INVENTORY ADJUSTMENTS. The Company booked inventory adjustments totaling
$11.3 million ($7.3 million after tax) in the fiscal 1998 third quarter
primarily related to the start-up of its new inflator production lines. These
adjustments resulted from a combination of the rapid expansion of the
inflator program, including significant additions in personnel, and system
conversion issues associated with the implementation of a new, fully
integrated Enterprise Resource Planning (ERP) System for the Company's
automotive operations. The Company has completely re-implemented the ERP
system and has brought in consultants to review the system set-up and
procedures, and to re-train all employees. Management believes that this
problem is resolved; however, physical inventories will be taken each
quarter-end until it is fully demonstrated that the system is functioning
properly.
DISPOSAL OF INFLATORS. The Company disposed of early production inflators
from its new facility for a total cost of $3.9 million ($2.5 million after
tax) in the fiscal 1998 third quarter, which includes both production and
disposal costs. This resulted from an unusual quality issue that affected one
in ten thousand units. However, due to the unusual nature of the problem, the
actual units affected could not be identified. The Company's automotive
products are propellant-actuated, life-saving devices and only the highest
level of quality is acceptable. Therefore, all potentially affected units
(approximately 130,000 inflators) were disposed of to ensure that they would
not be installed in air bag modules or automobiles. Corrective action, which
management believes will prevent any future occurrences, was implemented
immediately and has been approved by the Company's customers. Production and
customer shipments have resumed.
<PAGE>
DOMESTIC INITIATOR CONSOLIDATION. The Company incurred costs totaling $5.1
million ($3.2 million after tax) in the fiscal 1998 third quarter related to
the consolidation of its domestic initiator production operations into its
Utah facility. These costs consist of $0.5 million for equipment and
personnel relocation and a $4.6 million charge for idled and/or obsolete
equipment and inventory. This consolidation is expected to generate
significant annual cost savings, while maintaining the Company's domestic
initiator capacity of 45 million units. Additionally, the Company's French
facility has a capacity of 20 million units, which supplies the European
market and serves as a back up to its domestic production.
SETTLEMENT OF LEGAL CLAIM. In consideration of new business and improving
relations, the Company settled a lawsuit with a major initiator customer.
This resulted in a fiscal 1998 third quarter charge of $2.5 million ($1.6
million after tax) for trade receivables and obsolete inventory. In return,
the customer committed to significantly higher initiator purchases in fiscal
1999. This resolution is an important milestone toward improving the
Company's relationship with this customer and should benefit both its
initiator and inflator operations.
INFLATOR EQUIPMENT OBSOLESCENCE. The Company wrote off $1.9 million ($1.2
million after tax) of low-volume inflator production equipment in the fiscal
1998 third quarter. This equipment was originally purchased to support
customers' requirements by bridging the gap between prototype production and
high-volume production. With the Company's new high-volume inflator
production lines becoming fully operational, this low-volume production
equipment has become idled and obsolete.
AEROSPACE INVENTORY OBSOLESCENCE. As the Company's aerospace business shifts
from traditional defense/government business to commercial business
(satellites and satellite launch vehicles), a more stringent obsolescence
approach is required. The new approach was adopted during the fiscal 1998
third quarter and resulted in a charge of $1.4 million ($0.9 million after
tax).
FISCAL YEAR 1997 VS. 1996
Net sales and operating profits for the fiscal year ended July 31, 1997, were
$211.6 million and $49.6 million, respectively, compared to fiscal 1996 net
sales of $152.8 million and operating profits of $39.1 million. Net earnings
and earnings per share for fiscal year 1997 were $35.4 million and $1.73,
respectively, compared to fiscal 1996 net earnings of $25.5 million and
earnings per share of $1.25.
Consolidated gross margin did, however, decrease from 33.3% in fiscal year
1996 to 27.6% in fiscal 1997. This principally reflected a major shift in
product mix in the automotive segment. In fiscal year 1996, initiator sales
represented 63% of total automotive segment sales, while they represented
only 36% of total automotive segment sales in fiscal 1997. This shift was
directly related to the Company's increased inflator sales. Initiators
represent a more mature, higher-margin product line, whereas inflators were
in the early production and start-up stages of the products' life cycles. The
three new major product lines that moved from the start-up stage to the early
production stage in fiscal 1997 were: 1) the driver side inflator, 2) the
side-impact inflator, and 3) the second generation passenger side inflator.
Initial mass-production of these inflators began late in the fourth quarter
of fiscal 1997.
The Automotive Safety Products division was the primary contributor to the
sales and operating profit increases over fiscal year 1996. Automotive sales
and operating profit increased 46% and
<PAGE>
37%, respectively, due primarily to increased volume. Nonautomotive sales
increased 15%; however, operating profit decreased 30% as a result of
investments in new programs. Total operating profit as a percentage of sales
for fiscal year 1997 was 23%, compared to 26% for fiscal 1996.
Research and development expenditures decreased $2.9 million to $1.5 million
in fiscal year 1997, as compared to fiscal 1996. This was the result of the
Company completing the development of its driver side, side-impact, and
second generation passenger side inflators and shifting its resources to
product launch.
Start-up costs of $10.6 million related to the product launches of the
Company's new single-stage hybrid inflators were capitalized in fiscal 1997.
These costs were amortized on a straight-line basis over a period not
exceeding five years.
Pyrospace S.A., the Company's foreign joint venture, was merged with another
French aerospace company, Pyromeca S.A., effective December 31, 1996,
creating a new entity, PyroAlliance S.A. OEA sold its 45% ownership share of
the original Pyrospace to SNPE S.A. (owner of Pyromeca) for 25 million French
francs (approximately $4.8 million) and a 10% ownership in PyroAlliance. This
transaction resulted in a gain of approximately $3.2 million, which is
reflected in "Other Income."
Also included in "Other Income" in fiscal 1997 is a $2 million royalty
payment from Daicel Chemical Industries, Ltd. This was the third annual
payment under a fifteen year agreement for the transfer of technology and
manufacture of OEA's single-stage hybrid inflators for passenger, driver and
side-impact automotive air bags for manufacture in Asia for the Asian market.
Fiscal year 1996 "Other Income" included a $1 million payment under the same
agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased $5.2 million during the year to $86.1
million at July 31, 1998 from $91.3 million at July 31, 1997. The Company
made capital expenditures totaling $49.0 million in fiscal 1998, which were
funded from bank borrowings and internally generated funds. On April 10,
1998, the Company entered into a four-year, $180 million Amended and Restated
Revolving Credit Agreement with a group of seven banks. This agreement was
amended on June 11, 1998. The Company's principal bank is acting as agent for
this agreement. The interest rate (applicable margin plus federal funds or
LIBOR) is progressive and based upon the Company's ratio of indebtedness to
EBITDA. The margin will fluctuate up or down as determined by the above
ratio. At July 31, 1998, the applicable interest rate was 6.6%. The agreement
contains certain financial covenants including tangible net worth,
indebtedness to EBITDA, indebtedness to total capitalization and minimum
interest coverage. The Company has, from time to time, failed to meet
individual financial covenants; however, it has successfully negotiated a
temporary waiver or amendment to the agreement in each such instance. At the
Company's discretion, it may convert all or part of the total debt to
Eurodollar or Alternate Base Rate loan(s). This credit facility expires on
December 18, 2000, and provides for two twelve-month extensions to the
termination date. At July 31, 1998, the Company had $124.0 million of
long-term debt drawn down on this credit facility. Anticipated working
capital requirements, capital expenditures, and facility expansions are
expected to be met through bank borrowings and from internally generated
funds.
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to maintain
traceability, process transactions, send invoices, or engage in similar
normal business activities.
Based on current assessments, the Company is progressing with its
modification and replacement of significant portions of its software so that
its computer systems will properly utilize dates beyond December 31, 1999.
The Company presently believes that with its modifications to existing
software and conversions of new software, the Year 2000 Issue will be
mitigated. However, if such modifications and conversions are not made, or
are not completed timely, the Year 2000 Issue could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company is utilizing both internal and external resources to modify,
replace, and test its software for Year 2000 compliance. The Company plans to
complete the Year 2000 project by July 1999. To date, the Company has
incurred approximately $1.1 million related to the assessment of, and efforts
in connection with, its Year 2000 project. Approximately 75% of which are
capitalized costs related to the purchase and implementation of new computer
software and hardware. The total remaining costs for this project are
currently being assessed and are unknown at this time.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiary are translated to
U.S. dollars at period-end exchange rates. Income and expense items are
translated at average exchange rates prevailing during the period. The local
currency is used as the functional currency for the foreign subsidiary. A
translation adjustment results from translating the foreign subsidiary's
accounts from functional currencies to U.S. dollars. Exchange gains (losses)
resulting from foreign currency transactions are included in the consolidated
statements of earnings.
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
OEA, Inc.
We have audited the accompanying consolidated balance sheets of OEA, Inc. and
subsidiaries as of July 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of
the three years in the period ended July 31, 1998. 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 consolidated financial position of OEA, Inc. and
subsidiaries at July 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period
ended July 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, in 1998 the Company
changed its method of accounting for start-up activities.
ERNST & YOUNG LLP
Denver, Colorado
September 21, 1998
<PAGE>
OEA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 31
1998 1997
------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,920 $ 4,138
Accounts receivable 43,998 45,099
Unbilled costs and accrued earnings 3,190 4,062
Inventories 54,567 70,406
Income taxes receivable 12,040 2,568
Prepaid expenses and other 1,665 1,046
Deferred income taxes 198 --
------------------------------
Total current assets 117,578 127,319
Property, plant, and equipment:
Land and improvements 3,474 2,651
Buildings and improvements 64,827 52,449
Machinery and equipment 194,506 174,279
Furniture and fixtures 9,604 9,166
------------------------------
272,411 238,545
Accumulated depreciation and amortization 67,761 54,651
------------------------------
204,650 183,894
Long-term receivable 3,000 3,000
Investment in foreign joint venture 2,323 2,323
Deferred charges, net of accumulated amortization of
$722 at July 31, 1997 -- 13,527
Other assets 1,208 1,493
------------------------------
Total assets $328,759 $331,556
------------------------------
------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JULY 31
1998 1997
------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,457 $ 27,043
Accrued expenses:
Salaries and wages 2,598 2,703
Profit sharing and pension contributions 2,109 2,143
Interest payable 2,368 1,431
Other 1,929 1,405
Deferred income taxes -- 1,306
------------------------------
Total current liabilities 31,461 36,031
Long-term bank borrowings 124,000 93,200
Deferred income taxes 10,821 14,562
Other 971 985
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value:
Authorized shares--50,000,000
Issued and outstanding shares--22,019,700 2,202 2,202
Additional paid-in capital 13,201 12,956
Retained earnings 150,440 176,547
Equity adjustment from translation (2,195) (2,763)
Treasury stock, 1,424,943 and 1,467,531 shares
in 1998 and 1997, respectively, at cost (2,142) (2,164)
------------------------------
Total stockholders' equity 161,506 186,778
------------------------------
Total liabilities and stockholders' equity $328,759 $331,556
------------------------------
------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
OEA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Net sales $245,375 $211,557 $152,810
Cost of sales 238,571 153,153 101,953
---------------------------------------------
Gross profit 6,804 58,404 50,857
General and administrative expenses 10,866 7,372 7,375
Research and development expenses 1,526 1,473 4,416
---------------------------------------------
Operating profit (loss) (5,588) 49,559 39,066
Other income (expense):
Interest income 317 248 685
Interest expense (6,479) (102) (72)
Equity in earnings of foreign joint venture -- 302 573
Gain on sale of foreign joint venture -- 3,243 --
Royalty income 2,222 2,255 1,299
Loss on sale of property, plant, and
equipment (4,676) (176) (211)
Other, net 273 (25) (657)
---------------------------------------------
(8,343) 5,745 1,617
---------------------------------------------
Earnings (loss) before minority interest
and income taxes (13,931) 55,304 40,683
Minority interest in net loss of
consolidated subsidiary -- -- 25
---------------------------------------------
Earnings (loss) before income taxes (13,931) 55,304 40,708
Income tax expense (benefit) (4,655) 19,863 15,165
---------------------------------------------
Earnings (loss) before cumulative effect
of change in accounting principle (9,276) 35,441 25,543
Cumulative effect of change in accounting
principle, net of tax benefit of $5,965 (10,040) -- --
---------------------------------------------
Net earnings (loss) $ (19,316) $ 35,441 $ 25,543
---------------------------------------------
---------------------------------------------
</TABLE>
<PAGE>
OEA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Basic net earnings (loss) per share:
Net earnings (loss) per share before cumulative
effect of change in accounting principle $(0.45) $1.73 $1.25
Cumulative effect of change in accounting
principle (0.49) -- --
---------------------------------------------
Net earnings (loss) per share $(0.94) $1.73 $1.25
---------------------------------------------
---------------------------------------------
Diluted net earnings (loss) per share:
Net earnings (loss) per share before cumulative
effect of change in accounting principle $(0.45) $1.72 $1.24
Cumulative effect of change in accounting
principle (0.49) -- --
---------------------------------------------
Net earnings (loss) per share $(0.94) $1.72 $1.24
---------------------------------------------
---------------------------------------------
Weighted average number of shares outstanding:
Basic 20,581 20,540 20,499
---------------------------------------------
---------------------------------------------
Diluted 20,581 20,606 20,545
---------------------------------------------
---------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
OEA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
-------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at July 31, 1995 22,019,700 $2,202 1,533,072 $(1,869)
Purchase of common stock for
treasury -- -- 9,254 (284)
Issuance of treasury stock for
options exercised -- -- (37,070) 49
Net earnings -- -- -- --
Cash dividends ($0.25 per share) -- -- -- --
Translation adjustment -- -- -- --
-------------------------------------------------------
Balances at July 31, 1996 22,019,700 2,202 1,505,256 (2,104)
Purchase of common stock for
treasury -- -- 2,500 (117)
Issuance of treasury stock for
options exercised -- -- (40,225) 57
Net earnings -- -- -- --
Cash dividends ($0.30 per share) -- -- -- --
Translation adjustment -- -- -- --
-------------------------------------------------------
Balances at July 31, 1997 22,019,700 2,202 1,467,531 (2,164)
Purchase of common stock for
treasury -- -- 1,162 (43)
Issuance of treasury stock for
options exercised -- -- (43,750) 65
Net loss -- -- -- --
Cash dividends ($0.33 per share) -- -- -- --
Translation adjustment -- -- -- --
-------------------------------------------------------
Balance at July 31, 1998 22,019,700 $2,202 1,424,943 $(2,142)
-------------------------------------------------------
-------------------------------------------------------
<CAPTION>
EQUITY
ADDITIONAL ADJUSTMENT TOTAL
PAID-IN RETAINED FROM STOCKHOLDERS'
CAPITAL EARNINGS TRANSLATION EQUITY
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at July 31, 1995 $12,012 $126,849 $ 1,158 $140,352
Purchase of common stock for
treasury -- -- -- (284)
Issuance of treasury stock for
options exercised 455 -- -- 504
Net earnings -- 25,543 -- 25,543
Cash dividends ($0.25 per share) -- (5,124) -- (5,124)
Translation adjustment -- -- (543) (543)
----------------------------------------------------------------
Balances at July 31, 1996 12,467 147,268 615 160,448
Purchase of common stock for
treasury -- -- -- (117)
Issuance of treasury stock for
options exercised 489 -- -- 546
Net earnings -- 35,441 -- 35,441
Cash dividends ($0.30 per share) -- (6,162) -- (6,162)
Translation adjustment -- -- (3,378) (3,378)
----------------------------------------------------------------
Balances at July 31, 1997 12,956 176,547 (2,763) 186,778
Purchase of common stock for
treasury -- -- -- (43)
Issuance of treasury stock for
options exercised 245 -- -- 310
Net loss -- (19,316) -- (19,316)
Cash dividends ($0.33 per share) -- (6,791) -- (6,791)
Translation adjustment -- -- 568 568
----------------------------------------------------------------
Balance at July 31, 1998 $13,201 $150,440 $(2,195) $161,506
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
OEA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $(19,316) $35,441 $25,543
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting principle 10,040 -- --
Undistributed earnings of foreign joint venture -- (302) (572)
Gain on sale of foreign joint venture -- (3,243) --
Depreciation and amortization 21,413 15,597 10,186
Deferred income taxes (72) 6,337 2,681
Minority interest in net loss of consolidated subsidiary -- -- (25)
Decrease in deferred compensation -- (177) --
Loss on sale of property, plant, and equipment 4,676 176 211
Changes in operating assets and liabilities:
Accounts receivable 1,305 (16,127) (6,164)
Unbilled costs and accrued earnings 873 2,783 (2,871)
Inventories 15,901 (34,108) (11,989)
Prepaid expenses and other (555) (40) (228)
Accounts payable and accrued expenses (3,567) 17,323 7,075
Income taxes (8,689) (1,735) 1,644
----------------------------------------------
Net cash provided by operating activities 22,009 21,925 25,491
INVESTING ACTIVITIES
Capital expenditures (48,985) (87,197) (45,500)
Cash proceeds from sale of joint venture -- 4,624 --
Reductions to investments in and advances to affiliates -- -- (1,324)
Proceeds from sale of property, plant, and equipment 403 -- 40
Decrease in cash value of life insurance 297 -- 46
Increase in deferred charges -- (10,639) (3,610)
Increase in other assets, net (116) (102) (792)
----------------------------------------------
Net cash used in investing activities (48,401) (93,314) (51,140)
FINANCING ACTIVITIES
Purchase of common stock for treasury (43) (117) (284)
Proceeds from issuance of treasury stock 310 546 504
Increase in net bank borrowings 30,800 79,200 14,000
Payment of dividends (6,791) (6,162) (5,124)
----------------------------------------------
Net cash provided by financing activities 24,276 73,467 9,096
Effect of exchange rate changes on cash (102) (500) (229)
----------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,218) 1,578 (16,782)
Cash and cash equivalents at beginning of year 4,138 2,560 19,342
----------------------------------------------
Cash and cash equivalents at end of year $ 1,920 $ 4,138 $ 2,560
----------------------------------------------
----------------------------------------------
Supplemental information:
Interest payments $ 7,620 $ 2,348 $ 220
Income tax payments 3,843 15,017 11,645
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and transactions
of OEA, Inc. (the "Company"), its wholly owned subsidiary, OEA Aerospace,
Inc., and wholly owned foreign operating subsidiary, Pyroindustrie S.A. All
significant intercompany balances and transactions have been eliminated.
The investment in affiliated companies in which the Company owns greater than
20%, but less than 50%, and can exercise significant influence over operating
and financial policies is accounted for under the equity method. The
investment in affiliated companies in which the Company does not have control
or the ability to exercise significant influence over operating and financial
policies, generally less than 20% ownership, is accounted for using the cost
method (see also Note 3).
REVENUE RECOGNITION
Sales of products within the automotive segment are recognized as shipments
are made. Sales of products within the nonautomotive segment are recognized
as deliveries are made or when the products are completed and held on the
Company's premises to meet specified contract delivery dates. Unbilled costs
and accrued earnings are recorded as costs are incurred on nonautomotive
contracts and relate to products anticipated to be delivered and billed
within 12 months of the balance sheet date. Costs are based on the estimated
average cost per unit.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
INVENTORIES
Inventories of raw materials and component parts are stated at the lower of
cost (principally first-in, first-out) or market. Inventoried costs of work
in process and finished goods are stated at average production costs
consisting of materials, direct labor, and manufacturing overhead.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Expenditures for
maintenance and repairs are charged to earnings as incurred, and major
renewals and betterments are capitalized. Upon sale or retirement, the cost
of the assets and related accumulated depreciation are removed from the
accounts, and the resulting gains or losses are reflected in operations.
Depreciation is computed on the straight-line, double-declining balance, and
units-of-production methods at rates calculated to amortize the cost of the
depreciable assets over the related useful lives. Plant and equipment lives
are estimated as follows:
Buildings and improvements 10-30 years
Machinery and equipment 5-10 years
Furniture and fixtures 5-10 years
Depreciation charged to costs and expenses was $21.3 million, $14.8 million,
and $10.2 million in 1998, 1997, and 1996, respectively. Repairs and
maintenance charged to costs and expenses was $8.2 million, $7.7 million, and
$5.1 million in 1998, 1997, and 1996, respectively.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present. The Company adopted Statement No. 121 in the first
quarter of fiscal year 1997. The effect of the adoption was not material.
DEFERRED START-UP COSTS
During the initial phase of product introduction or development of
significant new plant facilities for which prospective sales and cost
recovery are based upon long-term commitments from customers, start-up costs
were being deferred and amortized on a straight-line basis over periods not
exceeding five years.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), REPORTING ON THE COSTS OF START-UP
ACTIVITIES, which requires the Company to expense start-up, preopening and
organizational expenses as incurred. SOP 98-5 is effective for financial
statements for fiscal years beginning after December 15, 1998 and is applied
as of the beginning of the fiscal year in which the SOP is first adopted. The
Company early adopted SOP 98-5 as of August 1, 1997 and has reported the
initial application as a cumulative effect of a change in accounting
principle in the consolidated statement of operations for the year ended July
31, 1998. The effect of the change in accounting principle was to increase
the net loss reported for 1998 by approximately $10.0 million (net of tax of
$6.0 million), or $0.49 per share.
RESEARCH AND DEVELOPMENT
Expenses for new products or improvements of existing products, net of
amounts reimbursed from others, are charged against operations in the year
incurred.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiary (Pyroindustrie
S.A.) are translated to U.S. dollars at period-end exchange rates. Income and
expense items are translated at average exchange rates prevailing during the
period. The local currency is used as the functional currency for the foreign
subsidiary. A translation adjustment, which is recorded as a separate
component of stockholders' equity, results from translating the foreign
subsidiary's accounts from functional currencies to U.S. dollars. Exchange
gains (losses) resulting from foreign currency transactions are included in
the consolidated statements of operations.
STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has chosen to continue
to account for stock-based compensation to employees using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess,
if any, of the quoted market price of the Company's stock at the date of the
grant over the options' exercise price.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Effective in the second quarter of fiscal 1998, the Company adopted FASB
Statement No. 128, EARNINGS PER SHARE, which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Basic earnings per share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding during the period. Common equivalent
shares consist of the shares issuable upon the exercise of stock options
under the treasury stock method. Net earnings per share amounts for all
periods have been presented and restated to conform to the Statement No. 128
requirements. Per share information is based on the weighted average number
of common shares outstanding.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash and cash
equivalents, receivables, unbilled costs and accrued earnings, accounts
payable, and bank borrowings. The Company believes all of the financial
instruments' recorded values approximate current values.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, REPORTING COMPREHENSIVE INCOME. The Statement establishes
standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Statement
No. 130 will be effective for fiscal years beginning after December 15, 1997.
The Company will adopt Statement No. 130 during the first quarter of fiscal
year 1999, and does not expect the impact to be material.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
In June 1997, the FASB issued Statement No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. The Statement requires public
companies to report certain information about operating segments in complete
sets of financial statements and in condensed financial statements of interim
periods issued to shareholders. Under Statement No. 131, operating segments
are to be determined based on how management measures performance and makes
decisions about allocating resources. It also requires that public companies
report certain information about their products and services, the geographic
areas in which they operate, and their major customers. Statement No. 131
will be effective for fiscal years beginning after December 15, 1997. The
Company will adopt Statement No. 131 in its fiscal year 1999.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation. These reclassifications had no impact on
the reported results of operations.
2. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JULY 31
1998 1997
---------------------------
<S> <C> <C>
Raw materials and component parts $25,954 $39,786
Work in process 17,222 21,107
Finished goods 11,391 9,513
---------------------------
$54,567 $70,406
---------------------------
---------------------------
</TABLE>
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN FOREIGN JOINT VENTURES
On October 5, 1986, the Company signed a joint venture agreement with two
French companies for the establishment of a company in France, Pyrospace S.A.
("Pyrospace"). Pyrospace was engaged in the design, development, and
manufacture of propellant and explosive devices for European space programs,
as well as aircraft and missiles. Effective December 31, 1996, Pyrospace was
merged with another French aerospace company, Pyromeca S.A., creating a new
entity, PyroAlliance S.A. The Company sold its original ownership share of
Pyrospace (45%) to SNPE S.A. (owner of Pyromeca S.A.) for 25 million French
francs (approximately $4.8 million) and a 10% ownership in PyroAlliance S.A.
This transaction resulted in a gain to the Company of approximately $3.2
million, which is reflected in "Other Income" in the year ended July 31, 1997.
During October 1993, a joint venture agreement was signed between the Company
(80% owner) and Pyrospace (20% owner) for the establishment of a company in
France, Pyroindustrie S.A. Pyroindustrie is engaged in the manufacture of
initiators for the European air bag market. In January 1996, the Company
acquired the remaining 20% of Pyroindustrie, making Pyroindustrie a wholly
owned subsidiary of the Company. Net assets of Pyroindustrie at July 31, 1998
and 1997 totaled $35.6 million and $21.4 million, respectively.
4. ROYALTY AGREEMENT
During 1995, the Company entered into a fifteen-year agreement with Daicel
Chemical Industries, Ltd., Tokyo, Japan ("Daicel"), for the transfer of
technology and supply of the Company's single-stage hybrid inflators for
passenger, driver and side-impact automotive air bags. Royalty payments
totaling $2.0 million, $2.0 million, and $1.0 million have been received
related to this agreement during 1998, 1997, and 1996, respectively.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BANK BORROWINGS
On April 10, 1998, the Company entered into a $180 million Amended and
Restated Revolving Credit Agreement with a group of seven banks. This
agreement was amended on June 11, 1998. The Company's principal bank is
acting as agent for this agreement. The interest rate, applicable margin plus
federal funds or LIBOR, is progressive and based upon the Company's ratio of
total indebtedness to earnings before interest, taxes, depreciation and
amortization ("EBITDA") plus interest income. At July 31, 1998, the interest
rate was approximately 6.6%. At the Company's discretion, it may convert all
or part of the total debt to Eurodollar or Alternate Base rate loan(s). The
line of credit expires on December 18, 2000 and provides for two twelve-month
extensions to the maturity date. At July 31, 1998, the total debt outstanding
related to the line of credit facility was $124 million. All debt relating to
this line of credit is classified as long term at July 31, 1998, since the
expiration date for the line of credit is December 18, 2000 and none of the
debt balance is either due or expected to be permanently repaid within the
next twelve-month period.
Prior to the above discussed Amended and Restated Agreement, the Company
entered into an unsecured, four-year $100 million Revolving Credit Agreement
with a group of four banks on December 18, 1996. This agreement was amended
on September 10, 1997 to increase the revolving credit facility to $130
million. The interest rate was .625% above the federal funds rate when total
indebtedness was equal to or less than 30% of total capitalization and
increased to .7% above the federal funds rate when total indebtedness
exceeded 30% of total capitalization. Additionally, the Company paid annual
fees equal to .125% of the banks' total commitment.
The above agreements contain certain financial covenants including tangible
net worth, indebtedness to EBITDA, indebtedness to total capitalization and
minimum interest coverage. The company has, from time to time, failed to meet
a given financial covenant; however, it has successfully negotiated a
temporary waiver or amendment to the agreement in each such instance.
Interest costs incurred during fiscal years 1998 and 1997 were $8.8 million
and $3.6 million, including capitalized interest of $2.3 million and $3.5
million, respectively. The weighted average interest rate on bank borrowings
during fiscal years 1998 and 1997 was 6.4% and 6.5%, respectively.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
Contract disputes and other claims may arise in connection with government
contracts and subcontracts. A substantial portion of the Company's
nonautomotive sales for the current and prior years is subject to audit by
the Defense Contract Audit Agency. Such audits may occur at any time up to
three years after contract completion. In the opinion of the Company's
management, a provision for government claims is not necessary.
At July 31, 1998, the Company had commitments to purchase approximately $6
million of property, plant, and equipment.
7. PROFIT SHARING AND PENSION PLANS
The Company has noncontributory profit sharing and defined contribution
pension plans covering all full-time employees. The Company is committed to
contribute to the pension plans 5% of participants' eligible annual
compensation as defined in the plan documents. Employer contributions to the
profit sharing plans are discretionary, but are not to exceed 10% of eligible
annual compensation. Combined contributions to these plans for the years
ended July 31, 1998, 1997, and 1996 were $2.0 million, $2.2 million, and $1.4
million, respectively.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's net deferred tax liabilities as of July 31, 1998
and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
Current deferred tax liabilities:
Unbilled receivables $ 282 $ 309
Inventory valuation -- 269
Prepaid expenses 152 272
Deferred income on Daicel agreement 387 376
Other 158 224
---------------------------
Total current deferred tax liabilities 979 1,450
Long-term deferred tax liabilities:
Plant and equipment 8,464 8,804
Deferred income on Daicel agreement 864 878
Deferred charges -- 5,174
Capitalized interest expense 1,705 --
Other 73 --
---------------------------
Total long-term deferred tax liabilities 11,106 14,856
---------------------------
Total deferred tax liabilities 12,085 16,306
Current deferred tax assets:
Allowances 1,151 --
Other 26 144
---------------------------
Total current deferred tax assets 1,177 144
Long-term deferred tax asset:
Deferred compensation 285 294
---------------------------
Total deferred tax assets 1,462 438
---------------------------
Net deferred tax liabilities $10,623 $15,868
---------------------------
---------------------------
</TABLE>
<PAGE>
8. INCOME TAXES (CONTINUED)
Components of income tax expense (benefit) are as follows (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------------------------------------------
<S> <C> <C> <C>
1998:
Federal $ (4,266) $ 75 $ (4,191)
State (355) (109) (464)
------------------------------------------
$ (4,621) $ (34) $ (4,655)
------------------------------------------
------------------------------------------
1997:
Federal $11,491 $5,515 $17,006
State 2,035 822 2,857
------------------------------------------
$13,526 $6,337 $19,863
------------------------------------------
------------------------------------------
1996:
Federal $10,840 $2,303 $13,143
State 1,644 378 2,022
------------------------------------------
$12,484 $2,681 $15,165
------------------------------------------
------------------------------------------
</TABLE>
Actual tax expense for 1998, 1997, and 1996 differs from "expected" tax
expense for those years (computed by applying the U.S. federal corporate
tax rate of 35% to earnings before income taxes) as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $(4,876) $19,356 $14,248
Increases (reductions) in taxes resulting from:
State taxes, net of federal income
tax benefit (230) 1,877 1,315
Sales to foreign customers (194) (494) --
Tax effect of joint venture operations -- (105) (297)
Income tax credits (76) (915) (175)
Other 721 144 74
---------------------------------------
Actual tax expense (benefit) $(4,655) $19,863 $15,165
---------------------------------------
---------------------------------------
</TABLE>
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS
The Company follows APB No. 25 and related interpretations in accounting for
its employee stock options, and has adopted the disclosure-only option under
FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
The stockholders approved an Employees' Stock Option Plan (the "Employees'
Plan") on January 13, 1995, and a Nonemployee Directors' Stock Option Plan
(the "Directors' Plan") on January 12, 1996. These plans provide for stock
options to be granted for a maximum of 600,000 shares of common stock under
the Employees' Plan and a maximum of 50,000 shares of common stock under the
Directors' Plan. Options may be granted to employees and nonemployee
directors at prices not less than fair market value of the Company's common
stock on the date of grant. Options granted under the Employees' Plan may be
exercised at any time after the grant date and options issued under the
Directors' Plan may be exercised after the first six months following the
grant date. Employee and Director stock options have a ten-year life from the
date of the grant, except that any options granted to a recipient who owns
more than 10% of the total combined voting power of the stock of the Company
have a five-year life from the date of the grant. Shares may be granted from
either authorized, but unissued, common stock or issued shares reacquired and
held as treasury stock.
Prior to July 28, 1994, the Company had a qualified incentive stock option
plan for key employees of the Company whereby a total of 666,000 shares of
common stock were reserved for issuance ("Previous Employees' Plan"). Options
were granted to key employees at prices not less than the fair market value
of the Company's common stock on the date of grant, and were exercisable
after one year of continuous employment following the date of grant. Options
had a ten-year life from the date of the grant, except that any option
granted to a recipient who owned more than 10% of the total combined voting
power of the stock of the Company had a five-year life from the date of the
grant.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
The following schedule shows the activity in each of these plans for the past
three years:
<TABLE>
<CAPTION>
PREVIOUS
EMPLOYEES' PLAN EMPLOYEES' PLAN DIRECTORS' PLAN
----------------------- ----------------------- -----------------------
NUMBER OF WEIGHTED NUMBER OF WEIGHTED NUMBER OF WEIGHTED
SHARES AVG PRICE SHARES AVG PRICE SHARES AVG PRICE
--------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
July 31, 1995 175,695 $14.67 -- $ -- -- $ --
Granted -- -- 27,472 28.34 4,375 27.75
Exercised (36,870) 13.65 (200) 28.34 -- --
Forfeited (8,311) 26.30 (2,000) 28.34 -- --
--------- -------- --------
Options outstanding at
July 31, 1996 130,514 14.21 25,272 28.34 4,375 27.75
Granted -- -- 25,800 38.34 4,375 45.13
Exercised (36,950) 12.11 (3,275) 28.34 -- --
Forfeited (1,836) 24.20 (2,293) 33.31 -- --
--------- -------- --------
Options outstanding at
July 31, 1997 91,728 14.86 45,504 33.70 8,750 36.44
Granted -- -- 140,000 16.43 4,375 27.69
Exercised (43,250) 6.95 (500) 19.00 -- --
Forfeited (7,086) 28.69 (7,700) 35.05 -- --
--------- -------- --------
Options outstanding at
July 31, 1998 41,392 20.99 177,304 19.93 13,125 33.52
--------- -------- --------
--------- -------- --------
</TABLE>
The following schedule shows the exercise prices, the quantities, and the
weighted average remaining contractual lives for all options outstanding and
exercisable at July 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE NUMBER OF OPTIONS WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING REMAINING LIFE (YEARS)
---------------- ----------------- ----------------------
<S> <C> <C> <C>
Previous Employees' Plan
$4.67 $ 4.67 4,844 .3
$19.00 - $30.00 23.15 36,548 4.0
Employees' Plan
$14.19 - $19.06 16.43 140,000 7.8
$28.00 - $37.88 33.07 37,304 9.9
Directors' Plan
$27.69 - $45.13 33.52 13,125 8.5
</TABLE>
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
If fair value accounting under Statement No. 123 had been adopted as of the
beginning of fiscal year 1996, the pro forma effects on net earnings and
earnings per share, as calculated using the Black-Scholes option-pricing
model, would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Estimated fair value per share of
options granted to:
Employees $5.70-$7.70 $14.52 $11.09
Directors $11.07 $17.40 $10.99
Effect on net earnings $(128,000) $(434,000) $(318,000)
Effect on basic and diluted
earnings per share $(0.01) $(0.02) $(0.02)
Assumptions:
Annualized dividend yield 0.70% 0.70% 0.72%
Common stock price volatility 39.0% 35.40% 35.80%
Risk-free rate of return 5.39%- 5.65% 5.87% 6.52%
Expected option term (years) 5.0 5.0 5.0
</TABLE>
10. SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company operates primarily in two industry segments, automotive and
nonautomotive. Financial information for each segment and major customers is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998
------------------------------------------------
AUTOMOTIVE NONAUTOMOTIVE TOTAL
------------------------------------------------
<S> <C> <C> <C>
Net sales $195,891 $49,484 $245,375
Operating profit (loss) (8,765) 3,177 (5,588)
Identifiable assets 276,063 52,696 328,759
Depreciation and
amortization expense 20,167 1,246 21,413
Capital expenditures 47,577 1,408 48,985
</TABLE>
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SEGMENT INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
<TABLE>
<CAPTION>
1997
------------------------------------------------
AUTOMOTIVE NONAUTOMOTIVE TOTAL
------------------------------------------------
<S> <C> <C> <C>
Net sales $168,869 $42,688 $211,557
Operating profit 45,522 4,037 49,559
Identifiable assets 275,153 56,403 331,556
Depreciation and
amortization expense 13,842 1,755 15,597
Capital expenditures 85,304 1,893 87,197
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------
AUTOMOTIVE NONAUTOMOTIVE TOTAL
------------------------------------------------
<S> <C> <C> <C>
Net sales $115,587 $37,223 $152,810
Operating profit 33,284 5,782 39,066
Identifiable assets 157,569 45,639 203,208
Depreciation and
amortization expense 9,049 1,137 10,186
Capital expenditures 44,550 950 45,500
</TABLE>
The automotive segment includes the design, development and manufacture of
propellant-actuated devices for use in automotive safety products. The
products currently in production are inflators and electric initiators which
are sold to automotive module and inflator manufacturers. The nonautomotive
segment primarily includes the manufacture and sale of propellant and
explosive-actuated devices for the U.S. government and prime contractors of
the U.S. government and foreign governments, and the manufacture and sale of
similar explosive-actuated devices for commercial aircraft. Customer payments
of accounts receivable are reasonably prompt and collateral is not required.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SEGMENT INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
Customers representing 10% or more of consolidated net sales are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Takata Corporation 33% 24% 6%
Daicel Chemical Industries 12% 7% 3%
Delphi Interior & Lighting 15% 18% 2%
Autoliv ASP, Inc. (formerly Morton
International) 8% 17% 49%
</TABLE>
Sales to foreign customers were 48%, 38%, and 23% of consolidated net
sales for the years 1998, 1997 and 1996, respectively, and consisted
primarily of sales to Asian automotive module and inflator manufacturers.
The Company ships product to its Asian automotive customers' manufacturing
operations located both in the United States and Asia.
Accounts receivable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Automotive $30,366 $30,416
Nonautomotive 13,632 14,683
------- -------
$43,998 $45,099
------- -------
------- -------
</TABLE>
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31 JANUARY 31 APRIL 30 JULY 31
----------- ---------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1998
Net sales $57,335 $59,414 $63,592 $65,034
Gross profit (loss) 10,164 8,109 (12,908) 1,439
Earnings (loss) before cumulative effect of
change in accounting principle 4,632 2,378 (14,925) (1,361)
Cumulative effect of change in accounting
principle 10,040 -- -- --
Net earnings (loss) (5,408) 2,378 (14,925) (1,361)
Earnings (loss) per share before cumulative
effect of change in accounting principle--
basic and diluted $0.23 $0.12 $(0.72) $(0.08)
Cumulative effect of change in accounting
principle--basic and diluted $(0.49) -- -- --
Earnings (loss) per share--basic and diluted $(0.26) $0.12 $(0.72) $(0.08)
1997
Net sales $45,340 $51,486 $54,397 $60,334
Gross profit 14,515 14,457 14,507 14,925
Net earnings 7,105 7,804 10,094 10,438
Earnings per share--basic $0.35 $0.38 $0.49 $0.51
Earnings per share--diluted $0.34 $0.38 $0.49 $0.51
</TABLE>
During the quarters ended July 31, 1998 and 1997, the Company recorded
other income of $1.8 million net of tax, or $0.09 per share, related to
royalty payments received under the technology transfer agreement with
Daicel.
During the quarter ended April 30, 1998, the Company recorded one-time
charges of $17.2 million net of tax, or ($0.84) per share, related to
inventory adjustments, disposal of early production inflators, domestic
initiator consolidation, settlement of a legal claim, inflator equipment
obsolescence, and aerospace inventory obsolescence.
<PAGE>
OEA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
The Company adopted SOP 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES,
as of August 1, 1997, which was accounted for as a cumulative effect of
change in accounting principle.
During the quarter ended April 30, 1997, the Company recorded a gain of $2.0
million net of tax, or $0.10 per share, related to the sale of its original
ownership share of Pyrospace.
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will appear in, and is incorporated by
reference from, the Registrant's definitive proxy statement for its 1999
annual shareholders' meeting to be filed with the Securities and Exchange
Commission prior to November 29, 1998.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item will appear in, and is incorporated by
reference from, the Registrant's definitive proxy statement for its 1999
annual shareholders' meeting to be filed with the Securities and Exchange
Commission prior to November 29, 1998.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will appear in, and is incorporated by
reference from, the Registrant's definitive proxy statement for its 1999
annual shareholders' meeting to be filed with the Securities and Exchange
Commission prior to November 29, 1998.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item, if any, will appear in, and is
incorporated by reference from, the Registrant's definitive proxy statement
for its 1999 annual shareholders' meeting to be filed with the Securities and
Exchange Commission prior to November 29, 1998.
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a) Documents filed as a part of this report:
(1) Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets - July 31, 1998 and 1997
Consolidated Statements of Operations
Years ended July 31, 1998, 1997, and 1996
Consolidated Statements of Stockholders' Equity
Years ended July 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows
Years ended July 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules required to be filed by Item 8
of Form 10-K and by paragraph (d) of this Item 14:
The schedules for which provision is made in the
applicable accounting regulation of the Securities
and Exchange Commission are not required under the
related instructions or are inapplicable, and
therefore, have been omitted.
(3) Exhibits required to be filed by Item 601 of Regulation S-K
and paragraph (c) of this Item 14:
<TABLE>
<S> <C>
Exhibit 3.1 - Articles of Incorporation, as amended,
(incorporated by reference)
Exhibit 3.2 - By-laws, as amended (incorporated
by reference).
Exhibit 10.1 - Amended and Restated Revolving Credit
Agreement, dated April 10, 1998
(incorporated by reference from the
Company's Form 10-Q for the period ended
May 1, 1998).
Exhibit 10.2 - First Amendment to Amended and Restated
Revolving Credit Agreement dated June 11,
1998 (filed herewith).
Exhibit 10.3 - Retirement Agreement dated May 15, 1990
between the Company and Charles B. Kafadar
(incorporated by reference).
Exhibit 21 - During fiscal year 1997, the Registrant was
the parent company of each of the following
described companies:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Outstanding
Corporation Stock Owned by Parent
----------- ----------------------
<S> <C>
OEA AEROSPACE, Inc. a California corporation, 100%
which owns 100% of Aerotest Operations, Inc.,a
California corporation
PYROINDUSTRIE S.A., a corporation in France 100%
</TABLE>
The above entities are included in the consolidated financial
statements of the Registrant being submitted herewith.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K during the quarter ended July 31, 1998.
Form 8-K filed June 4, 1998. Item 5 - Other Events--
Cautionary statement for the purpose of the "Safe Harbor" provisions of
the Private Securities Litigation Reform Act of 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: October 27, 1998
OEA, INC.
Registrant
By /s/ ROBERT J. SCHULTZ
------------------------------------
Robert J. Schultz, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated:
DIRECTORS AND OFFICERS
/s/ ROBERT J. SCHULTZ /s/ CHARLES B. KAFADAR
- ------------------------------------ ------------------------------------
Robert J. Schultz, Chairman Charles B. Kafadar, CEO, Principal
Executive Officer, and Director
/s/ GEORGE S. ANSELL /s/ J. ROBERT BURNETT
- ------------------------------------ ------------------------------------
George S. Ansell, Director J. Robert Burnett, Director
/s/ PHILIP E. JOHNSON /s/ LEWIS W. WATSON
- ------------------------------------ ------------------------------------
Philip E. Johnson, Director Lewis W. Watson, Director
/s/ J. THOMPSON MCCONATHY /s/ JEPSON S. FULLER
- ------------------------------------ ------------------------------------
J. Thompson McConathy, Vice President Jepson S. Fuller, Controller
of Finance and Principal Financial Officer (Principal Accounting Officer)
<PAGE>
FIRST AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT dated as
of June 11, 1998 (the "AMENDMENT") among OEA, INC., a Delaware corporation (the
"COMPANY"), each of the banks named under the caption "Banks" on the signature
pages hereof (individually, a "BANK" and, collectively, the "BANKS"), BANQUE
NATIONALE DE PARIS, U.S. BANK NATIONAL ASSOCIATION and UNION BANK OF CALIFORNIA,
N.A., as Co-Agents and THE NORTHERN TRUST COMPANY, as agent for the Banks (in
such capacity, together with its successors in such capacity, the "AGENT").
WHEREAS, the Company, the Agent, the Co-Agents and the Banks have entered
into an Amended and Restated Revolving Credit Agreement (the "EXISTING
AGREEMENT") dated as of April 10, 1998 pursuant to which the Banks agreed to
make Loans (as defined in the Existing Agreement) to the Company in an aggregate
principal amount not to exceed $180,000,000 at any time outstanding, on and
subject to the terms and conditions thereof; and
WHEREAS, the parties wish to amend the Existing Agreement to (a) add a
letter of credit facility, (b) modify certain covenants, and (c) increase
pricing.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. DEFINITIONS. Terms defined in the introductory paragraphs
hereof shall have their respective defined meanings when used in this Amendment
and, except as otherwise expressly provided herein, terms defined in the
Existing Agreement shall have their respective defined meanings when used in
this Amendment. In addition, the following terms shall have the following
meanings (terms defined in the introductory paragraphs or this SECTION 1 in the
singular to have correlative meanings when used in the plural and VICE VERSA):
"EFFECTIVE DATE" shall mean the first date, if any, which occurs
before the termination of this Amendment pursuant to SECTION 5 hereof and
on which the conditions precedent in SECTION 3 shall have been satisfied.
SECTION 2. AMENDMENTS TO EXISTING AGREEMENT. The following amendments
are hereby made to the Existing Agreement with effect from and after the
Effective Date:
(a) DEFINITIONS. SECTION 1.1 of the Existing Agreement is amended
by (i) amending and restating in its entirety the definition of "APPLICABLE
MARGIN" as follows and (ii) adding the following new definitions in alphabetical
order:
"APPLICABLE MARGIN" shall mean, for any period and for the type of
Loan or fee indicated below, the number of basis points per annum set forth
below corresponding with the applicable ratio of consolidated Indebtedness
of the Company and its Subsidiaries to EBITDA plus interest income as
determined in accordance with SECTION 8.11 hereof:
<PAGE>
INDEBTEDNESS TO EBITDA RATIO
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
- -----------------------------------------------------------------------------------------------------------------------------------
RATIO GREATER THAN OR LESS THAN 3.75:1.0 but LESS THAN 3.0:1.0 but LESS THAN 2.5:1.0 but LESS THAN 2.0:1.0
EQUAL TO 3.75:1.0 GREATER THAN OR EQUAL GREATER THAN OR EQUAL GREATER THAN OR EQUAL
TO 3.0:1.0 TO 2.5:1.0 TO 2.0:1.0
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FACILITY FEE 25.0 25.0 12.5 12.5 12.5
- -----------------------------------------------------------------------------------------------------------------------------------
FED FUNDS RATE 125 100 80 70 60
- -----------------------------------------------------------------------------------------------------------------------------------
LIBOR RATE 125 100 80 70 60
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of determining the Applicable Margin, consolidated
Indebtedness to EBITDA shall be calculated by the Company as provided in
SECTION 8.11 hereof as of the end of each of its fiscal quarters and shall
be reported to the Agent pursuant to a certificate executed by a senior
financial officer of the Company and delivered concurrently with the
certificate required by SECTION 8.1 hereof. The Applicable Margin shall be
adjusted, if necessary, effective on and after the first Business Day after
the date of receipt by the Agent of the certificate required to be
delivered pursuant to SECTION 8.1 hereof; provided, however, that if such
certificate, together with the financial statements to which such
certificate relates, are not delivered by the required delivery date, then
Level I pricing shall apply until the date such certificate is actually
delivered and unless it indicates that a lower Level is applicable.
Notwithstanding the foregoing, Level II pricing shall apply until the
fiscal quarter ended on January 31, 1999.
"CASH COLLATERALIZE" means, to pledge and deposit with or deliver to the
Agent, for the benefit of the Agent, the Issuing Lender and the Banks, as
collateral for the L/C Obligations, cash or deposit account balances pursuant to
documentation in form and substance satisfactory to the Agent and the Issuing
Lender (which documents are hereby consented to by the Banks). Derivatives of
such term shall have corresponding meaning.
"HONOR DATE" has the meaning specified in SECTION 2.12(c)(ii).
"INSOLVENCY PROCEEDING" means, (a) any case, action or proceeding before
any court or other governmental authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshaling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, undertaken under U.S. Federal, state or foreign law, including
the Bankruptcy Code.
"ISSUING LENDER" means, The Northern Trust Company in its capacity as
issuer of one or more Letters of Credit hereunder, together with any replacement
letter of credit issuer arising under SUBSECTION 10.1.
-2-
<PAGE>
"L/C ADVANCE" means, each Bank's participation in any L/C Borrowing in
accordance with its Pro Rata Share.
"L/C AMENDMENT APPLICATION" means, an application form for amendment of
outstanding standby or commercial documentary letters of credit as shall at any
time be in use at the Issuing Lender, as the Issuing Lender shall request.
"L/C APPLICATION" means, an application form for issuances of standby or
commercial documentary letters of credit as shall at any time be in use at the
Issuing Lender, as the Issuing Lender shall request.
"L/C BORROWING" means, an extension of credit under SUBSECTION 2.12(c)(iv)
resulting from a drawing under any Letter of Credit which shall not have been
reimbursed on the date when made or converted into a borrowing of Loans.
"L/C COMMITMENT" means, the commitment of the Issuing Lender to issue, and
the commitment of the Banks severally to participate in Letters of Credit from
time to time issued or outstanding under SECTION 2.12, in an aggregate amount
not to exceed on any date the amount of $5,000,000, as the same shall be reduced
as a result of a reduction in the L/C Commitment pursuant to SECTION 2.5;
provided that the L/C Commitment is a part of the combined Commitments, rather
than a separate, independent commitment.
"L/C OBLIGATIONS" means, at any time the sum of the following reimbursement
obligations (whether contingent or otherwise) of the Company (a) the aggregate
undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of
all unreimbursed drawings under all Letters of Credit, including all outstanding
L/C Borrowings.
"L/C RELATED DOCUMENTS" means, the Letters of Credit, the L/C Applications,
the L/C Amendment Applications and any other document relating to any Letter of
Credit, including any of the Issuing Lender's standard form documents for letter
of credit issuances.
"LEVEL" mean any of the five ratio ranges applicable to the Indebtedness to
EBITDA ratio as set forth in the table contained in the definition of
"Applicable Margin."
"LETTERS OF CREDIT" means, any letters of credit (whether standby letters
of credit or commercial documentary letters of credit) issued by the Issuing
Lender pursuant to SECTION 2.12.
"PRO RATA SHARE" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Bank's Commitment divided by the Commitments of all Banks.
(b) DEFINITION OF EBITDA. The definition of "EBITDA" in
SECTION 1.1 of the Existing Agreement is hereby amended to add the following
sentence at the end thereof: "For purposes of calculating EBITDA for the fiscal
quarter of the Company ended on May 1, 1998 only, including as such EBITDA
amount for such quarter may be included in financial covenant calculations
hereunder, EBITDA shall be increased by an amount of up to $22,500,000 of
non-cash Special Charges only, and shall not be increased by any cash Special
Charges. For purposes
-3-
<PAGE>
hereof, "SPECIAL CHARGES" means charges of up to $26,900,000 taken by the
Company during the fiscal quarter ended May 1, 1998 for (i) initiator
consolidation, (ii) inflator quality, (iii) Autoliv settlement, (iv) equipment
obsolescence, (v) inventory write down, (vi) aerospace obsolescence and
(vii) other special charges."
(c) AMENDMENT TO SECTION 2.3(a). The first sentence of SECTION
2.3(a) of the Existing Agreement is amended by adding the following phrase at
the end thereof: "less such Banks' Pro Rata Share participation interest in L/C
Obligations".
(d) AMENDMENT TO SECTION 2.5(a). SECTION 2.5(a) of the Existing
Agreement is amended by (i) adding the phrase "and L/C Obligations" at the end
of CLAUSE (iii) thereof; (ii) deleting the word "and" before CLAUSE (iv); (iii)
adding the phrase "and its participation interest in the L/C Obligations" to the
end of CLAUSE (iv); and (v) adding new CLAUSE (v) as follows: "(v) the "L/C
Obligations shall not exceed the L/C Commitment".
(e) AMENDMENT TO SECTION 2.6(a). SECTION 2.6(a) of the Existing
Agreement is hereby amended by deleting the phrase "at a rate of .125% per
annum" and substituting the phrase "at the Applicable Margin specified for
"Facility Fee" in the definition of Applicable Margin".
(f) SECTION 2.11(a) THE EXISTING AGREEMENT. The last sentence of
SECTION 2.11(a) of the Existing Agreement is amended by deleting everything
after the reference to Section 5.5 therein and substituting the following
therefor: "if any, and Cash Collateralize such Bank's Pro Rata Share of L/C
Obligations, whereupon such Withdrawing Bank shall cease to be obligated to make
further Loans hereunder, to participate in any Letter of Credit and its
Commitment shall be reduced to zero and it shall be released from all its
obligations under this Agreement".
(g) SECTION 2.11(b) OF THE EXISTING AGREEMENT. SECTION 2.11(b) of
the Existing Agreement is hereby amended by adding the phrase "and Cash
Collateralize any such Bank's Pro Rata Share of L/C Obligations" before the
phrase "in accordance with the provisio" appearing in the first sentence
thereof.
(h) SECTION 2.11(c) OF THE EXISTING AGREEMENT. SECTION 2.11(c) of
the Existing Agreement is hereby amended by adding the phrase "and its Pro Rata
Share of L/C Obligations has been Cash Collateralized" at the end of CLAUSE (ii)
thereof.
(i) SECTION 2.11(f) OF THE EXISTING AGREEMENT. The first two
sentences of SECTION 2.11(f) of the Existing Agreement are amended and restated
in their entirety as follows:
"If any Loans or Letters of Credit shall be outstanding at the time an
Assignment Agreement becomes effective, (i) the Company shall repay such
portion of such Loans and borrow an equal principal amount of new Loans
from the Bank which has acceded or increased its Commitment hereunder and
(ii) the new Bank shall purchase participations in the outstanding L/C
Obligations from the Banks, so that after giving effect to such prepayment
and borrowing of Loans and participation in L/C Obligations, the Loans and
L/C Obligations are held PRO RATA among the Banks in accordance with the
Commitments.
-4-
<PAGE>
The Banks shall make disbursements among themselves to give effect to such
prepayment and borrowing and participations pursuant to instructions from
the Agent."
(j) SECTION 2.12 OF THE EXISTING AGREEMENT. A new SECTION 2.12 is
hereby added to the Existing Agreement as follows:
"2.12. LETTERS OF CREDIT.
(a) THE LETTER OF CREDIT SUBFACILITY. (i) On the terms and
conditions set forth herein (A) the Issuing Lender agrees, from time to
time on any Business Day during the period from June 11, 1998 to the
Termination Date to issue Letters of Credit for the account of the Company
and/or the Company jointly and severally with any Subsidiary thereof, and
to amend or renew Letters of Credit previously issued by it, in accordance
with SUBSECTIONS 2.12(b)(iii) and (iv) and to honor drafts under the
Letters of Credit; and (B) the Banks severally agree to participate in
Letters of Credit issued for the account of the Company and/or the Company
jointly and severally with any Subsidiary thereof; provided, that the
Issuing Lender shall not be obligated to issue, and no Bank shall be
obligated to participate in, any Letter of Credit if as of the date of
issuance of such Letter of Credit (the "ISSUANCE DATE") (1) the amount of
all L/C Obligations plus the amount of all Loans exceeds the combined
Commitments of all the Banks, (2) the participation of any Bank in the
amount of all L/C Obligations plus the amount of the Loans of such Bank
exceeds such Bank's Commitment, or (3) the amount of L/C Obligations
exceeds the L/C Commitment. Within the foregoing limits, and subject to
the other terms and conditions hereof, the Company's ability to obtain
Letters of Credit shall be fully revolving, and, accordingly, the Company
may, during the foregoing period, obtain Letters of Credit to replace
Letters of Credit which have expired or which have been drawn upon and
reimbursed.
(ii) The Issuing Lender is under no obligation to issue any Letter of
Credit if:
(A) any order, judgment or decree of any governmental authority or
arbitrator shall by its terms purport to enjoin or restrain the Issuing
Lender from issuing such Letter of Credit, or any requirement of law
applicable to the Issuing Lender or any request or directive (whether or
not having the force of law) from any governmental authority with
jurisdiction over the Issuing Lender shall prohibit, or request that the
Issuing Lender refrain from, the issuance of letters of credit generally or
such Letter of Credit in particular or shall impose upon the Issuing Lender
with respect to such Letter of Credit any restriction, reserve or capital
requirement (for which the Issuing Lender is not otherwise compensated
hereunder) not in effect on June 11, 1998, or shall impose upon the Issuing
Lender any unreimbursed loss, cost or expense which was not applicable on
June 11, 1998 and which the Issuing Lender in good faith deems material to
it;
(B) the Issuing Lender has received written notice from any Bank,
the Agent or the Company, on or prior to the Business Day prior to the
requested date of issuance of such Letter of Credit, that one or more of
the applicable conditions contained in SECTION 6 is not then satisfied;
-5-
<PAGE>
(C) the expiry date of any requested Letter of Credit is (1) more
than 360 days after the date of issuance, unless the Majority Banks have
approved such expiry date in writing, or (2) after the Termination Date,
unless all of the Banks have approved such expiry date in writing;
(D) the expiry date of any requested standby Letter of Credit is
prior to the maturity date of any financial obligation to be supported by
the requested Letter of Credit and the beneficiary thereof would have the
right to draw the full amount thereof if the letter of credit is not
renewed or replaced;
(E) any requested Letter of Credit does not provide for drafts, or
is not otherwise in form and substance acceptable to the Issuing Lender, or
the issuance of a Letter of Credit shall violate any applicable policies of
the Issuing Lender;
(F) any standby Letter of Credit is for the purpose of supporting
the issuance of any letter of credit by any other Person; or
(G) such Letter of Credit is in an initial face amount less than
$250,000 or to be used for a purpose other than in connection with the
Company's existing lines of business or denominated in a currency other
than Dollars.
(b) ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT. (i)
Each Letter of Credit shall be issued upon the irrevocable written request
of the Company received by the Issuing Lender (with a copy sent by the
Company to the Agent if different from the Issuing Lender) at least four
days (or such shorter time as the Issuing Lender may agree in a particular
instance in its sole discretion) prior to the proposed date of issuance.
Each such request for issuance of a Letter of Credit shall be by facsimile,
confirmed immediately in an original writing, in the form of an L/C
Application, and shall specify in form and detail satisfactory to the
Issuing Lender: (A) the proposed date of issuance of the Letter of Credit
(which shall be a Business Day); (B) the face amount of the Letter of
Credit; (C) the expiry date of the Letter of Credit; (D) the name and
address of the beneficiary thereof; (E) the documents to be presented by
the beneficiary of the Letter of Credit in case of any drawing thereunder;
(F) the full text of any certificate to be presented by the beneficiary in
case of any drawing thereunder; and (G) such other matters as the Issuing
Lender may require.
(ii) At least two Business Days prior to the issuance of any Letter
of Credit, the Issuing Lender will confirm with the Agent (by telephone or
in writing) that the Agent has received a copy of the L/C Application or
L/C Amendment Application from the Company and, if not, the Issuing Lender
will provide the Agent with a copy thereof. Unless the Issuing Lender has
received notice on or before the second Business Day immediately preceding
the date the Issuing Lender is to issue a requested Letter of Credit from
the Agent directing the Issuing Lender not to issue such Letter of Credit
because such issuance is not then permitted under SUBSECTION 2.12(a)(i) as
a result of the limitations set forth in CLAUSES (1) THROUGH (3) thereof or
SUBSECTION 2.12(a)(ii)(B), then, subject to the terms and conditions
hereof, the Issuing Lender shall, on the requested date, issue a Letter of
Credit for the account of the Company and/or the Company jointly and
-6-
<PAGE>
severally with any Subsidiary thereof in accordance with the Issuing
Lender's usual and customary business practices.
(iii) From time to time while a Letter of Credit is outstanding and
prior to the Termination Date, the Issuing Lender will, upon the written
request of the Company received by the Issuing Lender (with a copy sent by
the Company to the Agent) at least five days (or such shorter time as the
Issuing Lender may agree in a particular instance in its sole discretion)
prior to the proposed date of amendment, amend any Letter of Credit issued
by it. Each such request for amendment of a Letter of Credit shall be made
by facsimile, confirmed immediately in an original writing, made in the
form of an L/C Amendment Application and shall specify in form and detail
satisfactory to the Issuing Lender: (A) the Letter of Credit to be amended;
(B) the proposed date of amendment of the Letter of Credit (which shall be
a Business Day); (C) the nature of the proposed amendment; and (D) such
other matters as the Issuing Lender may require. The Issuing Lender shall
be under no obligation to amend any Letter of Credit if: (X) the Issuing
Lender would have no obligation at such time to issue such Letter of Credit
in its amended form under the terms of this Agreement; or (Y) the
beneficiary of any such Letter of Credit does not accept the proposed
amendment to the Letter of Credit. The Agent will promptly notify the
Banks of the receipt by it of any L/C Application or L/C Amendment
Application.
(iv) The Issuing Lender and the Banks agree that, while a Letter of
Credit is outstanding and prior to the Termination Date, at the option of
the Company and upon the written request of the Company received by the
Issuing Lender (with a copy sent by the Company to the Agent) at least five
days (or such shorter time as the Issuing Lender may agree in a particular
instance in its sole discretion) prior to the proposed date of notification
of renewal, the Issuing Lender shall be entitled to authorize the automatic
renewal of any Letter of Credit issued by it. Each such request for
renewal of a Letter of Credit shall be made by facsimile, confirmed
immediately in an original writing, in the form of an L/C Amendment
Application, and shall specify in form and detail satisfactory to the
Issuing Lender: (A) the Letter of Credit to be renewed; (B) the proposed
date of notification of renewal of the Letter of Credit (which shall be a
Business Day); (C) the revised expiry date of the Letter of Credit; and (D)
such other matters as the Issuing Lender may require. The Issuing Lender
shall be under no obligation so to renew any Letter of Credit if: (X) the
Issuing Lender would have no obligation at such time to issue or amend such
Letter of Credit in its renewed form under the terms of this Agreement; or
(Y) the beneficiary of any such Letter of Credit does not accept the
proposed renewal of the Letter of Credit. If any outstanding Letter of
Credit shall provide that it shall be automatically renewed unless the
beneficiary thereof receives notice from the Issuing Lender that such
Letter of Credit shall not be renewed, and if at the time of renewal the
Issuing Lender would be entitled to authorize the automatic renewal of such
Letter of Credit in accordance with this SUBSECTION 2.12(B)(IV) upon the
request of the Company but the Issuing Lender shall not have received any
L/C Amendment Application from the Company with respect to such renewal or
other written direction by the Company with respect thereto, the Issuing
Lender shall nonetheless be permitted to allow such Letter of Credit to
renew, and the Company and the Banks hereby authorize such renewal, and,
-7-
<PAGE>
accordingly, the Issuing Lender shall be deemed to have received an L/C
Amendment Application from the Company requesting such renewal.
(v) The Issuing Lender may, at its election (or as required by the
Agent at the direction of the Majority Banks), deliver any notices of
termination or other communications to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, at any
time and from time to time, in order to cause the expiry date of such
Letter of Credit to be a date not later than the Termination Date.
(vi) This Agreement shall control in the event of any conflict with
any L/C Related Document (other than any Letter of Credit).
(vii) The Issuing Lender will also deliver to the Agent,
concurrently or promptly following its delivery of a Letter of Credit, or
amendment to or renewal of a Letter of Credit, to an advising bank or a
beneficiary, a true and complete copy of each such Letter of Credit or
amendment to or renewal of a Letter of Credit.
(c) RISK PARTICIPATIONS, DRAWINGS AND REIMBURSEMENTS. (i)
Immediately upon the issuance of each Letter of Credit, each Bank shall be
deemed to, and hereby irrevocably and unconditionally agrees to, purchase
from the Issuing Lender a participation in such Letter of Credit and each
drawing thereunder in an amount equal to the product of (A) the Pro Rata
Share of such Bank, times (B) the maximum amount available to be drawn
under such Letter of Credit and the amount of such drawing, respectively.
For purposes of SECTION 2.3(a), each Issuance of a Letter of Credit shall
be deemed to utilize the Commitment of each Bank by an amount equal to the
amount of such participation.
(ii) In the event of any request for a drawing under a Letter of
Credit by the beneficiary or transferee thereof, the Issuing Lender will
promptly notify the Company. The Company shall reimburse the Issuing
Lender prior to 10:00 a.m. Chicago time, on each date that any amount is
paid by the Issuing Lender under any Letter of Credit (each such date, an
"HONOR DATE"), in an amount equal to the amount so paid by the Issuing
Lender. In the event the Company fails to reimburse the Issuing Lender for
the full amount of any drawing under any Letter of Credit by 10:00 a.m.,
Chicago time, on the Honor Date, the Issuing Lender will promptly notify
the Agent and the Agent will promptly notify each Bank thereof and the
Company shall be deemed to have requested Alternate Base Rate Loan(s) be
made by the Banks to be disbursed on the Honor Date under such Letter of
Credit, subject to the amount of the unutilized portion of the Commitment
and subject to the conditions set forth in SECTION 6. Any notice given by
the Issuing Lender or the Agent pursuant to this SUBSECTION 2.12(c)(ii) may
be oral if immediately confirmed in writing (including by facsimile);
provided that the lack of such an immediate confirmation shall not affect
the conclusiveness or binding effect of such notice.
(iii) Each Bank shall upon any notice pursuant to SUBSECTION
2.12(c)(ii) make available to the Agent for the account of the Issuing
Lender an amount in Dollars and in immediately available funds equal to its
Pro Rata Share of the amount of the drawing, whereupon the participating
Banks shall (subject to SUBSECTION 2.12(c)(iv)) each be
-8-
<PAGE>
deemed to have made a Loan consisting of Alternate Base Rate Loan to the
Company in that amount. If the aforesaid notice is received on or before
12:00 noon, Chicago, time, each Bank shall make its Pro Rata Share of the
amount of the drawing available to the Agent on the Honor Date. If such
notice is received after 12:00 noon, Chicago time, each Bank shall make its
Pro Rata Share of the amount of the drawing available to the Agent before
12:00 noon, Chicago time, on the Business Day following the Honor Date. If
any Bank so notified fails to make available to the Agent for the account
of the Issuing Lender the amount of such Bank's Pro Rata Share of the
amount of the drawing by the date and times specified in this SUBSECTION
2.12(c)(iii), then interest shall accrue on such Bank's obligation to make
such payment, from the date due to the date such Bank makes such payment,
at a rate per annum equal to the Federal Funds Rate in effect from time to
time during such period. The Agent will promptly give notice of the
occurrence of the Honor Date, but failure of the Agent to give any such
notice on the Honor Date shall not relieve such Bank from its obligations
under this SECTION 2.12(c).
(iv) With respect to any unreimbursed drawing that is not converted
into Loans consisting of Alternate Base Rate Loans to the Company in whole
or in part, because of the Company's failure to satisfy the conditions set
forth in SECTION 6.3 or for any other reason, the Company shall be deemed
to have incurred from the Issuing Lender an L/C Borrowing in the amount of
such drawing, which L/C Borrowing shall be due and payable on demand
(together with interest) and shall bear interest at a rate per annum equal
to the Alternate Base Rate plus 2% per annum, and each Bank's payment to
the Issuing Bank pursuant to SUBSECTION 2.12(c)(iii) shall be deemed
payment in respect of its participation in such L/C Borrowing and shall
constitute an L/C Advance from such Bank in satisfaction of its
participation obligation under this SECTION 2.12(c)
(v) Each Bank's obligation in accordance with this Agreement to
make the Loans or L/C Advances, as contemplated by this SECTION 2.12(c), as
a result of a drawing under a Letter of Credit, shall be absolute and
unconditional and without recourse to the Issuing Lender and shall not be
affected by any circumstance, including (A) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have against the
Issuing Lender, the Company or any other Person for any reason whatsoever;
(B) the occurrence or continuance of a Default or an Event of Default or
(C) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing; provided, however, that each Bank's
obligation to make Loans under this SECTION 2.12(c) is subject to the
conditions set forth in SECTION 6.3. Nothing in this subsection is
intended to, and shall not preclude, any Bank's pursuing such rights and
remedies as it may have against the Issuing Lender in the event a drawing
is paid as a result of the Issuing Lender's gross negligence or willful
misconduct.
(d) REPAYMENT OF PARTICIPATION (i) Upon (and only upon) receipt by the
Agent for the account of the Issuing Lender of immediately available funds from
the Company (A) in reimbursement of any payment made by the Issuing Lender under
the Letter of Credit with respect to which any Bank has paid the Agent for the
account of the Issuing Lender for such Bank's participation in the Letter of
Credit pursuant to SECTION 2.12(c) or (B) in payment of interest thereon, the
Agent will pay to each Bank, in the same funds as those received by the Agent
for the account of the Issuing Lender, the amount of such Bank's Pro Rata Share
of such
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<PAGE>
funds, and the Issuing Lender shall receive the amount of the Pro Rata Share of
such funds of any Bank that did not so pay the Agent for the account of the
Issuing Lender.
(ii) If the Agent or the Issuing Lender is required at any time to
return to the Company, or to a trustee, receiver, liquidator, custodian, or
any official in any Insolvency Proceeding, any portion of the payments made
by the Company to the Agent for the account of the Issuing Lender pursuant
to SUBSECTION 2.12(d) in reimbursement of a payment made under the Letter
of Credit or interest or fee thereon, each Bank shall, on demand of the
Agent, forthwith return to the Agent or the Issuing Lender the amount of
its Pro Rata Share of any amounts so returned by the Agent or the Issuing
Lender plus interest thereon from the date such demand is made to the date
such amounts are returned by such Bank to the Agent or the Issuing Lender,
at a rate per annum equal to the Federal Funds Rate in effect from time to
time.
(e) ROLE OF THE ISSUING BANK (i) Each Bank and the Company agree that, in
paying any drawing under a Letter of Credit, the Issuing Lender shall not have
any responsibility to obtain any document (other than any sight draft and
certificates expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document.
(ii) Neither the Agent nor the Issuing Lender or their respective
officers, directors, employees or agents, nor any of the respective
correspondents, participants or assignees of the Issuing Lender shall be
liable to any Bank for: (A) any action taken or omitted in connection
herewith at the request or with the approval of the Banks (including the
Majority Banks, as applicable); (B) any action taken or omitted in the
absence of gross negligence or willful misconduct; or (C) the due
execution, effectiveness, validity or enforceability of any L/C Related
Document.
(iii) The Company hereby assumes all risks of the acts or omissions
of any beneficiary or transferee with respect to its use of any Letter of
Credit; provided, however, that this assumption is not intended to, and
shall not, preclude the Company's pursuing such rights and remedies as it
may have against the beneficiary or transferee at law or under any other
agreement. Neither the Agent nor the Issuing Lender or their respective
officers, directors, employees or agents, nor any of the respective
correspondents, participants or assignees of the Issuing Lender, shall be
liable or responsible for any of the matters described in CLAUSES (i)
THROUGH (vii) of SECTION 2.12(f); provided, however, anything in such
clauses to the contrary notwithstanding, that the Company may have a claim
against the Issuing Lender, and the Issuing Lender may be liable to the
Company, to the extent, but only to the extent, of any direct, as opposed
to consequential or exemplary, damages suffered by the Company which the
Company proves were caused by the Issuing Lender's willful misconduct or
gross negligence or the Issuing Lender's willful failure to pay under any
Letter of Credit after the presentation to it by the beneficiary of a sight
draft and certificate(s) strictly complying with the terms and conditions
of a Letter of Credit. In furtherance and not in limitation of the
foregoing: (A) the Issuing Lender may accept documents that appear on
their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary; and
(B) the Issuing Lender shall not be responsible for the validity or
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<PAGE>
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign a Letter of Credit or the rights or benefits thereunder
or proceeds thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason.
(f) OBLIGATIONS ABSOLUTE. The obligations of the Company under this
Agreement and any L/C Related Document to reimburse the Issuing Lender for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing
under a Letter of Credit converted into Loans, shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement and each such other L/C Related Document under all circumstances,
including the following:
(i) any lack of validity or enforceability of this Agreement or
any L/C Related Document;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the obligations of the Company in respect
of any Letter of Credit or any other amendment or waiver of or any consent
to departure from all or any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other right
that the Company may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Issuing Lender or
any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C Related Documents or any
unrelated transaction;
(iv) any draft, demand, certificate or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any
Letter of Credit;
(v) any payment by the Issuing Lender under any Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of any Letter of Credit; or any payment made by the
Issuing Lender under any Letter of Credit to any Person purporting to be a
trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, liquidator, receiver or other representative of or successor to
any beneficiary or any transferee of any Letter of Credit, including any
arising in connection with any Insolvency Proceeding;
(vi) any exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any
other guarantee, for all or any of the obligations of the Company in
respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including any other circumstance that
might otherwise constitute a defense available to, or a discharge of, the
Company or a guarantor.
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<PAGE>
(g) CASH COLLATERAL PLEDGE. Upon (i) the request of the Agent, (A) if the
Issuing Lender has honored any full or partial drawing request on any Letter of
Credit and such drawing has resulted in an L/C Borrowing hereunder, or (B) if,
as of the Termination Date, any Letters of Credit may for any reason remain
outstanding and partially or wholly undrawn, or (ii) the occurrence of the
circumstances described in SUBSECTION 3.2(c) requiring the Company to Cash
Collateralize Letters of Credit, then, the Company shall immediately Cash
Collateralize the L/C Obligations in an amount equal to such L/C obligations.
In connection with its Cash Collateralization requirements under this SECTION
2.12 or under other provisions of this Agreement, the Company hereby grants the
Agent, for the benefit of the Agent, the Issuing Lender and the Banks, a
security interest in all such cash and deposit account balances. Cash
Collateral shall be maintained in blocked, non-interest bearing deposit accounts
at The Northern Trust Company.
(H) LETTER OF CREDIT FEES. (i) The Company shall pay to the Agent for the
account of each of the Banks a letter of credit fee with respect to each
outstanding Letter of Credit equal to the Applicable Margin applicable to the
"LIBOR Rate" category for the Level of pricing in effect at the time of issuance
of such Letter of Credit times the average daily maximum amount available to be
drawn on such Letter of Credit, computed on a quarterly basis in arrears on the
last Business Day of each calendar quarter upon each Letter of Credit
outstanding for that quarter as calculated by the Agent. Such letter of credit
fees shall be due and payable quarterly in arrears on the Quarterly Dates during
which Letters of Credit are outstanding, commencing on the first such Quarterly
Date to occur after the issuance date, through the Termination Date (or such
later date upon which the outstanding Letters of Credit shall expire), with the
final payment to be made on the Termination Date (or such later expiration
date).
(ii) The Company shall pay to the Issuing Lender a letter of credit
fronting fee for each Letter of Credit issued by the Issuing Lender equal
to 1/8 of 1% of the face amount (or increased face amount, as the case may
be) of such Letter of Credit. Such Letter of Credit fronting fee shall be
due and payable on each date of issuance of a Letter of Credit.
(iii) The Company shall pay to the Issuing Lender from time to time
on demand the normal issuance, presentation, amendment, evergreen, drawing
and other processing fees, and other standard costs and charges, of the
Issuing Lender relating to letters of credit as from time to time in
effect.
(i) UNIFORM CUSTOMS AND PRACTICE The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in the Letters of Credit) apply to the Letters of Credit."
(k) SECTION 3.2(C) OF THE EXISTING AGREEMENT. A new SECTION 3.2(c) is
hereby added to the Existing Agreement as follows:
"(c) If on any date the amount of L/C Obligations exceeds the L/C
Commitment, the Company shall Cash Collateralize on such date the outstanding
Letters of Credit in an amount equal to the excess of the maximum amount then
available to be drawn
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<PAGE>
under the Letters of Credit over the L/C Commitment. Subject to SECTION 5.5, if
on any date after giving effect to any Cash Collateralization made on such date
pursuant to the preceding sentence, the amount of all Loans then outstanding
plus the amount of all L/C Obligations exceeds the combined Commitments, the
Company shall immediately, and without notice or demand, prepay the outstanding
principal amount of the Loans and L/C Advances by an amount equal to the
applicable excess."
(l) SECTION 3.3(b). SECTION 3.3(b) of the Existing Agreement is
hereby amended by adding the phrase ", under any L/C Related Document" after the
phrase "on any interest" appearing therein.
(m) SECTION 4.1(a) AND (c) OF THE EXISTING AGREEMENT. SECTION
4.1(a) and (c) of the Existing Agreement is hereby amended by adding the phrase
"and any L/C Obligations" after the word "Agreement", "Loan" or "Loans" each
time they appear therein.
(n) SECTION 4.3 OF THE EXISTING AGREEMENT. SECTION 4.3 of the
Existing Agreement is hereby amended by adding the phrase "and any other fees"
after the phrase "facility fees" appearing therein.
(o) SECTION 5.1(a) OF THE EXISTING AGREEMENT. SECTION 5.1(a) of
the Existing Agreement including CLAUSE (i) thereunder is hereby amended and
restated in its entirety as follows:
"(a) The Company shall pay directly to each Bank from time to time
such amounts as such Bank may determine to be necessary to compensate it
for any costs which such Bank determines are attributable to its making or
maintaining of any Eurodollar Loans or participation in any Letter of
Credit or its obligation to make any Eurodollar Loans hereunder or to
participate in any Letters of Credit, or reduction in any amount receivable
by such Bank hereunder in respect of any such Loans or such participation
in any Letters of Credit, or in the case of the Issuing Lender, any
increase in the cost to such Issuing Lender of agreeing to issue, issuing
or maintaining any Letter of Credit or agreeing to make or making, funding
or maintaining any unpaid drawing under any Letter of Credit (such
increases in costs and reductions in amounts receivable being herein called
"ADDITIONAL COSTS"), resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such
Bank under this Agreement or its Note in respect of any of such Loans or
under any L/C Related Document in respect of any L/C Obligation (other than
taxes on the overall net income of such Bank or its Applicable Lending
Office imposed by the jurisdiction in which such Bank has its principal
office or such Applicable Lending Office); or".
(p) SECTION 5.1(a)(iii) OF THE EXISTING AGREEMENT. SECTION
5.1(a)(iii) of the Existing Agreement is amended by adding the phrase ", any L/C
Related Document" before the phrase "or Commitment" appearing therein.
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<PAGE>
(q) SECTION 5.1(c) OF THE EXISTING AGREEMENT. SECTION 5.1(c) of
the Existing Agreement is amended by adding the phrase "or any L/C Obligation"
after the word "Loan" or "Loans" each time they appear therein.
(r) SECTION 5.1(f) OF THE EXISTING AGREEMENT. SECTION 5.1(f) of
the Existing Agreement is hereby amended to add the phrase "and Cash
Collateralize such Bank's Pro Rata Share of the L/C Obligations" at the end of
CLAUSE (I) therein.
(s) SECTION 5.6 OF THE EXISTING AGREEMENT. SECTION 5.6 of the
Existing Agreement is hereby amended by (i) adding the phrase "or in
participating in any Letter of Credit" after the phrase "Commitment hereunder"
appearing therein and (ii) adding the phrase "or participation in such Letter of
Credit" after the word "Loan" appearing in the last line thereof.
(t) SECTION 5.7 OF THE EXISTING AGREEMENT. SECTION 5.7 of the
Existing Agreement is hereby amended by adding the phrase "or under any L/C
Obligation" after the word "Notes" or "Note" each time they appear therein.
(u) SECTION 6.3 OF THE EXISTING AGREEMENT. SECTION 6.3 of the
Existing Agreement is hereby amended and restated in its entirety as follows:
"6.3. INITIAL AND SUBSEQUENT LOANS AND LETTERS OF CREDIT. The
obligations of the Banks to make any Loan (including the initial Loan but
other than Loans which would not increase the aggregate Dollar amount of
Loans outstanding) and the obligation of the Issuing Lender to issue any
Letters of Credit are subject to the further conditions precedent that,
both immediately prior to such Loan or issuance of the Letter of Credit and
also after giving effect thereto: (a) no Default shall have occurred and be
continuing; (b) the representations and warranties in SECTION 7 hereof, in
any Pledge Agreement or in any L/C Related Document shall be true and
correct on and as of the date of the making of such Loans or issuance of
the Letter of Credit with the same force and effect as if made on and as of
such date except to the extent such representations and warranties state
that they relate solely to a specified date; and (c) the Agent and the
Issuing Lender shall have received an L/C Application or L/C Amendment
Application, as required by SECTION 2.12. Each notice of borrowing by the
Company hereunder or request for a Letter of Credit or amendment thereto
shall constitute a certification by the Company to the effect set forth in
the preceding sentence."
(v) SECTION 6.4 OF THE EXISTING AGREEMENT. SECTION 6.4 of the
Existing Agreement is hereby amended by adding the phrase "and the L/C
Obligations" after the word "Notes" each time it appears therein.
(w) SECTION 7.17 OF THE EXISTING AGREEMENT. A new SECTION 7.17 is
hereby added to the Existing Agreement as follows:
"Section 7.17. YEAR 2000 COMPLIANCE.
(a) The Company and each Subsidiary has:
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<PAGE>
(i) conducted an analysis of all of its products, services,
business and operations, including without limitation surveys of its
Systems (as defined below) and surveys of and discussions with customers,
suppliers and vendors, to determine the extent to which the Company or such
Subsidiary may be adversely affected by its failure to be Year 2000
Compliant (as defined below);
(ii) developed a plan (the "YEAR 2000 PLAN") to become Year
2000 Compliant and remedy any material loss it may suffer if it fails to be
Year 2000 Compliant on a timely basis; and
(iii) implemented and continues to proceed with the Year 2000
Plan materially in accordance with its terms and timetables.
(b) Company and each Subsidiary reasonably believes that the Year
2000 Plan, if implemented in accordance with its terms, will result in it being
Year 2000 Complaint on a timely basis.
(c) Company and each Subsidiary reasonably believes that each of
its customers, suppliers and vendors whose failure to be Year 2000 Compliant
would have a material and adverse effect on the Company or such Subsidiary, is
Year 2000 Compliant or has developed a plan to become Year 2000 Compliant and
remedy any material loss such person may suffer if it fails to be Year 2000
Compliant on a timely basis with respect to all of its own computer systems and
applications.
The term "Year 2000 Compliant" means that all of such person(s) computer
systems and applications, including without limitation software and hardware
("SYSTEMS"), will function prior to, during, and after the calendar Year 2000,
and that no change in or to such calendar year will have a material adverse
effect on the performance of the Systems or on the functioning of the Company's
or such Subsidiary's business.
Company acknowledges and agrees that the foregoing representations and any
other representation, warranty, schedule, certificate, statement, report, notice
or other writing now or hereafter furnished by or on behalf of Company or any
Subsidiary to the Agent or any Bank in connection with being Year 2000 Compliant
or its Year 2000 Plan is material to the Agent and the Banks and that the Agent
and the Banks have relied and will continue to rely thereon. The Company agrees
and shall cause each Subsidiary to provide such information, financial,
technical, or otherwise, concerning the Company's or such Subsidiary's Year 2000
Plan as the Agent may reasonably request form time to time."
(x) SECTIONS 7.3, 7.4, 7.5, 7.6, 7.12 AND 8.6(H). SECTIONS 7.3,
7.4, 7.5, 7.6, 7.12 AND 8.6(H) of the Existing Agreement are hereby amended by
adding the phrase "the L/C Related Documents" after the phrase "OEA Pledge
Agreement" or "Pledge Agreements" each time they appear in such Sections.
(y) SECTION 8 OF THE EXISTING AGREEMENT. SECTION 8 of the
Existing Agreement is hereby amended by adding the phrase "or any Letter of
Credit is outstanding" after the phrase "Commitment is in effect" appearing
therein.
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<PAGE>
(z) AMENDMENT TO SECTION 8.10. SECTION 8.10 of the Existing
Agreement is hereby amended and restated in its entirety as follows:
"8.10. TANGIBLE NET WORTH. The Company shall maintain, as at the
last day of each fiscal quarter, a Consolidated Tangible Net Worth of not less
than that specified below for the period indicated:
<TABLE>
<CAPTION>
For Fiscal Quarter(s) Ending on Consolidated Tangible Net Worth
------------------------------- -------------------------------
<S> <C>
Through January 31, 1999 $155,000,000
April 30, 1999 $160,000,000
July 31, 1999 $165,000,000
Thereafter $165,000,000 plus 50% of Net Income (if
positive), for each fiscal quarter ended
after July 31, 1999 through and
including the fiscal quarter ended on a
cumulative basis, plus the net proceeds
of the issuance of any capital stock of
the Company and its Subsidiaries."
</TABLE>
(aa) AMENDMENT TO SECTION 8.11. SECTION 8.11 of the Existing
Agreement is hereby amended and restated in its entirety as follows:
"8.11 INDEBTEDNESS TO EBITDA. The Company will not permit the ratio
of the consolidated Indebtedness of the Company and its Subsidiaries for
the 12-month period ending on the last day of each fiscal quarter listed
below to the sum of EBITDA plus interest income for the 12-month period
ending on the last day of such fiscal quarter to be greater than the ratio
specified for such quarter below, all calculated in accordance with GAAP:
<TABLE>
<CAPTION>
12-Month Period Ending On Ratio
------------------------- -----
<C> <C>
May 1, 1998 3.0:1.0
July 31, 1998 3.0:1.0
October 31, 1998 3.5:1.0
January 31, 1999 4.0:1.0
April 30, 1999 3.25:1.0
July 31, 1999 3.0:1.0
October 31, 1999 2.75:1.0
January 31, 2000 2.75:1.0
Thereafter 2.5:1.0"
</TABLE>
(bb) SECTION 8.12 OF THE EXISTING AGREEMENT. SECTION 8.12 of the
Existing Agreement is hereby amended and restated in its entirety as follows:
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<PAGE>
"8.12. INDEBTEDNESS TO TOTAL CAPITALIZATION. The Company will not
permit, as at the last day of each fiscal quarter, the consolidated
Indebtedness of the Company and its Subsidiaries to exceed the percentage
of Total Capitalization specified below for the time period indicated, all
calculated in accordance with GAAP:
<TABLE>
<CAPTION>
For Fiscal Quarter(s) Ending On Percentage of Total Capitalization
------------------------------- ----------------------------------
<S> <C>
Through October 31, 1998 50%
January 31, 1999 52%
April 30, 1999 52%
July 31, 1999 50%
October 31, 1999 47.5%
January 31, 2000 47.5%
April 30, 2000 45.0%
July 31, 2000 45%
Thereafter 40%"
</TABLE>
(cc) SECTION 9 OF THE EXISTING AGREEMENT. SECTION 9 of the
Existing Agreement is hereby amended by (i) adding the phrase "or any
reimbursement obligation in connection with any L/C Obligation" after the word
"Loan" in SECTION 9(a); (ii) adding the phrase "or any L/C Related Document"
after the phrase "Pledge Agreement" appearing in SECTION 9(c) and, (iii) adding
the phrase "or any L/C Related Document after the phrase "Pledge Agreement" each
time it appears in SECTION 9(k).
(dd) SECTION 9 OF THE EXISTING AGREEMENT. The clause beginning
with "THEREUPON" in SECTION 9 of the Existing Agreement is hereby amended and
restated in its entirety as follows:
"THEREUPON: (i) in the case of an Event of Default (other than one referred
to in SUBSECTION (g) or (h) of this SECTION 9 with respect to the Company), the
Agent, upon request of the Majority Banks, may, by notice to the Company, cancel
the Commitments, declare any obligation of the Issuing Lender to issue Letters
of Credit to be terminated, declare the principal amount then outstanding of,
and the accrued interest on, the Loans and all other amounts payable by the
Company hereunder and under the Notes (including, without limitation, any
amounts payable under SECTION 5.5 hereof) to be forthwith due and payable and/or
declare an amount equal to the maximum aggregate amount that is or at any time
thereafter may become available for drawing under any outstanding Letters of
Credit (whether or not any beneficiary shall have presented, or shall be
entitled at such time to present, the drafts or other documents required to draw
under such Letters of Credit) to be immediately due and payable, whereupon such
amounts shall be immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Company; and (ii) in the case of the occurrence of an Event of
Default referred to in SUBSECTION (g) or (h) of this SECTION 9 with respect to
the Company, the Commitments shall automatically be canceled, the obligations of
the Issuing Lender to issue Letters of Credit shall terminate automatically and
the principal amount then outstanding of, and the accrued interest on, the Loans
and all other amounts payable by the Company hereunder, under the Notes
(including, without limitation, any amounts payable under SECTION 5.5 hereof)
and as aforesaid with respect to Letters of Credit shall automatically become
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<PAGE>
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Company."
(EE) SECTION 10 OF THE EXISTING AGREEMENT. SECTION 10 of the
Existing Agreement is hereby amended by adding the phrase "L/C Related
Documents" after the phrase "Pledge Agreements" each time it appears therein.
(ff) SECTION 10.1 OF THE EXISTING AGREEMENT. SECTION 10.1 of the
Existing Agreement is further amended by adding the following at the end
thereof:
"The Issuing Lender shall act on behalf of Banks with respect to any
Letters of Credit issued by it and the documents associated therewith
until such time and except for so long as the Agent may agree at the
request of the Majority Banks to act for such Issuing Lender with
respect thereto; provided, however, that the Issuing Lender shall have
all of the benefits and immunities (x) provided to the Agent in this
SECTION 10 with respect to any acts taken or omissions suffered by the
Issuing Lender in connection with Letters of Credit issued by it or
proposed to be issued by it and the application and agreements for
letters of credit pertaining to the Letters of Credit as fully as if
the term "Agent", as used in this SECTION 10, included the Issuing
Lender with respect to such acts or omissions, and (y) as additionally
provided in this Agreement with respect to the Issuing Lender."
(gg) SECTION 11.1 OF THE EXISTING AGREEMENT. SECTION 11.1 of the
Existing Agreement is hereby amended by adding the phrase "or L/C Related
Documents" after the phrase "Pledge Agreements" appearing therein.
(hh) SECTION 11.3 OF THE EXISTING AGREEMENT. SECTION 11.3 of the
Existing Agreement is hereby amended by (i) adding the phrase "Issuing Lender"
after the word "Agent" each time it appears therein and (ii) adding the phrase
"L/C Related Documents" after the phrase "Pledge Agreements" each time it
appears therein.
(ii) SECTION 11.4 OF THE EXISTING AGREEMENT. SECTION 11.4 of the
Existing Agreement is hereby amended in its entirety as follows:
"11.4. AMENDMENTS, ETC. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement or L/C Related Document may
be waived, amended or modified only by an instrument in writing signed by
the Company, the Agent and the Majority Banks; provided that no amendment
modification or waiver shall, unless by an instrument signed by the Agent,
the Company and all of the Banks (a) increase or extend the term, or extend
the time or waive any requirement for the reduction or termination, of any
of the Commitments (except as specifically provided in SECTION 2.11), (b)
extend the date fixed for the payment of principal of or interest on any
Loan or L/C Obligation (except as specifically provided in SECTION 2.11),
(c) reduce the amount of any payment of principal thereof or the rate at
which interest is payable thereon or any fee payable hereunder or under any
L/C Related Document, (d) alter the terms of this SECTION 11.4, (e) amend
the definition of the term "Majority Banks", (f) waive any condition
precedent set forth in SECTION 6 hereof, or (g) release the "Collateral"
referred to in the
-18-
<PAGE>
Pledge Agreements, the French Filing Documents or L/C Related Documents
from the Lien in favor of the Agent, on behalf of the Banks or release any
guaranty except for the release of any applicable Cash Collateral upon
irrevocable repayment in full or expiration (assuming no draws have been
made) of the related L/C Obligation; and provided further, that no
amendment, waiver or consent shall, unless in writing and signed by the
Issuing Lender in addition to the Majority Banks or all the Banks, as the
case may be, affect the rights or duties of the Issuing Lender under this
Agreement or any L/C Related Document relating to any Letter of Credit
issued or to be issued by it.
(jj) SECTION 11.6 OF THE EXISTING AGREEMENT. SECTION 11.6 of the
Existing Agreement is hereby amended by adding the phrase "L/C Obligation"
(i) after the word "Pledge Agreement" in CLAUSE (a) thereof; (ii) at the end of
the first sentence in CLAUSE (b) thereof and after the word "Agreement" in the
last sentence of said CLAUSE (b); (iii) after the word "Commitment" each time it
appears in CLAUSE (c); (iv) at the end of the first sentence of CLAUSE (e); and
(v) after the word "Commitment" each time it appears in CLAUSE (f) thereof.
(kk) SECTION 11.7 OF THE EXISTING AGREEMENT. SECTION 11.7 of the
Existing Agreement is hereby amended by adding the phrase "or L/C Obligation"
after the word "Loans" appearing therein.
(ll) SECTION 11.12 AND 11.13 OF THE EXISTING AGREEMENT. SECTIONS
11.12 and 11.13 of the Existing Agreement are hereby amended by adding the
phrase "or L/C Related Documents" after the word "Notes" each time it appears
therein.
SECTION 3. CONDITIONS TO EFFECTIVE DATE. The occurrence of the Effective
Date shall be subject to the satisfaction, on and as of the Effective Date, of
the following conditions precedent:
(a) AMENDMENT. The Company, the Agent, the Issuing Lender and all
of the Banks shall have executed and delivered this Amendment.
(b) NO DEFAULT. No Default shall have occurred and be continuing
under the Existing Agreement and the representations and warranties of the
Company in SECTION 7 of the Existing Agreement as amended hereby and in
SECTION 7 hereof shall be true and correct on and as of the Effective Date
(except to the extent such representations and warranties state that they relate
solely to a specified date) and the Company shall have provided to the Agent a
certificate of a senior officer of the Company to that effect.
(c) ARTICLES OF INCORPORATION. The Company shall have provided to
the Agent, in form and substance satisfactory to the Agent, a certificate of the
secretary or assistant secretary of the Company (i) confirming that the articles
of incorporation and by-laws of the Company have not been amended since April
10, 1998 or (ii) setting forth a true and correct copy of any amendment to the
articles of incorporation or by-laws of the Company adopted on or after
April 10, 1998.
(d) COMPANY RESOLUTIONS. A copy, duly certified by the secretary
or an assistant secretary of the Company, of (i) resolutions of the Company's
Board of Directors
-19-
<PAGE>
authorizing or ratifying the execution and delivery of this Amendment,
authorizing the borrowings under the Existing Agreement, as amended hereby, and
authorizing the execution and delivery of L/C Related Documents (ii) all
documents evidencing other necessary corporate action, and (iii) all approvals
or consents, if any, with respect to this Amendment.
(e) COMPANY INCUMBENCY CERTIFICATE. A certificate of the
secretary or an assistant secretary of the Company certifying the names of the
Company's officers authorized to sign this Amendment, any L/C Related Documents
and all other documents or certificates to be delivered hereunder, together with
the true signatures of such officers.
(f) LEGAL OPINION. The Company shall have delivered to the Agent
an opinion of the Company's counsel, substantially in the form of EXHIBIT A
hereto.
(g) AMENDMENT FEE. The Company shall have paid to the Agent, for
the account of the Banks, a non-refundable fee of $180,000.
(h) OTHER. The Company shall have delivered such other documents
as the Agent may reasonably request.
SECTION 4. EFFECTIVE DATE NOTICE. Promptly following the occurrence of
the Effective Date, the Agent shall give notice to the parties hereto of the
occurrence of the Effective Date, which notice shall be conclusive, and all
parties may rely thereon; provided, that such notice shall not waive or
otherwise limit any right or remedy of the Agent or any Bank arising out of any
failure of any condition precedent set forth in SECTION 3 to be satisfied.
SECTION 5. TERMINATION. If the Effective Date shall not have occurred on
or before June 15, 1998, the Agent on instructions of the Majority Banks may
terminate this Amendment by notice in writing to the Company at any time before
the occurrence of the Effective Date; provided, that the obligations of the
Company under SECTION 12 shall survive such termination.
SECTION 6. RATIFICATION. The parties agree that the Existing Agreement
and the Notes have not lapsed or terminated, are in full force and effect, and
are and from and after the Effective Date shall remain binding in accordance
with their terms, as amended hereby.
SECTION 7. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Agent and the Banks that:
(a) NO BREACH. The execution, delivery and performance of this
Amendment, and the Existing Agreement as amended hereby, and the L/C Related
Documents will not conflict with or result in a breach of, or cause the creation
of a Lien or require any consent under, the articles of incorporation or by-laws
of the Company, or any applicable law or regulation, or any order, injunction or
decree of any court or governmental authority or agency, or any agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which any of them is bound.
(b) INCORPORATION, CORPORATE POWER AND ACTION, BINDING EFFECT.
The Company has been duly incorporated and is validly existing in good standing
under the laws of
-20-
<PAGE>
the State of Delaware and has all necessary corporate power and authority to
execute, deliver and perform its obligations under this Amendment, the Existing
Agreement as amended hereby and the L/C Related Documents; the execution,
delivery and performance by the Company of this Amendment, the Existing
Agreement, as amended hereby, and the L/C Related Documents have been duly
authorized by all necessary corporate action on its part; and this Amendment has
been duly and validly executed and delivered by the Company and constitutes a
legal, valid and binding obligation, enforceable in accordance with its terms.
(c) APPROVALS. No authorizations, approvals or consents of, and
no filings or registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by the Company
of this Amendment, the Existing Agreement as amended hereby or the L/C Related
Documents or for the validity or enforceability thereof.
SECTION 8. CERTAIN USAGES. From and after the Effective Date, each
reference to the Existing Agreement in the Existing Agreement or in other
agreements, documents or instruments referred to or provided for in or delivered
under the Existing Agreement shall be deemed to refer to the Existing Agreement,
as amended hereby.
SECTION 9. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and inure to the benefit of the Company, the Agent, the Banks and their
respective successors and assigns, except that the Company may not transfer or
assign any of its rights or interest hereunder.
SECTION 10. GOVERNING LAW. This Amendment shall be governed by, and
construed and interpreted in accordance with, the internal laws of the State of
Illinois.
SECTION 11. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and any party hereto may execute any one or more of such
counterparts, all of which shall constitute one and the same instrument.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be as effective as delivery of a manually executed counterpart
of this Amendment.
SECTION 12. EXPENSES. Whether or not the Effective Date shall occur,
without limiting the obligations of the Company under the Existing Agreement,
the Company agrees to pay, or to reimburse on demand, all reasonable costs and
expenses incurred by (i) the Agent in connection with the negotiation,
preparation, execution, delivery, modification, amendment or enforcement of this
Amendment, any L/C Related Document and the other agreements, documents and
instruments referred to herein or therein, including the reasonable fees and
expenses of Gardner, Carton & Douglas, special counsel to the Agent, and any
other counsel engaged by the Agent, and (ii) any Bank in connection with
enforcement of this Amendment, the Existing Agreement as amended hereby, any L/C
Related Document and the agreements, documents and instruments referred to
herein or therein, including the reasonable fees and expenses of counsel to such
Bank.
SECTION 13. WAIVER. On and after the Effective Date, the restriction
limiting the amount of Loans outstanding to $150,000,000 contained in that
certain Waiver to Amended and Restated Revolving Credit Agreement dated as of
May 11, 1998 among the Company, the Banks, the Co-Agents and the Agent shall
have no force or effect
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
OEA, INC.
By: /s/ J. Thompson McConathy
-------------------------------------
Name: J. Thompson McConathy
Title: Vice President Finance
THE NORTHERN TRUST COMPANY,
as Agent
By: /s/ James F.T. Monhart
-------------------------------------
Name: James F.T. Monhart
Title: Senior Vice President
THE NORTHERN TRUST COMPANY,
as Issuing Lender
By: /s/ James F.T. Monhart
-------------------------------------
Name: James F.T. Monhart
Title: Senior Vice President
BANKS:
THE NORTHERN TRUST COMPANY, individually
By: /s/ James F.T. Monhart
-------------------------------------
Name: James F.T. Monhart
Title: Senior Vice President
BANQUE NATIONALE DE PARIS, individually
and as Co-Agent
By: /s/ Clive Bettles
-------------------------------------
Name: Clive Bettles
Title: Senior Vice President
& Manager
By: /s/ Mitchell M. Ozawa
-------------------------------------
Name: Mitchell M. Ozawa
Title: Vice President
<PAGE>
U.S. BANK NATIONAL ASSOCIATION,
individually and as Co-Agent
By: /s/ William J. Sullivan
-------------------------------------
Name: William J. Sullivan
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.,
individually and as Co-Agent
By: /s/ John C. Lee
-------------------------------------
Name: John C. Lee
Title: Assistant Vice President
CREDIT AGRICOLE INDOSUEZ, individually
By: /s/ David Bouhl
-------------------------------------
Name: David Bouhl, F.V.P.
Title: Head of Corporate Banking
Chicago
By: /s/ Dean Balice
-------------------------------------
Name: Dean Balice
Title: Senior Vice President
Branch Manager
LASALLE NATIONAL BANK, individually
By: /s/ Michael Bryan
-------------------------------------
Name: Michael Bryan
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., individually
By: /s/ Mark A. Thompson
-------------------------------------
Name: Mark A. Thompson
Title: Senior Vice President and
Team Leader
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<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 1,920,000
<SECURITIES> 0
<RECEIVABLES> 43,998,000
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<INVENTORY> 54,567,000
<CURRENT-ASSETS> 117,578,000
<PP&E> 272,411,000
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0
0
<COMMON> 2,202,000
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<TOTAL-LIABILITY-AND-EQUITY> 328,759,000
<SALES> 245,375,000
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<INCOME-PRETAX> (13,931,000)
<INCOME-TAX> (4,655,000)
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