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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/ / Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended or
/X/ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from July 1, 1993 to
December 31, 1993.
COMMISSION FILE NUMBER: 33-52565
LEAR SEATING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3479398
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21557 TELEGRAPH ROAD, SOUTHFIELD, MI 48034
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 810-746-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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. /X/
As of February 15, 1994, the aggregate market value of all shares of common
stock held by non-affiliates of the registrant was $0.
As of February 15, 1994, the number of shares outstanding of the registrant's
Common Stock, par value $.01 per share, was 1,176,448 shares.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
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PAGE NUMBER
OR
REFERENCE
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PART I
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ITEM 1. Business............................................................. 1
ITEM 2. Properties........................................................... 14
ITEM 3. Legal proceedings.................................................... 16
ITEM 4. Submission of matters to a vote of security holders.................. 16
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PART II
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ITEM 5. Market for registrant's common equity and related stockholder
matters.............................................................. 17
ITEM 6. Selected financial data.............................................. 18
ITEM 7. Management's discussion and analysis of financial condition and
results of operations................................................ 19
ITEM 8. Financial statements and supplementary data.......................... 27
ITEM 9. Changes in and disagreements with accountants on accounting and
financial disclosure................................................. 61
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PART III
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ITEM 10. Directors and executive officers of the registrant................... 61
ITEM 11. Executive compensation............................................... 64
ITEM 12. Security ownership of certain beneficial owners and management....... 73
ITEM 13. Certain relationships and related transactions....................... 74
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PART IV
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ITEM 14. Exhibits, financial statement schedules, and reports on Form 8-K..... 77
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EXPLANATORY NOTES
On March 8, 1994, the Company filed a Registration Statement on Form S-1
(the "Registration Statement") with the Securities and Exchange Commission
relating to the public offering of 9,375,000 shares of the Company's Common
Stock, $.01 par value per share ("Common Stock"), in the United States and
internationally (the "Offerings"). Prior to the commencement of the Offerings,
it is contemplated that a 33-for-1 split of the Company's outstanding Common
Stock will be effected (the "Stock Split"), and the Registration Statement,
which as of the filing date of this Form 10-K has not yet been declared
effective, assumes the consummation of the Stock Split. However, the information
contained in this Form 10-K has not been adjusted to reflect the Stock Split.
As used in this Form 10-K, unless the context otherwise requires, the
"Company" or "Lear" refers to Lear Seating Corporation and its consolidated
subsidiaries after giving effect to the Merger (as defined herein).
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PART I
ITEM 1 -- BUSINESS
GENERAL
The Company is the largest independent supplier of automobile and light
truck seat systems in North America and is one of the largest independent
suppliers of such systems and components worldwide. The Company's principal
products include finished automobile and light truck seat systems, automobile
and light truck seat frames, seat covers and other seat components. The
Company's seat systems, which are designed, manufactured and assembled at the
Company's manufacturing facilities, are shipped to customer assembly plants on a
just-in-time ("JIT") basis for installation in vehicles near the end of the
assembly process. This JIT process enables the Company to optimize inventory
turnover and deliver products to its customers on as little as 90 minutes
notice. In the twelve months ended December 31, 1993, approximately 70% of
Lear's net sales were generated from sales in the United States and Canada, with
the balance of sales being primarily in Europe and Mexico. The Company's present
customers include 16 original equipment manufacturers ("OEMs"), the most
significant of which are Ford, General Motors, Chrysler, Volvo, Volkswagen, Saab
and Mazda.
The Company's net sales have grown rapidly from approximately $159.8
million in the fiscal year ended June 30, 1983 to approximately $1.8 billion in
the fiscal year ended June 30, 1993, a ten-year average compound annual growth
rate of approximately 27.1%. The Company has expanded its operations to
facilitate such growth primarily through capital expenditures necessary to
construct or acquire new facilities and to enhance existing facilities. This
growth in sales is attributable primarily to the trend in the automotive
industry to "outsource" more of its requirements for automotive components,
particularly high cost components such as seat systems. Outsourcing has been
increased in response to competitive pressures on OEMs to improve quality and
reduce capital needs and the costs of labor, overhead and inventory. The
outsourced market for automobile and light truck seat systems in North America
is approximately 65% of the total North American seat systems market
(approximately 83% taking into account future seating programs that have been
awarded).
In addition to outsourcing the production of seat systems, OEMs
increasingly are transferring the primary responsibility for design, engineering
and quality control of these products to suppliers, such as Lear, with proven
design, engineering and JIT program management and manufacturing capabilities.
Suppliers that design, engineer, manufacture and conduct quality control testing
are generally referred to as "Tier I" suppliers. The Company believes that early
involvement in the design and engineering of new seating products as a Tier I
supplier affords the Company a competitive advantage in securing new business
and provides its customers with significant cost reduction opportunities through
the coordination of the design, development and manufacturing processes.
The Company has enhanced its design and engineering capabilities by
building two technical centers and making other investments to upgrade its
capabilities. The Company is continuing this process of investing to
substantially improve all aspects of its safety and functional testing and
comfort assessment capabilities. An example of the Company's design and
engineering capabilities is the development of the Company's patented SureBond
process, which bonds seat covers to foam pads, minimizing the need for sewing.
"See Business -- Manufacturing." The Company believes its enhanced design and
engineering capabilities have contributed to the increase in the Company's North
American Content per Vehicle (as defined herein) from $12 to $98 between the
fiscal years ended June 30, 1983 and 1993.
As a result of the Company's demonstrated capabilities as a full-service
Tier I supplier, it has captured more than one-third of the outsourced market
for automobile and light truck seat systems and seat components in North America
and has become a leading supplier to this market in Europe. The Company's
reputation with OEMs for timely delivery, customer service and quality products
at competitive prices has resulted in many of the Company's facilities winning
recognition awards from its customers.
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The Company's continued expansion as a Tier I supplier has resulted in new
business which recently has begun or will begin production over the next
eighteen months. Such business includes new passenger car and light truck
programs for the Dodge Ram Pick-up Truck, the Ford Mustang, the Ford Windstar
Minivan, the BMW 3 Series and all Jaguar models, as well as the GM Opel Omega,
the Chevrolet Cavalier and the Oldsmobile Aurora. In addition, in December 1993,
the Company was awarded the seat system assembly responsibility for the Ford
Taurus/Mercury Sable vehicle lines for seat systems scheduled to begin
production in 1995. Ford Taurus has been the best selling car line in the United
States for the past two years. As a result of this new business, the Company
expects to construct several new seat facilities, which typically involve an
upfront cost of between $6.0 million and $9.0 million per facility for owned
facilities and between $1.0 million and $6.0 million per facility for leased
facilities.
On November 1, 1993, the Company significantly expanded its operations in
North America by purchasing certain portions of Ford's North American seat cover
and seat systems business (the "NAB") for $173.4 million in cash (after giving
effect to an adjustment in the purchase price for changes in NAB working
capital) and approximately $10.5 million in notes payable to Ford or its
affiliates (the "NAB Acquisition"). The NAB consists of an integrated United
States and Mexican operation which produces seat covers for approximately 80% of
Ford's North American vehicle production and manufactures seat systems for
Ford's Crown Victoria and Grand Marquis vehicles. For the twelve months ended
December 31, 1993, and after giving effect to the pro forma adjustments related
to the NAB Acquisition, gross sales, EBITDA (as defined herein) and operating
income of the NAB were approximately $572.7 million, $49.0 million and $37.9
million, respectively.
In connection with the NAB Acquisition, the Company entered into a
five-year supply agreement with Ford covering models for which the NAB produces
seat covers and seat systems, establishing the Company as Ford's leading seat
systems supplier. In addition, the Company believes that, as a result of the NAB
Acquisition, its relationship with Ford will be enhanced, enabling Lear to be
more involved in the planning and design of seat systems and related products
for future vehicle models.
Lear believes that the same competitive pressures that contributed to the
rapid expansion of its business in North America will require auto makers in
Europe to outsource more of their seating requirements. The outsourced market
for automobile and light truck seat systems in Europe is approximately 41% of
the total European seat systems market. Over the past four years, the Company
has aggressively pursued expansion in Europe both with its existing and new
customers. As a result of its efforts, the Company has been awarded significant
business in Sweden, Germany, Austria and England from General Motors-Adam Opel,
Saab, Volvo, Chrysler, Volkswagen and Jaguar. Consequently, the Company's net
sales in Europe have grown from approximately $145.5 million in the fiscal year
ended June 30, 1991 to approximately $432.5 million in the fiscal year ended
June 30, 1993.
The Company also has positioned itself as the leading supplier of seat
systems and seat components in Mexico through its ownership of Central de
Industrias S.A. de C.V. ("CISA"), the largest independent automotive seat
systems manufacturer in Mexico serving Mexican domestic producers. As a result
of its presence in Mexico, the Company believes that it will benefit from the
growing activity of United States-based and German-based OEMs in Mexico. The
Company also believes that it will benefit from the additional business
opportunities resulting from the passage of the North American Free Trade
Agreement ("NAFTA").
On December 31, 1993, Lear Holdings Corporation ("Holdings"), the parent of
the Company, merged with and into the Company (the "Merger"), and the separate
corporate existence of Holdings ceased on that date. Unless the context
otherwise indicates, all information contained herein is presented as if the
Merger had occurred as of the date or as of the beginning of the period
indicated.
In February 1994, the Company also changed its fiscal year end from June 30
to December 31, effective December 31, 1993.
The Company is the successor to a seat frame manufacturing business founded
in 1917 that served as a supplier to General Motors and Ford from its inception.
Holdings was organized in August 1988 to effect the
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leveraged acquisition (the "1988 Acquisition") of all of the outstanding common
stock of Lear Seating Corporation (formerly known as Lear Siegler Seating Corp.)
and certain other subsidiaries of Lear Siegler Holdings Corp. comprising its
seating group (the companies acquired being collectively referred to herein as
the "Seating Group").
The Company's principal executive offices are located at 21557 Telegraph
Road, Southfield, Michigan 48034. Its telephone number at that location is (810)
746-1500. The Company was incorporated in Delaware on January 13, 1987.
BUSINESS STRATEGY
To take advantage of additional business opportunities, the Company has
positioned itself as a global Tier I supplier of entire seat systems to OEMs.
Tier I status typically means that the supplier is awarded the seat program for
a particular vehicle in the early stages of the vehicle's design. The Tier I
supplier becomes responsible for total seat program management, including
design, development, component sourcing, quality assurance procedures,
manufacture and delivery to the OEM's assembly plant. The OEM benefits from
lower costs, improved quality, timely delivery and the administrative
convenience of being able to treat seating as a single component instead of as
numerous individual components. The Company believes that its early involvement
in the design and engineering of new seat products as a Tier I supplier affords
the Company a competitive advantage in securing new business. The Company has
become a significant Tier I supplier by implementing a strategy based upon the
following elements:
- Strong Relationships with the OEMs. The Company's management has
developed strong relationships with its OEM customers which allow Lear to
identify business opportunities and react to customer needs in the early stages
of vehicle design. The Company works closely with OEMs in designing and
engineering seat systems and maintains an excellent reputation with the OEMs for
timely delivery and customer service and for providing world class quality at a
competitive price. Many of the Company's facilities have won awards from OEMs
and others, including the General Motors Mark of Excellence Award, the General
Motors Supplier of the Year Award, the General Motors Top Supplier Award in
Mexico, the Ford Q-1 Award at 15 plants, the General Motors of Europe 1991 and
1992 Supplier of the Year Award, the Chrysler Quality Excellence Award, the Saab
100% Supplier Performance Award and the Mazda Most Valuable Supplier Award.
- Product Technology and Product Design Capability. Lear has made
substantial investments in product technology and product design capability to
support its products, including the building of two technical centers (one in
the United States in 1988 and one in Europe in 1991) and upgrading the Company's
computer aided design/computer aided manufacturing ("CAD/CAM") systems. In
addition, the Company is in the process of investing approximately $6.0 million
to substantially broaden its engineering capabilities, including all aspects of
safety and functional testing and comfort assessment. The Company's strong
product focus and global business base provide it access to worldwide seat
technology. The Company's participation with customers in the early phases of
product design, including participation at its ten remote engineering sites
located near customers, enables it to improve the quality of the product and to
meet target costs. Furthermore, the Company has established formal programs
which provide for an ongoing review of product design and production in order to
establish the means of obtaining additional cost improvement. An example of the
Company's product technology and product design capability is the development of
its SureBond process, which was patented in 1987. Sales of seat systems using
the SureBond process accounted for approximately 35% of the Company's net sales
for the twelve months ended December 31, 1993. See "Business -- Manufacturing."
- Lean Manufacturing Philosophy. Lear has adopted a "lean manufacturing"
philosophy that seeks to eliminate waste and inefficiency in its own operations
and in those of its customers. The Company believes that it provides superior
quality seating products at lower costs than the OEMs. The Company, whose
facilities are linked by computer directly to those of its suppliers and
customers, receives components from its suppliers, and delivers seat systems and
components to its customers on a JIT basis, which minimizes inventories and
fixed costs and enables the Company to deliver products on as little as 90
minutes notice. In the twelve months ended December 31, 1993, the Company's
overall annual inventory turnover rate was 36 times (excluding the
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effects of the NAB Acquisition) and up to 150 times in the case of certain of
the Company's JIT plants. The Company also minimizes fixed costs by using the
existing suppliers to the OEMs and the OEMs themselves for certain components
instead of attempting to produce such components itself. In cases where one of
the Company's manufacturing facilities is underutilized, the Company is able to
redistribute products to increase facility utilization.
Typically, the upfront cost of constructing a new seat systems facility is
between $6.0 and $9.0 million per facility for owned facilities and between $1.0
million and $6.0 million per facility for leased facilities. The principal costs
in starting a new seat systems facility arise from the acquisition of the land,
construction of the building and installation of conveyor systems. Because most
seat assembly work is manual and does not require complex equipment, capital
costs are relatively low.
Another example of the Company's "lean manufacturing" philosophy is the
establishment of a "Champion Program" in the fiscal year ended June 30, 1993
whereby individual members of management are responsible for working with a
specific vendor to aggressively reduce costs. The success of the program has
allowed the Company to negotiate on-going cost reduction agreements with many of
its customers. The Champion Program has been expanded since June 30, 1993 to
European suppliers as well as to product and manufacturing design.
NAB ACQUISITION
On November 1, 1993, Lear significantly strengthened its position in the
North American automotive seating market by purchasing the NAB from Ford for
$173.4 million in cash (after giving effect to an adjustment in the purchase
price for changes in NAB working capital) and approximately $10.5 million in
notes payable to Ford or its affiliates. The NAB Acquisition included the
machinery, equipment, real property and other assets used in the operations of
the NAB as well as the stock of Favesa S.A. de C.V. ("Favesa"), an operation
located in Juarez, Mexico.
The NAB consists of an integrated United States and Mexican operation which
produces seat covers for approximately 80% of Ford's North American vehicle
production and manufactures seat systems for Ford's Crown Victoria and Grand
Marquis vehicles. The Company's United States and Canadian revenues as a
percentage of total net sales would have been approximately 68% had the NAB
Acquisition not occurred versus 75% had the NAB Acquisition occurred on the
first day of calendar year 1993. The cost structure of the NAB is very similar
to the Company's current business in that costs are largely variable and,
therefore, responsive to demand. Prior to the NAB Acquisition, the Company
outsourced a significant portion of its seat cover requirements. The expansion
of the Company's seat cover business allows the Company better control over the
costs and quality of one of the critical components of a seat system. Because of
the Company's belief in its ability to produce seat covers and seat systems at
attractive margins, the NAB Acquisition is expected to improve the Company's
operating performance.
For the twelve months ended December 31, 1993, after giving pro forma
effect to the NAB Acquisition, gross sales, EBITDA and operating income of the
NAB were approximately $572.7 million, $49.0 million and $37.9 million,
respectively.
In connection with the NAB Acquisition, the Company entered into a
five-year supply agreement with Ford covering models for which the NAB currently
produces seat covers and seat systems at agreed upon prices. The Company also
assumed during the term of the supply agreement primary engineering
responsibility for a substantial portion of Ford's car models. As a result, the
NAB Acquisition establishes the Company as Ford's leading seat systems supplier
and strengthens the Company's relationship with one of its two largest customers
and the world's second largest automobile manufacturer. In addition, the Company
believes that because of the NAB Acquisition it will be further integrated by
Ford into the planning and design of seat systems and related products for
future vehicle models. On a pro forma basis, after giving effect to the NAB
Acquisition, the Company's net sales in the twelve months ended December 31,
1993 to Ford and General Motors were approximately equal. The NAB Acquisition
also provides the Company with a prototype for enhancing its relationships with
OEMs in a manner that allows OEMs to take better advantage of the
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Company's engineering, design and manufacturing expertise than is currently
afforded under conventional supply agreements.
The sale of the NAB was conducted on an auction basis in which Ford
determined that the Company was one of only two qualified final bidders based
upon technical resources, capabilities and expertise in automotive and light
truck seat systems. The selection of the Company as the successful bidder
highlights the Company's position as a leading supplier of quality seat systems.
The NAB incorporates both U.S. and Mexican operations. The manufacture of
seat covers and seat systems takes place in Juarez, Mexico at the NAB's
maquiladora subsidiary, Favesa. Favesa's maquiladora status allows the NAB to
produce seat systems and seat covers in Mexico for sale in the United States
without paying import or export duties as raw materials and finished goods cross
the United States/Mexican border. To maintain its maquiladora status, Favesa
must return its production to the United States, where it is sold by the NAB.
This maquiladora arrangement is in direct contrast to the Company's other
Mexican subsidiary, CISA, a non-maquiladora operation, whose sales are almost
entirely to Mexican plants. The Company believes that the passage of NAFTA will
present additional business opportunities as current maquiladora operations are
allowed to produce product for use in Mexico.
PRODUCTS
Lear's products have evolved from the Company's many years of experience in
the seat frame market where it has been a major supplier to General Motors and
Ford since its inception in 1917. The seat frame has structural and safety
requirements which make it the basis for overall seat design and was the logical
first step to the Company's emergence as a dominant supplier of entire seat
systems.
All of the Company's products are manufactured using JIT manufacturing
techniques, and most of the Company's products, including all seat systems, are
delivered to the OEMs on a JIT basis. The JIT concept, first broadly utilized by
Japanese automobile manufacturers, is the cornerstone of the Company's
manufacturing and supply strategy. This strategy involves many of the principles
of the Japanese system, but was redeveloped for compatibility with the greater
volume requirements and geographic distances of the North American market. The
Company first developed JIT operations in the early 1980s at its seat frame
manufacturing plants in Morristown, Tennessee and Kitchener, Ontario. These
plants previously operated under traditional manufacturing practices, resulting
in relatively low inventory turnover rates, significant scrap and rework, a high
level of indirect labor costs and long production set-up times. As a result of
JIT manufacturing techniques, the Company has been able to consolidate plants,
increase capacity and significantly increase inventory turnover, quality and
productivity.
The JIT principles first developed at Lear's seat frame plants in 1983 were
next applied to the Company's growing seat systems business. The Company's
seating plants are typically no more than 30 minutes from its customers'
assembly plants and manufacture seats for delivery to the customer's facility in
as little as 90 minutes. Orders for the Company's seats are received on a weekly
basis, pursuant to blanket purchase orders for annual requirements. These orders
detail the customer's needs for the ensuing week. In addition, on each work day,
constant computer and other communication is maintained between personnel at the
Company's plants and personnel at the customer's plants to keep production
current with the customer's demand.
The following is the approximate composition by product category of the
Company's net sales in the twelve months ended December 31, 1993, after giving
pro forma effect to the NAB Acquisition: seat systems, 73%; seat covers, 14%;
seat frames, 8%; and seat components, 5%.
- Seat Systems. The seat systems business consists of the manufacture,
assembly and supply of entire seating requirements for a vehicle or assembly
plant. The Company produces seat systems for automobiles and light trucks that
are fully finished and ready to be installed in a vehicle. Included within the
Company's seat systems production are high performance seats for luxury versions
of the OEMs' specialty cars, such as the Chevrolet Corvette, the Ford Taurus
SHO, the Mercury Cougar XR7, the Ford Thunderbird Super Coupe, the Ford Mustang
GT and the Dodge Viper. High performance seats are fully assembled seats,
ergonomically
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designed by the Company to achieve maximum passenger comfort. They have a wide
range of manual and power comfort features such as lumbar supports, cushion and
back bolsters and leg and thigh supports that are typically used to provide
product differentiation for specialty vehicles. As OEMs continue to view seat
systems as a distinguishing marketing feature, the advanced features
incorporated initially in high performance seats are more frequently becoming
standard features in a wider variety of later production vehicles.
The market for seat systems developed as a result of North American
automobile manufacturers' need to restructure assembly plant methods in response
to vigorous foreign competition in the early 1980's. The Company was positioned
to take advantage of this growing market through its long standing relationships
with customers. These relationships have been fostered through the Company's
performance in seat frame manufacturing over the years and its demonstrated
ability to supply and manage total seat systems. The Company believes that its
position in the seat systems market will improve as seats with advanced features
become an increasingly important criterion for distinguishing between competing
vehicle models. Seat systems are shipped to customers in the order in which they
are installed in vehicles.
The Company's major seat systems customers include Ford, General Motors,
Chrysler, Volvo, Volkswagen, Saab and Mazda. In addition, through its joint
ventures with NHK Spring Co., Ltd., the Company supplies seat systems to SIA (a
joint venture between Fuji Heavy Industries (Subaru) and Isuzu) and to CAMI (a
joint venture between Suzuki and General Motors). The Company and its affiliates
serve assembly plants for these customers through 22 different dedicated JIT
facilities.
The Company's seat systems sales for the twelve months ended December 31,
1993 broke down into the following vehicle categories: 47% light truck, 22%
mid-size, 13% full size, 8% luxury, 6% compact and 4% sport vehicles. These
vehicles included the Chevrolet/GMC Suburban, the Chevrolet/GMC Pick-up Truck,
the Ford Explorer, the Oldsmobile Delta 88, the Buick LeSabre, the Chevrolet
Lumina, the Buick Regal, the Mercury Cougar XR7, the Saab 9000 and the Chevrolet
Corvette. As part of the NAB Acquisition, the Company has also assumed seat
systems responsibility for the Ford Crown Victoria and the Mercury Grand Marquis
and has assumed Tier I engineering responsibilities for the Ford Escort, the
Lincoln Town Car, the Mercury Tracer and the Mercury Grand Marquis.
As a result of its product technology and product design strengths, the
Company can provide ergonomic designs which offer styling flexibility at low
cost. In addition, the Company is able to incorporate many convenience features
and safety improvements into its seat designs, such as storage armrests, rear
seat fold down panels, integrated restraint systems and child restraint seats.
Lear's position as a market leader in seat systems is largely attributable
to seating programs on new vehicle models launched in the past five years. The
Company believes that supplying seating for these new vehicle models will
provide it with a long-term revenue stream throughout the lives of these models.
The Company is currently working with customers in the development of a number
of seat systems products to be introduced by automobile manufacturers in the
late 1990's, which it expects will lead to an increase in outsourcing
opportunities in the future. The Company has been awarded several new programs
which have recently begun or are scheduled to begin production in the fiscal
years ending December 31, 1994 through 1996. Such business includes new
passenger car and light truck programs for the Dodge Ram Pick-up Truck, the Ford
Mustang, the Ford Windstar Minivan, the BMW 3 Series, all Jaguar models, as well
as the GM Opel Omega, the Chevrolet Cavalier and the Oldsmobile Aurora. In
addition, in December 1993, the Company was awarded the seat system assembly
responsibility for the Ford Taurus/Mercury Sable vehicle lines for seat systems
scheduled to begin production in early 1995. Ford Taurus has been the best
selling car line in the United States for the past two years. See "Business --
General" for additional information on new business scheduled to begin
production in the next eighteen months.
- Seat Covers. Lear produces seat covers at its Fairhaven, Michigan and
Saltillo, Mexico facilities, which deliver seat covers primarily to other
Company plants. In addition, pursuant to the NAB Acquisition, the Company
acquired a portion of Ford's North American seat cover and seat systems business
and is producing approximately 80% of the seat covers for Ford's North American
vehicles. After the NAB Acquisition, the Company's major external customers for
seat covers are Ford and other independent suppliers. The expansion of the
Company's seat cover business allows the Company better control over the
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costs and quality of one of the critical components of a seat system. Typically,
seat covers comprise approximately 30% of the aggregate cost of a seat system.
- Seat Frames. Lear produces steel and aluminum seat frames for passenger
cars and light and medium trucks. Seat frames are primarily manufactured using
precision stamped, tubular steel and aluminum components joined together by
highly automated, state-of-the-art welding and assembly techniques. The
manufacture of seat frames must meet strict customer specified safety standards.
The Company's seat frames are either delivered to its own plants where they
become part of a completed seat that is sold to the OEM customer, to
customer-operated assembly plants or to other independent seating suppliers
where they are used in the manufacture of assembled seating systems.
The Company's product development engineers continue to advance its
technological position with such innovative material applications as aluminum
and plastic frames and new seat designs which dramatically reduce seat weight
while increasing usable automotive vehicle interior space or increasing safety.
- Seat Components. The Company designs and manufactures plastic storage
armrests for inclusion in seat systems at its plant in Mendon, Michigan.
Vehicles in which these components are found are the Dodge Ram Pick-up Truck,
the Ford F-Series Pick-up Truck, the Buick LeSabre and the Oldsmobile Delta 88.
The Company also manufactures decorative, painted and assembled injection molded
components at the Mendon facility that are used in automotive vehicle interiors.
MANUFACTURING
Lear has developed a comprehensive manufacturing philosophy for seat
systems that allows it to make optimal use of its manufacturing facilities in a
high volume market. This concept, based on JIT manufacturing techniques, was
developed in the early 1980's to meet the requirements of its customers seeking
to reduce costs and improve quality. The Company has over ten years of
experience in JIT management and manufacturing. See "Business -- Products."
Seat and component assembly techniques fall into two major categories,
traditional assembly methods (in which fabric is affixed to a frame using
velcro, wire or other material) and more advanced bonding processes. There are
two bonding techniques employed by the Company, the Company's patented SureBond
process, a technique in which fabric is affixed to the underlying foam padding
using adhesives, and the Company's licensed foam-in-place process, in which foam
is injected into a fabric cover. The SureBond process has several major
advantages when compared to traditional methods, including design flexibility,
increased quality and lower cost. The SureBond process, unlike alternative
bonding processes, results in a more comfortable seat in which air can circulate
freely. The SureBond process, moreover, is reversible, so that seat covers that
are improperly installed can be removed and repositioned properly with minimal
materials cost. In addition, the SureBond process is not capital intensive when
compared to competing technologies.
The seat assembly process begins with pulling the requisite components from
inventory. Inventory at each plant is kept at a minimum, with each component's
requirement monitored on a daily basis. This allows the plant to devote the
maximum space to production, but also requires precise forecasts of the day's
output. Seats are assembled by three or four person teams, then tested and
packaged for shipment. The Company operates its own specially designed trailer
fleet that accommodates the off-loading of vehicle seats at the assembly plant.
Lear obtains steel, aluminum and foam chemicals used in its seat systems
from various producers under various supply arrangements. Leather, fabric and
purchased components generally are purchased from various suppliers under
contractual arrangements typically lasting no longer than one year. All such
materials are readily available. Some of the purchased components are obtained
through the Company's own customers.
CUSTOMERS
Lear serves the worldwide automobile and light truck market, which produces
over 30 million vehicles annually. The outsourced market for automobile and
light truck seat systems in North America is
7
<PAGE> 11
approximately 65% of the total North American seat systems market, which total
market is estimated to have annual revenues of approximately $6.0 billion. The
outsourced market for seat systems in Europe is approximately 41% of the total
European seat systems market, which total market is estimated to have annual
revenues of approximately $3.6 billion. The Company believes that the same
competitive pressures that contributed to the rapid expansion of its business in
North America since 1983 will continue to encourage auto makers in the North
American and the European markets to outsource more of their seating
requirements. Over the past three years, the Company has aggressively pursued
expansion in Europe, both with its existing and new customers. Approximately
65%, 70% and 75% of Lear's net revenues were from sales in the United States and
Canada in the fiscal years ended June 30, 1993, 1992 and 1991, respectively,
with the balance of sales in Europe and Mexico. On a pro forma basis, as if the
NAB Acquisition had occurred at the beginning of the twelve months ended
December 31, 1993, net revenues in the United States and Canada would have
amounted to approximately 75% of the Company's total net revenues in the twelve
months ended December 31, 1993.
The Company's OEM customers currently include Ford, General Motors,
Chrysler, Volvo, Volkswagen, Saab, Mazda, BMW, Jaguar, Audi, Subaru, Isuzu,
Suzuki, Daimler-Benz, Renault and Peugeot. For additional information regarding
customers and foreign and domestic operations and sales, see Note 15,
"Geographic Segment Data," to the consolidated financial statements of the
Company included in this report on Form 10-K.
In the past six years, in the course of retooling and reconfiguring plants
for new models and model changeovers, OEMs have eliminated seating production
from certain of their facilities, thereby committing themselves to purchasing
seat systems and components from outside suppliers. During this period, the
Company became a supplier of these products for a significant number of new
models, many on a JIT basis.
The purchase of seat systems on a JIT basis has allowed the Company's
customers to realize a competitive advantage as a result of (i) a reduction in
labor costs since suppliers like the Company generally enjoy lower direct labor
rates, (ii) the elimination of working capital and personnel costs associated
with the production of seat systems by the OEM, (iii) a reduction in net
overhead expenses and capital investment due to the availability of
approximately 60,000 to 80,000 square feet of plant space for expansion of other
manufacturing operations which was previously associated with seat production at
the OEM facilities and (iv) a reduction in transaction costs because of the
customer's ability to deal with a limited number of sophisticated system
suppliers as opposed to numerous individual component suppliers. In addition,
the Company offers improved quality and on-going cost reductions to its
customers through design improvements and its Champion Program.
The Company receives blanket purchase orders from its customers that
normally cover annual requirements for seats to be supplied for a particular
vehicle model. Such supply relationships typically extend over the life of the
model, which is generally four to seven years, and do not require the purchase
by the customer of any minimum number of seats. In order to reduce its reliance
on any one model, the Company produces
8
<PAGE> 12
complete seat systems and components for a broad cross-section of both new and
more established models. Vehicles with seat systems sold by the Company and its
affiliates in the indicated locations include:
UNITED STATES AND CANADA:
<TABLE>
<S> <C>
OEM/MODELS OEM/MODELS
FORD: GENERAL MOTORS:
Ford Crown Victoria Buick LeSabre
Ford Explorer Sports Bucket, Buick Park Avenue
Eddie Bauer & Limited Edition Buick Regal
Ford F-Series Pick-up Truck Chevrolet Corvette
Ford Lightning Pick-up Truck Chevrolet Lumina
Ford Mustang GT & LX Chevrolet Blazer/GMC Yukon
Ford Probe Chevrolet C/K Pick-up Truck
Ford Ranger Supercab/STX Chevrolet Kodiak
Ford Taurus SHO Chevrolet Sport Van
Ford Thunderbird SC Chevrolet/GMC G-Van
Ford Windstar Minivan Chevrolet/GMC Pick-up Truck
Mercury Cougar XR7 Chevrolet/GMC Suburban
Mercury Grand Marquis GMC Rally/Vandura Van
CHRYSLER: GMC Sierra Crew Cab
Dodge Dakota Pick-up Truck GMC Sierra Pick-up Truck
Dodge Ram Charger GMC Top Kick
Dodge Ram Pick-up Truck Oldsmobile Delta 88
Dodge Viper FUJI/ISUZU:
CAMI -- GENERAL MOTORS/SUZUKI: Isuzu Trucks
Geo Metro Subaru Legacy
Geo Tracker HYUNDAI:
Suzuki Sidekick Sonata
Suzuki Swift
EUROPE:
OEM/MODELS OEM/MODELS
GENERAL MOTORS: SAAB:
Opel Astra Saab 900
Opel Calibra Saab 9000
Opel Corsa VOLVO:
Opel Omega 800 Series
Opel Senator 900 Series
Opel Vectra JAGUAR:
CHRYSLER: XJS
Eurostar Minivan XJ6
MEXICO:
OEM/MODELS OEM/MODELS
FORD: GENERAL MOTORS:
Ford Escort Chevrolet S-10 Blazer
Ford F-Series Chevrolet Cavalier
Ford Thunderbird VOLKSWAGEN:
Mercury Cougar Beetle
Mercury Grand Marquis Golf
Mercury Tracer Jetta
CHRYSLER: Vanagon Minivan
Club Cab Pick-up Truck
Dodge Ram Pick-up Truck
</TABLE>
Because of the economic benefits inherent in the JIT manufacturing process
and the costs associated with reversing a decision to purchase seat systems from
an outside supplier, the Company believes that automobile manufacturers' level
of commitment to purchasing seating from outside suppliers, particularly on a
JIT basis, will increase. However, under the contracts currently in effect in
the United States between each of General Motors, Ford and Chrysler with the
United Automobile, Aerospace and Agricultural Implement Workers of America (the
"UAW"), in order for any of such manufacturers to obtain components that it
currently
9
<PAGE> 13
produces itself from external sources, it must first notify the UAW of such
intention. If the UAW objects to the proposed outsourcing, some agreement will
have to be reached between the UAW and the OEM. Factors that will normally be
taken into account by the UAW and the OEM include whether the proposed new
supplier is technologically more advanced than the OEM, cost and whether the OEM
will be able to reassign union members whose jobs are being displaced to other
jobs within the same factories. As part of its long-term agreement with General
Motors, the Company operates its Grand Rapids, Michigan facility with General
Motors employees and reimburses General Motors for the wages of such employees
on the basis of the Company's employee wage structure. The Company is
negotiating with General Motors to expand this program to other facilities. The
Company enters into these arrangements to enhance its relationship with its
customers.
The Company's contracts with its major customers generally provide for an
annual productivity price reduction and, in some cases, provide for the recovery
of increases in material and labor costs. Cost reduction through design changes,
increased productivity and similar programs with the Company's suppliers have
generally offset changes in selling prices. The Company's cost structure is
comprised of a high percentage of variable costs. The Company believes that this
structure provides it with additional flexibility during economic cycles.
General Motors and Ford, the two largest automobile and light truck
manufacturers in the world, are also the Company's two largest customers,
accounting for 45% and 28%, respectively, of the Company's net sales during the
twelve months ended December 31, 1993. After giving pro forma effect to the NAB
Acquisition, the Company's net sales to General Motors and Ford for the twelve
months ended December 31, 1993 were approximately equal.
MARKETING AND SALES
Lear markets its products by maintaining strong relationships with its
customers fostered during its 76-year history through strong technical and
product development capabilities, reliable delivery of high quality products,
strong customer service, innovative new products and a competitive cost
structure. Close personal communication with automobile manufacturers from the
corporate to the plant level is an integral part of the Company's marketing
strategy. Automobile manufacturers have increasingly reduced their number of
suppliers as part of their move to purchase systems rather than discrete
components. This process favors suppliers, like the Company, with established
ties to automobile manufacturers and the demonstrated ability to adapt to the
new competitive environment in the automotive industry.
The Company's sales are originated almost entirely by its sales staff. This
marketing effort is augmented by design and manufacturing engineers who work
closely with automobile manufacturers from the preliminary design to the
manufacture and supply of a seating system. Manufacturers have increasingly
looked to suppliers like the Company to assume responsibility for the
introduction of product innovation, shorten the development cycle of new models,
decrease tooling investment and labor costs, reduce the number of costly design
changes in the early phases of production and improve seat comfort and
functionality. Once the Company is engaged to develop the design for the seating
of a specific vehicle model, it is also generally engaged to supply the vehicle
with seating when it goes into production. The Company has responded to this
trend by improving its engineering and technical capabilities and building
technical centers in the United States in 1988 and in Europe in 1991 at a cost
of approximately $8.0 million in the aggregate. The Company is also currently in
the process of investing approximately $6.0 million in developing full-scope
engineering capabilities, including all aspects of safety and functional testing
and comfort assessment. In addition, the Company has established ten remote
engineering sites in close proximity to several of its OEM customers to enhance
customer relationships and design activity. As part of the NAB Acquisition, the
Company is assuming, during the five-year term of the supply agreement entered
into in connection with the NAB Acquisition, responsibility for a substantial
portion of Ford's seat systems design capability and, accordingly, is building a
75,000 square foot dedicated engineering facility in Dearborn, Michigan to
service Ford products.
10
<PAGE> 14
TECHNOLOGY
Lear conducts advanced product design and development at its technical
centers in Southfield, Michigan and Rietberg, Germany. At the technical centers,
the Company tests its products to determine compliance with applicable safety
standards, the products' quality and durability, response to environmental
conditions and user wear and tear. In the past, the Company has developed a
number of designs for innovative seat features which it has patented, including
ergonomic features such as adjustable lumbar supports and bolster systems and
adjustable thigh supports. In addition, the Company incorporates many
convenience, comfort and safety features into its seat designs, including
storage armrests, rear seat fold down panels, integrated restraint systems and
child restraint seats. The Company has recently invested to further upgrade its
CAD/CAM systems including three-dimensional color graphics, customer
telecommunications and direct interface with customer CAD systems. Research and
development costs incurred in connection with the development of new products
and manufacturing methods (not including additional research and development
costs paid for by the customer) amounted to approximately $16.2 million, $18.2
million, $11.4 million, $7.9 million for the twelve months ended December 31,
1993 and the fiscal years ended June 30, 1993, 1992 and 1991, respectively.
Lear uses its patented SureBond process (the patent for which has
approximately 10 years remaining) in bonding seat cover materials to the foam
pads used in certain of its seats. The SureBond process is used to bond a
pre-shaped cover to the underlying foam to minimize the need for sewing and
achieve new seating shapes, such as concave shapes, which were previously
difficult to manufacture.
The Company, through its wholly-owned subsidiary, Progress Pattern Corp.
("Progress Pattern"), produces patterns and tooling for use in the automotive
casting industry. Its capabilities include foundry and vacuum form tooling,
porous mold design and lost foam tooling production. The pattern operation is
also integral to the Company's seating design programs, including independent
product design and development, contract design, engineering services,
manufacturing feasibility and engineering cost studies. Progress Pattern also
manufactures production tooling for the Company's plastic and foam molding
operations. In addition to providing support for the Company's continuing seat
design, Progress Pattern provides services to its own customers, including Ford
and General Motors. It produced the casting tooling for the General Motors
Saturn engine.
The Company holds a number of mechanical and design patents covering its
automotive seating products and has numerous applications for patents currently
pending. In addition, the Company holds several trademarks relating to various
manufacturing processes. The Company also licenses its technology to a number of
seating manufacturers.
The Company has and will continue to dedicate resources to research and
development to maintain its position as a leading developer of technology in the
automotive seating industry.
JOINT VENTURES AND MINORITY INTERESTS
Lear conducts a portion of its business through joint ventures in order to
facilitate the exchange of technical information and the establishment of
business relationships with foreign automakers. The joint ventures in which the
Company participates include: (i) General Seating of America, a joint venture
with NHK Spring Co., Ltd. of Japan in which the Company has a 35% interest,
which supplies trimmed seating to SIA (a joint venture between Fuji Heavy
Industries (Subaru) and Isuzu) and (ii) General Seating of Canada Limited, a
joint venture with NHK Spring Co., Ltd. of Japan in which the Company has a 35%
interest, which supplies trimmed seating from a plant in Woodstock, Ontario to
CAMI (a joint venture between Suzuki and General Motors). In addition, the
Company has a 31% interest in Probel, S.A., a Brazilian automotive seat
component and furniture manufacturer, and a 20% interest in Pacific Trim Corp.
Ltd., a Thai manufacturer of automotive vehicle seat systems and seat covers.
See Note 7, "Investments in Affiliates," to the consolidated financial
statements of the Company included in this report on Form 10-K.
11
<PAGE> 15
COMPETITION
Lear is one of the two primary suppliers in the outsourced North American
seat systems market. The Company's main independent competitor is Johnson
Controls, Inc., and it competes, to a lesser extent, with Douglas & Lomason
Company and Magna International, Inc. The Company's major independent
competitors in Europe, besides Johnson Controls, Inc., are Bertrand Faure
(headquartered in France) and Keiper Recaro (headquartered in Germany). The
Company also competes with the OEMs' in-house seating suppliers. The Company
competes on the basis of technical expertise, reliability, quality and price.
The Company believes its technical resources, product design capabilities and
customer responsiveness are the key factors that allow it to compete
successfully in the seat system market.
SEASONALITY
Lear's principal operations are directly related to the automotive
industry. Consequently the Company may experience seasonal fluctuation to the
extent automotive vehicle production slows, including times such as the summer
months when plants close for model year changeovers and vacation and around
Christmas when plants close for approximately 1.5 weeks. Historically, the
Company's sales have been the strongest in the second calendar quarter. However,
in the twelve months ended December 31, 1993, net sales in the fourth calendar
quarter exceeded the second calendar quarter due to the NAB Acquisition and new
programs which the Company began during 1993. Net sales for the twelve months
ended December 31, 1993 by calendar quarter broke down as follows: first
quarter, 23.4%; second quarter, 25.0%; third quarter, 20.5%; and fourth quarter,
31.1%. Operating profit of the Company has historically been strongest in the
second calendar quarter and the weakest in the third calendar quarter. See Note
16, "Quarterly Financial Data," in the consolidated financial statements
included elsewhere in this report on Form 10-K.
EMPLOYEES
After giving effect to the NAB Acquisition, the Company employs
approximately 4,600 persons in the United States, 10,000 in Mexico, 1,500 in
Canada, 1,400 in Germany, 800 in Sweden, 90 in Austria and 80 in France. Of
these, about 2,700 are salaried employees and the balance are paid on an hourly
basis. Approximately 9,600 of the Company's employees are members of unions. The
Company has collective bargaining agreements with several unions including the
UAW; National Automobile, Aerospace and Agricultural Implement Workers Union of
Canada; the Textile Workers of Canada; the Confederation of Mexican Workers; the
International Brotherhood of Teamsters, Chauffeurs, Warehousemen, and Helpers of
America; and the International Association of Machinists and Aerospace Workers,
AFL-CIO, and its Local Lodge PM 2811 of Detroit and vicinity. Each of the
Company's facilities has a separate contract with the union which represents the
workers employed there, with each such contract having an expiration date
independent of the Company's other labor contracts. The Company has experienced
some labor disputes at its plants, none of which has significantly disrupted
production or had a materially adverse effect on its operations. The Company has
been able to resolve all such labor disputes and believes its relations with its
employees are good.
ENVIRONMENTAL
The Company is subject to various laws, regulations and ordinances which
govern activities such as discharges to the air and water, as well as handling
and disposal practices for solid and hazardous wastes and which impose costs and
damages associated with spills, disposal or other releases of hazardous
substances. The Company believes that it is in substantial compliance with such
requirements. Management does not believe that it will incur compliance costs
pursuant to such requirements that would have a material adverse effect on the
Company's consolidated financial position or future results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Environmental Matters."
RECENT DEVELOPMENTS
On March 8, 1994, the Company filed a Registration Statement on Form S-1
with the Securities and Exchange Commission relating to the offering of
9,375,000 shares of the Company's Common Stock, $.01 par
12
<PAGE> 16
value per share ("Common Stock"), in the United States and internationally (the
"Offerings"). Of the 9,375,000 shares being offered, 6,250,000 shares are being
offered by the Company and 3,125,000 shares are being offered by a stockholder
of the Company (the "Selling Stockholder"). The Company will not receive any of
the proceeds from the sale of Common Stock by the Selling Stockholder. In
connection with the Offerings, the Company's Certificate of Incorporation will
be amended and restated (as so amended and restated, the "Restated Certificate
of Incorporation") to, among other things, increase the authorized capital of
the Company. Immediately prior to the commencement of the Offerings, it is
contemplated that a 33-for-1 split of the Company's Common Stock will be
effected.
13
<PAGE> 17
ITEM 2 -- PROPERTIES
The Company's operations are conducted through 60 facilities, including
four facilities acquired as part of the NAB Acquisition and six facilities
operated by the Company's less than majority-owned affiliates. The Company's
management is headquartered in Southfield, Michigan. The headquarters building,
which accommodates both the main office and the technical center, was completed
in June 1988. Twenty-two of the plants are dedicated to providing seat systems
to nearby assembly plants. The others focus on the production for a combination
of seat systems and other seating products. Substantially all owned facilities
secure borrowings under the Company's various debt agreements.
The Company's facilities are located in appropriately designed buildings
which are kept in good repair with sufficient capacity to handle present
volumes. The Company has designed its facilities to provide for efficient JIT
manufacturing of its products. No facility is materially underutilized.
Management believes substantially all of the Company's property and equipment is
in good condition and that it has sufficient capacity to meet its current and
expected manufacturing and distribution needs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company --
Capital Expenditures."
The following table provides certain information regarding the Company's 60
operating facilities, including five facilities currently under construction:
<TABLE>
<CAPTION>
BUILDING
OWNED/ SQUARE LEASE
FACILITY LEASED FEET FUNCTION EXPIRATION
- ----------------------------------- ------ -------- ------------------------------- ---------------
<S> <C> <C> <C> <C>
UNITED STATES:
Southfield, MI..................... O 70,000 administrative offices and --
technical center
Detroit, MI........................ O 156,800 manufacture of seat systems --
Romulus I, MI...................... O 89,600 manufacture of seat systems --
Romulus II, MI..................... O 88,200 manufacture of seat systems --
Fenton, MI......................... O 75,800 manufacture of seat systems --
Morristown, TN..................... O 235,900 manufacture of seat components --
Lorain, OH......................... L 42,100 manufacture of seat systems July 1998
Mendon, MI......................... O 168,500 manufacture of seat components --
and other plastic products
Southfield, MI..................... O 65,000 manufacture of seat tooling --
Grand Rapids, MI................... (1) 66,560 manufacture of seat frames --
Southfield, MI..................... O 19,000 technical center --
Louisville, KY..................... L 72,000 manufacture of seat systems January 1995
Janesville, WI..................... O 120,000 manufacture of seat systems --
Fairhaven, MI...................... L 68,603 manufacture of seat covers July 1995
Dearborn, MI....................... L 22,250 engineering offices July 1997
Flint, MI.......................... L 10,083 engineering offices August 1996
Warren, MI......................... L 17,500 engineering offices March 1997
Dearborn, MI....................... L(2) 23,483 engineering offices March 1995
Duncan, SC......................... L(3) 38,926 manufacture of seat systems 10 years from
completion
Lordstown, OH...................... O(3) 96,000 manufacture of seat systems --
Pontiac, MI........................ L(3) 101,600 manufacture of seat systems August 1997
CANADA:
Kitchener, Ontario................. O 343,044 manufacture of seat frames --
Ajax, Ontario...................... O 120,000 manufacture of seat systems --
Whitby, Ontario.................... O 187,400 manufacture of seat systems --
Cowansville, Quebec................ L 50,750 manufacture of seat systems (4)
Oakville, Ontario.................. O 90,000 manufacture of seat systems --
St. Thomas, Ontario................ L(3) 100,000 manufacture of seat systems January 2005
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
BUILDING
OWNED/ SQUARE LEASE
FACILITY LEASED FEET FUNCTION EXPIRATION
- ----------------------------------- ------ -------- ------------------------------- ---------------
<S> <C> <C> <C> <C>
EUROPE:
Meaux, France...................... O 48,300 manufacture of seat components --
Paris, France...................... L 2,500 administrative offices January 1995
Blere, France...................... O 14,300 manufacture of wire components --
Rietberg, Germany.................. O 193,143 manufacture of seat components --
Rietberg, Germany.................. O 17,635 technical center --
Quakenbruck, Germany............... O 139,500 manufacture of seat components --
Gustavsburg, Germany............... L 177,000 manufacture of seat systems June 2002
Eisenach, Germany.................. O 77,500 manufacture of seat systems --
Schwalbach, Germany................ L 10,500 administrative offices October 1996
Koflach, Austria................... L 63,307 manufacture of seat systems January 1995
Trollhattan, Sweden................ L 135,102 manufacture of seat systems December 1996
Bengtsfors, Sweden................. L 246,726 manufacture of seat systems September 2007
Coventry, England.................. L(5) 22,000 manufacture of seat systems May 1994
MEXICO:
Saltillo I......................... L 91,025 manufacture of seat covers January 1998
Saltillo II........................ L(3) 43,000 manufacture of seat systems July 1994
Mexico City........................ L 6,880 administrative offices June 1997
Tlahuac............................ O 339,000 manufacture of seat components --
L 8,900 warehouse June 1997
Naucalpan.......................... L 66,000 manufacture of seat systems August 1994
Cuautitlan......................... L 75,000 manufacture of seat systems (4)
Puebla............................. L 81,000 manufacture of seat systems (4)
Hermosillo......................... O 121,000 manufacture of seat systems --
Atoto.............................. L 18,275 manufacture of seat systems June 1996
Rio Bravo.......................... O(6) 202,700 manufacture of seat covers --
San Lorenzo........................ O(6) 287,000 manufacture of seat covers --
La Cuesta.......................... O(6) 392,500 manufacture of seat covers --
Omega.............................. L(7) 270,000 manufacture of seat systems November 1994
AFFILIATES OR MINORITY INTERESTS:
Woodstock, Ontario; Canada......... O(8) 120,000 manufacture of seat systems --
Frankfort, Indiana................. O(8) 82,000 manufacture of seat systems --
Khorat; Thailand................... L(8) 30,000 manufacture of seat covers and --
seat systems
Suzano, Sao Paulo; Brazil.......... O(8) 344,448 manufacture of seat components --
Ipiranga, Sao Paulo; Brazil........ L(8) 355,212 manufacture of seat components --
Jaguare, Sao Paulo; Brazil......... L(8) 96,876 manufacture of seat components --
</TABLE>
- -------------------------
(1) This facility is operated for General Motors.
(2) A new 75,000 square foot engineering facility is currently under
construction.
(3) Facility currently under construction.
(4) Currently leased on a month-to-month basis pending agreement on a longer
lease term.
(5) A new 42,000 square foot manufacturing facility is currently under
construction, which will be dedicated to the manufacture of seat systems.
(6) Acquired as part of the NAB Acquisition.
(7) On March 15, 1994, the Company exercised an option to cause Ford to purchase
this facility along with a facility in El Jarudo, Mexico in consideration of
Ford cancelling $19.9 million of indebtedness owed by Favesa to Ford. At
that time, the Company vacated the El Jarudo facility and entered into a
lease of the Omega facility which expires on the earlier of November 30,
1994 or the date the Company vacates the Omega facility.
(8) Owned or leased by affiliates or minority interests of the Company.
15
<PAGE> 19
ITEM 3 -- LEGAL PROCEEDINGS
Management of the Company does not believe that any of the litigation in
which the Company is currently engaged, either individually or in the aggregate,
will have a material effect on the Company's consolidated financial position or
future results of operations.
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of contamination
from hazardous substances at three Superfund sites where liability has not been
determined. The Company also may incur indemnification obligations for cleanup
at two sites which are the subject of Superfund proceedings. Management believes
that the Company is, or may be, responsible for less than one percent, if any,
of the total costs at each site. The Company has set aside reserves which
management believes are adequate to cover any such potential liabilities.
Management believes that such matters will not result in liabilities that will
have a material adverse effect on the Company's consolidated financial position
or future results of operations.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 20, 1993, the holders of a majority of the outstanding Common
Stock of Lear Holdings Corporation ("Holdings") approved, by written consent,
the merger (the "Merger") of Holdings with and into the Company, effective as of
December 31, 1993. Pursuant to the Merger, each share of capital stock of
Holdings was exchanged for a like share of capital stock of the Company, and the
Company assumed all of Holdings' contractual and other rights and obligations.
In addition, the directors of Holdings became the directors of the Company upon
consummation of the Merger.
16
<PAGE> 20
PART II
ITEM 5 -- MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is subject to restrictions on sale and transfer
and there is no established public trading market for the Company's Common
Stock. However, on March 8, 1994, the Company filed a Registration Statement on
Form S-1 relating to an initial public offering of its Common Stock. See
"Business -- Recent Developments."
To date, the Company has never paid a cash dividend on its Common Stock.
Any payment of dividends in the future is dependent upon the financial
condition, capital requirements, earnings of the Company and other factors.
However, the Company currently intends to retain all future earnings, if any, to
fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Also the Company
is subject to certain contractual restrictions on the payment of dividends. See
Note 9 to the consolidated financial statements included in Item 8 herein for
information concerning such restrictions.
On February 15, 1994, there were 38 holders of record of the Company's
Common Stock.
17
<PAGE> 21
ITEM 6 -- SELECTED FINANCIAL DATA
The following income statement and balance sheet data were derived from the
consolidated financial statements of the Company. The consolidated financial
statements of the Company for the nine months ended June 30, 1989, for each of
the fiscal years ended June 30, 1990, 1991, 1992 and 1993 and for the twelve and
six months ended December 31, 1993 have been audited by Arthur Andersen & Co.
The consolidated financial statements of the Company for the six months ended
January 2, 1993 are unaudited; however, in the Company's opinion, reflect all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the financial position and results of operations of the Company
for such period. In February 1994 the Company changed its fiscal year end from
June 30 to December 31 effective December 31, 1993. The results of operations
for any interim period are not necessarily indicative of results of operations
for a full year. The selected financial data below should be read in conjunction
with the consolidated financial statements of the Company and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company."
<TABLE>
<CAPTION>
NINE TWELVE SIX SIX
MONTHS YEAR YEAR YEAR YEAR MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, JANUARY 2, DECEMBER 31,
1989 1990 1991 1992 1993 1993(1) 1993 1993(1)
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS(2))
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales........... $807,365 $1,067,878 $1,085,319 $1,422,740 $1,756,510 $1,950,288 $ 811,440 $1,005,218
Gross profit........ 81,632 104,707 101,429 115,641 152,499 170,215 54,519 72,235
Selling, general and
administrative
expenses.......... 18,477 28,247 41,596 50,074 61,898 62,717 26,847 27,666
Incentive stock and
other compensation
expense(3)........ 1,107 1,353 1,353 (12) -- 18,016 -- 18,016
Amortization........ 10,174 13,838 13,810 8,746 9,548 9,929 4,374 4,755
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Operating income.... 51,874 61,269 44,670 56,833 81,053 79,553 23,298 21,798
Interest expense,
net............... 50,982 61,184 61,676 55,158 47,832 45,656 26,943 24,767
Other expense,
net(4)............ 2,141 4,044 2,144 5,837 5,260 9,180 2,676 6,596
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Income (loss) before
taxes on income
and extraordinary
items............. (1,249) (3,959) (19,150) (4,162) 27,961 24,717 (6,321) (9,565)
Income taxes........ 7,409 16,630 14,019 12,968 17,847 26,864 4,450 13,467
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Net income (loss)
before
extraordinary
items............. (8,658) (20,589) (33,169) (17,130) 10,114 (2,147) (10,771) (23,032)
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Extraordinary
items(5).......... -- -- -- (5,100) -- (11,684) -- (11,684)
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Net income (loss)... $ (8,658) $ (20,589) $ (33,169) $ (22,230) $ 10,114 $ (13,831) $ (10,771) $ (34,716)
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Net income (loss)
per share before
extraordinary
items............. $ (16.35) $ (41.18) $ (66.36) $ (20.36) $ 8.33 $ (2.00) $ (10.20) $ (21.41)
Net income (loss)
per share......... $ (16.35) $ (41.18) $ (66.36) $ (26.42) $ 8.33 $ (12.86) $ (10.20) $ (32.27)
Weighted average
shares
outstanding....... 529,640 500,000 499,803 841,464 1,213,608 1,075,758 1,055,660 1,075,758
BALANCE SHEET DATA:
Current assets...... $200,002 $ 223,212 $ 213,806 $ 282,864 $ 325,199 $ 433,584 $ 308,464
Total assets........ 734,582 747,583 729,670 799,884 820,209 1,114,291 809,859
Current
liabilities....... 201,117 254,514 287,111 344,169 374,950 505,717 367,782
Long-term debt...... 433,336 402,800 386,655 348,331 321,116 498,324 331,930
Common stock subject
to limited
redemption rights,
net............... 1,770 1,795 1,770 3,465 3,885 12,435 3,885
Stockholders'
equity............ 48,876 35,292 4,335 49,317 75,101 43,210 53,506
OTHER DATA:
EBITDA(6)........... $ 74,826 $ 94,252 $ 81,428 $ 91,807 $ 121,707 $ 122,112 $ 43,259 $ 43,664
Capital
expenditures...... $ 11,353 $ 14,906 $ 20,892 $ 27,926 $ 31,595 $ 45,915 $ 14,669 $ 28,989
Number of
facilities(7)..... 30 33 40 45 48 61 45 61
North American
Content per
Vehicle(8)........ $ 67 $ 77 $ 84 $ 94 $ 98 $ 112 $ 100 $ 133
North American
vehicle production
(in
millions)(9)...... 10.8 12.4 11.2 12.2 13.6 13.7 5.9 6.1
Inventory Turnover
Ratio(10)......... 27.4 25.6 30.3 36.7 36.0
</TABLE>
- -------------------------
(1) On July 1, 1993, the Company adopted SFAS 106 (as defined herein). As a
result, the twelve months and six months ended December 31, 1993 represent
the first periods during which the Company began to incur additional
expense associated with the adoption of SFAS 106. The additional expense
for each of these periods was $3,273.
(2) Except per share data and North American Content per Vehicle.
(3) Includes a one-time charge of $18,016, of which $14,474 is non-cash, for
the twelve and six months ended December 31, 1993 for incentive stock and
other compensation expense (see Note 14 "Warrants, Stock Options and Common
Stock Subject to Redemption" in the consolidated financial statements
included elsewhere in this report on Form 10-K).
(4) Consists of foreign currency exchange gain or loss, minority interest in
net income of subsidiaries, equity (income) loss of affiliates, state and
local taxes and other expense.
(5) The extraordinary items result from the prepayment of debt.
(6) "EBITDA" is operating income plus depreciation and amortization. EBITDA
does not represent and should not be considered as an alternative to net
income or cash flow from operations as determined by generally accepted
accounting principles.
(7) Includes facilities operated by the Company's less than majority-owned
affiliates and facilities under construction.
(8) "North American Content per Vehicle" is the Company's net sales in North
America divided by total North American vehicle production.
(9) "North American vehicle production" includes car and light truck production
in the United States, Canada and Mexico estimated from industry sources.
(10) "Inventory Turnover Ratio" is cost of goods sold divided by average
inventory. The Inventory Turnover Ratio for the twelve months ended
December 31, 1993 excludes the NAB, which was acquired by the Company on
November 1, 1993.
18
<PAGE> 22
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS
Lear has expanded its net revenues at an annual compound growth rate of
approximately 27.1% during the period from July 1, 1983 to June 30, 1993. Since
the fiscal year ended June 30, 1990, the Company has increased its net sales by
64.5% by building upon its existing business in the United States and Canada and
significantly expanding its operations in Europe and Mexico.
As a result of significant new business added since the fiscal year ended
June 30, 1990, the Company has experienced substantial upfront costs for new
programs and new facilities. Such costs consist of administrative expenses in
Europe, engineering and design expenses for new seating programs and new
facility costs, including pre-production expenses and inefficiencies incurred
until the customer reaches normal operating levels. New business which has been
added since the fiscal year ended June 30, 1990 includes seat systems for the
GM-Suburban, Saab, Volvo, GM-Opel (2 facilities), Chrysler-Europe, Hyundai and
Volkswagen-Mexico, as well as a seat cover manufacturing facility in Mexico. The
Company expenses such non-recurring pre-production expenses as they are
incurred.
The Company's financial results in the fiscal year ended June 30, 1993
improved over prior fiscal years as a result of improved operating efficiencies
obtained at new facilities which impacted prior fiscal year results unfavorably
and strong performance at established facilities. Together these facilities
offset new program costs associated with the Dodge Ram Pick-up Truck, the Ford
Mustang, the Ford Windstar Minivan and the GM Opel Omega and facility costs
relating to new programs for BMW and Jaguar, which have begun production since
the end of the fiscal year ended June 30, 1993 or will begin production in
calendar year 1994.
The Company's financial results for the fiscal year ended June 30, 1993 do
not include the NAB Acquisition. After giving effect to the NAB Acquisition, the
Company's net sales, EBITDA and operating income for the fiscal year ended June
30, 1993 were approximately $2.2 billion, $171.7 million and $119.8 million,
respectively. See "Business -- NAB Acquisition."
Results for the six months ended December 31, 1993 do not include the NAB
for periods prior to November 1, 1993 and do include additional expense due to
the adoption by the Company of the prospective method of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-retirement
Benefits Other than Pensions" ("SFAS 106"). The implementation of SFAS 106 had
an unfavorable impact in the six months ended December 31, 1993 on gross profit
of $2.9 million, operating income of $3.3 million and net income of $3.3
million. See the consolidated financial statements of the Company included
elsewhere in this report on Form 10-K.
The Company's financial results for the twelve and six months ended
December 31, 1993 include a one-time charge of $18.0 million for compensation
expense for past services of certain key management employees, of which $14.5
million was non-cash. Accelerated vesting of incentive management stock options
under the 1992 Stock Option Plan and the issuance of the remaining options under
the 1992 Stock Option Plan to 66 individuals resulted in the one-time non-cash
charge of $14.5 million. Also included in the one-time charge was $3.5 million
of cash compensation expense. The $3.5 million payment was made to 28 of the
Management Investors (as defined herein) in order to assist such individuals in
achieving some liquidity, which in certain instances will enable such
individuals to repay debt incurred in connection with the 1988 Acquisition
without necessitating the sale of any Common Stock.
The Company's performance is dependent on automotive vehicle production,
which is seasonal in nature. The third calendar quarter is historically the
Company's weakest quarter due to the impact of customer plant shutdowns for
vacation and model changeover which affect automotive production in both North
America and Europe. See Note 16 to the consolidated financial statements of the
Company included elsewhere in this report on Form 10-K.
In February 1994, the Company changed its fiscal year end from June 30 to
December 31, effective December 31, 1993.
19
<PAGE> 23
The following chart shows operating results of the Company by principal
geographic area:
GEOGRAPHIC OPERATING RESULTS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JANUARY 2, DECEMBER 31,
1991 1992 1993 1993 1993
---------- ---------- ---------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES:
United States...................... $ 468,808 $ 597,160 $ 765,652 $ 335,669 $ 551,211
Canada............................. 349,931 403,351 372,045 164,861 168,613
Europe............................. 145,540 268,175 432,546 218,055 189,337
Mexico............................. 121,040 154,054 186,267 92,855 96,057
---------- ---------- ---------- ----------- ------------
Net sales..................... $1,085,319 $1,422,740 $1,756,510 $ 811,440 $1,005,218
---------- ---------- ---------- ----------- ------------
---------- ---------- ---------- ----------- ------------
OPERATING INCOME (LOSS):
United States...................... $ 6,181 $ 32,002 $ 51,752 $ 17,550 $ 27,081
Canada............................. 35,303 14,695 15,308 1,808 12,128
Europe............................. (3,667) 2,952 (3,907) (1,847) (7,608)
Mexico............................. 8,206 7,172 17,900 5,787 8,213
Unallocated corporate expense(1)... (1,353) 12 -- -- (18,016)
---------- ---------- ---------- ----------- ------------
Operating income.............. $ 44,670 $ 56,833 $ 81,053 $ 23,298 $ 21,798
---------- ---------- ---------- ----------- ------------
---------- ---------- ---------- ----------- ------------
</TABLE>
- ---------------
(1) Unallocated corporate expense consists of incentive stock option expense and
other one-time compensation expense.
Six Months Ended December 31, 1993 Compared With Six Months Ended January 2,
1993.
Net sales of $1,005.2 million in the six months ended December 31, 1993
surpassed the six months ended January 2, 1993 by $193.8 million or 23.9%
despite the effect of depressed automotive vehicle sales on existing seating
programs in Europe. Net sales benefitted from the purchase of the NAB on
November 1, 1993, new business in the United States and Europe and incremental
volume on established domestic seating programs.
Net sales in the United States of $551.2 million in the six months ended
December 31, 1993 increased by $215.5 million or 64.2% from the comparable
period in the prior year, reflecting $86.0 million in sales from the NAB
Acquisition, improved domestic car and truck production on established seating
programs, incremental sales from new seat programs, including the Dodge Ram
Pick-up Truck and the Ford Mustang, and sales generated by a new lead vendor
program under which the Company assumed management of components for a seat
program with Ford.
Net sales in Canada for the six months ended December 31, 1993 of $168.6
million exceeded sales during the comparable period in the prior year by $3.8
million or 2.3%, reflecting modest vehicle production increases on established
General Motors seat programs. Net sales were adversely impacted by downtime
associated with a General Motors plant conversion necessary for a replacement
mid-size passenger car model introduction. Production for that replacement
program is scheduled to begin in the first quarter of 1994.
Net sales in Europe of $189.3 million in the six months ended December 31,
1993 declined in relation to the six months ended January 2, 1993 by $28.7
million or 13.2% due to reduced vehicle production requirements for carryover
seating programs in Sweden and Finland and unfavorable exchange rate
fluctuations. Partially offsetting the decrease in sales was additional volume
on established seating programs in Germany and Austria.
20
<PAGE> 24
Net sales in Mexico of $96.1 million increased in the six month period
ended December 31, 1993 compared to the six month period ended January 2, 1993
due to increased production activity on existing Volkswagen and Chrysler
programs.
Gross profit (net sales less cost of sales) and gross margin (gross profit
as a percentage of net sales) were $72.2 million and 7.2% for the six month
period ended December 31, 1993 as compared to $54.5 million and 6.7% for the
prior comparable period. Gross profit and gross margin in the six month period
ended December 31, 1993 benefitted from the overall increase in North American
automotive production, productivity improvement programs, favorable Canadian
exchange rate fluctuations and the NAB Acquisition. Partially offsetting the
increase in gross profit were reduced capacity utilization in Europe, facility
pre-production costs for seating programs in Canada, England and Germany, the
devaluation of the Swedish krona and severance costs associated with the
downsizing of German component operations. The adoption of SFAS 106 had an
unfavorable impact on gross profit in the six month period ended December 31,
1993 of $2.9 million.
Selling, general and administrative expenses decreased to 2.8% of net sales
for the six months ended December 31, 1993 as compared to 3.3% for the
comparable period in the prior year. While expenditures for the more recent
period increased 3.1%, or $0.8 million, over the earlier period, an increase in
sales led to an overall decrease in these expenses as a percentage of sales.
Primarily contributing to the increase in selling, general and administrative
expenses in the six month period ended December 31, 1993 were design,
development and pre-production costs relating to a new BMW seating program
scheduled to be launched in mid-1994.
Operating income and operating margin (operating income as a percentage of
net sales), before the one-time charge of $18.0 million for incentive stock and
other compensation expense, were $39.1 million and 3.9% for the six months ended
December 31, 1993 compared to $23.3 million and 2.9% during the comparable
period in the prior year. The increase in operating income was due largely to an
overall increase in net sales in North America, including an increase in net
sales as a result of the NAB Acquisition and productivity improvements, which
offset lower margin contribution in Europe and the adoption of SFAS 106.
Non-cash depreciation and amortization charges were $21.9 million and $19.9
million for the six months ended December 31, 1993 and January 2, 1993,
respectively.
Interest expense for the six month period ended December 31, 1993 decreased
by $2.2 million from the comparable period in the prior year primarily due to
the refinancing of certain subordinated and senior debt at lower interest rates,
lower European interest rates, reduced borrowings in Canada and Europe and
reduced amortization of financing fees due to the early extinguishment of debt.
See Note 3, "1994 Refinancing -- Subsequent Event," to the Company's
consolidated financial statements included elsewhere in this report on Form
10-K.
Other expense for the six months ended December 31, 1993, including state
and local taxes, foreign exchange loss, minority interest in income of
subsidiaries and equity in income of affiliates, increased in comparison to the
comparable period in the prior year due to the $4.0 million write-off of
equipment associated with a discontinued Volkswagen program in Germany and
non-seating related assets in the United States.
A loss of $5.0 million, before extraordinary items and the one-time charge
of $18.0 million for incentive stock and other compensation expense, was
recognized for the six months ended December 31, 1993 as compared to a net loss
of $10.8 million in the prior comparable period. The net loss in the six months
ended December 31, 1993 reflects a $13.5 million provision for national income
taxes of which approximately $8.7 million relates to foreign operations. For the
six month period ended December 31, 1993, the Company recognized a net loss of
$34.7 million after giving effect to an extraordinary item for the early
extinguishment of debt of $11.7 million and the one-time charge of $18.0 million
for incentive stock and other compensation expense. The extraordinary item was
comprised of unamortized deferred financing fees expense and a call premium
resulting from the redemption of the 14% Subordinated Debentures, net of related
tax effects.
21
<PAGE> 25
Fiscal Year Ended June 30, 1993 Compared With Fiscal Years Ended June 30, 1992
And 1991
Net sales of $1.8 billion in the fiscal year ended June 30, 1993 represents
the Company's twelfth consecutive year of increased sales. Net sales increased
$333.8 million or 23.5% over the fiscal year ended June 30, 1992 and $671.2
million or 61.8% as compared to the fiscal year ended June 30, 1991. Net sales
in the fiscal year ended June 30, 1993 as compared to the fiscal year ended year
ended June 30, 1992 benefitted from new business in the United States and
Europe, full year production of a second facility in Sweden for Volvo, of which
the Company assumed control in November 1991, and incremental volume on domestic
and Mexican programs. In comparison to the fiscal year ended June 30, 1991, net
sales increased in the fiscal year ended June 30, 1992 by $337.4 million or
31.1% due to the contribution of new business in North America and Europe,
volume increases in domestic and foreign carryover programs, including
production of replacement programs, and the acquisition of existing operations
from Saab and Volvo to handle new programs.
Gross profit and gross margin were $152.5 million and 8.7% in the fiscal
year ended June 30, 1993, $115.6 million and 8.1% in the fiscal year ended June
30, 1992 and $101.4 million and 9.3% in the fiscal year ended June 30, 1991.
Gross profit and gross margin in the fiscal year ended June 30, 1993 surpassed
that of the prior fiscal year due to the benefit of incremental volume,
including production of new business programs, productivity improvement programs
and improved operating performance at new facilities in North America, Europe
and Mexico. Partially offsetting the increase in gross profit were participation
in customer cost reduction programs, plant shutdown costs at a dedicated
facility in Finland, nonrecurring favorable foreign exchange effect on sales and
a retroactive price increase recognized in the first and second quarters of the
fiscal year ended June 30, 1992. Gross profit in the fiscal year ended June 30,
1992 increased as compared to the fiscal year ended June 30, 1991 as the overall
growth in sales activity coupled with productivity improvements more than offset
customer cost reduction programs. Comparing the same periods, gross margin
declined as a result of the incurrence of start-up costs at several new
facilities.
Selling, general and administrative expenses as a percentage of net sales
remained unchanged at 3.5% in the fiscal year ended June 30, 1993 as compared to
the prior fiscal year. The increase in actual expenses was largely the result of
increased research and development costs for future seating programs in the
United States, Canada and Europe. Further contributing to the increase in
expenses were administrative support expenses for Mexican operations and costs
associated with the establishment of customer business units in North America.
In comparison to the fiscal year ended June 30, 1991, selling, general and
administrative expenses in the fiscal year ended June 30, 1992 increased due to
design and development costs for future seat systems and technical and
administrative support for new and existing European and Mexican operations.
Operating income and operating margin were $81.1 million and 4.6% in the
fiscal year ended June 30, 1993, $56.8 million and 4.0% in the fiscal year ended
June 30, 1992 and $44.7 million and 4.1% in the fiscal year ended June 30, 1991.
The growth in operating income in the fiscal year ended June 30, 1993 as
compared to the prior fiscal year was due to incremental volume on established
seating programs and improved performance at new seat and seat cover facilities.
Partially offsetting the increase in operating income were pre-production and
facility costs for programs to be introduced after June 30, 1993, plant shutdown
costs and nonrecurring prior fiscal year adjustments noted above. As compared to
the fiscal year ended June 30, 1991, operating income in the fiscal year ended
June 30, 1992 increased due to the benefit of vehicle production increases by
automotive manufacturers on established programs in North America and Europe
which offset customer cost reduction programs and start-up costs associated with
the introduction of new seat systems within established business programs.
Non-cash depreciation and amortization charges were $40.7 million in the fiscal
year ended June 30, 1993, $35.0 million in the fiscal year ended June 30, 1992
and $36.8 million in the fiscal year ended June 30, 1991.
Interest expense in the fiscal year ended June 30, 1993 declined in
relation to the fiscal year ended June 30, 1992 and the fiscal year ended June
30, 1991 due to lower interest rates on bank debt, refinancing of certain
subordinated debt at a lower interest rate and the application of funds received
from the capital infusions initiated on September 27, 1991 and July 30, 1992.
See Notes 4 and 5 of the consolidated financial statements of the Company
included in this report on Form 10-K for additional information regarding these
transactions.
22
<PAGE> 26
Other expense, including state and local taxes, foreign exchange gain or
loss, minority interests and equity in income of affiliates, decreased in the
fiscal year ended June 30, 1993 in comparison to the fiscal year ended June 30,
1992 as reduced income derived from joint ventures accounted for under the
equity method coupled with the Company's write-off of its $1.7 million
investment in Probel S.A., a Brazilian company, were more than offset by the
expense portion of nonrecurring capitalization and related costs of $3.2 million
associated with the 1991 Transactions (as defined under "Certain Relationships
and Related Transactions") which were incurred in the fiscal year ended June 30,
1992. Other expense in the fiscal year ended June 30, 1992 increased in
comparison to the fiscal year ended June 30, 1991 due to costs related to the
1991 Transactions.
Net income of $10.1 million was realized in the fiscal year ended June 30,
1993 as compared to a net loss of $22.2 million in the fiscal year ended June
30, 1992. The net income of $10.1 million in the fiscal year ended June 30, 1993
reflects an $11.9 million provision for foreign national income taxes as
compared to an $8.2 million provision in the fiscal year ended June 30, 1992. In
comparison to a net loss of $33.2 million in the fiscal year ended June 30,
1991, the net loss of $22.2 million in the fiscal year ended June 30, 1992
reflects a $13.0 million provision for national income taxes as compared to a
provision of $14.0 million in the previous fiscal year and to a $5.1 million
extraordinary loss on the early retirement of debt.
United States Operations
Net sales in the United States were $765.7 million, $597.2 million and
$468.8 million in the fiscal years ended June 30, 1993, 1992 and 1991,
respectively. Net sales in the fiscal year ended June 30, 1993 surpassed the
fiscal year ended June 30, 1992 due to improved domestic car and truck
production on established seating programs in the second half of the fiscal year
ended June 30, 1993 coupled with a new Ford passenger car program and the
attainment of targeted production levels for a General Motors truck program
introduced in the fall of 1991. Net sales in the fiscal year ended June 30, 1992
reflect vehicle production increases from the prior fiscal year's depressed
operating levels by OEMs on certain established seating programs and the launch
of a new General Motors truck program.
Operating income and operating margin were $51.8 million and 6.8% in the
fiscal year ended June 30, 1993, $32.0 million and 5.4% in the fiscal year ended
June 30, 1992 and $6.2 million and 1.3% in the fiscal year ended June 30, 1991.
The growth in operating income and operating margin was due to the benefits
derived from incremental volume on established and new seating programs,
productivity improvements and improved operating performance at new seat systems
and seat cover facilities. Partially offsetting the increase in operating income
were participation in customer cost reduction programs and preproduction costs
associated with a new seating program scheduled to begin production in mid-1994.
Operating income and operating margin in the fiscal year ended June 30, 1992
increased as compared to the fiscal year ended June 30, 1991 due to the transfer
of component production from Canada in order to benefit from lower operating
costs and incremental volume on established seating programs.
Canadian Operations
Net sales from Canadian operations were $372.0 million in the fiscal year
ended June 30, 1993, $403.4 million in the fiscal year ended June 30, 1992 and
$349.9 million in the fiscal year ended June 30, 1991. Net sales in the fiscal
year ended June 30, 1993 were adversely impacted by market demand and vehicle
inventories as General Motors announced temporary plant shutdowns and production
adjustments on existing passenger car and light truck programs. In comparison to
the fiscal year ended June 30, 1991, net sales in the fiscal year ended June 30,
1992 benefitted from incremental volume on carryover General Motors car and
truck programs and to the launch of a new Hyundai passenger car program, which
was partially offset by the transfer of component production from Canada to the
United States.
Operating income and operating margin were $15.3 million and 4.1% in the
fiscal year ended June 30, 1993, $14.7 million and 3.6% in the fiscal year ended
June 30, 1992 and $35.3 million and 10.1% in the fiscal year ended June 30,
1991. Operating income in the fiscal year ended June 30, 1993 as compared to the
prior fiscal year benefitted from productivity improvement programs, favorable
exchange rate fluctuations and improved operating performance at a new seat
facility. Partially offsetting the increase in operating income were reduced
vehicle production schedules on existing programs and engineering costs
associated with a future Ford seating program. Operating income in the fiscal
year ended June 30, 1992 declined in relation to the
23
<PAGE> 27
fiscal year ended June 30, 1991 due to a shift in component production to the
Company's United States facilities in order to take advantage of lower operating
costs, participation in customer cost reduction programs, incremental costs
associated with the start-up of a new seat facility and to design and
development costs related to a future Ford seat system.
European Operations
Net sales in Europe were $432.5 million in the fiscal year ended June 30,
1993, $268.2 million in the fiscal year ended June 30, 1992 and $145.5 million
in the fiscal year ended June 30, 1991. Net sales in the fiscal year ended June
30, 1993 exceeded the prior fiscal year due to the addition of new operations in
Germany and Austria, the full year impact resulting from the acquisition of
facilities in Sweden and Finland and incremental volume on carryover programs in
Germany. Partially offsetting the increase in net sales were reduced vehicle
production schedules for established seating programs in Sweden and unfavorable
exchange rate fluctuations. Net sales in the fiscal year ended June 30, 1992
surpassed net sales in the prior fiscal year due to additional volume on an
existing program in Sweden and the acquisition of facilities in Sweden and
Finland in November 1991 and January 1992, respectively, while demand for
existing programs in Germany remained essentially unchanged.
The Company's European operations sustained an operating loss of $3.9
million in the fiscal year ended June 30, 1993 as compared to operating income
of $3.0 million in the fiscal year ended June 30, 1992 and an operating loss of
$3.7 million in the fiscal year ended June 30, 1991. The $6.9 million
unfavorable variance in the fiscal year ended June 30, 1993 was the result of
lower margin products introduced at an established facility in Germany,
technical and administration costs required to support European manufacturing
facilities, a retroactive price increase recognized in the first half of the
fiscal year ended June 30, 1992 and the devaluation of the Swedish krona, which
was partially offset by the favorable impact of foreign exchange rates. Also
contributing to the decrease in operating income were reserves established by
the Company for the anticipated plant shutdown costs at a dedicated facility in
Finland due to the customer transfer of production to alternative locations in
Europe. Partially offsetting the decrease in operating income was the overall
growth in sales activity, including production from new programs in Germany and
Austria and to the full year contribution of facilities in Sweden and Finland of
which the Company assumed control in the fiscal year ended June 30, 1992.
Operating income of $3.0 million in the fiscal year ended June 30, 1992
increased by $6.6 million as compared to the fiscal year ended June 30, 1991 due
to improved pricing on an existing program, incremental volume on carryover
programs and improved operating performance at an established facility in Sweden
which combined to more than offset pre-production, technical and administrative
costs necessary to support new facilities opened as a result of seating programs
awarded.
Mexican Operations
Net sales in Mexico were $186.3 million in the fiscal year ended June 30,
1993, $154.1 million in the fiscal year ended June 30, 1992 and $121.0 million
in the fiscal year ended June 30, 1991. Net sales in the fiscal year ended June
30, 1993 surpassed the fiscal year ended June 30, 1992 and the fiscal year ended
June 30, 1991 due to increased production activity on established General
Motors, Ford, Volkswagen and Chrysler programs.
Operating income and operating margin in Mexico were $17.9 million and 9.6%
in the fiscal year ended June 30, 1993, $7.2 million and 4.7% in the fiscal year
ended June 30, 1992 and $8.2 million and 6.8% in the fiscal year ended June 30,
1991. The increase in operating income and operating margin in the fiscal year
ended June 30, 1993 as compared to the prior fiscal year was due to the benefit
of additional sales, productivity improvement programs and improved
manufacturing performance at a seat cover facility. Operating income and
operating margin in the fiscal year ended June 30, 1992 declined in relation to
the fiscal year ended June 30, 1991 as a result of the Company's participation
in a customer cost reduction program and incremental start-up costs associated
with a new seat cover facility.
LIQUIDITY AND FINANCIAL CONDITION
On October 25, 1993, the Company amended and restated the Original Credit
Agreement (as amended and restated, the "Credit Agreement"), increasing the
Company's total availability to $425.0 million from
24
<PAGE> 28
$150.0 million, reducing the Company's average bank borrowing costs by
approximately 150 basis points and enabling the Company to refinance all of its
then outstanding indebtedness under the Company's Original Credit Agreement, to
retire the GECC Mortgage Loan and to finance a portion of the NAB Acquisition.
As of December 31, 1993, and after giving effect to the 1994 Note Offering, the
Offerings and the application of the net proceeds therefrom, the Company would
have had $178.4 million outstanding under the Credit Agreement ($36.8 million of
which would have been outstanding under letters of credit), resulting in $246.6
million unused and available. The Company also had term loans outstanding in
Germany of approximately $7.6 million.
Of the $230.7 million of borrowings actually outstanding under the Credit
Agreement as of December 31, 1993, $173.4 million related to the NAB
Acquisition. The remaining $57.3 million outstanding related to the early
retirement of term debt during the calendar year 1993.
Amounts available under the Credit Agreement will be reduced by $40.0
million every six months beginning October 31, 1996, and the Credit Agreement
will expire on October 31, 1998. Excluding amounts outstanding under the Credit
Agreement which will be due upon the expiration of the Credit Agreement, the
Company's scheduled principal payments are $1.2 million in calendar year 1994,
$2.4 million in calendar year 1995 and $1.2 million in each of the next three
calendar years.
Net cash provided by operating activities increased to $94.5 million in the
fiscal year ended June 30, 1993, compared to $48.0 million and $33.5 million in
the fiscal years ended June 30, 1992 and 1991, respectively. The increase in
cash flow in the fiscal year ended June 30, 1993 reflected higher operating
earnings and reduced working capital requirements. The reduced working capital
requirements were primarily the result of improved management of inventories,
customer tooling and accounts payable. Inventories declined by 12.0% in the
fiscal year ended June 30, 1993 despite record net sales in that year.
Net cash provided by operating activities increased to $17.1 million during
the six months ended December 31, 1993. Cash flow increases resulted from
improved operating earnings and management of accounts receivable, inventories
and accounts payable, offset by the use of proceeds necessary to finance the
working capital requirement of the NAB.
During the fiscal year ended June 30, 1993 and the six months ended
December 31, 1993, cash generated from operations and funds available under the
Original Credit Agreement were sufficient to meet the Company's debt service and
capital expenditure requirements. The Company believes that cash flows from
operations and funds available from existing credit facilities (principally the
Credit Agreement) will be sufficient to meet its future debt service
obligations, projected capital expenditures and working capital requirements.
Since July 1992, the Company has taken advantage of the favorable interest
rate environment by refinancing a substantial portion of its long-term debt to
reduce its ongoing interest expense. In February 1994, the Company refinanced
$135.0 million in aggregate principal amount of its 14% Subordinated Debentures
by issuing $145.0 million aggregate principal amount of 8 1/4% Subordinated
Notes due 2002. The additional proceeds were used to pay a 5.4% call premium and
a portion of the accrued interest due on the redemption of the 14% Subordinated
Debentures. In July 1992, the Company refinanced $85.0 million in aggregate
principal amount of its 14 1/4% Senior Subordinated Discount Notes by issuing
$125.0 million aggregate principal amount of the Senior Subordinated Notes. The
additional proceeds were used to prepay $15.0 million of term loans and
temporarily reduce outstanding revolving loans under the Original Credit
Agreement and for general corporate purposes.
In the fiscal years ended June 30, 1993 and 1992, gross proceeds of $20.4
and $75.0 million, respectively, were received from the issuance of Common
Stock. The Common Stock proceeds were used to reduce borrowings under the
Original Credit Agreement in each year, as well as fund the Company's expansion.
CAPITAL EXPENDITURES
For the fiscal year ended June 30, 1993, capital expenditures of the
Company were $31.6 million. For the fiscal years ended June 30, 1992 and June
30, 1991, capital expenditures of the Company were $27.9 million
25
<PAGE> 29
and $20.9 million, respectively. The Company estimates that it spent, in the
aggregate, between $10.0 million and $15.0 million in the fiscal years ended
June 30, 1992 and 1993, respectively, for equipment replacement and
refurbishment. For the six months ended December 31, 1993, capital expenditures
of the Company were $29.0 million. The Company anticipates that during the
fiscal year ending December 31, 1994, capital expenditures will aggregate
approximately $60.0 million, of which approximately $35.0 million will relate to
the addition of new facilities and the completion of previously started
facilities required to support new seat systems programs. The remainder will be
used to establish new programs in existing facilities and for ongoing
maintenance requirements. The Company anticipates that cash generated from
operations and borrowings under the Credit Agreement will provide sufficient
funds for planned capital expenditures.
ENVIRONMENTAL MATTERS
The Company is subject to local, state, federal and foreign laws,
regulations and ordinances (i) which govern activities or operations that may
have adverse environmental effects and (ii) that impose liability for the costs
of cleaning up and certain damages resulting from sites of past spills, disposal
or other releases of hazardous substances. The Company currently is engaged in
the cleanup of hazardous substances at certain sites owned, leased or operated
by the Company, including soil and groundwater cleanup at its facility in
Mendon, Michigan. Management believes that the Company will not incur compliance
costs or cleanup costs at its facilities with known contamination that would
have a material adverse effect on the Company's consolidated financial position
or future results of operations.
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of contamination
from hazardous substances at three Superfund sites where liability has not been
determined. The Company also may incur indemnification obligations for cleanup
at two sites which are the subject of Superfund proceedings. Management believes
that the Company is, or may be, responsible for less than one percent, if any,
of the total costs at each site. The Company has set aside reserves which
management believes are adequate to cover any such potential liabilities.
Management believes that such matters will not result in liabilities that will
have a material adverse effect on the Company's consolidated financial position
or future results of operations.
INFLATION AND ACCOUNTING POLICIES
Lear's contracts with its major customers generally provide for an annual
productivity price reduction and provide for the recovery of increases in
material and labor costs in some contracts. Cost reduction through design
changes, increased productivity and similar programs with the Company's
suppliers generally have offset changes in selling prices. The Company's cost
structure is comprised of a high percentage of variable costs. The Company
believes that this structure provides it with additional flexibility during
economic cycles.
In December 1990, the Financial Accounting Standards Board issued SFAS 106,
which sets forth new standards on accounting for post-retirement benefits other
than pensions. This standard requires that the expected cost of these benefits
must be charged to expense during the years in which the employees render
service. The Company prospectively has adopted the new standard for its domestic
plans effective July 1, 1993 and will adopt the standard no later than required
for its foreign plans. The Company's actuaries have determined the domestic
transition obligation at July 1, 1993 to be approximately $25.6 million (net of
a previously recorded liability of $6.3 million) before income taxes, which will
be amortized over 20 years. The Company's results for the six months ended
December 31, 1993 reflect an increase of approximately $3.3 million for
post-retirement benefits as computed under this new standard than would have
been recorded under the Company's previous method, which recognized these costs
on a cash basis. The additional expense of $3.3 million includes approximately
$641,000 of amortization of the Company's transition obligation.
In November 1992, the Financial Accounting Standards Board issued SFAS 112,
"Employers Accounting for Post-Employment Benefits." This statement requires
that employers accrue the cost of post-employment benefits during the employees'
active service. The Company will adopt this statement effective January 1, 1994
and believes that the adoption of this statement will not have a material effect
on its financial position or results of operations.
26
<PAGE> 30
ITEM 8 -- FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
LEAR SEATING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. 28
Consolidated Balance Sheets as of June 30, 1992, 1993 and December 31, 1993........... 29
Consolidated Statements of Operations for the years ended June 30, 1991, 1992 and 1993
and for the twelve months and six months ended December 31, 1993.................... 30
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1991,
1992
and 1993 and for the twelve months and six months ended December 31, 1993........... 31
Consolidated Statements of Cash Flows for the years ended June 30, 1991, 1992 and 1993
and for the twelve months and six months ended December 31, 1993.................... 32
Notes to Consolidated Financial Statements............................................ 33
Report of Independent Public Accountants.............................................. 54
Schedule II -- Amounts Receivable from Employees...................................... 55
Schedule V -- Property, Plant and Equipment........................................... 56
Schedule VI -- Accumulated Depreciation of Property, Plant and Equipment.............. 57
Schedule VII -- Guarantees of Securities of Other Issuers............................. 58
Schedule VIII -- Valuation and Qualifying Accounts.................................... 59
Schedule X -- Supplementary Income Statement Information.............................. 60
</TABLE>
27
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Seating Corporation:
We have audited the accompanying consolidated balance sheets of LEAR
SEATING CORPORATION AND SUBSIDIARIES ("the Company") as of June 30, 1992, June
30, 1993 and December 31, 1993 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended June 30,
1991, 1992 and 1993 and for the twelve months and six months ended December 31,
1993. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June 30,
1992, June 30, 1993 and December 31, 1993 and the results of its operations and
its cash flows for the years ended June 30, 1991, 1992 and 1993 and for the
twelve months and six months ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, as of
July 1, 1993, the Company changed its method of accounting for post-retirement
benefits other than pensions.
/s/ ARTHUR ANDERSEN & CO.
Detroit, Michigan,
February 10, 1994 (Except with
respect to the matters discussed in
Note 18, as to which the date is
March 2, 1994).
28
<PAGE> 32
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993
------------- ------------- -----------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 33,217 $ 53,787 $ 55,034
Accounts receivable, less allowance for doubtful accounts of $239 at
June 30, 1992, $516 at June 30, 1993 and $644 at December 31,
1993.............................................................. 178,070 215,745 272,421
Inventories......................................................... 46,427 40,877 71,731
Unbilled customer tooling........................................... 10,741 8,565 19,441
Other............................................................... 14,409 6,225 14,957
------------- ------------- -----------------
282,864 325,199 433,584
------------- ------------- -----------------
PROPERTY, PLANT AND EQUIPMENT:
Land................................................................ 13,718 13,405 31,289
Buildings and improvements.......................................... 79,252 73,015 114,514
Machinery and equipment............................................. 160,123 180,208 210,654
Construction in progress............................................ 3,144 2,094 5,030
------------- ------------- -----------------
256,237 268,722 361,487
Less -- Accumulated depreciation................................ (76,732) (103,527) (110,530)
------------- ------------- -----------------
179,505 165,195 250,957
------------- ------------- -----------------
OTHER ASSETS:
Goodwill, less accumulated amortization of $36,568 at June 30, 1992,
$46,116 at June 30, 1993 and $50,871 at December 31, 1993......... 317,913 309,165 403,694
Deferred financing fees, net........................................ 7,765 9,825 14,377
Investments in affiliates and other................................. 11,837 10,825 11,679
------------- ------------- -----------------
337,515 329,815 429,750
------------- ------------- -----------------
$ 799,884 $ 820,209 $ 1,114,291
------------- ------------- -----------------
------------- ------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings............................................... $ 11,982 $ 1,211 $ 48,155
Cash overdrafts..................................................... 8,324 17,317 19,769
Accounts payable.................................................... 204,865 248,454 298,326
Accrued liabilities................................................. 81,716 106,707 138,299
Financing lease obligation.......................................... 10,296 -- --
Current portion of long-term debt................................... 26,986 1,261 1,168
------------- ------------- -----------------
344,169 374,950 505,717
------------- ------------- -----------------
LONG-TERM LIABILITIES:
Deferred national income taxes...................................... 26,392 15,536 15,889
Long-term debt...................................................... 348,331 321,116 498,324
Other............................................................... 28,210 29,621 38,716
------------- ------------- -----------------
402,933 366,273 552,929
------------- ------------- -----------------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REDEMPTION:
Common stock subject to limited rights of redemption, $.01 par
value, 27,450 shares at June 30, 1992, 30,001 shares at June 30,
1993 and December 31, 1993, at estimated maximum redemption price
of $165 per share at June 30, 1992 and 1993 and $450 per share at
December 31, 1993................................................. 4,530 4,950 13,500
Notes receivable from sale of common stock.......................... (1,065) (1,065) (1,065)
------------- ------------- -----------------
3,465 3,885 12,435
------------- ------------- -----------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 250,000 shares authorized, no
shares issued..................................................... -- -- --
Common stock, $.01 par value, 1,500,000 shares authorized at June
30, 1992 and 1993 and 2,000,000 shares authorized at December 31,
1993, 1,027,096 shares issued at June 30, 1992, 1,145,757 shares
issued at June 30, 1993 and December 31, 1993, net of shares
subject to redemption............................................. 10 12 12
Additional paid-in capital.......................................... 131,650 150,993 156,917
Warrants exercisable for common stock............................... 10,000 10,000 10,000
Less -- Common stock held in treasury, 102,551 shares at June 30,
1992, 100,000 shares at June 30, 1993 and December 31, 1993, at
cost.............................................................. (10,255) (10,000) (10,000)
Retained deficit.................................................... (84,646) (74,532) (109,248)
Minimum pension liability adjustment................................ (2,858) (3,240) (4,164)
Cumulative translation adjustment................................... 5,416 1,868 (307)
------------- ------------- -----------------
49,317 75,101 43,210
------------- ------------- -----------------
$ 799,884 $ 820,209 $ 1,114,291
------------- ------------- -----------------
------------- ------------- -----------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
29
<PAGE> 33
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
------------------------------------ DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
---------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $1,085,319 $1,422,740 $1,756,510 $ 1,950,288 $1,005,218
Cost of sales....................... 983,890 1,307,099 1,604,011 1,780,073 932,983
Selling, general and administrative
expenses.......................... 41,596 50,074 61,898 62,717 27,666
Incentive stock and other
compensation expense (Note 14).... 1,353 (12) -- 18,016 18,016
Amortization of goodwill and other
intangible assets................. 13,810 8,746 9,548 9,929 4,755
---------- ---------- ---------- ------------- ------------
Operating income.................. 44,670 56,833 81,053 79,553 21,798
Interest expense.................... 61,676 55,158 47,832 45,656 24,767
Foreign currency exchange (gain)
loss.............................. 1,717 300 470 49 (193)
Other expense, net.................. 1,574 7,859 4,331 7,750 6,520
---------- ---------- ---------- ------------- ------------
Income (loss) before provision for
national income taxes, minority
interests in net income of
subsidiaries, equity income of
affiliates and extraordinary
item........................... (20,297) (6,484) 28,420 26,098 (9,296)
Provision for national income
taxes............................. 14,019 12,968 17,847 26,864 13,467
Minority interests in net income of
subsidiaries...................... 1,770 691 470 349 88
Equity (income) loss of
affiliates........................ (2,917) (3,013) (11) 1,032 181
---------- ---------- ---------- ------------- ------------
Income (loss) before extraordinary
item........................... (33,169) (17,130) 10,114 (2,147) (23,032)
Extraordinary loss on early
extinguishment of debt............ -- 5,100 -- 11,684 11,684
---------- ---------- ---------- ------------- ------------
Net income (loss)................... $ (33,169) $ (22,230) $ 10,114 $ (13,831) $ (34,716)
---------- ---------- ---------- ------------- ------------
---------- ---------- ---------- ------------- ------------
Net income (loss) per common share
(Note 18):
Income (loss) before extraordinary
item........................... $ (66.36) $ (20.36) $ 8.33 $ (2.00) $ (21.41)
Extraordinary loss................ -- (6.06) -- (10.86) (10.86)
---------- ---------- ---------- ------------- ------------
$ (66.36) $ (26.42) $ 8.33 $ (12.86) $ (32.27)
---------- ---------- ---------- ------------- ------------
---------- ---------- ---------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 34
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
WARRANTS MINIMUM
ADDITIONAL EXERCISABLE PENSION CUMULATIVE
COMMON PAID-IN INTO TREASURY RETAINED LIABILITY TRANSLATION
STOCK CAPITAL COMMON STOCK STOCK DEFICIT ADJUSTMENT ADJUSTMENT TOTAL
------ ---------- ------------ -------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1990............ $ 6 $ 59,454 $ 10,000 $(10,000) $ (29,247) $ -- $ 5,079 $ 35,292
Net loss........................ -- -- -- -- (33,169) -- -- (33,169)
Stock option compensation....... -- 1,353 -- -- -- -- -- 1,353
Re-acquisition of 650 shares of
common stock subject to
redemption from management
investors, at cost............ -- 65 -- (65) -- -- -- --
Foreign currency translation.... -- -- -- -- -- -- 859 859
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, JUNE 30, 1991............ 6 60,872 10,000 (10,065) (62,416) -- 5,938 4,335
Net loss........................ -- -- -- -- (22,230) -- -- (22,230)
Stock option compensation....... -- (12) -- -- -- -- -- (12)
Re-acquisition of 1,900 shares
of common stock subject to
redemption from management
investors, at cost............ -- 190 -- (190) -- -- -- --
Sale of additional 454,545
shares of common stock, net of
transaction expenses.......... 4 72,384 -- -- -- -- -- 72,388
Recognize minimum pension
liability adjustment.......... -- -- -- -- -- (2,858) -- (2,858)
Foreign currency translation.... -- -- -- -- -- -- (522) (522)
Restate common stock subject to
redemption to estimated
maximum redemption value...... -- (1,784) -- -- -- -- -- (1,784)
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, JUNE 30, 1992............ 10 131,650 10,000 (10,255) (84,646) (2,858) 5,416 49,317
Net loss........................ -- -- -- -- (10,771) -- -- (10,771)
Sale of additional 121,212
shares of common stock, net of
transaction expenses.......... 2 19,598 -- -- -- -- -- 19,600
Sale of 2,551 shares of treasury
stock to management
investors..................... -- (255) -- 255 -- -- -- --
Foreign currency translation.... -- -- -- -- -- -- (4,640) (4,640)
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, JANUARY 2, 1993.......... 12 150,993 10,000 (10,000) (95,417) (2,858) 776 53,506
Net income...................... -- -- -- -- 20,885 -- -- 20,885
Minimum pension liability
adjustment.................... -- -- -- -- -- (382) -- (382)
Foreign currency translation.... -- -- -- -- -- -- 1,092 1,092
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, JUNE 30, 1993............ 12 150,993 10,000 (10,000) (74,532) (3,240) 1,868 75,101
Net loss........................ -- -- -- -- (34,716) -- -- (34,716)
Incentive stock option
compensation.................. -- 14,474 -- -- -- -- -- 14,474
Minimum pension liability
adjustment.................... -- -- -- -- -- (924) -- (924)
Foreign currency translation.... -- -- -- -- -- -- (2,175) (2,175)
Restate common stock subject to
redemption to estimated
maximum redemption value...... -- (8,550) -- -- -- -- -- (8,550)
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, DECEMBER 31, 1993........ $ 12 $156,917 $ 10,000 $(10,000) $(109,248) $ (4,164) $ (307) $ 43,210
------ ---------- ------------ -------- --------- ---------- ---------- --------
------ ---------- ------------ -------- --------- ---------- ---------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE> 35
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE SIX
MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
------------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
-------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $(33,169) $(22,230) $ 10,114 $ (13,831) $ (34,716)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation and amortization of goodwill and other
intangible assets...................................... 36,758 34,974 40,654 42,559 21,866
Incentive stock option compensation...................... 1,353 (12) -- 14,474 14,474
Accreted interest on Senior Subordinated Discount
Notes.................................................. 10,322 4,738 -- -- --
Amortization of deferred financing fees.................. 4,096 3,198 2,972 2,594 1,065
Deferred national income taxes........................... (6,987) (1,672) (10,856) (12,342) (90)
Post-retirement benefits accrued......................... -- -- -- 3,273 3,273
Loss on retirement of property, plant and equipment...... 316 82 374 6,752 6,373
Extraordinary loss....................................... -- 5,100 -- 11,684 11,684
Other, net............................................... (3,103) (2,932) 482 (294) 583
Net change in working capital items...................... 23,921 26,801 50,760 58,388 (7,368)
-------- -------- --------- ------------ ------------
Net cash provided by operating activities.............. 33,507 48,047 94,500 113,257 17,144
-------- -------- --------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................. (20,892) (27,926) (31,595) (45,915) (28,989)
Acquisitions (Note 6)...................................... (7,527) (650) -- (172,065) (172,065)
Proceeds from sale of property, plant and equipment........ 2,860 996 1,044 968 133
Other, net................................................. (1,862) 1,593 (170) 2,226 2,207
-------- -------- --------- ------------ ------------
Net cash used by investing activities.................. (27,421) (25,987) (30,721) (214,786) (198,714)
-------- -------- --------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term revolving credit borrowings, net (Note 9)........ 8,952 (10,284) (24,130) 225,512 230,700
Additions to other long-term debt.......................... -- 20,000 125,000 -- --
Reductions in other long-term debt......................... (26,699) (69,209) (154,055) (103,618) (54,150)
Short-term borrowings, net................................. 21,653 (15,270) (10,771) 12,828 17,729
Proceeds from sale of common stock, net.................... -- 72,388 20,020 -- --
Deferred financing fees.................................... -- (1,839) (5,032) (10,508) (10,508)
Increase (decrease) in cash overdrafts..................... (2,205) (10,867) 8,993 3,321 2,452
Other, net................................................. (25) (190) -- -- --
-------- -------- --------- ------------ ------------
Net cash provided (used) by financing activities....... 1,676 (15,271) (39,975) 127,535 186,223
-------- -------- --------- ------------ ------------
Effect of foreign currency translation..................... 2,423 540 (3,234) (2,507) (3,406)
-------- -------- --------- ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS...................... 10,185 7,329 20,570 23,499 1,247
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............. 15,703 25,888 33,217 31,535 53,787
-------- -------- --------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 25,888 $ 33,217 $ 53,787 $ 55,034 $ 55,034
-------- -------- --------- ------------ ------------
-------- -------- --------- ------------ ------------
CHANGES IN WORKING CAPITAL, NET OF EFFECTS OF ACQUISITIONS:
Accounts receivable, net................................... $ 21,061 $(42,334) $ (42,564) $ (83,475) $ (60,319)
Inventories................................................ (2,682) (6,081) 4,219 2,947 (4,225)
Accounts payable........................................... 4,346 62,128 49,605 93,950 56,465
Accrued liabilities and other.............................. 1,196 13,088 39,500 44,966 711
-------- -------- --------- ------------ ------------
$ 23,921 $ 26,801 $ 50,760 $ 58,388 $ (7,368)
-------- -------- --------- ------------ ------------
-------- -------- --------- ------------ ------------
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest..................................... $ 47,304 $ 47,584 $ 41,130 $ 42,088 $ 20,235
-------- -------- --------- ------------ ------------
-------- -------- --------- ------------ ------------
Cash paid for income taxes................................. $ 22,900 $ 12,135 $ 21,843 $ 15,685 $ 4,255
-------- -------- --------- ------------ ------------
-------- -------- --------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE> 36
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear Seating
Corporation ("the Company"), a Delaware corporation, and its wholly-owned and
majority-owned subsidiaries. Investments in less than majority-owned businesses
are generally accounted for under the equity method (Note 7).
Prior to December 31, 1993, the Company was a wholly-owned subsidiary of
Lear Holdings Corporation ("Holdings"). On December 31, 1993, Holdings was
merged with and into the Company and the separate corporate existence of
Holdings ceased (the "Merger"). Prior to the Merger, Holdings had several other
wholly-owned subsidiaries, including LS Acquisition No. 14 ("LS No. 14"), Lear
Seating Holdings Corp. No. 50 ("LS No. 50") and Lear Seating Sweden, AB
("LS-Sweden"). In conjunction with the Merger, these companies became
subsidiaries of the Company. The Merger has been accounted for and reflected in
the accompanying financial statements as a merger of companies under common
control. As such, the financial statements of the Company have been restated as
if the current structure (post-Merger) had existed for all periods presented.
In February 1994, the Company changed its fiscal year end from June 30 to
December 31, effective December 31, 1993. Accordingly, the twelve months ended
December 31, 1993 does not constitute a fiscal year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Transactions and balances among the Company and its subsidiaries have been
eliminated in the consolidated financial statements.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally using the first-in, first-out method. Finished goods and
work-in-process inventories include material, labor and manufacturing overhead
costs.
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1992 1993 1993
-------- -------- ------------
<S> <C> <C> <C>
Raw materials................................... $ 29,931 $ 29,005 $ 42,470
Work-in-process................................. 9,849 8,331 23,394
Finished goods.................................. 6,647 3,541 5,867
-------- -------- ------------
$ 46,427 $ 40,877 $ 71,731
-------- -------- ------------
-------- -------- ------------
</TABLE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciable property is
depreciated over the estimated useful lives of the assets, using principally the
straight-line method as follows:
<TABLE>
<S> <C>
Buildings and improvements..................................... 20 to 25 years
Machinery and equipment........................................ 5 to 15 years
</TABLE>
Goodwill and Other Intangible Assets
Goodwill consists of purchase price and related acquisition costs in excess
of the fair value of identifiable assets acquired. Goodwill is amortized on a
straight-line basis over 40 years. The Company evaluates the
33
<PAGE> 37
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carrying value of goodwill for potential impairment on an ongoing basis. Such
evaluations compare operating income before amortization of goodwill of the
operations to which goodwill relates to the amortization recorded. The Company
also considers future anticipated operating results, trends and other
circumstances in making such evaluations.
Other intangible assets, consisting of a license agreement, were amortized
over the two-year term of the agreement, which expired in September 1990.
Deferred Financing Fees
Costs incurred in connection with the issuance of debt are amortized over
the term of the related indebtedness using the effective interest method.
Research and Development
Costs incurred in connection with the development of new products and
manufacturing methods are charged to operations as incurred. Such costs amounted
to $7,923,000, $11,387,000, $18,229,000, $16,177,000 and $7,062,000 for the
years ended June 30, 1991, 1992 and 1993 and for the twelve and six months ended
December 31, 1993, respectively.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are generally translated
into U.S. dollars at the exchange rates in effect at the end of the period.
Revenue and expense accounts are translated using a weighted average of exchange
rates in effect during the period. Translation adjustments that arise from
translating a foreign subsidiary's financial statements from functional currency
to U.S. dollars are reflected as cumulative translation adjustment in the
consolidated balance sheets.
Until December 31, 1992, non-monetary assets and liabilities of a foreign
subsidiary operating in Mexico were translated using historical rates, while
monetary assets and liabilities were translated at the exchange rates in effect
at the end of the period, with the U.S. dollar effects of exchange rate changes
included in the results of operations. As of January 1, 1993, Mexico's economy
was no longer deemed to be highly inflationary, and since then, the accounts of
the subsidiary operating in Mexico have been translated consistent with other
foreign subsidiaries.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions which operate as a hedge of a foreign currency
investment position, are included in the results of operations as incurred.
Income Taxes
The consolidated financial statements reflect the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", for
all periods presented. Since the twelve months ended December 31, 1993 does not
constitute a fiscal year, the consolidated national income tax provision for
this period was determined based upon the provisions of APB Opinion No. 28,
"Interim Financial Reporting."
Deferred national income taxes represent the effect of cumulative temporary
differences between income and expense items reported for financial statement
and tax purposes, and between the bases of various assets and liabilities for
financial statement and tax purposes. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence, it is deemed more
likely than not that the asset will not be realized.
34
<PAGE> 38
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Income (Loss) Per Common Share
The weighted average number of common shares outstanding for the years
ended June 30, 1991, 1992 and 1993 and for the twelve and six months ended
December 31, 1993 were 499,803; 841,464; 1,213,608; 1,075,758, and 1,075,758,
respectively. Shares exercisable under the 1988 Stock Option Plan, 1992 Stock
Option Plan, and the warrants (Note 14) are included in the weighted average
share calculation for the year ended June 30, 1993. These shares are not
included in the calculation of weighted average common shares outstanding in
other periods as their impact would be anti-dilutive. Weighted averages do not
reflect the stock split (Note 18).
Industry Segment Reporting
The Company is principally engaged in the design and manufacture of
automotive seating and, therefore, separate industry segment reporting is not
applicable.
Reclassifications
Certain items in prior years' financial statements have been reclassified
to conform with the presentation used in the periods ended December 31, 1993.
(3) 1994 REFINANCING -- SUBSEQUENT EVENT
On February 3, 1994, the Company completed a public offering of
$145,000,000 of 8 1/4% Subordinated Notes, due 2002 (the "8 1/4% Notes"). The
8 1/4% Notes require interest payments semi-annually on February 1 and August 1.
Fees and expenses related to the issuance of the 8 1/4% Notes are expected to be
approximately $5,000,000, including underwriting fees of $2,400,000 paid to
Lehman Brothers Inc.
The net proceeds from the sale of the 8 1/4% Notes were used to finance the
redemption of the 14% Subordinated Debentures. Simultaneous with the sale of
8 1/4% Notes, the Company called the 14% Subordinated Debentures for redemption
on March 4, 1994, at a redemption price equal to 105.4% of the outstanding
principal amount of $135,000,000, plus accrued interest to the redemption date.
The premium for early extinguishment of the 14% Subordinated Debentures and the
accelerated amortization of deferred financing fees totaled approximately
$10,718,000. This amount has been reflected as an extraordinary loss in the
periods ending December 31, 1993. The deferred tax benefit related to this
extraordinary loss was offset by a valuation allowance.
(4) 1992 REFINANCING AND SALE OF COMMON STOCK
On July 30, 1992, the Company sold $125,000,000 of 11 1/4% Senior
Subordinated Notes (the "11 1/4% Notes") (Note 9). Fees and expenses related to
issuance of the 11 1/4% Notes were approximately $5,032,000, including
consulting and underwriting fees of $2,200,000 paid to Lehman Brothers Inc. and
$50,000 paid to FIMA Finance Management, Inc., an affiliate of IFINT-USA Inc.
("FIMA"), for consulting fees.
Simultaneous with the sale of the 11 1/4% Notes, the Company issued 121,212
shares of common stock to the four merchant banking partnerships affiliated with
Lehman Brothers Inc. ("Lehman Funds") and FIMA, for total proceeds of
approximately $20,000,000. Fees and expenses related to the sale were $400,000,
paid to the Lehman Funds and FIMA. Certain management investors also purchased
2,551 shares of common stock previously held in treasury for approximately
$421,000.
On August 14, 1992, the Company redeemed the 14 1/4% Senior Subordinated
Discount Notes (the "Discount Notes") at a redemption price equal to 103% of the
outstanding principal amount of $85,000,000 plus accrued interest. The
prepayment premium for early extinguishment of these notes and the accelerated
35
<PAGE> 39
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortization of deferred financing fees totaled approximately $4,686,000 and
have been reflected as an extraordinary loss in the year ended June 30, 1992.
The deferred tax benefit related to this extraordinary loss was offset by a
valuation allowance.
A portion of the net proceeds from the sale of the 11 1/4% Notes and common
stock described above were used to finance the redemption of the Discount Notes
and to prepay $15,000,000 of the Domestic Term Loan. The balance of the proceeds
was designated for temporary reduction of outstanding borrowings on the Domestic
Revolving Credit Loan, expansion of the Company's operations and for general
corporate purposes.
(5) 1991 CAPITALIZATION AND RELATED TRANSACTIONS
Capitalization
Pursuant to a Stock Purchase Agreement dated September 27, 1991 (the "1991
Agreement"), the Company issued 454,545 shares of common stock to the Lehman
Funds and FIMA, for total proceeds of approximately $75,000,000. Fees and
expenses related to the sale and the transactions described below approximated
$7,700,000, of which approximately $3,200,000 was charged to other expense and
approximately $1,800,000 was capitalized as deferred financing fees. Such fees
and expenses included $4,500,000 paid to Lehman Brothers. The Lehman Funds and
FIMA also purchased all of the outstanding common stock and warrants owned by
the Company's former majority owner, General Electric Capital Corporation
("GECC"), and certain other stockholders.
Simultaneous with the sale of common stock, the Company obtained a
$20,000,000 real estate mortgage from GECC.
The net proceeds from the sale of common stock and the real estate mortgage
were used to reduce outstanding borrowings on the Domestic Revolving Credit Loan
by $32,000,000, to prepay the Domestic Term Loan by $48,500,000, and to purchase
LS-Sweden (see discussion below). A write-off of deferred financing fees of
$414,000 related to the prepayment of the Domestic Term Loan was recognized as
an extraordinary loss in the consolidated statement of operations for the year
ended June 30, 1992. The deferred tax benefit related to this extraordinary loss
was offset by a valuation allowance.
Assuming the sale of common stock and the retirement of debt had taken
place on July 1, 1990, the Company's unaudited pro forma net loss per common
share, which does not reflect the stock split (Note 18), for the year ended June
30, 1991 would have been $32.65. The pro forma results and the weighted average
shares outstanding used to calculate the pro forma net loss per common share
give effect to the reduced interest expense, net of related income taxes, and
the increased number of shares that would have been outstanding from July 1,
1990 through June 30, 1991, respectively.
The 1991 Agreement required the Company to make certain representations and
warranties prior to the sale with respect to its tax position and title to the
new shares. The Company is required to indemnify the parties to the Agreement
for any aggregate losses, liabilities, claims or expenses arising from a breach
of the aforementioned representations and warranties. Management is not
currently aware of any information or condition which will require
indemnification under the terms of the Agreement.
Lear Seating Sweden, AB
In October 1990, the Company entered into an agreement with Saab Automobile
AB ("Saab") in which, effective January 1991, Saab agreed to purchase, and the
Company agreed to supply, completely assembled seat modules on a just-in-time
basis to Saab's production facilities located in Trollhattan, Sweden. The
Company then established a Swedish subsidiary, Lear Seating Sweden, AB
("LS-Sweden").
36
<PAGE> 40
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1991, the Company sold its investment in the common stock of
LS-Sweden to GECC, then a major shareholder of the Company, for $100,000. The
Company entered into an agreement with GECC to continue to manage the operations
of LS-Sweden. GECC agreed to provide sufficient funds to LS-Sweden to finance
the purchase of inventory and equipment from Saab at estimated book value of
approximately $3,900,000 and to fund working capital requirements. In addition,
GECC agreed to provide the Company with the right of first refusal in the event
of sale, assignment, or transfer of substantially all of the assets or common
stock of LS-Sweden.
On September 27, 1991, and as part of the capitalization, the Company
reacquired all common stock of LS-Sweden from GECC for $100,000. In addition,
the Company repaid cumulative advances from GECC to LS-Sweden and related
expenses in the aggregate amount of approximately $7,300,000.
The sale and purchase transactions described above related to LS-Sweden's
common stock are accounted for as transactions between entities under common
control. Accordingly, the Company's consolidated financial statements include
the balance sheet accounts and results of operations of LS-Sweden as if it were
a subsidiary of the Company since its inception in January 1991.
(6) ACQUISITIONS
Acquisition of Certain Assets of the North American Seating Business of Ford
Motor Company ("NAB")
On November 1, 1993, the Company purchased certain assets of the Plastics
and Trim Products Division of Ford Motor Company ("Ford") consisting of (i) the
U.S. operations that supply seat trim and trimmed seat assemblies to Ford which
are manufactured by Favesa, S.A. de C.V. ("Favesa"); (ii) all of the shares of
Favesa, a maquiladora company located in Juarez, Mexico; and (iii) certain
inventories and assets employed in the operation of Favesa (collectively
referred as the "NAB"). In connection with this transaction, the Company and
Ford entered into a long-term supply agreement for certain products produced by
these operations at agreed upon prices.
This acquisition was accounted for as a purchase, and accordingly, the
operating results of the NAB have been included in the accompanying financial
statements since the date of acquisition. The purchase price, after giving
effect to an adjustment related to changes in NAB working capital, was financed
and allocated to the purchased assets as follows (in thousands):
<TABLE>
<S> <C>
Cash consideration paid to seller, net of cash acquired of
$2,671........................................................... $170,727
Execution of promissory notes (Notes 8 and 9)...................... 10,500
Fees and expenses (including $500 paid to Lehman Brothers Inc.).... 1,338
--------
Total purchase price.......................................... $182,565
--------
--------
Property, Plant and Equipment...................................... $ 85,565
Net non-cash working capital....................................... 773
Other assets purchased and liabilities assumed, net................ (3,057)
Goodwill........................................................... 99,284
--------
Total purchase price allocation............................... $182,565
--------
--------
</TABLE>
The cash portion of the purchase price was financed with borrowings under
the Company's domestic credit agreement (Note 9). The purchase price and related
allocation may be revised in the next year based on revisions of preliminary
estimates of fair values made at the date of purchase. Such changes are not
expected to be significant.
As part of the NAB Acquisition, the Company has exercised an option to
cause Ford to purchase two facilities in consideration of Ford cancelling a
$19,915,000 note payable (Note 8). The Company has
37
<PAGE> 41
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercised this option, and the sale of these facilities is scheduled to occur on
March 15, 1994. The Company will lease one of these facilities until the earlier
of March 15, 1996 or the date it vacates this facility.
Assuming the acquisition had taken place as of the beginning of each period
presented, the consolidated pro forma results of operations of the Company would
have been as follows, after giving effect to certain adjustments, including
certain operations adjustments consisting principally of managements' estimates
of the effects of product pricing adjustments negotiated in connection with the
acquisition and incremental ongoing NAB engineering, overhead and administrative
expenses, increased interest expense and goodwill amortization and the related
income tax effects (Unaudited; in thousands, except per share data):
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, 1993 DECEMBER 31, 1993 DECEMBER 31, 1993
------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales........................................ $ 2,235,150 $ 2,361,422 $ 1,159,482
Income (loss) before extraordinary item.......... 26,580 5,058 (19,582)
Net income (loss)................................ 26,580 (6,626) (31,266)
Income per common share before extraordinary
item........................................... 21.90 3.96 (18.20)
Net income (loss) per common share............... 21.90 (5.28) (29.06)
</TABLE>
The pro forma information above does not reflect the stock split (Note 18)
and does not purport to be indicative of the results that actually would have
been obtained if the operations were combined during the periods presented, and
is not intended to be a projection of future results or trends.
Acquisition of Central de Industrias, S.A. de C.V. ("CISA")
From April 1991 through October 1991, the Company, through LS No. 50,
acquired approximately 4,514,600 shares of the common stock of CISA for an
aggregate purchase price of approximately $8,177,000, including related
expenses. These shares represented approximately 38% of CISA's outstanding
common stock. Prior to this purchase, the Company had owned approximately 61% of
CISA's common stock, resulting in a total ownership interest of over 99%. These
acquisitions were accounted for as purchases and the aggregate purchase price
approximated the fair value of net assets acquired.
Acquisition of Fair Haven Industries, Inc.
In July 1990, the Company, through a subsidiary, acquired 9,600 newly
issued shares of the common stock of Fair Haven Industries, Inc. ("FHI") for
approximately $750,000, plus related expenses. The shares acquired represented
approximately 49% of FHI's outstanding common stock. The Company also received
an option to acquire an additional 2% of FHI common stock for nominal additional
consideration and an irrevocable proxy to vote those shares, resulting in a
controlling interest. The 2% option was exercised in December 1991.
The acquisition was accounted for as a purchase. The excess of the purchase
price over the fair value of net assets acquired was approximately $3,801,000
with the minority interest valued at zero. Subsequently, the Company determined
that the excess purchase price of $3,801,000 was not realizable and recorded the
amount as a charge against operating income in the year ended June 30, 1991. FHI
has been included in the Company's consolidated financial statements for all
periods presented.
In August 1993, the Company reached a settlement with the former owners of
FHI in which the Company agreed to purchase the remaining 49% of FHI's common
stock and release all claims against the former owners arising from the July
1990 purchase. The settlement amount, plus related legal costs, was not
significant and was charged to operating income in the year ended June 30, 1993.
38
<PAGE> 42
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INVESTMENTS IN AFFILIATES
The investments in affiliates are as follows:
<TABLE>
<CAPTION>
PERCENT BENEFICIAL OWNERSHIP
-----------------------------------
JUNE 30, DECEMBER
-------------------- 31,
1991 1992 1993 1993
---- ---- ---- -----------
<S> <C> <C> <C> <C>
General Seating of America, Inc.................. 35% 35% 35% 35%
General Seating of Canada, Ltd................... 35 35 35 35
Pacific Trim Corporation Ltd. (Thailand)......... 20 20 20 20
Probel, S.A. (Brazil)............................ 31 31 31 31
Moldeados Interiores, S.A. de C.V................ 38 -- -- --
</TABLE>
The above businesses are generally involved in the manufacture of
automotive seating and seating components.
Investments in General Seating of America, Inc., General Seating of Canada,
Ltd., and Pacific Trim Corporation Ltd. are accounted for using the equity
method. In June 1993, the Company revalued its investment in Probel, which was
previously accounted for using the cost method, to zero due to continued
operating losses and other factors impacting its potential recoverability. A
charge of approximately $1,700,000 was recorded and is reflected in equity
income of affiliates in the consolidated statement of operations in the year
ended June 30, 1993 and the twelve months ended December 31, 1993.
The investment in Moldeados Interiores, S.A. de C.V. was accounted for
using the equity method until its sale in July 1991. The gain recognized on this
sale was not material.
The aggregate investment in affiliates was $6,379,000, $4,756,000 and
$4,593,000 as of June 30, 1992, June 30, 1993 and December 31, 1993,
respectively.
Dividends of approximately $930,000 and $985,000 were received by the
Company in the years ended June 30, 1992 and 1993, respectively, from General
Seating of Canada, Ltd. No other dividends were received by the Company from
affiliates during 1991, 1992 or 1993.
39
<PAGE> 43
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized group financial information for affiliates accounted for under
the equity method is as follows (unaudited, in thousands):
<TABLE>
<CAPTION>
JUNE JUNE DECEMBER
30, 30, 31,
1992 1993 1993
------- ------- -----------
<S> <C> <C> <C>
Balance sheet data:
Current assets................................ $19,032 $17,004 $18,277
Non-current assets............................ 15,154 13,717 14,081
Current liabilities........................... 18,847 16,757 14,478
Non-current liabilities....................... 5,700 5,700 5,700
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
-------------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
-------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales.......................... $114,705 $129,220 $119,837 $ 122,448 $ 58,399
Gross profit....................... 17,541 19,335 13,001 12,593 4,915
Income before provision for income
taxes........................... 8,491 11,643 10,833 7,317 2,347
Net income......................... 7,926 8,246 6,566 5,031 1,409
</TABLE>
The Company had sales to affiliates of approximately $10,393,000,
$11,787,000, $10,711,000, $11,123,000 and $5,315,000 for the years ended June
30, 1991, 1992 and 1993, and for the twelve and six months ended December 31,
1993, respectively. Included in the Company's accounts receivable are trade
receivables from affiliates of approximately $1,056,000, $878,000 and $936,000
at June 30, 1992, June 30, 1993 and December 31, 1993, respectively.
The Company has guaranteed certain obligations of its affiliates. The
Company's share of amounts outstanding under guaranteed obligations as of June
30, 1992, June 30, 1993 and December 31, 1993 amounted to $3,484,000, $3,224,000
and $6,253,000, respectively.
(8) SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993
------------- ------------- -----------------
<S> <C> <C> <C>
Lines of credit..................................... $11,982 $ 1,211 $18,152
Unsecured notes payable --
Ford Motor Company, non-interest bearing.......... -- -- 9,300
Ford Motor Company, 11 1/2% (Note 6).............. -- -- 19,915
Trade acceptance payable, 7 1/4%.................... -- -- 788
------------- ------------- -----------------
$11,982 $ 1,211 $48,155
------------- ------------- -----------------
------------- ------------- -----------------
</TABLE>
At December 31, 1993, the Company has lines of credit available with banks
of approximately $69,190,000, subject to certain restrictions imposed by the
credit agreement (Note 9). Short-term bank
40
<PAGE> 44
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
borrowings, in U.S. dollar equivalents, based on the amounts outstanding at the
end of each month were as follows for the indicated period (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, TWELVE MONTHS SIX MONTHS
----------------------------- ENDED ENDED
1991 1992 1993 DECEMBER 31, 1993 DECEMBER 31, 1993
------- ------- ------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Maximum amount outstanding at any
month-end....................... $21,119 $18,092 $16,260 $18,152 $18,152
Average amount outstanding........ 12,540 15,394 8,198 6,908 7,362
Weighted average interest rate at
end of period................... 16.9% 8.7% 8.6% 6.3% 6.3%
Weighted average interest rate
during the period............... 16.3% 13.2% 9.9% 6.0% 6.9%
</TABLE>
(9) LONG-TERM DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993
------------- ------------- -----------------
<S> <C> <C> <C>
Senior Debt:
Term loans --
Domestic....................................... $ 51,300 $ 33,550 $ --
Canadian....................................... 50,000 -- --
German......................................... 9,887 8,827 7,592
------------- ------------- -----------------
111,187 42,377 7,592
------------- ------------- -----------------
Revolving credit loans --
Domestic....................................... 16,662 -- 230,700
Canadian....................................... 7,468 -- --
------------- ------------- -----------------
24,130 -- 230,700
------------- ------------- -----------------
Mortgage payable.................................. 20,000 20,000 --
------------- ------------- -----------------
155,317 62,377 238,292
Less -- Current portion................... (26,986) (1,261) (1,168)
------------- ------------- -----------------
128,331 61,116 237,124
------------- ------------- -----------------
Subordinated Debt:
14 1/4% Senior Subordinated Discount Notes (Note
4)............................................. 85,000 -- --
11 1/4% Senior Subordinated Notes (Note 4)........ -- 125,000 125,000
14% Subordinated Debentures (Note 3).............. 135,000 135,000 135,000
------------- ------------- -----------------
220,000 260,000 260,000
------------- ------------- -----------------
Note Payable........................................ -- -- 1,200
------------- ------------- -----------------
$ 348,331 $ 321,116 $ 498,324
------------- ------------- -----------------
------------- ------------- -----------------
</TABLE>
In October 1993, the Company amended and restated its existing credit
agreement with a syndicate of banks. The new $425 million revolving credit
facility (the "Credit Agreement") enabled the Company to replace the existing
Domestic Term Loan and Domestic Revolving Credit Facility, finance the cash
portion of the NAB Acquisition (Note 6) and retire an existing $20 million
mortgage payable. The accelerated amortization of deferred financing fees
related to the previous Domestic Term Loan and Domestic Revolving Credit
Facility and the mortgage payable totaled approximately $1,464,000. This amount,
net of the related tax benefit of $498,000, has been reflected as an
extraordinary loss in the periods ending December 31, 1993.
41
<PAGE> 45
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with this transaction, the Company paid $500,000 to Lehman
Brothers for consulting fees. In addition, Lehman Commercial Paper, Inc., an
affiliate of the Lehman Funds, is a managing agent of the Credit Agreement and
received fees of $666,000.
Loans under the Credit Agreement bear interest at the Eurodollar rate plus
3/4% to 1 1/2% or prime rate plus 0% to 1/2%, depending on the satisfaction of
certain financial ratios. The Company pays a commitment fee on the unused
balance of the facility of 3/8% to 1/2%, depending on certain ratios. At
December 31, 1993, interest was being charged at the Eurodollar rate plus 1 1/2%
and the commitment fee is 1/2%. Amounts available to be drawn under the Credit
Agreement will decrease by $40 million on each of October 31, 1996, April 29,
1997, October 31, 1997 and April 29, 1998. The facility expires on October 31,
1998.
The German Term Loan bears interest at a stated rate of 9.125%, is payable
in Deutschemarks in quarterly installments of approximately $292,000 through
March 2000, and is collateralized by certain assets of a German subsidiary.
The Canadian Revolving Credit Loan bears interest at the prime rate plus
1/2%, is payable in September 1994, with an option to extend through September
1995 with the consent of the lending banks, and is guaranteed by letters of
credit issued under the Credit Agreement.
The Company had available unused long-term revolving credit commitments of
$157,454,000 at December 31, 1993, net of $36,846,000 of outstanding letters of
credit. Borrowings on revolving credit loans were $665,594,000, $737,839,000,
$549,208,000, $986,308,000 and $820,519,000 for the years ended June 30, 1991,
1992 and 1993 and the twelve and six months ended December 31, 1993,
respectively. Repayments on revolving credit loans were $656,642,000,
$748,123,000, $573,338,000, $760,796,000 and $589,819,000 for the years ended
June 30, 1991, 1992 and 1993 and the twelve and six months ended December 31,
1993, respectively.
The weighted average interest rates on the Senior Debt as of June 30, 1992,
June 30, 1993 and December 31, 1993 were 7.3%, 7.5% and 5.1%, respectively.
The 11 1/4% Senior Subordinated Notes, due in 2000, require payments of
interest semi-annually.
The 14% Subordinated Debentures were redeemed subsequent to December 31,
1993 in connection with the refinancing (Note 3).
The Credit Agreement and Subordinated Debt Agreements contain numerous
restrictive covenants. The most restrictive of these covenants are financial
covenants related to maintenance of certain levels of net worth, operating
profit and interest coverage. The financial covenants generally become more
restrictive with the passage of time. These agreements also, among other things,
significantly restrict the Company's ability to incur additional indebtedness,
declare dividends, make investments and advances, sell assets and limit capital
expenditures to specified amounts. The German Term Loan agreement also contains
certain restrictive covenants.
As of December 31, 1993, the Company is unable to declare dividends. Loans
under the Credit Agreement and the German Term Loan are collectively
collateralized by substantially all assets of the Company.
The scheduled maturities of long-term debt at December 31 for the five
succeeding years before consideration of the refinancing described in Note 3 are
as follows (in thousands):
<TABLE>
<S> <C>
1994............................................................... $ 1,168
1995............................................................... 2,368
1996............................................................... 1,168
1997............................................................... 1,168
1998............................................................... 265,618
</TABLE>
42
<PAGE> 46
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) NATIONAL INCOME TAXES
A summary of income (loss) before provision for national income taxes and
components of the provision for national income taxes for the indicated periods
is as follows (in thousands):
<TABLE>
<CAPTION>
TWELVE SIX
MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
------------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
-------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Income (loss) before
provision for national
income taxes, minority
interests in net income
of subsidiaries, equity
income of affiliates
and extraordinary item:
Domestic............ $(47,302) $(19,964) $ 6,759 $ (3,433) $(15,105)
Foreign............. 27,005 13,480 21,661 29,531 5,809
-------- -------- ------- ------------ ------------
$(20,297) $ (6,484) $28,420 $ 26,098 $ (9,296)
-------- -------- ------- ------------ ------------
-------- -------- ------- ------------ ------------
Domestic provision for
national income taxes:
Current provision... $ -- $ 2,146 $ 6,873 $ 7,442 $ 5,404
-------- -------- ------- ------------ ------------
Deferred --
Deferred
provision...... 958 2,603 1,481 904 943
Tax benefit of net
operating
losses carried
back........... (6,119) -- -- -- --
Benefit of
previously
unbenefitted
net operating
loss
carryforwards... -- -- (2,446) (2,953) (1,613)
-------- -------- ------- ------------ ------------
(5,161) 2,603 (965) (2,049) (670)
-------- -------- ------- ------------ ------------
Foreign provision for
national income taxes:
Current provision... 21,006 12,494 17,449 22,477 9,739
-------- -------- ------- ------------ ------------
Deferred --
Deferred
provision...... 242 (2,123) (1,725) (1,006) (1,006)
Adjustment due to
changes in
enacted tax
rates.......... -- -- (993) -- --
Tax benefit of
operating
losses......... (2,068) (2,152) (2,792) -- --
-------- -------- ------- ------------ ------------
(1,826) (4,275) (5,510) (1,006) (1,006)
-------- -------- ------- ------------ ------------
Provision for national
income taxes........... $ 14,019 $ 12,968 $17,847 $ 26,864 $ 13,467
-------- -------- ------- ------------ ------------
-------- -------- ------- ------------ ------------
</TABLE>
43
<PAGE> 47
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the United States Federal statutory income tax rate
of 35% for the periods ended December 31, 1993 and 34% for the years ended June
30, 1991, 1992 and 1993 and the consolidated effective national income tax rate
for the periods indicated are summarized as follows (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
----------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
------- ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Income (loss) before provision for
national income taxes, minority
interests in net income of
subsidiaries, equity income of
affiliates and extraordinary item
multiplied by the United States Federal
statutory rate......................... $(6,901) $(2,205) $ 9,663 $ 9,135 $ (3,254)
Utilization of domestic net operating
loss carryforwards..................... -- -- (2,446) (2,953) (1,613)
Differences between domestic and
effective foreign tax rates............ 9,999 3,636 901 3,664 2,420
Operating losses not tax benefitted...... 6,663 8,562 3,674 4,850 4,280
Increase in valuation allowance.......... -- -- 426 8,775 10,850
Domestic income taxes provided on foreign
earnings............................... -- -- 1,564 875 70
Amortization of goodwill................. 4,259 2,974 3,246 3,344 1,531
Other, net............................... (1) 1 819 (826) (817)
------- ------- ------- ------------- ------------
$14,019 $12,968 $17,847 $26,864 $ 13,467
------- ------- ------- ------------- ------------
------- ------- ------- ------------- ------------
</TABLE>
Deferred national income taxes represent temporary differences in the
recognition of certain items for income tax and financial reporting purposes.
The components of the net deferred national income tax liability are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1992 1993 1993
-------- -------- ------------
<S> <C> <C> <C>
Deferred national income tax liabilities:
Depreciation and basis difference.......... $ 28,165 $ 18,837 $ 13,788
Financing and intercompany transactions.... 9,348 9,855 9,663
Taxes provided on unremitted foreign
earnings................................ 2,346 1,930 6,054
Benefit plans.............................. -- 1,234 1,264
Other...................................... 1,440 1,740 2,646
-------- -------- ------------
$ 41,299 $ 33,596 $ 33,415
-------- -------- ------------
-------- -------- ------------
</TABLE>
44
<PAGE> 48
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1992 1993 1993
-------- -------- ------------
<S> <C> <C> <C>
Deferred national income tax assets:
Tax credit carryforwards................... $(18,105) $(18,105) $(23,671)
Tax loss carryforwards..................... (7,187) (13,203) (17,082)
Benefit plans.............................. (3,676) (4,645) (6,153)
Accruals................................... (3,306) (3,654) (5,435)
Deferred financing fees.................... (2,922) (1,640) (4,742)
Minimum pension liability adjustment....... (1,563) (1,962) (1,784)
Alternative minimum tax carryforward....... (1,242) (1,053) (432)
Deferred compensation...................... (1,324) (1,324) (7,640)
Other...................................... (413) (1,398) (1,290)
-------- -------- ------------
(39,738) (46,984) (68,229)
Valuation allowance.......................... 24,209 30,108 51,454
-------- -------- ------------
(15,529) (16,876) (16,775)
-------- -------- ------------
Net deferred national income tax liability... $ 25,770 $ 16,720 $ 16,640
-------- -------- ------------
-------- -------- ------------
</TABLE>
The net deferred national income tax liability includes deferred tax assets
of $2,173,000, $81,000 and $58,000 as of June 30, 1992, June 30, 1993 and
December 31, 1993, respectively, and a deferred tax liability of $1,551,000,
$1,265,000 and $1,561,000 as of June 30, 1992, June 30, 1993 and December 31,
1993, respectively, which have been classified as current in the consolidated
balance sheets and a deferred tax asset of $752,000 as of December 31, 1993,
which has been classified as long-term in the consolidated balance sheet.
Deferred national income taxes and withholding taxes have been provided on
earnings of the Company's Canadian subsidiary to the extent it is anticipated
that the earnings will be remitted in the form of future dividends. Deferred
national income taxes and withholding taxes have not been provided on the
undistributed earnings of the Company's European and Mexican subsidiaries as
such amounts are deemed to be permanently reinvested. The cumulative
undistributed earnings at December 31, 1993 on which the Company had not
provided additional national income taxes and withholding taxes were
approximately $19,942,000.
In June 1993, the Company settled with the Canadian taxing authorities on
the open issues relating to its Canadian tax returns through 1989. In addition,
a settlement was reached with Revenue Canada regarding treatment of certain
items relating to the Company's financing subsidiaries. The expense related to
these settlements was provided by the Company prior to the year ended June 30,
1993, and did not have a material effect on the Company's results of operations
or financial position.
As of December 31, 1993 the Company had a net operating loss carryforward
for United States income tax return purposes of approximately $1,039,000,
subject to certain limitations, expiring in the year 2006. In addition, two
European subsidiaries had net operating loss carryforwards for tax return
purposes totalling approximately $31,500,000, which have no expiration date, and
FHI had a net operating loss carryforward of approximately $7,200,000, expiring
in 2007. The foreign tax credit carryforwards expire in 1994 through 1996.
(11) RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans covering
substantially all domestic employees and certain employees in foreign countries.
The Company's salaried plans provide benefits based on a career average earnings
formula. Hourly pension plans provide benefits under flat benefit formulas. The
Company also has a contractual arrangement with a key employee which provides
for supplemental retirement benefits. In general, the Company's policy is to
fund these plans based on legal requirements, tax considerations, and local
practices.
45
<PAGE> 49
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of the Company's pension expense include the following for the
periods indicated (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
----------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
------- ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Service cost...................................... $ 2,229 $ 2,921 $ 3,096 $ 3,466 $ 1,918
Interest cost on projected benefit obligation..... 5,309 6,211 5,908 6,142 3,188
Actual return on assets........................... (2,942) (4,894) (6,618) (7,847) (4,538)
Net amortization and deferral..................... (1,886) 471 1,785 3,131 2,238
------- ------- ------- ------------- ------------
Net pension expense............................... $ 2,710 $ 4,709 $ 4,171 $ 4,892 $ 2,806
------- ------- ------- ------------- ------------
------- ------- ------- ------------- ------------
</TABLE>
The following table sets forth a reconciliation of the funded status of the
Company's defined benefit pension plans to the related amounts recorded in the
consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993
---------------------------- ---------------------------- ----------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ABO EXCEEDS ASSETS EXCEED ABO EXCEEDS ASSETS EXCEED ABO EXCEEDS
ABO ASSETS ABO ASSETS ABO ASSETS
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation.... $11,393 $47,570 $13,946 $48,001 $11,938 $ 58,076
Non-vested benefit
obligation................. 42 2,171 809 1,908 77 3,139
------------- ----------- ------------- ----------- ------------- -----------
Accumulated benefit obligation
(ABO)........................ 11,435 49,741 14,755 49,909 12,015 61,215
Effects of anticipated future
compensation increases....... 983 8,366 9,135 883 1,075 10,097
------------- ----------- ------------- ----------- ------------- -----------
Projected benefit obligation... 12,418 58,107 23,890 50,792 13,090 71,312
Plan assets at fair value...... 16,952 36,674 21,942 36,034 18,317 42,833
------------- ----------- ------------- ----------- ------------- -----------
Projected benefit obligation in
excess of (less than) plan
assets....................... (4,534) 21,433 1,948 14,758 (5,227) 28,479
Unamortized net loss........... (3,027) (6,838) (2,946) (4,943) (1,270) (12,461)
Unrecognized prior service
cost......................... -- 165 641 (2,041) (20) (1,065)
Unamortized net asset
(obligation) at transition... 5,047 (1,922) 4,039 (1,413) 4,001 (1,580)
Adjustment required to
recognize minimum
liability.................... -- 6,545 -- 7,601 -- 11,105
------------- ----------- ------------- ----------- ------------- -----------
Accrued pension (asset)
liability recorded in the
consolidated balance
sheets....................... $(2,514) $19,383 $ 3,682 $13,962 $(2,516) $ 24,478
------------- ----------- ------------- ----------- ------------- -----------
------------- ----------- ------------- ----------- ------------- -----------
</TABLE>
46
<PAGE> 50
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The actuarial assumptions used in determining pension expense and the
funded status information shown above were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
--------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
---- ---- ---- ------------- ------------
<S> <C> <C> <C> <C> <C>
Discount rate:
Domestic plans.............................. 8% 8% 8% 7.5-8% 7.5-8%
Foreign plans............................... 10% 9% 7-9% 7-9% 7-8%
Rate of salary progression:
Domestic plans.............................. 6% 6% 6% 6% 6%
Foreign plans............................... 4% 1-5% 3-5% 3-5% 3-5%
Long-term rate of return on assets:
Domestic plans.............................. 9% 9% 9% 9% 9%
Foreign plans............................... 10% 9% 9% 8-9% 8%
</TABLE>
Plan assets include cash equivalents, common and preferred stock, and
government and corporate debt securities.
Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions," required the Company to record a minimum liability as of June 30,
1992, June 30, 1993 and December 31, 1993. As of December 31, 1993, the Company
recorded a long-term liability of $11,105,000, an intangible asset of
$5,157,000, which is included with other assets, and a reduction in
stockholders' equity of $4,164,000, net of income taxes of $1,784,000.
The Company also sponsors defined contribution plans and participates in
Government sponsored programs in certain foreign countries. Contributions are
determined as a percentage of each covered employee's salary. The Company also
participates in multi-employer pension plans for certain of its hourly employees
and contributes to those plans based on collective bargaining agreements. The
aggregate cost of the defined contribution and multi-employer pension plans
charged to operations was $1,001,000, $1,093,000, $1,335,000, $1,712,000 and
$1,002,000 for the years ended June 30, 1991, 1992 and 1993 and the twelve and
six months ended December 31, 1993, respectively.
(12) POST-RETIREMENT BENEFITS
On July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers Accounting for Post-retirement Benefits Other Than
Pensions" for its domestic plans. This standard, which must be adopted for
foreign plans no later than 1995, requires that the expected cost of post-
retirement benefits be charged to expense during the years in which the
employees render service to the Company.
The Company's domestic post-retirement plans generally provide for the
continuation of medical benefits for all employees who complete 10 years of
service after age 45 and retire from the Company at age 55 or older. The Company
does not fund its post-retirement benefit obligation. Rather, payments are made
as costs are incurred by covered retirees.
As of July 1, 1993, the Company's accumulated post-retirement benefit
obligation was approximately $31,925,000. Because the Company had previously
recorded a liability of $6,277,000 related to these benefits, the net transition
obligation, which will be amortized over 20 years, was $25,648,000. The
following table sets forth a reconciliation of the funded status of the accrued
post-retirement benefits liability to the related
47
<PAGE> 51
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts recorded in the financial statements as of December 31, 1993, excluding
the amounts related to the acquisition of the NAB as discussed below (in
thousands):
<TABLE>
<S> <C>
Accumulated Post-retirement Benefit Obligation ("APBO"):
Retirees......................................................... $ 10,776
Fully eligible active plan participants.......................... 4,051
Other active participants........................................ 19,783
Unamortized Transition Obligation.................................. (25,007)
--------
Liability Recorded in the Balance Sheet (includes current liability
of $675)......................................................... $ 9,603
--------
--------
</TABLE>
Components of the Company's post-retirement benefit expense based upon an
adoption date of July 1, 1993 for the indicated periods were as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1993 1993
------------ ------------
<S> <C> <C>
Service cost......................................... $1,719 $1,719
Interest cost on APBO................................ 1,313 1,313
Amortization of transition obligation................ 641 641
------------ ------------
Net post-retirement benefit expense.................. $3,673 $3,673
------------ ------------
------------ ------------
</TABLE>
The APBO as of December 31, 1993 was calculated using an assumed discount
rate of 7.5%. Health care costs were assumed to rise 13.8% in 1994, with the
assumed rate increase decreasing by 1% per year to a minimum of 6.4% in 2008. To
illustrate the significance of these assumptions, a rise in the assumed rate of
health care cost increases of 1% each year would increase the APBO as of
December 31, 1993 by $4,702,000 and increase the net post-retirement benefit
expense by $577,000 for the six months ended December 31, 1993.
In connection with the acquisition of the NAB (Note 6) the Company assumed
certain post-retirement obligations. Accordingly, a liability for the estimated
APBO of $965,000 was recorded in purchase accounting.
Prior to July 1, 1993, post-retirement benefit costs were expensed as
incurred. Benefit payments were approximately $1,076,000, $883,000, $826,000,
$758,000 and $400,000 for the years ended June 30, 1991, 1992 and 1993 and for
the twelve and six months ended December 31, 1993.
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers Accounting for
Post-Employment Benefits." This statement requires that employers accrue the
cost of post-employment benefits during the employees' active service. The
Company will adopt this statement effective January 1, 1994. The Company
believes that the adoption of this statement will not have a material effect on
its financial position of results of operations.
(13) COMMITMENTS AND CONTINGENCIES
The Company is the subject of various lawsuits, claims and environmental
contingencies. In addition, the Company has been identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("Superfund"), for the cleanup of
contamination from hazardous substances at three Superfund sites, and may incur
indemnification obligations for cleanup at two additional sites. In the opinion
of management, the expected liability resulting from these matters is adequately
covered by amounts accrued, and will not have a material adverse effect on the
Company's consolidated financial position or future results of operations.
Two of the Company's European subsidiaries factor their accounts receivable
with a bank subject to limited recourse provisions and are charged a discount
fee equal to the current LIBOR rate plus 1%. The
48
<PAGE> 52
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of such factored receivables, which was not included in accounts
receivable in the consolidated balance sheet at December 31, 1993, was
approximately $38,485,000.
Lease commitments at December 31, 1993 under noncancelable operating leases
with terms exceeding one year are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1994................................................................ $15,802
1995................................................................ 13,300
1996................................................................ 8,987
1997................................................................ 7,666
1998................................................................ 6,905
1999 and thereafter................................................. 41,233
-------
Total............................................................. $93,893
-------
-------
</TABLE>
The Company's operating leases cover principally buildings and
transportation equipment. Rent expense incurred under all operating leases and
charged to operations was $4,760,000, $8,598,000, $11,573,000, $12,599,000 and
$6,529,000 for the years ended June 30, 1991, 1992 and 1993 and the twelve and
six months ended December 31, 1993, respectively.
In January 1992, the Company entered into an agreement with Volvo
Personvagnar AB ("Volvo") to either purchase or cause a third party to purchase
certain real property from Volvo. From January 1, 1992 until September 1992, the
Company accounted for the transaction as a financing lease. In September 1992,
the City of Bengtsfors, Sweden purchased this property from Volvo and
subsequently leased it to LS-Sweden for a term of 15 years. The lease with the
City of Bengtsfors requires quarterly lease payments of approximately $500,000,
and is accounted for as an operating lease. These payments are included in the
table above.
(14) WARRANTS, STOCK OPTIONS AND COMMON STOCK SUBJECT TO REDEMPTION
Warrants
In 1988, the Company sold warrants exercisable into 100,000 shares of
common stock. The warrants, which entitle the holder to receive one share of
common stock for no additional consideration, became exercisable on December 1,
1993. None of the warrants have been exercised as of December 31, 1993.
1988 Stock Option Plan
At December 31, 1993, 64,584 options granted under a stock option plan
dated September 29, 1988 were issued and outstanding. The options vested over a
three-year period and are currently exercisable at $42.50 per share. The
difference between the exercise price and the market value at the date of grant
was amortized to expense over the vesting period.
1992 Stock Option Plan
Under the 1992 stock option plan, the Company may grant up to 58,000 stock
options to the management investors and certain other management personnel.
During fiscal 1993, the Company granted 41,700 of these options. On December 31,
1993, the remaining 16,300 options under this plan were granted. Pursuant to a
plan amendment effective December 31, 1993, all of the options became
immediately vested and will generally become exercisable at $165 per share on
September 28, 1996, or sooner in the case of certain triggering events.
Stock option expense for the six months and twelve months ended December
31, 1993 was approximately $14,474,000, and is included in incentive stock and
other compensation expense in the accompanying statements of operations. The
expense recognized reflects the immediate vesting of the previously unvested
49
<PAGE> 53
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options on December 31, 1993, based on the estimated market value of the common
stock of the Company of $450 per share.
In addition to the stock option expense, incentive stock and other
compensation expense in the accompanying statements of operations includes
$3,542,000 in special management bonuses approved by the Board of Directors as
of December, 1993.
The changes in the number of options outstanding for the periods indicated
are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
------ ------ ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Options outstanding at beginning
of period..................... 67,642 69,996 64,584 106,284 106,284
Options Granted............... 2,942 -- 41,700 16,300 16,300
Options Revoked............... 588 5,412 -- -- --
------ ------ ------- ------------- ------------
Options outstanding at end of
period........................ 69,996 64,584 106,284 122,584 122,584
------ ------ ------- ------------- ------------
------ ------ ------- ------------- ------------
</TABLE>
Under the terms of the Stockholders' and Registration Rights Agreement,
shares of common stock held by certain management investors are subject to
redemption at the option of the holder in the event of death, disability and
certain events of termination, as defined in the agreement. In such event, the
redemption price is the higher of cost or fair market value, as defined, as of
the date of the exercise of the option. Shares subject to such a redemption
option at December 31, 1993 total 30,001, distributed among 33 investors (Note
18).
Because no public market exists for the common stock of the Company and no
fair market value appraisal of the common stock had been performed, shares
subject to limited rights of redemption were stated at cost of $100 per share as
of June 30, 1991. At June 30, 1992 and June 30, 1993, these shares were stated
at $165 per share, representing the maximum estimated fair market value of the
stock based on the price per share in the September 1991 capitalization
transaction (Note 5) and the sale of common stock in July 1992 (Note 4). At
December 31, 1993, the shares are stated at $450 per share, representing an
estimated market value of the common stock of the Company. In the accompanying
consolidated balance sheets, common stock subject to redemption is stated net of
the related notes receivable from sale of common stock.
50
<PAGE> 54
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) GEOGRAPHIC SEGMENT DATA
Worldwide operations are divided into four geographic segments -- United
States, Canada, Europe and Mexico. The European geographic segment includes
operations in Austria, Finland, France, Germany, Sweden and the United Kingdom.
Geographic segment information is as follows (in thousands):
<TABLE>
<CAPTION>
TWELVE SIX
MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
------------------------------------ DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales:
United States....... $ 490,611 $ 684,979 $ 847,133 $1,060,555 $ 587,064
Canada.............. 360,705 427,457 389,924 397,488 179,695
Europe.............. 145,540 268,175 434,146 407,488 191,844
Mexico.............. 128,880 173,383 203,218 208,647 106,410
Intersegment
sales............ (40,417) (131,254) (117,911) (123,890) (59,795)
---------- ---------- ---------- ------------ ------------
$1,085,319 $1,422,740 $1,756,510 $1,950,288 $1,005,218
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
Operating Income:
United States....... $ 6,181 $ 32,002 $ 51,752 $ 61,283 $ 27,081
Canada.............. 35,303 14,695 15,308 25,628 12,128
Europe.............. (3,667) 2,952 (3,907) (9,668) (7,608)
Mexico.............. 8,206 7,172 17,900 20,326 8,213
Unallocated(a)...... (1,353) 12 -- (18,016) (18,016)
---------- ---------- ---------- ------------ ------------
$ 44,670 $ 56,833 $ 81,053 $ 79,553 $ 21,798
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
Identifiable Assets:
United States....... $ 341,676 $ 350,694 $ 369,982 $ 679,686 $ 679,686
Canada.............. 209,813 197,371 200,195 180,144 180,144
Europe.............. 112,982 179,482 181,077 170,838 170,838
Mexico.............. 53,525 64,572 59,130 68,249 68,249
Unallocated(b)...... 11,674 7,765 9,825 14,377 14,377
---------- ---------- ---------- ------------ ------------
$ 729,670 $ 799,884 $ 820,209 $1,113,294 $1,113,294
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
</TABLE>
- -------------------------
(a) Unallocated Operating Income consists of incentive stock option and other
compensation (Note 14).
(b) Unallocated Identifiable Assets consist of deferred financing fees.
The net assets of foreign subsidiaries were $169,461,000, $236,019,000,
$215,255,000 and $231,691,000 at June 30, 1991, 1992 and 1993 and December 31,
1993, respectively. The Company's share of foreign net income (loss) was
$8,438,000, $7,544,000, $8,508,000, $6,034,000 and $(2,412,000) for the years
ended June 30, 1991, 1992 and 1993 and for the twelve and six months ended
December 31, 1993, respectively.
A majority of the Company's sales are to automobile manufacturing
companies. The following is a summary of the percentage of net sales to major
customers:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
-------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
---- ---- ---- ------------- ------------
<S> <C> <C> <C> <C> <C>
General Motors Corporation.......... 51% 52% 48% 45% 42%
Ford Motor Company.................. 26 22 22 28 33
</TABLE>
51
<PAGE> 55
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, a significant portion of remaining sales are to the above
automobile manufacturing companies through various other automotive suppliers or
to affiliates of these automobile manufacturing companies. The majority of the
Company's accounts receivable are due from the customers listed above.
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)(A)
<TABLE>
<CAPTION>
THIRTEEN
WEEKS THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED ENDED ENDED
SEPTEMBER 28, DECEMBER 28, MARCH 28, JUNE 30,
1991 1991 1992 1992
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales................ $ 284,431 $359,725 $339,233 $439,351
Gross profit............. 17,761 27,164 25,244 45,472
Income (loss) before
extraordinary item..... (14,689) 926 (4,667) 1,300
Net income (loss)........ (15,103) 926 (4,667) (3,386)
Income (loss) before
extraordinary item per
common share........... $(28.94) $.84 $(4.90) $1.37
Net income (loss) per
common share........... $(29.76) $.84 $(4.90) $(3.56)
</TABLE>
<TABLE>
<CAPTION>
FOURTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED ENDED ENDED
OCTOBER 3, JANUARY 2, APRIL 3, JUNE 30,
1992(B) 1993(B) 1993 1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales............... $359,136 $452,304 $458,022 $487,048
Gross profit............ 21,415 33,104 40,224 57,756
Income (loss) before
extraordinary item.... (12,291) 1,520 6,120 14,765
Net income (loss)....... (12,291) 1,520 6,120 14,765
Income (loss) before
extraordinary item per
common share.......... $(11.86) $1.24 $5.00 $12.06
Net income (loss) per
common share.......... $(11.86) $1.24 $5.00 $12.06
</TABLE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
OCTOBER 2, DECEMBER 31,
1993 1993
-------------- --------------
<S> <C> <C>
Net sales.......................................... $399,066 $606,152
Gross profit....................................... 21,827 50,408
Income (loss) before extraordinary item............ (10,829) (12,203)
Net income (loss).................................. (11,364) (23,352)
Income (loss) before extraordinary item per common
share............................................ $(10.08) $(11.34)
Net income (loss) per common share................. $(10.56) $(21.71)
</TABLE>
- -------------------------
(a) Dollar amounts are in thousands, except per share data.
(b) The provision for national income taxes for the fourteen weeks ended October
3, 1992 and the thirteen weeks ended January 2, 1993 were approximately
$1,687,000 and $2,763,000, respectively.
52
<PAGE> 56
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) FINANCIAL INSTRUMENTS
The Company hedges certain foreign currency risks through the use of
forward foreign exchange contracts and options. Such contracts are deemed as and
are effective as hedges of the related transactions. As such, gains and losses
from these contracts are deferred and are recognized on the settlement date,
consistent with the related transactions. As of December 31, 1993, the Company
and its subsidiaries have contracted to exchange up to $107,000,000 U.S. for
fixed amounts of Canadian dollars. In addition, the Company and its subsidiaries
have contracted to purchase 4,000,000 British Pounds for fixed amounts of German
Marks. The contracts mature during 1994.
The historical cost of certain of the Company's financial instruments
varies from the fair values of these instruments. The instruments listed below
have fair values which differ significantly from their carrying values. The
carrying values of all other financial instruments approximate the fair values
of such instruments.
<TABLE>
<CAPTION>
ITEM CARRYING VALUE FAIR VALUE
-------------------------------------------------- -------------- ------------
<S> <C> <C>
German Term Loan.................................. $ 7,592,000 $ 8,869,000
Senior Subordinated Notes......................... 125,000,000 136,250,000
Subordinated Debentures........................... 135,000,000 143,100,000
</TABLE>
Fair values of financial instruments were determined as follows:
Cash, Accounts Receivable, Accounts Payable and Notes Payable -- Fair
values were estimated to be equal to carrying values because of the
short-term, highly liquid nature of these instruments.
Senior Indebtedness -- Fair values were determined based on rates
currently available to the Company for similar borrowings of the same
maturities.
Subordinated Debt -- Fair values were determined by reference to
market prices of the securities in recent public transactions.
(18) STOCK SPLIT, INITIAL PUBLIC OFFERING AND AMENDMENT TO STOCKHOLDERS AND
REGISTRATION RIGHTS AGREEMENT -- SUBSEQUENT EVENTS
On March 2, 1994, the Company's Board of Directors approved a 33 to 1 split
of the common stock of the Company to be effective immediately prior to a
planned public offering of the Company's common stock. References to the numbers
of shares of common stock, stock options and income (loss) per share in the
accompanying financial statements and notes thereto have not been adjusted to
give effect to the stock split.
After giving pro forma effect to the stock split, income (loss) per common
share would have been as follows for the periods indicated.
<TABLE>
<CAPTION>
TWELVE SIX
MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
----------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
------ ----- ---- ------------ ------------
<S> <C> <C> <C> <C> <C>
Income (loss) before extraordinary item........ $(2.01) $(.62) $.25 $ (.06) $ (.65)
Extraordinary loss............................. -- (.18) -- (.33) (.33)
------ ----- ---- ------ ------
Net Income (loss).............................. $(2.01) $(.80) $.25 $ (.39) $ (.98)
------ ----- ---- ------ ------
------ ----- ---- ------ ------
</TABLE>
The Board of Directors also approved an initial public offering of the
Company's common stock. Upon consummation of the offering, the Stockholders and
Registration Rights Agreement will be amended in order to, among other things,
relax certain restrictions on transfers of common stock owned by the parties to
the agreement and remove the rights of certain management investors to require
the Company to redeem their stock upon death, disability and certain events of
termination.
53
<PAGE> 57
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Seating Corporation:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of LEAR SEATING CORPORATION AND
SUBSIDIARIES ("the Company") included in this Form 10-K and have issued our
report thereon dated February 10, 1994 (except with respect to the matters
discussed in Note 18, as to which the date is March 2, 1994). Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedules listed in the Index to Financial Statements and
Supplementary Data are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the consolidated financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN & CO.
Detroit, Michigan
February 10, 1994
54
<PAGE> 58
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM EMPLOYEES(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END
NAME OF PERSON OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
- ---------------------------------------------------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 30, 1991:
K. Way, Chairman and Chief Executive Officer............ $ 368 $ 42 $ -- $ 410
R. Rossiter, President and Chief Operating Officer...... 368 42 -- 410
J. Vandenberghe, Executive Vice President, Chief
Financial Officer and Secretary....................... 123 14 -- 137
J. Hollars, Senior Vice President -- International
Operations............................................ 123 14 -- 137
T. Melson, Senior Vice President -- Manufacturing
Planning.............................................. 123 14 -- 137
R. Murphy, Vice President and General Manager --
Chrysler/BMW Operations............................... 123 14 -- 137
R. Williams, Vice President -- European JIT
Operations............................................ 123 14 -- 137
---------- --------- ---------- ----------
$1,351 $ 154 $ -- $1,505
---------- --------- ---------- ----------
---------- --------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1992:
K. Way, Chairman and Chief Executive Officer............ $ 410 $ 36 $ -- $ 446
R. Rossiter, President and Chief Operating Officer...... 410 36 -- 446
J. Vandenberghe, Executive Vice President, Chief
Financial Officer and Secretary....................... 137 12 -- 149
J. Hollars, Senior Vice President -- International
Operations............................................ 137 12 -- 149
T. Melson, Senior Vice President -- Manufacturing
Planning.............................................. 137 12 -- 149
R. Murphy, Vice President and General Manager --
Chrysler/BMW Operations............................... 137 12 -- 149
R. Williams, Vice President -- European JIT
Operations............................................ 137 -- (137) --
---------- --------- ---------- ----------
$1,505 $ 120 $ (137) $1,488
---------- --------- ---------- ----------
---------- --------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1993:
K. Way, Chairman and Chief Executive Officer............ $ 446 $ 34 $ -- $ 480
R. Rossiter, President and Chief Operating Officer...... 446 34 -- 480
J. Vandenberghe, Executive Vice President, Chief
Financial Officer and Secretary....................... 149 11 -- 160
J. Hollars, Senior Vice President -- International
Operations............................................ 149 11 -- 160
T. Melson, Senior Vice President -- Manufacturing
Planning.............................................. 149 11 -- 160
R. Murphy, Vice President and General Manager --
Chrysler/BMW Operations............................... 149 11 -- 160
---------- --------- ---------- ----------
$1,488 $ 112 $ -- $1,600
---------- --------- ---------- ----------
---------- --------- ---------- ----------
FOR THE SIX MONTHS ENDED DECEMBER 31, 1993:
K. Way, Chairman and Chief Executive Officer............ $ 480 $ 18 $ -- $ 498
R. Rossiter, President and Chief Operating Officer...... 480 18 -- 498
J. Vandenberghe, Executive Vice President, Chief
Financial Officer and Secretary....................... 160 6 -- 166
J. Hollars, Senior Vice President -- International
Operations............................................ 160 6 -- 166
T. Melson, Senior Vice President -- Manufacturing
Planning.............................................. 160 6 -- 166
R. Murphy, Vice President and General Manager --
Chrysler/BMW Operations............................... 160 6 -- 166
---------- --------- ---------- ----------
$1,600 $ 60 $ -- $1,660
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
- -------------------------
(A) Long-term notes were issued in connection with the sale of stock to certain
management investors. These notes, including accrued interest, mature on
January 31, 1997 and bear interest at a rate of prime plus 1 1/2% through
December 31, 1993.
55
<PAGE> 59
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS OTHER END
DESCRIPTION OF PERIOD AT COST RETIREMENTS CHANGES(B) OF PERIOD
- ---------------------------------- ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 30, 1991:
Land............................ $ 12,697 $ -- $ (900) $ 499 $ 12,296
Buildings and improvements...... 58,490 5,487 (1,532) 2,989 65,434
Machinery and equipment......... 126,579 15,376 (4,194) 2,546 140,307
Construction in progress........ 2,334 29(a) (440) 1 1,924
---------- --------- ----------- ---------- ----------
$ 200,100 $ 20,892 $ (7,066) $ 6,035(c) $ 219,961
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1992:
Land............................ $ 12,296 $ 1,626 $ (205) $ 1 $ 13,718
Buildings and improvements...... 65,434 14,608 (244) (546) 79,252
Machinery and equipment......... 140,307 22,014 (1,746) (452) 160,123
Construction in progress........ 1,924 478(a) (197) 939 3,144
---------- --------- ----------- ---------- ----------
$ 219,961 $ 38,726(e) $ (2,392) $ (58)(d) $ 256,237
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1993:
Land............................ $ 13,718 $ 1,474 $ (1,608) $ (179) $ 13,405
Buildings and improvements...... 79,252 3,722 (9,004) (955) 73,015
Machinery and equipment......... 160,123 27,353 (3,303) (3,965) 180,208
Construction in progress........ 3,144 (954)(a) (47) (49) 2,094
---------- --------- ----------- ---------- ----------
$ 256,237 $ 31,595 $ (13,962)(f) $ (5,148) $ 268,722
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE SIX MONTHS ENDED DECEMBER
31, 1993:
Land............................ $ 13,405 $ 18,417 $ (7) $ (526) $ 31,289
Buildings and improvements...... 73,015 43,523 -- (2,024) 114,514
Machinery and equipment......... 180,208 49,650 (13,988) (5,216) 210,654
Construction in progress........ 2,094 2,964(a) -- (28) 5,030
---------- --------- ----------- ---------- ----------
$ 268,722 $ 114,554(g) $ (13,995) $ (7,794) $ 361,487
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
</TABLE>
- -------------------------
(a) Net of transfers to various property, plant and equipment categories.
(b) Includes changes due to fluctuations in foreign currency exchange rates.
(c) Amount includes $5,977,000 of additions to property, plant and equipment
through acquisitions (Note 6 to the financial statements).
(d) Amount includes $234,000 of additions to property, plant and equipment
through acquisitions (Note 6 to the financial statements).
(e) Amount includes $10,800,000 of additions to property, plant and equipment
through a financing lease obligation (Note 13 to the financial statements).
(f) Amount includes $10,800,000 of retirement of property, plant and equipment
through release from a financing lease obligation (Note 13 to the financial
statements).
(g) Amount includes $85,565,000 of additions to property, plant and equipment
through acquisitions (Note 6 to the financial statements).
56
<PAGE> 60
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION
OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS OTHER END
DESCRIPTION OF PERIOD AT COST RETIREMENTS CHANGES(A) OF PERIOD
- ------------------------------------------ ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 30, 1991:
Buildings and improvements.............. $ 3,985 $ 2,429 $ (180) $ (1) $ 6,233
Machinery and equipment................. 27,246 20,519 (2,086) (133) 45,546
---------- --------- ----------- ---------- ----------
$ 31,231 $22,948 $(2,266) $ (134) $ 51,779
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1992:
Buildings and improvements.............. $ 6,233 $ 2,892 $ (219) $ (69) $ 8,837
Machinery and equipment................. 45,546 23,336 (1,177) 190 67,895
---------- --------- ----------- ---------- ----------
$ 51,779 $26,228 $(1,396) $ 121 $ 76,732
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1993:
Buildings and improvements.............. $ 8,837 $ 3,202 $ (294) $ (149) $ 11,596
Machinery and equipment................. 67,895 27,904 (2,328) (1,540) 91,931
---------- --------- ----------- ---------- ----------
$ 76,732 $31,106 $(2,622) $ (1,689) $ 103,527
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE SIX MONTHS ENDED DECEMBER 31,
1993:
Building and improvements............... $ 11,596 $ 1,655 $ (331) $ (269) $ 12,651
Machinery and equipment................. 91,931 15,456 (7,157) (2,351) 97,879
---------- --------- ----------- ---------- ----------
$ 103,527 $17,111 $(7,488) $ (2,620) $ 110,530
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
</TABLE>
- -------------------------
(a) Includes changes due to fluctuations in foreign currency exchange rates.
57
<PAGE> 61
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE VII -- GUARANTEES OF SECURITIES OF OTHER ISSUERS
<TABLE>
<CAPTION>
TOTAL AMOUNT
TITLE OF ISSUE OF GUARANTEED AND
NAME OF ISSUER SECURITIES GUARANTEED OUTSTANDING NATURE OF GUARANTEE
- ------------------------ ------------------------ -------------- ------------------------
<S> <C> <C> <C>
General Seating of Letter of credit $1,995,000 Guarantee of payment of
America, Inc. securing an Economic amounts outstanding on
Development Revenue guaranteed obligations
Bond, Series 1988
General Seating of Banker's Acceptance $4,258,000 Guarantee of payment of
Canada, Ltd. unsecured bank loan
--------------
$6,253,000
--------------
--------------
</TABLE>
58
<PAGE> 62
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OTHER END
DESCRIPTION OF PERIOD ADDITIONS RETIREMENTS CHANGES(A) OF PERIOD
- ------------------------------------------ ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 30, 1991:
Valuation of accounts deducted from
related assets:
Allowance for doubtful accounts...... $ 32 $ 170 $ (103) $ -- $ 99
Reserve for unmerchantable
inventories........................ 681 2,321 (1,663) (24) 1,315
Deferred tax asset valuation
allowance.......................... 18,105 -- -- -- 18,105
---------- --------- ----------- ---------- ----------
$ 18,818 $ 2,491 $(1,766) $ (24) $ 19,519
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1992:
Valuation of accounts deducted from
related assets:
Allowance for doubtful accounts...... $ 99 $ 206 $ (68) $ 2 $ 239
Reserve for unmerchantable
inventories........................ 1,315 2,840 (1,740) (34) 2,381
Deferred tax asset valuation
allowance.......................... 18,105 6,104 -- -- 24,209
---------- --------- ----------- ---------- ----------
$ 19,519 $ 9,150 $(1,808) $ (32) $ 26,829
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1993:
Valuation of accounts deducted from
related assets:
Allowance for doubtful accounts...... $ 239 $ 473 $ (187) $ (9) $ 516
Reserve for unmerchantable
inventories........................ 2,381 1,390 (1,976) (56) 1,739
Deferred tax asset valuation
allowance.......................... 24,209 8,345 (2,446) -- 30,108
---------- --------- ----------- ---------- ----------
$ 26,829 $10,208 $(4,609) $ (65) $ 32,363
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE SIX MONTHS ENDED DECEMBER 31,
1993:
Valuation of accounts deducted from
related assets:
Allowance for doubtful accounts...... $ 516 $ 318 $ (144) $ (46) $ 644
Reserve for unmerchantable
inventories........................ 1,739 617 (243) (180) 1,933
Deferred tax asset valuation
allowance.......................... 30,108 22,959 (1,613) -- 51,454
---------- --------- ----------- ---------- ----------
$ 32,363 $23,894 $(2,000) $ (226) $ 54,031
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
</TABLE>
- -------------------------
(a) Includes changes due to fluctuations in foreign currency exchange rates.
59
<PAGE> 63
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE FOR THE FOR THE SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Charged to costs and
expenses -- Maintenance
and repairs............... $15,294 $20,545 $24,883 $26,181 $ 13,739
</TABLE>
Amounts charged to costs and expenses for (1) taxes, other than payroll and
income taxes, (2) royalties, and (3) advertising costs have been omitted since
each is less than 1% of net sales.
60
<PAGE> 64
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no disagreement between the management of the Company and
the Company's accountants on any matter of accounting principles or practices or
financial statement disclosure.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the individuals who are
directors and executive officers of the Company.
<TABLE>
<CAPTION>
YEARS WITH THE
NAME AGE POSITION COMPANY
- ------------------------------ --- ------------------------------------------- --------------
<S> <C> <C> <C>
Kenneth L. Way................ 54 Chairman of the Board and Chief Executive 28(1)
Officer
Robert E. Rossiter............ 48 President, Chief Operating Officer and 22(1)
Director
James H. Vandenberghe......... 44 Executive Vice President and Chief 21
Financial Officer
James A. Hollars.............. 49 Senior Vice President -- International 20
Operations
Barthold H. Hoemann........... 54 Senior Vice President -- North American JIT 13
Operations
Theodore E. Melson............ 50 Senior Vice President -- Manufacturing 6
Planning
Donald J. Stebbins............ 36 Vice President, Treasurer and Assistant 2
Secretary
Joseph F. McCarthy............ 50 Vice President, Secretary and General --
Counsel
Larry W. McCurdy.............. 58 Director (1)
Jeffrey P. Hughes............. 53 Director (2)
David P. Spalding............. 39 Director (2)
James A. Stern................ 43 Director (3)
Eliot Fried................... 61 Director (3)
Robert W. Shower.............. 56 Director (4)
Gian Andrea Botta............. 40 Director (5)
Gordon C. Davidson............ 67 Director (6)
N. Peter Ruys................. 45 Director (7)
</TABLE>
- -------------------------
(1) Member of the Board of Directors of the Company since 1988.
(2) Member of the Board of Directors of the Company since September 1991.
(3) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from September 1991 until the Merger.
(4) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from November 1991 until the Merger.
(5) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from July 1993 until the Merger.
(6) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from August 1992 until the Merger.
(7) Member of the Board of Directors of the Company since February 1993.
Set forth below is a description of the business experience of each
director and executive officer of the Company.
Kenneth L. Way. Mr. Way was elected to and has held the position of
Chairman of the Board and Chief Executive Officer of the Company since 1988.
Prior to this he served as Corporate Vice President, Automotive Group of Lear
Siegler, Inc. ("LSI") since October 1984. During the previous six years, Mr. Way
was President of LSI's General Seating Division. Prior to this, he was President
of LSI's Metal Products Division in Detroit for three years. Other positions
held by Mr. Way during his 28 years with LSI include Manufacturing Manager of
the Metal Products Division and Manager of Production Control for the
61
<PAGE> 65
Automotive Division in Detroit. Mr. Way also serves as a director of Hayes
Wheels International Incorporated.
Robert E. Rossiter. Mr. Rossiter became President of the Company in 1984
and a Director and the Chief Operating Officer of the Company in 1988. He joined
LSI in 1971 in the Material Control Department at the Automotive Division, then
joined the Metal Products Division of LSI as Production Control Manager, and
subsequently moved into sales and sales management. In 1979, he joined the
General Seating Division as Vice President of Sales and worked in that position,
as well as Vice President of Operations, until 1984.
James H. Vandenberghe. Mr. Vandenberghe was appointed Senior Vice President
- -- Finance, Secretary and Chief Financial Officer of the Company in 1988. He was
appointed Executive Vice President of the Company in 1993. He joined LSI's
Automotive Division in 1973 as a financial analyst and was promoted to positions
at the Metal Products Division and the Automotive Group office, and in 1978 was
named the Vice President -- Finance for the Plastics Division. In 1983, Mr.
Vandenberghe was appointed Vice President -- Finance for the General Seating
Division. Prior to 1988, Mr. Vandenberghe had been responsible for project
management, United States operations, and international operations of the
Company.
James A. Hollars. Mr. Hollars is currently Senior Vice President --
International Operations of the Company. He was promoted to Vice President --
International upon the sale of LSI's Power Equipment Division to Lucas
Industries in 1988. Mr. Hollars joined LSI's Metal Products Division in 1973 as
the Manufacturing Manager and later served as Vice President -- Manufacturing
for No-Sag Spring Division. In 1979, he was named President of the Foam Products
Division and was subsequently promoted to President at the Anchorlok Division in
1985 and the Power Equipment Division in 1986.
Barthold H. Hoemann. Mr. Hoemann is Senior Vice President -- North American
JIT Operations of the Company. He was promoted to this position in 1993.
Previously he served as Vice President -- Component Operations for Seating in
1992 and 1993 and as Vice President and General Manager of Lear's subsidiary,
Lear Plastics Corporation, in 1991 and 1992. From 1988 until 1991, Mr. Hoemann
was the Chief Executive Officer of Peerless Corporation. Mr. Hoemann has over 30
years experience as a senior manager and officer in manufacturing companies such
as the AC Spark Plug Division of General Motors and the Plastics and Peerless
Divisions of LSI.
Theodore E. Melson. Mr. Melson is Senior Vice President -- Manufacturing
Planning of the Company. Mr. Melson was promoted to Senior Vice President in
1992, before which he was responsible for all North American JIT Operations of
the Company. Mr. Melson joined the Seating Group in 1987 after 25 years with
General Motors. His latest assignment at General Motors was as Director of
Materials Management at the Willow Run assembly plant. During his General Motors
career, he worked for Fisher Body Division, Chevrolet Division, General Motors
Assembly Division and Buick-Olds-Cadillac Division. He held positions in many
areas of Materials, Manufacturing Systems Development, Forward Planning and
Industrial Engineering.
Donald J. Stebbins. Mr. Stebbins is currently Vice President and Treasurer
of the Company. He joined the Company in June 1992 from Bankers Trust Company,
New York, where he was Vice President for four years. Prior to his tenure at
Bankers Trust Company, Mr. Stebbins held positions at Citibank, N.A. and The
First National Bank of Chicago.
Joseph F. McCarthy. Mr. McCarthy will join Lear as Vice President,
Secretary and General Counsel effective April 1, 1994. Mr. McCarthy currently
serves as Vice President -- Legal and Secretary for both Hayes Wheels
International, Inc. and Kelsey-Hayes Company. Prior to joining Hayes Wheels
International, Inc. and Kelsey-Hayes Company, Mr. McCarthy was a partner in the
law firm of Kreckman & McCarthy from 1973 to 1983.
Larry W. McCurdy. Mr. McCurdy became a Director of the Company in 1988. Mr.
McCurdy has been the President and Chief Executive Officer of Moog Automotive,
Inc. since November 1985, and prior thereto President and Chief Operating
Officer of Echlin, Inc. ("Echlin"), since August 1983, after serving as Vice
President of Finance from February 1983. Prior to joining Echlin, he served in
various material positions with Tenneco, Inc. He was formerly Chairman of the
Board of Directors of the Motor and Equipment
62
<PAGE> 66
Manufacturing Association (MEMA). At the present time he serves as a director of
Mohawk Industries, Inc., Breed Technologies, Inc. and as a trustee of Millikin
University.
Jeffrey P. Hughes. Mr. Hughes became a Director of the Company in September
1991. He has been a Managing Director of Lehman Brothers Inc. for more than five
years, and is a Director of Sun Distributors, L.P. and Parisian, Inc.
David P. Spalding. Mr. Spalding became a Director of the Company in
September 1991. He has been a Managing Director of Lehman Brothers Inc. since
February 1991. Previously, he held the position of Senior Vice President of
Lehman Brothers Inc. from September 1988 to February 1991. From April 1987 to
September 1988, he was Senior Vice President of General Electric Capital
Corporation Corporate Finance Group, Inc. Prior to 1987 he was Vice President of
The First National Bank of Chicago. Mr. Spalding is a Director of Parisian,
Inc., American Marketing Industries Holdings Inc. and SLB/GP Inc.
James A. Stern. Mr. Stern became a Director of the Company on December 31,
1993 upon consummation of the Merger. From September 1991 until the Merger, Mr.
Stern was a Director of Holdings. He has been a Managing Director of Lehman
Brothers Inc. for more than five years. He is also a director of K&F Industries
Inc., American Marketing Industries Holdings Inc., Infinity Broadcasting
Corporation, R.P. Scherer Corporation and Noel Group, Inc.
Eliot Fried. Mr. Fried became a Director of the Company on December 31,
1993 upon consummation of the Merger. From September 1991 until the Merger, Mr.
Fried was a Director of Holdings. He has been a Managing Director of Lehman
Brothers Inc. for more than five years. Mr. Fried is a director of Bridgeport
Machines, Inc., Energy Ventures Corporation and American Marketing Industries
Holdings Inc.
Robert W. Shower. Mr. Shower became a Director of the Company on December
31, 1993 upon consummation of the Merger. From November 1991 until the Merger,
Mr. Shower was a Director of Holdings. Mr. Shower was appointed Senior Vice
President and Chief Financial Officer of Seagull Energy Corporation in March
1992, elected a director in May 1992, and recently named Executive Vice
President. Prior thereto, he served as Senior Vice President of Corporate
Development at Albert Fisher, Inc. in 1991 and 1992, Vice President of Finance
and CFO at AmeriServ in 1990 and 1991 and as a Managing Director of Corporate
Finance with Lehman Brothers Inc. from 1986 to 1990. From 1964 to 1986, Mr.
Shower served in a variety of financial executive positions with The Williams
Companies where he was a member of the Board of Directors and Executive Vice
President of Finance and Administration from 1977 to 1986.
Gian Andrea Botta. Mr. Botta became a Director of the Company on December
31, 1993 upon consummation of the Merger. Prior to the Merger, Mr. Botta was a
Director of Holdings. Mr. Botta has been President of IFINT-USA Inc., an
affiliate of FIMA, since 1993 and was Vice President of Acquisitions of
IFINT-USA Inc. for more than five years prior thereto. Mr. Botta is a member of
the Board of Directors of Kendall International, ICF International, and
Chartwell Re Corporation.
Gordon C. Davidson. Mr. Davidson became a Director of the Company on
December 31, 1993 upon consummation of the Merger. From August 1992 until the
Merger, Mr. Davidson was a Director of Holdings. Mr. Davidson is currently a
partner with Lubar & Co. Incorporated. Prior to that, Mr. Davidson was President
and Director of NML Corp., a subsidiary of Northwestern Mutual Life Insurance
Company and is a former director of Mortgage Guaranty Insurance Corp., Capital
Court Corp., First Mortgage Company of Texas, Inc. and Futura Gear Works, Inc.
N. Peter Ruys. Mr. Ruys became a Director of the Company in 1993. Since
1993, Mr. Ruys has been Chief Financial Officer of IFINT S.A., the international
investment company of IFI S.p.A., the parent company of the Agnelli Group. Since
1981, Mr. Ruys has been Secretary and Treasurer of IFINT-USA Inc., a subsidiary
of IFINT S.A. Mr. Ruys is a Trustee of Corporate Property Investors.
All directors hold office until the annual meeting of stockholders next
following their election, or until their successors are elected and qualified.
Pursuant to the Stockholders Agreement, Messrs. Hughes, Spalding, Stern, Fried,
Davidson and Shower serve on the Board of Directors of the Company as
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<PAGE> 67
representatives of the Lehman Funds, Messrs. Botta, Ruys and McCurdy serve as
representatives of FIMA and Messrs. Way and Rossiter serve as representatives of
the Management Investors.
It is anticipated that prior to the Offerings, the composition of the
Company's Board of Directors will change. Pursuant to the Company's Restated
Certificate of Incorporation, which will be in effect upon the closing of the
Offerings, the Board of Directors will be divided into three classes of
directors serving staggered three-year terms.
The Board of Directors has established permanent executive, audit and
compensation committees. The membership of each of these committees is
determined from time to time by the Board of Directors. The current members of
the Executive Committee of the Board of Directors are Messrs. Hughes, Spalding,
Stern, Way and Rossiter. The current members of the Audit Committee of the Board
of Directors are Messrs. Shower and McCurdy. The current members of the
Compensation Committee of the Board of Directors are Messrs. Hughes, Spalding
and McCurdy.
Directors of the Company who are not currently receiving compensation as
officers or employees of the Company or Lehman Brothers Inc. receive an annual
fee of $20,000 and a fee of $1,000 for each meeting of the Board of Directors or
any committee thereof that they attend, provided that directors are not paid a
fee for any additional meetings which are held on the same day. Directors are
also reimbursed for their expenses incurred in attending meetings. In addition,
directors of the Company will be eligible to receive grants of stock options
under the 1994 Stock Option Plan. See "Executive Compensation -- 1994 Stock
Option Plan." Prior to the commencement of the Offerings, Messrs. Shower,
Davidson and McCurdy will each receive options to purchase 10,000 shares of
Common Stock under the 1994 Stock Option Plan.
Officers of the Company are elected by the Board of Directors and serve at
the discretion of the Board. Messrs. Way, Rossiter, Vandenberghe, Hollars,
Hoemann, Melson, Stebbins and McCarthy have employment agreements with the
Company. See "Executive Compensation -- Employment Agreements."
ITEM 11 -- EXECUTIVE COMPENSATION
The following table summarizes information concerning annual and long-term
cash and non-cash compensation paid to or accrued for the benefit of the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company (collectively, the "named executive officers") for all
services rendered in all capacities to the Company for the six months ended
December 31, 1993 and for each of the Company's fiscal years ending June 30,
1993, 1992 and 1991. In February 1994, the Company changed its fiscal year end
from June 30 to December 31, effective December 31, 1993.
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<PAGE> 68
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION(4)
-------------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------- --------------------- PAYOUTS
OTHER RESTRICTED -------
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITIONS PERIOD(1) ($) ($)(2) ($)(3) (#) (#) ($) ($)(5)
- ---------------------------- ---------- -------- -------- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth L. Way.............. 6 months $237,000 $237,500 $830,000 $5,000
Chairman of the Board and FY1993 462,000 450,000 5,500 9,000
Chief Executive Officer FY1992 452,000 315,000
FY1991 415,000 205,000
Robert E. Rossiter.......... 6 months 173,000 172,500 830,000 3,000
President, Chief Operating FY1993 335,000 325,000 3,500 5,000
Officer and Director FY1992 325,000 220,000
FY1991 300,000 145,000
James H. Vandenberghe....... 6 months 123,000 127,500 277,000 3,000
Executive Vice President FY1993 223,000 175,000 2,600 5,000
and Chief Financial Officer FY1992 218,000 120,000
FY1991 200,000 82,000
James A. Hollars............ 6 months 127,000 68,000 277,000 3,000
Senior Vice President -- FY1993 230,000 125,000 2,000 3,000
International Operations FY1992 208,000 100,000
FY1991 198,000 60,000
Theodore E. Melson.......... 6 months 109,000 54,000 277,000 3,000
Senior Vice President -- FY1993 212,000 102,000 2,000 5,000
Manufacturing Planning FY1992 211,000 90,000
FY1991 200,000 60,000
</TABLE>
- -------------------------
(1) The six month period listed is the six months ended December 31, 1993 and
the fiscal years are the fiscal years ended June 30, 1993, 1992 and 1991.
(2) Pursuant to the Company's Senior Executive Incentive Compensation Plan, the
Company awards annual bonuses to its executive officers based on the
attainment of financial and nonfinancial objectives. All bonuses set forth
in this column were awarded pursuant to the Senior Executive Incentive
Compensation Plan. For a description of the Senior Executive Incentive
Compensation Plan and the criteria used for the determination of awards
thereunder, see "Executive Compensation -- Senior Executive Incentive
Compensation Plan."
(3) Consists of one-time payments to the named executive officers.
(4) The Company does not have restricted stock award plans or long-term
incentive plans and has not granted stock appreciation rights ("SARs").
(5) Includes 401(k) contributions made and life insurance premiums paid by the
Company on behalf of the named executive officers.
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<PAGE> 69
The following table provides information, with respect to the named
executive officers of the Company, concerning the grants of stock options during
the fiscal year ended June 30, 1993 and the potential value of unexercised
options on an aggregated basis. No stock options were granted to any such
officers during the six months ended December 31, 1993.
OPTION GRANTS IN THE FISCAL YEAR ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OR OPTION TERM
GRANTED IN FISCAL BASE PRICE EXPIRATION -------------------------------
NAME (#)(1) YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------------------- --------- ---------- ----------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth L. Way................. 5,500 13.2% $165.00 6-1-2002 $ 501,000 $1,232,000
Robert E. Rossiter............. 3,500 8.4% 165.00 6-1-2002 319,000 784,000
James H. Vandenberghe.......... 2,600 6.2% 165.00 6-1-2002 237,000 582,000
James A. Hollars............... 2,000 4.8% 165.00 6-1-2002 182,000 448,000
Theodore E. Melson............. 2,000 4.8% 165.00 6-1-2002 182,000 448,000
</TABLE>
- -------------------------
(1) For a discussion of the options granted, see "Executive Compensation -- 1992
Stock Option Plan" below.
The following table provides information, with respect to the named
executive officers, concerning the exercise or settlement of stock options
during the fiscal year ended June 30, 1993 and the six months ended December 31,
1993 and unexercised stock options held as of December 31, 1993.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED JUNE 30, 1993
AND THE SIX MONTHS ENDED DECEMBER 31, 1993 AND
OPTION VALUES AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
1993 1993(1)
SHARES ------------ ---------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------- ----------- ----------- ------------ ---------------------
<S> <C> <C> <C> <C>
Kenneth L. Way.............................. -- -- 11,765/5,500 $4,794,826/$1,568,160
Robert E. Rossiter.......................... -- -- 7,059/3,500 2,876,895/ 997,920
James H. Vandenberghe....................... -- -- 4,471/2,600 1,822,156/ 741,312
James A. Hollars............................ -- -- 4,471/2,000 1,822,156/ 570,240
Theodore E. Melson.......................... -- -- 4,471/2,000 1,822,156/ 570,240
</TABLE>
- -------------------------
(1) Based on a Common Stock valuation of $450 per share as of December 31, 1993.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Merger, the Company's compensation policies were determined
and executive officer compensation decisions were made by Holdings' Board of
Directors and its Compensation Committee (the "Holdings Compensation
Committee"). The Holdings Compensation Committee was comprised of three
non-employee directors: Messrs. Hughes, McCurdy and Spalding. Messrs. Hughes and
Spalding are both Managing Directors of Lehman Brothers Inc., an affiliate of
the Lehman Funds. The Lehman Funds beneficially own approximately 66.9% of the
Common Stock of the Company (assuming all outstanding Warrants are exercised and
no outstanding Options are exercised). For periods after the Merger, the Board
of Directors of the Company has appointed a compensation committee (the
"Compensation Committee") comprised of the same individuals who served on the
Holdings Compensation Committee prior to the Merger.
66
<PAGE> 70
During the six months ended December 31, 1993 and the fiscal year ended
June 30, 1993, the Holdings Compensation Committee and the Compensation
Committee authorized the remuneration plans for senior management. In addition,
the Holdings Compensation Committee and the Compensation Committee exercised
administrative power with respect to the Company's remuneration plans. Neither
the Board of Directors of Holdings or the Company rejected nor modified any
action taken by the Holdings Compensation Committee or the Compensation
Committee, respectively.
No member of the Holdings Compensation Committee or the Compensation
Committee was, during the fiscal year ended June 30, 1993 or the six months
ended December 31, 1993, an officer, former officer or employee of Holdings, the
Company or any of their subsidiaries. No executive officer of Holdings or the
Company served as a member of (i) the compensation committee of another entity
in which one of the executive officers of such entity served on the Holdings
Compensation Committee, (ii) the Board of Directors of another entity in which
one of the executive officers of such entity served on the Holdings Compensation
Committee or (iii) the compensation committee of another entity in which one of
the executive officers of such entity served as a member of Holdings' or the
Company's Board of Directors.
Lehman Brothers Inc., an affiliate of the Lehman Funds, acted as an
underwriter in connection with the Company's public offering of the Senior
Subordinated Notes and the 8 1/4% Subordinated Notes and is acting as an
underwriter in the Offerings. Lehman Brothers Inc. also provided advisory
services to the Company in connection with the Equity Investment (as defined
herein) and the consummation of the Credit Agreement, for which it received
fees. In addition, Lehman Commercial Paper Inc., an affiliate of the Lehman
Funds, is a managing agent and a lender under the Credit Agreement. See "Certain
Relationships and Related Transactions."
SENIOR EXECUTIVE INCENTIVE COMPENSATION PLAN
Lear has established a Senior Executive Incentive Compensation Plan
effective July 1, 1989 (the "Senior Executive Incentive Plan"). The Senior
Executive Incentive Plan provides for the assignment of target annual awards
expressed as a percentage of a participant's annual salary, and the actual
award, unless modified by the Board of Directors, will vary from 0% to 167% of
the target award opportunity based on attainment of financial and nonfinancial
objectives. The financial criteria, representing 60% of the bonus potential, are
based on achievement of a targeted level of pre-tax operating income and cash
flow for the overall Company based on the approved operating budget. An overall
average threshold is calculated, based on the ratio that the actual pre-tax
operating income and actual cash flow bear to the budget pre-tax operating
income and the budget cash flow. No payments are made unless 85% of that
threshold is attained, and a maximum attainment is set at 120% of that
threshold. The nonfinancial criteria, representing 40% of the bonus potential,
are based on the achievement of specific individual objectives that are
determined by the Chief Executive Officer and approved by the Board of Directors
of Lear. Participants in the Senior Executive Incentive Plan were selected from
executives who were in positions to materially influence the annual financial
results of Lear in the targeted areas. In the twelve month period ending
December 31, 1994, the target award opportunities under the Senior Executive
Incentive Plan for each of Messrs. Way, Rossiter, Vandenberghe, Hollars and
Melson are $285,000, $207,000, $153,000, $115,000 and $112,500, respectively.
MANAGEMENT INCENTIVE COMPENSATION PLAN
Lear has established a Management Incentive Compensation Plan effective
July 1, 1989 (the "Management Incentive Plan") for certain individuals who are
not participants in the Senior Executive Incentive Plan. The Management
Incentive Plan provides for the assignment of target annual awards expressed as
a percentage of a participant's annual salary, and the actual award will vary
from 0% to 140% of the target award opportunity based on attainment of financial
and nonfinancial objectives. The financial criteria, representing 50% of the
bonus potential, are based on achievement of a targeted level of pre-tax
operating income and cash flow for the overall Company based on the approved
operating budget. An overall average threshold is calculated, based on the ratio
that the actual pre-tax operating income and actual cash flow bear to the budget
pre-tax operating income and the budget cash flow. No payments are made unless
85% of that threshold is attained, and a maximum attainment is set at 120% of
that threshold. The nonfinancial criteria, representing
67
<PAGE> 71
50% of the bonus potential, are based on the achievement of specific individual
objectives that are determined by the senior management and approved by the
Chief Executive Officer of Lear. Participants in the Management Incentive Plan
were selected from managers who were in positions to materially influence the
annual financial results of Lear in the targeted areas.
PENSION PLAN AND BENEFITS
The executive officers (as well as other employees of Lear) participate in
the Lear Seating Corporation (LSC) Pension Plan (the "Pension Plan"). The
Pension Plan is a qualified pension plan under the Internal Revenue Code, which
is integrated with Social Security benefits. Any active employee of Lear who was
a participant in the Lear Siegler Diversified Holding Corp. Pension Plan on
September 29, 1988, is eligible to participate, and each other eligible employee
(non-union employees not covered by another pension plan and certain union
employees) becomes a participant on the July 1st or January 1st following
completion of one year of service. The benefits are funded by employer
contributions that are determined under accepted actuarial principles and
applicable Federal tax law.
The Pension Plan contains three sets of benefit provisions: the Lear
provisions, the Fabricated Products Operations ("FPO") provisions, and the
Progress Pattern provisions. The Lear provisions are the principal provisions of
the Pension Plan (see below). The FPO and Progress Pattern provisions are
grandfathering provisions carried forward from the Lear Siegler Diversified
Holdings Corp. Pension Plan, and apply to those participants who were covered by
such provisions of that plan.
Under the Lear formula, pension benefits are based on a participant's
"final average earnings," which is the average compensation for the highest five
consecutive calendar year earnings of the last 15 years of employment.
Compensation includes all cash compensation reported for federal income tax
purposes excluding sales incentive bonuses. Assuming retirement at age 65, the
annual retirement benefit (based on a life annuity) is equal to the greater of:
a. 1.10% times final average earnings times years of credited service
(to a maximum of 25 years) plus 0.65% times final average earnings in
excess of covered compensation times credited service (to a maximum
of 25 years), or
b. $177.00 times years of credited service.
Covered compensation is a 35 year average of the Social Security Taxable
Wage Base as defined in I.R.S. Notice 89-70.
Participants who are former FPO employees (as of December 31, 1985), or are
former employees of Progress Pattern Corporation (as of November 30, 1984), are
eligible to have their pension determined through the application of a floor
provision, which guarantees a minimum pension benefit. Pension benefits will be
calculated in two ways, using first the new Pension Plan formula, and then using
the floor provision. If the pension benefits are greater by applying the floor
provision, then the participants will receive benefits under the floor
provision.
Assuming retirement at age 65, by applying the floor provision the benefit
will be:
a. 0.8% times final average earnings times years of credited service
plus
b. 0.65% times final average earnings in excess of $10,000 times years
of credited service (to a maximum of 35 years).
Participants formerly covered by the Progress Pattern provisions were
covered by the FPO provisions on and after October 1, 1989.
The benefits under the Pension Plan become vested if a participant was
fully vested in the Lear Siegler Diversified Holdings Corp. Pension Plan, or
upon the attainment of five years of combined vesting service under the Lear
Siegler Diversified Holdings Corp. Pension Plan, and the Pension Plan, or upon
completion of five years of service.
68
<PAGE> 72
The following table indicates estimated annual benefits payable upon normal
retirement at age 65, based on a life annuity for various compensation levels
and years of service classification, under the Lear provisions:
<TABLE>
<CAPTION>
ANNUAL BENEFIT FOR YEARS
OF SERVICE INDICATED*
ANNUAL COVERED -------------------------------------------
COMPENSATION COMPENSATION 10 15 20 25
- ------------ ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$200,000 $ 55,500 $31,393 $47,089 $62,785 $78,481
250,000 55,500 36,443 54,665 72,886 91,108
300,000 55,500 36,443 54,665 72,886 91,108
350,000 55,500 36,443 54,665 72,886 91,108
400,000 55,500 36,443 54,665 72,886 91,108
450,000 55,500 36,443 54,665 72,886 91,108
500,000 55,500 36,443 54,665 72,886 91,108
and over
</TABLE>
- -------------------------
* The maximum annual retirement benefit under the Pension Plan for 1993 is
$91,108 and the maximum average compensation which can be considered in the
determination of annual compensation for 1993 is $228,860.
The following table indicates estimated annual benefits payable upon normal
retirement at age 65, based on a life annuity for various compensation levels
and years of service classifications under FPO provisions:
<TABLE>
<CAPTION>
ANNUAL BENEFIT FOR YEARS
OF SERVICE INDICATED*
-------------------------------------------
ANNUAL SALARY 10 15 20 25
- ------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 200,000 $28,350 $42,525 $56,700 $70,875
250,000 32,535 48,802 65,069 81,337
300,000 32,535 48,802 65,069 81,337
350,000 32,535 48,802 65,069 81,337
400,000 32,535 48,802 65,069 81,337
450,000 32,535 48,802 65,069 81,337
500,000 32,535 48,802 65,069 81,337
and over
</TABLE>
- -------------------------
* The maximum annual retirement benefit under the Pension Plan for 1993 is
$81,337 and the maximum average compensation which can be considered in the
determination of annual compensation for 1993 is $228,860.
Kenneth L. Way, Theodore E. Melson, and James A. Hollars are covered by the
Lear provisions, and Robert E. Rossiter and James H. Vandenberghe are covered by
the FPO provisions. At age 65, it is estimated that Kenneth L. Way will have 15
years of service with Lear; Robert E. Rossiter will have 21 years; Theodore E.
Melson will have 19 years; James H. Vandenberghe will have 25 years; and James
A. Hollars will have 20 years. The average annual compensation for participants
covered by the Lear provisions is substantially similar to the compensation
reported in the Summary Compensation Table. The compensation covered under the
Pension Plan for the fiscal year ending June 30, 1993 was $228,860 for Robert E.
Rossiter and James H. Vandenberghe, both of whom are covered under the FPO
provisions.
The Pension Plan grants credit for all years of pension service with Lear
Siegler Diversified Holdings Corp. and with Lear, and offsets the retirement
benefit payable by the Lear Siegler Diversified Holdings Corp. Pension Plan
against the benefit payable by the Pension Plan.
As an option to normal retirement, a participant who is age 55 or older
with 10 years of service may elect to receive an early retirement benefit
commencing at age 55 or older.
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<PAGE> 73
401(K) SAVINGS PLAN
Lear adopted a plan effective February 1, 1989 pursuant to Section 401(k)
of the Internal Revenue Code (the "401(k) Plan") for non-union employees who
have completed a three month period of service and attained the age of
twenty-one. Under the 401(k) Plan, each eligible employee may elect to defer a
portion of his or her salary each year. The portion deferred will be paid by the
Company to the trustee under the 401(k) Plan. Lear makes a matching contribution
to the plan each month on behalf of each participant in an amount equal to 50%
of such participant's salary deferral contributions which are not in excess of
4% of such participant's compensation, provided however, that the matching
contribution for a participant in any year may not exceed $1,150. Matching
contributions become vested under the 401(k) Plan at a rate of 20% for each full
year of service. For the period ending June 30, 1993, each of the Chief
Executive Officer and the named executive officers of the Company received the
maximum matching contribution under the plan of $1,150.
1988 STOCK OPTION PLAN
Under a stock option plan dated September 29, 1988 (the "1988 Stock Option
Plan"), the Company has outstanding options to purchase 63,055 shares of Common
Stock, which are held by the Management Investors. All of these outstanding
options are fully vested and are exercisable at $42.50 per share.
SUPPLEMENTAL PENSION PLAN
Lear has maintained a supplemental pension plan (the "Supplemental Pension
Plan") originally established for officers of Lear Siegler, Inc. The
Supplemental Pension Plan provides supplemental retirement benefits in excess of
those provided by the Lear and FPO plans previously discussed pursuant to a
formula based on final average compensation and credited years of service.
Employees of Lear who were participants in the Supplemental Pension Plan for
officers of Lear Siegler, Inc. at September 30, 1988 are eligible to participate
in the Supplemental Pension Plan. Mr. Way is the only officer of Lear who is a
participant in the Supplemental Pension Plan. At age 65, Mr. Way will have 25
credited years of service under the Supplemental Pension Plan.
The following table indicates estimated supplemental annual benefits
payable upon normal retirement at age 65 based on a life annuity for various
compensation levels and years of service classifications under the Supplemental
Pension Plan provisions:
<TABLE>
<CAPTION>
ANNUAL BENEFIT FOR YEARS
OF SERVICE INDICATED
-----------------------------------------------
ANNUAL SALARY 10 15 20 25
- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 300,000 $ 12,450 $ 18,674 $ 24,899 $ 31,124
400,000 29,950 44,924 59,899 74,874
500,000 47,450 71,174 94,899 118,624
600,000 64,950 94,424 129,899 162,374
700,000 82,450 123,674 164,899 206,124
800,000 99,950 149,924 199,899 219,874
900,000 117,450 176,174 234,899 293,624
1,000,000 134,950 202,424 269,899 337,374
</TABLE>
1992 STOCK OPTION PLAN
The Company has adopted the 1992 Stock Option Plan (the "1992 Stock Option
Plan"), pursuant to which management employees are eligible to receive awards of
stock options. The 1992 Stock Option Plan is administered by the Compensation
Committee of the Company's Board of Directors. Subject to the terms of the 1992
Stock Option Plan, the Committee selects the management employees eligible to
receive awards under the 1992 Stock Option Plan, determines the size of the
awards granted thereunder, and administers and interprets the plan.
Under the 1992 Stock Option Plan, the Company has outstanding options to
purchase 58,000 shares of Common Stock, which are held by certain management
personnel. All of these outstanding options are fully
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<PAGE> 74
vested and generally become exercisable at $165.00 per share as of September 28,
1996. However, if an option holder's employment with the Company terminates
prior to September 28, 1996, other than by reason of retirement, death or
disability, such holder's options will not become exercisable until September 1,
2001. Options held by a holder retiring prior to September 28, 1996 will become
exercisable on the earlier of two years from the date of retirement or September
28, 1996. If an option holder's employment terminates due to death or disability
prior to September 28, 1996, his options will become exercisable on September
28, 1996 and remain so for 90 days thereafter.
1994 STOCK OPTION PLAN
Prior to the consummation of the Offerings, the Company will adopt the 1994
Stock Option Plan (the "1994 Stock Option Plan"), pursuant to which directors,
officers and employees of the Company and other individuals who are primarily
responsible for the management and success of the Company will be entitled to
receive awards of options. Each option granted pursuant to the 1994 Stock Option
Plan shall be designated at the time of grant as either an "incentive stock
option" or as a "non-qualified stock option."
The 1994 Stock Option Plan will be administered by the Compensation
Committee of the Company's Board of Directors. Subject to the terms of the 1994
Stock Option Plan, the Committee will determine who among those eligible will be
granted options, the time or times at which options will be granted, the number
of shares to be subject to options, the duration of options, any conditions to
the exercise of options, and the manner in and price at which options may be
exercised.
Under the 1994 Stock Option Plan, the Company may grant options with
respect to a total of 625,000 (after giving effect to the Stock Split) shares of
Common Stock. The Compensation Committee will award options to purchase 498,750
(after giving effect to the Stock Split) shares of Common Stock (of which
173,500 (after giving effect to the Stock Split) will be granted to senior
officers and directors of the Company) prior to the consummation of the
Offerings, each having an exercise price equal to the per share public offering
price in the Offerings.
Any key employee shall be eligible to receive incentive stock options or
non-qualified stock options granted under the 1994 Stock Option Plan. Any
employee, any director of the Company, whether or not an employee, and any other
individual who in the judgment of the Compensation Committee performs valuable
and important services for the Company shall be eligible to receive
non-qualified stock options.
The exercise price of each option issued under the 1994 Stock Option Plan
will be determined by the Compensation Committee of the Company's Board of
Directors, provided that in the case of incentive stock options, the exercise
price may not be less than 100% of the grant date fair market value of the
shares of Common Stock covered by such options. If an incentive stock option is
granted to an employee who owns more than 10% of the total combined voting power
of all classes of the Company's outstanding capital stock, then the exercise
price thereof may not be less than 110% of the grant date fair market value of
the Common Stock covered by such option.
Options granted under the 1994 Stock Option Plan may not be transferred
other than by will or the laws of descent and distribution and, during the
lifetime of the option holder, may be exercised solely by him. The aggregate
fair market value (determined at the time the option is granted) of the shares
as to which an employee may first exercise incentive stock options in any one
calendar year may not exceed $100,000. The Compensation Committee may impose any
other conditions to exercise it deems appropriate.
EMPLOYMENT AGREEMENTS
Lear has entered into employment agreements with the individuals named in
the Summary Compensation Table. The employment agreements, as amended, expire on
October 1, 1995, and provide for, among other things, rates of compensation and
bonuses. Each of Messrs. Way's, Rossiter's and Vandenberghe's employment
agreement provides for an annual base salary of $475,000, $345,000, and
$255,000, respectively. Messrs. Hollars' and Melson's employment agreements
provide for an annual base salary of $265,000 and
71
<PAGE> 75
$225,000, respectively. Increases in these salaries, as well as bonuses, are at
the sole discretion of the Board of Directors of the Company.
Each employment agreement provides that (i) upon the death of the employee,
Lear will pay to his estate or designated beneficiary his full base salary for
an additional 12 months; (ii) upon termination for disability, the employee will
receive all compensation payable under Lear's disability and medical plans and
programs plus an additional payment from Lear so that the aggregate amount of
salary continuation from all sources equals his base salary through the
remaining term of the agreement; and (iii) upon termination for good reason, the
employee will receive his full base salary to the end of the term of agreement.
If the employment agreement is terminated for cause, the employee is only
entitled to receive unpaid salary and benefits, if any, accrued through the
effective date of the employee's termination.
72
<PAGE> 76
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table and accompanying footnotes set forth certain
information regarding beneficial ownership of the Company's Common Stock as of
February 15, 1994, (i) by each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) by
each director of the Company, (iii) by each named executive officer of the
Company and (iv) by all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OF COMMON STOCK PERCENTAGE
OWNED OF
BENEFICIALLY(1) COMMON STOCK
--------------- ------------
<S> <C> <C>
Lehman Funds(2)................................................. 786,628 72.9%
FIMA Finance Management Inc.(3)................................. 261,668 24.3
Management Investors as a group(4).............................. 94,967(5) 8.3
Kenneth L. Way(6)(7)............................................ 17,393(8) 1.6
Robert E. Rossiter(6)(7)........................................ 10,269(9) *
James H. Vandenberghe(7)........................................ 6,684(10) *
Thomas E. Melson(7)............................................. 6,371(11) *
James A. Hollars(7)............................................. 6,371(11) *
Total Executive Officers and Directors as a group (8
individuals).................................................. 48,093(12) 4.3
</TABLE>
- -------------------------
* Less than 1%
(1) As of January 31, 1994 notices of exercise had been delivered to the
warrant agent with respect to Warrants exercisable for 41,227 shares of
Common Stock but no shares had been issued in exchange for such Warrants.
(2) The number of shares beneficially owned by the Lehman Funds includes
281,635 shares of Common Stock and 912 Warrants owned by Lehman Brothers
Merchant Banking Portfolio Partnership L.P. and 191,428 shares of Common
Stock and 620 Warrants owned by Lehman Brothers Capital Partners II, L.P.
(each located at Three World Financial Center, New York, New York 10285);
77,429 shares of Common Stock and 251 Warrants owned by Lehman Brothers
Offshore Investment Partnership L.P. and 233,597 shares of Common Stock and
756 Warrants owned by Lehman Brothers Offshore Investment Partnership-Japan
L.P. (each located at Clarendon House, Church Street, Hamilton HMCX,
Bermuda). Lehman Brothers Merchant Banking Partners Inc. and Lehman
Brothers II Investment Inc. are the general partners of Lehman Brothers
Merchant Banking Portfolio Partnership L.P and Lehman Brothers Capital
Partners II, L.P., respectively, and Lehman Brothers Offshore Partners Ltd.
is the general partner of Lehman Brothers Offshore Investment
Partnership-Japan L.P. and Lehman Brothers Offshore Investment Partnership
L.P. Each such general partner may be deemed to own beneficially the shares
directly owned by the entity of which it is the general partner. Each such
general partner is an indirect wholly-owned subsidiary of Lehman Brothers
Group Inc., which is a wholly owned subsidiary of Lehman Brothers Holdings
Inc. Each of the partnerships may be deemed to share with Lehman Brothers
Merchant Banking Partners Inc. the power to vote and the power to dispose
of the shares owned by such partnership. The address of Lehman Brothers
Merchant Banking Partners Inc. is Three World Financial Center, New York,
New York 10285.
(3) FIMA is a wholly-owned subsidiary of IFINT. IFINT, a Luxembourg
corporation, is the international investment holding company of IFI, the
parent company of the Agnelli Group. The address of FIMA is Wickam's Cay,
Road Town, Tortola, British Virgin Islands.
(4) The Management Investors include thirty-four individuals who are directors,
officers or managers or employees of former employees of the Company. None
of the Management Investors beneficially owns more than 5% of the Company's
Common Stock.
(5) The number of shares of Common Stock beneficially owned by the Management
Investors includes 63,055 shares issuable under currently exercisable
options and 1,221 Warrants. Excludes 36,200 shares of Common Stock issuable
upon exercise of options that will generally become exercisable on
September 28, 1996.
(6) The individual is a director of the Company.
(7) The individual is a named executive officer of the Company.
(8) Includes 11,765 shares of Common Stock issuable under currently exercisable
options and 118 Warrants.
(9) Includes 7,059 shares of Common Stock issuable under currently exercisable
options.
(10) Includes 4,471 shares of Common Stock issuable under currently exercisable
options and 102 Warrants.
(11) Includes 4,471 shares of Common Stock issuable under currently exercisable
options.
(12) Excludes 22,000 shares of Common Stock issuable upon exercise of options
that will generally become exercisable on September 28, 1996.
73
<PAGE> 77
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE 1988 ACQUISITION
At the closing of the 1988 Acquisition on September 30, 1988, Kidder,
Peabody Group Inc. ("KPG"), certain Management Investors, and certain other
investors purchased an aggregate of 598,750 shares of Common Stock. On October
6, 1988, FIMA first acquired an ownership interest in the Company by purchasing
195,000 shares of Common Stock of the Company from KPG.
THE 1991 TRANSACTIONS
On September 27, 1991, the Company engaged in a series of related
transactions (the "1991 Transactions") for the purpose of raising additional
capital to repay a portion of the Company's outstanding indebtedness under its
credit agreement (the "Original Credit Agreement") and to fund the acquisition
of Lear Seating Sweden, AB ("LS Sweden"). A portion of the payments made under
the Company's Original Credit Agreement increased availability thereunder, which
was used to finance expansion of the Company's operations. As part of the 1991
Transactions, (i) the Company sold an aggregate of 454,545 additional shares of
the Company's Common Stock to the Lehman Funds and FIMA at a price of $165.00
per share for an aggregate amount of approximately $75.0 million (the "Stock
Sale"); (ii) the Lehman Funds purchased all of the Company's outstanding Common
Stock and Warrants owned by GECC and all of the Company's outstanding Common
Stock owned by INVEST; (iii) the Lehman Funds and FIMA purchased the Company's
outstanding Common Stock held by MH Capital Partners, Inc.; (iv) the Company
entered into certain amendments to the Original Credit Agreement; and (v) the
Company borrowed $20.0 million from GECC, which was secured by a First Mortgage
and Security Agreement covering certain of Lear's domestic facilities, machinery
and equipment (the "GECC Mortgage Loan"), the entire proceeds of which were used
to repay permanently a portion of the term loans outstanding under the Original
Credit Agreement.
After giving effect to the 1991 Transactions (i) the Lehman Funds owned a
total of 693,180 shares of the Company's Common Stock and Warrants exercisable
for an additional 2,539 shares of the Company's Common Stock, or approximately
62.3% of the Company's outstanding Common Stock (assuming the exercise of all
outstanding Warrants and Options) for an aggregate consideration of
approximately $114.8 million and (ii) FIMA acquired an additional 36,365 shares
of the Company's Common Stock at an aggregate consideration of approximately
$6.0 million, for a total of 231,365 shares of the Company's Common Stock, or
approximately 20.7% of the Company's outstanding Common Stock (assuming the
exercise of all outstanding Warrants and Options). For additional information
regarding the 1991 Transactions, see the consolidated financial statements of
the Company included elsewhere in this Prospectus.
Proceeds from the Stock Sale and the GECC Mortgage Loan were utilized to
purchase the stock of LS Sweden from GECC for $100,000, to repay GECC's
financing to LS Sweden of approximately $7.3 million, to pay down term loans
under the Original Credit Agreement by $48.5 million, to pay down borrowings
under the Original Credit Agreement by $32.0 million, and to pay fees and
expenses of approximately $7.7 million related to the 1991 Transactions.
Included in the $7.7 million in fees and expenses is $4.5 million paid to Lehman
Brothers Inc. for fees related to the above transactions. The remainder of the
fees related to legal and administrative expenses incurred by the Company,
Lehman Brothers Inc., FIMA and GECC related to the Stock Sale and the GECC
Mortgage Loan which were paid by the Company.
Subsequent to the 1991 Transactions, on June 1, 1992 a new Bank Act (the
"Bank Act") was enacted in Canada requiring an order of the Minister of Finance
(Canada) to permit the Lehman Funds to continue to hold their existing indirect
investment in Lear's Canadian operations. An application for an order has been
made and, based upon advice of their Canadian counsel, the Lehman Funds
anticipate receipt of such order. Should the application for the order be
denied, Lear could, among other things, move its operations out of Canada or
divest such operations or the Lehman Funds could, among other things, reduce
their indirect ownership of the voting shares of Lear's Canadian companies below
10% to comply with the Bank Act.
74
<PAGE> 78
SENIOR SUBORDINATED NOTE OFFERING AND EQUITY INVESTMENT
In order to support the Company's future expansion in North America and
Europe, in July 1992, the Company entered into an agreement to sell $20.0
million of Common Stock to its major stockholders, the Lehman Funds and FIMA
(the "Equity Investment"). Simultaneous with the Equity Investment, the Company
effected a public offering of $125.0 million of the Senior Subordinated Notes.
Lehman Brothers Inc., an affiliate of the Lehman Funds, acted as an underwriter
in connection with the offering and received underwriting fees of approximately
$2.2 million. Lehman Brothers Inc. and IFINT received fees of approximately
$450,000 and $150,000, respectively, for advisory services rendered to the
Company in connection with the Equity Investment and the public offering of the
Senior Subordinated Notes. Mr. Botta is an officer of an affiliate of FIMA and
serves as a director of the Company. Messrs. Hughes, Spalding, Stern and Fried,
each a Managing Director of Lehman Brothers Inc., serve as directors of the
Company.
Shortly after the Equity Investment, the Company sold 2,551 shares of
Common Stock to eighteen employees of the Company for approximately $421,000 in
cash.
THE NAB ACQUISITION AND THE CREDIT AGREEMENT
In connection with the NAB Acquisition and the consummation of the Credit
Agreement, Lehman Brothers Inc., an affiliate of the Lehman Funds, provided
certain advisory and valuation services to the Company for which it received
aggregate fees of approximately $1.0 million. In addition, Lehman Commercial
Paper Inc., an affiliate of the Lehman Funds, is a managing agent and a lender
under the Credit Agreement for which it received and will continue to receive
its proportionate share of payments made by the Company under the Credit
Agreement.
8 1/4% SUBORDINATED NOTE OFFERING
On February 3, 1993 the Company effected a public offering of $145.0
million of its 8 1/4% Subordinated Notes and applied the net proceeds therefrom
to redeem $135.0 million of its 14% Subordinated Debentures, together with
premiums and accrued interest thereon. Lehman Brothers Inc., an affiliate of the
Lehman Funds, acted as an underwriter in connection with the offering and
received underwriting fees of approximately $2.4 million.
THE OFFERINGS
Lehman Brothers Inc. is an Underwriter for the Offerings and will receive
compensation in such capacity.
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT
The Amended and Restated Stockholders and Registration Rights Agreement,
dated as of September 27, 1991 (the "Stockholders and Registration Rights
Agreement"), among the Company, the Lehman Funds, FIMA and the Management
Investors was entered into in connection with the 1991 Transactions. Upon
consummation of the Offerings, the Stockholders and Registration Rights
Agreement will be amended in order, among other things, to relax certain
restrictions on transfers of Common Stock owned by the parties thereto and to
remove the rights of each Management Investor to require the Company to purchase
his or her shares upon death, disability and certain events of termination. Upon
consummation of the Offerings, the Stockholders and Registration Rights
Agreement will provide, among other things, that (i) if FIMA desires to sell
more than 5% of the fully diluted shares of Common Stock of the Company in a
transaction or series of related transactions to a single third party (a
"Substantial Sale") prior to September 27, 1995 or such later date prior to
September 27, 2001 to which the right of the Lehman Funds to compel the transfer
of the Company (described in clause (iii) below) is extended, FIMA must offer
such shares to the Lehman Funds prior to offering them to such third party; (ii)
the Lehman Funds, FIMA and, to a limited extent after September 27, 1996, the
Management Investors will have the right to include their shares of Common Stock
in Substantial Sales by the Lehman Funds and FIMA until September 27, 2001; and
(iii) the Lehman Funds may compel all stockholders party to the Stockholders and
Registration Rights Agreement to sell their shares
75
<PAGE> 79
of Common Stock, or otherwise cause the transfer thereof, in a sale of the
Company prior to September 27, 1995 or such later date prior to September 27,
2001 selected by the Lehman Funds.
The Stockholders and Registration Rights Agreement will continue (i) to
place significant restrictions on the Management Investors' rights to transfer
their shares to a third party prior to September 27, 1996 and (ii) to include
certain registration rights. See "Description of Capital Stock -- Stockholders
and Registration Rights Agreement."
MANAGEMENT EQUITY PARTICIPATION
The Management Investors entered into Management Subscription Agreements
with the Company dated as of September 29, 1988 (collectively, the "Management
Equity Agreement") pursuant to which each of the Management Investors purchased
Common Stock at $100.00 per share for consideration consisting of cash and/or
recourse or non-recourse promissory notes (the "Management Notes"). As of
December 31, 1993, the outstanding balance of the Management Notes of each of
Messrs. Way and Rossiter was approximately $498,000 and the outstanding balance
of the Management Notes of each of Messrs. Vandenberghe, Hollars and Melson was
approximately $166,000. Each of the Management Notes, including accrued
interest, matures on January 25, 1997 and bears interest at a rate of LIBOR plus
1.50%.
In addition, pursuant to the 1988 Stock Option Plan, as of January 31,
1993, the Company granted to the Management Investors options to acquire an
aggregate of up to 63,055 authorized but unissued shares of the Company's Common
Stock. These options of the Management Investors vested over the course of three
years and are exercisable for $42.50 per share, in cash, which is lower than the
$100.00 per share paid in connection with the 1988 Acquisition. These options
must be exercised within ten years of the date of grant. See "Executive
Compensation -- 1988 Stock Option Plan."
Under the 1992 Stock Option Plan, the Company may grant up to 58,000
options to certain management personnel. As of December 31, 1993, all of these
options have been granted and are vested. All options under the 1992 Stock
Option Plan become exercisable at $165 per share as of September 28, 1996 or
sooner in the case of certain triggering events.
In addition, under the 1994 Stock Option Plan, directors, officers and
employees of the Company may receive awards of stock options. See "Executive
Compensation -- 1994 Stock Option Plan."
76
<PAGE> 80
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Form 10-K.
1. Consolidated Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets as of June 30, 1992, 1993 and December 31,
1993.
Consolidated Statements of Operations for the years ended June 30,
1991, 1992 and 1993 and for the twelve months and six months ended
December 31, 1993.
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1991, 1992 and 1993 and for the twelve months and six months
ended December 31, 1993.
Consolidated Statements of Cash Flows for the years ended June 30,
1991, 1992 and 1993 and for the twelve months and six months ended
December 31, 1993.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Report of Independent Public Accountants
Schedule II -- Amounts Receivable from Employees
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation of Property, Plant and
Equipment
Schedule VII -- Guarantees of Securities of Other Issuers
Schedule VIII -- Valuation and Qualifying Accounts
Schedule X -- Supplementary Income Statement Information
3. The exhibits listed on the "Index to Exhibits" on page 78 are filed
with this Form 10-K or incorporated by reference as set forth below.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1993.
77
<PAGE> 81
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- --------- ---------------------------------------------------------------------
<S> <C>
3.1 -- Certificate of Incorporation of Lear Seating Corporation ("Lear" or
the "Company"), as currently in effect on September 30, 1988
(incorporated by reference to Exhibit 3.1 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-25256)).
3.2 -- Certificate of Amendment as filed on May 15, 1990 to the Certificate
of Incorporation of Lear (incorporated by reference to Exhibit 3.2 to
Holdings' and Lear's Registration Statement on Form S-1 (No.
33-47867)).
3.3 -- Form of Restated Certificate of Incorporation of Lear to be filed
prior to the consummation of the Offerings.
3.4 -- Amended and Restated By-laws of Lear (incorporated by reference to
Exhibit 3.4 to Lear's Registration Statement on Form S-1 (No.
33-52565).
3.5 -- Merger Agreement dated December 31, 1993, by and between Lear and
Holdings (incorporated by reference to Exhibit 3.4 to Lear's
Registration Statement on Form S-1 (No. 33-51317)).
4.1 -- Indenture by and between Lear and The First National Bank of Boston,
as Trustee, relating to the 8 1/4% Subordinated Notes.
4.2 -- Form of 11 1/4% Senior Subordinated Note Indenture dated as of July
15, 1992 between Lear and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.1 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-47867)).
10.1 -- Amended and Restated Credit Agreement dated as of October 25, 1993
(the "Credit Agreement") among Holdings, Lear, Chemical Bank, as
agent for the bank parties thereto, and Bankers Trust Company, The
Bank of Nova Scotia, Citicorp USA, Inc. and Lehman Commercial Paper
Inc., as managing agents (incorporated by reference to Exhibit 4 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
October 2, 1993).
10.2 -- Amendment No. 1 to the Credit Agreement dated as of January 27, 1994
(incorporated by reference to Exhibit 10 to Lear's Current Report on
Form 8-K dated February 11, 1994).
10.3 -- Credit Agreement dated as of March 8, 1989, as amended June 21, 1989
(the "Canadian Credit Agreement"), between Lear Seating Canada, Ltd.
and The Bank of Nova Scotia with respect to the establishment of
credit facilities (incorporated by reference to Exhibit 10.28 to
Lear's Annual Report on Form 10-K for the year ended June 30, 1989).
10.4 -- Amendment dated September 13, 1989 to the Canadian Credit Agreement
(incorporated by reference to Exhibit 10.30 to Lear's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1989).
10.5 -- Amendment dated March 28, 1990 to the Canadian Credit Agreement
(incorporated by reference to Exhibit 10.11 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-47867)).
10.6 -- Amendment dated October 11, 1990 to the Canadian Credit Agreement
(incorporated by reference to Exhibit 10.12 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-47867)).
10.7 -- Amendment dated January 23, 1992 to the Canadian Credit Agreement
(incorporated by reference to Exhibit 10.13 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-47867)).
</TABLE>
78
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- --------- ---------------------------------------------------------------------
<S> <C>
10.8 -- Senior Executive Incentive Compensation Plan of Lear (incorporated by
reference to Exhibit 10.14 to Holdings' and Lear's Registration
Statement on Form S-1 (No. 33-47867)).
10.9 -- Management Incentive Compensation Plan of Lear (incorporated by
reference to Exhibit 10.15 to Holdings' and Lear's Registration
Statement on Form S-1 (No. 33-47867)).
10.10 -- Form of Warrant Agreement dated as of December 15, 1988 between
Holdings and Norwest Bank, N.A., as Warrant Agent (incorporated by
reference to Exhibit 4.3 to Holdings' and Lear's Registration
Statement on Form S-1 (No. 33-25256)).
10.11 -- Stock Option Agreement dated as of September 29, 1988 between
Holdings and certain management investors (the "Management
Investors") (incorporated by reference to Exhibit 10.6 to Holdings'
and Lear's Registration Statement on Form S-1 (No. 33-25256)).
10.12 -- Employment Agreement dated September 29, 1998 between Lear and
Kenneth L. Way (incorporated by reference to Exhibit 10.7 to
Holdings' and Lear's Registration Statement on Form S-1 (No.
33-25256)).
10.13 -- Employment Agreement dated September 29, 1988 between Lear and Robert
E. Rossiter (incorporated by reference to Exhibit 10.8 to Holdings'
and Lear's Registration Statement on Form S-1 (No. 33-25256)).
10.14 -- Employment Agreement dated September 29, 1988 between Lear and James
H. Vandenberghe (incorporated by reference to Exhibit 10.9 to
Holdings' and Lear's Registration Statement on Form S-1 (No.
33-25256)).
10.15 -- Employment Agreement dated September 29, 1988 between Lear and James
A. Hollars (incorporated by reference to Exhibit 10.10 to Holdings'
and Lear's Registration Statement on Form S-1 (No. 33-25256)).
10.16 -- Employment Agreement dated September 29, 1988 between Lear and Randal
T. Murphy (incorporated by reference to Exhibit 10.12 to Holdings'
and Lear's Registration Statement on Form S-1 (No. 33-25256)).
10.17 -- Employment Agreement dated as of September 29, 1988 between Lear and
Ted E. Melson (incorporated by reference to Exhibit 10.13 to
Holdings' and Lear's Registration Statement on Form S-1 (No.
33-25256)).
10.18 -- Employment Agreement dated June 1, 1992 between Lear and Donald J.
Stebbins (incorporated by reference to Exhibit 10.17 to Lear's
Registration Statement on Form S-1 (No. 33-51317)).
10.19 -- Amendments to Employment Agreements dated as of September 21, 1991 by
and between Lear and each of Messrs. Way, Vandenberghe, Rossiter,
Hollars, Melson and Murphy (incorporated by reference to Exhibit 28.7
to Holdings' Current Report on Form 8-K dated September 24, 1991).
10.20 -- Stock Purchase Agreement dated July 25, 1990 by and between Fair
Haven Industries, Inc., Bradley D. Osgood, Robert Michelin and LS
Acquisition Corporation No. 24. (incorporated by reference to Exhibit
10.34 to Holdings' Annual Report on Form 10-K for the year ended June
30, 1991).
10.21 -- Purchase Agreement dated July, 1990 by and between Fairfax
Industries, Inc. and LS Acquisition Corporation No. 24 (incorporated
by reference to Exhibit 10.37 to the Company's Annual Report on Form
10-K for the year ended June 30, 1991).
</TABLE>
79
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- --------- ---------------------------------------------------------------------
<S> <C> <C>
10.22 -- Amended and Restated Stockholders and Registration Rights Agreement
dated as of September 27, 1991 by and among Holdings, the Lehman
Funds, Lehman Merchant Banking Partners Inc., as representative of
the Lehman Partnerships, FIMA Finance Management Inc., a British
Virgin Islands corporation, and the Management Investors
(incorporated by reference to Exhibit 2.2 to Holdings' Current Report
on Form 8-K dated September 24, 1991).
10.23 -- Waiver and Agreement dated September 27, 1991, by and among Holdings,
Kidder Peabody Group Inc., KP/Hanover Partners 1988, L.P., General
Electric Capital Corporation, FIMA Finance Management Inc., a
Panamanian corporation, FIMA Finance Management Inc., a British
Virgin Islands corporation, MH Capital Partners Inc., successor by
merger and name change to MH Equity Corp., SO.PA.F. Societa
Partecipazioni Finanziarie S.p.A., INVEST Societa Italiana
Investimenti S.p.A., the Lehman Partnerships and the Management
Investors (incorporated by reference to Exhibit 2.3 to Holdings'
Current Report on Form 8-K dated September 24, 1991).
10.24 -- Form of Amendment to Amended and Restated Stockholders and
Registration Rights Agreement.
10.25 -- 1992 Stock Option Plan (incorporated by reference to Exhibit 10.7 to
Lear's Annual Report on Form 10-K for the year ended June 30, 1993).
10.26 -- Form of Amendment to 1992 Stock Option Plan.
10.27 -- Form of 1994 Stock Option Plan.
10.28 -- Stock Purchase Agreement dated as of July 21, 1992 among the Company,
the Lehman Funds and FIMA Finance Management Inc., a British Virgin
Islands corporation (incorporated by reference to Exhibit 10.33 to
Holdings' and Lear's Registration Statement on Form S-1 (No.
33-47867)).
10.29 -- Asset Purchase & Supply Agreement dated as of November 18, 1991
between Lear Seating Sweden, AB and Volvo Car Corporation
(incorporated by reference to Exhibit 10.34 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-47867)).
10.30 -- Purchase Agreement dated as of November 1, 1993 between the Company
and Ford Motor Company (incorporated by reference to Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
October 2, 1993).
11.1 -- Computation of income (loss) per share.
21.1 -- List of subsidiaries of the Company.
</TABLE>
80
<PAGE> 84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 28, 1994.
Lear Seating Corporation
By: /s/ KENNETH L. WAY
------------------------
Kenneth L. Way
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Lear Seating
Corporation and in the capacities indicated March 28, 1994.
<TABLE>
<S> <C> <C>
/s/ KENNETH L. WAY /s/ LARRY MCCURDY
------------------------ ---------------------
Kenneth L. Way Larry McCurdy
Chairman of the Board and a Director
Chief Executive Officer
/s/ JAMES H. VANDENBERGHE /s/ JEFFREY P. HUGHES
------------------------------- -------------------------
James H. Vandenberghe Jeffrey P. Hughes
Executive Vice President and Secretary a Director
(Principal Financial Officer)
/s/ GIAN ANDREA BOTTA
------------------------------- -----------------------
Robert E. Rossiter Gian Andrea Botta
a Director a Director
/s/ DAVID P. SPALDING /s/ ROBERT SHOWER
-------------------------- ---------------------
David P. Spalding Robert Shower
a Director a Director
/s/ ELIOT FRIED /s/JAMES A. STERN
------------------- ---------------------
ELIOT FRIED JAMES A. STERN
A DIRECTOR A DIRECTOR
/S/ GORDON C. DAVIDSON /s/ N. PETER RUYS
---------------------------- ----------------------
Gordon C. Davidson N. Peter Ruys
a Director a Director
</TABLE>
81
<PAGE> 1
EXHIBIT 3.3
RESTATED CERTIFICATE OF INCORPORATION
OF
LEAR SEATING CORPORATION
Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware
The undersigned, being the Executive Vice President and Secretary and the
Vice President, Treasurer and Assistant Secretary of Lear Seating Corporation,
a corporation organized and existing under the laws of the State of Delaware
(the "Corporation"), do hereby certify as follows:
FIRST: The name of the Corporation is Lear Seating Corporation. The date
of filing of the Corporation's original Certificate of Incorporation was
January 13, 1987. The name under which the Corporation was originally
incorporated was LS Acquisition Corp. No. 30.
SECOND: This Restated Certificate of Incorporation, which amends and
restates the Corporation's original Certificate of Incorporation, as heretofore
amended, was duly adopted in accordance with the provisions of sections 242 and
245 of the General Corporation Law of the State of Delaware (the "Delaware
General Corporation Law").
THIRD: The Restated Certificate of Incorporation of the Corporation
shall read in its entirety as follows:
ARTICLE 1
The name of the Corporation is:
LEAR SEATING CORPORATION
ARTICLE 2
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of the Corporation's registered agent at that address is The Corporation
Trust Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the Delaware General Corporation
Law.
<PAGE> 2
ARTICLE 4
4.1 The total number of shares of stock which the Corporation shall have
authority to issue is 150,000,000 shares of Common Stock, each having a par
value of $.01 (the "Common Stock"), and 15,000,000 shares of Preferred Stock,
each having a par value of $.01 (the "Preferred Stock").
4.2 Each holder of record of shares of Common Stock shall be entitled to
vote at all meetings of the stockholders and shall have one vote for each share
held by him of record.
4.3 Subject to all of the rights of the holders of all classes or series
of stock at the time outstanding having prior rights as to dividends, the
holders of the Common Stock shall be entitled to receive dividends at such
times and in such amounts as may be determined by the Board of Directors of the
Corporation.
4.4 The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such distinctive designations, preferences
and relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the Delaware General Corporation Law, including without limitation, the
authority to provide that any such class or series may be (i) subject to
redemption at such time or times and at such price or prices; (ii) entitled to
receive dividends (which may be cumulative or non-cumulative) at such rates, on
such conditions, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or any other
series; (iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any
other series of the same or any other class or classes of stock, of the
Corporation at such price or prices or at such rates of exchange and with such
adjustments; all as may be stated in such resolution or resolutions.
ARTICLE 5
The following provisions are inserted for the management of the business and
the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
(a) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
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(b) The directors shall have concurrent power with the stockholders to
make, alter, amend, change, add to or repeal the By-Laws of the Corporation.
(c) The number of directors of the Corporation shall be as from time to
time fixed by, or in the manner provided in, the By-Laws of the Corporation.
Election of directors need not be by written ballot unless the By-Laws so
provide.
(d) The directors shall be divided into three classes designated as Class
I, Class II and Class III, respectively. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At each annual meeting of the
stockholders, successors to the class of directors whose term expires at the
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly as
equal as possible, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office
until the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement or removal from office.
(e) Subject to the rights, if any, of holders of any series of Preferred
Stock then outstanding, any vacancy on the Board of Directors that results
from an increase in the number of directors may be filled by a majority of
the Board of Directors then in office, provided that a quorum is present, and
any other vacancy occurring in the Board of Directors may be filled by a
majority of the directors then in office, even if less than a quorum. Any
director elected to fill a vacancy resulting from an increase in the size of
a class of directors shall hold office for a term that shall coincide with
the remaining term of that class. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor.
(f) No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived
an improper personal benefit.
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(g) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to the provisions of the Delaware
General Corporation Law, this Restated Certificate of Incorporation, and any
By-Laws adopted by the stockholders; provided, however, that no By-Laws
hereafter adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such By-Laws had not been adopted.
ARTICLE 6
The Corporation shall indemnify, in accordance with and to the full extent
now or hereafter permitted by law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, an action by or in the right of the
Corporation), by reason of his acting as a director of the Corporation (and the
Corporation, in the discretion of the Board of Directors, may so indemnify a
person by reason of the fact that he is or was an officer or employee of the
Corporation or is or was serving at the request of the Corporation in any other
capacity for or on behalf of the Corporation) against any liability or expense
actually or reasonably incurred by such person in respect thereof; provided,
however, that the Corporation shall not be obligated to indemnify any such
person: (1) with respect to proceedings, claims or actions initiated or
brought voluntarily without the authorization or consent of the Corporation by
such person and not by way of defense; or (ii) for any amounts paid in
settlement of an action effected without the prior written consent of the
Corporation to such settlement. Such indemnification is not exclusive of any
other right of indemnification provided by law, agreement or otherwise.
ARTICLE 7
No amendment to or repeal of Articles 5(f) or 6 of this Restated Certificate
of Incorporation shall apply to or have any effect on the rights of any
individual referred to in Articles 5(f) or 6 for or with respect to acts or
omissions of such individual occurring prior to such amendment or repeal.
ARTICLE 8
Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the Delaware General Corporation Law)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the By-Laws of the Corporation.
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ARTICLE 9
No stockholder of the Corporation shall by reason of holding shares of any
class of stock have any pre-emptive or preferential right to purchase or
subscribe to any shares of any class of stock of the Corporation, now or
hereafter to be authorized, or any notes, debentures, bonds, or other
securities convertible into or carrying options or warrants to purchase shares
of any class of such stock, now or hereafter to be authorized, whether or not
the issuance of any such shares, or such notes, debentures, bonds or other
securities would adversely affect the dividend or voting rights of such
stockholder, other than such rights, if any, as the Board of Directors, in its
discretion from time to time, may grant and at such price as the Board of
Directors in its discretion may fix; and the Board of Directors may issue
shares of any class of stock of the Corporation, or any notes, debentures,
bonds or other securities convertible into or carrying options or warrants to
purchase shares of any class of such stock, without offering any such shares of
any class, either in whole or in part, to the existing stockholders of any
class of such stock.
ARTICLE 10
Whenever a compromise or arrangement is proposed between the Corporation and
its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of the Delaware General Corporation Law or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of the Delaware General
Corporation Law, order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of the Corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
ARTICLE 11
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated
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Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
day of , 1994.
______________________________
James H. Vandenberghe
Executive Vice President
ATTEST:
______________________________
Donald J. Stebbins
Vice President, Treasurer
and Assistant Secretary
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<PAGE> 1
EXHIBIT 4.1
INDENTURE dated as of February 1, 1994,
among LEAR SEATING CORPORATION, a Delaware
corporation (the "Company"), as issuer, and THE FIRST
NATIONAL BANK OF BOSTON, as trustee (the "Trustee").
Each Party hereto agrees as follows for the equal and ratable benefit
of the Holders of the Company's 8 1/4% Subordinated Notes Due 2002 (the
"Securities"):
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Acquired Indebtedness" means, with respect to the Company, Indebtedness of
a person existing at the time such person becomes a subsidiary of the Company
or assumed in connection with the acquisition by the Company or a subsidiary of
the Company of assets from such person, which assets constitute all of an
operating unit of such person, and not incurred in connection with, or in
contemplation of, such person becoming a subsidiary of the Company or such
acquisition.
"Affiliate" means, when used with reference to the Company or another
person, any person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, the Company or such other person, as
the case may be. For the purposes of this definition, "control" when used with
respect to any specified person means the power to direct or cause the
direction of management or policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing. Notwithstanding the foregoing, the term Affiliate shall not include
any wholly owned subsidiary of the Company.
"Agent" means any Registrar, Paying Agent or agent for service of notices
and demands.
"Agent Bank" means Chemical Bank and/or its Affiliates together with any
bank which is or becomes a party to the Credit Agreement or any successor
to Chemical
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2
Bank and/or its Affiliates, and any other Agent Bank under the Credit
Agreement.
"Asset Sale" means any sale exceeding $2,000,000 or any series of sales in
related transactions exceeding $2,000,000 in the aggregate, by the Company or
any subsidiary of the Company, directly or indirectly, of properties or assets
other than in the ordinary course of business, including capital stock of a
subsidiary of the Company, except for (i) the sale of receivables by the
Company or any subsidiary of the Company in the ordinary course of business
consistent with past practices of the Company or any of its subsidiaries, or
the transfer of receivables to a special-purpose subsidiary of the Company and
the issuance by such special-purpose subsidiary, on a basis that is nonrecourse
(except for representations as to the status or eligibility of such receivables
or to the limited extent described in clause (vii)(B) of the definition of
"Permitted Indebtedness") to the Company or any other subsidiary of the
Company, of securities secured by such receivables, and (ii) any sale- and-
lease-back transaction involving a Capitalized Lease Obligation permitted under
Section 4.03.
"average weighted life" means, as of the date of determination, with
reference to any debt security, the quotient obtained by dividing (i) the sum
of the products of the number of years from the date of determination to the
dates of each successive scheduled principal payment of such debt security
multiplied by the amount of such principal payment by (ii) the sum of all such
principal payments.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any duly authorized committee of such Board of
Directors.
"Board Resolution" means a copy of a resolution certified by the secretary
or an assistant secretary of such person to have been duly adopted by the Board
of Directors of such person or any duly authorized committee thereof and to be
in full force and effect on the date of such certification, and delivered to
the Trustee.
"Business Day" means a day that is not a Legal Holiday as defined in Section
12.07.
"capital stock" means any and all shares, interests, participations, rights
or other equivalents (however
<PAGE> 3
3
designated) of corporate stock and any and all forms of partnership interests
or other equity interests in a person.
"Capitalized Lease Obligation" means any lease obligation of a person
incurred with respect to any property (whether real, personal or mixed)
acquired or leased by such person and used in its business that is accounted
for as a capital lease on the balance sheet of such person in accordance with
GAAP.
"Cash Equivalents" means (A) any evidence of Indebtedness maturing, or
otherwise payable without penalty, not more than 365 days after the date of
acquisition issued by the United States of America or an instrumentality or
agency thereof and guaranteed fully as to principal, premium, if any and
interest by the United States of America, (B) any certificate of deposit
maturing, or otherwise payable without penalty, not more than 365 days after
the date of acquisition issued by, or time deposit of, a commercial banking
institution that has combined capital and surplus of not less than
$300,000,000, whose debt is rated, at the time as of which any Investment
therein is made, "A2" (or higher) according to Moody's or "A" (or higher)
according to S & P, (C) commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an Affiliate or
subsidiary of the Company) organized and existing under the laws of the United
States of America or any jurisdiction thereof, with a rating, at the time as of
which any Investment therein is made, of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P and (D) any money market deposit accounts
issued or offered by any domestic institution in the business of accepting
money market accounts or any commercial bank having capital and surplus in
excess of $300,000,000.
"Cash Proceeds" means, with respect to any Asset Sale, cash payments
(including any cash received by way of deferred payment pursuant to a note
receivable or otherwise, but only as and when so received) received from such
Asset Sale.
"Change of Control" means an event or series of events by which (i) a party
other than a Permitted Investor or any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) directly or indirectly
controlling, controlled by, or under common control with the Permitted
Investors (1) is or becomes the "beneficial owner"
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4
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire without condition, other than the passage
of time, whether such right is exercisable immediately or only after the
passage of time) of 50% or more of the Voting Stock of the Company, (2) is or
becomes a shareholder of the Company with the right to appoint or remove
directors of the Company holding 50% or more of the voting rights at meetings
of the Board of Directors on all, or substantially all, matters or (3) is or
becomes able to exercise the right to give directions with respect to the
operating and financial policies of the Company with which the relevant
directors are obliged to comply by reason of: (A) provisions contained in the
organizational documents of the Company or (B) the existence of any contract
permitting such person to exercise control over the Company; provided, that the
Permitted Investors, and any person directly or indirectly controlling,
controlled by, or under common control with the Permitted Investors, together,
are the "beneficial owners" of a lesser percentage of the Voting Stock of the
Company than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority of
the Board of Directors of the Company; (ii) the Company consolidates with, or
merges or amalgamates with or into another person or conveys, transfers, or
leases all or substantially all of its assets to any person, or any person
consolidates with, or merges or amalgamates with or into the Company, in any
such event pursuant to a transaction in which the outstanding Voting Stock of
the Company is changed into or exchanged for cash, securities or other
property, other than any such transaction where (A) the outstanding Voting
Stock of the Company is changed into or exchanged for Voting Stock of the
surviving corporation which is not redeemable capital stock or (x) such Voting
Stock and (y) cash, securities and other property in an amount which could be
paid by the Company as a Restricted Payment pursuant to Section 4.03 (and such
amount shall be treated as a Restricted Payment subject to the provisions of
Section 4.03) and (B) the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less
than a majority of the Voting Stock of the surviving corporation immediately
after such transaction; (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by
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5
the shareholders of the Company was approved by a vote of 66-2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (iv) the stockholders of the
Company approve any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with the provisions of the
Indenture).
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Commercial Letter of Credit" means any letter of credit or similar
instrument issued for the purpose of providing the primary payment mechanism in
connection with the purchase of any materials, goods or services by the Company
or any of its subsidiaries in the ordinary course of business of the Company or
such subsidiary.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Company" means the party named as such in this Indenture, or any other
obligor under this Indenture, until a successor replaces it pursuant to this
Indenture and thereafter means the successor.
"Consolidated" or "consolidated" means, when used with reference to any
amount, such amount determined on a consolidated basis in accordance with GAAP,
after the elimination of intercompany items.
"Consolidated Adjusted Net Worth" means, with respect to any person, as of
any date of determination, the total amount of stockholders' equity of such
person and its subsidiaries which would appear on the consolidated balance
sheet of such person as of the date of determination, less (to the extent
otherwise included therein) the following (the amount of such stockholders'
equity and deductions therefrom to be computed, except as noted below, in
accordance with GAAP): (i) an amount attributable to interests in subsidiaries
of such person held by persons other than such person or its subsidiaries; (ii)
any reevaluation or other write-up in book value of assets subsequent to
December 31, 1993, other than upon the acquisition of assets acquired in a
transaction to be accounted for by purchase
<PAGE> 6
6
accounting under GAAP made within twelve months after the acquisition of such
assets; (iii) treasury stock; (iv) an amount equal to the excess, if any, of
the amount reflected for the securities of any person which is not a subsidiary
over the lesser of cost or market value (as determined in good faith by the
Board of Directors) of such securities; and (v) Disqualified Stock of the
Company or any subsidiary of the Company.
"Consolidated Amortization Expense" means for any person, for any period,
the amortization of goodwill and other intangible items of such person and its
subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Cash Flow Available for Interest Expense" means, for any
person and the Company, the sum of the aggregate amount, for the four fiscal
quarters for which financial information in respect thereof is available
immediately prior to the date of the transaction giving rise to the need to
calculate the Consolidated Cash Flow Available for Interest Expense (the
"Transaction Date"), of (i) Consolidated Net Income (Loss) of such person, (ii)
Consolidated Income Tax Expense, (iii) Consolidated Depreciation Expense, (iv)
Consolidated Amortization Expense, (v) Consolidated Interest Expense and (vi)
other noncash items reducing Consolidated Net Income (Loss), minus noncash
items increasing Consolidated Net Income (Loss). Consolidated Cash Flow
Available for Interest Expense for any period shall be adjusted to give pro
forma effect (to the extent applicable) to (i) each acquisition by the Company
or a subsidiary of the Company during such period up to and including the
Transaction Date (the "Reference Period") in any person which, as a result of
such acquisition, becomes a subsidiary of the Company, or the acquisition of
assets from any person which constitutes substantially all of an operating unit
or business of such person and (ii) the sale or other disposition of any assets
(including capital stock) of the Company or a subsidiary of the Company, other
than in the ordinary course of business, during the Reference Period, as if
such acquisition or sale or disposition of assets by the Company or any
subsidiary of the Company occurred on the first day of the Reference Period.
"Consolidated Depreciation Expense" means for any person, for any period,
the depreciation expense of such
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7
person and its subsidiaries for such period, determined on a consolidated basis
in accordance with GAAP.
"Consolidated Income Tax Expense" means, for any person, for any period, the
aggregate of the income tax expense of such person and its subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any person, for any period, the
sum of (a) the Interest Expense of such person and its subsidiaries for such
period, determined on a consolidated basis, (b) dividends in respect of
preferred or preference stock of a subsidiary of the Company held by persons
other than the Company or a wholly owned subsidiary of the Company and (c)
interest incurred during the period and capitalized by the Company and its
subsidiaries on a consolidated basis in accordance with GAAP. For purposes of
clause (b) of the preceding sentence, dividends shall be deemed to be an amount
equal to the actual dividends paid divided by one minus the applicable actual
combined Federal, state, local and foreign income tax rate of the Company
(expressed as a decimal), on a consolidated basis, for the fiscal year
immediately preceding the date of the transaction giving rise to the need to
calculate Consolidated Interest Expense.
"Consolidated Interest Expense Coverage Ratio" means, with respect to any
person, the ratio of (i) the aggregate amount of the applicable Consolidated
Cash Flow Available for Interest Expense of such person to (ii) the aggregate
Consolidated Interest Expense which such person shall accrue during the first
full fiscal quarter following the Transaction Date and the three fiscal
quarters immediately subsequent to such fiscal quarter, such Consolidated
Interest Expense to be calculated on the basis of the amount of such person's
Indebtedness (on a consolidated basis) outstanding on the Transaction Date and
reasonably anticipated by such person in good faith to be outstanding from time
to time during such period.
"Consolidated Net Income (Loss)" means, with respect to any person, for any
period, the aggregate of the net income (loss) of such person and its
subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; provided that there shall be excluded from such net income (to the
extent otherwise included therein) (i) the net income (loss) of any person
which is not a subsidiary of such person and which is accounted for by the
<PAGE> 8
8
equity method of accounting, except to the extent of the amount of cash
dividends or distributions paid by such other person to such person or to a
subsidiary of such person, (ii) the net income (loss) of any person accrued
prior to the date on which it is acquired by such person or a subsidiary of
such person in a pooling of interests transaction, (iii) except for NS
Beiteiligungs GmbH (a German Foreign Subsidiary) or any successor entity, the
net income (loss) of any subsidiary of such person to the extent that the
declaration or payment of dividends or similar distributions or transfers or
loans by that subsidiary is not at the time permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such subsidiary, in each case
determined in accordance with GAAP, (iv) any gain or loss, together with any
related provision for taxes in respect of such gain or loss, realized upon the
sale or other disposition (including, without limitation, dispositions pursuant
to sale-and-lease-back transactions) of any asset or property outside of the
ordinary course of business and any gain or loss realized upon the sale or
other disposition by such person of any capital stock or marketable securities
and (v) any noncash charges incurred by the Company at any time in connection
with the adoption of SFAS 106.
"Corporate Trust Office" means the office of the Trustee located in New
York, New York, at which at any particular time its corporate services business
shall be principally administered, which office at the date of execution of
this Indenture is located at The First National Bank of Boston, c/o BancBoston
Trust Company of New York, 55 Broadway - 3rd Floor, New York, NY 10006.
"Credit Agreement" means the Amended and Restated Credit Agreement dated as
of October 25, 1993 among the Company, Lear Holdings Corporation, the several
financial institutions parties thereto from time to time (the "Banks") and the
Agent Bank, as the same has been heretofore amended and may be amended
hereafter from time to time, and any subsequent credit agreement constituting a
refinancing, extension or modification thereof.
"Default" means any event which is, or after notice or lapse of time or both
would be, an Event of Default.
"Defaulted Interest" means the interest provided for in Section 2.13.
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9
"Disinterested Director" means, with respect to an Affiliate Transaction or
series of related Affiliate Transactions, a member of a Board of Directors who
has no financial interest, and whose employer has no financial interest, in
such Affiliate Transaction or series of related Affiliate Transactions.
"Disqualified Stock" means any capital stock of the Company or any
subsidiary of the Company which, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part, on or prior to the maturity date of the
Securities or which is exchangeable or convertible into debt securities of the
Company or any subsidiary of the Company except to the extent that such
exchange or conversion rights cannot be exercised prior to the maturity of the
Securities.
"Event of Default" shall have the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Subsidiary" means any subsidiary of the Company organized and
conducting its principal operations outside the United States.
"GAAP" means generally accepted accounting principles on a basis
consistently applied.
"guarantee" means, as applied to any Obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
Obligation or (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of any part
or all of such Obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. Notwithstanding anything
herein to the contrary, a guarantee shall not include any agreement solely
because such agreement creates a Lien on the assets of any person. The amount
of a guarantee shall be deemed to be the maximum amount of
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10
the Obligation guaranteed for which the guarantor could be held liable under
such guarantee.
"Holder" or "Securityholder" means the person in whose name a Security is
registered on the Registrar's books.
"Indebtedness" means (without duplication), with respect to any person, any
indebtedness, contingent or otherwise, in respect of borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such person or
only to a portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or representing the balance deferred and unpaid of the purchase
price of any property (except any such balance that constitutes a trade payable
in the ordinary course of business that is not overdue by more than 120 days or
is being contested in good faith), if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such person
prepared on a consolidated basis in accordance with GAAP, and shall also
include letters of credit, Obligations with respect to Interest Swap
Obligations, any Capitalized Lease Obligation, the maximum fixed repurchase
price of any Disqualified Stock, Obligations secured by a Lien to which any
property or asset, including leasehold interests under Capitalized Lease
Obligations and any other tangible or intangible property rights, owned by such
person is subject, whether or not the Obligations secured thereby shall have
been assumed (provided that, if the Obligations have not been assumed such
Obligations shall be deemed to be in an amount not to exceed the fair market
value of the property or properties to which the Lien relates, as determined in
good faith by the Board of Directors of such person and as evidenced by a Board
Resolution), and guarantees of items which would be included within this
definition (regardless of whether such items would appear upon such balance
sheet; provided that for the purpose of computing the amount of Indebtedness
outstanding at any time, such items shall be excluded to the extent that they
would be eliminated as intercompany items in consolidation). For purposes of
the preceding sentence, the maximum fixed repurchase price of any Disqualified
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Stock as if such Disqualified
Stock were repurchased on any date on which Indebtedness shall be required to
be determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Stock (or any equity
security for
<PAGE> 11
11
which it may be exchanged or converted), such fair market value shall be
determined in good faith by the Board of Directors of such person.
"Indenture" means this Indenture, as amended, supplemented or modified from
time to time.
"Independent Financial Advisor" means a reputable accounting, appraisal or
investment banking firm that is, in the reasonable judgment of the Board of
Directors of the Company or a subsidiary of the Company, qualified to perform
the task for which such firm has been engaged hereunder and disinterested and
independent with respect to the Company and its Affiliates.
"Initial Public Offering" means the sale of capital stock of the Company
pursuant to (a) a registration statement under the Securities Act that has been
declared effective by the SEC or (b) a public offering outside the United
States and which results, in either case, in an active trading market for such
shares. An active trading market shall be deemed to exist if such shares are
listed or quoted on the New York Stock Exchange, the American Stock Exchange or
the NASDAQ National Market System or any major international trading market or
exchange.
"Interest Expense" means for any person, for any period, the aggregate
amount of interest in respect of Indebtedness (including all fees and charges
owed with respect to letters of credit and bankers' acceptance financing and
the net costs associated with Interest Swap Obligations and all but the
principal component of rentals in respect of Capitalized Lease Obligations)
incurred or scheduled to be incurred by such person during such period, all as
determined in accordance with GAAP, except that non-cash amortization or
write-off of deferred financing fees and expenses shall not be included in the
calculation of Interest Expense. For purposes of this definition, (a) interest
on Indebtedness determined on a fluctuating basis for periods succeeding the
date of determination shall be deemed to accrue at a rate equal to the rate of
interest on such Indebtedness in effect on the last day of the fiscal quarter
immediately preceding the date of determination and (b) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined in good faith by the chief financial officer and the
chief accounting officer of such person to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance
<PAGE> 12
12
with GAAP (including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board).
"Interest Swap Obligation" means, with respect to any person, the
Obligations of such person pursuant to any arrangement with any other person
whereby, directly or indirectly, such person is entitled to receive from time
to time periodic payments calculated by applying either a floating or a fixed
rate of interest on a stated notional amount in exchange for periodic payments
made by such person calculated by applying a fixed or a floating rate of
interest on the same notional amount.
"Investment" of any person means (i) all investments by such person in any
other person in the form of loans, advances or capital contributions, (ii) all
guarantees of Indebtedness or other obligations of any other person by such
person, (iii) all purchases (or other acquisitions for consideration) by such
person of Indebtedness, capital stock or other securities of any other person
and (iv) all other items that would be classified as investments (including,
without limitation, purchases of assets outside the ordinary course of
business) on a balance sheet of such person prepared in accordance with GAAP.
"Investment Grade" is defined as BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such ratings by S&P or Moody's.
"Letters of Credit" means the Letters of Credit as defined in the Credit
Agreement as in effect on October 25, 1993.
"Lien" means any lien, security interest, charge or encumbrance of any kind
(including any conditional sale or other title retention agreement or any lease
creating a Capitalized Lease Obligation).
"Management Investors" means the persons who are designated as Management
Investors in the Stockholders Agreement.
"Moody's" means Moody's Investor Services, Inc. or if Moody's ceases to make
a rating of the Securities publicly available, a nationally recognized
securities rating agency selected by the Company.
<PAGE> 13
13
"Net Cash Proceeds" means, with respect to any Asset Sale, the Cash Proceeds
of such Asset Sale net of fees, commissions, expenses and other costs of sale
(including payment of the outstanding principal amount of, premium or penalty,
if any, and interest on any Indebtedness which is either secured by a Lien on
the stock or other assets sold or can be or is accelerated by such sale), taxes
paid or payable as a result thereof, and any amount required to be paid to any
person (other than the Company or any of its subsidiaries) owning a beneficial
interest in the stock or other assets sold, provided that when any non-cash
consideration for an Asset Sale is converted into cash, such cash shall then
constitute Net Cash Proceeds.
"Obligation" means any principal, interest, premium, penalties, fees and any
other liabilities payable under the documentation governing any Indebtedness.
"Officer" of any person means the Chairman of the Board, the President, any
Vice President, the Treasurer, the Secretary or the Controller of such person.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer, Assistant Secretary or Assistant Controller
of any person.
"Opinion of Counsel" means a written opinion from legal counsel prepared in
accordance with Sections 12.04 and 12.05. The counsel may be an employee of or
counsel to the Company.
"Permitted Indebtedness" means: (i) Indebtedness of the Company pursuant to
its Obligations under, or Indebtedness of any subsidiary of the Company under,
the Credit Agreement; provided that in no event shall the aggregate amount of
Indebtedness permitted to be outstanding at any one time pursuant to this
clause (i) exceed $425,000,000 (less (x) any amounts outstanding in respect of
the United States, Canada and Mexico under the program described in clause (xi)
below (the "North American clause (xi) amounts") and (y) any amounts
permanently repaid under the Credit Agreement but without deducting payments
under the revolving credit facility and the swingline facility of the Credit
Agreement unless the commitments thereunder have been permanently reduced and
without deducting under this subclause (y) any such permanent repayments or
permanent reductions made in respect of the North American clause (xi)
amounts); (ii) Indebtedness represented by guarantees of
<PAGE> 14
14
Indebtedness which is permitted by Section 4.03; (iii) Indebtedness evidenced
by the Securities; (iv) Indebtedness of the Company to any subsidiary of the
Company and Indebtedness of any subsidiary of the Company to the Company or
another subsidiary of the Company, provided that the obligations of the Company
to any of its subsidiaries with respect to such Indebtedness shall be subject
to a subordination agreement between the Company and its subsidiaries providing
for the subordination of such obligations in right of payment from and after
such time as all Securities issued and outstanding shall become due and payable
(whether at stated maturity, by acceleration or otherwise) to the payment and
performance of the Company's obligations under this Indenture and the
Securities and provided further that the Company or such subsidiary shall not
become liable to any person other than the Company or a subsidiary of the
Company with respect thereto; (v) Indebtedness of the Company or any subsidiary
of the Company represented by Interest Swap Obligations, provided that such
Interest Swap Obligations are related to payment Obligations on Indebtedness
otherwise permitted by Section 4.03 and shall not result in an increase in the
principal amount of the relevant underlying outstanding Indebtedness; (vi)
Indebtedness of the Company and its subsidiaries, and any undrawn amounts under
the Specified Lines of Credit or legally binding revolving credit or standby
credit facilities existing on the date of this Indenture and Refinancing
Indebtedness in respect of such Indebtedness or amounts; (vii) Indebtedness of
the Company or any of its subsidiaries in respect of guarantees of receivables
originated by the Company or any of its subsidiaries and sold to other persons
to the extent that (A) the sale of such receivables does not constitute an
Asset Sale and (B) such guarantees are in respect of warranties granted by the
Company on the products giving rise to such receivables and such guarantees are
not in respect of any other aspect of such receivables including, without
limitation, the capacity of any customer to meet its obligations under such
receivables; (viii) Indebtedness incurred for working capital purposes by
Foreign Subsidiaries in aggregate principal amount at any one time outstanding
not to exceed (in each case calculated based on currency exchange rates in
effect at the time of any proposed incurrence of Indebtedness) (A) for Foreign
Subsidiaries organized under the laws of countries located in Europe,
$45,000,000 in the aggregate, (B) for Foreign Subsidiaries organized under the
laws of Mexico, $30,000,000 in the aggregate, and (C) for Foreign Subsidiaries
organized
<PAGE> 15
15
under the laws of Canada, $25,000,000 in the aggregate; (ix) Indebtedness of
the Company and its subsidiaries in respect of guarantees of Indebtedness of
less than majority owned persons, provided that in no event shall Indebtedness
permitted pursuant to this clause (ix) exceed $5,000,000; (x) other
Indebtedness of the Company and of any subsidiary of the Company, provided
that in no event shall the aggregate amount of Indebtedness of the Company and
of subsidiaries of the Company permitted to be outstanding pursuant to this
clause (x) at any one time exceed $50,000,000; and (xi) Indebtedness of
special-purpose subsidiaries of the Company in respect of securities secured by
receivables transferred to such special-purpose subsidiaries by the Company or
a subsidiary of the Company, provided that (A) the transfer of such receivables
does not constitute an Asset Sale, (B) such special-purpose subsidiaries engage
in no activities other than the purchase of such receivables and the issuance
of such securities, and (C) such securities are non-recourse to the Company or
any subsidiary of the Company (except for representations as to the status or
eligibility of such receivables or to the limited extent described in clause
(vii)(B) above in this definition).
"Permitted Investors" means the parties to the Stockholders Agreement (other
than the Company) and their respective Affiliates.
"Permitted Liens" means: (i) Liens for taxes, assessments, governmental
charges or claims which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor; (ii) statutory Liens of landlords and
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as shall
be required by GAAP shall have been made therefor; (iii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other Obligations of like nature
incurred
<PAGE> 16
16
in the ordinary course of business (exclusive of Obligations for the payment of
borrowed money); (v) easements, rights-of-way, restrictions, zoning provisions
and other governmental restrictions and other similar charges or encumbrances
not interfering in any material respect with the business of the Company or any
of its subsidiaries; (vi) judgment Liens not giving rise to a Default or Event
of Default; (vii) leases or subleases granted to others not interfering in any
material respect with the business of the Company or any of its subsidiaries;
(viii) Liens encumbering customary initial deposits and margin deposits, and
other Liens incurred in the ordinary course of business and which are within
the general parameters customary in the industry, in each case securing
Indebtedness under Interest Swap Obligations; (ix) any interest or title of a
lessor in the property subject to any Capitalized Lease Obligation or operating
lease or any Lien granted by a lessor on such property which does not interfere
in any material respect with the business of the Company and its subsidiaries;
(x) Liens arising from filing UCC financing statements regarding leases; (xi)
Liens securing reimbursement Obligations with respect to Commercial Letters of
Credit which encumber documents and other property relating to such Commercial
Letters of Credit and the products and proceeds thereof; (xii) other liens
existing on the date of this Indenture; and (xiii) other Liens to secure
Obligations not in excess of $1,000,000 in the aggregate at any time
outstanding, except to secure Indebtedness; and (xiv) Liens securing
Indebtedness permitted pursuant to clauses (i), (v), (vi), (viii), (x) and (xi)
of the definition of Permitted Indebtedness.
"person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"principal" of a debt security means the principal of the security plus, if
such security has been called for redemption, the premium, if any, payable on
such security upon redemption of such security.
"Rating Decline" means the occurrence of the following on, or within 90 days
after, the date of public notice of the occurrence of a Change of Control or of
the intention of the Company to effect a Change of Control (which period shall
be extended so long as the rating of the Securities is under publicly announced
consideration for
<PAGE> 17
17
possible downgrading by either Moody's or S&P): (i) in the event that the
Securities are rated by either Moody's or S&P prior to the date of such public
notice as Investment Grade, the rating of the Securities by both such rating
agencies shall be decreased to below Investment Grade or (ii) in the event the
Securities are rated below Investment Grade by both such rating agencies prior
to the date of such public notice, the rating of the Securities by either
rating agency shall be decreased by one or more gradations (including
gradations within rating categories as well as between rating categories).
"Redemption Date" means, with respect to any Security to be redeemed, the
date fixed for such redemption pursuant to this Indenture.
"Redemption Price" means, with respect to any Security to be redeemed, the
price fixed for such redemption pursuant to this Indenture as set forth in
paragraph 5 of the form of Security annexed hereto as Exhibit A.
"refinance" has the meaning specified in the definition of "Refinancing
Indebtedness", and "refinances", "refinancing" and "refinancings" have
correlative meanings.
"Refinancing Indebtedness" means Indebtedness of the Company and its
subsidiaries, all of the net proceeds of which (after customary fees, expenses
and costs related to the incurrence of such Indebtedness) are applied to repay,
refund, prepay, repurchase, redeem, defease, retire or refinance (collectively,
"refinance") outstanding Indebtedness permitted to be incurred under the terms
of this Indenture; provided that Refinancing Indebtedness that refinances any
Permitted Indebtedness shall be deemed to be incurred and to be outstanding
under the relevant clause in the definition of "Permitted Indebtedness"; and
provided further that (A) the original issue amount of the Refinancing
Indebtedness shall not exceed the maximum principal amount and accrued interest
of the Indebtedness to be repaid or, if greater in the case of clause (i) of
the definition of Permitted Indebtedness, permitted to be outstanding under the
agreements governing the Indebtedness being refinanced (or if such Indebtedness
was issued at an original issue discount, the original issue price plus
amortization of the original issue discount at the time of the incurrence of
the Refinancing Indebtedness) plus the amount of customary fees, expenses and
costs related to the incurrence of such Refinancing Indebtedness, (B)
Refinancing
<PAGE> 18
18
Indebtedness incurred by any subsidiary shall not be used to refinance
outstanding Indebtedness of the Company and (C) with respect to any Refinancing
Indebtedness which refinances Indebtedness which ranks pari passu or junior in
right of payment to the Securities, (1) the Refinancing Indebtedness has an
average weighted life which is equal to or greater than the average weighted
life of the Indebtedness being refinanced, (2) if such Indebtedness being
refinanced is pari passu in right of payment to the Securities, such
Refinancing Indebtedness does not rank senior in right of payment to the
payment of principal of and interest on the Securities, and (3) if such
Indebtedness being refinanced is subordinated to the Securities, such
Refinancing Indebtedness is subordinated to the Securities to the same extent
and on substantially the same terms.
"Representative" means the trustee, agent or representative for an issue of
Senior Indebtedness.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value (collectively a "prepayment"), directly or
indirectly, by the Company or a subsidiary of the Company (other than to the
Company or a subsidiary of the Company), prior to the scheduled maturity or
prior to any scheduled repayment of principal or sinking fund payment in
respect of Indebtedness of the Company or such subsidiary which would be
subordinate in right of payment to the Securities ("Prepaid Debt"); provided,
however, that (i) any such prepayment of any Prepaid Debt (including without
limitation the Subordinated Debentures) shall not be deemed to be a Restricted
Debt Prepayment to the extent such prepayment is made (x) with the proceeds of
the substantially concurrent sale (other than to a subsidiary of the Company)
of shares of the capital stock (other than Disqualified Stock) of the Company
or rights, warrants or options to purchase such capital stock of the Company or
(y) in exchange for or with the proceeds from the substantially concurrent
issuance of Refinancing Indebtedness and (ii) no Default or Event of Default
shall have occurred and be continuing at the time or shall occur as a result of
such sale of capital stock or issuance of such Indebtedness.
"Restricted Investment" means, with respect to any person, any Investments
by such person in (i) any of its Affiliates (other than its subsidiaries) or in
any person that becomes an Affiliate (unless it becomes a subsidiary)
<PAGE> 19
19
as a result of such Investment to the extent that the aggregate amount of all
such Investments made after the date of this Indenture, whether or not
outstanding, less the amount of cash received by such person upon the
disposition of any such Investment, exceeds $25,000,000; (ii) any executive
officer or director of such person or (iii) any executive officer or director
of any Affiliate or any wholly owned subsidiary of such person; provided, that
in the case of clauses (ii) and (iii), (x) loans to any individual executive
officer or director of such person in an amount less than $100,000 in the
aggregate outstanding at any time which have been approved by the chief
executive officer of such person and (y) such loans in excess of that amount
which have been approved by a majority of the Disinterested Directors of such
person shall not be considered Restricted Investments.
"Restricted Payment" means (i) any Restricted Stock Payment, (ii) any
Restricted Debt Prepayment or (iii) any Restricted Investment.
"Restricted Stock Payment" means (i) with respect to the Company, any
dividend, either in cash or in property (except dividends payable in Common
Stock), on, or the making by the Company of any other distribution in respect
of, its capital stock, now or hereafter outstanding, or the redemption,
repurchase, retirement or other acquisition for value by the Company or any
subsidiary of the Company, directly or indirectly, of capital stock of the
Company or any warrants, rights (other than exchangeable or convertible
Indebtedness of the Company) or options to purchase or acquire shares of any
class of the Company's capital stock, now or hereafter outstanding, and (ii)
with respect to any subsidiary of the Company, any redemption, repurchase,
retirement or other acquisition for value by the Company or a subsidiary of the
Company of capital stock of such subsidiary or any warrants, rights (other than
exchangeable or convertible Indebtedness of any subsidiary of the Company), or
options to purchase or acquire shares of any class of capital stock of such
subsidiary, now or hereafter outstanding, except with respect to capital stock
of such subsidiary or such warrants, rights or options owned by (x) the Company
or a subsidiary of the Company or (y) any person which is not an Affiliate of
the Company.
"S&P" means Standard & Poor's Corporation, or if it ceases to make a rating of
the Securities publicly
<PAGE> 20
20
available, a nationally recognized securities rating agency selected by the
Company.
"Seating Business" means the production, design, development, manufacture,
marketing or sale of seat frames, seat systems, seat components, or vehicle
interiors or any related businesses.
"SEC" means the Securities and Exchange Commission and any government agency
succeeding to its functions.
"Securities" means the 8 1/4% Subordinated Notes due 2002 of the Company
issued pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the Obligations of the Company with respect to
(i) any and all amounts payable by the Company under or in respect of its
Obligations (including reimbursement obligations in respect of letters of
credit) incurred and outstanding from time to time under the Credit Agreement,
or any refinancings thereof (including interest accruing on or after filing of
any petition in bankruptcy or reorganization relating to the Company, at the
rate specified in such Senior Indebtedness whether or not a claim for
post-filing interest is allowed in such proceeding), (ii) Interest Swap
Obligations related to its Obligations on Senior Indebtedness, (iii) any and
all amounts payable by the Company under or in respect of its Obligations
incurred and outstanding under the Senior Subordinated Notes or any
refinancings thereof, and (iv) any other Indebtedness of the Company, whether
outstanding on the date of this Indenture or hereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness is not senior in right of payment to
the Securities; provided that, notwithstanding the foregoing, Senior
Indebtedness shall not include (A) Indebtedness which is represented by the
Securities, (B) Indebtedness incurred in violation of this Indenture, (C)
Indebtedness which is represented by Disqualified Stock, (D) amounts payable or
any other Indebtedness to trade creditors created, incurred, assumed or
guaranteed by the Company or any subsidiary of the Company in the ordinary
course of business in connection with obtaining goods or services, (E) amounts
payable or any other Indebtedness to employees of the Company or any
<PAGE> 21
21
subsidiary of the Company as compensation for services, (F) Indebtedness
of the Company to a subsidiary of the Company, (G) any liability for Federal,
state, local or other taxes owed or owing by the Company, and (H) Indebtedness
represented by the Subordinated Debentures.
"Senior Subordinated Indebtedness" means, with respect to any person, any
Indebtedness of a person that specifically provides that such Indebtedness is
to rank pari passu with other Senior Subordinated Indebtedness of such person
and is not subordinated by its terms to any Indebtedness of such person which
is not Senior Indebtedness.
"Senior Subordinated Notes" means the Company's 11-1/4% Senior Subordinated
Notes due 2000, issued pursuant to an Indenture dated as of July 15, 1992,
among Lear Holdings Corporation, the Company, and The Bank of New York, as
trustee.
"Senior Subordinated Notes Trustee" means The Bank of New York, or any duly
appointed successor thereto, as trustee under an Indenture dated as of July 15,
1992, among Lear Holdings Corporation, the Company, and The Bank of New York,
as trustee.
"Significant Subsidiary" means one or more subsidiaries of the Company
which, in the aggregate, have (i) assets, or in which the Company and its other
subsidiaries have Investments, equal to or greater than 5% or more of the total
assets of the Company and its subsidiaries consolidated at the end of the most
recently completed fiscal year of the Company or (ii) consolidated gross
revenue equal to or exceeding 5% of the consolidated gross revenue of the
Company for its most recently completed fiscal year.
"Special Record Date" for the payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 2.13.
"Specified Lines of Credit" means the following informal lines of credit
existing on the date of this Indenture: (a) Indebtedness incurred by an
Austrian Foreign Subsidiary to Sparkasse Bank under a working capital credit
line in a principal amount not to exceed 20,000,000 Austrian schillings; (b)
Indebtedness incurred by a Mexican Foreign Subsidiary to Banco Internacional
under a note payable facility for working capital in principal amount not
<PAGE> 22
22
to exceed $15,000,000; (c) Indebtedness incurred by a Mexican Foreign
Subsidiary to Bancomer, Banco Mexicano and Banamex under a note payable
facility for working capital in principal amount not to exceed 45,000,000
Mexican pesos; (d) Indebtedness incurred by a Swedish Foreign Subsidiary to SE
Banken under a working capital credit facility in principal amount not to
exceed 6,500,000 Swedish Krona; and (e) Indebtedness consisting only of trade
acceptances of NS Beteiligungs GmbH and Lear Seating Sweden, AB in principal
amount not to exceed $1,000,000.
"Specified Senior Indebtedness" means (i) Indebtedness under the Credit
Agreement (or any refunding or refinancing thereof), (ii) any other single
issue of Senior Indebtedness (other than the Senior Subordinated Notes) having
an initial principal amount of $30,000,000 or more. For purposes of this
definition, a refinancing of any Specified Senior Indebtedness shall be treated
as such only if it ranks or would rank on a pari passu basis with the
Indebtedness refinanced.
"Stockholders Agreement" means the Amended and Restated Stockholders and
Registration Rights Agreement, dated as of September 27, 1991, among Lear
Holdings Corporation, Shearson Lehman Hutton Merchant Banking Portfolio
Partnership L.P., Shearson Lehman Hutton Offshore Investment Partnership- Japan
L.P., Shearson Lehman Hutton Offshore Investment Partnership L.P., Shearson
Lehman Hutton Capital Partners II, L.P., Shearson Lehman Hutton Merchant
Banking Partners, Inc., FIMA Finance Management Inc. and Management Investors.
"Subordinated Debentures" means the Company's Subordinated Debentures due
December 1, 2000, issued on December 22, 1988, pursuant to the Subordinated
Debenture Indenture.
"Subordinated Debenture Indenture" means the indenture between the Company
and Norwest Bank Minnesota, National Association, as Trustee governing the
Subordinated Debentures.
"subsidiary" of any person means (i) a corporation a majority of whose
capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such person or by
such person and a subsidiary or subsidiaries of such person or by a subsidiary
or subsidiaries of such person or (ii) any other person (other than a
corporation) in which such person
<PAGE> 23
23
or such person and a subsidiary or subsidiaries of such person or a subsidiary
or subsidiaries of such persons, at the time, directly or indirectly, owned at
least a majority ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Section
77aaa-77bbbb), as in effect on the date of this Indenture (except as otherwise
provided in Section 9.03).
"Trustee" means the party named as such above until a successor replaces it
pursuant to this Indenture and thereafter means the successor.
"Trust Officer" means any officer in the Corporate Trust Division of the
Trustee or any other officer of the Trustee assigned by the Trustee to
administer this Indenture.
"UCC" means the Uniform Commercial Code in effect from time to time in the
State of New York.
"U.S. Government Obligations" means direct obligations of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged and which are non-callable at the option of the
issuer thereof.
"Voting Stock" means all classes of capital stock then outstanding of a
person normally entitled to vote in elections of directors.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Bankruptcy Law" .................. 6.01
"Custodian" ....................... 6.01
"Interest Payment Date" ........... Section 1
of Exh. A
hereto
"Legal Holiday" ................... 12.07
"Paying Agent" .................... 2.03
"Payment Blockage Period" ......... 10.02
"Purchase Date" ................... 11.01
</TABLE>
<PAGE> 24
24
<TABLE>
<S> <C>
"Purchase Price" .................. 11.01
"Registrar" ....................... 2.03
"Repurchase Date" ................. 4.08
"Repurchase Offer" ................ 4.08
"Repurchase Offer Amount" ......... 4.08
"Repurchase Price" ................ 4.08
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Securities:
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
have the meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context
otherwise requires: (i) a term has the meaning assigned to it; (ii) an
accounting term not otherwise defined has the meaning assigned to it in
accordance with generally accepted accounting principles; (iii) references to
GAAP shall mean generally accepted accounting principles in effect in the
United States as of the time and for the period as to which such accounting
principles are to be applied; (iv) notwithstanding the provisions of Section
1.04(iii), all ratios and calculations contained in this Indenture shall be
calculated in accordance with generally accepted accounting principles in
effect as of the date hereof; (v) "or" is not exclusive; (vi) words in the
singular include the plural, and in the plural include the
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25
singular; and (vii) provisions apply to successive events and transactions.
ARTICLE II
The Securities
SECTION 2.01. Form and Dating. The Securities and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A, which is hereby incorporated in and expressly made a part of this
Indenture. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage. Each Security shall be dated the date of
its authentication.
The terms and provisions contained in the Securities annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which
such Securities may then be listed, all as determined by the Officers executing
such Securities, as evidenced by their execution of such Securities.
SECTION 2.02. Execution and Authentication. Two Officers
shall sign the Securities for the Company by manual or facsimile signature.
The Company's seal shall be reproduced on the Securities and may be in
facsimile form.
If an Officer whose signature is on a Security no longer holds
that office at the time the Security is authenticated, the Security shall be
valid nevertheless.
A Security shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence
that the Security has been authenticated under this Indenture.
The Trustee shall authenticate and deliver Securities for
original issue in the aggregate principal amount of not more than $145,000,000
pursuant to a written order of
<PAGE> 26
26
the Company signed by two Officers. The order shall specify the amount of
Securities to be authenticated and the date upon which the original issue of
Securities is to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $145,000,000 except as
provided in Sections 2.07 and 2.08.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate of the Company.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and integral multiples
thereof.
SECTION 2.03. Registrar and Paying Agent. The Company shall
maintain in the Borough of Manhattan, New York, New York, an office or agency
where Securities may be presented for registration of transfer or for exchange
(the "Registrar") and an office or agency where Securities may be presented for
payment (the "Paying Agent"), and the Company shall maintain in the Borough of
Manhattan, New York, New York, an office or agency where notices or demands to
or upon the Company in respect of the Securities and the Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more additional paying agents. The term "Paying Agent" includes any
additional paying agent and the term "Registrar" includes any additional
registrar. The Company may change any Paying Agent or Registrar without prior
notice to any Securityholder.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the terms
of the TIA. The agreement shall implement the provisions of this Indenture
that relate to such Agent. The Company shall give prompt written notice to the
Trustee of the name and address of any Agent who is not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any
<PAGE> 27
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Affiliate of the Company may act as Paying Agent or Registrar.
The Company initially appoints the Trustee at the address
specified in Section 12.02 as Registrar and Paying Agent, and the Company
initially appoints the Trustee as agent for service of notices and demands.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to
the due date of principal of and interest on any Security, the Company shall
deposit with the Paying Agent money sufficient to pay such principal and
interest so becoming due. The Company shall require each Paying Agent other
than the Trustee to agree in writing that the Paying Agent shall hold in trust
for the benefit of Securityholders or the Trustee all money held by the Paying
Agent for the payment of principal of and interest on the Securities (whether
such money has been paid to it by the Company or any other obligor on the
Securities) and shall notify the Trustee of any failure by the Company (or any
other obligor on the Securities) in making any such payment. While any such
failure continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee and to account for any funds disbursed. The Company at
any time may require a Paying Agent to pay all money held by it to the Trustee.
Upon payment over to the Trustee, the Paying Agent (if other than the Company)
shall have no further liability for the money so paid over to the Trustee. If
the Company acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Securityholders all money held by it as
Paying Agent.
SECTION 2.05. Securityholder Lists. The Trustee shall
preserve in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Securityholders. If the Trustee
is not the Registrar, the Company shall furnish to the Trustee on or before
each interest payment date for the Securities and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.06. Registration of Transfer and Exchange. The
Securities shall be issued in registered form and shall be transferable only
upon the surrender of a Security for registration of transfer. When Securities
are presented to the Registrar or a coregistrar with a request
<PAGE> 28
28
to register their transfer or to exchange them for an equal principal amount of
Securities of other denominations, the Registrar shall register the transfer or
make the exchange if its requirements for such transaction are met; provided
that a Security presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar duly executed by the Holder
thereof or his attorney duly authorized in writing. To permit registrations of
transfer and exchanges, the Company shall issue Securities, and the Trustee
shall authenticate Securities at the Registrar's request. No service charge
shall be made for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with registration, transfer or
exchange of Securities other than exchanges pursuant to Section 2.10, 3.06,
9.05 or 11.01(d) not involving any transfer.
The Registrar shall not be required to register the transfer
or exchange of (i) any Security selected for redemption in whole or in part,
except the unredeemed portion of any Security being redeemed in part or (ii)
any Security for a period of 15 days before a selection of Securities to be
redeemed.
SECTION 2.07. Replacement Securities. If a mutilated
Security is surrendered to the Trustee or if the Holder of a Security claims
that the Security has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee, at the Company's request, shall authenticate a
replacement Security if the requirements of the Trustee and the Company are
met; provided that, if any such Security has been called for redemption in
accordance with the terms thereof, the Trustee may pay the Redemption Price
thereof on the Redemption Date without authenticating or replacing such
Security. The Trustee or the Company may, in either case, require the Holder
to provide an indemnity bond sufficient in the judgment of each of the Trustee
and the Company to protect the Company, the Trustee, any Agent or any
authenticating agent from any loss which any of them may suffer if a Security
is replaced or if the Redemption Price therefor is paid pursuant to this
Section. The Company may charge the Securityholder who has lost a Security for
its expenses in replacing a Security.
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Every replacement Security is an additional obligation of the
Company and shall be entitled to the benefits of this Indenture.
SECTION 2.08. Outstanding Securities. The Securities
outstanding at any time are all the Securities authenticated by the Trustee
except for those canceled by it, those delivered to it for cancellation and
those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding and interest ceases to accrue unless the Trustee receives
proof satisfactory to it that the replaced Security is held by a bona fide
purchaser.
If all principal of and interest on any of the Securities are
considered paid under Section 4.01, such Securities shall cease to be
outstanding and interest on them shall cease to accrue.
Except as provided in Section 2.09, a Security does not cease
to be outstanding because the Company or an Affiliate of the Company holds such
Security.
SECTION 2.09. Treasury Securities. In determining whether
the Holders of the required principal amount of Securities have concurred in
any direction, waiver or consent, Securities owned by the Company or any other
obligor, or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or such other
obligor shall be considered as though they are not outstanding, except that for
the purposes of determining whether the Trustee shall be protected in relying
on any such direction, waiver or consent, only Securities which such Trustee
knows are so owned shall be so disregarded.
SECTION 2.10. Temporary Securities. Until definitive
Securities are ready for delivery, the Company may prepare and execute and the
Trustee shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Company considers appropriate for temporary Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without
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unreasonable delay. After the preparation of definitive Securities, the
temporary Securities shall be exchangeable for definitive Securities upon
surrender of the temporary Securities at the Corporate Trust Office of the
Trustee, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Securities, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like aggregate principal
amount of definitive Securities having the same date as such temporary
Securities. Until so exchanged such temporary securities shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities.
SECTION 2.11. Cancellation. The Company at any time may
deliver Securities to the Trustee for cancellation. The Registrar and Paying
Agent shall forward to the Trustee any Securities surrendered to them for
registration of transfer, exchange, payment or repurchase. The Trustee shall
cancel all Securities surrendered for registration of transfer, exchange,
payment, repurchase, redemption, replacement or cancellation and shall destroy
canceled Securities unless the Company directs them to be returned to it. The
Company may not issue new Securities to replace Securities that it has paid or
that have been delivered to the Trustee for cancellation.
SECTION 2.12. CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use), and the Trustee
shall use CUSIP numbers in notice given pursuant to Section 3.03, 4.08 or 11.01
as a convenience to Holders; provided that any such notice shall state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any such notice and that reliance may be
placed only on the other identification numbers printed on the Securities.
SECTION 2.13. Defaulted Interest. If the Company fails to
make a payment of interest on the Securities, it shall pay such interest, plus
interest payable on the defaulted interest (to the extent permitted by law), to
the persons who are Securityholders on a subsequent special record date, which
shall be fixed in the following manner: the Company shall notify the Trustee
in writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment (which shall be at least 40 days
from the date of such notice), and at the same time the Company shall deposit
with the Trustee an
<PAGE> 31
31
amount of cash equal to the aggregate amount proposed to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such cash when
deposited to be held in trust for the benefit of the persons entitled to such
Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix
a Special Record Date for the payment of such Defaulted Interest which shall be
not more than 15 or less than 10 days prior to the date of the proposed payment
and not less than 15 days after the receipt of the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid, to each Holder
at his address as it appears in the register, not less than 10 days prior to
such Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been mailed as aforesaid,
such Defaulted Interest shall be paid to the persons in whose names the
Securities are registered as of the close of business on such Special Record
Date.
Notwithstanding the foregoing, no such payment of Defaulted
Interest shall affect the status of the failure to pay interest when due as an
Event of Default under Section 6.01.
SECTION 2.14. Person Deemed Owners. Prior to due presentment
for transfer, the Company, the Trustee, the authenticating agent, if any, and
any Agent may treat the Holder as the owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for all
other purposes whatsoever, whether or not such Security be overdue, and neither
the Company, the Trustee, the authenticating agent, if any, nor any Agent
(including the Paying Agent, if any) shall be affected by notice to the
contrary.
ARTICLE III
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to
redeem Securities pursuant to paragraph 5 of the
<PAGE> 32
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Securities, it shall notify the Trustee of the redemption date and the
principal amount of Securities to be redeemed.
The Company shall give each notice provided for in this
Section and an Officers' Certificate at least 15 days before the Redemption
Date (unless a shorter period shall be satisfactory to the Trustee).
SECTION 3.02. Selection of Securities To Be Redeemed. If
fewer than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed from the outstanding Securities not previously called
for redemption pro rata or by lot in accordance with a method the Trustee
considers fair and appropriate. The Trustee may select for redemption portions
of the principal amount of Securities that have denominations larger than
$1,000.
The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Security
selected for partial redemption, the principal amount thereof to be redeemed.
Securities and portions of them selected shall be in amounts of $1,000 or whole
multiples of $1,000. Provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.03. Notice of Redemption. At least 15 days but not
more than 60 days before the Redemption Date, the Company shall mail a notice
of redemption by first-class mail to each Holder whose Securities are to be
redeemed at the address of such Holder appearing in the register.
The notice shall identify the Securities to be redeemed and
shall state: (1) the Redemption Date; (2) the Redemption Price; (3) if any
Security is being redeemed in part, the portion of the principal amount of such
Security to be redeemed and that, after the Redemption Date, upon surrender of
such Security, a new Security or Securities in principal amount equal to the
unredeemed portion shall be issued; (4) the name and address of the Paying
Agent; (5) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price plus accrued interest (if any) to
the Redemption Date; (6) that, unless the Company defaults in making the
redemption payment, interest on Securities called for redemption ceases to
accrue on and after the Redemption Date and the
<PAGE> 33
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only remaining right of the Holders is to receive payment of the Redemption
Price plus accrued interest (if any) to the Redemption Date upon surrender of
the Securities to the Paying Agent; (7) the Security's CUSIP number (subject to
the proviso in Section 2.12 hereof) and (8) the aggregate principal amount of
Securities being redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense. Concurrently with the
giving of any such notice by the Company to the Securityholders, the Company
shall deliver to the Trustee an Officers' Certificate stating that such notice
has been given. The notice mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the Holder
receives such notice. In any case, failure to give such notice by mail or any
defect in the notice to the Holder of any Security shall not affect the
validity of the proceeding for the redemption of any other Security.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable
on the Redemption Date at the Redemption Price plus accrued interest to the
Redemption Date. Upon surrender to the Paying Agent, such Securities shall be
paid at the Redemption Price plus accrued interest (if any) to the Redemption
Date.
SECTION 3.05. Deposit of Redemption Price. Prior to the
Redemption Date, the Company shall deposit with the Trustee or with the Paying
Agent (or if the Company is acting as its own Paying Agent, the Company shall
segregate and hold in trust) money sufficient to pay the Redemption Price of
and accrued interest to the Redemption Date on all Securities to be redeemed on
that date other than Securities or portions thereof called for redemption on
that date which have been delivered by the Company to the Trustee for
cancellation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of
a Security that is redeemed in part, the Company shall issue and the Trustee
shall authenticate for the Holder at the expense of the Company, a new Security
equal in principal amount to the unredeemed portion of the Security
surrendered.
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ARTICLE IV
Covenants
SECTION 4.01. Payment of Securities. The Company shall pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if the Trustee or Paying Agent (other than
the Company or an Affiliate of the Company) holds on that date money designated
for and sufficient to pay all principal and interest then due if payment
thereof is not prohibited by Article X.
The Company shall pay interest on overdue principal at the
rate then borne by the Securities; it shall pay interest on overdue
installments of interest at the same rate to the extent legally permitted.
SECTION 4.02. Limitation on Restricted Payments. The Company
shall not, and shall not permit any subsidiary of the Company to, directly or
indirectly, make any Restricted Payment unless (a) no Default or Event of
Default shall have occurred and be continuing at the time or shall occur as a
consequence of such Restricted Payment and (b) after giving effect to such
Restricted Payment, the aggregate amount expended for all Restricted Payments
subsequent to December 31, 1993, (the amount so expended, if other than in
cash, to be determined by the Board of Directors, whose reasonable
determination shall be conclusive and evidenced by a Board Resolution), shall
not exceed the sum of (x) 50% of Consolidated Net Income of the Company (or in
the case such Consolidated Net Income shall be a deficit, minus 100% of such
deficit) during the period (treated as one accounting period) subsequent to
December 31, 1993 and ending on the last day of the fiscal quarter immediately
preceding such Restricted Payment and (y) the aggregate net proceeds, including
cash and the fair market value of property other than cash (as determined in
good faith by the Board of Directors of the Company and evidenced by a Board
Resolution), received by the Company during such period from any person other
than a subsidiary of the Company, as a result of the issuance of capital stock
of the Company (other than any Disqualified Stock) or warrants, rights or
options to purchase or acquire such capital stock including such capital stock
issued upon conversion or exchange of Indebtedness or upon exercise of warrants
or options and any contributions to the capital of
<PAGE> 35
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the Company received by the Company from any such person less the amount of
such net proceeds actually applied as permitted by clause (ii) of the next
paragraph or by the proviso to the definition of "Restricted Debt Prepayment"
in Article I of this Indenture; provided, that at the time of such Restricted
Payment and after giving effect thereto, the Company or any subsidiary of the
Company shall be able to incur an additional $1.00 of Indebtedness pursuant to
clauses (a) and (b) of Section 4.03 of this Indenture. For purposes of any
calculation pursuant to the preceding sentence which is required to be made
within 60 days after the declaration of a dividend by the Company, such
dividend shall be deemed to be paid at the date of declaration.
The provisions of this Section 4.02 shall not be violated by
reason of (i) the payment of any dividend within 60 days after the date of
declaration thereof if, at such date of declaration such payment complied with
the provisions hereof (ii) the purchase, redemption, acquisition or retirement
of any shares of the Company's capital stock in exchange for, or out of the
proceeds of the substantially concurrent sale (other than to a subsidiary of
the Company) of, other shares of capital stock (other than Disqualified Stock)
of the Company or rights, warrants or options to purchase or acquire such
capital stock of the Company or (iii) payments by the Company (A) for the
mandatory repurchase of shares of Common Stock of the Company (or scheduled
payments of principal of or interest on notes issued to finance the repurchase
of such shares) from Management Investors under the Stockholders Agreement or
(B) to satisfy any other Obligations under the terms of the Stockholders
Agreement; provided, that no Default or Event of Default shall have occurred
and be continuing at the time, or shall occur as a result, of such Restricted
Payment. For purposes of determining the aggregate amount of Restricted
Payments in accordance with clause (b) of the first paragraph of this Section
4.02, all amounts expended pursuant to clause (i) or (iii) (except to the
extent deemed to have been paid pursuant to the last sentence of the
immediately preceding paragraph) of this paragraph shall be included.
For the purpose of this Section 4.02 and the proviso to the
definition of "Restricted Debt Prepayment" in Article I of this Indenture, the
net proceeds from the issuance of shares of capital stock of the Company upon
the conversion of debt securities shall be deemed to be an amount equal to the
net book value of such debt securities
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(plus the additional amount required to be paid upon such conversion, if any),
less any cash payment on account of fractional shares; the "net book value" of
a security shall be the amount received by the Company on the issuance of such
security, as adjusted on the books of the Company to the date of conversion.
The foregoing shall not be interpreted to limit the authority of the Board of
Directors to determine the value of other securities of the Company or of any
subsidiary of the Company or other property received as net proceeds; provided
that the value of the other property shall not exceed the net book value of
such property.
Prior to making any Restricted Payment under this Section
4.02, the Company shall deliver to the Trustee an Officers' Certificate setting
forth the computation by which the amount available for Restricted Payments was
determined.
SECTION 4.03. Limitation on Indebtedness. Except for
Permitted Indebtedness and Refinancing Indebtedness, the Company shall not, and
shall not permit any subsidiary of the Company to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become liable for,
contingently or otherwise, extend the maturity or become responsible for the
payment of (collectively, an "incurrence"), any Obligations in respect of any
Indebtedness including Acquired Indebtedness unless (a) no Default or Event of
Default shall have occurred and be continuing at the time or as a consequence
of the incurrence of such Indebtedness and (b) after giving effect to the
incurrence of such Indebtedness and the receipt and application of the proceeds
thereof on a pro forma basis, the Consolidated Interest Expense Coverage Ratio
of the Company is greater than 2 to 1.
For purposes of all covenants contained in this Section 4.03,
an incurrence shall be deemed to occur when any person becomes a subsidiary of
the Company by merger or consolidation, acquisition or otherwise.
Prior to any incurrence of Indebtedness pursuant to this
Section, the Company shall deliver to the Trustee and the Securityholders an
Officers' Certificate setting forth the calculations by which such incurrence
was determined to be permitted and stating that such Indebtedness does not
violate the provisions of Section 4.03.
SECTION 4.04. Limitation on Payment Restrictions Affecting
Subsidiaries. The Company shall not, and shall
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37
not permit any subsidiary of the Company to, create or otherwise cause or
suffer to exist or become effective any consensual restriction which by its
terms expressly restricts any such subsidiary from (i) paying dividends or
making any other distributions on such subsidiary's capital stock or paying any
Indebtedness owed to the Company or any subsidiary of the Company, (ii) making
any loans or advances to the Company or any subsidiary of the Company or (iii)
transferring any of its property or assets to the Company or any subsidiary of
the Company, except (a) any restrictions existing under agreements in effect at
the issuance of the Securities including Section 4.02, (b) any restrictions
under any agreement evidencing any Acquired Indebtedness of a subsidiary of the
Company incurred pursuant to Section 4.03; provided that such restrictions
shall not restrict or encumber any assets of the Company or its subsidiaries
other than such subsidiary or (c) any restrictions existing under any agreement
which refinances any Indebtedness in accordance with paragraph (xiv) of the
definition of Permitted Indebtedness; provided that the terms and conditions of
any such agreement are not materially less favorable to such subsidiary than
those under the agreement creating or evidencing the Indebtedness being
refinanced.
SECTION 4.05. Limitation on Creation of Liens. The Company
shall not, and shall not permit any subsidiary of the Company to, create,
incur, assume or suffer to exist any Liens upon any of their respective assets
unless the Securities are secured by such assets on an equal and ratable basis
with the obligation so secured until such time as such obligation is no longer
secured by a Lien, provided that if the obligation secured by such Lien is
subordinated to the Securities, the Lien securing such obligation shall be
subordinate and junior to the Lien securing the Securities with the same
relative priority as such subordinated obligation shall have with respect to
the Securities, except for (i) Liens securing Senior Indebtedness that would be
permitted to be incurred in compliance with clauses (a) and (b) of Section 4.03
if such Indebtedness were incurred on the date such Lien is granted; (ii) Liens
with respect to Acquired Indebtedness, provided that such Liens do not extend
to or cover any property or assets of the Company or any subsidiary of the
Company other than the property or assets acquired, and provided further that
such Liens were not incurred in connection with, or in contemplation of, the
transaction or transactions giving rise to such Acquired Indebtedness; (iii)
Liens securing
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Indebtedness which is incurred to refinance secured Indebtedness and which is
permitted to be incurred pursuant to Section 4.03, provided that such Liens do
not extend to or cover any property or assets of the Company or any subsidiary
of the Company other than the property or assets securing the Indebtedness
being refinanced; and (iv) Permitted Liens.
SECTION 4.06. No Senior Subordinated Indebtedness. The
Company shall not issue, incur, create, assume, guarantee or otherwise become
liable for any Indebtedness which is subordinate or junior in right of payment
to any Indebtedness of the Company, including, without limitation, Indebtedness
that refinances the Senior Subordinated Notes, unless such Indebtedness is pari
passu with or subordinate in right of payment to the Securities.
SECTION 4.07. Transactions with Shareholders and Affiliates.
The Company shall not, and shall not permit any subsidiary of the Company to,
directly or indirectly, enter into or suffer to exist any transaction (an
"Affiliate Transaction") (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
holder of more than 10% of any class of equity securities of the Company or
with any Affiliate of the Company or of any such holder (other than a wholly
owned subsidiary of the Company), on terms that are less favorable to the
Company or such subsidiary, as the case may be, than would be available in a
comparable transaction with an unrelated person. In addition, neither the
Company nor any subsidiary of the Company shall enter into any Affiliate
Transaction or series of related Affiliate Transactions involving or having a
value of (a) more than $2,500,000, unless a majority of Disinterested Directors
(or, if there are no Disinterested Directors, a majority of the Board of
Directors) of the Company or such subsidiary, as the case may be, determines in
good faith pursuant to a Board Resolution that such Affiliate Transaction or
series of related Affiliate Transactions is fair to the Company or such
subsidiary, as the case may be, or (b) more than $10,000,000, unless (i) a
majority of Disinterested Directors (or, if there are no Disinterested
Directors, a majority of the Board of Directors) of the Company or such
subsidiary, as the case may be, make the determination referred to in clause
(a) above and (ii) the Company or such subsidiary, as the case may be, has
received an opinion from an Independent Financial Advisor to the effect that
such Affiliate Transaction or series of related Affiliate
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Transactions are fair to the Company or such subsidiary, as the case may be,
from a financial point of view.
The foregoing provisions shall not apply to payments of
investment banking and financial advisory or consulting fees and other fees to
Lehman Brothers Inc. or any of their subsidiaries or Affiliates in connection
with the sale of the Securities (or any refunding, refinancing or conversion
thereof) and other customary investment banking and financial advisory or
consulting fees.
SECTION 4.08. Sales of Assets. Subject to the provisions of
Section 5.01, the Company shall not, and shall not permit any subsidiary to,
make any Asset Sale unless (i) the Company (or such subsidiary, as the case may
be) receives consideration at the time of such sale at least equal to the fair
market value of the shares or assets included in such Asset Sale (as determined
in good faith by the Board of Directors, including valuation of all noncash
consideration) or (ii)(x) either (A) the Net Cash Proceeds are reinvested
within 12 months (or, pursuant to a determination of the Board of Directors,
held pending reinvestment) in replacement assets or assets used in the Seating
Business or used to purchase all of the issued and outstanding capital stock of
a person engaged in such business or used to fund research and development
costs or (B) if the Net Cash Proceeds are not applied or are not required to be
applied as set forth in clause (ii)(x)(A) or if after applying such Net Cash
Proceeds as set forth in clause (ii)(x)(A) there remain Net Cash Proceeds, such
Net Cash Proceeds are applied within 12 months of the original receipt thereof
to the permanent prepayment, repayment, retirement or purchase of Senior
Indebtedness or Indebtedness of a subsidiary, (y) if and to the extent that the
gross proceeds from such Asset Sale (after giving effect to the application of
clause (ii)(x)(A) and (B), when added to the gross proceeds from all prior
Asset Sales (not applied as set forth in clause (ii)(x)(A) or (B)) exceeds
$15,000,000, such proceeds are applied pursuant to a Repurchase Offer (defined
below) to repurchase the Securities (on a pro rata basis if the amount
available for such purchase is less than the outstanding principal amount of
the Securities) at a purchase price equal to 100% of the principal amount
thereof plus accrued interest to the date of prepayment and (z) if the
aggregate principal amount of all Securities tendered pursuant to a Repurchase
Offer is less than the Repurchase Offer Amount (defined below), such excess
amount is applied for general corporate purposes;
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provided that when any non-cash consideration is converted into cash, such cash
shall then constitute Net Cash Proceeds and shall be subject to clause (ii) of
this sentence.
To repurchase the Securities, the Company shall offer to
purchase the Securities (the "Repurchase Offer"), on a specified date (the
"Repurchase Date"), pursuant to the provisions hereof at a price equal to 100%
of their principal amount, plus interest accrued to the Repurchase Date (the
"Repurchase Price"). If the Repurchase Date is on or after a record date and
on or before the related interest payment date, then any accrued interest shall
be paid to the person in whose name the Security is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Securities pursuant to the Repurchase Offer. Net Cash
Proceeds allocable to the purchase of Securities will be accumulated and the
Company shall be required to make a Repurchase Offer to the holders of
Securities only if an aggregate amount (the "Repurchase Offer Amount") of at
least $15,000,000 of such Net Cash Proceeds has been accumulated as of the
first day of any fiscal quarter which amount has neither been paid nor set
aside for the purchase of the Securities tendered in a prior Repurchase Offer
or reallocated for general corporate purposes as herein provided.
If the Company elects to commence a Repurchase Offer, or
within 10 Business Days after the first day of each fiscal quarter in which the
Company is obligated to make a Repurchase Offer, the Company shall deliver to
the Trustee and send, by first class mail to each Holder at his last address as
it appears upon the list of Securityholders maintained by the Registrar
pursuant to Section 2.03 hereof, a written notice stating that the Holder may
elect to have such Holder's Securities purchased by the Company either in whole
or in part in integral multiples of $1,000 of principal amount, plus accrued
interest thereon to the Repurchase Date. The notice shall specify a Repurchase
Date which is at least 20 Business Days after the date of such notice and shall
contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Repurchase Offer, together with the
information contained in the second following paragraph of this Section 4.08.
Not later than the date upon which written notice of a Repurchase Offer is
delivered to the Trustee, the Company shall deliver to the Trustee an Officers'
Certificate as to (x) the Repurchase Offer Amount and the amount of accrued
interest to the Repurchase Date, (y) the allocation of the
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Net Cash Proceeds from the Asset Sale or Asset Sales pursuant to which such
Repurchase Offer is being made and (z) the compliance of such allocation with
the provisions of this Section 4.08.
If the Company designates a depositary or a Paying Agent to
receive tendered Securities on its behalf in the Repurchase Offer, the Company
shall deposit with such depositary or Paying Agent, no later than the
Repurchase Date, funds sufficient to pay for the Securities to be purchased in
the Repurchase Offer. The depositary, the Paying Agent or the Company, as the
case may be, shall, within five Business Days following the Repurchase Date,
mail or deliver payment to each tendering Securityholder by check or draft in
an amount equal to the principal amount, plus accrued interest thereon to the
Repurchase Date, of the Securities tendered by such Securityholder and accepted
by the Company for purchase. Upon the expiration of the period for which the
Repurchase Offer remains open, the depositary, the Paying Agent or the Company,
as the case may be, shall deliver to the Trustee the Securities or portions
thereof which have been properly tendered to and accepted for purchase by the
Company. In addition, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Securities were accepted by the Company pursuant
to and in accordance with the terms of this Section 4.08. The Trustee shall
deliver to Holders whose Securities have been purchased only in part new
Securities equal in principal amount to the portion not purchased of the
Securities surrendered.
Holders electing to have a Security purchased shall be
required to surrender the Security, with an appropriate letter of transmittal
duly completed, which shall include the "Option of Holder to Elect Purchase" on
the reverse of the Security, to the Company, a depositary, if appointed by the
Company, or a Paying Agent at the address specified in the notice prior to the
expiration of the period for which the Repurchase Offer remains open. Holders
shall be entitled to withdraw their election to have their Securities purchased
if the Company, the depositary or Paying Agent, as the case may be, receives,
not later than two Business Days prior to the Repurchase Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Security which was delivered for purchase by the
Holder and a statement that such Holder is withdrawing his election to have
such Security purchased. If the aggregate principal
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amount of Securities tendered by Holders pursuant to the Repurchase Offer
exceeds the Repurchase Offer Amount, the Company shall select the Securities to
be purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000
or integral multiples thereof shall be purchased). Holders whose Securities
are purchased only in part shall be issued new Securities equal in principal
amount to the unpurchased portion of the Securities surrendered.
Whenever Net Cash Proceeds received by the Company and
allocated for the repayment of the Securities exceeds $15,000,000, such Net
Cash Proceeds shall be set aside by the Company in a separate account pending
disbursement or reallocation pursuant to this Section 4.08. Such Net Cash
Proceeds may be invested in Cash Equivalents; provided that the maturity date
of such Cash Equivalents shall not be later than the Repurchase Date. The
Company shall be entitled to any interest or dividends accrued, earned or paid
on such Cash Equivalents.
SECTION 4.09. Limitation on Issuance of Preferred Stock. The
Company will not permit any of its subsidiaries to issue any preferred or
preference stock (except to the Company or a wholly owned subsidiary of the
Company) or permit any person (other than the Company or any wholly owned
subsidiary of the Company) to hold any such preferred or preference stock
unless the Company would be entitled to create, incur or assume Indebtedness
pursuant to Section 4.03 in the aggregate principal amount equal to the
aggregate liquidation value of the preferred or preference stock to be issued.
SECTION 4.10. Corporate Existence. Subject to Article V, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence and that of each subsidiary of
the Company and the rights (charter and statutory), licenses and corporate
franchises of the Company and its subsidiaries; provided that the Company shall
not be required to preserve any such existence (except of the Company), right,
license or franchise if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company or such subsidiary and that the loss thereof is not
disadvantageous in any material respect to the Holders.
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SECTION 4.11. SEC Reports; Reports to Securityholders. (a)
The Company shall supply without cost to each Holder and shall file with the
Trustee within 15 days after the Company files them with the SEC, copies of the
annual reports and of the information, documents, and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe), if any, which the Company is required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act. The Company also
shall comply with the other provisions of TIA Section 314(a).
(b) So long as any of the Securities remain outstanding, if
the Company is not required to file reports with the SEC, the Company shall
prepare, for the first three quarters of each fiscal year, quarterly reports
containing: (i) unaudited consolidated financial statements of the Company and
its subsidiaries including, but not limited to, a balance sheet, a statement of
operations, a statement of changes in financial position and all appropriate
notes and (ii) management's discussion and analysis of the quarterly results.
The Company shall also prepare, on an annual basis, complete audited
consolidated financial statements including, but not limited to, the terms
referred to in (i) above and a consolidated statement of changes in
stockholders' equity. Such annual reports will also include, to the extent
such information would be required to be filed with the SEC pursuant to Section
13 or 15(d) of the Exchange Act, (1) management's discussion and analysis of
the annual results, (2) a description of the business and properties of the
Company and its subsidiaries focusing on material trends, events and changes
during the year, (3) a description of all transactions with the Company and its
subsidiaries by executive officers, directors, or holders of more than 10% of
any class of equity securities of the Company or any of its subsidiaries, (4) a
description of material litigation or claims against the Company or its
subsidiaries, and (5) a description of any material loss or interference with
the business of the Company and its subsidiaries from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree. All financial statements
herein described shall be prepared in accordance with GAAP consistently applied
(except as otherwise noted therein) and except for changes with which the
Company's independent public accountants concur and except that quarterly
statements may be subject to year-end adjustments and the absence or
incompleteness of footnotes thereto. The Company shall cause a copy of such
reports to
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be mailed to the Trustee within 60 days after the close of each of the first
three quarters of each fiscal year and within 120 days after the close of each
fiscal year, and promptly following receipt thereof the Trustee shall cause
such reports to be mailed to each of the Holders of the Securities at such
Holder's last address appearing on the register of the Securities.
SECTION 4.12. Compliance Certificates. (a) The Company
shall deliver to the Trustee, within 60 days after the end of each of its first
three fiscal quarters, an Officers' Certificate stating whether or not the
signers know of any Default or Event of Default that occurred during such
fiscal quarter. If they do know of such a Default or Event of Default, the
certificate shall describe any such Default or Event of Default and its status.
The first certificate to be delivered pursuant to this Section 4.12 shall be
for the first fiscal quarter beginning after the execution of this Indenture.
(b) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company, an Officers' Certificate (one
signatory to which shall be its principal executive officer, principal
financial officer or principal accounting officer) stating that a review of the
activities of the Company and its subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed, fulfilled and
complied with its obligations, covenants and conditions under this Indenture,
and further stating, as to each such Officer signing such certificate, that to
the best of such Officer's knowledge the Company has kept, observed, performed,
fulfilled and complied with each and every covenant and condition contained in
this Indenture and is not in default in performance or observance of any of the
terms, provisions and conditions hereof (or, if a Default or Event of Default
shall have occurred, describing all such Defaults or Events of Default of which
he may have knowledge) and that to the best of such Officer's knowledge no
event has occurred and is continuing which is, or after notice or lapse of time
or both would become, an Event of Default, or if such an event has occurred and
is continuing, specifying each such event known to such Officers and the nature
and status thereof.
(c) The Company shall deliver to the Trustee within 120 days
after the end of each fiscal year written
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45
statements by the Company's independent certified public accountants stating as
to the Company (A) that their audit examination has included a review of the
terms of this Indenture and the Securities as they relate to accounting
matters, and (B) whether, in connection with their audit examination, any
Default or Event of Default has come to their attention and, if such a Default
or Event of Default has come to their attention, specifying the nature and
period of existence thereof; provided that, without any restriction as to the
scope of such audit examinations, such independent certified public accountants
shall not be liable by reason of any failure to obtain knowledge of any such
Default or Event of Default that would not be disclosed in the course of any
audit examination conducted in accordance with generally accepted auditing
standards.
SECTION 4.13. Notice of Defaults. Upon the occurrence of any
Default or Event of Default under this Indenture, the Company, promptly after
it becomes aware thereof, shall deliver to the Trustee an Officers' Certificate
specifying such Default or Event of Default and what action the Company or the
relevant subsidiary of the Company is taking or proposes to take with respect
thereto.
SECTION 4.14. Payment of Taxes and Other Claims. The Company
shall pay or discharge or cause to be paid or discharged, before any penalty
accrues thereon, (i) all material taxes, assessments and governmental charges
levied or imposed upon the Company or any subsidiary of the Company or upon the
income, profits or property of the Company or any subsidiary of the Company and
(ii) all material lawful claims for labor, materials and supplies which, if
unpaid, would by law become a Lien upon the property of the Company or any
subsidiary of the Company; provided that none of the Company or any subsidiary
of the Company shall be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claims the amount, applicability
or validity of which is being contested in good faith by appropriate
proceedings and for which adequate provision has been made or where the failure
to affect such payment or discharge is not adverse in any material respect to
the Holders.
SECTION 4.15. Maintenance of Properties and Insurance. The
Company shall cause all material properties owned by or leased to it or any
subsidiary of the Company and used or useful in the conduct of its business or
the business of such subsidiary to be maintained and kept in
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normal condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided
that nothing in this Section 4.15 shall prevent the Company or any subsidiary
of the Company from discontinuing the use, operation or maintenance of any such
properties, or disposing of any of them, if such discontinuance or disposal is,
in the judgment of the Board of Directors of the Company or the subsidiary
concerned, or of any officer (or other agent employed by the Company or any
subsidiary of the Company) of the Company or such subsidiary having managerial
responsibility for any such property, desirable in the conduct of the business
of the Company or any subsidiary of the Company and if such discontinuance or
disposal is not adverse in any material respect to the Securityholders.
The Company shall provide or cause to be provided, for itself
and any subsidiaries of the Company, insurance (including appropriate self
insurance) against loss or damage of the kinds customary for the corporations
similarly situated and owning like properties, including, but not limited to,
public liability insurance, with reputable insurers or with the government of
the United States of America or an agency or instrumentality thereof, in such
amounts with such deductibles and by such methods as shall be customary for
corporations similarly situated in the industry.
ARTICLE V
Merger, etc.
SECTION 5.01. When Company May Merge, etc. The Company shall
not consolidate or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, any person
unless: (1) the person formed by or surviving any such consolidation or merger
(if other than the Company), or to which such sale, assignment, transfer, lease
conveyance or disposition shall have been made, is a corporation organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia; (2) the corporation formed by or surviving any such
consolidation or
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merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or disposition shall have been made, assumes by
supplemental indenture in form satisfactory to the Trustee all the obligations
of the Company under the Securities and this Indenture; (3) immediately after
such transaction, and giving effect thereto, no Default or Event of Default
shall have occurred and be continuing; (4) the Company or any corporation
formed by or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or disposition shall have been made,
shall have Consolidated Adjusted Net Worth (immediately after the transaction
and giving effect thereto, excluding any write-ups of assets resulting from
such consolidation or merger) at least equal to the Consolidated Adjusted Net
Worth of the Company immediately preceding the transaction; (5) immediately
after such transaction and giving effect thereto, the Company or any
corporation formed by or surviving any such consolidation or merger, or to
which such sale, assignment, transfer, lease, conveyance or disposition shall
have been made, shall be able to incur an additional $1.00 of Indebtedness
pursuant to clause (b) of Section 4.03 of this Indenture; and (6) the Company
has delivered to the Trustee (A) an Officers' Certificate (attaching the
calculation to demonstrate compliance with clause (4) and (5)) and an Opinion
of Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture comply with this Section 5.01 and that all conditions
precedent herein provided for relating to such transaction have been complied
with, and (B) a certificate from the Company's independent certified public
accountants, stating that the Company has made the calculations required by
clauses (4) and (5) above in accordance with the terms of the Indenture.
SECTION 5.02. Successor Corporation Substituted. Upon any
consolidation or merger, or any sale, assignment, transfer, lease, conveyance
or other disposition of all or substantially all the assets of the Company in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
corporation had been named as the Company herein. In the event of any such
sale or conveyance, but not any such lease, the Company or any successor
corporation which thereafter shall have become such in the manner described in
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this Article V shall be discharged from all obligations and covenants under
this Indenture and the Securities and may be dissolved and liquidated.
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default"
occurs if:
(i) the Company defaults in the payment of interest on any
Security when it becomes due and payable and such default continues
for a period of 30 days, whether or not such payment shall be
prohibited by the provisions of Article X hereof;
(ii) the Company defaults in the payment of the principal of
any Security when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise, whether or not such payment
shall be prohibited by the provisions of Article X hereof;
(iii) the Company fails to comply with any of its other
agreements or covenants in, or provisions of, the Securities or this
Indenture and the Default continues for the period and after the
notice specified below;
(iv) any Indebtedness of the Company or any Significant
Subsidiary of the Company for borrowed money (or the payment of which
is guaranteed by the Company or one of its subsidiaries) having an
outstanding principal amount of $10,000,000 or more in the aggregate,
whether such Indebtedness now exists or shall hereafter be created, is
declared to be due and payable prior to its stated maturity or the
Company or any Significant Subsidiary fails to pay the final scheduled
principal installment in an amount of at least $10,000,000 in respect
of any such Indebtedness on the stated maturity date thereof (after
giving effect to any extension of such maturity date by the holder of
such Indebtedness and after the expiration of any grace period in
respect of such final scheduled principal installment contained in the
instrument under which such Indebtedness is outstanding); provided
that it shall not be an Event of Default under this clause (iv) if
such Indebtedness which has been declared due and payable prior to its
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stated maturity is Indebtedness of a Foreign Subsidiary the
payment of which is guaranteed by the Letters of Credit;
(v) a final judgment or final judgments for the payment of
money are entered by a court of competent jurisdiction against the
Company or any subsidiary of the Company and such judgment remains
undischarged and unbonded for a period (during which execution shall
not be effectively stayed) of 60 days after judgment is entered;
provided that the aggregate of all such judgments exceeds (to the
extent not paid or covered by insurance or by self insurance to the
extent that reserves have been established therefore in accordance
with GAAP) $10,000,000;
(vi) the Company or any Significant Subsidiary of the Company,
pursuant to or within the meaning of any Bankruptcy Law: (A)
commences a voluntary case or proceeding, (B) consents to the entry of
an order for relief against it in an involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or (D) makes a general assignment
for the benefit of its creditors; or
(vii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (A) is for relief against the
Company or any Significant Subsidiary of the Company in an involuntary
case or proceeding (B) appoints a Custodian of the Company or any
Significant Subsidiary of the Company or for all or substantially all
of its property, or (C) orders the liquidation of the Company or any
Significant Subsidiary of the Company;
and in case of (vii) the order or decree remains unstayed and in effect for 60
days.
The term "Bankruptcy Law" means Title 11 of the U.S. Code or
any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
A Default under clause (iii) of this Section 6.01 is not an
Event of Default until the Trustee notifies the Company in writing, or the
Holders of at least 25% in
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principal amount of the Securities then outstanding notify the Company and the
Trustee, in writing, of the Default, and the Company does not cure the Default
within 30 days after receipt of the notice; provided that a Default by the
Company with respect to the provisions of either Article V or XI under this
Indenture shall constitute an Event of Default immediately upon such
notification and without passage of time. The notice must specify the Default,
demand that it be remedied and state that the notice is a "Notice of Default".
Such notice to the Company shall be given by the Trustee if so requested in
writing by the Holders of at least 25% of the principal amount of the
Securities then outstanding.
Except for a Default under Section 6.01(i) or (ii) of this
Indenture, the Trustee shall not be deemed to know of a Default unless a Trust
Officer has actual knowledge of such Default or receives written notice of such
Default with specific reference to such Default.
SECTION 6.02. Acceleration. Subject to Article X, if an
Event of Default (other than an Event of Default specified in clause (vi) or
(vii) of Section 6.01 with respect to the Company) occurs and is continuing,
the Trustee or the Holders of at least 25% of the principal amount of the
Securities then outstanding, by written notice to the Company (and to the
Trustee, if given by the Holders) (and the Agent Bank, so long as the
Indebtedness under the Credit Agreement is outstanding) (and to the Senior
Subordinated Notes Trustee, so long as the Indebtedness under the Senior
Subordinated Notes is outstanding), may declare due and payable 100% of the
principal amount of the Securities plus any accrued interest to the date of
payment. Upon a declaration of acceleration, such principal and accrued
interest to the date of such acceleration, shall be due and payable upon the
first to occur of (i) an acceleration under the Credit Agreement), or (ii) five
Business Days after notice of such declaration is given to the Company (and to
the Trustee, if given by the Holders) (and the Agent Bank, so long as the
Indebtedness under the Credit Agreement is outstanding) (and to the Senior
Subordinated Notes Trustee, so long as the Indebtedness under the Senior
Subordinated Notes is outstanding); provided, however, that, if the Event of
Default giving rise to such acceleration is cured before the earlier to occur
of (i) or (ii), such notice of acceleration and its consequences shall be
deemed rescinded and annulled. In the event of a declaration of acceleration
under this Indenture
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because an Event of Default set forth in Section 6.01(iv) has occurred and is
continuing, such declaration of acceleration shall be automatically annulled if
the holders of the Indebtedness which is the subject of such Event of Default
have rescinded their declaration of acceleration in respect of such
Indebtedness within 90 days thereof or all amounts payable in respect of such
Indebtedness have been paid and such Indebtedness has been discharged during
such 90-day period and if (i) the annulment of such acceleration would not
conflict with any judgment or decree of a court of competent jurisdiction, (ii)
all existing Events of Default, except nonpayment of principal or interest that
has been due solely because of the acceleration, have been cured or waived, and
(iii) the Company has delivered an Officers' Certificate to the Trustee to the
effect of clauses (i) and (ii) of this sentence. If an Event of Default
specified in clause (vi) or (vii) of Section 6.01 with respect to the Company
occurs, 100% of the principal amount of the Securities plus any accrued
interest shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority of the outstanding principal amount of the Securities by written
notice to the Trustee may rescind an acceleration and its consequences if (i)
all existing Events of Default, other than the nonpayment of principal of or
interest on the Securities which have become due solely because of the
acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy by proceeding at
law or in equity to collect the payment of principal of or interest on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon the Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All remedies
are cumulative to the extent permitted by law.
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SECTION 6.04. Waiver of Past Defaults. Subject to Sections
6.02, 6.07 and 9.02, the Holders of at least a majority in principal amount of
the Securities then outstanding by notice to the Trustee may waive an existing
Default or Event of Default and its consequences, except a Default in the
nonpayment of the principal of or interest on any Security as specified in
clauses (i) or (ii) of Section 6.01. When a Default or Event of Default is
waived, it is cured and ceases.
SECTION 6.05. Control by Majority. The Holders of at least a
majority in principal amount of the Securities then outstanding may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on it. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that the Trustee determines may be unduly prejudicial to the rights
of other Securityholders or that may involve the Trustee in personal liability.
SECTION 6.06. Limitation on Suits. A Securityholder may not
pursue a remedy with respect to this Indenture, the Securities unless: (i) the
Holder gives to the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in principal amount of the Securities then
outstanding make a written request to the Trustee to pursue the remedy; (iii)
such Holder or Holders offer to the Trustee indemnity satisfactory to the
Trustee against any loss, liability, cost or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period the Holders of at least a
majority in principal amount of the Securities then outstanding do not give the
Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Security to receive payment of principal of or interest on the Security on
or after the respective due dates expressed or provided for in the Security,
subject to the provisions of Article X, or to bring suit for the enforcement of
any such payment on or
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after such respective dates, shall not be impaired or affected without the
consent of the Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(i) or (ii) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express
trust against the Company or any other obligor on the Securities for the whole
amount of principal and accrued interest remaining unpaid on the Securities.
The Company or any other obligor on the Securities shall pay interest on
overdue principal (including interest accruing on or after filing of any
petition in bankruptcy or reorganization relating to the Company or any other
obligor on the Securities, whether or not a claim for post-filing interest is
allowed in such proceeding), and the Company or any other obligor on the
Securities shall pay interest on overdue installments of interest, to the
extent permitted by law (including interest accruing on or after the filing of
any petition in bankruptcy or reorganization relating to the Company or any
other obligor on the Securities, whether or not a claim for post-filing
interest is allowed in such proceeding), in each case at the rate then borne by
the Securities, and such further amount as shall be sufficient to cover the
costs and expense of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its creditors or its property and shall be
entitled and empowered to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same, and any
custodian in any such judicial proceedings is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment
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or composition affecting the Securities or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Securityholder
in any such proceeding.
Any term or provision of this Section 6.09 to the contrary
notwithstanding, if any judicial proceeding referred to above is commenced by
or against the Company, and if the Trustee does not file a proper claim or
proof of claim in the form required in such judicial proceedings prior to 30
days before the expiration of time to file such claims or proofs, unless such
claim is either deemed filed or need not be filed in order for such claim to be
allowed under applicable law, rules or regulations, then so long as any Senior
Indebtedness remains outstanding, (i) the Agent Bank or a Representative, on
behalf of the holders and owners of the Senior Indebtedness, as their interests
may appear, is hereby authorized and empowered (in its own name or in the name
of the Trustee or any Securityholder or otherwise), but shall have no
obligation, to demand, sue for, collect and receive every payment or
distribution received in respect of any such proceeding and give acquittance
therefor and to file claims and proofs of claim, as their interests may appear,
and (ii) to the extent permitted by applicable laws, rules or regulations, the
Trustee shall duly and promptly take, on behalf of holders of the Senior
Indebtedness, as their interests may appear, such action as the Agent Bank or
such Representative may request (a) to collect all amounts payable by the
Company in respect of the Securities and to file appropriate claims or proofs
of claim in respect of such Securities, (b) to execute and deliver to the Agent
Bank or such Representative such assignments or other instruments as it may
request (other than an instrument allowing the Agent Bank or such
Representative to vote the Securities) in order to enable it to enforce any and
all claims with respect to all amounts payable in respect of the Securities to
which they are entitled under the Indenture, and (c) to collect and receive any
and all payments with respect to all amounts payable in respect of the
Securities to which they are entitled under the Indenture.
SECTION 6.10. Priorities. If the Trustee collects any money
pursuant to this Article VI, it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
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SECOND: to holders of Senior Indebtedness in accordance with
Article X hereof;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company or any other obligors on the
Securities, as their interests may appear, or as a court of competent
jurisdiction may direct.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Securityholders pursuant to
this Section 6.10.
SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as a Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This Section 6.11 does not
apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or
a suit by Holders of more than 10% in principal amount of the Securities then
outstanding.
SECTION 6.12. Parties May Be Restored to Former Position and
Rights in Certain Circumstances. In the event the Trustee shall have proceeded
to enforce any right under this Indenture by suit, foreclosure or otherwise and
such proceedings shall have been discontinued or abandoned for any reason, or
shall have been determined adversely to the Trustee, then in every such case,
the Company and the Trustee shall be restored without further act to their
respective former positions and rights hereunder, and all rights, remedies and
powers of the Trustee shall continue as though no such proceedings had been
taken, except to the extent determined in litigation adversely to the Trustee.
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ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise such of the rights
and powers vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties that are specifically set forth
in this Indenture and no implied covenants or obligations shall be read into
this Indenture against the Trustee, and (2) in the absence of bad faith on its
part, the Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and opinions to
determine whether or not, on their face, they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct except that: (1) this paragraph does not limit the effect of
paragraph (b) of this Section 7.01, (2) the Trustee shall not be liable for any
error of judgment made in good faith by a Trust Officer or other officer,
unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts, and (3) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), (c) and (e) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability. The Trustee may refuse
to perform any duty or exercise any right or power unless it receives
indemnity satisfactory to it against any loss, liability, cost or
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expense (including, without limitation, reasonable fees of counsel).
(f) The Trustee shall not be obligated to pay interest on any
money received by it unless otherwise agreed in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely
on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through attorneys and agents and
shall not be responsible for the misconduct or negligence of any attorney or
agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) The Trustee may consult with counsel and the advice of
such counsel as to matters of law shall be full and complete authorization and
protection in respect of any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
(f) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company shall be sufficient
if signed by an Officer of the Company.
SECTION 7.03. Individual Rights of Trustee. The Trustee in
its individual or any other capacity may become the owner or pledgee of
Securities and may otherwise deal with the Company or an Affiliate of the
Company with the same rights it would have if it were not Trustee. Any Agent
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may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture, the
Securities; it shall not be accountable for the Company's use of the proceeds
from the Securities, or any money paid to the Company upon the Company's
direction under any provision hereof; it shall not be responsible for the use
or application of any money received by any Paying Agent other than the
Trustee; and it shall not be responsible for the recitals herein and in the
Securities or any other statement of the Company in this Indenture or any
statement in the Securities other than its certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default or Event of
Default occurs and is continuing and if it is known to the Trustee, the Trustee
shall mail to Securityholders a notice of the Default or Event of Default
within 90 days after the occurrence thereof. Except in the case of a Default
or Event of Default in payment of any Security (including any failure to make
any mandatory redemption payment required hereunder), the Trustee may withhold
the notice if and so long as it in good faith determines that withholding the
notice is in the interests of the Securityholders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days
after each May 15 beginning with May 15, 1994, the Trustee shall mail to
Securityholders a brief report dated as of such reporting date that complies
with TIA Section 313(a) (but if no event described in TIA Section 313(a) has
occurred within the twelve months preceding the reporting date, no report need
be transmitted). Commencing at such time, the Trustee also shall comply with
TIA Section 313(b)(2). The Trustee shall also transmit reports required by
TIA Section 313 by mail as required by TIA Section 313(c).
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC, if required, and each stock
exchange, if any, on which the Securities are listed. The Company shall notify
the Trustee when the Securities are listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity. The Company shall
pay to the Trustee from time to time reasonable compensation for its services
hereunder. If the
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Trustee acts as Paying Agent pursuant to Section 4.09 hereof, the Company shall
pay the Trustee additional compensation for so acting as paying agent. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable disbursements, advances and expenses incurred by it,
including in particular, but without limitation, those incurred in connection
with the enforcement of any remedies hereunder. Such expenses may include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
Except as set forth in the next paragraph, the Company shall
indemnify and hold harmless the Trustee, its directors, officers, employees and
agents against any loss, liability, cost or expense (including, without
limitation, fees and expenses of counsel) incurred by it arising out of or in
connection with the acceptance or administration of the trust under this
Indenture, including without limitation the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of, or failure to exercise or perform, any of its powers or duties
hereunder. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. The Company shall defend such claim and the
Trustee shall cooperate in such defense. The Trustee may have separate counsel
and the Company shall pay the reasonable fees and expenses of such counsel.
The Company need not reimburse any expense or indemnify
against any loss, liability, cost or expense incurred by the Trustee through
negligence, wilful misconduct or bad faith.
To secure the Company's payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay the
principal of and interest on particular Securities. Such obligations shall
survive the satisfaction and discharge of the Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in clause (vi) or (vii) of Section 6.01 occurs, the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
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SECTION 7.08. Replacement of Trustee. A resignation or
removal of the Trustee and appointment of a successor Trustee shall become
effective only upon the successor Trustee's acceptance of appointment as
provided in this Section.
The Trustee may resign and be discharged from the trust hereby
created by so notifying the Company. The Holders of a majority in principal
amount of the then outstanding Securities may remove the Trustee by so
notifying the Trustee and the Company. The Company may remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10 or TIA Section 310; (ii) the
Trustee is adjudged a bankrupt or an insolvent or an order for relief is
entered with respect to the Trustee under any Bankruptcy Law; (iii) a Custodian
or public officer takes charge of the Trustee or its property; or (iv) the
Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of the Trustee for any reason, the Company shall promptly appoint a
successor Trustee. The Trustee shall be entitled to payment of its fees and
reimbursement of its expenses while acting as Trustee. Within one year after
the successor Trustee takes office, the Holders of at least a majority in
principal amount of then outstanding Securities may appoint a successor Trustee
to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 30 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the then
outstanding Securities may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with clauses (i) through (iv)
of the second paragraph of this Section, any Securityholder may petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The Company shall mail a
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notice of the successor Trustee's succession to Securityholders. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided for in Section 7.07.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the
Company's obligations under Section 7.07 hereof shall continue for the benefit
or the retiring Trustee with respect to expenses, losses and liabilities
incurred by it prior to such replacement.
SECTION 7.09. Successor Trustee by Merger, Etc. Subject to
Section 7.10, if the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or national banking association, the successor entity without any
further act shall be the successor Trustee. In case any Securities have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation of such authenticating trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 7.10. Eligibility; Disqualification. There shall at
all times be a Trustee hereunder which shall be a corporation organized and
doing business under the laws of the United States of America or of any state
thereof or the District of Columbia authorized under such laws to exercise
corporate trust powers, shall be subject to supervision or examination by
Federal or state authority or a District of Columbia authority and shall have
combined capital and surplus of at least $150,000,000 as set forth in its most
recent published annual report of condition.
Subject to the preceding paragraph, this Indenture shall
always have a Trustee who satisfies the requirements of TIA Section 310(a)(1)
and (5). The Trustee is subject to TIA Section 310(b).
SECTION 7.11. Preferential Collection of Claims Against the
Company. The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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ARTICLE VIII
Discharge of Indenture
SECTION 8.01. Discharge of Liability on Securities;
Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.07, it being
understood that such Securities are no longer outstanding) for cancellation or
(ii) all outstanding Securities have become due and payable and the Company
irrevocably deposits with the Trustee funds or U.S. Government Obligations
sufficient (without reinvestment thereof) to pay at maturity all outstanding
Securities, including all interest thereon to the date of such deposit (in the
case of Securities which have become due and payable) or to the stated maturity
or Redemption Date, as the case may be (other than Securities replaced pursuant
to Section 2.07, it being understood that such Securities are no longer
outstanding), and if in either case the Company pays all other sums payable
hereunder by the Company, then this Indenture shall, subject to Sections
8.01(c) and 8.06, cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent to the defeasance and discharge of the Securities
as contemplated by this Article VIII have been complied with, and at the cost
and expense of the Company.
(b) Subject to Sections 8.01(c), 8.02 and 8.06, the Company
at any time may terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) its obligations under Sections
4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10 and 4.11 (to the extent
failure to comply with such Section shall not violate the TIA) and 11.01 (the
"covenant defeasance option"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment
of the Securities may not be accelerated because of an Event of Default. If
the Company exercises its covenant defeasance option, payment of the Securities
may not be accelerated because of an Event of Default specified in Section
6.01(iii) arising from a violation of any of Sections 4.02 through 4.10, 4.11
or 11.01.
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Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding clause (a) or the exercise of the legal
defeasance option as set forth above, the Company's obligations in Sections
2.03, 2.04, 2.05, 2.06, 2.07, 2.13, 7.07, 7.08, 8.04, 8.05 and 8.06 shall
survive until the Securities have been paid in full. Thereafter, the Company's
obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02 Conditions to Defeasance. The Company may
exercise its legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee
money or U.S. Government Obligations for the payment of principal of
and interest on the Securities to maturity or redemption, as the case
may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and
without reinvestment on the deposited U.S. Government Obligations plus
any deposited money without investment will provide cash at such times
and in such amounts as will be sufficient to pay principal and
interest when due on all the Securities to maturity or redemption, as
the case may be;
(3) 123 days pass after the deposit is made and during the
123-day period no Default specified in Section 6.01(vi) or (vii) with
respect to the Company occurs which is continuing at the end of the
period;
(4) no Default has occurred and is continuing on the date of
such deposit and after giving effect thereto;
(5) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article X;
(6) in the case of the exercise of its legal defeasance
option, the Company shall have delivered to
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the Trustee an Opinion of Counsel stating that (i) the Company has
received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has
been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Securityholders will not recognize income, gain or
loss for Federal income tax purposes as a result of such defeasance
and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
defeasance had not occurred; and
(7) the Company delivers to the Trustee promptly after the end
of the period referred to in clause (3) above an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
to the defeasance and, in the case of the legal defeasance option, the
discharge of the Securities as contemplated by this Article VIII have
been complied with.
SECTION 8.03. Application of Trust Money. The Trustee shall
hold in trust the money or U.S. Government Obligations deposited with it
pursuant to this Article VIII. It shall apply the deposited money and the
money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal of and interest on
the Securities. Money and U.S. Government Obligations held in trust are not
subject to Article X.
SECTION 8.04. Repayment to Company. The Trustee and the
Paying Agent shall promptly pay to the Company upon written request any excess
money or securities held by them at any time, provided that such request need
not be honored if to do so would require the liquidation of any U.S. Government
Obligations held pursuant to this Article.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Company upon written request of the
Company any money held by it for the payment of principal of or interest on the
Securities that remains unclaimed for two years, and, thereafter,
Securityholders entitled to the money must look to the Company for payment as
general creditors.
SECTION 8.05. Indemnity for Government Obligations. The
Company shall pay and shall indemnify the
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Trustee against any tax, fee or other charge imposed on or assessed against
deposited U.S. Government Obligations or the principal and interest received on
such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent
is unable to apply any money in accordance with this Article VIII by reason of
any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article VIII until such time as the Trustee or Paying Agent is permitted
to apply all such money or U.S. Government Obligations in accordance with this
Article VIII; provided, however, that, if the Company has made any payment of
principal of, or interest on, any Security because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE IX
Amendments
SECTION 9.01. Without Consent of Holders. The Company and
the Trustee may amend this Indenture or the Securities without the consent of
any Securityholder: (i) to cure any ambiguity, defect or inconsistency or make
any change required to qualify the Indenture under the TIA; provided that such
change does not adversely affect the rights hereunder of any Securityholder;
(ii) to comply with Section 5.01; (iii) to provide for uncertificated
Securities in addition to certificated Securities; or (iv) to make any change
that does not adversely affect the rights hereunder of any Securityholder.
SECTION 9.02. With Consent of Holders. The Company and the
Trustee may amend this Indenture or the Securities with the written consent of
the Holders of at least a majority in principal amount of the then outstanding
Securities. Upon the request of the Company, accompanied by a Board Resolution
of the Company authorizing the execution of any such supplemental indenture,
and upon the filing with the Trustee of evidence of the consent of the
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Securityholders as aforesaid, the Trustee, subject to Section 9.06, shall join
with the Company in the execution of such supplemental indenture.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment or waiver under this Section becomes
effective, the Company shall mail to the Holder of each Security affected
thereby and to the Agent Bank a notice briefly describing the amendment or
waiver. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
amendment or waiver. The Holders of at least a majority in principal amount of
the Securities then outstanding may waive compliance in a particular instance
by the Company with any provision of this Indenture or the Securities.
However, without the consent of each Securityholder affected, an amendment or
waiver under this Section may not: (i) reduce the amount of Securities whose
Holders must consent to an amendment or waiver; (ii) reduce the rate of or
change the time for payment of interest, including default interest, on any
Security; (iii) reduce the principal of or change the fixed maturity of any
Security or alter the redemption provisions with respect thereto; (iv) make any
Security payable in money other than that stated in the Security; (v) make any
change in Section 6.04, 6.07 or this fourth sentence of the third paragraph of
Section 9.02; (vi) make any change in Article X that affects the rights of any
Holder; or (vii) release the Company from any of its Obligations hereunder.
SECTION 9.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Securities shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents. Until an
amendment or waiver becomes effective, a consent to it by a Holder of a
Security is a continuing consent by the Holder and every subsequent Holder of a
Security or portion of a Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of a Security if the Trustee receives
written notice
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of revocation before the date the amendment or waiver becomes effective. An
amendment or waiver becomes effective in accordance with its terms and
thereafter binds every Securityholder.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies), and only those
persons, shall be entitled to consent to such amendment or waiver or to revoke
any consent previously given, whether or not such persons continue to be
Holders after such record date. The consent shall expire 90 days after such
record date.
SECTION 9.05. Notation on or Exchange of Securities. The
Trustee may place an appropriate notation about an amendment or waiver on any
Security thereafter authenticated. The Company in exchange for all Securities
may issue, and the Trustee shall authenticate, new Securities that reflect the
amendment or waiver.
SECTION 9.06. Trustee To Sign Amendments, etc. The Trustee
shall sign any amendment authorized pursuant to this Article IX if the
amendment does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may, but need not sign it.
In signing or refusing to sign such amendment, the Trustee shall be entitled to
receive and shall be fully protected in relying upon an Officers' Certificate
and an Opinion of Counsel as conclusive evidence that such amendment is
authorized or permitted by this Indenture.
ARTICLE X
Subordination
SECTION 10.01. Securities Subordinated to Senior
Indebtedness. Notwithstanding the provisions of Sections 6.02 and 6.03 hereof,
the Company covenants and agrees, and the Trustee and each Holder of the
Securities by his acceptance thereof likewise covenants and agrees, that all
payments of the principal of and interest on the Securities by the Company
shall be subordinated in accordance with the provisions of this Article X to
the prior and
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indefeasible payment in full, in cash or cash equivalents, of all Obligations
with respect to Senior Indebtedness.
SECTION 10.02. Priority and Payment Over of Proceeds in
Certain Events. (a) Upon any payment or distribution of assets or securities
of the Company, as the case may be, of any kind or character, whether in cash,
property or securities, upon any dissolution or winding up or total or partial
liquidation or reorganization of the Company, whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings, all
Obligations with respect to Senior Indebtedness shall first be indefeasibly
paid in full in cash, or payment provided for in cash or cash equivalents,
before the Holders or the Trustee on behalf of the Holders shall be entitled to
receive any payment of principal of or interest on the Securities or
distribution of any assets or securities. Before any payment may be made by
the Company of the principal of or interest on the Securities pursuant to the
provisions of the previous sentence, and upon any such dissolution or winding
up or liquidation or reorganization, any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property
or securities, to which the Holders or the Trustee on their behalf would be
entitled, except for the provisions of this Article X, shall be made by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, directly to the holders of
the Senior Indebtedness or their Representatives to the extent necessary to pay
all such Senior Indebtedness in full after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness.
(b) No direct or indirect payment by or on behalf of the
Company of principal of or interest on the Securities whether pursuant to the
terms of the Securities or upon acceleration or otherwise shall be made if, at
the time of such payment, (i) there exists a default in the payment of any
Obligations with respect to Senior Indebtedness or the maturity of such Senior
Indebtedness has been accelerated or (ii) any judicial proceeding shall be
pending with respect to a default on Senior Indebtedness (and the Trustee has
received written notice thereof), and such default shall not have been cured or
waived or the benefits of this sentence waived by or on behalf of the holders
of such Senior Indebtedness. In addition, during the continuance of any other
event of default with respect to (i) the Credit Agreement pursuant to which the
maturity thereof may be accelerated,
<PAGE> 69
69
upon (a) receipt by the Trustee of written notice from the Agent Bank (or any
Representative of any Senior Indebtedness which refinances or refunds the
Credit Agreement so long as amounts outstanding under such agreement are in
excess of $50,000,000), or (b) if such event of default results from the
acceleration of the Securities, on the date of such acceleration, no such
payment may be made by the Company upon or in respect of the Securities for a
period ("Payment Blockage Period") commencing on the earlier of the date of
receipt of such notice or the date of such acceleration and ending 119 days
thereafter (unless such Payment Blockage Period shall be terminated by written
notice to the Trustee from the Agent Bank (or any Representative of any Senior
Indebtedness under any agreement which refinances or refunds the Credit
Agreement so long as amounts outstanding under such agreement are in excess of
$50,000,000) or (ii) any other Specified Senior Indebtedness upon receipt by
the Company of written notice from the Representative for the holders of such
Specified Senior Indebtedness, no such payment may be made by the Company upon
or with respect to the Securities for a Payment Blockage Period commencing on
the date of the receipt of such notice and ending 119 days thereafter (unless
such Payment Blockage Period shall be terminated by written notice to the
Company from such Representative commencing such Payment Blockage Period).
Notwithstanding anything herein to the contrary, in no event will any one
Payment Blockage Period extend beyond 179 days from the date the payment on the
Securities was due. No more than one Payment Blockage Period may be commenced
with respect to the Securities during any period of 360 consecutive days;
provided that as long as amounts outstanding under the Credit Agreement or any
agreement which refinances or refunds the Credit Agreement are in excess of
$50,000,000, the commencement of a Payment Blockage Period by the holders of
the Specified Senior Indebtedness other than the Credit Agreement shall not bar
the commencement of a Payment Blockage Period by the Agent Bank within such
period of 360 days. For all purposes of this Section 10.02(b), no event of
default which existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Specified Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis for the
commencement of a second Payment Blockage Period by the Representative of such
Specified Senior Indebtedness whether or not within a period of 360 consecutive
days unless such event of default shall have been cured or waived for a period
of not less than 90 consecutive days.
<PAGE> 70
70
If payments with respect to both the Securities and Senior
Indebtedness become due on the same day, then all Obligations with respect to
such Senior Indebtedness due on that date shall first be paid in full before
any payment is made with respect to the Securities.
(c) In the event that, notwithstanding the foregoing
provision prohibiting such payment or distribution, the Trustee or any Holder
shall have received any payment on account of the principal of or interest on
the Securities at a time when such payment is prohibited by this Section 10.02
and before all Obligations with respect to Senior Indebtedness are paid in
full, then and in such event (subject to the provisions of Section 10.08) such
payment or distribution shall be received and held in trust for the holders of
Senior Indebtedness and, upon notice to the Trustee from the Representative of
the holders of the Senior Indebtedness and pursuant to the directions of such
Representative, shall be paid over or delivered to the holders of the Senior
Indebtedness remaining unpaid to the extent necessary to pay in full in cash or
cash equivalents all Obligations with respect to such Senior Indebtedness in
accordance with its terms after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
If there occurs an event referred to in Section 10.02(a) or
(b), the Company shall promptly give the Trustee an Officers' Certificate (on
which the Trustee may conclusively rely) identifying all holders of Senior
Indebtedness and the principal amount of Senior Indebtedness then outstanding
held by each such holder and stating the reasons why such Officers' Certificate
is being delivered to the Trustee.
Nothing contained in this Article X shall limit the right of
the Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; provided that all Obligations with respect to Senior
Indebtedness then or thereafter due or declared to be due shall first be paid
in full before the Holders or the Trustee are entitled to receive any payment
from the Company of principal of or interest on the Securities.
Upon any payment or distribution of assets or securities
referred to in this Article X, the Trustee and the Holders shall be entitled to
rely upon any order or
<PAGE> 71
71
decree of a court of competent jurisdiction in which such dissolution, winding
up, liquidation or reorganization proceedings are pending and upon a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making any such payment or distribution, delivered to the
Trustee for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of Senior Indebtedness and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
X.
SECTION 10.03. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article X or elsewhere in this Indenture shall
prevent (i) the Company, except under the conditions described in Section
10.02, from making payments at any time for the purpose of making such payments
of principal of and interest on the Securities, or from depositing with the
Trustee any moneys for such payments, or (ii) without limiting the last
sentence of Section 8.03, the application by the Trustee of any moneys
deposited with it for the purpose of making such payments of principal of and
interest on the Securities, to the Holders entitled thereto unless at least two
Business Days prior to the date upon which such payment would otherwise become
due and payable, the Trustee shall have received the written notice provided
for in Section 10.02(b) or in Section 10.09. The Company shall give prompt
written notice to the Trustee of any dissolution, winding up, liquidation or
reorganization of the Company.
SECTION 10.04. Rights of Holders of Senior Indebtedness Not
To Be Impaired. No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act in good faith by
any such holder, or by any noncompliance by the Company, with the terms and
provisions and covenants herein regardless of any knowledge thereof any such
holder may have or otherwise be charged with.
The provisions of this Article X are intended to be for the
benefit of, and shall be enforceable directly by, the holders of the Senior
Indebtedness.
SECTION 10.05. Authorization to Trustee To Take Action To
Effectuate Subordination. Each Holder of Securities by his acceptance thereof
authorizes and directs the
<PAGE> 72
72
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate, as between the holders of Senior Indebtedness and the Holders, the
subordination as provided in this Article X and appoints the Trustee his
attorney-in-fact for any and all such purposes.
SECTION 10.06. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders or owners of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative.
SECTION 10.07. Subrogation. Upon the payment in full of all
Obligations in respect of Senior Indebtedness, the Holders shall be subrogated
to the rights of the holders of such Senior Indebtedness to receive payments or
distributions of assets of the Company to the holders of Senior Indebtedness
until the principal of and interest on the Securities shall be paid in full.
For purposes of such subrogation, no payments or distributions to the holders
of the Senior Indebtedness of any cash, property or securities to which the
Holders would be entitled except for the provisions of this Article X, and no
payment over pursuant to the provisions of this Article X to the holders of
Senior Indebtedness by the Holders, shall, as among the Company, its creditors
other than the holders of Senior Indebtedness and the Holders, be deemed to be
a payment or distribution by the Company to or on account of Senior
Indebtedness.
The provisions of this Article X are and are intended solely
for the purpose of defining the relative rights of the Holders, on the one
hand, and the holders of Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article X shall
have been applied, pursuant to the provisions of this Article X, to the payment
of all amounts payable under Senior Indebtedness, then and in such case, the
Holders shall be entitled to receive from the holders of such Senior
Indebtedness at the time outstanding any payments or distributions received by
such holders of Senior Indebtedness in excess of the amount sufficient to pay
all Obligations in respect of Senior Indebtedness in full.
<PAGE> 73
73
SECTION 10.08. Obligations of Company Unconditional. Nothing
contained in this Article X or elsewhere in this Indenture or in any Security
is intended to or shall impair, as between the Company and the Holders, the
obligations of the Company, which are absolute and unconditional, to pay to the
Holders the principal of and interest on the Securities as and when the same
shall become due and payable in accordance with their terms or is intended to
or shall affect the relative rights of the Holders and creditors of the Company
other than the holders of Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon Default under this Indenture,
subject to the rights, if any, under this Article X of the holders of such
Senior Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.
The failure to make a payment on account of principal of or
interest on the Securities by reason of any provision of this Article X shall
not be construed as preventing the occurrence of an Event of Default under
Section 6.01.
SECTION 10.09. Trustee Entitled To Assume Payments Not
Prohibited in Absence of Notice. Neither the Trustee nor the Paying Agent
shall at any time be charged with the knowledge of the existence of any facts
which would prohibit the making of any payment to or by the Trustee or the
Paying Agent, unless and until the Trustee or Paying Agent shall have received
written notice thereof from the Company or one or more holders of Senior
Indebtedness or from any Representative therefor; and, prior to the receipt of
any such written notice, the Trustee or Paying Agent shall be entitled to
assume conclusively that no such facts exist. Unless at least two Business
Days prior to the date on which by the terms of this Indenture any moneys are
to be deposited by the Company with the Trustee or any Paying Agent (whether or
not in trust) for any purpose (including, without limitation, the payment of
the principal of or the interest on any Security), the Trustee or Paying Agent
shall have received with respect to such moneys the notice provided for in the
preceding sentence, the Trustee or Paying Agent shall have full power and
authority to receive such moneys and to apply the same to the purpose for which
they were received and shall not be affected by any notice to the contrary
which may be received by it on or after such date. Without limiting the last
sentence of Section 8.03, nothing
<PAGE> 74
74
contained in this Section 10.09 or Section 10.03(ii) shall limit the right of
the holders of Senior Indebtedness to recover payments as contemplated by
Section 10.02. The Trustee shall be entitled to rely on the delivery to it of
a written notice by a person representing himself or itself to be a holder of
such Senior Indebtedness (or a trustee on behalf of, or Representative of, such
holder) to establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee or Representative on behalf of any such holder.
The Trustee shall not be deemed to owe any duty to the
holders of Senior Indebtedness.
SECTION 10.10. Right of Trustee To Hold Senior Indebtedness.
The Trustee and any Agent shall be entitled to all of the rights set forth in
this Article X in respect of any Senior Indebtedness at any time held by it to
the same extent as any other holder of such Senior Indebtedness, and nothing in
this Indenture shall be construed to deprive the Trustee or any Agent of any of
its rights as such holder.
ARTICLE XI
Right To Require Repurchase
SECTION 11.01. Repurchase of Securities at Option of the
Holder upon Change of Control Triggering Event. (a) Upon the occurrence of a
Change of Control Triggering Event, each Holder of Securities shall have the
right to require that the Company repurchase such Holder's Securities in whole
or in part in integral multiples of $1,000, at a purchase price (the "Purchase
Price") in cash in an amount equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase, in
accordance with the procedures set forth in Subsections (b) and (c) of this
Section.
(b) Within 30 days following any Change of Control Triggering
Event, the Company shall send by first-class mail, postage prepaid, to the
Trustee and to each Holder of the Securities at his or her address appearing
in the Securities register, a notice stating:
(1) that a Change of Control Triggering Event has occurred and
that such Holder has the right to require
<PAGE> 75
75
the Company to repurchase such Holder's Securities at the Purchase
Price;
(2) the circumstances and relevant facts regarding such Change
of Control Triggering Event (including but not limited to information
with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control
Triggering Event);
(3) a purchase date (the "Purchase Date") which shall be no
fewer than 30 days nor more than 60 days from the date such notice is
mailed or if not a Business Day, the next following Business Day;
(4) the Purchase Price;
(5) the place at which Securities are to be presented and
surrendered;
(6) that interest accrued to the Purchase Date will be paid as
specified in such notice and that, unless the Company shall default in
payment of the Purchase Price, after said Purchase Date interest
thereon will cease to accrue with respect to any Securities presented
and surrendered for purchase;
(7) that any Security not tendered will continue to accrue
interest;
(8) that Holders of Securities electing to have any Securities
purchased pursuant to a Change of Control Triggering Event will be
required to surrender the Securities to the Paying Agent on the 15th
day prior to the Purchase Date; and
(9) that Holders of Securities whose Securities are being
purchased only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the Securities
surrendered; provided that each Security purchased and each such new
Security issued by the Company shall be, in a principal amount of
$1,000 or integral multiples thereof.
(c) Prior to the mailing by the Company of the notice
described in subsection (b) above and if any Senior Indebtedness under the
Credit Agreement is outstanding, the Company shall either (i) repay in full all
such Senior
<PAGE> 76
76
Indebtedness under the Credit Agreement or offer to repay in full all such
Senior Indebtedness under the Credit Agreement and repay the Senior
Indebtedness of each Bank that has accepted such offer or (ii) if any such
Senior Indebtedness under the Credit Agreement is not repaid, obtain the
requisite consent of the applicable Bank or Banks under the Credit Agreement,
in both cases so as to permit the repurchase of the Securities pursuant to this
Section. The Company shall first comply with the covenant in the preceding
sentence before it shall be required to repurchase Securities pursuant to a
Change of Control Triggering Event; provided, however, that the failure to
comply with such covenant shall not thereby be excused and such failure shall
constitute a Default pursuant to Section 6.01.
(d) Holders of Securities electing to have such Securities
purchased will be required to give notice thereof no fewer than 15 days before
the Purchase Date and to surrender such Securities to the Company at the
address specified in the Company's notice by the close of business on the
fifteenth day prior to the Purchase Date. Any such notice and surrender of
Securities for purchase by the Company shall be irrevocable. No such
Securities shall be deemed to have been presented and surrendered until such
Securities are actually received by the Company or its designated agent.
Holders of the Securities whose Securities are purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
(e) Notwithstanding anything to the contrary herein or in the
Securities, the Company shall not be obligated to give notice to Holders of
Securities or to purchase Securities with respect to more than one Change of
Control Triggering Event.
(f) Notwithstanding any other provisions of this Section,
there shall be no repurchase of any Securities pursuant to this Section if
there has occurred (prior to, on or after the giving, by the Holders of such
Securities, of the required notice) and is continuing an Event of Default or if
such repurchase is prohibited by Article X of this Indenture. The foregoing
shall in no way limit the occurrence of an Event of Default or the right to
demand payment of the Securities upon acceleration thereafter.
SECTION 11.02. Covenant To Comply with Securities Laws upon
Purchase of Securities. In connection with any
<PAGE> 77
77
purchase of Securities under Section 11.01, the Company shall, to the extent
then applicable and required by law, (i) comply with Rule 13e-4 and Rule 14e-1
(which term, as used herein, includes any successor provision thereto) under
the Exchange Act and (ii) otherwise comply with all Federal and state
securities laws so as to permit the rights and obligations under Section 11.01
to be exercised in the time and in the manner specified in Section 11.01.
ARTICLE XII
Miscellaneous
SECTION 12.01. Trust Indenture Act Controls. If and to the
extent that any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by, or with another provision (an "incorporated provision")
included in this Indenture by operation of, Sections 310 to 318, inclusive, of
the TIA, such imposed duties or incorporated provision shall control.
SECTION 12.02. Notices. Any notice or communication to the
Company or the Trustee is duly given if in writing and delivered in person or
mailed by first-class mail to the address set forth below:
If to the Company:
Lear Seating Corporation
21557 Telegraph Road
Southfield, Michigan 48034
Attention of Chief Financial Officer or Treasurer
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention of Bruce Toth, Esq.
<PAGE> 78
78
If to the Trustee for purposes of Article II hereof:
The First National Bank of Boston
c/o Banc Boston Trust Company of New York
55 Broadway - 3rd Floor
New York, NY 10006
If to the Trustee for all other notices and communications
hereunder:
The First National Bank of Boston
150 Royall Street
Mail Stop 45-02-15
Canton, MA 02021
The Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication to a Securityholder shall be
mailed by first-class mail to his address shown on the register kept by the
Registrar. Failure to mail a notice or communication to a Securityholder or
any defect in such notice or communication shall not affect its sufficiency
with respect to other Securityholders.
If a notice or communication is mailed or sent in the manner
provided above within the time prescribed, it is duly given, whether or not the
addressee receives it, except that notice to the Trustee shall only be
effective upon receipt thereof by the Trustee.
If the Company mails a notice or communication to
Securityholders, it shall mail a copy to the Trustee and each Agent at the same
time.
SECTION 12.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 12.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate (which shall include the statements set forth in
Section 12.05) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been complied with; and (ii) an Opinion of Counsel
reasonably satisfactory to the Trustee (which shall include the statements set
forth in Section 14.05) stating
<PAGE> 79
79
that, in the opinion of such counsel, all such conditions precedent and
covenants have been complied with.
SECTION 12.05. Statements Required in Certificate or Opinion.
Each certificate (other than certificates provided pursuant to Section 4.12(b)
or opinion with respect to compliance with a condition or covenant provided for
in this Indenture shall include: (i) a statement that the person making such
certificate or opinion has read and understands such covenant or condition;
(ii) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; (iii) a statement that, in the opinion of
such person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (iv) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
SECTION 12.06. Rules by Trustee and Agents. The Trustee may
make reasonable rules for action by or for a meeting of Securityholders. The
Registrar or Paying Agent may make reasonable rules and set reasonable
requirements for its functions.
SECTION 12.07. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions in the City of New
York are not required or authorized to be open. If a payment date is a Legal
Holiday at a place of payment, payment may be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for
the intervening period.
SECTION 12.08. Duplicate Originals. The parties may sign any
number of copies of this Indenture. One signed copy is enough to prove this
Indenture.
SECTION 12.09. Governing Law. The internal laws of the State
of New York shall govern this Indenture and the Securities, without regard to
the conflicts of law rules thereof. Each of the parties hereto agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Indenture.
SECTION 12.10. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret
<PAGE> 80
80
another indenture, loan or debt agreement of the Company or any subsidiary.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 12.11. Successors. All agreements of the Company in
this Indenture and the Securities shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successor.
<PAGE> 81
81
SECTION 12.12. Severability. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 12.13. Counterpart Originals. This Indenture may be
signed in one or more counterparts. Each signed copy shall be an original, but
all of them together represent the same agreement.
LEAR SEATING CORPORATION,
by /s/ Donald J. Stebbins
--------------------------
Dated: February 1, 1994
THE FIRST NATIONAL BANK OF BOSTON, as Trustee,
by /s/ James Schultz
--------------------------
Authorized Signatory
Dated: February 3, 1994
[Seal]
<PAGE> 82
EXHIBIT A
-
[Form of Face of Security]
$
LEAR SEATING CORPORATION
8-1/4% SUBORDINATED NOTE DUE 2002
LEAR SEATING CORPORATION, a Delaware corporation (the "Issuer",
which term includes any successor corporation), promises to pay to
or registered assigns, the principal
sum of Dollars on February 1, 2002.
Interest Payment Dates: February 1 and August 1.
Record Dates: January 15 and July 15
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Issuer has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
Dated: LEAR SEATING CORPORATION
by
-----------------------------
by
-----------------------------
<PAGE> 83
2
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities described in the within mentioned
Indenture.
[CORPORATE SEAL] THE FIRST NATIONAL BANK OF
BOSTON, as Trustee,
by
----------------------------------
Authorized Signatory
<PAGE> 84
[FORM OF REVERSE OF SECURITY]
LEAR SEATING CORPORATION
8-1/4% SUBORDINATED NOTE DUE 2002
(1) INTEREST. LEAR SEATING CORPORATION, a Delaware corporation
(the "Issuer"), promises to pay interest on the principal amount of this
Security at an interest rate per annum of 8-1/4%.
The Issuer shall pay interest semiannually, on February 1 and August 1
of each year (each an "Interest Payment Date") commencing August 1, 1994.
Interest on the Securities (as defined in the Indenture) shall accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from February 3, 1994. The Issuer shall pay interest on overdue
principal (including interest accruing on or after filing of any petition in
bankruptcy or reorganization relating to the Issuer, whether or not a claim for
post-filing interest is allowed in such proceeding) at the rate then borne by
the Securities; it shall pay interest, to the extent permitted by law
(including interest accruing on or after filing of any petition in bankruptcy
or reorganization relating to the Issuer, whether or not a claim for post
filing interest is allowed in such proceeding), on overdue installments of
interest at the rate then borne by the Securities. Interest shall be computed
on the basis of a 360-day year of twelve 30-day months.
(2) METHOD OF PAYMENT. The Issuer shall pay interest on this Security
(except defaulted interest) to the person who is the registered holder of this
Security at the close of business on the record date next preceding the
Interest Payment Date. The holder must surrender this Security to a Paying
Agent to collect payments of principal and premium. Payments of interest may
be mailed to the holder's registered address. The Issuer shall pay
principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The Issuer,
however, may pay principal and interest by its check payable in such money. If
a payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal
<PAGE> 85
2
Holiday, and no interest on the amount payable on such payment date shall
accrue for the intervening period.
(3) PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as
Paying Agent and Registrar. The Issuer may change any Paying Agent, Registrar
and coregistrar without notice to any Securityholder. The Issuer or any of
its Affiliates may act in any such capacity.
(4) INDENTURE. This Security is one of the Securities that may be
issued from time to time by the Issuer under an Indenture dated as of February
1, 1994 (the "Indenture"), between the Issuer and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture. The Securities are
subject to all such terms, and Securityholders are referred to the Indenture
and such Act for a statement of such terms.
The Securities are general obligations of the Issuer and limited to
$145,000,000 in aggregate principal amount.
(5) OPTIONAL REDEMPTION. On or after February 1, 1998 the Issuer may
redeem all the Securities at any time or some of them from time to time at the
following redemption prices (expressed in percentages of the principal amount
thereof), in each case together with accrued interest, if any, to the date of
redemption. If redeemed during the 12-month period commencing February 1:
1988 ........................................... 101.65%
1999 and thereafter ............................ 100%
(6) CHANGE OF CONTROL. In the event there shall occur any Change of
Control Triggering Event (as defined in the Indenture) with respect to the
Company, each Holder of Securities shall have the right, at such Holder's
option but subject to the conditions set forth in the Indenture, to require the
Issuer to purchase on the Purchase Date (as defined in the Indenture) all or
any part of such Holder's Securities at a purchase price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest (subject to
the right of Holders of record on each record date to receive interest due on
the related Interest Payment Date) to the Purchase Date and in the manner
specified in the Indenture.
<PAGE> 86
3
Notwithstanding anything to the contrary herein or in the Indenture,
the Issuer shall not be obligated to give notice to Holders of Securities or to
purchase Securities with respect to more than one Change of Control Triggering
Event.
(7) OFFER TO PURCHASE IN CONNECTION WITH SALES OF ASSETS. If there
are certain Net Cash Proceeds from Asset Sales, Section 4.08 of the Indenture
contains provisions under which the Issuer is required to commence an offer to
purchase Securities at a purchase price equal to 100% of their principal amount
plus accrued interest, if any.
(8) NOTICE OF REDEMPTION. Notice of redemption shall be mailed at
least 15 days but not more than 60 days before the Redemption Date to each
holder of Securities to be redeemed at his registered address. Securities in
demoninations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. On and after the Redemption Date interest ceases to
accrue on Securities or defaults in making the redemption payment.
If the Redemption Date is subsequent to a record date with respect to
any Interest Payment Date and on or prior to such Interest Payment Date, then
such accrued interest, if any, shall be paid to the person in whose name this
Security is registered at the close of business on such record date and no
other interest shall be payable thereon.
(9) DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar need not exchange or register the transfer of
any Security or portion of a Security selected for redemption. Also it need
not exchange or register the transfer of any Securities for a period of 15 days
before a selection of Securities to be redeemed.
(10) PERSONS DEEMED OWNERS. The registered holder of a Security may
be treated as its owner for all purposes.
<PAGE> 87
(11) UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent
shall pay the money back to the Issuer at its request. After that,
Securityholders entitled to the money must look to the Issuer for payments
unless an abandoned property law designates another person and all liability of
the Trustee and such Paying Agent with respect to such money shall cease.
(12) DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Issuer
deposits with the Trustee money or U.S. Government Obligations sufficient to
pay principal of, premium, if any, and accrued interest on the Securities to
redemption or maturity, and any other amounts payable under the Indenture, the
Issuer shall be discharged from the Indenture and the Securities, except for
certain sections thereof.
(13) AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Securities may be amended, and any existing default may be
waived, with the consent of the holders of at least a majority in principal
amount of the then outstanding Securities. Without the consent of any
Securityholdler, the Indenture or the Securities may be amended to cure any
ambiguity, defect or inconsistency, to provide for the assumption of the
obligations of the Issuer under the Indenture by a successor corporation, to
provide for uncertificated Securities in addition to certificated Securities or
to make any change that does not adversely affect the rights of any
Securityholdler.
(14) SUBORDINATION. The Securities are subordinated in right of
payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full of all Senior Indebtedness (as defined in the Indenture)
of the Issuer whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed. To the extent and in the manner
provided in the Indenture, Senior Indebtedness must be paid before any payment
may be made to any Holder of this Security. Each Securityholder by his
acceptance hereof agrees to be bound by such provisions and authorizes and
expressly directs the Trustee, on his behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee his attorney-in-fact for such purpose.
<PAGE> 88
(15) DEFAULTS AND REMEDIES. An Event of Default is: default for 30 days
in payment of interest on the Securities; default in payment of principal of
the Securities at maturity, upon acceleration, redemption or otherwise; failure
by the Issuer for 30 days after notice to it to comply with any of its other
agreements in the Indenture or the Securities; certain events of accelration
prior to maturity of other Indebtedness; certain final judgments which remain
undischarged; certain events of bankruptcy or insolvency of the Issuer or any
of its Significant Subsidiaries; and certain other events. If an Event of
Default occurs and is continuing, the Trustee or the holders of at least 25% in
principal amount of the then outstanding Securities may declare to be due and
payable immediately 100% of the principal amount of the Securities, except that
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency of the Issuer, 100% of the principal amount of the Securities
becomes due and payable immediately without further action or notice.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Securities. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing default
(except a default payment of principal or interest) if its determines that
withholding notice is in their interests. The Issuer must provide an annual
compliance certificate to the Trustee.
(16) TRUSTEE DEALINGS WITH ISSUER. The Trustee, in its individual or
any other capacity, may become the owner or pledgee of Securities and may
otherwise deal with the Issuer or its Affiliates, as if it were not Trustee.
(17) NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Issuer shall not have any liability for any
obligations of the Issuer under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issuer of the Securities.
<PAGE> 89
(18) AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
(19) ABBREVIATIONS. Customary abbreviations may be used in the name of
a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Cutodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
(20) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuer has caused
CUSIP numbers to be printed on the Securities as a convenience to the holders
of such Securities. No representation is made as to the accuracy of such
numbers as printed on the Securities, and reliance may be placed only on the
other identification numbers printed hereon.
<PAGE> 90
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
___________________________________________________________________________
_________________________
(INSERT ASSIGNEE'S SOCIAL SECURITY OR TAX ID NUMBER)
_______________________
| |
| |
|_______________________|
___________________________________________________________________________
_________________________
(Print or type assignee's name, address and zip code) and irrevocably
appoint agent to
___________________________________________________________________________
_________________________
transfer this Security on the books of the Issuer. The agent may substitute
another to act for him.
Date:______________________
Your Signature:______________________________________________
(Sign exactly as your name appears on the
other side of this Security.)
Signature
Guarantee:___________________________________________________
(Signature must be guaranteed by a member firm
of the New York Stock Exchange or a commercial
Bank or trust company.)
<PAGE> 91
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Issuer
pursuant to Section 4.08 of the Indenture, check the box: / /
If you want to elect to have only a part of this Security purchased by
the Issuer pursuant to Section 4.08 of the Indenture, state the amount:
$:_____________
If you want to elect to have this Security purchased by the Issuer
pursuant to Section 11.01 of the Indenture, check the box: / /
If you want to elect to have only a part of this Security purchased by
the Issuer pursuant to Section 11.01 of the Indenture, state the amount:
$______________
Date:______________________
Your Signature:____________________________________________________
(Sign exactly as your name appears on the other side
of this Security.)
Signature Guarantee:_______________________________________________
<PAGE> 1
Exhibit 10.24
FIRST AMENDMENT, WAIVER AND CONSENT dated as of March 31, 1994 (this
"Amendment") to the Amended and Restated Stockholders and Registration Rights
Agreement dated as of September 27, 1991 (the "Agreement"), among Lear Seating
Corporation (formerly LSS Holdings Corporation), a Delaware corporation (the
"Company"), Lehman Brothers Merchant Banking Portfolio Partnership L.P.
(formerly Shearson Lehman Hutton Merchant Banking Portfolio Partnership L.P.),
a Delaware limited partnership, Lehman Brothers Offshore Investment
Partnership--Japan L.P. (formerly Shearson Lehman Hutton Offshore Investment
Partnership--Japan L.P.), a Bermuda limited partnership, Lehman Brothers
Offshore Investment Partnership L.P. (formerly Shearson Lehman Hutton Offshore
Investment Partnership L.P.), a Bermuda limited partnership, and Lehman
Brothers Capital Partners II, L.P. (formerly Shearson Lehman Hutton Capital
Partners II, L.P.), a Delaware limited partnership (each a "Lehman Partnership"
and, collectively, the "Lehman Group"), Lehman Brothers Merchant Banking
Partners Inc. (formerly Shearson Lehman Hutton Merchant Banking Partners,
Inc.), a Delaware corporation, as the Lehman Group Representative (the "Lehman
Group Representative"), FIMA Finance Management Inc., a British Virgin Islands
corporation ("FIMA"), and the parties listed on Schedule A to the Agreement or
who become Management Investors pursuant to Section 6.10 thereof (the
"Management Investors" and, together with the Lehman Group and FIMA, the
"Investors").
The parties hereto agree as follows:
SECTION 1. Amendment to Section 1.1. The following definition shall be
added to Section 1.1 of the Agreement:
"Substantial Sale" shall mean a sale or other disposition of outstanding
Shares beneficially held by a Holder in a single transaction or series of
related transactions that would result in the acquisition from such Holder by a
single Third Party of beneficial ownership of more than 5% of the aggregate
then outstanding Shares and Shares issuable in respect of then outstanding
Share Equivalents.
<PAGE> 2
SECTION 2. Amendment to Section 2.4. The first sentence of Section 2.4(a)
of the Agreement shall be deleted and replaced with the following:
"If any Lehman Partnership or FIMA or any of its respective Permitted
Transferees (the "Section 2.4 Transferor") desires (i) to offer any of the
Shares then owned by it in a Substantial Sale other than to any of such
Permitted Transferees or (ii) to consummate an Exit Event (including,
without limitation, one pursuant to Section 2.6), the Lehman Group
Representative (if the Section 2.4 Transferor shall be a Lehman Partnership
or any of its Permitted Transferees) or FIMA (if the Section 2.4 Transferor
shall be FIMA or any of its Permitted Transferees) shall provide a written
notice (a "Transfer Notice") to FIMA or the Lehman Group Representative, as
the case may be, with a copy to Holdings, which notice shall state the
number of Shares proposed to be offered (or transferred, sold or disposed of
in connection with an Exit Event) by the Section 2.4 Transferor (the
"Transfer Stock"), the percentage of the total number of Shares beneficially
owned by the Section 2.4 Transferor represented by the Transfer Stock, the
price (which shall be a cash price, unless the Section 2.4 Transferor shall
have received a bona fide offer for the Shares subject to such Substantial
Sale or Exit Event which is not an all cash offer, in which case the
Transfer Notice shall include a good faith, reasonable calculation of the
present value of any consideration other than cash) at which the Transfer
Stock is proposed to be offered (or transferred, sold or disposed of) and any
other terms or conditions of the proposed transaction and shall also contain
an offer (a "Pre-emptive Offer") to sell the Transfer Stock to FIMA (if the
Section 2.4 Transferor shall be a Lehman Partnership or any of its Permitted
Transferees) or to the Lehman Group (if the Section 2.4 Transferor shall be
FIMA or any of its Permitted Transferees) (the offeree of a Pre-emptive
Offer, the "Section 2.4 Offeree") for all cash at a price equal to the price
(including the present value of such consideration other than cash so
calculated) and upon substantially the same terms as the terms contained in
such Transfer Notice."
<PAGE> 3
3
SECTION 3. Amendment to Section 2.5. The first two sentences of Section
2.5(a) of the Agreement shall be deleted and replaced with the following:
"None of the Lehman Partnerships or FIMA or any of their respective
Permitted Transferees shall, directly or indirectly, sell any of its Shares
in a Substantial Sale unless the terms and conditions of such Substantial
Sale shall include an offer to each of the other Holders and their
respective Permitted Transferees (including, in the case of a Substantial
Sale by any Lehman Partnership or any of its Permitted Transferees, an offer
to FIMA and its Permitted Transferees and in the case of a Substantial Sale
by FIMA or any of its Permitted Transferees, an offer to the Lehman
Partnerships and their respective Permitted Transferees) (the "Section 2.5
Offerees"), to include, at the option of the Section 2.5 Offeree, in such
Substantial Sale such number of Shares owned by each such Section 2.5
Offeree as determined in accordance with Section 2.5(b). If any Lehman
Partnership or FIMA or any of their respective Permitted Transferees (as
applicable, the "Section 2.5 Transferor") receives a bona fide offer or
offers to purchase or otherwise acquire (a "Section 2.5 Transfer Offer") its
Shares in a Substantial Sale (the "Section 2.5 Transfer Stock") that the
Section 2.5 Transferor decides to accept, the Section 2.5 Transferor shall
cause the Section 2.5 Transfer Offer to be reduced to writing and shall
provide written notice (the "Section 2.5 Transfer Notice") of such Section
2.5 Transfer Offer to each of the Section 2.5 Offerees in the manner set
forth in this Section 2.5."
SECTION 4. Amendment to Section 2.7. Section 2.7(a) of the Agreement shall
be deleted and replaced in its entirety with the following:
"Section 2.7. Required Transfers of Management Shares. (a) Upon the
effective date of the termination (the "Termination") of the employment with
Holdings and its subsidiaries of any Management Investor (whether or not such
Management Investor then beneficially owns any Shares) (the "Terminated
Holder") prior to the earlier of (x) the fifth anniversary of the Closing
Date and (y) the existence of a Public
<PAGE> 4
4
Market for the Shares at any time after the third anniversary of the Closing
Date for Cause (as defined below) or upon the resignation of the Terminated
Holder without Good Reason (as defined below), all Shares beneficially owned
by such Holder or the personal representative of such Holder and the
Permitted Transferees of such Holder, including all Shares then issuable in
respect of the Share Equivalents owned by such Holder or the personal
representative of such Holder and such Permitted Transferees which are then
vested and exercisable and not terminated (collectively, the "Terminated
Shares"), shall be subject to a purchase option exercisable immediately by
Holdings at the lower of Cost (as defined below) or Fair Market Value (as
defined below) as of the date of Termination; provided that with respect to
the Management Investors who are denoted on Schedule A hereto as having
employment contracts, upon Termination (i) for Cause or upon the resignation
of the Terminated Holder without Good Reason, the Terminated Shares shall be
subject to a purchase option exercisable immediately by Holdings at the lower
of Cost or Fair Market Value as of the date of Termination and (ii) without
cause (but at the employer's initiative), the Terminated Shares shall be
subject to a purchase option exercisable immediately by Holdings at the
higher of Cost or Fair Market Value, as of the date of Termination. All such
options shall be exercisable for all but not less than all the Terminated
Shares."
SECTION 5. Amendment to Section 4.3. References to "the 120-day period" in
Section 4.3(a) and Section 4.3(b) of the Agreement shall each be replaced with
"(i) in the case of the initial public offering of Registrable Securities after
the date hereof, the 180-day period, and (ii) in all other cases, the 120-day
period".
SECTION 6. Waiver. The Holders hereby waive their rights under Section 4.2
of the Agreement with respect to the initial public offering of Shares by the
Company and FIMA (the "Offering") pursuant to a registration statement filed
with the Commission on March 8, 1994 (the "Registration Statement") including,
without limitation, the notice provisions thereof.
SECTION 7. Consent. For the purposes of Section 3.3 of the Agreement, FIMA
agrees that it has approved the Offering, subject only to the right of
<PAGE> 5
5
Mr. Botta to approve, as a member of the Pricing Committee appointed by the
Board of Directors of the Company, any sale price below $15 per share.
SECTION 8. Notice. The Company expects the Registration Statement relating
to the Offering to become effective at any time after the date hereof and prior
to June 1, 1994. The preceding sentence shall satisfy in full the notice
requirements of Section 4.3(a) of the Agreement.
SECTION 9. Effectiveness; Miscellaneous. (a) This Amendment shall become
effective as of the date first set forth above.
(b) This Amendment constitutes the entire agreement and understanding of
the parties with respect to the subject matter hereof and supersedes any and
all prior agreements and understandings, oral or written, relating to the
subject matter hereof.
(c) Section headings used herein are for convenience of reference only and
are not to affect the construction of, or to be taken into consideration in
interpreting, this Amendment.
(d) The laws of the State of Delaware shall govern the interpretation,
validity and performance of the terms of this Amendment, regardless of the law
that might be applied under applicable principles of conflicts of laws.
(e) Each reference to a party hereto shall be deemed to include its
successors and assigns, all of whom shall be bound by this Amendment and to
whose benefit the provisions of this Amendment shall inure.
(f) This Amendment may be executed in any number of counterparts, each of
which shall be an original but all of which, when taken together, shall
constitute but one instrument.
(g) Except as specifically amended or modified hereby, the Agreement shall
continue in full force and effect in accordance with the provisions thereof.
As used therein, the terms "Agreement", "herein", "hereunder", "hereinafter",
"hereto", "hereof" and words of similar
<PAGE> 6
6
import shall, unless the context otherwise requires, refer to the Agreement as
amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first set forth above.
Lear Seating Corporation
by
-------------------------------
Name:
Title:
As Holders of a majority of the Shares
held by the Lehman Partnerships and
their respective Permitted Transferees:
Lehman Brothers Merchant Banking
Portfolio Partnership L.P.
by
-------------------------------
Name:
Title:
Lehman Brothers Capital Partners II, L.P.
by
-------------------------------
Name:
Title:
Lehman Brothers Offshore Investment
Partnership L.P.
by
-------------------------------
Name:
Title:
<PAGE> 7
7
Lehman Brothers Offshore Investment
Partnership-Japan L.P.
by
-------------------------------
Name:
Title:
Lehman Brothers Merchant Banking
Partners, Inc.
by
-------------------------------
Name:
Title:
As Holders of a majority of the Shares
held by FIMA and its Permitted Transferees:
FIMA Finance Management Inc.
by
-------------------------------
Name:
Title:
As Holders of a majority of the Shares
held by Management Investors and their
respective Permitted Transferees:
-----------------------------------
John Boerger
-----------------------------------
James Comer
-----------------------------------
R. C. Donovan
-----------------------------------
W. E. Douglas
-----------------------------------
G. H. Dunze
<PAGE> 8
8
-----------------------------------
M. R. Edwards
-----------------------------------
C. E. Fisher
-----------------------------------
A. J. Goscinski
-----------------------------------
J. A. Hollars
-----------------------------------
L. R. Haskell
-----------------------------------
L. K. Hensley
-----------------------------------
T. B. Henstock
-----------------------------------
R. G. Hodgson
-----------------------------------
R. B. Hopkins, Jr.
-----------------------------------
J. G. Harris
-----------------------------------
W. G. Jamieson
-----------------------------------
E. Koslowski
<PAGE> 9
9
-----------------------------------
T. E. Melson
-----------------------------------
R. T. Murphy
-----------------------------------
J. D. Nevins
-----------------------------------
R. E. Rossiter
-----------------------------------
R. J. Rault
-----------------------------------
D. J. Simpkins
-----------------------------------
R. B. Smith, Jr.
-----------------------------------
R. G. Tancredi
-----------------------------------
J. E. Thompson
-----------------------------------
M. Tepfenhart
-----------------------------------
J. H. Vandenberghe
-----------------------------------
A. H. Vartanian
<PAGE> 10
10
-----------------------------------
J. Wainwright
-----------------------------------
K. L. Way
<PAGE> 1
EXHIBIT 10.26
FIRST AMENDMENT
TO THE
LEAR SEATING CORPORATION
1992 STOCK OPTION PLAN
The Lear Holdings Corporation 1992 Stock Option Plan (the "Plan") is amended
as follows:
1. The title of the Plan is amended by deleting the name "Lear Holdings
Corporation" and replacing it with "Lear Seating Corporation".
2. Section 1 of the Plan is amended by deleting in the third line the name
"Lear Holdings Corporation" and replacing it with the name "Lear Seating
Corporation".
3. Section 8 of the Plan is amended by adding new Section 8(d) and (e)
as follows:
(d) Notwithstanding any other provision contained in this Section 8, all
Annual Options issued and not otherwise vested under the Plan shall vest as
of December 31, 1993 provided that the option holder is employed with the
Company or a subsidiary as of the effective date of the First Amendment to
the Plan.
(e) All Annual Options vested as of December 31, 1993 shall become
exercisable on the earlier of:
(i) the second anniversary of the option holder's date of normal
retirement (as such term is defined or otherwise provided) from the Company
or a subsidiary under a tax-qualified pension benefit plan as sponsored by
the Company or a subsidiary; or
(ii) September 28, 1996, provided the option holder is employed with the
Company or a subsidiary as of said date.
4. Section 9 of the Plan is amended by adding new paragraphs "(c)" and
"(d)" as follows:
(c) Notwithstanding any other provision contained in this Section 9, all
Cumulative Options issued and not otherwise vested under the Plan shall vest
as of December 31, 1993 provided that the option holder is employed with the
Company or a subsidiary as of the effective date of the First Amendment to
the Plan.
(d) All Cumulative Options vested as of December 31, 1993 shall become
exercisable on the earlier of:
<PAGE> 2
(i) the second anniversary of the option holder's date of normal
retirement (as such term is defined or otherwise provided) from the Company
or a subsidiary under a tax-qualified pension benefit plan as sponsored by
the Company or a subsidiary; or
(ii) September 28, 1996, provided the option holder is employed with the
Company or a subsidiary as of said date.
5. Section 10 of the Plan is hereby deleted and under the heading for Section
10 the words "intentionally deleted" are hereby inserted.
6. Section 11 of the Plan is amended by adding new paragraphs "(c)" and
"(d)" as follows:
(c) Notwithstanding any other provision contained in this Section 11, all
Time Based Options issued and not otherwise vested under the Plan shall vest
as of December 31, 1993 provided that the option holder is employed with the
Company or a subsidiary as of the effective date of the First Amendment to
the Plan.
(d) All Time Based Options vested as of December 31, 1993 shall become
exercisable on the earlier of:
(i) the second anniversary of the option holder's date of normal
retirement (as such term is defined or otherwise provided) from the Company
or a subsidiary under a tax-qualified pension benefit plan as sponsored by
the Company or a subsidiary; or
(ii) September 28, 1996, provided the option holder is employed with the
Company or a subsidiary as of said date.
7. Section 12 of the Plan is hereby deleted and under the heading for Section
12 the words "intentionally deleted" are hereby inserted.
8. Section 13 of the Plan is amended by adding a new paragraph "(e)" as
follows:
(e) As of the effective date of the First Amendment of the Plan:
(i) Notwithstanding the provisions of Sections 13(b) and 13(c), if, prior
to September 28, 1996, an option holder's employment with the Company or a
subsidiary is terminated, other than by reason of normal retirement (as such
term is defined or otherwise provided), death or permanent and total
disability, all options held as of December 31, 1993 by such person shall
become exercisable on September 1, 2001;
-2-
<PAGE> 3
(ii) Notwithstanding the provisions of Section 13(c), if, prior to
September 28, 1996, an option holder's employment with the Company or a
subsidiary is terminated for "permanent and total disability" as defined by
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, all
options held as of December 31, 1993 by such person shall become exercisable
on September 28, 1996 and for a period of 90 days thereafter. Options held
by the option holder that are not exercised within said period terminate;
(iii) Notwithstanding the provisions of Section 13(d), if an option
holder's employment with the Company or a subsidiary is terminated because of
the option holder's death prior to September 28, 1996, all options held by
said option holder shall become exercisable by the option holder's personal
representative or devisee on September 28, 1996 and for a period
of 90 days thereafter. Options held by the deceased option holder that are
not exercised within said period terminate; and
(iv) Notwithstanding any provision of the Plan to the contrary, any option
may be exercised under this Plan at any time with the express written consent
of the Board of Directors of the Company, as approved by the stockholders.
This First Amendment to the Plan shall become effective as of December 31,
1993.
LEAR SEATING CORPORATION
By_________________________________
Date_______________________________
-3-
<PAGE> 1
EXHIBIT 10.27
LEAR SEATING CORPORATION
1994 STOCK OPTION PLAN
---------------------------
1. Purpose. The purposes of the Lear Seating Corporation 1994
Stock Option Plan (the "Plan") are, in general, to give Lear Seating
Corporation (the "Company") a significant advantage in retaining employees,
officers and directors, and to provide an incentive to selected key employees,
officers and directors of the Company and its subsidiaries, within the meaning
of Section 424(f) of the Internal Revenue Code of 1986, as amended ("Code"),
who have substantial responsibility in the direction of the Company and its
subsidiaries, and others who the Company determines provide substantial and
important services to the Company, to acquire a proprietary interest in the
Company, to continue as employees, officers and directors or in their other
capacities, and to increase their efforts on behalf of the Company.
2. The Plan. Two types of stock options may be granted under the
Plan: incentive stock options as defined in Code Section 422 and the
regulations promulgated thereunder ("ISOs"), and options that do not qualify as
incentive stock options ("NQSOs"). All options shall be exercisable to
purchase shares of common stock, $.01 par value (the "Common Stock") of the
Company. Collectively, ISOs and NQSOs are referred to herein as "Options".
Subject to Sections 3 and 6(a), ISOs may be awarded to
employees of the Company and its subsidiaries, within the meaning of Code
Section 424(f), including employees who are officers and directors, but shall
not be issued to directors or others who are not employees.
<PAGE> 2
Subject to Sections 3 and 6(a), NQSOs may be awarded to
employees and directors, including directors who are not employees of the
Company and its subsidiaries, within the meaning of Code Section 424(f), and
anyone whom the Committee administering the Plan pursuant to Section 3
determines provides substantial and important services to the Company.
To the extent that any Option is not designated as an ISO, or
even if so designated it does not qualify as an ISO, it shall be treated as a
NQSO.
3. Administration. The Plan shall be administered by the
Compensation Committee (the "Committee") which shall be solely comprised of two
or more "outside directors" as defined by Proposed Treasury Regulation Section
1.162-27(e)(3) or such other regulations as may be issued in proposed,
temporary or final form under Code Section 162(m). The Committee shall act by
a majority of its members at the time in office and eligible to vote on any
particular matter, and such action may be taken either by a vote at a meeting
or in writing without a meeting. Subject to the provisions of the Plan, the
Committee shall from time to time and at its discretion (i) grant Options, (ii)
determine which employees, officers and directors and other individuals
performing substantial and important services ("Grantees") may be granted such
Options under the Plan; (iii) determine whether any Option shall be an ISO or
NQSO; (iv) determine the number of shares subject to each Option; (v) determine
the term of each Option granted under the Plan; (vi) determine the date or
dates on which the Option shall be exercisable; (vii) determine the exercise
price of any Option; (viii) determine the fair market value of the Common Stock
subject to the Options; (ix) determine the terms of any agreement pursuant to
which Options are granted;
-2-
<PAGE> 3
(x) amend any such agreement with the consent of the Grantee; (xi) establish
such procedures as it deems appropriate for a recipient of an award hereunder
to designate a beneficiary to whom any benefits payable in the event of his or
her death are to be made; and (xii) determine any other matters specifically
delegated to it under the Plan or necessary for the proper administration of
the Plan.
The Committee shall also have the final authority to interpret
and construe the terms of the Plan and of any Option and such interpretation
and construction by the Committee shall be final, binding and conclusive upon
all persons including, without limitation, the Company, stockholders of the
Company, the Plan, and all persons claiming an interest in the Plan.
Notwithstanding anything contained in this Section to the contrary, no term of
the Plan relating to ISOs shall be interpreted, nor shall any discretion or
authority of the Committee be exercised, so as to disqualify the Plan under
Code Section 422 or, without the consent of the Grantee, to disqualify any ISO
under Code Section 422.
No member of the Committee or Director shall be liable for any
action, interpretation or construction made in good faith with respect to the
Plan or any Option granted hereunder.
4. Effectiveness and Termination of Plan. This Plan shall
terminate on the earliest of:
(a) The tenth anniversary of the effective date as
determined under this Section 4;
-3-
<PAGE> 4
(b) The date when all shares of the Common Stock reserved
for issuance under the Plan, shall have been acquired through exercise of
Options granted under the Plan; or
(c) Such earlier date as the Board of Directors may
determine. This Plan shall become effective as of the date of adoption thereof
by the Board of Directors of the Company, or the date this Plan is approved by
the stockholders, whichever is earlier. Any Option outstanding under the Plan
at the time of its termination shall remain in effect in accordance with its
terms and conditions and those of the Plan.
5. The Stock. The aggregate number of shares of Common Stock
which may be issued under the Plan shall be 625,000 shares; provided, however,
that the maximum number of shares of Common Stock available with respect to the
Options granted by the Committee to any one Grantee under the Plan shall not
exceed 60,000. Such number of shares may be set aside out of the
authorized but unissued shares of Common Stock not reserved for any other
purpose or out of shares of Common Stock held in or acquired for the treasury
of the Company. All or any shares of Common Stock subjected under this Plan to
an Option which, for any reason, terminates unexercised as to such shares, may
again be subjected to an Option under the Plan.
6. Grant, Terms and Conditions of Options. Options may be
granted by the Committee at any time and from time to time prior to the
termination of the Plan. Each Option granted under the Plan shall be evidenced
by an agreement in a form approved by the Committee. The terms and conditions
of such Option agreement need not be identical with respect to each Grantee,
but each Option agreement will evidence on its face whether it is an
-4-
<PAGE> 5
ISO or a NQSO. For purposes of this Section, an Option shall be deemed granted
on the date the Committee selects an individual to be a Grantee, determines the
number of shares to be issued pursuant to such Option and specifies the terms
and conditions of the Option. Except as hereinafter provided, Options granted
pursuant to the Plan shall be subject to the following terms and conditions:
(a) Grantee. Subject to Section 2 hereof, the Grantees
of any Options hereunder shall be such key employees, officers and directors of
the Company and its subsidiaries, within the meaning of Code Section 424(f), as
determined by the Committee, who have substantial responsibility in the
direction of the Company and its subsidiaries, and anyone else whom the
Committee determines provides substantial and important services to the
Company.
(b) Price and Exercise. The purchase price of the shares
of Common Stock upon exercise of an ISO shall be no less than the fair market
value of the shares at the time of grant of an ISO; provided, however, if an
ISO is granted to a person owning shares of the Company possessing more than
10% of the total combined voting power of all classes of shares of the Company
as defined in Code Section 422 ("10% Stockholder"), the purchase price shall be
equal to 110% of the fair market value of the shares. The fair market value of
the Common Stock shall be the closing price of publicly traded Common Stock on
the national securities exchange on which the Common Stock is listed (if the
Common Stock is so listed) or on the NASDAQ National Market System (if the
Common Stock is regularly quoted on the NASDAQ National Market System), or, if
not so listed or regularly quoted, the mean between the closing bid and asked
prices of publicly traded Common Stock in the
-5-
<PAGE> 6
over-the-counter market, or, if such bid and asked prices shall not be
available, as reported by any nationally recognized quotation service selected
by the Company, or as determined by the Committee in a manner consistent with
the provisions of the Code.
The purchase price of the shares of Common Stock upon exercise
of a NQSO may be any price set by the Committee.
The notice of the exercise of any Option shall be accompanied
by payment in full of the Option price. The purchase price shall be paid in
United States dollars in cash or by certified or cashier's check payable to the
order of the Company at the time of purchase. At the discretion of the
Committee, the purchase price may be paid with: (i) stock of the Company
(Common Stock already owned by, and in the possession of, the Grantee); or (ii)
any combination of United States dollars or stock of the Company. Anything
contained herein to the contrary notwithstanding, any required withholding tax
shall be paid by the Grantee in full in United States dollars in cash or by
certified or cashier's check at the time of exercise of the Option. Shares of
stock of the Company used to satisfy the exercise price of an Option shall be
valued at their fair market value as determined by the Committee, as of the
close of business on the day immediately preceding the date of exercise.
If required by the Company, such notice of exercise of an
Option shall be accompanied by the Grantee's written representation that the
stock being acquired are purchased for investment and not for distribution;
acknowledging that such stock has not been registered under the Securities Act
of 1933, as amended (the "1933 Act"); and agreeing that such stock may not be
sold or transferred or unless there is an effective Registration
-6-
<PAGE> 7
Statement for it under the 1933 Act, or, in the opinion of counsel, such sale
or transfer is not in violation of the 1933 Act.
The purchase price shall be subject to adjustment, but only as
provided in Section 7 hereof.
(c) Vesting. Options shall vest in accordance with the
schedule established for each Grantee; provided, however, that all Options
awarded to a Grantee shall vest immediately upon said Grantee's death or
disability as defined herein.
(d) Forfeiture. Notwithstanding anything contained
herein to the contrary, the right (whether or not vested) of a Grantee to
exercise his or her outstanding Options, if any, shall be forfeited if (i) the
Grantee shall enter into a business or employment which the Board of Directors
determines to be detrimentally competitive with the Company or substantially
injurious to the Company's financial interests; or (ii) the Grantee is
discharged from employment with the Company for cause; or (iii) the Grantee
performs acts of willful malfeasance or gross negligence in a matter of
material importance to the Company.
(e) Additional Restrictions on Exercise of an ISO. The
aggregate fair market value of Common Stock (determined at the time an ISO is
granted) for which an ISO is exercisable for the first time by a Grantee during
any calendar year (under all plans of the Company and its subsidiaries or
parent) shall not exceed $100,000.
(f) Duration of Options. Options may be granted for
terms of up to but not exceeding ten (10) years from the effective date the
particular Option is granted;
-7-
<PAGE> 8
provided, however, that ISOs granted to a 10% Stockholder may be for a term of
up to but not exceeding five (5) years from the effective date the particular
ISO is granted.
If the stockholders of the Company have not approved the
adoption of the Plan prior to the end of one (1) year from the date the Plan is
approved by the Board of Directors of the Company, any ISOs granted under the
Plan prior to such date shall be null and void and the Company shall rescind
the issuance of any shares of Common Stock issued upon the exercise of such
ISOs by a Grantee prior to such date. In the event of such rescission, the
Company shall refund the price paid per share of Common Stock by the Grantee
upon exercise of the ISO upon receipt of the certificate representing such
shares.
(g) Termination of Employment. Upon the termination of a
Grantee's employment with the Company, his or her rights to exercise an Option
then held by such Grantee shall be only as follows:
(i) Retirement. If the Grantee's employment is terminated
because he or she has attained the age which the Company may from time
to time establish as the retirement age for any class of its employees,
or in accordance with the age specified in an employment agreement with
a Grantee, he or she shall have the right to exercise the Option within
three (3) months following such retirement if and to the extent the
Option was exercisable on such date of retirement; in addition, he or
she may exercise the Option notwithstanding that it is not exercisable
at the time of retirement, with the consent of the Company within three
months following such retirement. However, in the event of his or her
death prior to the end of the three-month period after the aforesaid
termination of his or her employment, his or her estate shall have
-8-
<PAGE> 9
the right to exercise the Option within one (1) year following such
termination with respect to all or any part of the stock subject
thereto, regardless of whether the Grantee had the right to purchase
such stock at the time of termination of employment.
(ii) Death. In the case of a Grantee who dies
while employed by the Company, his or her estate shall have the right
for a period of one (1) year following the date of such death to
exercise the Option.
(iii) Disability. In the case of a Grantee whose
employment with the Company is terminated by disability, as defined in
Code Section 22(e)(3), he or she shall have the right for a period of
one (1) year from the date of determination the disability exercise the
Option.
(iv) Other Reasons. Except as provided under
Section 6(d) hereof, in the case of a Grantee whose employment is
terminated for any reason other than those provided above under
"Retirement", "Death", or "Disability", the Grantee or his or her
estate (in the event of his or her death after such termination) may,
within the 30-day period following such termination, exercise the
Option to the extent the right to exercise had occurred prior to such
termination.
(v) Non-Employee Directors. An Option received by a
Grantee who is a member of the Board of Directors of the Company but
who is not an employee of the Company shall vest and become exercisable
in accordance with its terms regardless of such Grantee's continued
service as a member of the Board of Directors of the Company.
For purposes of this Section 6(g), "termination of employment"
shall mean the termination of a Grantee's employment with the Company or a
subsidiary or a parent. A Grantee employed by a subsidiary shall also be
deemed to have a termination of employment if the subsidiary ceases to be a
subsidiary of the Company, and the Grantee does not immediately thereafter
become an employee of the Company or of a subsidiary or the parent.
-9-
<PAGE> 10
A Grantee who is not an employee of the Company shall be considered to have
terminated his or her employment when substantial services, as determined by
the Committee, are no longer provided to the Company by the Grantee.
Also for purposes of this Section 6(g), a Grantee's "estate"
shall mean his or her legal representatives upon his or her death or any person
who acquires the right to exercise an Option by reason of the Grantee's death.
The Committee may in its discretion require the transferee of a Grantee to
supply it with written notice of the Grantee's death or disability and to
supply it with a copy of the will (in the case of the Grantee's death) or such
other evidence as the Committee deems necessary to establish the validity of
the transfer of an Option.
(h) Transferability of Option and Stock Acquired Upon
Exercise of Option. Options shall be transferable only by will or the laws of
descent and distribution and shall be exercisable during the Grantee's lifetime
only by the Grantee or by the guardian or legal representative of the Grantee.
Except as limited by applicable securities laws and the provisions of Sections
6(b), 6(j), 8 and 14 hereof, shares of Common Stock acquired upon exercise of
Options hereunder shall be freely tradeable.
(i) Modifications, Extension and Renewal of Options.
Subject to the terms and conditions and within the limitations of the Plan, the
Committee may modify, extend or renew outstanding Options granted under the
Plan, or accept the surrender of outstanding
-10-
<PAGE> 11
Options (up to the extent not theretofore exercised) and authorize the granting
of new Options in substitution therefor (to the extent not theretofore
exercised). The Committee shall not, however, with respect to ISOs, modify any
outstanding Options so as to specify a lower Option price or accept the
surrender of outstanding Options and authorize the granting of new Options in
substitution therefor specifying a lower price. Notwithstanding the foregoing,
no modification of an Option shall, without the consent of the Grantee, alter
or impair any rights or obligations under any Option theretofore granted under
the Plan nor shall any modification be made which shall adversely affect the
status of an Option as an ISO under Code Section 422.
(j) Stock Held for Investment. Each Option agreement may
contain an undertaking that, upon demand by the Committee for such a
representation, the Grantee, or any person acting under Section 6(g), shall
deliver to the Committee at the time of any exercise of an Option a written
representation that the stock to be acquired upon such exercise is to be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to the
delivery of any stock issued upon exercise of an Option shall be a condition
precedent to the right of the Grantee or such other person to purchase any
shares of Common Stock.
(k) Other Terms and Conditions. Options may contain such
other provisions, which shall not be inconsistent with any of the foregoing
terms, as the Committee shall deem appropriate.
(l) Independent Directors Grants. Independent Directors
who have served on the Company's or Lear Holdings Corporation's Board of
Directors for at least eighteen
-11-
<PAGE> 12
consecutive months shall be entitled to receive Options under the Plan with
respect to 10,000 shares of Common Stock, each having an exercise price equal
to the fair market value of a share of Common Stock on the date of grant. Any
Options granted to an Independent Director pursuant to this Section 6(I) shall
vest and become exercisable upon the earlier of (i) such Independent Director's
death or disability, as defined herein or (ii) three years from the date of
grant. For purposes hereof, "Independent Directors" shall mean any member of
the Company's Board of Directors who during his entire term as a director was
not employed by Lehman Brothers Inc., FIMA Finance Management Inc. or the
Company or any of their respective affiliates.
7. Adjustment of the Changes in the Stock.
(a) In the event the shares of Common Stock, as presently
constituted, shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation
(whether by reason of merger, consolidation, recapitalization,
reclassification, split, reverse split, combination of shares, or otherwise) or
if the number of such shares of Common Stock shall be increased through the
payment of a stock dividend, then there shall be substituted for or added to
each share of Common Stock theretofore appropriated or thereafter subject or
which may become subject to an Option under this Plan, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed, or for which each such share shall be exchanged, or
to which each such share shall be entitled, as the case may be. Outstanding
Options shall also be appropriately amended as to price and other terms as may
be necessary to reflect the foregoing events. In the event there shall be any
other change in the number or kind of the outstanding shares of the Common
Stock, or of any stock or other securities into which such Common Stock shall
have been changed, or for which it shall have been exchanged, then, if the
Board of Directors shall, in its sole discretion, determine that
-12-
<PAGE> 13
such change equitably requires an adjustment in any Option theretofore granted
or which may be granted under the Plan, such adjustments shall be made in
accordance with such determination.
(b) Fractional shares resulting from any adjustment in
Options pursuant to Section 7 may be settled in cash or otherwise as the
Committee shall determine. Notice of any adjustment shall be given by the
Company to each holder of an Option which shall have been so adjusted and such
adjustment (whether or not such notice is given) shall be effective and binding
for all purposes of the Plan.
8. Securities Law Requirements. No Option granted pursuant to
this Plan shall be exercisable in whole or in part, nor shall the Company be
obligated to sell any shares of Common Stock subject to any such Option, if
such exercise and sale would, in the opinion of counsel for the Company,
violate the 1933 Act (or other Federal or State statutes having similar
requirements), as it may be in effect at that time. In this regard, the
Committee may demand the representations described in Section 6(b) and Section
6(j).
Each Option shall be subject to the further requirement that,
if at any time the Committee shall determine in its discretion that the listing
or qualification of the shares of Common Stock subject to such Option under any
securities exchange requirements or under any applicable law, or the consent or
approval of any governmental regulatory body, is necessary as a condition of,
or in connection with, the granting of such Option or the issue of shares
thereunder, such Option may not be exercised in whole or in part, unless such
listing, qualification, consent or approval shall have been affected or
obtained free of any conditions not acceptable to the Board of Directors.
-13-
<PAGE> 14
No person who acquires shares of Common Stock under the Plan
may, during any period of time that such person is an affiliate of the Company
within the meaning of the rules and regulations of the Securities and Exchange
Commission under the 1933 Act, sell such shares of Common Stock, unless such
offer and sale is made (i) pursuant to an effective registration statement
under the 1933 Act, which is current and includes the shares to be sold, or
(ii) pursuant to an appropriate exemption from the registration requirement of
the 1933 Act, such as that set forth in Rule 144 promulgated under the 1933
Act.
9. Amendment of the Plan.
The Board of Directors may amend the Plan at any time, except
that approval of the holders of a majority of the outstanding voting stock of
the Company is requiredor amendments which:
(i) decrease the minimum Option price for ISOs;
(ii) extend the term of the Plan beyond ten years;
(iii) extend the maximum terms of the Options granted
hereunder beyond ten years;
(iv) withdraw the administration of the Plan from the
Committee appointed pursuant to Section 3;
(v) change the class of eligible employees, officers,
directors and other Grantees; or
(vi) increase the aggregate number of shares of Common
Stock which may be issued pursuant to the provisions
of the Plan.
Notwithstanding the foregoing, the Board of Directors may,
without the need for stockholders' approval, amend the Plan in any respect to
qualify ISOs as incentive stock options under Code Section 422.
-14-
<PAGE> 15
10. No Obligation to Exercise Option. The granting of an Option
shall impose no obligation upon the Grantee (or upon a transferee of a Grantee)
to exercise such Option.
11. No Limitation on Rights of the Company. The grant of any
Option shall not in any way affect the right or power of the Company to make
adjustments, reclassification, or changes in its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
12. Plan Not a Contract of Employment. The Plan is not a contract
of employment, and the terms of employment of any recipient of any award
hereunder shall not be affected in any way by the Plan or related instruments
except as specifically provided therein. The establishment of the Plan shall
not be construed as conferring any legal rights upon any recipient of any award
hereunder for a continuation of employment, nor shall it interfere with the
right of the Company or any subsidiary to discharge any recipient of any award
hereunder and to treat him or her without regard to the effect which such
treatment might have upon him or her as the recipient of any award hereunder.
13. Expenses of the Plan. All of the expenses of the Plan shall
be paid by the Company.
14. Compliance with Applicable Law. Notwithstanding anything
herein to the contrary, the Company shall not be obligated to cause to be
issued or delivered any certificates for shares of Common Stock pursuant to the
exercise of an Option, unless and until the Company is advised by its counsel
that the issuance and delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authority and the requirements of
any exchange upon which shares of Common Stock are traded. The
-15-
<PAGE> 16
Company shall in no event be obligated to register any securities pursuant to
the 1933 Act (as now in effect or as hereafter amended) or to take any other
action in order to cause the issuance and delivery of such certificates to
comply with any such law, regulation or requirement. The Committee may
require, as a condition of the issuance and delivery of such certificates and
in order to ensure compliance with such laws, regulations and requirements,
that the recipient of any award hereunder make such covenants, agreements and
representations as the Committee, in its sole discretion, deems necessary or
desirable, including, without limitation, a written representation from a
stockholder that the stock is being purchased for investment and not for
distribution, acknowledging that such shares have not been registered under the
1933 Act, as amended and agreeing that such shares may not be sold or
transferred unless there is an effective Registration Statement for them under
the 1933 Act, or, in the opinion of counsel to the Company, that such sale or
transfer is not in violation of the 1933 Act.
15. Effect Upon Other Compensation. Nothing contained herein
shall prevent the Company or any subsidiary from adopting other or additional
compensation arrangements for its employees or directors.
16. Grantee to Have No Rights as a Stockholder. No Grantee of any
Option shall have any rights as a stockholder with respect to any shares
subject to his or her Option prior to the date on which he or she is recorded
as the holder of such shares on the records of the Company. No Grantee of any
Option shall have the rights of a stockholder until he or she has paid in full
the Option price.
-16-
<PAGE> 17
17. Notice. Notice to the Committee shall be deemed given if in
writing and mailed to the Secretary of the Company at its principal executive
offices by first class, certified mail at the then principal office of the
Company.
18. Governing Law. Except to the extent preempted by Federal law,
this Plan and all Option agreements entered into pursuant thereto shall be
construed and enforced in accordance with, and governed by, the laws of the
State of Delaware, determined without regard to its conflict of interest rules.
-17-
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR
ENDED JUNE 30, 1989 ENDED JUNE 30, 1990
--------------------------- ----------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
LOSS LOSS PER LOSS LOSS PER
PER SHARE SHARE(3) PER SHARE SHARE(3)
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary
item.................................... $(8,658,000) $(8,658,000) $(20,589,000) $ (20,589,000)
Extraordinary loss........................ 0 0 0 0
----------- ------------- ------------ -------------
Net income (loss):........................ $(8,658,000) $(8,658,000) $(20,589,000) $ (20,589,000)
Weighted Average Shares:
Common shares outstanding............... 529,640 529,640 500,000 500,000
Exercise of stock options(1)............ 40,588 40,588
Exercise of warrants(2)................. 100,000 100,000
----------- ------------- ------------ -------------
Common and equivalent shares
outstanding........................... 529,640 670,228 500,000 640,588
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
Per Common and Equivalent Share:
Net income (loss) before extraordinary
item.................................. $ (16.35) $ (12.92) $ (41.18) $ (32.14)
Extraordinary loss...................... 0 0 0 0
----------- ------------- ------------ -------------
Net income (loss)....................... $ (16.35) $ (12.92) $ (41.18) $ (32.14)
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, 1991 ENDED JUNE 30, 1992
--------------------------- ---------------------------
FULLY
PRIMARY FULLY DILUTED PRIMARY DILUTED
LOSS LOSS PER LOSS LOSS PER
PER SHARE SHARE(3) PER SHARE SHARE(3)
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary
item.................................... $(33,169,000) $ (33,169,000) $(17,130,000) $(17,130,000)
Extraordinary loss........................ 0 0 (5,100,000) (5,100,000)
------------ ------------- ------------ ------------
Net income (loss):........................ $(33,169,000) $ (33,169,000) $(22,230,000) $(22,230,000)
Weighted Average Shares:
Common shares outstanding............... 499,803 499,803 841,464 841,464
Exercise of stock options(1)............ 40,588 47,949
Exercise of warrants(2)................. 100,000 100,000
------------ ------------- ------------ ------------
Common and equivalent shares
outstanding........................... 499,803 640,391 841,464 989,413
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Per Common and Equivalent Share:
Net income (loss) before extraordinary
item.................................. $ (66.36) $ (51.80) $ (20.36) $ (17.31)
Extraordinary loss...................... 0 0 (6.06) (5.15)
------------ ------------- ------------ ------------
Net income (loss)....................... $ (66.36) $ (51.80) $ (26.42) $ (22.46)
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TWELVE MONTHS
ENDED JUNE 30, 1993 ENDED DECEMBER 31, 1993
--------------------------- ----------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
INCOME INCOME PER LOSS LOSS PER
PER SHARE SHARE PER SHARE SHARE(3)
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary
item.................................... $10,114,000 $10,114,000 $ (2,147,000) $ (2,147,000)
Extraordinary loss........................ 0 0 (11,684,000) (11,684,000)
----------- ------------- ------------ -------------
Net income (loss)......................... $10,114,000 $10,114,000 $(13,831,000) $ (13,831,000)
Weighted Average Shares:
Common shares outstanding............... 1,065,659 1,065,659 1,075,758 1,075,758
Exercise of stock options(1)............ 47,949 47,949 84,890
Exercise of warrants(2)................. 100,000 100,000 100,000
----------- ------------- ------------ -------------
Common and equivalent shares
outstanding........................... 1,213,608 1,213,608 1,075,758 1,260,648
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
Per Common and Equivalent Share:
Net income (loss) before extraordinary
item.................................. $ 8.33 $ 8.33 $ (2.00) $ (1.70)
Extraordinary loss...................... 0 0 (10.86) (9.27)
----------- ------------- ------------ -------------
Net income (loss)....................... $ 8.33 $ 8.33 $ (12.86) $ (10.97)
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
<CAPTION>
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED JANUARY 2, 1993 ENDED DECEMBER 31, 1993
----------------------------- ---------------------------
FULLY
PRIMARY FULLY DILUTED PRIMARY DILUTED
LOSS LOSS PER LOSS LOSS PER
PER SHARE SHARE(3) PER SHARE SHARE(3)
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary
item.................................... $(10,771,000) $ (10,771,000) $(23,032,000) $(23,032,000)
Extraordinary loss........................ 0 0 (11,684,000) (11,684,000)
------------ ------------- ------------ ------------
Net income (loss)......................... $(10,771,000) $ (10,771,000) $(34,716,000) $(34,716,000)
Weighted Average Shares:
Common shares outstanding............... 1,055,660 1,055,660 1,075,758 1,075,758
Exercise of stock options(1)............ 47,921 84,890
Exercise of warrants(2)................. 100,000 100,000
------------ ------------- ------------ ------------
Common and equivalent shares
outstanding........................... 1,055,660 1,203,581 1,075,758 1,260,648
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Per Common and Equivalent Share:
Net income (loss) before extraordinary
item.................................. $ (10.20) $ (8.95) $ (21.41) $ (18.27)
Extraordinary loss...................... 0 0 (10.86) (9.27)
------------ ------------- ------------ ------------
Net income (loss)....................... $ (10.20) $ (8.95) $ (32.27) $ (27.54)
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
- -------------------------
(1) Amount represents the number of shares issued assuming exercise of stock
options, reduced by the number of shares which could have been purchased
with the proceeds from the exercise of such options.
(2) Amount represents the number of common shares issued assuming exercise of
warrants outstanding.
(3) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of the APB
Opinion No. 15 because of the antidilutive effect on net loss per share.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Progress Pattern Corporation (Delaware)
Lear Plastics Corporation (Delaware)
LS Acquisition Corporation No. 24 (Delaware)
-- Fair Haven Industries, Inc. (Michigan)
Lear Seating Canada Ltd. (Canada)
-- Lear International Ltd. (Barbados)
-- Lear Industries Holdings B.V. (Netherlands)
-- General Seating of Canada (35%) (Canada)
-- Probel S.A. (30.86%) (Brazil)
Lear Seating (U.K.) Ltd. (United Kingdom)
Intertrim S.A. de C.V. (99.5%) (Mexico)
Lear France E.V.R.I. (France)
-- Societe No Sag Francaise (56%) (France)
-- Souby S.A. (France)
General Seating of America (35%) (Delaware)
Pacific Trim Corporation Ltd. (20%) (Thailand)
Central de Industrias S.A. de C.V. (40%) (Mexico)
Favesa C.V. de S.A. (.01%) (Mexico)
LS Acquisition Corp. No. 14 (Delaware)
-- NS Beteilgungs GmbH (Germany)
-- Lear Seating Autositze GmbH (Austria)
-- Lear No Sag Drahtfedern GmbH (99.98%) (Germany)
-- Lear Seating GmbH (Germany)
-- Spitzer GmbH (62.5%) (Austria)
-- Lear Seating Austria Autositze GmbH & Co. KG (100%) (Austria)
-- No Sag Drahtfedern Spitzer & Co. KG (100%) (Austria)
Lear Seating Sweden, AB (Sweden)
Lear Seating Holdings Corp. No. 50 (Delaware)
-- Equipos Automotrices Totales S.A. de C.V. (Mexico)
-- Central de Industrias S.A. de C.V. (59.6%) (Mexico)
-- Favesa S.A. de C.V. (99.9%) (Mexico)
All Subsidiaries are wholly-owned unless otherwise indicated.
