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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
COMMISSION FILE NUMBER: 1-11311
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LEAR CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 13-3386776
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21557 TELEGRAPH ROAD, SOUTHFIELD, MI 48086-5008
(Address of principal executive offices) (zip code)
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(248) 447-1500
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $.01 per share New York Stock Exchange
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Securities registered pursuant to section 12(g) of the Act: None
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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 March 3, 1999, the aggregate market value of the registrant's Common
Stock, par value $.01 per share, held by non-affiliates of the registrant was
$2,273,945,785. The closing price of the Common Stock on March 3, 1999 as
reported on the New York Stock Exchange was $34 5/16 per share.
As of March 3, 1999, the number of shares outstanding of the registrant's
Common Stock was 66,708,873 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Notice of Annual Meeting of
Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be
held on May 13, 1999, as described in the Cross-Reference Sheet and a Table of
Contents included herewith, are incorporated by reference into Part III of this
Report.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
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PAGE NUMBER
OR REFERENCE(1)
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PART I
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
PART II
ITEM 5. Market for the Company's common stock 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. Consolidated financial statements and supplementary data.... 25
ITEM 9. Changes in and disagreements with accountants on accounting
and financial disclosure.................................. 54
PART III
ITEM 10. Directors and executive officers of the Company (2)......... 55
ITEM 11. Executive compensation (3).................................. 55
ITEM 12. Security ownership of certain beneficial owners and
management (4)............................................ 55
ITEM 13. Certain relationships and related transactions (5).......... 55
PART IV
ITEM 14. Exhibits, financial statement schedule and reports on Form
8-K....................................................... 56
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(1) Certain information is incorporated by reference, as indicated below, from
the registrant's Notice of Annual Meeting of Stockholders and Proxy
Statement for its Annual Meeting of Stockholders to be held on May 13, 1999
(the "Proxy Statement").
(2) Proxy Statement sections entitled "Election of Directors" and "Management."
(3) Proxy Statement section entitled "Executive Compensation."
(4) Proxy Statement section entitled "Management -- Security Ownership of
Certain Beneficial Owners and Management."
(5) Proxy Statement section entitled "Certain Transactions."
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PART I
ITEM 1 -- BUSINESS
As used in this Report, unless the context otherwise requires, the
"Company" or "Lear" refers to Lear Corporation and its consolidated
subsidiaries. A significant portion of the Company's operations are conducted
through wholly-owned subsidiaries of Lear Corporation.
BUSINESS OF THE COMPANY
GENERAL
Lear is the largest supplier of automotive interior systems in the
estimated $50 billion global automotive interior market and one of the largest
independent automotive suppliers in the world. We have experienced substantial
growth in market presence and profitability over the last five years as a result
of both internal growth and acquisitions. Our sales have grown from
approximately $2.0 billion for the year ended December 31, 1993 to approximately
$9.1 billion for the year ended December 31, 1998, a compound annual growth rate
of 35%. Excluding the $133 million restructuring and other charges recorded
during 1998, operating income has grown from $80 million for the year ended
December 31, 1993 to $475 million for the year ended December 31, 1998, a
compound annual growth rate of 43%. Our present customers include 23 Original
Equipment Manufacturers ("OEMs"), the most significant of which are Ford,
General Motors, DaimlerChrysler, Fiat, Volvo, Saab, Volkswagen and BMW. As of
December 31, 1998, we employed over 60,000 people in 28 countries and operated
206 manufacturing, advanced technology, product engineering and administration
facilities. We are the successor to a manufacturer of automotive steel
components founded in 1917 that served as a supplier to General Motors and Ford
from its inception.
Lear is a leading global supplier of automotive interiors with in-house
capabilities in all five principal automotive interior segments: seat systems;
flooring and acoustic systems; door panels; headliners; and instrument panels.
We are able to offer our customers design, engineering and project management
support for the entire automotive interior. We believe that the ability to offer
total interiors provides us with a competitive advantage as OEMs continue to
reduce their supplier base and demand improved quality and enhanced technology.
In addition, our broad array of products and process offerings enables us to
provide each customer with products tailored to its particular needs.
We are focused on delivering high quality automotive interior systems and
components to our customers on a global basis. Due to the opportunity for
significant cost savings and improved product quality and consistency, OEMs have
increasingly required their suppliers to manufacture automotive interior systems
and components in multiple geographic markets. In recent years, we have
aggressively expanded our operations in Western Europe and emerging markets in
Eastern Europe, South America, South Africa and the Asia/Pacific Rim region,
giving us the capability to provide our products on a global basis to OEM
customers. In 1998, we began shipping seat systems in Russia, interior trim
components in Belgium and seat covers from Portugal. In 1997, we began supplying
seat systems in India and seat systems and interior trim components in the
Chinese market. Since late 1996, we have also established joint ventures in
Thailand, Brazil and Argentina and have opened facilities in Argentina, Brazil,
South Africa, India, Indonesia, Australia and Venezuela. As a result of our
efforts to expand worldwide operations, our sales outside the United States and
Canada have grown from $0.6 billion, or 30.4% of our net sales, for the year
ended December 31, 1993 to $3.7 billion, or 40.7% of our net sales, for the year
ended December 31, 1998.
In 1998, Lear was the leading independent supplier to the estimated $50
billion global automotive interior market, with a 17% market share. We hold a
leading 47% share of the estimated $8.4 billion North American seat systems
market and a 38% share of the estimated $1.5 billion North American flooring and
acoustic systems market. In 1998, we were also a leading independent supplier to
the estimated $7.9 billion Western European seat systems market, with a 27%
share. The door panel, headliner and instrument panel segments of the automotive
interior market contain no dominant independent supplier and are in the early
stages of the outsourcing and/or consolidation process. We believe that the same
competitive pressures that contributed to
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the rapid expansion of our seat systems business in North America since 1983
will continue to encourage OEMs in the North American and European markets to
outsource more of their door panel, headliner and instrument panel requirements.
ACQUISITIONS
To supplement our internal growth and implement our business strategy, we
have made several strategic acquisitions since 1990. The following is a summary
of recent major acquisitions:
Delphi Automotive Systems' Seating Business Acquisition
In September 1998, we purchased the seating business of Delphi Automotive
Systems, a division of General Motors Corporation ("Delphi Seating"). Delphi
Seating was a leading supplier of seat systems to General Motors, with sixteen
facilities located throughout ten countries. This acquisition strengthened our
relationship with General Motors and expanded our product lines, technological
capabilities and market share. The aggregate purchase price for the Delphi
Seating acquisition was approximately $246.6 million. Funds for the Delphi
Seating acquisition were provided by borrowings under our multi-currency
revolving credit facility (the "Credit Agreement").
Chapman Acquisition
In May 1998, we acquired the A.W. Chapman Ltd. and A.W. Chapman Belgium NV
subsidiaries ("Chapman") of the Rodd Group Limited. Chapman produced seat
tracks, mechanisms and seat height adjusters at plants in Bicester and
Shepperton in the United Kingdom and in Houthalen, Belgium. The Chapman
companies have been integrated into our Structural Systems Division and
complement our existing seat component operations.
Pianfei and Strapazzini Acquisitions
In May 1998, we acquired Gruppo Pianfei S.r.L ("Pianfei"). Pianfei produced
door panels, headliners and plastic interior components at six facilities
located throughout Italy. Also in May 1998, we acquired Strapazzini Resine
S.r.L. ("Strapazzini"). Strapazzini produced instrument panels, door panels,
sunshades, consoles and pillar trim at two facilities located in Italy. These
two acquisitions increased our position in Europe as a leading supplier of
interior components, and continued our global growth. Major customers include
Fiat, BMW, DaimlerChrysler and Pininfarina.
ITT Automotive's Seat Sub-Systems Unit Acquisition
In August 1997, we acquired the Seat Sub-Systems Unit of ITT Automotive, a
division of ITT Industries ("ITT Seat Sub-Systems"). ITT Seat Sub-Systems was a
North American supplier of power seat adjusters and power recliners.
Keiper Seating Acquisition
In July 1997, we acquired certain equity and partnership interests in
Keiper Car Seating GmbH&Co and certain of its subsidiaries and affiliates
("Keiper") for DM 400 million (approximately $252.5 million). Keiper was a
leading supplier of automotive vehicle seat systems on a JIT basis for markets
in Germany, Hungary, Italy, Brazil and South Africa. The Keiper acquisition
strengthened our core seat system business, expanded our presence in Europe,
Brazil and South Africa and enhanced our relationships with Mercedes Benz, Audi,
Volkswagen and Porsche.
Dunlop Cox Acquisition
In June 1997, we acquired the stock of Dunlop Cox. Dunlop Cox, based in
Nottingham, England, provided us with the ability to design and manufacture
manual and electronically-powered automotive seat adjusters.
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Borealis Acquisition
In December 1996, we acquired all of the issued and outstanding shares of
common stock of Borealis Industrier, A.B. ("Borealis"), a leading Western
European supplier of instrument panels, door panels and other automotive
components. The Borealis acquisition provided us with the technology and
facilities to manufacture instrument panels, giving us the ability to produce
complete interior systems. Borealis also produced door panels, climate systems,
exterior trim and various components for the Western European automotive, light
truck and heavy truck industries. In addition, the Borealis acquisition
increased our presence in Western Europe and strengthened our relationships with
Volvo, Saab and Scania. The aggregate purchase price for the Borealis
acquisition was approximately $91.1 million.
Masland Acquisition
In July 1996, we completed the acquisition of all of the issued and
outstanding shares of common stock of Masland Corporation ("Masland") for an
aggregate purchase price of approximately $473.8 million. The Masland
acquisition gave us the manufacturing capabilities to produce flooring and
acoustic systems. In 1998, primarily as a result of the Masland acquisition, we
held a 38% share of the estimated $1.5 billion North American flooring and
acoustic systems market. Also as a result of the Masland acquisition, we became
a major supplier of interior and luggage trim components and other acoustical
products which are designed to minimize noise, vibration and harshness for
passenger cars and light trucks.
AI Acquisition
In August 1995, we acquired all of the issued and outstanding shares of
common stock of Automotive Industries Holding, Inc. ("AI"), a leading designer
and manufacturer of high quality interior systems and blow molded plastic parts
for automobile and light truck manufacturers. Prior to the AI acquisition, we
had participated primarily in the seat systems segment of the interior market,
which comprises approximately 50% of the total worldwide interior market. By
providing us with substantial manufacturing capabilities to produce door panels
and headliners, the AI acquisition made us one of the largest independent Tier I
suppliers of automotive interior systems in the North American and Western
European light vehicle interior market. The aggregate purchase price for the AI
acquisition was approximately $881.3 million.
FSB Acquisition
In December 1994, we acquired the primary automotive seat systems supplier
to Fiat and certain related businesses (the "Fiat Seat Business"). We also
entered into a long-term supply agreement with Fiat to produce all outsourced
automotive seat systems for Fiat and affiliated companies worldwide. The
acquisition of the Fiat Seat Business not only established us as a market leader
in automotive seat systems in Europe, but, combined with our position in North
America, made us one of the largest automotive seat systems manufacturers in the
world. In addition, it gave us access to rapidly expanding markets in South
America and has resulted in the formation of new joint ventures which are
supplying automotive seat systems to Fiat and its affiliates in Brazil and
Argentina.
NAB Acquisition
In November 1993, we significantly strengthened our position in the North
American automotive seating market by purchasing the North American seat cover
and seat systems business (the "NAB") of Ford Motor Company. The NAB consisted
of an integrated United States and Mexican operation which produced seat covers
for approximately 80% of Ford's North American vehicle production (as well as
for several independent suppliers) and manufactured seat systems for certain
Ford models. Prior to the NAB acquisition, we outsourced a significant portion
of our seat cover requirements.
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PENDING ACQUISITION
UT Automotive
On March 16, 1999, we entered into a definitive purchase agreement to
acquire UT Automotive, Inc. ("UT Automotive"), a wholly-owned subsidiary of
United Technologies Corporation, for $2.3 billion. UT Automotive is a leading
supplier of electrical distribution, electronic, motor, and interior products
and systems to the global automotive industry. Headquartered in Dearborn,
Michigan, UT Automotive has annual sales of approximately $3 billion, 44,000
employees and 90 facilities located in 18 countries. Consummation of the
acquisition is contingent upon expiration or termination of any applicable
waiting periods under the federal Hart-Scott-Rodino Antitrust Improvements Act.
PRODUCTS
Our products have evolved from our many years of manufacturing experience
in the automotive seat frame market where we have been a supplier to General
Motors and Ford since 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 our emergence as a premier supplier of entire seat systems and
seat components. Through the acquisitions discussed above, we have expanded our
product offerings and can now manufacture and supply our customers with complete
interiors, including flooring and acoustic systems, door panels, headliners and
instrument panels. We also produce a variety of blow molded products and other
automotive components. We believe that as OEMs continue to seek ways to improve
vehicle quality while simultaneously reducing the costs of the various vehicle
components, they will increasingly look to suppliers, such as Lear, with the
capability to test, design, engineer and deliver products for a complete vehicle
interior. We also believe that OEMs will continue their move to modular
production by sourcing to key suppliers, such as Lear, the development and
manufacture of complete interior modules and systems.
The following is the approximate composition by product category of our net
sales in the year ended December 31, 1998: seat systems, $6.1 billion; flooring
and acoustic systems, $.6 billion; door panels, $.3 billion; headliners, $.1
billion; instrument panels $.1 billion; and other components, including tier II
sales, $1.9 billion.
- Seat Systems. The seat systems business consists of the manufacture,
assembly and supply of vehicle seating requirements. Seat systems typically
represent approximately 50% of the cost of the total automotive interior.
We produce seat systems for automobiles and light trucks that are fully
finished and ready to be installed in a vehicle. Seat systems are fully
assembled seats, designed to achieve maximum passenger comfort by adding a
wide range of manual and power features such as lumbar supports, cushion
and back bolsters and leg and thigh supports.
As a result of our product technology and product design strengths, we have
been a leader in incorporating convenience features and safety improvements into
our seat designs. In 1998, we adopted a new methodology for developing
automotive interiors, "People-Vehicle-Interface" or PVI Method(TM). PVI
Method(TM) is the innovation development discipline that we use to understand
what consumers really want inside their vehicles, while simultaneously
developing automotive interiors that meet both federal safety standards and
customer requirements. We have also developed methods to reduce our customer's
costs throughout the automotive interior. For example, in 1997, we showcased the
Revolution(TM) Seat Module. The Revolution(TM) Seat Module utilizes a unique
seat frame that can be fitted with a wide variety of our seat backs and cushions
to meet the needs of a range of different vehicles. The Revolution(TM) Seat
Module simplifies and standardizes seat system assembly, enhances interior room
and lowers total vehicle costs. Additionally, we are producing a ventilated seat
for Saab, which draws heat and moisture away from the seat with fans that are
embedded in the seat cushions. We have also increased production of our new
integrated restraint seat system that increases occupant comfort and
convenience. Licensed exclusively to Lear, this patented seating concept uses a
special ultra high-strength steel tower, a blow-molded seat back frame and a
split-frame design to improve occupant comfort and convenience. Other product
ideas include newly developed fabric seat heaters, a lightweight "ultra low mass
seat" and a Code-Alarm(TM) integrated seat, which includes a security device
that automatically moves the back of the driver seat against the steering wheel
to deter theft.
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Our position as a market leader in seat systems is largely attributable to
seating programs on new vehicle models launched in the past ten years. We are
currently working with customers in the development of a number of seat systems
products to be introduced by automotive manufacturers in the future.
- Flooring and Acoustic Systems. Flooring systems consist both of
carpet and vinyl products, molded to fit precisely the front and rear
passenger compartments of cars and trucks, and accessory mats. While carpet
floors are used predominately in passenger cars and trucks, vinyl floors,
because of their better wear and maintenance characteristics, are used
primarily in commercial and fleet vehicles. We are one of the largest
independent suppliers of vinyl automotive flooring systems in North America
and one of the few suppliers of both carpet and vinyl automotive flooring
systems. With the Masland acquisition, we acquired Maslite(TM), a material
that is 40% lighter than vinyl, which has replaced vinyl accessory mats on
selected applications.
The automotive flooring system is multi-purpose. Its performance is based
on the correct selection of materials to achieve an attractive, quiet and
durable interior compartment. Automotive carpet requirements are more stringent
than the requirements for carpet used in homes and offices. For example,
automotive carpet must provide higher resistance to fading and improved
resistance to wear despite being lighter in weight than carpet found in homes
and offices. Masland's significant experience has enabled us to meet these
specialized needs. Carpet flooring systems generally consist of tufted carpet to
which a specifically engineered thermoplastic backcoating has been added. This
backcoating, when heated, enables us to mold the carpet to fit precisely the
interior of the vehicle. Additional insulation materials are added to provide
noise, vibration and harshness resistance. Flooring systems are complex products
which are based on sophisticated designs and use specialized design materials to
achieve the desired visual, acoustic and heat management requirements in the
automotive interior.
Our primary acoustic product, after flooring systems, is the dash
insulator. The dash insulator attaches to the vehicle's sheet metal firewall,
separating the passenger compartment from the engine compartment, and is the
primary component for preventing engine noise and heat from entering the
passenger compartment. Our ability to produce both the dash insulator and the
flooring system enables us to accelerate the design process and supply an
integrated system. We believe that OEMs, recognizing the cost and quality
advantages of producing the dash insulator and the flooring system as an
integrated system, will increasingly seek suppliers to coordinate the design,
development and manufacture of the entire floor and acoustic system.
In 1998, we held a 38% share of the estimated $1.5 billion North American
flooring and acoustic systems market. In addition, we participate in the
European flooring systems market through a joint venture with Sommer-Allibert
S.A.
- Door Panels. Door panels consist of several component parts that are
attached to a base molded substrate by various methods. Specific components
include vinyl or cloth-covered appliques, armrests, radio speaker grilles,
map pocket compartments, carpet and sound-reducing insulation. Upon
assembly, each component must fit precisely and must match the color of the
base substrate. In 1997, we introduced the One-Step(TM) liftgate which
includes many features, including an innovative system which consolidates
all of the liftgate's internal mechanisms, including glass, window
regulators and latches and providing customers with a higher quality
product at a lower price. Assembly of the One-Step(TM) liftgate involves
combining an injection molded plastic trim panel with all major mechanical
components into a single system which can be shipped to OEMs fully
assembled, tested and ready to install. We believe that both the
One-Step(TM) door and One-Step(TM) liftgate, while not yet in production,
offers us significant opportunities to capture a major share of the
estimated $10 billion modular door market.
In 1998, among independent automotive interior suppliers, we held a leading
12% share of the estimated $1.9 billion North American door panel market. We
believe that this leadership position has been achieved by offering OEMs the
widest variety of manufacturing processes for door panel production. In Western
Europe, we held a small position in the door panel market. These markets contain
no dominant supplier and are just beginning to experience the outsourcing and
consolidation trends that have characterized the seat systems market since the
1980's. With our global scope, technological expertise and established customer
relationships, we believe that we are well-positioned to benefit from these
positive industry dynamics.
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- Instrument Panels. The instrument panel is a complex system of foil
coverings, foams, plastics and metals designed to house various components
and act as a safety device for the vehicle occupants. Specific components
of the instrument panel include the heating, venting and air conditioning
(HVA/C) module, air distribution ducts, air vents, cross car structure,
glove compartment assemblies, electrical components, wiring harness, radio
system and passenger airbag units. As the primary occupant focal point of
the vehicle interior, the instrument panel is designed to be aesthetically
pleasing while also serving as the structural carrier of various
components.
Safety issues surrounding air bag technologies are currently a significant
focus of the instrument panel segment. We believe that we will continue to
increase our presence in this area through our research and development efforts,
resulting in innovations such as the introduction of cost effective, integrated,
seamless airbag covers, which increase occupant safety. Future trends in the
instrument panel segment will continue to focus on safety with the introduction
of low-mounted airbags as knee restraint components.
Cost, weight and part minimization are also key elements in instrument
panel development for the next generation of vehicle systems. Our goals are to
meet future OEM requirements by increasing the integration level of instrument
panel components and by incorporating additional safety features on the primary
carrier. Currently, the majority of instrument panel components are assembled at
the assembly plant by the OEM. By utilizing our years of JIT assembly experience
of complex automotive interior systems, we believe that we have the ability to
capitalize on the OEMs' trend toward outsourcing of complete modular systems and
to increase our share of the worldwide instrument panel market.
- Headliners. In 1997, we created a joint venture with Donnelly
Corporation for the design, development, marketing and production of
overhead systems for the global automotive interior market. We design and
manufacture headliners, which consist of the headliner substrate, covering
material, visors, overhead consoles, grab handles, coat hooks, lighting,
wiring and insulators. As with door panels, upon assembly, each headliner
component must fit precisely and must match the color of the base
substrate. With our sophisticated design and engineering capabilities, we
believe we are able to supply headliners with enhanced quality and lower
costs than OEMs can achieve internally.
OEMs are increasingly requiring independent suppliers, such as Lear, to
produce integrated overhead systems. In 1998, we focused on ergonomics, safety
and premium sound in designing the TransG(TM) headliner system. The TransG(TM)
headliner system features displays and controls placed in convenient sight
lines, more protection for vehicle occupants provided by side and front air
curtains which deploy upon impact and superior sound from the OASys(TM) overhead
audio system. We have also introduced an advanced overhead system which
incorporates HVA/C ducting, an occupant position detection system, CD changer,
trim inflatable tubular structure side air bags and surround sound speakers into
a single integrated overhead system. We believe that as these and other products
move from the design stage to the production stage over the next several years,
we will have significant opportunities to increase our share of the headliner
market.
The headliner market is highly fragmented, with no dominant independent
supplier. As OEMs continue to seek ways to improve vehicle quality and
simultaneously reduce costs, we believe that headliners will increasingly be
outsourced to suppliers, such as Lear, providing significant growth
opportunities.
- Component Products. In addition to the interior systems and other
products described above, we are able to supply a variety of interior trim,
blow molded plastic parts and other automotive components.
We produce seat covers for integration into our own seat systems and for
delivery to external customers. Our major external customers for seat covers are
other independent seat systems suppliers as well as the OEMs. The expansion of
our seat cover business gives us better control over the 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.
We produce steel and aluminum seat frames for passenger cars and light
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 and government specified safety standards. Our seat
frames are either delivered to our
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own plants, where they become part of a complete seat system that is sold to the
OEM customer, or are delivered to other independent seating suppliers for use in
the manufacture of assembled seating systems.
We also produce a variety of interior trim products, such as pillars, cowl
panels, scuff plates, trunk liners, quarter panels and spare tire covers, as
well as blow molded plastic products, such as fluid reservoirs, vapor canisters
and duct systems. In contrast to interior trim products, blow molded products
require little assembly. However, the manufacturing process for such parts
demands considerable expertise in order to consistently produce high quality
products. Blow molded parts are produced by extruding a shaped parison or tube
of plastic material and then clamping a mold around the parison. High pressure
air is introduced into the tube causing the hot plastic to take the shape of the
surrounding mold. The part is removed from the mold after cooling and is
finished by trimming, drilling and other operations.
MANUFACTURING
All of our manufacturing facilities use just-in-time ("JIT") manufacturing
techniques. Most of our seating related products and many of our other interior
products are delivered to the OEMs on a JIT basis. The JIT concept, first
broadly utilized by Japanese automotive manufacturers, is the cornerstone of our
manufacturing and supply strategy. This strategy involves many of the principles
of the Japanese system but was adapted for compatibility with the greater volume
requirements and geographic distances of the North American market. We first
developed JIT operations in the early 1980's at our seat frame manufacturing
plants in Morristown, Tennessee and Kitchener, Ontario, Canada. These plants had
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, we have been able to consolidate plants, increase
capacity and significantly increase inventory turnover, quality and
productivity.
The JIT principles first developed at our seat frame plants were next
applied to our growing seat systems business and have now evolved into
sequential parts delivery principles. Our seating plants are typically no more
than 30 minutes or 20 miles from our customers' assembly plants and are able to
manufacture seats for delivery to the customers' facilities in as little as 90
minutes. Orders for our seats are received on a weekly basis, pursuant to
blanket purchase orders for annual requirements. These orders detail the
customers' needs for the following week. In addition, constant computer and
other communication connections are maintained between personnel at our plants
and personnel at the customers' plants to keep production current with the
customers' demand.
As we expand our product line to include total automotive interiors, we are
also expanding our JIT facility network. Our strategy is to leverage our JIT
seat system facilities by moving the final assembly and sequencing of other
interior components from our centrally located facilities to our JIT facilities.
A description of the manufacturing processes for our product segments is
set forth below.
- Seat Systems. Seat 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. The principal bonding technique involves our patented
SureBond(TM) and DryBond(TM) processes, in which fabric is affixed to the
underlying foam padding using adhesives. The SureBond(TM) and DryBond(TM)
processes have several major advantages when compared to traditional
methods, including design flexibility, increased quality and lower cost.
The SureBond(TM) and DryBond(TM) processes, unlike alternative bonding
processes, result in a more comfortable seat in which air can circulate
freely. The SureBond(TM) and DryBond(TM) processes, moreover, are
reversible, so that seat covers that are improperly installed can be
removed and repositioned properly with minimal materials cost. In addition,
the SureBond(TM) and DryBond(TM) processes are not capital intensive when
compared to competing bonding technologies. Approximately one-fourth of our
seats are manufactured using the SureBond(TM) and DryBond(TM) processes.
The seat assembly process begins with obtaining 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
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the plant to minimize production space but also requires precise forecasts of
the day's output. Seats are assembled in modules, then tested and packaged for
shipment. We operate a specially designed trailer fleet that accommodates the
off-loading of vehicle seats at the customers' assembly plants.
We obtain steel, aluminum and foam chemicals used in our seat systems from
several producers under various supply arrangements. These materials are readily
available. Leather, fabric and certain purchased components are generally
purchased from various suppliers under contractual arrangements usually lasting
no longer than one year. Some of the purchased components are obtained through
our own customers.
- Flooring and Acoustic Systems. We produce carpet at our plant in
Carlisle, Pennsylvania. Smaller "focused" facilities are dedicated to
specific groups of customers and are strategically located near their
production facilities. This proximity improves responsiveness to our
customers and speeds product delivery to customer assembly lines, which is
done on a JIT basis. Our manufacturing operations are complemented by our
research and development efforts, which have led to the development of a
number of proprietary products, such as our EcoPlus(TM) recycling process
and Maslite(TM), a lightweight proprietary material used in the production
of accessory mats and as a vinyl floor alternative.
- Door Panels/Headliners. We use numerous molding, bonding, trimming
and finishing manufacturing processes. The wide variety of manufacturing
processes helps to satisfy a broad range of customers' cost and
functionality specifications. Our ability and experience in producing
interior products for such a vast array of applications enhances our
ability to provide total interior solutions to OEMs globally. We are
beginning to employ many of the same JIT principles used at our seat
facilities.
The core technologies used in our interior trim systems include injection
molding, low-pressure injection molding, rotational molding and urethane
foaming, compression molding of Wood-Stock(TM) (a process that combines
polypropylene and wood flour), glass reinforced urethane and a proprietary
headliner process. One element of our strategy is to focus on more complex,
value-added integrated systems. We deliver these integrated systems at
attractive prices to the customer because certain services such as design and
engineering and sub-assembly are provided more cost efficiently by Lear. The
principal purchased components for interior trim systems are polyethylene and
polypropylene resins which are generally purchased under long-term agreements
and are available from multiple suppliers. We are continuing to develop
recycling methods in light of future environmental requirements and conditions
in order to maintain our competitive position in this segment.
The combined pressures of cost reduction and fuel economy enhancement have
caused automotive manufacturers to concentrate their efforts on developing and
employing lower cost, lighter materials. As a result, plastic content in cars
and light trucks has grown significantly. Increasingly, automotive content
requires large plastic injection molded assemblies for both the interior and
exterior. Plastics are now commonly used in such nonstructural components as
interior and exterior trim, door panels, instrument panels, grilles, bumpers,
duct systems, taillights and fluid reservoirs. For interior trim applications,
substitution of plastics for other materials is largely complete, and little
growth through substitution is expected. However, further advances in injection
molding technologies are improving the performance and appearance of parts
molded in reinforced thermoplastics.
- Instrument Panels. Our in-house process capabilities for producing
instrument panels include injection molding, vacuum forming, and other
various finishing methods. Our foil and foam capabilities, whereby molded
vinyl is bonded to a plastic substrate using an expandable foam, are used
throughout the world. We are continuing to develop recycling methods in
light of future environmental requirements and conditions in order to
reduce costs and increase our presence in this segment. The wide variety of
available manufacturing processes helps us continue to meet customer cost
and functionality specifications.
CUSTOMERS
Lear serves the worldwide automobile and light truck market, which produces
approximately 50 million vehicles annually. Our OEM customers currently include
Ford, General Motors, DaimlerChrysler, Fiat,
8
<PAGE> 11
Volvo, Saab, Volkswagen, BMW, Honda USA, Mitsubishi, Mazda, Toyota, Subaru,
Nissan, Isuzu, Peugeot, Porsche, Renault, Gaz, Mahindra & Mahindra, Suzuki,
Hyundai and Daewoo. During the year ended December 31, 1998, General Motors and
Ford, the two largest automobile and light truck manufacturers in the world,
accounted for approximately 26% and 23%, respectively, of our net sales. For
additional information regarding customers, foreign and domestic sales and
operations, see Note 14, "Segment Reporting," to our 1998 consolidated financial
statements included in this Report.
In the course of retooling and reconfiguring plants for new models and
model changeovers, certain OEMs have eliminated the production of seat systems
and other interior systems and components from certain of their facilities,
thereby committing themselves to purchasing these items from outside suppliers.
During this period, we became a supplier of these products for a significant
number of new models, many on a JIT basis.
The purchase of seat systems and other interior systems and components from
full-service independent suppliers like Lear has allowed our customers to
realize a competitive advantage as a result of (i) a reduction in net overhead
expenses and capital investment due to the availability of significant floor
space for the expansion of other OEM manufacturing operations (ii) the
elimination of working capital and personnel costs associated with the
production of interior systems by the OEM, (iii) a reduction in labor costs
since suppliers like Lear generally enjoy lower direct labor and benefit rates
and (iv) a reduction in transaction costs by utilizing a limited number of
sophisticated system suppliers instead of numerous individual component
suppliers. In addition, we offer improved quality and on-going cost reductions
to our customers through continuous, Company-initiated design improvements. We
believe that such cost reductions will lead OEMs to outsource an increasing
portion of their automotive interior requirements in the future and provide us
with significant growth opportunities.
Our sales of value-added assemblies and component systems have increased as
a result of the decision by many OEMs to reduce their internal engineering and
design resources. In recent years, we have significantly increased our capacity
to provide complete engineering and design services to support our product line.
Because assembled parts such as door panels, flooring and acoustic systems,
armrests and consoles need to be designed at an early stage in the development
of new vehicles or model revisions, we are increasingly given the opportunity to
participate earlier in the product planning process. This has resulted in
opportunities to add value by furnishing engineering and design services and
managing the sub-assembly process for the manufacturer as well as providing the
broader range of parts that are required for assembly.
We maintain "Customer Focused Divisions" for each of our major customers.
This organizational structure consists of several dedicated groups, each of
which is primarily focused on serving the needs of a single customer and
supporting that customer's programs and product development. Each division is
capable of providing whatever interior component the customer needs, thereby
providing that customer's purchasing agents, engineers and designers with a
single point of contact for their total automotive interior needs.
We receive blanket purchase orders from our customers that normally cover
annual requirements for products 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 products. Although such purchase orders may be
terminated at any time, we do not believe that any of our customers have
terminated a material purchase order prior to the end of the life of a model.
Our primary risk is that an OEM will produce fewer units of a model than
anticipated. In order to reduce our reliance on any one model, we produce
interior systems and components for a broad cross-section of both new and more
established models. Our sales for the year ended December 31, 1998 were
comprised of the following vehicle categories: 39% light truck; 24% mid-size;
19% luxury/sport; 13% compact; and 5% full-size.
Because of the economic benefits inherent in outsourcing to suppliers such
as Lear and the costs associated with reversing a decision to purchase seat
systems and other interior systems and components from an outside supplier, we
believe that automotive manufacturers' commitment to purchasing seat systems and
other interior systems and components from outside suppliers, particularly on a
JIT basis, will increase. However, under the contracts currently in effect in
the United States and Canada between each of General Motors, Ford and
DaimlerChrysler with the United Auto Workers ("UAW") and the Canadian Auto
9
<PAGE> 12
Workers ("CAW"), in order for any of such manufacturers to obtain from external
sources components that it currently produces, it must first notify the UAW or
the CAW of such intention. If the UAW or the CAW objects to the proposed
outsourcing, some agreement will have to be reached between the UAW or the CAW
and the OEM. Factors that will normally be taken into account by the UAW, the
CAW and the OEM include whether the proposed new supplier is technologically
more advanced than the OEM, whether the new supplier is unionized, whether cost
benefits exist 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, we operate our Rochester Hills,
Michigan and Wentzville, Missouri facilities with General Motors' employees and
reimburse General Motors for the wages of such employees on the basis of our
employee wage structure. We enter into these arrangements to enhance our
relationship with customers. As of January 1, 1998, the General Motors'
employees working at our Lordstown, Ohio facility under this agreement became
Lear employees.
General Motors and DaimlerChrysler have experienced work stoppages over the
past few years, primarily related to the outsourcing of automotive components.
These work stoppages halted the production of certain vehicle models and
adversely affected our operations.
Our contracts with 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 productivity price reduction programs with
our suppliers have generally offset changes in selling prices. Our cost
structure is comprised of a high percentage of variable costs. We believe that
this structure provides us with additional flexibility during economic cycles.
MARKETING AND SALES
We market our products by maintaining strong customer relationships. We
have developed these relationships over our 80-year history through extensive
technical and product development capabilities, reliable delivery of high
quality products, strong customer service, innovative new products and a
competitive cost structure. Close personal communications with automotive
manufacturers is an integral part of our marketing strategy. Recognizing this,
we are organized into independent divisions, each with the ability to focus on
its customers and programs and each having complete responsibility for the
product, from design to installation. By moving the decision-making process
closer to the customer and by instilling a philosophy of "cooperative autonomy,"
we are more responsive to, and have strengthened our relationships with, our
customers. OEMs have generally continued to reduce the number of their suppliers
as part of a strategy to purchase interior systems rather than individual
components. This process favors suppliers like Lear with established ties to
OEMs and the demonstrated ability to adapt to the new competitive environment in
the automotive industry.
Our sales are originated almost entirely by our sales staff. This marketing
effort is augmented by design and manufacturing engineers who work closely with
OEMs from the preliminary design to the manufacture and supply of interior
systems or components. Manufacturers have increasingly looked to suppliers like
Lear to assume responsibility for introducing product innovation, shortening the
development cycle of new models, decreasing tooling investment and labor costs,
reducing the number of costly design changes in the early phases of production
and improving interior comfort and functionality. Once we are engaged to develop
the design for the interior system or component of a specific vehicle model, we
are also generally engaged to supply these items when the vehicle goes into
production. We have devoted substantial resources toward improving our
engineering and technical capabilities and developing advanced technology
centers in the United States and in Europe. We have also developed full-scope
engineering capabilities, including all aspects of safety and functional
testing, acoustics testing and comfort assessment. In addition, we have
established numerous product engineering sites in close proximity to our OEM
customers to enhance customer relationships and design activity. Finally, we
have implemented a program of dedicated teams consisting of interior trim and
seat system personnel who are able to meet all of a customer's interior needs.
These teams provide a single interface for our customers and help avoid
duplication of sales and engineering efforts.
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<PAGE> 13
TECHNOLOGY
We conduct advanced technology development at our Technology Division
located in Southfield, Michigan and at twenty-one worldwide product engineering
centers. At these centers, we engineer our products to determine compliance with
applicable safety standards, the products' quality and durability, response to
environmental conditions and conformity to customer requirements. We also have
state-of-the-art acoustics testing, instrumentation and data analysis
capabilities.
We believe that in order to effectively develop total interior systems, it
is necessary to integrate the research, design, development, styling and
validation of all interior subsystems concurrently. Accordingly, we began
expanding our advanced technology center at our world headquarters in
Southfield, Michigan. When completed in 1999, our advanced technology center
will give Lear the distinction of being the only global automotive supplier with
engineering, research, development and validation capabilities for all five
interior systems at one location.
We have dedicated, and will continue to dedicate, resources to research and
development to maintain our position as a leading technology developer in the
automotive interior industry. Research and development costs incurred in
connection with the development of new products and manufacturing methods, to
the extent not recoverable from the customer, are charged to selling, general
and administrative expenses as incurred. Such costs amounted to approximately
$116.6 million, $90.4 million and $70.0 million for the years ended December 31,
1998, 1997 and 1996, respectively.
We have developed a number of designs for innovative interior features
which we have patented, including advances in interior modularity (for example,
the TransG(TM) headliner system, OASys(TM) overhead audio system, Revolution
Seating(TM) system and One-Step Door(TM) module). In addition, we incorporate
many convenience, comfort and safety features into our interior designs,
including advanced storage systems, overhead integrated modules, seat integrated
restraint systems (belt systems integrated into seats), side impact air bags and
child restraint seats. We continually invest in our computer-aided-engineering
and computer-aided-design/computer-aided-manufacturing systems. Recent
enhancements to these systems include customer telecommunications and direct
exchange of engineering data with other worldwide divisions.
We use our patented SureBond(TM) process to bond seat cover materials to
the foam pads on certain seats. The SureBond(TM) process is used to bond a
pre-shaped cover to the underlying foam to minimize the need for sewing and to
achieve new seating shapes, such as concave shapes, which were previously
difficult to manufacture. We have recently improved this process through the
development of our patented DryBond(TM) process, which allows for the bonding of
vinyl and leather to seat cushions and seat backs. This process further
increases manufacturing efficiency, provides longer work cycles for automotive
seats and yields more design flexibility for automotive interior components. In
1998, we introduced a new bonding process, Electrobond(TM), to further reduce
the cost associated with bonding trim cover materials to their foam counterpart.
We have virtually all technologies and manufacturing processes available
for interior trim and under-the-hood applications. These processes include,
among other things, high and low pressure injection molding, vacuum forming,
blow molding, soft foam molding, heat staking, water jet cutting, vibration
welding, ultrasonic welding and robotic painting. In 1998, two new processes
were developed, hydra-molding and twin-shell molding. Both of these new
processes achieve the goals of reduced capital and cycle time. This wide range
of capabilities allows us to assist our customers in selecting the technologies
that are the most cost effective for each application. Combined with our design
and engineering capabilities and our state-of-the-art technology and engineering
centers, we provide comprehensive support to our OEM customers from product
development to production.
We own one of the few proprietary-design dynamometers capable of precision
acoustics testing of front, rear and four-wheel drive vehicles. Together with
our custom-designed reverberation room, computer-controlled data acquisition and
analysis capabilities provide precisely controlled laboratory testing conditions
for sophisticated interior and exterior noise, vibration and harshness (NVH)
testing of parts, materials and systems, including powertrain, exhaust and
suspension components.
11
<PAGE> 14
We hold a number of mechanical and design patents covering our products and
have numerous applications for patents currently pending. In addition, we hold
several trademarks relating to various manufacturing processes. We also license
our technology to a number of seating manufacturers. We continually strive to
identify and implement new technologies for use in the design and development of
our products.
JOINT VENTURES AND MINORITY INTERESTS
We currently have 33 joint ventures, 19 of which are included in our
consolidated financial statements and 14 of which are included in our
consolidated financial statements using the equity method of accounting. These
joint ventures are located in 16 countries. We pursue attractive joint ventures
in order to assist our entry into new markets, facilitate the exchange of
technical information, expand our product offerings and broaden our customer
base. In 1997, we formed a joint venture with Donnelly Corporation for the
design, development, marketing and production of overhead systems for the global
automotive market. Also in 1997, with the Keiper acquisition, we acquired
interests in joint ventures in Italy to supply seat systems to Alpha Romeo,
Fiat, Lancia and Ferrari and in South Africa to supply seat systems to Mercedes,
Honda and Mitsubishi. In 1996, we expanded our presence in the Asia/Pacific Rim
region with a joint venture with NHK Spring Co., Ltd. to supply seat systems in
Thailand to a joint venture between Ford and Mazda. In addition, we entered into
a joint venture with Jiangling Motors Co., Ltd. to supply seat systems and
interior trim components in China for Isuzu trucks and Ford transit vans. In
addition, several of our recent acquisitions have provided us with strategic
minority interests.
COMPETITION
We are the leading supplier of automotive interior products with
manufacturing capabilities in all five automotive interior segments: seat
systems; flooring and acoustic systems; door panels; headliners; and instrument
panels. Within each segment, we compete with a variety of independent suppliers
and OEM in-house operations. Set forth below is a summary of our primary
independent competitors.
- Seat Systems. Lear is one of two primary independent suppliers in
the outsourced North American seat systems market. Our main independent
competitor in North America is Johnson Controls, Inc. Our major independent
competitors in Western Europe are Johnson Controls, Inc. and Faurecia
(headquartered in France).
- Flooring and Acoustic Systems. Lear is one of the three primary
independent suppliers in the outsourced North American flooring and
acoustic systems market. Our primary independent competitors are Collins &
Aikman Corp. and the Magee Carpet Company. Our major independent
competitors in Western Europe include Sommer Allibert Industrie, Emfisint
Automotive SA, Radici, Treves ETS and Rieter Automotive.
- Other Interior Systems and Components. The market for outsourced
headliners, door panels and instrument panels is highly fragmented. Our
major independent competitors in these segments include Johnson Controls,
Inc., Magna International, Inc., Davidson Interior Trim (a division of
Textron, Inc.), UT Automotive (which Lear has entered into an agreement to
acquire) and a large number of smaller operations.
SEASONALITY
Our principal operations are directly related to the automotive industry.
Consequently, we may experience seasonal fluctuation to the extent automotive
vehicle production slows, such as in the summer months when plants close for
model year changeovers and vacation. Historically, our sales and operating
profit have been the strongest in the second and fourth calendar quarters. See
Note 16, "Quarterly Financial Data," of the notes to our consolidated financial
statements included in this Report.
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<PAGE> 15
EMPLOYEES
As of December 31, 1998, Lear employed approximately 24,000 persons in the
United States and Canada, 20,200 in Mexico, 17,500 in Europe and 3,600 in other
regions of the world. Of these, approximately 9,500 were salaried employees and
the balance were paid on an hourly basis. Approximately 21,000 of our employees
are members of unions. We have collective bargaining agreements with several
unions including: the UAW; the CAW; the Textile Workers of Canada; the
International Brotherhood of Teamsters, Chauffeurs, Warehousemen, and Helpers of
America; the International Association of Machinists and Aerospace Workers; and
the AFL-CIO. Each of our unionized facilities in the United States and Canada
has a separate contract with the union which represents the workers employed
there, with each such contract having an expiration date independent of our
other labor contracts. The majority of our European and Mexican employees are
members of industrial trade union organizations and confederations within their
respective countries. The majority of these organizations and confederations
operate under national contracts which are not specific to any one employer. We
have experienced some labor disputes at our plants, none of which has
significantly disrupted production or had a materially adverse effect on our
operations. We have been able to resolve all such labor disputes and believe our
relations with our employees are generally good.
In addition, as part of our long-term agreements with General Motors, we
currently operate two facilities with an aggregate of approximately 600 General
Motors' employees and reimburse General Motors for the wages of such employees
on the basis of our wage structure.
13
<PAGE> 16
ITEM 2 -- PROPERTIES
As of December 31, 1998, our operations were conducted through 206
facilities, some of which are used for multiple purposes, including 166
manufacturing facilities, 22 product engineering centers and 6 advanced
technology centers, in 28 countries. Our world headquarters is located in
Southfield, Michigan. The facilities range in size from 1,500 square feet to
1,000,000 square feet.
No facility is materially underutilized. Of the 206 existing facilities
(which include facilities owned by our less than majority-owned affiliates), 105
are owned and 101 are leased with expiration dates ranging from 1999 through
2007. We believe substantially all of our 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 -- Liquidity and Financial
Condition -- Cash Flow."
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<PAGE> 17
The following table presents the locations of the our facilities:
ARGENTINA
Buenos Aires
Cordoba
AUSTRALIA
Adelaide
Brooklyn
AUSTRIA
Koflach
BELGIUM
Houthalen
BRAZIL
Betim
Cacapava
Campo Largo
Diadema
Juiz de For a
CANADA
Ajax
Kitchener
Maple
Mississauga
Oakville
St. Thomas
Whitby
Woodstock
CHINA
Nanchang
Shanghai
Wanchai
CZECH REPUBLIC
Prestice
ENGLAND
Alfredon
Bicester
Colne
Coventry
Dunton
Middlemarch
Nottingham
Nuneaton
Shepperton
Tamworth
Tipton
FRANCE
Meaux
GERMANY
Besigheim
Boblingen
Bremen-Mahndorf
Ebersberg
Eisenach
Gustavsburg
Ingolstadt
Munich
Plattling
Quakenbruck
Rietberg
Sulzbach
Wackersdorf
Wolfsburg
HUNGARY
Gyor
Mor
INDIA
Chenai
Dehli
Gujarat
Mumbai
Nashik
IRELAND
Naas
ITALY
Caivano
Cassino
Dronero
Grugliasco
Ipa
Melfi
Mondovi
Orbassano
Pesaro
Potenza
Pozzilli
Pozzo D'Adda
Protos
Termini Imerese
MEXICO
Cuautitlan
Fuentes
Hermosillo
Ipasa
Juarez
La Cuesta
Naucalpan
Puebla
Ramos Arizpe
Rio Bravo
Saltillo
San Lorenzo
Tlahuac
Toluca
POLAND
Myslowice
Tychy
PORTUGAL
Setubal
RUSSIA
Gaz
SCOTLAND
Washington
SINGAPORE
Singapore
SOUTH AFRICA
Brits
East London
Port Elizabeth
SPAIN
Epila
Logrono
Pamplona
SWEDEN
Arendal
Aviken
Bengtsfors
Dals Langed
Fargelanda
Gnosjo
Goteborg
Ljungby
Tanumshede
Tidaholm
Trollhattan
THAILAND
Bangkok
Khorat
Rayong
TURKEY
Bursa
UNITED STATES
Allen Park, MI
Arlington, TX
Atlanta, GA
Auburn Hills, MI
Bowling Green, OH
Bridgeton, MO
Carlisle, PA
Covington, VA
Dearborn, MI
Detroit, MI
Duncan, SC
El Paso, TX
Elsie, MI
Fenton, MI
Frankfort, IN
Fremont, OH
Grand Rapids, MI
Greencastle, IN
Greensboro, NC
Hammond, IN
Holland, MI
Huron, OH
Janesville, WI
Kansas City, MO
Lansing, MI
Lebanon, OH
Lebanon, VA
Lewistown, PA
Livonia, MI
Lordstown, OH
Louisville, KY
Madisonville, KY
Manteca, CA
Marlette, MI
Marshall, MI
Melvindale, MI
Mendon, MI
Midland, TX
Morristown, TN
New Castle, DE
Newark, DE
Plymouth, MI
Pontiac, MI
Rochester Hills, MI
Romulus, MI
Roscommon, MI
Sheboygan, WI
Sidney, OH
Southfield, MI
Strasburg, VA
Walker, MI
Warren, MI
Wentzville, MO
Winchester, VA
VENEZUELA
Valencia
15
<PAGE> 18
ITEM 3 -- LEGAL PROCEEDINGS
We are involved in certain legal actions and claims arising in the ordinary
course of business. We do not believe that any of the litigation in which Lear
is currently engaged, either individually or in the aggregate, will have a
material effect on our consolidated financial position or future results of
operations.
We are subject to various laws, regulations and ordinances which govern
activities, such as discharges into 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. We believe that Lear is in substantial compliance with such
requirements. We do not believe that we will incur compliance costs pursuant to
such requirements that would have a material adverse effect on our consolidated
financial position or future results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Environmental
Matters."
We have 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 one Superfund site where liability has not been substantially
resolved. We believe that Lear is, or may be, responsible for less than one
percent, if any, of the total costs at the Superfund site. We also have been
identified as a potentially responsible party at three additional sites where
liability has not been substantially resolved. Our expected liability, if any,
at these additional sites is not material. We have set aside reserves which we
believe are adequate to cover any such liabilities. We believe that such matters
will not result in liabilities that will have a material adverse effect on our
consolidated financial position or future results of operations.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
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<PAGE> 19
PART II
ITEM 5 -- MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Lear's Common Stock is listed on the New York Stock Exchange under the
symbol "LEA." The Transfer Agent and Registrar for Lear's Common Stock is The
Bank of New York, located in New York, New York. On March 3, 1999, there were
1,006 holders of record of Lear's Common Stock.
To date, we have never paid a cash dividend on our Common Stock. Any
payment of dividends in the future is dependent upon the financial condition,
capital requirements, earnings of the Company and other factors. Also, we are
subject to restrictions on the payment of dividends contained in the Credit
Agreement, the indentures governing Lear's Subordinated Notes and in certain
other contractual obligations. See Note 9, "Long-Term Debt," of the notes to the
consolidated financial statements included in this Report.
The following table sets forth the high and low sales prices per share of
Common Stock, as reported by the New York Stock Exchange, for the periods
indicated:
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
----------------
YEAR ENDED DECEMBER 31, 1998: HIGH LOW
----------------------------- ---- ---
<S> <C> <C>
4th Quarter................................................. $43.75 $29.81
3rd Quarter................................................. $57.25 $34.50
2nd Quarter................................................. $57.75 $48.25
1st Quarter................................................. $57.50 $46.25
</TABLE>
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
----------------
YEAR ENDED DECEMBER 31, 1997: HIGH LOW
----------------------------- ---- ---
<S> <C> <C>
4th Quarter................................................. $51.69 $44.94
3rd Quarter................................................. $50.13 $42.00
2nd Quarter................................................. $43.13 $33.25
1st Quarter................................................. $39.88 $33.50
</TABLE>
17
<PAGE> 20
ITEM 6 -- SELECTED FINANCIAL DATA
The following income statement and balance sheet data were derived from our
consolidated financial statements. Our consolidated financial statements for the
years ended December 31, 1998, 1997, 1996, 1995, and 1994, have been audited by
Arthur Andersen LLP. The selected financial data below should be read in
conjunction with our consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Report.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998(2) 1997 1996 1995 1994
------- ---- ---- ---- ----
(DOLLARS IN MILLIONS(1))
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................................. $9,059.4 $7,342.9 $6,249.1 $4,714.4 $3,147.5
Gross profit.............................................. 861.4 809.4 619.7 403.1 263.6
Selling, general and administrative expenses.............. 337.0 286.9 210.3 139.0 82.6
Restructuring and other charges........................... 133.0 -- -- -- --
Amortization of goodwill.................................. 49.2 41.4 33.6 19.3 11.4
---------- ---------- ---------- ---------- ----------
Operating income.......................................... 342.2 481.1 375.8 244.8 169.6
Interest expense, net..................................... 110.5 101.0 102.8 75.5 46.7
Other expense, net(3)..................................... 22.3 28.8 19.6 12.0 8.1
---------- ---------- ---------- ---------- ----------
Income before income taxes and extraordinary items........ 209.4 351.3 253.4 157.3 114.8
Income taxes.............................................. 93.9 143.1 101.5 63.1 55.0
---------- ---------- ---------- ---------- ----------
Income before extraordinary items......................... 115.5 208.2 151.9 94.2 59.8
Extraordinary items(4).................................... -- 1.0 -- 2.6 --
---------- ---------- ---------- ---------- ----------
Net income................................................ $ 115.5 $ 207.2 $ 151.9 $ 91.6 $ 59.8
========== ========== ========== ========== ==========
Diluted income per share before extraordinary items....... $1.70 $3.05 $2.38 $1.79 $1.26
Diluted net income per share.............................. $1.70 $3.04 $2.38 $1.74 $1.26
Actual shares outstanding................................. 66,684,084 66,861,958 65,575,899 56,243,311 46,078,048
Weighted average shares outstanding(5).................... 68,023,375 68,248,083 63,761,634 52,488,938 47,438,477
BALANCE SHEET DATA:
Current assets............................................ $2,198.0 $1,614.9 $1,347.4 $1,207.2 $ 818.3
Total assets.............................................. 5,677.3 4,459.1 3,816.8 3,061.3 1,715.1
Current Liabilities....................................... 2,497.5 1,854.0 1,499.3 1,276.0 981.2
Long-term debt............................................ 1,463.4 1,063.1 1,054.8 1.038.0 418.7
Stockholders' Equity...................................... 1,300.0 1,207.0 1,018.7 580.0 213.6
Total capitalization...................................... 2,832.6 2,304.2 2,066.1 1,610.7 686.3
OTHER DATA:
EBITDA(6)................................................. $ 561.9 $ 665.5 $ 518.1 $ 336.8 $ 225.7
Capital expenditures...................................... $ 351.4 $ 187.9 $ 153.8 $ 110.7 $ 103.1
Net debt to total capitalization.......................... 54.1% 47.6% 50.7% 64.0% 68.9%
Employees at year end..................................... 65,316 51,025 43,902 35,557 24,749
Number of facilities(7)................................... 206 179 148 107 79
North American content per vehicle(8)..................... $ 369 $ 320 $ 292 $ 227 $ 169
Western Europe content per vehicle(9)..................... $ 176 $ 123 $ 109 $ 92 $ 44
</TABLE>
- -------------------------
(1) Except per share data, weighted average shares outstanding, number of
facilities, North American content per vehicle, North American vehicle
production, Western Europe content per vehicle and Western Europe vehicle
production.
(2) Results include the effect of the $133 million restructuring and other
charges ($92.5 million or $1.36 per diluted share, after tax).
(3) Consists of foreign currency exchange gain or loss, minority interests in
consolidated subsidiaries, equity in net income of affiliates, state and
local taxes and other expense.
(4) The extraordinary items resulted from the prepayment of debt.
(5) Weighted average shares outstanding is calculated on a diluted basis.
(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 flows 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) "Western Europe content per vehicle" is the Company's net sales in Western
Europe divided by total Western Europe vehicle production.
18
<PAGE> 21
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Our sales have grown rapidly from $2.0 billion in the year ended December
31, 1993 to $9.1 billion in the year ended December 31, 1998. One major source
of this growth has been the implementation of a strategic acquisition plan to
capitalize on the outsourcing and supplier consolidation trends in the
automotive industry. As a result of this plan, we have completed twelve
acquisitions that have contributed to sales growth of more than 350% over this
five-year period. Also, in part due to these acquisitions, in the fourth quarter
of 1998, we developed and began to implement a global restructuring plan. The
primary purposes of this restructuring plan were to lower our cost structure and
improve our long-term competitive position.
As a result of this restructuring plan, we recorded pre-tax charges of $133
million, or $1.37 per share, in the fourth quarter of 1998. The significant
activities that resulted in the charges were as follows:
Consolidation of European Operations. We have developed plans to take
advantage of opportunities to achieve synergies in and consolidate
activities of our European operations. As part of these plans, fifteen of
our manufacturing facilities will be closed, and the operations that were
being performed within these facilities will be moved to other European
locations. The types of costs which comprise the restructuring and other
charges include severance costs, lease cancellation charges, fixed asset
write-downs and government grant repayments.
Consolidation of North and South American Operations. We have
implemented a plan to consolidate certain manufacturing and administrative
functions in North and South America. As of December 31, 1998, we had
notified approximately 1,100 employees that their positions were being
eliminated and had also presented these employees with the severance
package that they will receive.
Evaluation of Long-Lived Assets. We have reevaluated the carrying
value of our long-lived assets as a result of changes in the economic
condition of certain countries in which we operate and the consolidation of
certain of our operations in North and South America. We determined that
the carrying values of these assets were impaired because the separately
identifiable, anticipated, undiscounted future cash flows from such assets
were less than their respective carrying values. The resulting charges
represent the excess of the carrying values of such assets over future
discounted cash flows.
For more details relating to the $133 million restructuring and other
charges, see Note 3 to our Consolidated Financial Statements. We have excluded
the impact of the restructuring and other charges from the following
management's discussion and analysis, unless otherwise noted. We believe that
the results of operations before these charges are the most meaningful
representation of our performance for the periods presented.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
For the seventeenth consecutive year, we achieved record sales. Net sales
in the year ended December 31, 1998 were $9.1 billion, exceeding 1997 net sales
by $1.7 billion, or 23.4%. Net sales in the current year benefited from
acquisitions, which collectively accounted for $1.2 billion of the increase, and
a combination of new business and product content increases in North America and
Europe. Partially offsetting this increase in sales were unfavorable exchange
rate fluctuations in North America, Europe and South America and the adverse
impact of the General Motors work stoppage in North America.
Gross profit and gross margin were $861 million and 9.5% in 1998 as
compared to $809 million and 11.0% in 1997. Gross profit in the current year
reflects the contribution of acquisitions, new sport utility and truck programs
in North America and established seat programs in Germany and Italy. The General
Motors work stoppage in North America, new program and facility costs in Europe
and the Asia/Pacific Rim region and economic conditions in South America
partially offset the increase in gross profit and resulted in a lower gross
margin.
19
<PAGE> 22
Selling, general and administrative expenses, including research and
development, as a percentage of net sales decreased to 3.7% in the year ended
December 31, 1998 as compared to 3.9% in the previous year. The increase in
actual expenditures in comparison to 1997 was due to the inclusion of operating
expenses incurred as a result of acquisitions as well as research, development
and administrative expenses necessary to support established and potential
business opportunities.
Including the $133 million restructuring and other charges, operating
income and operating margin were $342 million and 3.8% in the year ended
December 31, 1998 as compared to $481 million and 6.6% in the year ended
December 31, 1997. Excluding the $133 million restructuring and other charges,
operating income and operating margin in the current year were $475 million and
5.2%. Operating income in the current year reflects the contribution of
acquisitions and new programs. Offsetting the increase in operating income were
the the General Motors work stoppage, reduced market demand for certain mature
programs and increased engineering and administrative support expenses
associated with the expansion of domestic and international business. The
decrease in operating margin is due to the dilutive impact of acquisitions and
new program and facility costs in Europe and the Asia/Pacific Rim region.
Non-cash depreciation and amortization charges were $220 million and $184
million for the years ended December 31, 1998 and 1997, respectively.
Interest expense in 1998 increased by $10 million over 1997 to $111
million. Interest incurred to finance 1998 acquisitions was partially offset by
savings from the redemption of our 11 1/4% senior subordinated notes in July
1997. We also benefited from reduced interest rates in the United States and in
Europe, as higher rate European currencies converged into the lower rate
eurodollar.
Other expenses, which include state and local taxes, foreign currency
exchange, minority interests in consolidated subsidiaries, equity in net income
of affiliates and other non-operating expenses, decreased to $22 million in
1998, as compared to $29 million in 1997, as the benefit of reduced state and
local taxes more than offset increased minority interest expense in consolidated
subsidiaries at our South African operations.
Including the $133 million restructuring and other charges, net income for
the year ended December 31, 1998 was $115 million, or $1.70 per share, as
compared to $207 million, or $3.04 per share, for the year ended December 31,
1997. Excluding the restructuring and other charges, net income in the current
year was $208 million, or $3.06 per share. In 1998, the General Motors work
stoppage also reduced our earnings. Without the restructuring and other charges,
the provision for income taxes in 1998 was $134 million, an effective tax rate
of 39.3%, as compared to $143 million, an effective tax rate of 40.7%, in the
previous year.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
We achieved record sales in 1997 for the sixteenth consecutive year. Net
sales of $7.3 billion in the year ended December 31, 1997 exceeded 1996 net
sales by $1.1 billion, or 17.5%. Net sales in 1997 benefited from acquisitions,
which collectively accounted for $.8 billion of the increase, new business
introduced in North America, South America and Europe and incremental volume and
content increases on established programs. $.2 billion of unfavorable foreign
currency exchange partially offset this increase in sales.
Gross profit and gross margin improved to $809 million and 11.0% in 1997 as
compared to $620 million and 9.9% in 1996. Gross profit in 1997 reflects the
contribution of acquisitions and the overall growth in industry build schedules
on passenger car and truck programs by domestic and foreign automotive
manufacturers.
Selling, general and administrative expenses, including research and
development, as a percentage of net sales increased to 3.9% in 1997 as compared
to 3.4% in the previous year. Actual expenditures in 1997 increased in
comparison to the prior year due to the integration of engineering and
administrative expenses incurred as a result of acquisitions and increased North
American, European and Asia/Pacific Rim research, development and administrative
expenses required to support existing and potential business opportunities.
Operating income and operating margin were $481 million and 6.6% in the
year ended December 31, 1997 as compared to $376 million and 6.0% in the year
ended December 31, 1996. In 1997, operating income benefited from increased
revenue from domestic and foreign automotive manufacturers on new and existing
car and light truck programs coupled with the benefits derived from
acquisitions. Partially offsetting the
20
<PAGE> 23
increase in operating income were engineering and administrative support
expenses associated with the expansion of domestic and international business.
Non-cash depreciation and amortization charges were $184 million and $142
million for the years ended December 31, 1997 and 1996, respectively.
For the year ended December 31, 1997, interest expense decreased in
comparison to prior year primarily as a result of savings generated from the
redemption of our 11 1/4% senior subordinated notes in July 1997, reduced
interest rates in certain currencies and the improvement of our interest
coverage ratio, which triggered a reduction in the borrowing rate under our
senior revolving credit facility. Partially offsetting the above was interest
incurred on borrowings to finance acquisitions.
Other expenses, which include state and local taxes, foreign currency
exchange, minority interests in consolidated subsidiaries, equity in net income
of affiliates and other non-operating expenses, increased to $29 million in 1997
from $20 million in 1996 due to foreign currency exchange losses at our North
American and Asia/Pacific Rim operations and to an increase in the provision for
state and local taxes, which were partially offset by higher equity in net
income of affiliates.
Net income for the year ended December 31, 1997 was $207 million, or $3.04
per share, as compared to $152 million, or $2.38 per share, for the year ended
December 31, 1996. The increase in net income was primarily due to increased
sales from new and existing car and light truck programs and acquisitions. The
provision for income taxes in 1997 was $143 million, an effective tax rate of
40.7%, as compared to $102 million, an effective tax rate of 40.1%, in the
previous year. The increase in rate is largely the result of the increase in
goodwill amortization in addition to changes in operating performance and
related income levels among the various tax jurisdictions. Diluted net income
per share increased in 1997 by 27.7% despite an increase in the diluted shares
outstanding of approximately 4.5 million shares.
LIQUIDITY AND FINANCIAL CONDITION
Cash Flow
Cash flows from operating activities were strong in 1998, notwithstanding
the effect of the General Motors work stoppage. Net income, excluding the
restructuring and other charges, increased slightly to $208 million. Operating
activities generated $285 million of cash flow in 1998 and $449 million in 1997.
Non-cash depreciation and goodwill amortization charges of $220 million in 1998
were partially offset by recoverable customer engineering and tooling required
to support new programs and acquisitions.
The net change in working capital declined from a source of $100 million in
1997 to a source of $62 million in 1998 due primarily to increased accounts
receivable and inventory associated with the 23% increase in sales activity.
Inventory turns improved in 1998, while accounts receivable sales days and
materials days outstanding remained consistent with the prior year.
Net cash used in investing activities increased from $520 million in 1997
to $678 million in 1998, primarily due to investments in property, plant and
equipment. Capital expenditures increased from $188 million in 1997 to $351
million in 1998 as a result of new programs, on-going capital programs at
acquired companies, information systems and the expansion of facilities
worldwide to accommodate new and existing interior system programs. We currently
anticipate capital expenditures for 1999 of approximately $300 million.
Capitalization
In May 1998, we entered into an amendment to our senior revolving credit
facility (the "Credit Agreement"), which increased total borrowing availability
from $1.8 billion to $2.1 billion and eliminated the pledge of subsidiary stock
that secured the facility. As of December 31, 1998, we had $970 million
outstanding under the Credit Agreement and $60 million committed under
outstanding letters of credit, resulting in approximately $1.1 billion unused
and available credit. The Credit Agreement matures on September 30, 2001 and may
be used for general corporate purposes.
21
<PAGE> 24
Aggregate financing of $328 million for the Chapman, Pianfei, Strapazzini
and Delphi Seating acquisitions was provided by borrowings under the Credit
Agreement. This acquisition activity significantly contributed to our increase
in total net debt to total capitalization from 47.6% at December 31, 1997 to
54.1% at December 31, 1998.
In addition to debt outstanding under the Credit Agreement, we had $592
million of debt outstanding as of December 31, 1998, consisting primarily of
$336 million of subordinated notes due between 2002 and 2006.
In December 1997, we filed a $400 million universal shelf registration
statement, under which a variety of senior and subordinated debt instruments can
be issued. The registration statement was declared effective in January 1998 by
the Securities and Exchange Commission and improves our flexibility to issue
debt securities to finance the replacement of existing subordinated notes, to
reduce borrowings under the Credit Agreement, to fund acquisitions or for
general corporate purposes.
On February 10, 1999, Moody's Investors Service ("Moody's") upgraded its
ratings for our $400 million shelf registration to (P)Baa3 for senior notes,
(P)Ba1 for senior subordinated notes and (P)Ba2 for subordinated notes and
upgraded to Ba2 our outstanding 8 1/4% and 9 1/2% subordinated notes. At the
same time, Moody's confirmed the investment grade credit rating of Baa3 for our
Credit Agreement. Standard and Poor's Corporation has maintained its BBB-
investment grade corporate credit rating and its BB+ subordinated note rating
for our debt.
In September 1998, we purchased 500,000 shares of our outstanding common
stock at an average purchase price of $36.50 per share. On July 15, 1997, we
redeemed $125 million in aggregate principal amount of our 11 1/4% senior
subordinated notes due 2000 at par with borrowings under the Credit Agreement.
We believe that cash flows from operations and available credit facilities
will be sufficient to meet our anticipated debt service obligations, projected
capital expenditures and working capital requirements.
Market Risk Sensitivity
In the normal course of business, we are exposed to market risk associated
with fluctuations in foreign exchange rates and interest rates. We
conservatively manage these risks through the use of derivative financial
instruments in accordance with management's guidelines.
We enter into all hedging transactions for periods consistent with the
underlying exposures. We do not enter into derivative instruments for trading
purposes.
Foreign Exchange. We enter into foreign currency forward contracts and
foreign currency option contracts to protect ourselves from adverse currency
rate fluctuations on foreign currency commitments. These commitments are
generally for terms of less than one year. The foreign currency contracts are
executed with banks that we believe are creditworthy and are denominated in
currencies of major industrialized countries. The gains and losses relating to
the foreign currency forward and option contracts are deferred and included in
the measurement of the foreign currency transaction subject to the hedge. We
believe that any gain or loss incurred on foreign currency forward contracts is
offset by the direct effects of currency movements on the underlying
transactions.
We have performed a quantitative analysis of our overall currency rate
exposure at December 31, 1998. Based on this analysis, a 10% change in currency
rates would not have a material effect on our earnings.
Interest Rates. We use a combination of fixed rate debt and interest rate
swaps to manage our exposure to interest rate movements. Our exposure as a
result of variable interest rates relates primarily to outstanding floating rate
debt instruments that are indexed to U.S. or European Monetary Union short-term
money market rates. We use interest rate swap agreements to convert variable
rate debt to fixed rate debt. Net interest payments or receipts from interest
rate swaps are recorded as adjustments to interest expense in our consolidated
statements of income on an accrual basis.
22
<PAGE> 25
We have performed a quantitative analysis of our overall interest rate
exposure at December 31, 1998. Based on this analysis, a 10% change in the
average cost of our variable rate debt would not have a material effect on our
earnings.
Additional information relating to our outstanding financial instruments is
included in Notes 9 (Long-Term Debt) and 15 (Financial Instruments) to our
Consolidated Financial Statements.
Subsequent Event
On March 16, 1999, the Company entered into a definitive purchase agreement
to acquire UT Automotive, Inc., a wholly-owned subsidiary of United Technologies
Corporation, for $2.3 billion. UT Automotive is a leading supplier of
electrical, electronic, motor, and interior products and systems to the global
automotive industry. Headquartered in Dearborn, Michigan, UT Automotive has
annual sales of approximately $3 billion, 44,000 employees and 90 facilities
located in 18 countries. In connection with the pending UT Automotive
acquisition, the Company has obtained a commitment from The Chase Manhattan Bank
to provide the additional financing required to fund the acquisition.
Consummation of the acquisition is contingent upon expiration or termination of
any applicable waiting periods under the federal Hart-Scott-Rodino Antitrust
Improvements Act.
OTHER MATTERS
Environmental Matters
We are subject to local, state, federal and foreign laws, regulations and
ordinances, which govern activities or operations that may have adverse
environmental effects and which impose liability for the costs of cleaning up
certain damages resulting from past spills, disposal or other releases of
hazardous substances. Our policy is to comply with all applicable environmental
laws and maintain procedures to ensure compliance. However, we have been, and in
the future may become, the subject of formal or informal enforcement actions or
procedures. We currently are engaged in the cleanup of hazardous substances at
certain sites owned, leased or operated by us, including soil and groundwater
cleanup at our facility in Mendon, Michigan. We believe that we will not incur
compliance costs or cleanup costs at our facilities with known contamination
that would have a material adverse effect on our consolidated financial position
or future results of operations.
We have 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 one Superfund site where liability has not been completely
determined. We also have been identified as a potentially responsible party at
three additional sites. We believe that we are, or may be, responsible for less
than one percent, if any, of the total costs at the Superfund site. Expected
liability, if any, at the three additional sites is not material.
Inflation and Accounting Policies
Our contracts with our major customers generally provide for an annual
productivity price reduction and provide for the recovery of increases in
material and labor costs in some instances. Cost reductions through design
changes, increased productivity and similar programs with our suppliers
generally have offset changes in selling prices. Our cost structure is comprised
of a high percentage of variable costs. We believe that this structure provides
us with additional flexibility during economic cycles.
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," effective for fiscal years beginning after June 15,
1999. It requires all derivative instruments to be recorded in the balance sheet
at their fair value. Changes in the fair value of derivative instruments are
required to be recorded each period in current earnings or accumulated other
comprehensive income, depending on whether the derivative instruments are
designated as part of a hedge transaction. We do not expect the effects of
adoption to be significant.
Year 2000
We are currently working to resolve the potential impact of the year 2000
("Y2K") on the processing of time-sensitive information by our computerized
information systems. Any of our programs that have time-
23
<PAGE> 26
sensitive software may recognize the year "00" as 1900 rather than as 2000. This
could result in miscalculations, classification errors or system failures.
State of Readiness. In 1996, we began a Y2K program to assess the impact of
Y2K issues on the software and hardware used in our operations. We have
identified various areas to focus our Y2K compliance efforts. These areas
include business computer systems, manufacturing and warehousing systems,
end-user computing, technical infrastructure and environmental systems, research
and development facilities and supplier and service provider systems. Our Y2K
program phases include assessment and planning, remediation, testing and
implementation.
For business, manufacturing and end-user systems, we are in the process of
remediation. We are utilizing internal personnel as well as third-party services
to assist in our efforts. At many sites, particularly in Europe, we are
implementing new Y2K compliant systems. We have corrected, or are in the process
of correcting, Y2K issues at many other sites. We also are reviewing our
technical infrastructure and environmental systems and R&D facilities on a
site-by-site basis, many times with the aid of equipment manufacturers. Most of
the systems used in these areas are new and Y2K compliant. Others will be
replaced as part of our ongoing site upgrade program. Among our supplier base,
we are monitoring the progress of each of our key suppliers with questionnaires
and site reviews, where appropriate, along with the aid of industry information.
We will make a determination of the appropriate level of dependence among our
supplier base.
Y2K Costs. Based on current estimates, we do not expect costs of addressing
the Y2K issue to have a material adverse effect on our financial position,
results of operations or cash flows in future periods. We currently estimate
that our historical and future costs will be $10 to $20 million for Y2K
compliance. This includes $5 to $10 million directly attributable to correcting
non-compliant systems and another $5 to $10 million for ongoing system
improvements which will be Y2K compliant. We will have incurred these costs over
the period from mid-1996 through the end of 1999. Although we have not
specifically identified Y2K remediation costs in the past, we estimate our Y2K
expenditures incurred through December 31, 1998 have been approximately $4
million. Y2K projects have not materially deferred our implementation of other
information technology projects.
Y2K Risks. Our reasonable worst-case scenario with respect to the Y2K issue
is the failure of a key system that causes shipments of our products to
customers to be temporarily interrupted. This could result in our missing build
schedules with our customers, which in turn could lead to lost sales and profits
for us and our customers. We have been given a "low" risk assessment for Y2K
non-compliance by domestic automobile manufacturers, who collectively
represented over 60% of our 1998 sales.
Contingency Plans. As a part of our Y2K strategy, contingency plans are
being developed site-by-site, and any systems requiring remediation will have
one or more contingency plans. All plans will be documented and will be executed
accordingly, if necessary. In addition, supplier site audits are to be performed
in 1999.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
any forward-looking statements, including statements regarding our intent,
belief or current expectations, are not guarantees of future performance and
involve risks and uncertainties. Actual results may differ materially from those
in forward-looking statements as a result of various factors including, but not
limited to:
- general economic conditions in the markets in which we operate,
- fluctuation in worldwide or regional automobile and light truck
production,
- labor disputes involving us or our significant customers,
- changes in practices and/or policies of our significant customers toward
outsourcing automotive components and systems,
- fluctuations in currency exchange rates and
- other risks detailed from time to time in our Securities and Exchange
Commission filings.
We do not intend to update these forward-looking statements.
24
<PAGE> 27
ITEM 8 -- CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... 26
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 27
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.......................... 28
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996.............. 29
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... 30
Notes to Consolidated Financial Statements.................. 31
</TABLE>
25
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Corporation:
We have audited the accompanying consolidated balance sheets of LEAR
CORPORATION AND SUBSIDIARIES ("the Company") as of December 31, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
Detroit, Michigan,
January 29, 1999 (except with respect to the matter discussed
in Note 17, as to which the date is March 16, 1999).
26
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
LEAR CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---- ----
(IN MILLIONS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 30.0 $ 12.9
Accounts receivable, net of reserves of $16.0 in 1998 and
$14.7 in 1997.......................................... 1,373.9 1,065.8
Inventories............................................... 349.6 231.4
Recoverable customer engineering and tooling.............. 221.4 152.6
Other..................................................... 223.1 152.2
-------- --------
Total current assets................................... 2,198.0 1,614.9
-------- --------
LONG-TERM ASSETS:
Property, plant and equipment, net........................ 1,182.3 939.1
Goodwill, net............................................. 2,019.8 1,692.3
Other..................................................... 277.2 212.8
-------- --------
Total long-term assets................................. 3,479.3 2,844.2
-------- --------
$5,677.3 $4,459.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings..................................... $ 82.7 $ 37.9
Accounts payable and drafts............................... 1,600.8 1,186.5
Accrued liabilities....................................... 797.5 620.5
Current portion of long-term debt......................... 16.5 9.1
-------- --------
Total current liabilities.............................. 2,497.5 1,854.0
-------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes............................ 39.0 61.7
Long-term debt............................................ 1,463.4 1,063.1
Other..................................................... 377.4 273.3
-------- --------
Total long-term liabilities............................ 1,879.8 1,398.1
-------- --------
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share, 150,000,000 shares
authorized and 67,194,314 and 66,872,188 shares issued
at December 31,1998 and 1997, respectively............. .7 .7
Additional paid-in capital................................ 859.3 851.9
Notes receivable from sale of common stock................ (.1) (.1)
Common stock held in treasury, 510,230 and 10,230 shares
at December 31, 1998 and 1997, respectively, at cost... (18.3) (.1)
Retained earnings......................................... 504.7 401.3
Accumulated other comprehensive income.................... (46.3) (46.7)
-------- --------
Total stockholders' equity............................. 1,300.0 1,207.0
-------- --------
$5,677.3 $4,459.1
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
27
<PAGE> 30
CONSOLIDATED STATEMENTS OF INCOME
LEAR CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---- ---- ----
(IN MILLION, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $9,059.4 $7,342.9 $6,249.1
Cost of sales............................................... 8,198.0 6,533.5 5,629.4
Selling, general and administrative expenses................ 337.0 286.9 210.3
Restructuring and other charges............................. 133.0 -- --
Amortization of goodwill.................................... 49.2 41.4 33.6
-------- -------- --------
Operating income.......................................... 342.2 481.1 375.8
Interest expense............................................ 110.5 101.0 102.8
Other expense, net.......................................... 16.9 34.3 19.6
-------- -------- --------
Income before provision for national income taxes,
minority interests in consolidated subsidiaries, equity
in net income of affiliates and extraordinary item..... 214.8 345.8 253.4
Provision for national income taxes......................... 93.9 143.1 101.5
Minority interests in consolidated subsidiaries............. 6.9 3.3 4.0
Equity in net income of affiliates.......................... (1.5) (8.8) (4.0)
-------- -------- --------
Income before extraordinary item.......................... 115.5 208.2 151.9
Extraordinary loss on early extinguishment of debt.......... -- -- (1.0)
-------- -------- --------
Net income.................................................. $ 115.5 $ 207.2 $ 151.9
======== ======== ========
Basic net income per share:
Income before extraordinary item.......................... $1.73 $3.14 $2.51
Extraordinary loss........................................ -- (.01) --
-------- -------- --------
Basic net income per share.................................. $1.73 $3.13 $2.51
======== ======== ========
Diluted net income per share:
Income before extraordinary item.......................... $1.70 $3.05 $2.38
Extraordinary loss........................................ -- (.01) --
-------- -------- --------
Diluted net income per share................................ $1.70 $3.04 $2.38
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
28
<PAGE> 31
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
LEAR CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
---- ---- ----
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of period.............................. $ .7 $ .7 $ .6
Sale of common stock (Note 5)............................... -- -- .1
-------- -------- --------
Balance at end of period.................................... $ .7 $ .7 $ .7
======== ======== ========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period.............................. $ 851.9 $ 834.5 $ 559.1
Sale of common stock (Note 5)............................... -- -- 242.7
Stock options exercised..................................... 3.4 8.4 6.7
Stock options cancelled..................................... -- (5.8) --
Tax benefit of stock options exercised...................... 4.0 14.8 17.0
Conversion of Masland stock options......................... -- -- 9.0
-------- -------- --------
Balance at end of period.................................... $ 859.3 $ 851.9 $ 834.5
======== ======== ========
NOTES RECEIVABLE FROM SALE OF COMMON STOCK
Balance at beginning of period.............................. $ (.1) $ (.6) $ (.9)
Repayment of stockholders' notes receivable................. -- .5 .3
-------- -------- --------
Balance at end of period.................................... $ (.1) $ (.1) $ (.6)
======== ======== ========
TREASURY STOCK
Balance at beginning of period.............................. $ (.1) $ (.1) $ (.1)
Purchases, 500,000 shares at an average price of $36.50 per
share..................................................... (18.2) -- --
-------- -------- --------
Balance at end of period.................................... $ (18.3) $ (.1) $ (.1)
======== ======== ========
RETAINED EARNINGS
Balance at beginning of period.............................. $ 401.3 $ 194.1 $ 42.2
Net income.................................................. 115.5 207.2 151.9
Net loss from change in consolidation policy (Note 1)....... (12.1) -- --
-------- -------- --------
Balance at end of period.................................... $ 504.7 $ 401.3 $ 194.1
======== ======== ========
ACCUMULATED OTHER COMPREHENSIVE INCOME
Minimum Pension Liability
Balance at beginning of period.............................. $ (.5) $ (1.0) $ (3.5)
Minimum pension liability adjustment........................ (11.3) .5 2.5
-------- -------- --------
Balance at end of period.................................... $ (11.8) $ (.5) $ (1.0)
======== ======== ========
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance at beginning of period.............................. $ (46.2) $ (8.9) $ (17.4)
Cumulative translation adjustments.......................... 11.7 (37.3) 8.5
-------- -------- --------
Balance at end of period.................................... $ (34.5) $ (46.2) $ (8.9)
-------- -------- --------
Accumulated other comprehensive income...................... $ (46.3) $ (46.7) $ (9.9)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. $1,300.0 $1,207.0 $1,018.7
======== ======== ========
COMPREHENSIVE INCOME
Net income.................................................. $ 115.5 $ 207.2 $ 151.9
Net loss from change in consolidation policy, including tax
of $1.2 (Note 1).......................................... (12.1) -- --
Minimum pension liability adjustment, net of tax of $6.1,
$(.2) and $(1.3) in 1998, 1997 and 1996, respectively..... (11.3) .5 2.5
Cumulative translation adjustments.......................... 11.7 (37.3) 8.5
-------- -------- --------
Comprehensive income........................................ $ 103.8 $ 170.4 $ 162.9
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
29
<PAGE> 32
CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAR CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 115.5 $ 207.2 $ 151.9
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization of goodwill................. 219.7 184.4 142.3
Postretirement benefits accrued, net...................... 15.3 8.5 6.9
Loss on long-lived assets................................. 33.2 -- --
Net loss from change in consolidation policy (Note 1)..... (12.1) -- --
Recoverable customer engineering and tooling, net......... (119.1) (48.4) (35.3)
Extraordinary loss........................................ -- 1.0 --
Other, net................................................ (28.9) (3.7) (19.1)
Net change in working capital items....................... 61.8 100.4 215.9
------- ------- -------
Net cash provided by operating activities.............. 285.4 449.4 462.6
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (351.4) (187.9) (153.8)
Acquisitions................................................ (328.2) (332.2) (529.0)
Other, net.................................................. 1.8 .4 1.1
------- ------- -------
Net cash used in investing activities.................. (677.8) (519.7) (681.7)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term revolving credit borrowings, net (Note 9)......... 317.0 136.9 (211.3)
Other long-term debt borrowings, net........................ 58.3 (133.0) 203.6
Short-term borrowings, net.................................. 43.2 24.2 (7.5)
Proceeds from sale of common stock, net..................... 3.4 8.4 249.5
Purchase of treasury stock, net............................. (18.2) -- --
Increase (decrease) in drafts............................... (19.9) 2.2 (29.5)
Other, net.................................................. -- .3 (3.2)
------- ------- -------
Net cash provided by financing activities.............. 383.8 39.0 201.6
------- ------- -------
Effect of foreign currency translation...................... 25.7 18.2 9.4
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 17.1 (13.1) (8.1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 12.9 26.0 34.1
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 30.0 $ 12.9 $ 26.0
======= ======= =======
CHANGES IN WORKING CAPITAL, NET OF EFFECTS OF ACQUISITIONS:
Accounts receivable, net.................................... $(218.6) $ (72.7) $ 42.5
Inventories................................................. (59.9) (10.3) 30.9
Accounts payable............................................ 322.1 150.4 52.7
Accrued liabilities and other............................... 18.2 33.0 89.8
------- ------- -------
Net change in working capital items......................... $ 61.8 $ 100.4 $ 215.9
======= ======= =======
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest...................................... $109.0 $109.3 $97.0
======= ======= =======
Cash paid for income taxes.................................. $119.9 $ 91.9 $74.3
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
30
<PAGE> 33
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear
Corporation, a Delaware corporation ("Lear"), and its wholly-owned and
majority-owned subsidiaries (collectively, the "Company"). Investments in less
than majority-owned businesses are generally accounted for under the equity
method (Note 7).
The Company and its affiliates are involved in the design and manufacture
of interior systems and components for automobiles and light trucks. The
Company's main customers are automotive original equipment manufacturers. The
Company operates facilities worldwide (Note 14). Effective December 31, 1998,
certain international operating facilities, which had previously been included
in the consolidated financial statements based on fiscal years ending November
30, are now included in the consolidated financial statements based on fiscal
years ending December 31. Net sales at these international facilities for
December 1998 were $339.9 million, and the December 1998 net loss from these
international facilities was charged to retained earnings.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
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 millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Raw materials............................................... $253.9 $165.7
Work-in-process............................................. 23.8 22.5
Finished goods.............................................. 71.9 43.2
------ ------
Inventories................................................. $349.6 $231.4
====== ======
</TABLE>
Recoverable Customer Engineering and Tooling
Costs incurred for certain engineering and tooling projects for which the
Company will receive customer recovery are capitalized and classified as either
recoverable customer engineering and tooling or other long-term assets,
dependent upon when recovery is anticipated. Provisions for losses are provided
at the time the Company anticipates engineering and tooling costs will exceed
anticipated customer recovery.
Property, Plant and Equipment
Property, plant and equipment is 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>
31
<PAGE> 34
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of property, plant and equipment is shown below (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Land...................................................... $ 70.6 $ 60.5
Buildings and improvements................................ 429.6 345.9
Machinery and equipment................................... 1,197.8 919.4
Construction in progress.................................. 78.4 54.8
-------- --------
Total property, plant and equipment....................... 1,776.4 1,380.6
Less -- accumulated depreciation.......................... (594.1) (441.5)
-------- --------
Net property, plant and equipment......................... $1,182.3 $ 939.1
======== ========
</TABLE>
Goodwill
Goodwill is amortized on a straight-line basis over 40 years. Accumulated
amortization of goodwill amounted to $206.3 million and $156.9 million at
December 31, 1998 and 1997, respectively.
Long Term Assets
The Company complies with Statement of Financial Accounting Standards
("SFAS") No. 121, "Recognition of Impairment of Long-Lived Assets." In
accordance with this statement, the Company reevaluates the carrying values of
its long-term assets whenever circumstances arise which call into question the
recoverability of such carrying values. The evaluation takes into account all
future estimated cash flows from the use of assets, with an impairment being
recognized if the evaluation indicates that the future cash flows will not be
greater than the carrying value. An impairment charge of $33.2 million was
recognized in 1998 in connection with the restructuring (Note 3).
Research and Development
Costs incurred in connection with the development of new products and
manufacturing methods to the extent not recoverable from the Company's customers
are charged to selling, general and administrative expenses as incurred. These
costs amounted to $116.6 million, $90.4 million and $70.0 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
Foreign Currency Translation
With the exception of foreign subsidiaries operating in highly inflationary
economies, which are measured in U.S. dollars, assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at the exchange rates in effect at
the end of the period. Revenues and expenses of foreign subsidiaries are
translated using an average of exchange rates in effect during the period.
Translation adjustments that arise from translating a foreign subsidiary's
financial statements from the functional currency to U.S. dollars are reflected
in accumulated other comprehensive income in the consolidated balance sheets.
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.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of
32
<PAGE> 35
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Generally, assets and liabilities subject to estimation and judgment include
amounts related to unsettled pricing discussions with customers and suppliers,
pension and other postretirement costs (Note 11), plant consolidation and
reorganization reserves (Note 3), self-insurance accruals, asset valuation
reserves and accruals related to litigation and environmental remediation costs.
Management does not believe that the ultimate settlement of any such assets or
liabilities will materially affect the Company's financial position or future
results of operations.
Net Income Per Share
Basic net income per share is computed using the weighted average common
shares outstanding during the period. Diluted net income per share is computed
using the average share price during the period when calculating the dilutive
effect of stock options. Shares outstanding were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average common shares
outstanding............................... 66,947,135 66,304,770 60,485,696
Dilutive effect of stock options............ 1,076,240 1,943,313 3,275,938
---------- ---------- ----------
Diluted shares outstanding.................. 68,023,375 68,248,083 63,761,634
========== ========== ==========
</TABLE>
Comprehensive Income
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income. Comprehensive income is defined as all changes in a
Company's net assets except changes resulting from transactions with
shareholders. It differs from net income in that certain items currently
recorded to equity are included in comprehensive income. Prior years have been
restated to conform to the requirements of SFAS No. 130.
Reclassifications
Certain items in prior years' financial statements have been reclassified
to conform with the presentation used in the year ended December 31, 1998.
(3) RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1998, the Company began to implement a
restructuring plan designed to lower its cost structure and improve the
long-term competitive position of the Company. As a result of this restructuring
plan, the Company recorded pre-tax charges of $133.0 million, consisting of
$110.5 million of restructuring charges and $22.5 million of other charges.
Included in this total are the costs to consolidate the Company's European
operations of $78.9 million, charges resulting from the consolidation of certain
manufacturing and administrative operations in North and South America of $31.6
million, other asset impairment charges of $15.0 million and contract
termination fees and other of $7.5 million.
The majority of the European countries in which the Company operates have
statutory requirements with regards to the minimum severance payments that must
be made to employees upon termination. The Company has accrued $37.7 million of
severance costs for approximately 210 salaried and 1,040 hourly employees under
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," at December
31, 1998, as the Company anticipates this is the minimum aggregate severance
payments that will be made in accordance with these statutory requirements. The
Company has also accrued $5.5 million for separation pay for approximately 450
employees at European locations where the individuals have been notified of
their planned termination. The European consolidation has also resulted in lease
cancellation costs with a net
33
<PAGE> 36
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
present value of $22.1 million and asset impairment charges of $11.7 million.
The amount of asset impairment represents the excess of the carrying value of
the abandoned assets over their respective net realizable value less disposal
costs. Other costs incurred to consolidate these facilities amount to $1.9
million, consisting mainly of government grant repayments. The Company
anticipates incurring the majority of these costs in 1999 with the exception of
the lease cancellation costs, for which payments extend out for up to 9 years.
In addition, the Company is eliminating two manufacturing facilities in
North America and one in South America. Management feels that these
consolidations better position the Company in terms of capacity, location and
utilization in the future. The charge consists of severance of $5.2 million for
approximately 250 employees notified prior to December 31, 1998, a $6.5 million
write-down of assets to their net realizable value less disposal costs, lease
cancellation costs of $4.5 million and other costs to close the facilities of
$.4 million. The write-down of fixed assets has been recorded in 1998, while the
payments related to the other costs are anticipated to take place in 1999. Lear
also implemented a plan to consolidate certain administrative functions and to
reduce the U.S. salaried workforce. As of December 31, 1998, approximately 850
salaried employees were notified that their positions were being eliminated and
were presented with the severance packages that they will receive upon their
departure from the Company. As a result, the Company recorded a charge of $15.0
million to cover severance pay and benefits offered to these employees, $5.1
million of which had been paid as of December 31, 1998.
The Company has reevaluated the carrying value of its long-lived assets as
a result of changes in the economic condition of certain countries in which the
Company operates and the consolidation of specific operations in North and South
America. The carrying values of these assets were determined to be impaired as
the separately identifiable, anticipated, undiscounted future cash flows from
such assets were less than their respective carrying values. The resulting
charge of $15.0 million represents the excess of the carrying values of such
assets over future discounted cash flows.
The costs of contract terminations and other are comprised primarily of a
contract termination penalty related to a sales representation contract. The
following table summarizes the restructuring and other charges (in millions):
<TABLE>
<CAPTION>
UTILIZED
ORIGINAL --------------- BALANCE AT
ACCRUAL CASH NONCASH DECEMBER 31, 1998
-------- ---- ------- -----------------
<S> <C> <C> <C> <C>
European Operations Consolidation....... $ 78.9 $3.4 $11.7 $63.8
North and South America Operations
Consolidation......................... 31.6 5.1 6.5 20.0
Write-Down of Long-Lived Assets......... 15.0 -- 15.0 --
Contract Termination and Other.......... 7.5 -- -- 7.5
------ ---- ----- -----
Total.............................. $133.0 $8.5 $33.2 $91.3
====== ==== ===== =====
</TABLE>
(4) ACQUISITIONS
1998 ACQUISITIONS
Delphi Seating Systems
In September 1998, the Company purchased the seating business of Delphi
Automotive Systems, a division of General Motors Corporation ("Delphi Seating").
Delphi Seating was a leading supplier of seat systems to General Motors with
sixteen facilities located throughout ten countries. The aggregate purchase
price for the acquisition of Delphi Seating (the "Delphi Acquisition") was
$246.6 million. Funds for the Delphi Acquisition were provided by borrowings
under the Credit Agreement (Note 9).
The Delphi Acquisition was accounted for as a purchase, and accordingly,
the assets purchased and liabilities assumed have been reflected in the
accompanying consolidated balance sheet as of December 31,
34
<PAGE> 37
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1998. The operating results of Delphi Seating have been included in the
consolidated financial statements of the Company since the date of acquisition.
The purchase price and related allocation were as follows (in millions):
<TABLE>
<S> <C>
Consideration paid to former owner, net of cash acquired of
$6.0 million.............................................. $212.9
Deferred purchase price..................................... 30.0
Debt assumed................................................ .5
Estimated fees and expenses................................. 3.2
------
Cost of acquisition.................................... $246.6
======
Property, plant and equipment............................... $ 50.8
Net working capital......................................... 15.1
Other assets purchased and liabilities assumed, net......... (15.6)
Goodwill.................................................... 196.3
------
Total cost allocation.................................. $246.6
======
</TABLE>
The purchase price and related allocation may be revised up to one year
from the date of acquisition based on the outcome of final negotiations with the
former owner and revisions of preliminary estimates of fair values made at the
date of purchase.
The following pro forma unaudited financial data is presented to illustrate
the estimated effects of the Delphi Acquisition as if this transaction had
occurred as of the beginning of each year presented (in millions, except per
share data).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1998 1997
PRO FORMA PRO FORMA
--------- ---------
<S> <C> <C>
Net sales............................................... $9,728.4 $8,411.1
Income before extraordinary item........................ 97.8 164.6
Net income.............................................. 97.8 163.6
Diluted income per share before extraordinary item...... 1.44 2.41
Diluted net income per share............................ 1.44 2.40
</TABLE>
Other 1998 Acquisitions
In May 1998, the Company acquired, in separate transactions, Gruppo Pianfei
S.r.L. ("Pianfei"), Strapazzini Resine S.r.L. ("Strapazzini") and the A.W.
Chapman Ltd. and A.W. Chapman Belgium NV subsidiaries of the Rodd Group Limited
("Chapman"). Each of the acquired companies was a supplier of automotive
interiors to the European automotive market. These acquisitions were accounted
for as purchases, and accordingly, the assets purchased and liabilities assumed
have been reflected in the accompanying consolidated balance sheet as of
December 31, 1998. The operating results of these acquired companies have been
included in the consolidated financial statements of the Company since the date
of each acquisition. The aggregate cash paid for these acquisitions was $115.3
million, with funds provided by borrowings under the Credit Agreement (Note 9).
The pro forma effects of these acquisitions would not be materially different
from reported results.
1997 ACQUISITIONS
In August 1997, the Company acquired the Seat Sub-Systems Unit of ITT
Automotive, a division of ITT Industries ("ITT Seat Sub-Systems"). ITT Seat
Sub-Systems was a North American supplier of power seat adjusters and power
recliners.
35
<PAGE> 38
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In July 1997, the Company acquired certain equity and partnership interests
in Keiper Car Seating GmbH & Co. and certain of its subsidiaries and affiliates
(collectively, "Keiper Seating") for approximately $252.5 million. Keiper
Seating was a leading supplier of automotive vehicle seat systems with
operations in Germany, Italy, Hungary, Brazil and South Africa.
As part of the Keiper Seating acquisition, the Company acquired a 25%
ownership interest in Euro American Seating Corporation ("EAS"). On December 12,
1997, the Company acquired the remaining 75% of EAS. EAS was a supplier of
automotive seat systems to original equipment manufacturers.
In June 1997, the Company acquired all of the outstanding shares of common
stock of Dunlop Cox Limited ("Dunlop Cox"). Dunlop Cox, based in Nottingham,
England, provided Lear with the ability to design and manufacture manual and
electronically-powered automotive seat adjusters.
The ITT Seat Sub-Systems, Keiper Seating and Dunlop Cox acquisitions
(collectively, the "1997 Acquisitions") were accounted for as purchases, and
accordingly, the assets purchased and liabilities assumed in the acquisitions
have been reflected in the accompanying consolidated balance sheets. The
operating results of the 1997 Acquisitions have been included in the
consolidated financial statements of the Company since the date of each
acquisition. Funds for the 1997 Acquisitions were provided by borrowings under
the Company's then existing credit agreements. The aggregate purchase price of
the 1997 Acquisitions and final allocation, which were not materially different
than preliminary estimates, were as follows (in millions):
<TABLE>
<S> <C>
Consideration paid to former owners, net of cash acquired of
$9.2 million.............................................. $332.2
Deferred purchase price..................................... 28.1
Debt assumed................................................ 4.4
Estimated fees and expenses................................. 3.5
------
Cost of acquisition.................................... $368.2
======
Property, plant and equipment............................... $ 85.0
Net working capital......................................... 12.5
Other assets purchased and liabilities assumed, net......... (4.9)
Goodwill.................................................... 275.6
------
Total cost allocation.................................. $368.2
======
</TABLE>
The pro forma effects of these acquisitions would not be materially
different from reported results.
1996 ACQUISITIONS
Borealis Industrier, AB
In December 1996, the Company acquired all of the issued and outstanding
capital stock of Borealis Industrier, AB ("Borealis") for an aggregate purchase
price of $91.1 million (including the assumption of $18.8 million of Borealis
existing net indebtedness and $1.5 million of fees and expenses). Borealis was a
supplier of instrument panels and other interior components to the European
automotive market. The Borealis acquisition was accounted for as a purchase, and
accordingly, the assets purchased and liabilities assumed have been reflected in
the accompanying consolidated balance sheets. The operating results of Borealis
have been included in the consolidated financial statements of the Company since
the date of acquisition.
Masland Corporation
In June 1996, the Company, through a wholly-owned subsidiary ("PA
Acquisition Corp."), acquired 97% of the issued and outstanding shares of common
stock of Masland Corporation ("Masland") pursuant to an offer to purchase which
was commenced on May 30, 1996. On July 1, 1996, the remaining issued and
outstanding shares of common stock of Masland were acquired and PA Acquisition
Corp. merged with and
36
<PAGE> 39
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
into Masland, such that Masland became a wholly-owned subsidiary of the Company.
The aggregate purchase price for the acquisition of Masland (the "Masland
Acquisition") was $473.8 million (including the assumption of $80.7 million of
Masland's existing net indebtedness and $8.1 million in fees and expenses).
Funds for the Masland Acquisition were provided by borrowings under the
Company's then existing credit agreements.
Masland was a leading supplier of flooring and acoustic systems to the
North American automotive market. Masland also was a major supplier of interior
luggage compartment trim components and other acoustical products which are
designed to minimize noise, vibration and harshness for passenger cars and light
trucks.
The Masland Acquisition was accounted for as a purchase, and accordingly,
the assets purchased and liabilities assumed in the acquisition have been
reflected in the accompanying consolidated balance sheets. The operating results
of Masland have been included in the consolidated financial statements of the
Company since the date of acquisition. The purchase price and final allocation,
which were not materially different than preliminary estimates, were as follows
(in millions):
<TABLE>
<S> <C>
Consideration paid to stockholders, net of cash acquired of
$16.1 million............................................. $337.8
Consideration paid to former Masland stock option holders... 22.1
Debt assumed................................................ 96.8
Stock options issued to former Masland option holders....... 9.0
Fees and expenses........................................... 8.1
------
Cost of acquisition.................................... $473.8
======
Property, plant and equipment............................... $125.8
Net working capital......................................... 31.5
Other assets purchased and liabilities assumed, net......... (15.7)
Goodwill.................................................... 332.2
------
Total cost allocation.................................. $473.8
======
</TABLE>
The pro forma unaudited financial data is presented to illustrate the
estimated effects of the Masland Acquisition, the related financing and
subsequent refinancing (Notes 5 and 6) as if these transactions had occurred as
of the beginning of the year presented as follows (in millions, except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
PRO FORMA
---------
<S> <C>
Net sales................................................... $6,510.8
Net income.................................................. 153.9
Diluted net income per share................................ 2.27
</TABLE>
(5) PUBLIC STOCK OFFERINGS
COMPANY OFFERINGS
In July 1996, the Company issued and sold 7,500,000 shares of common stock
in a public offering (the "1996 Offering"). The total proceeds to the Company
from the stock issuance were $251.3 million. Fees and expenses related to the
1996 Offering totaled $8.5 million, including approximately $1.1 million paid to
Lehman Brothers Inc., an affiliate of the Lehman Funds. Net of issuance costs,
the Company received $242.8 million, which was used to repay debt incurred in
connection with the Masland Acquisition (Note 4).
37
<PAGE> 40
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
SECONDARY OFFERINGS
In June 1997, the Company's then-largest stockholders, certain merchant
banking partnerships affiliated with Lehman Brothers Holdings, Inc., (the
"Lehman Funds"), sold all 10,284,854 of their remaining shares of common stock
of Lear in a secondary offering. Prior to the offering, the Lehman Funds held
approximately 16% of the outstanding common stock of the Company. The Company
received no proceeds from the sale of these shares.
Concurrent with the 1996 Offering, 7,500,000 shares were sold by certain
stockholders of the Company, including the Lehman Funds. The Company received no
proceeds from the sale of these shares.
(6) SUBORDINATED NOTES OFFERINGS
In July 1996, the Company completed a public offering of $200.0 million
principal amount of its 9 1/2% Subordinated Notes due 2006 (the "9 1/2% Notes").
Interest is payable on the 9 1/2% Notes semi-annually on January 15 and July 15.
Fees and expenses related to the issuance of the 9 1/2% Notes were approximately
$4.5 million. Net of issuance costs, the Company received $195.5 million, which
was used to repay debt incurred in connection with the Masland Acquisition (Note
4).
(7) INVESTMENTS IN AFFILIATES
The investments in affiliates, which are accounted for using the equity
method, are as follows:
<TABLE>
<CAPTION>
PERCENT BENEFICIAL
OWNERSHIP AS OF
DECEMBER 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sommer Masland UK Limited................................... 50% 50% 50%
Industrias Cousin Freres, S.L. (Spain)...................... 50 50 50
Lear -- Donnelly Overhead Systems, L.L.C. .................. 50 50 --
SALBI, A.B. ................................................ 50 50 50
Detroit Automotive Interiors, L.L.C. ....................... 49 49 49
Autoform Kunstoffteile GmbH................................. 45 -- --
Interiores Automotrices Summa, S.A. de C.V. (Mexico)........ 40 40 40
U.P.M. S.r.L. (Italy)....................................... 39 -- --
Markol Otomotiv Yan Sanayi Ve Ticaret (Turkey).............. 35 35 35
Jiangxi Jiangling Lear, Interior Systems Co., Ltd.
(China)................................................... 33 33 50
Guildford Kast Plastifol Dynamics, Ltd. (U.K.).............. 33 33 33
Precision Fabrics Group..................................... 29 29 29
Interni Interiores S.A. (Brazil)............................ 25 -- --
Pacific Trim Corporation Ltd. (Thailand).................... 20 20 20
</TABLE>
In October 1997, the Company formed a joint venture with Donnelly
Corporation named Lear-Donnelly Overhead Systems, L.L.C. The joint venture
designs, develops, markets and produces overhead systems for the global
automotive market. The aggregate investment in affiliates was $73.9 million and
$71.3 million as of December 31, 1998 and 1997, respectively.
38
<PAGE> 41
LEAR 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 millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
---- ----
<S> <C> <C>
Balance sheet data:
Current assets............................................ $162.0 $127.7
Non-current assets........................................ 137.0 78.1
Current liabilities....................................... 128.9 69.8
Non-current liabilities................................... 54.2 77.7
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income statement data:
Net sales........................................... $579.4 $493.2 $471.0
Gross profit........................................ 80.0 75.4 68.1
Income (loss) before provision for income taxes..... (.1) 25.2 21.6
Net income (loss)................................... (1.6) 20.3 17.9
</TABLE>
The Company had sales to affiliates of approximately $62.9 million, $28.1
million and $22.2 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Dividends of approximately $2.3 million, $3.9 million and $3.0
million were received by the Company for the years ended December 31, 1998, 1997
and 1996, respectively.
During 1998, the Company increased its ownership of General Seating of
America, Inc., General Seating of Canada, Ltd. and Lear Corporation Thailand. As
a result of these ownership increases, the Company acquired majority control and
included the results of operations and financial position of these entities in
its consolidated financial statements from the date of majority control.
(8) SHORT-TERM BORROWINGS
Lear utilizes uncommitted lines of credit to satisfy short-term working
capital requirements. At December 31, 1998, the Company had unsecured lines of
credit available from banks of approximately $470 million, subject to certain
restrictions imposed by the Credit Agreement (Note 9). Weighted average interest
rates on the outstanding borrowings at December 31, 1998 and 1997 were 4.7% and
7.2%, respectively.
39
<PAGE> 42
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(9) LONG-TERM DEBT
Long-term debt is comprised of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Credit agreement.......................................... $ 970.3 $ 647.7
Other..................................................... 173.6 88.5
-------- --------
1,143.9 736.2
Less -- Current Portion................................... 16.5 9.1
-------- --------
1,127.4 727.1
-------- --------
9 1/2% Subordinated Notes................................. 200.0 200.0
8 1/4% Subordinated Notes................................. 136.0 136.0
-------- --------
336.0 336.0
-------- --------
Long-Term Debt............................................ $1,463.4 $1,063.1
======== ========
</TABLE>
In May and December 1998, the Company amended its multi-currency revolving
credit agreement (the "Credit Agreement") to increase total borrowing
availability from $1.8 billion to $2.1 billion, eliminate the pledge of
subsidiary stock which secured the facility and provide for euro denominated
multi-currency loans. The Credit Agreement matures on September 30, 2001 and may
be used for general corporate purposes, including acquisitions.
As of December 31, 1998, the Company had $970 million outstanding under the
Credit Agreement and $60 million committed under outstanding letters of credit,
resulting in approximately $1.1 billion unused long-term revolving credit
commitments. The weighted average interest across all currencies was
approximately 5.4% and 5.8% at December 31, 1998 and 1997, respectively.
Borrowings and repayments on the Credit Agreement were as follows (in millions):
<TABLE>
<CAPTION>
YEAR BORROWINGS REPAYMENTS
---- ---------- ----------
<S> <C> <C>
1998..................................................... $3,994.8 $3,677.8
1997..................................................... 3,422.3 3,260.3
1996..................................................... 2,790.8 3,027.8
</TABLE>
Other senior debt at December 31, 1998 is principally made up of amounts
outstanding under U.S. term loans, industrial revenue bonds and capital leases.
The 8 1/4% Subordinated Notes, due in 2002, require interest payments
semi-annually on February 1 and August 1 and became callable at par on February
1, 1999. The 9 1/2% Subordinated Notes, due in 2006, require interest payments
semi-annually on January 15 and July 15 and are callable at par beginning July
15, 2001. In July 1997, the Company redeemed all of its 11 1/4% Senior
Subordinated Notes, due 2000 (the "11 1/4% Notes"), at par with borrowings under
the Credit Agreement. The accelerated amortization of deferred financing fees
related to the 11 1/4% Notes totaled approximately $1.6 million. This amount,
net of the related tax benefit of $.6 million, has been reflected as an
extraordinary loss in the consolidated statement of income in 1997.
The Credit Agreement and indentures relating to the Company's subordinated
debt contain restrictive covenants. The most restrictive of these covenants are
the financial covenants related to the maintenance of certain levels of leverage
and interest coverage. These agreements also restrict the Company's ability to
incur additional indebtedness, declare dividends, create liens, make investments
and advances and sell assets.
40
<PAGE> 43
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The scheduled maturities of long-term debt at December 31, 1998 for the
five succeeding years are as follows (in millions):
<TABLE>
<CAPTION>
YEAR MATURITIES
---- ----------
<S> <C>
1999........................................................ $ 16.5
2000........................................................ 31.2
2001........................................................ 1,026.3
2002........................................................ 138.1
2003........................................................ 5.1
</TABLE>
(10) NATIONAL INCOME TAXES
A summary of income before provision for national income taxes and
components of the provision for national income taxes is as follows (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income before provision for national income taxes, minority
interests in consolidated subsidiaries, equity in net
income of affiliates and extraordinary item:
Domestic.................................................. $ 98.9 $213.2 $135.7
Foreign................................................... 115.9 132.6 117.7
------ ------ ------
$214.8 $345.8 $253.4
====== ====== ======
Domestic provision for national income taxes:
Current provision......................................... $ 72.7 $109.8 $ 48.4
------ ------ ------
Deferred --
Deferred provision........................................ (14.2) (18.3) 2.8
Benefit of previously unbenefitted net operating loss
carryforwards.......................................... -- (5.9)
------ ------ ------
(14.2) (24.2) 2.8
------ ------ ------
Total domestic provision.................................... 58.5 85.6 51.2
------ ------ ------
Foreign provision for national income taxes:
Current provision......................................... 58.1 65.1 51.0
------ ------ ------
Deferred --
Deferred provision........................................ (17.4) (1.9) 6.6
Benefit of previously unbenefitted net operating loss
carryforwards.......................................... (5.3) (5.7) (7.3)
------ ------ ------
(22.7) (7.6) (.7)
------ ------ ------
Total foreign provision..................................... 35.4 57.5 50.3
------ ------ ------
Provision for national income taxes......................... $ 93.9 $143.1 $101.5
====== ====== ======
</TABLE>
41
<PAGE> 44
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The differences between tax provisions calculated at the United States
Federal statutory income tax rate of 35% and the consolidated national income
tax provision are summarized as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income before provision for national income taxes,
minority interests in consolidated subsidiaries,
equity in net income of affiliates and extraordinary
item multiplied by the United States Federal
statutory rate...................................... $ 75.2 $121.0 $ 88.7
Differences between domestic and effective foreign tax
rates............................................... 6.4 3.9 1.3
Net operating losses not tax benefited................ 14.3 10.2 15.8
Decrease in valuation allowance....................... (0.3) (3.6) (8.3)
Foreign subsidiary basis adjustment................... (13.9) -- --
Amortization of goodwill.............................. 13.5 12.4 10.4
Utilization of net operating losses and other......... (1.3) (.8) (6.4)
------ ------ ------
$ 93.9 $143.1 $101.5
====== ====== ======
</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 (asset) liability are
summarized as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Deferred national income tax liabilities:
Long-term asset basis differences........................ $ 52.5 $ 63.4
Taxes provided on unremitted foreign earnings............ -- 10.3
Deferred finance fees.................................... 1.7 2.9
Recoverable customer engineering and tooling............. 50.2 30.3
Other.................................................... 13.7 2.1
------- -------
$ 118.1 $ 109.0
======= =======
Deferred national income tax assets:
Tax credit carryforwards................................. $ -- $ (.3)
Tax loss carryforwards................................... (128.0) (78.7)
Retirement benefit plans................................. (28.6) (22.4)
Accruals................................................. (97.5) (64.8)
Self-insurance reserves.................................. (12.4) (11.6)
Asset valuations......................................... (0.8) (18.2)
Minimum pension liability................................ (6.4) (.3)
Deferred compensation.................................... (2.0) (2.4)
Other.................................................... (6.2) (8.8)
------- -------
(281.9) (207.5)
Valuation allowance........................................ 95.6 64.8
------- -------
$(186.3) $(142.7)
======= =======
Net deferred national income tax asset..................... $ (68.2) $ (33.7)
======= =======
</TABLE>
42
<PAGE> 45
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Deferred national income tax assets have been fully offset by a valuation
allowance in certain foreign tax jurisdictions due to a history of operating
losses. The classification of the net deferred national income tax asset is
summarized as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
---- ----
<S> <C> <C>
Deferred national income tax assets:
Current................................................... $(100.7) $(85.9)
Long-term................................................. (13.5) (15.0)
Deferred national income tax liabilities:
Current................................................... 7.0 5.5
Long-term................................................. 39.0 61.7
------- ------
Net deferred national income tax asset...................... $ (68.2) $(33.7)
------- ------
</TABLE>
Deferred national income taxes have not been provided on the undistributed
earnings of the Company's foreign subsidiaries as such amounts are either
considered to be permanently reinvested or would not create any additional U.S.
tax upon repatriation. The cumulative undistributed earnings at December 31,
1998 on which the Company had not provided additional national income taxes were
approximately $173.7 million.
As of December 31, 1998, the Company had tax loss carryforwards of $326.0
million which relate to certain foreign subsidiaries. Of the total loss
carryforwards, $179.5 million have no expiration and $146.5 million expire in
1999 through 2006.
(11) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has noncontributory defined benefit pension plans covering
certain domestic employees and certain employees in foreign countries. The
Company's salaried plans provide benefits based on a five-year average earnings
formula. Hourly pension plans provide benefits under flat benefit formulas. The
Company also has contractual arrangements with certain employees which provide
for supplemental retirement benefits. In general, the Company's policy is to
fund these plans based on legal requirements, tax considerations and local
practices.
The Company has postretirement plans covering a portion of the Company's
domestic employees and Canadian employees. The 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 postretirement benefit obligation. Rather, payments are made
as costs are incurred by covered retirees.
43
<PAGE> 46
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits". In accordance
with SFAS No. 132, the following tables provide a reconciliation of the change
in benefit obligation, the change in plan assets and the net amount recognized
in the consolidated balance sheets (based on a September 30 measurement date, in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
OTHER
PENSION POSTRETIREMENT
---------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year................... $201.0 $154.1 $ 70.2 $ 66.3
Service cost.............................................. 14.8 14.7 4.8 4.6
Interest cost............................................. 13.9 13.4 4.7 4.9
Amendments................................................ 0.9 8.1 -- --
Actuarial (gain) loss..................................... 7.0 4.7 (9.4) (3.6)
Acquisitions.............................................. -- 17.2 3.9 --
Benefits paid............................................. (7.1) (6.6) (1.9) (1.3)
Translation adjustment.................................... (6.7) (4.6) (1.4) (0.7)
------ ------ ------ ------
Benefit obligation at end of year........................... $223.8 $201.0 $ 70.9 $ 70.2
====== ====== ====== ======
Change in plan assets:
Fair value of plan assets at beginning of year............ $138.0 $108.0 $ -- $ --
Actual return on plan assets.............................. (6.6) 20.1 -- --
Employer contributions.................................... 18.8 15.3 1.9 1.3
Acquisitions.............................................. -- 3.6 -- --
Benefits paid............................................. (6.3) (5.8) (1.9) (1.3)
Translation adjustment.................................... (5.8) (3.2) -- --
------ ------ ------ ------
Fair value of plan assets at end of year.................... $138.1 $138.0 $ -- $ --
====== ====== ====== ======
Funded status............................................... $(85.7) $(63.0) $(70.9) $(70.2)
Unrecognized net actuarial (gain) loss...................... 21.7 (1.9) (13.9) (6.9)
Unrecognized net transition (asset) obligation.............. (2.4) (3.0) 27.2 27.5
Unrecognized prior service cost............................. 26.7 29.4 (2.9) 0.3
------ ------ ------ ------
Net amount recognized....................................... $(39.7) $(38.5) $(60.5) $(49.3)
====== ====== ====== ======
Amounts recognized in the consolidated balance sheets:
Prepaid benefit cost...................................... $ 12.2 $ 10.4 $ -- $ --
Accrued benefit liability................................. (93.6) (75.8) (60.5) (49.3)
Intangible asset.......................................... 23.5 26.1 -- --
Deferred tax asset........................................ 6.4 0.3 -- --
Accumulated other comprehensive income.................... 11.8 0.5 -- --
------ ------ ------ ------
Net amount recognized....................................... $(39.7) $(38.5) $(60.5) $(49.3)
====== ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $161.9 million, $156.8 million and $89.0 million,
respectively, as of December 31, 1998, and $136.0 million, $127.6 million and
$78.4 million, respectively, as of December 31, 1997.
44
<PAGE> 47
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Components of the Company's net periodic benefit costs are as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
PENSION OTHER POSTRETIREMENT
------------------------ -----------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost................................... $ 14.8 $14.7 $10.6 $ 4.8 $ 4.6 $ 4.2
Interest cost.................................. 13.9 13.4 10.6 4.7 4.9 4.0
Expected return on plan assets................. (10.8) (8.9) (7.0) -- -- --
Amortization of actuarial (gain) loss.......... (0.2) 0.1 0.8 (1.2) (0.3) (0.5)
Amortization of transition (asset)
obligation.................................. (0.4) (0.3) (0.2) 1.7 1.7 1.8
Amortization of prior service cost............. 2.3 2.4 1.7 (0.4) 0.1 0.2
------ ----- ----- ----- ----- -----
Net periodic benefit cost........................ $ 19.6 $21.4 $16.5 $ 9.6 $11.0 $ 9.7
====== ===== ===== ===== ===== =====
</TABLE>
The actuarial assumptions used in determining the funded status information
and net periodic benefit cost information shown above were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
OTHER
PENSION POSTRETIREMENT
--------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average assumptions:
Discount rate:
Domestic plans..................................... 6 3/4% 7 1/2% 6 3/4% 7 1/2%
Foreign plans...................................... 6-7% 4 1/2-7 1/2% 7% 8%
Expected return on plan assets:
Domestic plans..................................... 9% 9% N/A N/A
Foreign plans...................................... 7% 7 1/2% N/A N/A
Rate of compensation increase:
Domestic plans..................................... 4 1/4% 5% N/A N/A
Foreign plans...................................... 3-4 1/2% 1-5% N/A N/A
</TABLE>
For measurement purposes, domestic health care costs were assumed to
increase 8.8% in 1998, grading down over time to 5.5% in eight years. Foreign
health care costs were assumed to increase 8.0% in 1998, grading down over time
to 5.5% in fifteen years.
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the postretirement plans. A 1% rise in the assumed rate of
healthcare cost increases each year would increase the postretirement benefit
obligation as of December 31, 1998 by $10.7 million and increase the
postretirement net periodic benefit cost by $1.8 million for the year ended
December 31, 1998.
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 income was $12.1 million, $10.4 million and $4.7 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
(12) 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
45
<PAGE> 48
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Response, Compensation and Liability Act of 1980, as amended ("Superfund"), for
the cleanup of contamination from hazardous substances at one Superfund site and
may incur indemnification obligations for cleanup at three 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.
Approximately 21,000 of the Company's workforce worldwide are subject to
collective bargaining agreements, 38% of which expire within one year.
Relationships with all unions are good, and management does not anticipate any
difficulties with respect to the agreements.
Lease commitments at December 31, 1998 under noncancelable operating leases
with terms exceeding one year are as follows (in millions):
<TABLE>
<S> <C>
1999........................................................ $ 37.2
2000........................................................ 30.6
2001........................................................ 24.3
2002........................................................ 20.0
2003........................................................ 15.5
2004 and thereafter......................................... 24.9
------
Total....................................................... $152.5
======
</TABLE>
The Company's operating leases cover principally buildings and
transportation equipment. Rent expense incurred under all operating leases and
charged to operations was $60.6 million, $37.8 million and $29.8 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
(13) STOCK OPTION PLANS
The Company has four plans under which it has issued stock options, the
1992 Stock Option Plan, the 1994 Stock Option Plan, the 1996 Stock Option Plan
and the Long-Term Stock Incentive Plan. Options issued to date under these plans
generally vest over a three-year period and expire ten years from the original
plan date.
46
<PAGE> 49
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
As part of the Masland Acquisition (Note 4), outstanding Masland stock
options were converted into options to acquire 517,920 shares of the Company's
common stock at prices ranging from $11.63 to $30.17 per share. The value of the
Masland options converted as of the date of the acquisition was $9.0 million and
was included in the purchase price of the acquisition. A summary of options
transactions during each of the three years in the period ended December 31,
1998 is shown below:
<TABLE>
<CAPTION>
STOCK OPTIONS PRICE RANGE
------------- -----------
<S> <C> <C>
Outstanding at December 31, 1995.................. 4,476,910 $ 1.29 - $30.25
Granted......................................... 1,076,920 $11.63 - $33.00
Expired or cancelled............................ (36,000) $15.50 - $33.00
Exercised....................................... (1,832,588) $ 1.29 - $23.12
----------
Outstanding at December 31,1996................... 3,685,242 $ 1.29 - $33.00
Granted......................................... 554,000 $37.25
Expired or cancelled............................ (166,685) $ 1.29 - $37.25
Exercised....................................... (1,286,059) $ 1.29 - $33.00
----------
Outstanding at December 31, 1997.................. 2,786,498 $ 1.29 - $37.25
Granted......................................... 880,350 $54.22
Expired or cancelled............................ (84,378) $19.26 - $54.22
Exercised....................................... (320,379) $ 1.29 - $37.25
----------
Outstanding at December 31, 1998.................. 3,262,091 $ 5.00 - $54.22
==========
</TABLE>
At December 31, 1998, 1,397,143 stock options were exercisable at a
weighted average price of $11.83.
The Long-Term Stock Incentive Plan also permits the grants of stock
appreciation rights, restricted stock, restricted units, performance shares and
performance units (collectively "Incentive Units") to officers and other key
employees of the Company. As of December 31, 1998, the Company had outstanding
Incentive Units convertible into a maximum of 186,588 shares of common stock of
the Company.
Pro Forma
At December 31, 1998, the Company had several stock option plans, which are
described above. The Company applies APB Opinion 25 and related Interpretations
in accounting for its plans. Accordingly, compensation cost was calculated as
the difference between the exercise price of the option and the market value of
the stock at the date the option was granted. If compensation cost for the
Company's stock option plans was determined based on the fair value at the grant
dates consistent with the method prescribed in SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below (unaudited, in
millions, except per share data).
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
As Reported
Income before extraordinary item.................... $115.5 $208.2 $151.9
Net income.......................................... $115.5 $207.2 $151.9
Diluted income per share before extraordinary
item............................................. $ 1.70 $ 3.05 $ 2.38
Diluted net income per share........................ $ 1.70 $ 3.04 $ 2.38
Pro forma
Income before extraordinary item.................... $107.9 $204.3 $150.4
Net income.......................................... $107.9 $203.3 $150.4
Diluted income per share before extraordinary
item............................................. $ 1.59 $ 2.99 $ 2.36
Diluted net income per share........................ $ 1.59 $ 2.98 $ 2.36
</TABLE>
47
<PAGE> 50
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996: expected dividend yields of
0.0% and expected lives of 10 years. The risk-free interest rates used were
6 3/4% in 1998 and 7 1/2% in 1997 and 1996. The expected volatility used was
33.9% in 1998, 30.2% in 1997 and 31.5% in 1996.
(14) SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company is organized based on customer-focused and geographic
divisions. Each division reports their results from operations and makes
requests for capital expenditures directly to the chief operating decision
making group. This group is comprised of the Chairman & Chief Executive Officer,
the Vice-Chairman, the President and Chief Operating Officer and the Chief
Financial Officer. Under this organizational structure, the Company's operating
segments have been aggregated into one reportable segment. This aggregated
segment consists of eight divisions, each with separate management teams and
infrastructures dedicated to providing complete automotive interiors to its
respective automotive OEM customers. Each of the Company's eight divisions
demonstrate similar economic performance, mainly driven by automobile production
volumes in the geographic regions in which they operate. Also, each division
operates in the competitive "Tier 1" automotive supplier environment and
continually is working with its customers to manage costs without sacrificing
quality. All of the Company's manufacturing facilities use Just-In-Time (JIT)
manufacturing techniques to produce and distribute their automotive interior
products. These techniques include maintaining constant computer and other
communication connections between personnel at the Company's plants and
personnel at the customers' plants to keep production current with the
customers' demand. The Other category includes the corporate office, geographic
headquarters, technology division and elimination of intercompany activities,
none of which meet the requirements of being classified as an operating segment.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies described in Note 2.
The Company evaluates the performance of its operating segments based primarily
on sales, operating income before amortization and cash flow, being defined as
EBITA less capital expenditures plus depreciation.
The following table presents revenues and other financial information by
business segment (in millions):
<TABLE>
<CAPTION>
1998
--------------------------------------
AUTOMOTIVE
INTERIORS OTHER CONSOLIDATED
---------- ----- ------------
<S> <C> <C> <C>
Revenues...................................... $9,050.4 $ 9.0 $9,059.4
EBITA......................................... 537.1 (145.7) 391.4
Depreciation.................................. 161.2 9.3 170.5
Capital Expenditures.......................... 307.2 44.2 351.4
-------- -------- --------
Total assets............................. $3,812.5 $1,864.8 $5,677.3
======== ======== ========
</TABLE>
48
<PAGE> 51
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
1997
--------------------------------------
AUTOMOTIVE
INTERIORS OTHER CONSOLIDATED
---------- ----- ------------
<S> <C> <C> <C>
Revenues...................................... $7,330.0 $ 12.9 $7,342.9
EBITA......................................... 652.9 (130.4) 522.5
Depreciation.................................. 135.4 7.6 143.0
Capital Expenditures.......................... 168.7 19.2 187.9
-------- -------- --------
Total assets............................. $2,937.2 $1,521.9 $4,459.1
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------
AUTOMOTIVE
INTERIORS OTHER CONSOLIDATED
---------- ----- ------------
<S> <C> <C> <C>
Revenues...................................... $6,249.1 $ -- $6,249.1
EBITA......................................... 496.6 (87.2) 409.4
Depreciation.................................. 103.4 5.3 108.7
Capital Expenditures.......................... 139.4 14.4 153.8
-------- -------- --------
Total assets............................. $2,525.6 $1,291.2 $3,816.8
======== ======== ========
</TABLE>
The following table presents revenues and long-lived assets for each of the
geographic areas in which the Company operates (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
United States............................... $4,413.7 $3,609.4 $3,213.5
Canada...................................... 957.8 1,056.1 844.5
Germany..................................... 1,345.8 559.8 476.9
Other foreign countries..................... 2,342.1 2,117.6 1,714.2
-------- -------- --------
Total.................................... $9,059.4 $7,342.9 $6,249.1
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Long-lived assets:
United States............................... $ 705.0 $ 608.7 $554.5
Canada...................................... 82.9 62.9 66.4
Germany..................................... 132.6 101.1 58.3
Other foreign countries..................... 392.9 248.6 251.0
-------- -------- ------
Total.................................... $1,313.4 $1,021.3 $930.2
======== ======== ======
</TABLE>
A majority of the Company's revenues are from four automobile manufacturing
companies. The following is a summary of the percentage of revenues from major
customers:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
General Motors Corporation.................... 26% 27% 30%
Ford Motor Company............................ 23 29 32
DaimlerChrysler............................... 14 9 7
Fiat S.p.A.................................... 8 10 10
</TABLE>
49
<PAGE> 52
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In addition, a significant portion of the remaining revenues are to the
above automobile manufacturing companies through various other automotive
suppliers or to affiliates of these automobile manufacturing companies.
(15) FINANCIAL INSTRUMENTS
The Company hedges certain foreign currency risks through the use of
forward foreign exchange contracts and options. Such contracts are generally
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. The Company and its
subsidiaries contracted to exchange notional United States dollar equivalent
principal amounts of $289.8 million as of December 31, 1998 and $231.8 million
as of December 31, 1997. All contracts outstanding as of December 31, 1998
mature in 1999. The deferred gain on such contracts as of December 31, 1998 was
$.5 million compared to $.3 million as of December 31, 1997.
The carrying values of the Company's subordinated notes vary from the fair
values of these instruments. The fair values were determined by reference to
market prices of the securities in recent public transactions. As of December
31, 1998 and 1997, the aggregate carrying value of the Company's subordinated
notes was $336.0 million compared to an estimated fair value of $356.7 million
and $357.9 million, respectively. The carrying value of the Company's senior
indebtedness approximates its fair value which was determined based on rates
currently available to the Company for similar borrowings with like maturities.
The Company uses interest rate swap contracts to hedge against interest
rate risks in future periods. As of December 31, 1998, the Company had entered
into swap contracts with an aggregate notional value of $300.0 million with
maturities between fifteen months and ten years. Pursuant to each of the
contracts, the Company will make payments calculated at a fixed base rate of
between 4.6% and 6.0% of the notional value and will receive payments calculated
at the Libor rate. This effectively fixes the Company's interest rate on the
portion of the indebtedness under the Credit Agreement covered by the contracts.
The fair value of these contracts as of December 31, 1998 was a negative $12.2
million.
Several of the Company's European subsidiaries factor their accounts
receivable with financial institutions subject to limited recourse provisions
and are charged a discount fee ranging from 3.8% to 4.7%. The amount of such
factored receivables, which is not included in accounts receivable in the
consolidated balance sheets at December 31, 1998 and 1997, was approximately
$200.0 million and $137.0 million, respectively.
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," effective for fiscal years beginning after June 15,
1999. It requires all derivative instruments to be recorded in the balance sheet
at their fair value. Changes in the fair value of derivatives are required to be
recorded each period in current earnings or other comprehensive income,
depending on whether the derivative is designated as part of a hedge
transaction. We do not expect the effects of adoption to be significant.
50
<PAGE> 53
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(16) QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------------------------------
MARCH 28, JUNE 27, SEPTEMBER 26, DECEMBER 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $2,032.1 $2,175.0 $1,946.5 $2,905.8
Gross profit..................................... 200.2 231.6 162.0 267.6
Net income (loss)................................ 47.3 65.7 21.6 (19.1)
Diluted net income per share..................... .69 .96 .32 (.28)
</TABLE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------------------------------
MARCH 29, JUNE 28, SEPTEMBER 27, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $1,724.0 $1,839.3 $1,635.9 $2,143.7
Gross profit..................................... 177.9 213.5 175.3 242.7
Income before extraordinary item................. 41.9 61.1 36.6 68.6
Net income....................................... 41.9 61.1 35.6 68.6
Diluted net income per share before extraordinary
item........................................... .62 .90 .53 1.00
Diluted net income per share..................... .62 .90 .52 1.00
</TABLE>
(17) SUBSEQUENT EVENT
On March 16, 1999, the Company entered into a definitive purchase agreement
to acquire UT Automotive, Inc., a wholly-owned subsidiary of United Technologies
Corporation, for $2.3 billion. UT Automotive is a leading supplier of
electrical, electronic, motor, and interior products and systems to the global
automotive industry. Headquartered in Dearborn, Michigan, UT Automotive has
annual sales of approximately $3 billion, 44,000 employees and 90 facilities
located in 18 countries. In connection with the pending UT Automotive
acquisition, the Company has obtained a commitment from The Chase Manhattan Bank
to provide the additional financing required to fund the acquisition.
Consummation of the acquisition is contingent upon expiration or termination of
any applicable waiting periods under the federal Hart-Scott-Rodino Antitrust
Improvements Act.
51
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of LEAR CORPORATION AND SUBSIDIARIES ("the
Company") included in this Form 10-K, and have issued our report thereon dated
January 29, 1999 (except with respect to the matter discussed in Note 17, as to
which the date is March 16, 1999). Our audit was made for the purpose of forming
an opinion on those statements taken as a whole. The schedule on page 53 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
January 29, 1999.
52
<PAGE> 55
LEAR CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING OTHER AT END
OF PERIOD ADDITIONS RETIREMENTS CHANGES OF PERIOD
---------- --------- ----------- ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996:
Valuation of accounts deducted from related
assets:
Allowance for doubtful accounts................ $ 4.0 $ 3.3 $ (.6) $ 2.3 $ 9.0
Reserve for unmerchantable inventories......... 6.3 4.6 (1.0) (.6) 9.3
----- ------ ------ ----- ------
$10.3 $ 7.9 $ (1.6) $ 1.7 $ 18.3
===== ====== ====== ===== ======
FOR THE YEAR ENDED DECEMBER 31, 1997:
Valuation of accounts deducted from related
assets:
Allowance for doubtful accounts................ $ 9.0 $ 5.1 $ (2.6) $ 3.2 $ 14.7
Reserve for unmerchantable inventories......... 9.3 3.6 (3.7) 3.2 12.4
----- ------ ------ ----- ------
$18.3 $ 8.7 $ (6.3) $ 6.4 $ 27.1
===== ====== ====== ===== ======
FOR THE YEAR ENDED DECEMBER 31, 1998:
Valuation of accounts deducted from related
assets:
Allowance for doubtful accounts................ $14.7 $ 8.4 $ (5.8) $(1.3) $ 16.0
Reserve for unmerchantable inventories......... 12.4 8.0 (5.6) .1 14.9
Reserve for restructuring and other charges.... -- 133.0 (41.7) -- 91.3
----- ------ ------ ----- ------
$27.1 $149.4 $(53.1) $(1.2) $122.2
===== ====== ====== ===== ======
</TABLE>
53
<PAGE> 56
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 disclosures.
54
<PAGE> 57
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated by reference from the Proxy Statement sections entitled
"Election of Directors," and "Management."
ITEM 11 -- EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement section entitled
"Executive Compensation."
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Proxy Statement section entitled
"Management -- Security Ownership of Certain Beneficial Owners and Management."
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Proxy Statement section entitled
"Certain Transactions."
55
<PAGE> 58
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULE, 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 December 31, 1998 and 1997.
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.
Notes to Consolidated Financial Statements
2. Financial Statements Schedule:
Report of Independent Public Accountants
Schedule II -- Valuation and Qualifying Accounts
All other financial statement schedules are omitted because such
schedules are not required or the information required has been
presented in the aforementioned financial statements.
3. The exhibits listed on the "Index to Exhibits" on pages 50 through 51
are filed with this Form 10-K or incorporated by reference as set forth
below.
(b) The following reports on Form 8-K were filed during the quarter ended
December 31, 1998.
September 1, 1998 -- Form 8-K/A (filed November 17, 1998) relating to the
acquisition of Delphi Automotive Systems seating business.
(c) The exhibits listed on the "Index to Exhibits" on pages 50 through 51 are
filed with this Form 10-K or incorporated by reference as set forth below.
(d) Additional Financial Statement Schedules.
None.
56
<PAGE> 59
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 26, 1999.
Lear 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
Corporation and in the capacities indicated on March 26, 1999.
<TABLE>
<S> <C>
/s/ KENNETH L. WAY /s/ IRMA B. ELDER
- ----------------------------------------------------- -----------------------------------------------------
Kenneth L. Way Irma B. Elder
Chairman of the Board and a Director
Chief Executive Officer
/s/ ROBERT E. ROSSITER /s/ LARRY W. MCCURDY
- ----------------------------------------------------- -----------------------------------------------------
Robert E. Rossiter Larry W. McCurdy
President and Chief Operating a Director
Officer and a Director
/s/ JAMES H. VANDENBERGHE /s/ ROBERT W. SHOWER
- ----------------------------------------------------- -----------------------------------------------------
James H. Vandenberghe Robert W. Shower
Vice Chairman a Director
/s/ DONALD J. STEBBINS /s/ DAVID P. SPALDING
- ----------------------------------------------------- -----------------------------------------------------
Donald J. Stebbins David P. Spalding
Senior Vice President and a Director
Chief Financial Officer
/s/ DAVID BING /s/ JAMES A. STERN
- ----------------------------------------------------- -----------------------------------------------------
David Bing James A. Stern
a Director a Director
/s/ GIAN ANDREA BOTTA
- -----------------------------------------------------
Gian Andrea Botta
a Director
</TABLE>
57
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
30, 1996).
3.2 Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.4 to Lear's Registration Statement on
Form S-1 (No. 33-52565)).
4.1 Indenture dated as of July 1, 1996 by and between the
Company and the Bank of New York, as trustee, relating to
the 9 1/2% Subordinated Notes due 2006 (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 28, 1996).
4.2 Indenture dated as of February 1, 1994 by and between Lear
and The First National Bank of Boston, as Trustee, relating
to the 8 1/4% Subordinated Notes (incorporated by reference
to Exhibit 4.1 to the Company's Transition Report on Form
10-K filed on March 31, 1994).
10.1 $1,800,000 Amended and Restated Credit and Guarantee
Agreement dated as of December 20, 1996 (the "Credit
Agreement") among the Company, Lear Corporation Canada Ltd.,
the foreign subsidiary borrowers named therein, the several
financial institutions party thereto (collectively, the
"Lenders"), The Chase Manhattan Bank, as general
administrative agent for the Lenders and The Bank of Nova
Scotia, as Canadian administrative agent for the
Lenders,(incorporated by reference to Exhibit 10.1 to the
Company's Report on Form 10-K filed for the year ended
December 31, 1996).
10.2 First Amendment, dated as of November 26, 1997 of the
$1,800,000 Amended and Restated Credit and Guarantee
Agreement, dated as of December 20, 1996 among the Company,
Lear Corporation Canada, Ltd., the foreign subsidiary
borrowers named therein, the several financial institutions
party thereto (collectively, the "Lenders"), the Managing
Agents named therein, the Co-Agents named therein, the Lead
Managers named therein, and The Bank of Nova Scotia and The
Chase Manhattan Bank, as administrative agents for the
Lenders thereunder, (incorporated by reference to Exhibit
10.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.3 Second Amendment and Release, dated as of May 26, 1998, of
the Amended and Restated Credit and Guarantee Agreement
dated as of December 20, 1996 among the Company, Lear
Corporation Canada Ltd., the foreign subsidiary borrowers
listed therein, the several financial institutions party
thereto, The Chase Manhattan Bank, as general administrative
agent, and The Bank of Nova Scotia, as Canadian
administrative agent, filed herewith.
10.4 Employment Agreement dated March 20, 1995 between the
Company and Kenneth L. Way (incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.5 Employment Agreement dated March 20, 1995 between the
Company and Robert E. Rossiter (incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.6 Employment Agreement dated March 20, 1995 between the
Company and James H. Vandenberghe (incorporated by reference
to Exhibit 10.11 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.7 Employment Agreement dated May 29, 1996 between the Masland
Corporation and Dr. Frank J. Preston, (incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.8 Employment Agreement dated March 20, 1995 between the
Company and Donald J. Stebbins, filed herewith.
</TABLE>
58
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
10.9 Lear's 1992 Stock Option Plan (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1993).
10.10 Amendment to Lear's 1992 Stock Option Plan (incorporated by
reference to Exhibit 10.26 to the Company's Transition
Report on Form 10-K filed on March 31, 1994).
10.11 Lear's 1994 Stock Option Plan (incorporated by reference to
Exhibit 10.27 to the Company's Transition Report on Form
10-K filed on March 31, 1994).
10.12 Masland Holdings, Inc. 1991 Stock Purchase and Option Plan
(incorporated by reference to Exhibit 99.4 to the Company's
Current Report on Form 8-K dated June 27, 1996).
10.13 Masland Corporation 1993 Stock Option Incentive Plan
(incorporated by reference to Exhibit 99.5 to the Company's
Current Report on Form 8-K dated June 27, 1995).
10.14 Lear's Supplemental Executive Retirement Plan, dated as of
January 1, 1995 (incorporated by reference to Exhibit 10.28
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.15 Share Purchase Agreement dated as of December 10, 1996,
between the Company and Borealis Holding AB, (incorporated
by reference to Exhibit 10.23 to the Company's Report on
Form 10-K for the year ended December 31, 1996).
10.16 Agreement and Plan of Merger dated as of May 23, 1996, by
and among the Company, PA Acquisition Corp. and Masland
Corporation (incorporated by reference to Exhibit 2.1 to the
Company's Registration Statement on Form S-3 (No.
333-05809)).
10.17 Agreement and Plan of Merger dated as of July 16, 1995,
among the Company, AIHI Acquisition Corp. and Automotive
Industries Holding, Inc. (incorporated by reference to the
Exhibit 2.1 to the Company's Current Report on Form 8-K
dated August 17, 1995).
10.18 Lear Corporation 1996 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 28, 1997)
10.19 Lear Corporation Long-Term Stock Incentive Plan, as amended
and restated (incorporated by reference to Exhibit 10.2 to
the Company's quarterly Report on Form 10Q for the quarter
ended June 28, 1997.
10.20 Lear Corporation Outside Directors Compensation Plan, as
amended and restated (incorporated by reference to Exhibit
10.3 to the Company's quarterly Report on Form 10-Q for the
quarter ended June 28, 1997.
10.21 Purchase Agreement dated as of May 26, 1997 amend Keiper
GmbH & Co., Putsch GmbH & Co. KG, Keiper Recaro GmbH, Keiper
Car Seating Verwaltungs GmbH, Lear Corporation GmbH & Co.,
and Lear Corporation (incorporated by reference to Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1997.
10.22 Operating Agreement of Lear Donnelly Overhead Systems,
L.L.C. dated as of the 1st day of November, 1997, by and
between the Company and Donnelly Corporation, (incorporated
by reference to Exhibit 10.28 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.23 Form of the Lear Corporation Long-Term Stock Incentive Plan
Deferral and Restricted Stock Unit Agreement, (incorporated
by reference to Exhibit 10.29 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.24 Form of the Lear Corporation 1996 Stock Option Plan Stock
Option Agreement, (incorporated by reference to Exhibit
10.30 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
</TABLE>
59
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
10.25 Restricted Property Agreement dated as of December 17, 1997
between the Company and Robert E. Rossiter (incorporated by
reference to Exhibit 10.29 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.26 Lear Corporation 1992 Stock Option Plan, 3rd amendment dated
March 14, 1997 (incorporated by reference to Exhibit 10.30
to the Company's Annual Report of Form 10-K for the year
ended December 31, 1997).
10.27 Lear Corporation 1992 Stock Option plan, 4th amendment dated
August 4, 1997 (incorporated by reference to Exhibit 10.31
to the Company's Annual Report of Form 10-K for the year
ended December 31, 1997).
10.28 Lear Corporation 1994 Stock Option Plan, Second Amendment
effective January 1, 1996, filed herewith.
10.29 Lear Corporation 1994 Stock Option Plan, Third Amendment
effective March 14, 1997, filed herewith.
10.30 Lear Corporation Long-Term Stock Incentive Plan, Third
Amendment effective February 26, 1998, filed herewith
10.31 The Master Sale and Purchase Agreement between General
Motors Corporation and the Company, dated August 31, 1998,
relating to the sale and purchase of the world-wide seating
business operated by The Delphi Interior & Lighting System
Division of General Motors Corporation's Delphi Automotive
Systems business sector, filed herewith.
11.1 Computation of income (loss) per share, filed herewith.
21.1 List of subsidiaries of the Company, filed herewith.
23.1 Consent of independent public accountants, filed herewith.
27.1 Financial Data Schedule, filed herewith.
</TABLE>
60
<PAGE> 1
EXHIBIT 10.3
SECOND AMENDMENT AND RELEASE
SECOND AMENDMENT AND RELEASE, dated as of May 26, 1998 (this "Amendment"),
to the Amended and Restated Credit and Guarantee Agreement, dated as of December
20, 1996 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among LEAR CORPORATION, a Delaware corporation (the "U.S.
Borrower"), LEAR CORPORATION CANADA LTD., a company organized under the laws of
the province of Ontario, Canada (the "Canadian Borrower"), the FOREIGN
SUBSIDIARY BORROWERS parties thereto (together with the U.S. Borrower and the
Canadian Borrower, the "Borrowers"), the several banks and other financial
institutions from time to time parties thereto (the "Lenders"), the Managing
Agents named therein (the "Managing Agents"), the Co-Agents named therein (the
"Co-Agents"), the Lead Managers named therein (the "Lead Managers"), and THE
BANK OF NOVA SCOTIA, a Canadian chartered bank (as hereinafter defined, the
"Canadian Administrative Agent"), and THE CHASE MANHATTAN BANK, a New York
banking corporation (as hereinafter defined, the "General Administrative
Agent"), as administrative agents for the Lenders thereunder (collectively, the
"Administrative Agents").
WITNESSETH:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make,
and have made, extensions of credit to the Borrowers; and
WHEREAS, the Borrowers have requested that certain provisions of the Credit
Agreement and the other Loan Documents (as defined in the Credit Agreement) be
modified in the manner provided for in this Amendment, and the Lenders are
willing to agree to such modifications as provided for in this Amendment;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other good and valuable consideration, the sufficiency
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
2. Amendments to Credit Agreement. (a) Subsection 13.8 of the Credit
Agreement is hereby amended by deleting such subsection in its entirety and
substituting in lieu thereof the following:
"13.8 [RESERVED]"
<PAGE> 2
2
(b) Subsection 13.10 of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and substituting in lieu thereof the
following:
"13.10 [RESERVED]"
(c) Schedule I of the Credit Agreement is hereby amended by deleting
such Schedule in its entirety and substituting in lieu thereof Schedule I
attached hereto.
3. Releases. The Lenders and the General Administrative Agent hereby
(a) release the guarantors under the Subsidiary Guarantee and the Additional
Subsidiary Guarantee from all their respective obligations under such
Guarantees, (b) release the security interest in all collateral held by the
General Administrative Agent under the Pledge Agreements and (c) release the
pledgors under the Pledge Agreements from all their respective obligations under
the Pledge Agreements. The Lenders hereby authorize and direct the General
Administrative Agent to take such actions as it shall deem appropriate to effect
such release, including the execution and delivery of such release instruments
as it shall deem appropriate. The parties to the Credit Agreement agree that,
notwithstanding any provision contained in the Credit Agreement or the other
Loan Documents to the contrary, (i) all obligations of the Loan Parties
contained in the Credit Agreement and the other Loan Documents with respect to
(A) the Subsidiary Guarantee, (B) the Additional Subsidiary Guarantee and (C)
the Pledge Agreements (collectively, the "Released Documents") are hereby
released and (ii) all references in the Credit Agreement and the other Loan
Documents to the Released Documents shall have no force or effect.
4. Conditions to Effectiveness. This Amendment shall become effective
on the date (the "Amendment Effective Date") that the following conditions
precedent have been satisfied:
(a) the General Administrative Agent shall have received counterparts
hereof, duly executed and delivered by the Borrowers, the Swing Line Lender
and all the Lenders;
(b) The General Administrative Agent shall have received, with a
copy for each Lender, a certificate of the Secretary or Assistant Secretary
of the U.S. Borrower, dated the Amendment Effective Date, as to the
incumbency and signature of its officers executing this Amendment, together
with satisfactory evidence of the incumbency of such Secretary or
Assistant Secretary;
(c) the General Administrative Agent shall have received, with a copy
for each Lender, a copy of the resolutions in form and substance
satisfactory to the General Administrative Agent, of the Board of Directors
(or the executive committee thereof) of the U.S. Borrower authorizing the
execution, delivery and performance of the U.S. Borrower of this Amendment,
which certificate shall state that the resolutions thereby certified have
not been amended, modified, revoked or rescinded as of the Amendment
Effective Date; and
<PAGE> 3
3
(d) the General Administrative Agent shall have received, with a
copy for each Lender, an opinion, dated the Amendment Effective Date, of
Winston & Strawn, special counsel to the U.S. Borrower, in form and
substance satisfactory to the General Administrative Agent.
5. Representations and Warranties. The Borrowers represent and
warrant that the representations and warranties made by the Borrowers in the
Loan Documents are true and correct in all material respects on and as of the
Amendment Effective Date, before and after giving effect to the effectiveness
of this Amendment, as if made on and as of the Amendment Effective Date, except
to the extent such representations and warranties expressly relate to an
earlier date.
6. Payment of Expenses. The Borrowers agree to pay or reimburse the
General Administrative Agent for all of its out-of-pocket costs and reasonable
expenses incurred in connection with this Amendment and any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of counsel
to the General Administrative Agent.
7. No Other Amendments; Confirmation. Except as expressly amended,
modified and supplemented hereby, the provisions of the Credit Agreement, the
Notes and the other Loan Documents are and shall remain in full force and
effect.
8. Governing Law; Counterparts. (a) This Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties to this
Amendment on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. A set
of the copies of this Amendment signed by all the parties shall be lodged with
the U.S. Borrower and the General Administrative Agent. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
9. Exiting Lenders. Each Lenders which after the Amendment Effective
Date no longer holds a Commitment (an "Exiting Lender") is executing this
Amendment solely for the purpose of acknowledging that its Commitment will
terminate on the Amendment Effective Date upon repayment in full of all amounts
owing to it under the Credit Agreement on the Amendment Effective Date. The
modifications to the Credit Agreement and the other Loan Documents, effected by
this Amendment are being approved by Lenders holding 100% of the Commitments
after giving effect to termination of the Commitments of the Lenders on the
Amendment Effective Date. On the Amendment Effective Date, the Borrowers shall
effect such borrowings and repayments among the Lenders (which need not be pro
rata among the Lenders) so that, after giving effect thereto, (a) the respective
principal amounts of the Canadian Revolving Credit Loans to the Canadian
Borrower held by the Canadian Lenders shall be pro rata according to their
respective Canadian Revolving Credit Commitment Percentages, as amended hereby,
(b) the respective principal amounts of Multicurrency Loans to any Borrower
<PAGE> 4
4
held by the Multicurrency Lenders shall be pro rata according to their
respective Multicurrency Commitment Percentages, as amended hereby and (c) the
Committed Outstandings Percentage of each U.S. Lender will equal (as nearly as
possible) its U.S. Revolving Credit Commitment Percentage, as amended hereby.
The Borrowers shall remain obligated to pay any amounts due pursuant to
subsection 10.11 of Credit Agreement in connection with such prepayments.
<PAGE> 5
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
LEAR CORPORATION
By: [SIG]
------------------------
Title:
LEAR CORPORATION CANADA LTD.
By: [SIG]
------------------------
Title:
LEAR CORPORATION SWEDEN AB
By:
------------------------
Title:
LEAR FRANCE SARL
By:
------------------------
Title:
LEAR CORPORATION GMBH & CO. KG
By:
------------------------
Title:
NS BETEILIGUNG GMBH
By:
------------------------
Title:
<PAGE> 6
SCHEDULE 1
----------
COMMITMENTS; ADDRESSES
A. U.S. Revolving Credit Commitment and Multicurrency Commitment Amounts (U.S.
Dollars)
<TABLE>
<CAPTION>
U.S. REVOLVING CREDIT MULTICURRENCY
U.S. LENDER COMMITMENT COUNTERPART LENDER COMMITMENT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ABN AMRO Bank N.V., Chicago
Branch $50,000,000 $35,000,000
The Asahi Bank, Ltd. $35,000,000
Banca Commerciale Italiana $15,000,000
Banca Nazionale del Lavoro
S.p.A., New York Branch $15,000,000
Bank Austria Aktiengesellschaft $20,000,000
Bank of America NT & SA $75,000,000 $35,000,000
The Bank of New York $50,000,000 $35,000,000
The Bank of Nova Scotia $75,000,000 The Bank of Nova Scotia
The Bank of Tokyo-Mitsubushi
Ltd., New York Branch $50,000,000
Bankers Trust Company $87,500,000
Banque Nationale de Paris $50,000,000 $30,000,000
Banque Paribas $35,000,000 $15,000,000
</TABLE>
<PAGE> 7
2
<TABLE>
<CAPTION>
U.S. REVOLVING CREDIT MULTICURRENCY
U.S. LENDER COMMITMENT COUNTERPART LENDER COMMITMENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CARIPLO Cassa di Risparmio delle
Provincie Lombarde SPA $15,000,000
Credit Agricole Indosuez $35,000,000 $10,000,000
The Chase Manhattan Bank $95,000,000 $85,000,000
Canadian Imperial
Bank of
CIBC, Inc. $50,000,000 Commerce
Citicorp USA, Inc. $87,500,000 $40,000,000
Comerica Bank $60,000,000 $10,000,000
Credito Italiano S.p.A. $15,000,000
Credit Lyonnais Chicago Branch $45,000,000 $10,000,000
CS First Boston Group, Inc. $25,000,000
The Dai-Ichi Kangyo Bank, Ltd.,
Chicago Branch $30,000,000
Den Danske Bank $25,000,000
DG Bank $25,000,000
Deutsche Bank AG $50,000,000
Dresdner Bank AG New York and Grand
Cayman Branches $35,000,000 $35,000,000
First American National Bank $15,000,000
BankBoston N.A. $35,000,000 $30,000,000
</TABLE>
<PAGE> 8
3
<TABLE>
<CAPTION>
U.S. REVOLVING CREDIT MULTICURRENCY
U.S. LENDER COMMITMENT COUNTERPART LENDER COMMITMENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NBD Bank $50,000,000 $35,000,000
Fifth Third Bank $20,000,000
First Union National
Bank of North Carolina $50,000,000 $20,000,000
Fleet National Bank $45,000,000
The Fuji Bank, Limited $35,000,000
Gulf International
Bank B.S.C. $15,000,000
The Industrial Bank of
Japan, Limited $50,000,000
Istituto Bancario Sao
Paolo Di Torino SpA $20,000,000
KeyBank National
Association $50,000,000
Kredietbank N.V. $25,000,000 $15,000,000
Lehman Commercial
Paper Inc. $25,000,000
The Long-Term Credit
Bank of Japan, Ltd. $35,000,000
Michigan National Bank
of Detroit $20,000,000
Morgan Guaranty Trust
Company of New York $25,000,000
National City Bank $25,000,000
NationsBank, N.A. $75,000,000 $35,000,000
</TABLE>
<PAGE> 9
4
<TABLE>
<CAPTION>
U.S. REVOLVING CREDIT MULTICURRENCY
U.S. LENDER COMMITMENT COUNTERPARTY LENDER COMMITMENT
-------------------------- --------------------- ------------------- -------------
<S> <C> <C> <C>
The Northern Trust Company $25,000,000
Royal Bank of Canada $35,000,000 Royal Bank of
Canada
The Sakura Bank, Ltd. $10,000,000
The Sanwa Bank, Limited,
Chicago Branch $50,000,000
Societe Generale $30,000,000 $ 10,000,000
The Sumitomo Bank, Chicago Branch $35,000,000
Suntrust Bank, Atlanta $30,000,000
Svenska Handelsbanken $20,000,000
The Toronto-Dominion Bank $50,000,000
Wachovia Bank $25,000,000
U.S. Bank National Association $25,000,000 $ 15,000,000
--------------- ------------
TOTAL $21,100,000,000 $500,000,000
=============== ============
</TABLE>
<PAGE> 10
5
B. Canadian Commitment Amounts (U.S. Dollars)
<TABLE>
<CAPTION>
CANADIAN REVOLVING CREDIT
CANADIAN LENDER COMMITMENT COUNTERPART LENDER
- ---------------------------------------------------------------------------------
<S> <C> <C>
The Bank of Nova Scotia $20,000,000 The Bank of Nova
Scotia
Canadian Imperial Bank of $20,000,000 CIBC, Inc.
Commerce
Royal Bank of Canada $10,000,000 Royal Bank of Canada
-----------
TOTAL $50,000,000
===========
</TABLE>
<PAGE> 1
EXHIBIT 10.8
March 20, 1995
Mr. Donald J. Stebbins
3003 Woodcreek Way
Bloomfield, MI 48304
Dear Mr. Stebbins:
Lear Seating Corporation (the "Company") considers it essential to its
best interest and the best interests of its stockholders to foster the
continuous employment of key management personnel.
The Board of Directors of the Company (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management, including
yourself, to their assigned duties. In order to induce you to remain in the
employ of the Company, and in consideration of your agreement to the termination
of any existing employment contract you may have with the Company or any
predecessor; the Company agrees that you shall receive, upon the terms and
conditions set forth herein, the compensation and benefits set forth in this
letter agreement ("Agreement") during the Term hereof.
1. Term of Agreement. This Agreement shall commence as of the Effective
Date (as defined on the signature page hereof) and shall continue in effect
until the second anniversary of such date (the "Term"). The Term may be extended
pursuant to paragraph 12, hereafter.
2. Terms of Employment. During the Term, you agree to be a full-time
employee of the Company serving in the position of Vice President, Treasurer and
Assistant Secretary of the Company and to devote substantially all of your
working time and attention to the business and affairs of the Company and, to
the extent necessary to discharge the responsibilities associated with your
position as Vice President, Treasurer and Assistant Secretary of the Company, to
use your best efforts to perform faithfully and efficiently such
responsibilities. In addition, you agree to serve in such other capacities or
offices to which you may be assigned, appointed or elected from time to time by
the Board. Nothing herein shall prohibit you from devoting your time to civic
and community activities, serving as a member of the Board of Directors of other
corporations who do not compete with the Company (provided that you have
received prior written approval from the Company's Chairman), or managing
personal investments, as long as the foregoing do not interfere with the
performance of your duties hereunder.
<PAGE> 2
3. Compensation.
(i) As compensation for your services, under this Agreement,
you shall be entitled to receive an initial base salary of $
per annum, to be paid in accordance with existing payroll
practices for executives of the Company. Increases in your
base salary, if any, shall be determined by the Compensation
Committee of the Board of Directors. In addition, you shall be
eligible to receive an annual incentive compensation bonus
("Bonus") to be determined from time to time by the Compensation
Committee of the Board of Directors of the Company.
(ii) In addition to compensation provided for in Subsection
(i) of this Section 3, the Company agrees (A) to provide the
same or comparable benefits with respect to any compensation
or benefit plan in which you participate as of the Effective
Date which is material to your total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan; and
(B) to maintain your ability to participate therein (or in
such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the opportunities provided
and the level of your participation relative to other
participants, than exists on the Effective Date.
(iii) The Company shall reimburse you for all reasonable
travel, entertainment and other business expenses incurred by
you in the performance of your responsibilities under this
Agreement promptly upon receipt of written substantiation of
such expenses. You shall also be paid all additional amounts
necessary to discharge all federal and state tax liabilities
incurred by you that are attributable to all deemed compensation
arising as a consequence of your personal use of property owned
or leased by the Company, excepting only your personal use of
any Company aircraft, including federal and state taxes assessed
against such additional compensation.
(iv) You shall be entitled to perquisites available to all
other executives of the Company and shall be entitled to ____
weeks of vacation per year.
4. Termination of Employment. Your employment may be terminated by
either the Company or you by giving a Notice of Termination, as defined in
Subsection (iv) of this Section 4. If your employment should terminate during
the Term, your entitlement to benefits shall be determined in accordance with
Section 5 hereof.
(i) Disability. If, as a result of your incapacity
due to physical or mental illness, you are unable to perform
your duties hereunder for more than six consecutive months or
six months aggregate during any twelve month period, your
employment may be terminated for "Disability".
(ii) Cause. Termination of your employment for
"Cause" shall mean termination
2
<PAGE> 3
upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than
any such failure resulting from your Disability), (B) the
engaging by you in conduct which is significantly injurious to
the Company, monetarily or otherwise, (C) your conviction of a
felony, (D) your abuse of illegal drugs or other controlled
substances or your habitual intoxication, or (E) the breach of
any of your material obligations hereunder including without
limitation any breach of Section 9 or 10 hereof. For purposes of
this Subsection, no act or failure to act, on your part shall be
deemed "willful" unless knowingly done, or omitted to be done,
by you not in good faith and without reasonable belief that your
action or omission was in the best interest of the Company.
(iii) Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without your express written
consent, of any of the following circumstances unless such
circumstances are fully corrected prior to the Date of
Termination specified in the Notice of Termination, as such
terms are defined in Subsections (v) and (iv) of this Section 4,
respectively, given in respect thereof:
(A) The permanent assignment to you of any duties
inconsistent with your status as an executive officer
of the Company, your physical relocation on a permanent
basis to an area outside of the metropolitan Detroit
area, a substantial adverse alteration in the nature or
status of your responsibilities from those in effect
immediately prior to such assignment of duties, your
removal from any office specified in Section 2 hereof;
(B) Any reduction by the Company in your base salary
as in effect from time to time, except for
across-the-board salary reductions similarly affecting
all executive officers of the Company;
(C) The failure by the Company to pay or provide to
you within seven (7) days of receipt by the Company of
your written demand any amounts of base salary or Bonus
or any benefits which are due, owing and payable to you
pursuant to the terms hereof, except pursuant to an
across-the-board compensation deferral similarly
affecting all executive officers, or to pay to you any
portion of an installment of deferred compensation due
under any deferred compensation program of the Company;
(D) Except in the case of across-the-board reductions,
deferrals or eliminations similarly affecting all
executive officers of the Company, the failure by the
Company to (i) continue in effect any compensation plan
in which you participate which is material to your total
compensation, including but not limited to the Company's
plans currently in effect or hereafter adopted, and any
plans adopted in substitution therefore, or (ii)
continue to provide you with benefits substantially
similar, in aggregate, to the Company's life insurance,
medical, dental, health, accident or disability plans
3
<PAGE> 4
in which you are participating at the date of this
Agreement; or
(E) The failure of the Company to obtain a
satisfactory agreement from any successor to assume and
agree to perform this Agreement, as contemplated in
Section 7 hereof.
Your continued employment with the Company shall not
constitute consent to, or a waiver of rights with respect to,
any circumstance constituting Good Reason hereunder.
(iv) Notice of Termination. Any termination of your
employment by the Company or by you shall be communicated by
written Notice of Termination to the other party hereto in
accordance with Section 8 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this
agreement relied upon, if any, and shall set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the
provision so indicated.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for Disability
pursuant to Subsection (i) of this Section 4, thirty (30) days
after Notice of Termination is given (provided that you shall
not have returned to the full-time performance of your duties
during such thirty (30) day period), (B) if your employment is
terminated by reason of your death, the date of your death,
(C) if by you for Good Reason or by either party for any other
reason (other than Disability, death, or your voluntary
resignation without Good Reason), the date specified in the
Notice of Termination (which, in the case of a termination by
you for Good Reason, shall not be less than thirty (30) nor
more than sixty (60) days from the date such Notice of
Termination is given), and (D) if your employment is
terminated by your voluntary resignation without Good Reason
(as defined in Subsection (iii) of this Section 4), the Date
of Termination shall be forty-five (45) days from the date
such Notice of Termination is given or such other date as may
be identified by the Company. Unless the Company instructs you
not to do so, you shall continue to perform services as
provided in this Agreement through the Date of Termination.
5. Compensation Upon Termination or During Disability. Upon
termination of your employment with the Company during the Term, you shall be
entitled to the following compensation and benefits:
(i) If your employment is terminated for Disability, you
shall receive until the end of the Term all compensation
payable to you under the Company's disability and medical
plans and programs, as in effect on the Date of Termination
plus an additional payment from the Company (if necessary)
such that the aggregate amount received by you in the nature
of salary continuation from all sources equals your base
salary at the rate in effect on the Date of Termination. After
the end of the Term,
4
<PAGE> 5
your benefits shall be determined under the Company's
retirement, insurance and other compensation programs then in
effect in accordance with the terms of such programs, provided
that such terms shall not be less advantageous to you than the
terms of such programs in effect as of the Effective Date.
(ii) If your employment shall be terminated (A) by
the Company for Cause, or (B) by you other than for Good
Reason, the Company shall pay you your full base salary
through the Date of Termination, at the rate in effect at the
time Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation or benefit plans
of the Company at the time such payments are due, and the
Company shall have no further obligations to you under this
Agreement. Provided, however, that if your employment is
terminated by your voluntary resignation without Good Reason,
you shall be compensated per this Paragraph only to the extent
that you actively performed your assigned responsibilities
through the Date of Termination.
(iii) If your employment shall be terminated by reason of
your death, the Company shall pay your estate or designated
beneficiary (as designated by you by written notice
to the Company, which designation shall remain in effect for
the remainder of the Term and any extensions thereof until
revoked or a new beneficiary is designated, in either case by
written notice to the Company) your full base salary through
the Date of Termination and for a period of 12 whole calendar
months thereafter plus, if the Date of Termination shall not
occur on the first day of a calendar month, the balance of the
month in which the Date of Termination occurs, at the rate in
effect at the time of your death, plus any Bonus earned,
prorated for the portion of the Bonus measurement period
occurring prior to the date of your death, plus all other
amounts to which you are entitled under any compensation or
benefit plans of the Company at the date of your death, and
the Company shall have no further obligation to you, your
beneficiaries or your estate under this Agreement.
(iv) If your employment shall be terminated (a) by
the Company other than for Cause or Disability or (b) by you
for Good Reason, then you shall be entitled to the benefits
provided below:
(A) The Company shall pay you your full base salary
through the Date of Termination at the rate in effect
at the time Notice of Termination is given (or, if
greater, at the rate in effect 30 days prior to the
time Notice of Termination is given), plus all other
amounts to which you are entitled under any
compensation or benefit plans of the Company,
including without limitation, any Bonus measurement
period occurring prior to the Date of Termination, at
the time such payments are due, except as otherwise
provided below;
(B) in lieu of any further salary payment to you
for periods subsequent to
5
<PAGE> 6
the Date of Termination, the Company shall pay to you
your full base salary at the rate in effect
immediately prior to the time Notice of Termination is
given (or, if greater, at the rate in effect 30 days
prior to the time Notice of Termination is given),
payable periodically in accordance with past payroll
practices, until the end of the Term;
(C) in lieu of any further Bonus payments to you
for periods subsequent to the Date of Termination,
the Company shall pay to you a Bonus payable in each
March following the Date of Termination in respect of
the previous plan fiscal year equal to the quotient
obtained by aggregating the Bonuses received by you
in respect of the two plan fiscal years ending prior
to the Date of Termination (the "Bonus Period") and
dividing such sum by two. Such Bonus shall be paid in
respect of each plan fiscal year or portion thereof
ending after the Date of Termination until the end of
the Term, and shall be prorated for partial years, if
any, including without limitation the portion of the
calendar year occurring after the Date of Termination
and the final plan fiscal year in respect of which
any such March Bonus is payable pursuant to this
Section 5(iv)(C). Provided, however, that the amount
of bonus to be paid pursuant to this Paragraph shall
not be greater than the amount of bonus that would
have been paid in accordance with Bonus Plans,
existing from time to time, had your employment not
been terminated;
(D) until the end of the Term, you will continue to
participate in all other compensation and benefit
plans (including perquisites) in which you were
participating immediately prior to the time Notice of
Termination is given, or comparable plans substituted
therefor; provided, however, that if you are
ineligible, (e.g., by operation of law or the terms
of the applicable plan to continue to participate in
any such plan) the Company will provide you with a
comparable level of compensation or benefits;
(E) the Company shall also pay to you all
reasonable legal fees and expenses incurred by you in
contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit
provided by this Agreement if such termination is
determined by arbitration to have been for Good
Reason or other than Cause or Disability; and
(F) if you should die after the Date of Termination
and prior to the end of the period of payment provided
for in paragraphs (B), (C), and (D) hereof, the
Company shall pay your estate or your designated
beneficiary any amounts that are or become payable
pursuant to any of such paragraphs until the end of
the Term.
(v) You shall be required to mitigate the amount of
any payment provided for in subsection (iv) of this Section 5
by seeking and accepting, if offered, other
6
<PAGE> 7
comparable employment, taking into consideration the
provisions of Section 9 of this Agreement, and the
amount of any payment provided for in this Section 5
shall be reduced by any compensation earned by you
during the remainder of the Term as the result of your
employment by another employer, or offset against any
amount owed by you to the Company or as otherwise
receivable by you pursuant to Subsection 5(iv)(D)
shall be reduced to the extent a comparable benefit of
the same type was made available to you during the
applicable period of benefit continuation set forth in
such Subsection. Any compensation and benefits
actually received by you shall be promptly reported to
the Company.
(vi) In addition to all other amounts payable to you
under this Section 5, you shall be entitled to receive
all benefits payable to you pursuant to the terms of
any plan or agreement of the Company relating to
retirement benefits.
6. Travel. You shall be required to travel to the extent
necessary for the performance of your responsibilities under this Agreement.
7. Successors; Binding Agreement. The Company will, by
Agreement in form and substance satisfactory to you, require any successor
(whether direct or indirect, by purchase merger, consolidation or otherwise) to
all or substantially all the business and/or assets of the Company, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall entitle you to
compensation from the Company in the same amount and on the same terms as you
would be entitled to hereunder if you terminate your employment for Good Reason,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as herein before
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
8. Notices. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the
Secretary of the Company (or, if you are the Secretary at the time such notice
is to be given, to the Company's Board of Directors), or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
9. Noncompetition.
(i) Until the Date of Termination, you agree not to
enter into competitive endeavors and not to undertake
any commercial activity which is contrary to the best
interests of the Company or its affiliates, including
becoming an employee, owner
7
<PAGE> 8
(except for passive investments of not more than one percent of the
outstanding shares of, or any other equity interest in, any company
or entity listed or traded on a national securities exchange or in
an over-the-counter securities market), officer, consultant, agent
or director of any firm or person which either directly competes
with a line or lines of business of the Company accounting for ten
percent (10%) or more of the Company's gross sales, revenues or
earnings before taxes or derives ten percent (10%) or more of such
firm's or person's gross sales, revenues or earnings before taxes
from a line or lines of business which directly compete with the
Company. Notwithstanding any provision of this Agreement to the
contrary, you agree that your breach of the provisions of this
Section 9(i) shall permit the Company to terminate your employment
for Cause.
(ii) If you are terminated for Cause, until the later of one
year after the Date of Termination and during any period that you
continue to be paid your salary (including any other payments in
lieu of salary) pursuant to Section 5 hereof and for one year
thereafter, or if you resign or are terminated other than for
Cause, until the later of the Date of Termination and during any
period that you continue to be paid your salary (including any
other payment in lieu of salary) pursuant to Section 5 hereof, you
agree not to become an employee, owner (except for passive
investments of not more than one percent of the outstanding shares
of, or any other equity interest in, any company or entity listed
or traded on a national securities exchange or in an over-the-
counter securities market), consultant, officer, agent or director
of any firm or person which directly competes with a business of the
Company producing any class of products accounting for ten percent
(10%) or more of the Company's gross sales, revenues or earnings
before taxes. During the period of payment provided in Section 5
hereof, you will be available, consistent with other
responsibilities that you may then have, to answer questions and
provide advice to the Company. Notwithstanding anything in this
Agreement to the contrary, you agree that, from and after any breach
by you of the provisions of this Section 9(ii), the Company shall
cease to have any obligations to make payments to you under this
Agreement.
(iii) If you are terminated for Cause, until the later of one year
after the Date of Termination and during any period that you
continue to be paid your salary (including any other payments in
lieu of salary) pursuant to Section 5 hereof and for one year
thereafter, or if you resign or are terminated other than for Cause,
until the later of the Date of Termination and during any period
that you continue to be paid your salary (including any other
payment in lieu of salary) pursuant to Section 5 hereof, you shall
not directly or indirectly, either on your own account or with or
for anyone else, (A) solicit or attempt to solicit any of the
Company's customers (B) solicit or attempt to solicit for any
business endeavor any employee of the Company or (C) otherwise
divert or attempt to divert from the Company any business whatsoever
or interfere with any business relationship between the Company and
any other person.
(iv) You acknowledge and agree that damages for breach of the
covenant not to
8
<PAGE> 9
compete in this Section 9 will be difficult to determine and will
not afford a full and adequate remedy, and therefore agree that the
Company, in addition to seeking actual damages pursuant to Section
11 hereof, may seek specific enforcement of the covenant not to
compete in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction,
without the necessity of a bond. You and the Company agree that the
provisions of this covenant not to compete are reasonable. However,
should any court or arbitrator determine that any provision of this
covenant not to compete is unreasonable, either in period of time,
geographical area, or otherwise, the parties agree that this
covenant not to compete should be interpreted and enforced to the
maximum extent which such court or arbitrator deems reasonable.
10. Confidentiality.
(i) You shall not knowingly use, disclose or reveal to any
unauthorized person, during or after the Term, any trade secret or
other confidential information relating to the Company or any of its
affiliates, or any of their respective businesses or principals,
such as, without limitation, dealers' or distributor's lists,
information regarding personnel and manufacturing processes,
marketing and sales plans, and all other such information; and you
confirm that such information is the exclusive property of the
Company and its affiliates. Upon termination of your employment, you
agree to return to the Company on demand of the Company all
memoranda, books, papers, letters and other data, and all copies
thereof or therefrom, in any way relating to the business of the
Company and its affiliates, whether made by you or otherwise in your
possession.
(ii) Any ideas, processes, characters, productions, schemes,
titles, names, formats, adaptations, plots, slogans, catchwords,
incidents, treatment, and dialogue which you may conceive, create,
organize, prepare or produce during the period of your employment
and which ideas, processes, etc. relate to any of the businesses of
the Company, shall be owned by the Company and its affiliates
whether or not you should in fact execute an assignment thereof or
other instrument or document which may be reasonably necessary to
protect and secure such rights to the Company.
(iii) Notwithstanding anything in this Agreement to
the contrary, you agree that from and after any breach by you
of the provisions of this Section 10 during any period of
payment provided in Section 5 hereof, the Company shall cease
to have any obligations to make payments to you under this
Agreement.
9
<PAGE> 10
11. Arbitration.
(i) Except as contemplated by Section 9 (iii), Section 9, (iv),
and Section 11 (iii) hereof, any dispute or controversy arising
under or in connection with this Agreement that cannot be mutually
resolved by the parties to this Agreement and their respective
advisors and representatives shall be settled exclusively by
arbitration in Southfield, Michigan before one arbitrator of
exemplary qualifications and stature, who shall be selected jointly
by an individual to be designated by the Company and an individual
to be selected by you, or if such two individuals cannot agree on
the selection of the arbitrator, who shall be selected pursuant to
the procedures of the American Arbitration Association.
(ii) The parties agree to use their best efforts to cause (a) the
two individuals set forth in the preceding Section 11 (i), or, if
applicable, the American Arbitration Association, to appoint the
arbitrator within 30 days of the date that a party hereto notifies
the other party that a dispute or controversy exists that
necessitates the appointment of an arbitrator, and (b) any
arbitration hearing to be held within 30 days of the date of
selection of the arbitrator, and, as a condition to his or her
selection, such arbitrator must consent to be available for a hearing
at such time.
(iii) Judgment may be entered on the arbitrator's award in any
court having jurisdiction, provided that you shall be entitled to
seek specific performance of your right to be paid and to participate
in benefit programs during the pendency of any dispute or controversy
arising under or in connection with this Agreement. The Company and
you hereby agree that the arbitrator shall be empowered to enter an
equitable decree mandating specific performance of the terms
of this Agreement.
(iv) If you prevail in full or in substantial part, the Company
shall bear all expenses of the arbitrator incurred in any arbitration
hereunder. The Company agrees to pay your reasonable and documented
legal fees and expenses in connection with any arbitration hereunder
if you prevail in full or in substantial part.
12. Extension of Term. The Term of this Agreement shall be
automatically extended for a period of one year on each anniversary of the
Effective Date of this Agreement. There shall be no renewal of the Term after
the Date of Termination.
13. Modifications. No provision of this Agreement may be modified,
amended, waived or discharged unless such modification, amendment, waiver or
discharge is agreed to in writing and signed by both you and such officer of the
Company as may be specifically designated by the Board.
14. No Implied Waivers. Failure of either party at any time to require
performance by the other party of any provision hereof shall in no way affect
the full right to require such performance at any time thereafter. Waiver by
either party of a breach of any obligation hereunder shall not constitute a
waiver of any succeeding breach of the same obligation. Failure of either party
10
<PAGE> 11
to exercise any of its rights provided herein shall not constitute a waiver of
such right.
15. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Michigan.
16. Payments Net of Taxes. Any payments provided for herein which are
subject to Federal, State or local tax or other withholding requirements, shall
have such amounts withheld prior to payment.
17. Survival of Obligations. The obligations of the Company under
Section 5(iii) and your obligations under Sections 9 and 10 hereof shall survive
the expiration of the Term of this Agreement.
18. Capacity of Parties. The parties hereto warrant that they have the
capacity and authority to execute this Agreement.
19. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of the Agreement, which shall remain in full force and effect.
20. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
21. Entire Agreement. This Agreement and any attachments hereto,
contain the entire agreement by the parties with respect to the matters covered
herein and supersedes any prior agreement (including without limitation any
prior employment agreement), condition, practice, custom, usage and obligation
with respect to such matters insofar as any such prior agreement, condition,
practice, custom, usage or obligation might have given rise to any enforceable
right. No agreements, understandings or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject, effective on March 20, 1995
("Effective Date").
Sincerely,
LEAR SEATING CORPORATION
BY:
------------------------------
Agreed to this_____ day of March, 1995
BY:
-------------------------------
11
<PAGE> 1
EXHIBIT 10.28
SECOND AMENDMENT
TO
LEAR SEATING CORPORATION 1994 STOCK OPTION PLAN
WHEREAS, Lear Corporation (the "Corporation") maintains the Lear Seating
Corporation 1994 Stock Option Plan (the "Plan"); and
WHEREAS, amendment of the Plan is now considered desirable;
NOW, THEREFORE, by virtue and exercise of the power given the compensation
Committee in Section 6(i), Section 6(g) of the Plan is amended effective January
1, 1996 by adding the following at the end thereof:
"Notwithstanding any other provision in the Plan to the contrary, a Grantee
who terminates employment after December 31, 1995 due to retirement (as
defined in Section 6(g)(i)), disability (as defined in Section 6(g)(ii)) or
death and who is not a "covered employee" within the meaning of Code
Section 162(m) during 1996 shall have the right to exercise an option, to
the extent vested, as follows:
(I) If such a Grantee terminates employment due to retirement (as
defined in Section 6(g)(i), he or she shall have the right to
exercise the Option within thirteen months following such retirement
(but not later than the date the Option would otherwise expire) 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 thirteen months following
such retirement. However, in the event of such a Grantee's death
prior to the end of the thirteen-month period after the Grantee's
termination of employment due to retirement, his or her estate shall
have the right to exercise the Option thirteen months following the
termination of employment due to retirement (but not later than the
date the Option would otherwise expire) 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.
Options held by the Grantee that are not exercised within said
period terminate.
(II) If such a Grantee dies while employed by the Company, such Grantee's
estate shall have the right to exercise the Option for a period of
thirteen months following the date of such death (but not later than
the date on which the Option would otherwise expire). Options held
by the Grantee that are not exercised within said period terminate.
<PAGE> 2
(III) If such a Grantee terminates employment is by reason of disability
(as defined in Section 6(g)(iii), such Grantee shall have the right
to exercise the Option for a period of thirteen months from the date
employment terminates due to disability (but not later than the date
on which the Option would otherwise expire). Options held by the
Grantee that are not exercised within said period terminate."
-2-
<PAGE> 1
EXHIBIT 10.29
EXHIBIT D
---------
THIRD AMENDMENT TO THE
LEAR CORPORATION
1994 STOCK OPTION PLAN
The Lear Corporation 1994 Stock Option Plan shall be amended
effective as of March 14, 1997 as follows:
1. The third paragraph of Section 6(b) is deleted in its entirety
and the following new paragraph inserted in lieu thereof:
"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)
Common 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 Common Stock of the Company. 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. Notwithstanding the foregoing, the Grantee may elect in his or
her exercise notice to pay any withholding tax, up to the minimum
withholding requirements for supplemental wages, with either (A) shares
of the Company's Common Stock issuable to the Grantee upon exercise of
the option or (B) shares of Common Stock already owned by, and in the
possession of, the Grantee, with a fair market value equal to the
minimum required withholding tax. Shares of Common 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."
2. Paragraph (iv) of Section 6(g) shall be deleted in its
entirety and the following new paragraph (iv) inserted in lieu thereof:
"(iv) Other Reasons. Except as provided under Section 6(d) hereof,
in the case of a Grantee who terminates employment 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) (a) may, within the 30-day period following
such termination, exercise the Option to the extent that it was vested
and exercisable on the date of his or her employment and (b) shall
forfeit any Option to the extent that it was not vested and exercisable
on the date of his or her termination of employment. Notwithstanding
the foregoing, for Options granted after December 31, 1996, if the
Grantee voluntarily terminates employment other than as provided under
"Retirement," "Death," or "Disability," the Grantee or his or her
estate (in the event of his or her death after such termination) shall
forfeit the right (whether or not vested) to exercise the Option on the
date of his or her termination of employment."
<PAGE> 2
3. Section 4(b) of each Stock Option Agreement granted under the
Plan shall be amended by inserting the following at the end thereof:
"The Grantee may elect in his or her exercise notice to pay any
withholding tax, up to the minimum withholding requirement for
supplemental wages, with shares of Common Stock in accordance with
Section 6(b) of the Plan."
<PAGE> 1
EXHIBIT 10.30
THIRD AMENDMENT
TO THE
LEAR CORPORATION LONG-TERM STOCK INCENTIVE PLAN
The Lear Corporation Long-Term Stock Incentive Plan shall be amended
effective as of February 26, 1998 by deleting Section 2.1 and inserting the
following:
"2.1 'Affiliates' means any corporation (or partnership, joint
venture, or other enterprise) of which the Company owns or controls,
directly or indirectly, at least forty-five percent of the outstanding
shares of stocknormally entitled to vote for the election of directors
(or comparable equity participation and voting power). Notwithstanding
the foregoing, for purposes of determining whether an employee has
terminated employment with the Company and all Affiliates,
'Affiliates' shall mean any corporation (or partnership, joint
venture, or other enterprise) of which the Company owns or controls,
directly or indirectly, at least ten percent of the outstanding shares
of stock normally entitled to vote for the election of directors (or
comparable equity participation and voting power)."
<PAGE> 1
EXHIBIT 10.31
Dated August 31, 1998
GENERAL MOTORS CORPORATION
AND
LEAR CORPORATION
MASTER SALE AND PURCHASE AGREEMENT
relating to the sale and purchase of the world-wide
seating business operated by The Delphi
Interior & Lighting Systems Division of General Motors
Corporation's Delphi Automotive Systems business sector
1
<PAGE> 2
TABLE OF CONTENTS
1. CONVEYANCE OF THE ACQUIRED ASSETS AND THE SALE SECURITIES
..............................................................................12
1.1. ACQUIRED ASSETS .........................................................12
1.1.1. Acquired US Assets ..................................................12
1.1.2. Acquired European Assets ............................................13
1.2. EXCLUDED ASSETS .........................................................13
1.2.1. GM Bailed Assets ....................................................13
1.2.2. Personnel and Medical Records .......................................13
1.2.3. Third Party Assets ..................................................14
1.2.4. Certain Current Assets ..............................................14
1.2.5. Certain Contracts ...................................................14
1.2.6. Product Evaluation Vehicles, Pooled Vehicles ........................14
1.2.7. Tax Refunds .........................................................15
1.2.8. Certain Real Property ...............................................15
1.2.9. Intellectual Property ...............................................15
1.2.10.Privileged Information and Materials ................................15
1.2.11.Insurance ...........................................................15
1.3. POST-CLOSING ASSET DELIVERIES ...........................................15
1.4. NON-ASSIGNABLE PERMITS AND CONTRACTS ....................................16
1.4.1. Non-assignability ...................................................16
1.4.2. Efforts to Obtain Consents, Approvals and Waivers....................16
1.4.3. If Waivers, Approvals or Consents Cannot be Obtained.................16
1.4.4. Obligation of Purchaser to Perform ..................................17
1.5. SALE SECURITIES..........................................................17
2. PURCHASE PRICE ............................................................17
2.1. PURCHASE PRICE ..........................................................17
2.1.1. Basic Price .........................................................18
2.2. CLOSING PAYMENT .........................................................18
2.3. PREPARATION OF CLOSING INVENTORY STATEMENT ..............................18
2.4. PREPARATION OF NET WORTH STATEMENT ......................................20
2.5. PURCHASE PRICE ADJUSTMENT ...............................................21
2.6. PRORATIONS,ADJUSTMENTS OF EXPENSES FOLLOWING THE CLOSING ................22
2.6.1. Prorations ..........................................................22
2.6.2. Further Assurance ...................................................23
2.6.3. Payments ............................................................23
2.6.4. Prosecution of Claims ...............................................24
2.7. ALLOCATION OF PURCHASE PRICE WITH RESPECT TO ACQUIRED ASSETS ............24
3. ASSUMPTION OF LIABILITIES RELATING TO SEATING BUSINESS ....................25
3.1. ASSUMED LIABILITIES......................................................25
3.2. EXCLUDED LIABILITIES.....................................................25
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4. REPRESENTATIONS AND WARRANTIES ........................................................26
4.1. REPRESENTATIONS AND WARRANTIES OF GM ................................................26
4.1.1. Corporate Data ..................................................................26
4.1.2. Corporate Power; Due Authorization ..............................................27
4.1.3. Qualification ...................................................................27
4.1.4. Sufficiency of Acquired Assets ..................................................27
4.1.5. Assets ..........................................................................27
4.1.6. Litigation ......................................................................28
4.1.7. Intellectual Property and Technical Information .................................29
4.1.8. Compliance with Other Instruments and Laws; Permits .............................30
4.1.9. Brokers .........................................................................30
4.1.10. Consents .......................................................................30
4.1.11. Financial Statements ...........................................................31
4.1.12. Events Subsequent to Latest Annual Financial Statements ........................32
4.1.13. Contracts ......................................................................32
4.1.14. Regulatory Matters .............................................................34
4.1.15. Real Property ..................................................................34
4.1.16. Tax Matters ....................................................................37
4.1.17. No Conflicts ...................................................................39
4.1.18. Employee Pension Benefits Plans ................................................39
4.1.19. Related Party Transactions .....................................................39
4.1.20. Full Disclosure ................................................................40
4.1.21. Awarded Business ...............................................................40
4.1.22. Absence of Other Representations or Warranties .................................40
4.1.23. Capitalization of Sale Companies and JV Companies and Related Matters ..........40
4.1.24. Additional Disclosure ..........................................................41
4.2. REPRESENTATIONS AND WARRANTIES OF PURCHASER .........................................41
4.2.1. Corporate Data ..................................................................42
4.2.2. Corporate Power; Due Authorization ..............................................42
4.2.3. Qualification ...................................................................42
4.2.4. No Consent Required .............................................................42
4.2.5. Brokers .........................................................................43
4.2.6. No Conflicts ....................................................................43
4.3. INTERPRETATION ......................................................................43
5. PERSONNEL MATTERS .....................................................................44
5.1. RESPONSIBILITY FOR EMPLOYEES ......................................................44
5.2. SPECIAL PROVISIONS RELATING TO HOURLY EMPLOYEES ...................................45
5.3. SPECIAL PROVISIONS RELATING TO SALARIED EMPLOYEES .................................49
5.4. ASSUMPTION OF LIABILITIES .........................................................50
5.5. RETIREMENT PROGRAM AND PENSION PLANS ..............................................51
5.5.1. Replacement Retirement Program ................................................51
5.5.2. GM Retirement Program Amendments ..............................................52
5.5.3. Replacement Pension Plan ......................................................54
5.5.4. GM Pension Plan Amendments ....................................................56
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5.5.5. Recognition of Age and Credited Service Grants ..........................................57
5.5.6. Pro-Rata Share ..........................................................................58
5.5.7. Transfer of Liabilities and Assets ......................................................58
5.6. CERTAIN INSURANCE MATTERS ...................................................................61
5.7. PURCHASER BENEFIT PLANS .....................................................................64
5.8. EMPLOYEE INFORMATION; COOPERATION IN ESTABLISHING PURCHASER BENEFIT PLANS....................65
5.9 WRONGFUL ACTS................................................................................65
5.10. PROVISIONS REGARDING PURCHASER'S AGREEMENTS, BENEFIT PLANS AND POLICIES.....................65
5.11. GRIEVANCES .................................................................................65
5.12. SAVINGS PLAN TRANSFERS .....................................................................66
5.13. ALLOCATION OF RESPONSIBILITY FOR SUGGESTIONS EXISTING AS OF CLOSING ........................66
5.14. VEHICLE PURCHASE PROGRAM ...................................................................67
5.15. PROFIT SHARING .............................................................................67
5.16. VACATION ...................................................................................67
5.17. TRAINING ...................................................................................67
5.18. TUITION REIMBURSEMENT EXPENSES .............................................................68
5.19. WORKERS' COMPENSATION ......................................................................68
5.20. LEGAL SERVICES PLAN ........................................................................68
5.21. GM PRE-CLOSING INDEMNITY ...................................................................69
5.22. TRANSFER OF OVERSEAS EMPLOYEES .............................................................69
5.23. NOVATION OF CONTRACTS OF EMPLOYMENT OF OVERSEAS EMPLOYEES ..................................69
5.24. PURCHASER POST-CLOSING INDEMNITY(OVERSEAS EMPLOYEES) .......................................69
5.25. GM PRE-CLOSING INDEMNITY OF OVERSEAS EMPLOYEES .............................................70
5.26. CONSULTATION AND NEGOTIATION DUTIES ........................................................70
5.27. PENSION SCHEMES AND BENEFIT PLANS...........................................................70
5.28. SALES OF PRODUCTIVE ASSETS .................................................................70
6. REAL PROPERTY MATTERS .........................................................................71
6.1. CONVEYANCE...................................................................................71
6.2. TITLE........................................................................................71
6.3. LAND SURVEY..................................................................................72
6.4. AUBURN HILLS PLANT...........................................................................72
6.5. EUROPEAN REAL PROPERTY MATTERS...............................................................72
7. ENVIRONMENTAL MATTERS .........................................................................72
7.1. DEFINITIONS..................................................................................72
7.2. ENVIRONMENTAL ASSESSMENTS AND COMPLIANCE AUDITS .............................................75
7.2.1. Environmental Confidentiality and Access Agreement ........................................76
7.2.2. Environmental Assessments ...............................................................76
7.2.3. Environmental Compliance Audits .........................................................76
7.2.4. Baseline Environmental Assessment .......................................................76
7.3. GM REMEDIATION AND CORRECTIVE ACTION ........................................................77
7.3.1. GM Remediation ..........................................................................77
7.3.2. Remedial Action Plans ...................................................................77
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7.3.3. Remedial Action Factors..............................................................77
7.3.4. PCBs.................................................................................78
7.3.5. ACM..................................................................................78
7.3.6. GM Compliance Action Plans...........................................................78
7.3.7. No Other Obligation..................................................................78
7.3.8. Non-Interference.....................................................................78
7.3.9. Purchaser's Review Period............................................................78
7.3.10. Modification Based on Purchaser's Input.............................................79
7.3.11. Implementation......................................................................79
7.3.12. Clean Closure.......................................................................79
7.3.13. Purchaser's Obligations.............................................................80
7.4. ACCESS...................................................................................80
7.4.1. GM Access............................................................................80
7.4.2. Access Limitations...................................................................80
7.5. UNITED STATES REAL PROPERTY - USE RESTRICTIONS...........................................81
7.5.1. Generator-Only Status................................................................81
7.5.2. Tranfers.............................................................................81
7.5.3. Removal of Improvements..............................................................81
7.5.4. Cost of New Development..............................................................81
7.5.5. Notice Filing........................................................................82
7.6. TRANSITION - PERMITS / ENVIRONMENTAL COMMITTEE ..........................................82
7.6.1. Environmental Permits................................................................82
7.6.2. Transfer.............................................................................82
7.6 3. Environmental Committee..............................................................83
7.7. WASTE MANAGEMENT.........................................................................83
7.7.1. Hazardous Waste Removal..............................................................83
7.7.2. Post-Closing Waste Management........................................................83
7.7.3. No Arrangement for Disposal..........................................................84
7.8. GM'S REPRESENTATIONS AND WARRANTIES......................................................84
7.9. PURCHASER'S COVENANTS, OBLIGATIONS AND ACKNOWLEDGEMENTS..................................85
7.9.1. Purchaser Obligations in Connection with GM's Remedial Actions.......................85
7.9.2. Disclosure and Recordation...........................................................86
7.9.3. Purchaser's Additional Acknowledgements..............................................86
7.10. DEFENSE AND INDEMNIFICATION OBLIGATIONS.................................................87
7.10.1. GM's Defense and Indemnification Obligations........................................87
7.10.2. Purchaser's Defense and Indemnification Obligations.................................88
7.10.3. Apportionment.......................................................................89
7.10.4. Indemnification Procedures..........................................................89
7.10.5. Third-Party Claims .................................................................89
7.11. CONFIDENTIALITY.........................................................................90
7.11.1. Environmental Confidentiality Agreement.............................................90
7.11.2. Confidentiality Obligations.........................................................90
7.11.3. Disclosures.........................................................................90
7.11.4. Notification........................................................................91
7.11.5. Public Information .................................................................91
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7.12. DISPUTE RESOLUTION......................................................................91
7.13. MISCELLANEOUS...........................................................................92
7.13.1. Designation of Representatives......................................................92
7.13.2. Exclusivity.........................................................................92
7.13.3. Covenant Not to Sue.................................................................93
7.13.4. Reporting...........................................................................93
7.13.5. Notices.............................................................................94
7.14. DEFINITIONS.............................................................................94
7.15. NON-US ENVIRONMENTAL ASSESSMENTS AND COMPLIANCE AUDITS..................................98
7.15.1. Environmental Confidentiality and Access Agreement .................................98
7.15.2. Environmental Assessments...........................................................98
7.15.3. Environmental Compliance Audits.....................................................98
7.16. GM REMEDIATION AND CORRECTIVE ACTION - NON-US...........................................99
7.16.1. GM Remediation......................................................................99
7.16.2. GM Remedial Action Plans............................................................99
7.16.3. Remedial Action Factors.............................................................99
7.16.4. GM Compliance Action Plans..........................................................100
7.16.5. No Other Obligation.................................................................100
7.16.6. Non-Interference....................................................................100
7.16.7. Purchaser's Review Period...........................................................100
7.16.8. Modification based on Purchaser's Input.............................................100
7.16.9. Implementation......................................................................101
7.16.10. Clean Closure......................................................................101
7.16.11. Purchaser's Obligations............................................................101
7.17. ACCESS - NON-US.........................................................................101
7.17.1. GM Access...........................................................................101
7.17.2. Access Limitations..................................................................102
7.18. USE RESTRICTIONS - NON-US...............................................................102
7.18.1. Transfers ..........................................................................102
7.18.2. Removal of Improvements.............................................................103
7.18.3. Cost of New Development.............................................................103
7.18.4. Notice Filing.......................................................................103
7.19. TRANSITION - NON-US PERMITS - ENVIRONMENTAL COMMITTEE AND WASTE MANAGEMENT..............104
7.19.1. Non-US Environmental Permits........................................................104
7.19.2. Non-US Environmental Permits - Transition...........................................104
7.19.3. Environmental Committee.............................................................105
7.19.4. Hazardous Waste Removal.............................................................105
7.19.5. Post-Closing Waste Management.......................................................105
7.19.6. No Arrangement for Disposal.........................................................105
7.20. GM's REPRESENTATIONS AND WARRANTIES - NON-US............................................105
7.21. PURCHASER'S COVENANTS, OBLIGATIONS AND ACKNOWLEDGMENTS - NON-US.........................107
7.21.1. Purchaser Obligations in Connection with GM's Remedial Actions - NON-US ............107
7.21.2. Disclosure and Recordation..........................................................108
7.21.3. Purchaser's Additional Acknowledgments..............................................108
</TABLE>
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<TABLE>
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7.21.4. Purchaser Remediation and Corrective Action - Non-US.................................108
7.22. DEFENSE AND INDEMNIFICATION OBLIGATIONS - NON-US.........................................112
7.22.1. GM's Defense and Indemnification Obligations.........................................112
7.22.2. Purchaser's Defense and Indemnification Obligations - Non-US.........................114
7.22.3. Apportionment .......................................................................115
8. CLOSING.....................................................................................116
8.1. THE CLOSING...............................................................................116
8.2. ANCILLARY AGREEMENTS......................................................................116
8.3. GM's OBLIGATIONS..........................................................................117
8.4. PURCHASER'S OBLIGATIONS...................................................................117
9. CERTAIN ADDITIONAL COVENANTS................................................................118
9.1. FURTHER ASSURANCES........................................................................118
9.2. TRANSITION SERVICES TO PURCHASER AND THE PURCHASER GROUP AND ON-GOING
ASSISTANCE.....................................................................................118
9.3. BOOKS AND RECORDS AND LITIGATION ASSISTANCE . ............................................118
9.4. TECHNICAL INFORMATION.....................................................................120
9.5. PAYMENT AND COLLECTIONS...................................................................120
9.6. NON-COMPETITION...........................................................................121
9.7. CHANGE OF NAME OF SALE COMPANIES AND JV COMPANIES.........................................122
9.8. INTELLECTUAL PROPERTY AND TECHNICAL INFORMATION RIGHTS AND LICENSES.......................122
9.9. GOVERNMENT GRANTS.........................................................................126
9.10. DELPHI GLIWICE - RETURN OF SHAREHOLDER ADDITIONAL PAYMENTS ..............................128
9.11. PAYMENTS FROM FIAT AUTO..................................................................129
9.12. PEREGRINE................................................................................129
9.13. SOUTH AFRICAN BUSINESS INTER-COMPANY LOAN ...............................................129
9.14. CERTAIN MEXICO BUSINESS MATTERS..........................................................130
9.15. ITT COMPONENT SUPPLY AGREEMENT...........................................................130
9.16. POST CLOSING FINANCIAL SCHEDULE..........................................................131
10. INDEMNIFICATION............................................................................131
10.1. SURVIVAL.................................................................................131
10.2. INDEMNIFICATION..........................................................................131
10.2.1. Indemnification Provisions for the Benefit of Purchaser .............................131
10.2.2. Indemnification Provisions for the Benefit of GM.....................................133
10.2.3. Mitigation...........................................................................134
10.3. CLAIMS RELATED TO PURCHASE PRICE ADJUSTMENTS.............................................134
10.4. INDEMNIFICATION PROCEDURE AS TO THIRD-PARTY CLAIMS.......................................134
10.5. TAX INDEMNITY............................................................................136
10.6. EXCLUSIVE REMEDY.........................................................................139
10.7. DISPUTE RESOLUTION.......................................................................140
11. MISCELLANEOUS..............................................................................140
11.1. BULK SALES LAWS..........................................................................140
11.2. NOTICES..................................................................................141
</TABLE>
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11.3. ASSIGNMENT..............................................................................141
11.4. ENTIRE AGREEMENT........................................................................142
11.5. WAIVER..................................................................................142
11.6. SEVERABILITY............................................................................142
11.7. AMENDMENT...............................................................................142
11.8. FEES AND EXPENSES.......................................................................142
11.9. THIRD PARTIES...........................................................................143
11.10. HEADINGS...............................................................................143
11.11. COUNTERPARTS...........................................................................143
11.12. GOVERNING LAW..........................................................................143
11.13. SALES OR TRANSFER TAXES................................................................143
</TABLE>
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<PAGE> 9
MASTER SALE AND PURCHASE AGREEMENT
THIS MASTER SALE AND PURCHASE AGREEMENT (this "Agreement") dated as of August
31, 1998, and entered into by and between LEAR CORPORATION, a Delaware
corporation ("Purchaser") and GENERAL MOTORS CORPORATION, a Delaware corporation
("GM"), through the Delphi Interior and Lighting Systems Division of its Delphi
Automotive Systems business sector.
RECITALS
WHEREAS:
[A] GM, itself and through other members of the GM Group (as hereinafter
defined), is engaged in the Combined Business (as hereinafter defined);
[B] Purchaser and members of the Purchaser Group (as hereinafter defined) desire
to purchase substantially all of the assets of the US Business (as
hereinafter defined) subject to certain liabilities to be assumed by
Purchaser and members of the Purchaser Group, and GM desires to sell such
assets on the terms and subject to the conditions set forth in this
Agreement;
[C] Lear Corporation GmbH & Co. KG has agreed to purchase and Delphi Automotive
Systems Deutschland GmbH has agreed to sell certain assets on the terms and
subject to the conditions set forth in this Agreement and the Transfer
Agreement relating to the German Business (as hereinafter defined);
[D] Lear Corporation Italia S.p.A. has agreed to purchase and Delphi Italia
Automotive Systems Srl has agreed to sell certain assets on the terms and
subject to the conditions set forth in this Agreement and the Transfer
Agreement relating to the Italian Business (as hereinafter defined);
[E] Lear Corporation Poland S.p. z.o.o. has agreed to purchase and Delphi
Automotive Systems Poland S.p. z.o.o. has agreed to sell certain assets on
the terms and subject to the conditions set forth in this Agreement and the
Transfer Agreement relating to the Polish Asset Business (as hereinafter
defined);
[F] Purchaser has agreed to purchase and GM has agreed to sell 80 equal and
indivisible shares of 50 Zloties each in the share capital of Delphi Gliwice
S.p. z.o.o. on the terms and subject to the conditions set forth in this
Agreement and the Transfer Agreement relating to the Polish Share Business
(as hereinafter defined);
[G] Purchaser has agreed to purchase and GM has agreed to sell 80 ordinary
shares of 1.00 Rand each in the share capital of Delphi Interior Systems
South Africa (Pty) Limited
<PAGE> 10
on the terms and subject to the conditions set forth in this Agreement and
the Transfer Agreement relating to the South African Business (as
hereinafter defined);
[H] Lear Corporation Spain, S.L. has agreed to buy and Delphi Unicables S.A. has
agreed to sell 36,000 shares of 10,000 Pesetas each in the share capital of
Delphi Asientos S.A. on the terms and subject to the conditions set forth in
this Agreement and the Transfer Agreement relating to the Spanish Share
Business (as hereinafter defined);
[I] Lear Corporation Spain, S.L. has agreed to purchase and Delphi, Componentes
S.A. has agreed to sell certain assets on the terms and subject to the
conditions set forth in this Agreement and the Transfer Agreement relating
to the Spanish Asset Business (as hereinafter defined);
[J] Purchaser has agreed to purchase and General Motors Overseas Corporation,
General Motors Overseas Distribution Corporation, General Motors
Interamerica Corporation and General Motors Commercial Corporation have
collectively agreed to sell 1,876,000 shares of 1,000 Turkish Lira each in
the share capital of Delphi Teknik Oto Yan Sanayi Limited Sirketi on the
terms and subject to the conditions set forth in this Agreement and the
Transfer Agreement relating to the Turkish Business (as hereinafter
defined);
[K] Lear Corporation (UK) Limited has agreed to purchase and Delphi Automotive
Systems UK Limited has agreed to sell certain assets on the terms and
subject to the conditions set forth in this Agreement and the Transfer
Agreement relating to the UK Business (as hereinafter defined);
[L] Lear Holdings, S. de R.L. de C.V. has agreed to purchase and Sistemas Para
Automotores de Mexico, S.A. de C.V. (989 shares) and Controladora Vesfron,
S.A. de C.V. (1,294 shares) have agreed to sell 2,283 shares of Vestiduras
(as hereafter defined) on the terms and subject to the conditions set forth
in this Agreement and the Transfer Agreement relating to the Mexico Business
(as hereinafter defined).
[M] Now therefore, in consideration of the premises, mutual promises,
representations, warranties and covenants contained in this Agreement, the
Parties agree as follows:
DEFINITIONS
The following terms, as used in this Agreement, shall have the following
meanings whether used in the singular or plural (other terms are defined in
Articles to which they pertain):
"ACQUIRED ASSETS" means the Acquired US Assets and Acquired European Assets.
"ACQUIRED EUROPEAN ASSETS" has the meaning set forth in Section 1.1.2.
"ACQUIRED US ASSETS" has the meaning set forth in Section 1.1.1.
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<PAGE> 11
"ADMINISTRATIVE ASSETS" means books, records and other administrative assets
including, price lists, correspondence, mailing lists, customer lists, sales
materials and records, purchasing materials and records, personnel records of
employees, billing records, accounting records, other financial records, and
sale order files, provided, however that Administrative Assets does not and
shall not be deemed to include Intellectual Property.
"AFFILIATE" means, with respect to any Party, any business or other Person
directly or indirectly controlling, controlled by or under common control with
such specified Person. For purposes of this definition, control means ownership
or actual control of more than fifty percent (50%) of the shares or other equity
interest having power to elect directors or persons performing a similar
function.
"AGREEMENT" means this Master Sale and Purchase Agreement, including its
Schedules and Exhibits, and, may also be referred to as the Master Agreement in
the Ancillary Agreement.
"ANCILLARY AGREEMENTS" means the Transfer Agreements and the other agreements
referred to in Section 8.2.
"ASSET PURCHASERS" means, as regards the purchase of any Group Business, the
relevant member of the Purchaser Group whose name is set opposite the relevant
Group Business set forth in Schedule 1.1.2.
"ASSET SELLERS" means, as regards the sale of any Group Business, the relevant
member of the GM Group whose name is set opposite the relevant Group Business
set forth in Schedule 1.1.2.
"ASSUMED LIABILITIES" has the meaning set forth in Section 3.1.
"BASIC PRICE" has the meaning set forth in Section 2.1.1.
"BENEFIT ARRANGEMENTS" means all non-remuneration benefits provided to Overseas
Employees whether contractual or otherwise, including (without limitation)
bonus, commission, life insurance, medical insurance, profit share, company
cars, loans, contractual or redundancy entitlements as at Closing.
"BUSINESS" means the business of designing, engineering, testing, manufacturing,
assembling, processing, marketing, servicing, installing, selling and/or
distributing passenger vehicle seating (both front and rear) and seating
components.
"BUSINESS DAY" means a day on which New York State banks are open for business
other than a Saturday or Sunday.
"CAP AMOUNT" has the meaning set forth in Section 10.2.1(a).
"CLOSING" has the meaning set forth in Section 8.1.
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<PAGE> 12
"CLOSING DATE" means the date of Closing.
"CLOSING INVENTORY STATEMENT" has the meaning set forth in Section 2.3.1.
"CLOSING PAYMENT" has the meaning set forth in Section 2.2.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMBINED BUSINESS" means, collectively, the Seating Business and the Business
as conducted by or through the Sale Companies and the JV Companies.
"COMPETITIVE BUSINESS" has the meaning set forth in Section 9.6.
"COMPONENT SUPPLY AGREEMENT" means that Component Supply Agreement dated the
date hereof between the Parties with respect to the Combined Business.
"CONFIDENTIALITY AGREEMENT" means the agreement dated October 10, 1997 between
the Parties.
"CONTRACTS" means purchase orders, sales agreements, service contracts,
distribution agreements, leases, product warranty or service agreements and
other commitments, agreements and undertakings.
"COST" has the meaning set forth in Section 9.2.1.
"DEDUCTIBLE AMOUNT" has the meaning set forth in Section 10.2.1(a).
"DELOITTE & TOUCHE" means Deloitte & Touche LLP.
"DISCLOSURE SCHEDULES" means the schedules referred to in Article 4 herein.
"DIVESTITURE" has the meaning set forth in Section 9.6(ii).
"DIVESTITURE NOTICE" has the meaning set forth in Section 9.6(ii).
"EMPLOYEE BENEFIT PLAN" means, as regards the US Business, any Employee Pension
Benefit Plan, Employee Welfare Benefit Plan, or any other material employee
vacation, severance, bonus, or other benefit plan or program, whether or not
subject to ERISA.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Section 3(l).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
4
<PAGE> 13
"ESTIMATED BASIC PRICE" has the meaning set forth in Section 2.1.1.
"EUROPE ASSET BUSINESS" means, collectively the German Business, the Italian
Business, the Polish Asset Business, the Spanish Asset Business and the UK
Business.
"EUROPE BUSINESS" means, collectively, the German Business, the Italian
Business, the Mexico Business, the Polish Business, the South African Business,
the Spanish Business, the Turkish Business and the UK Business.
"EUROPEAN LEASED REAL PROPERTY" means those properties identified on Schedule
4.1.15.F.
"EUROPEAN OWNED REAL PROPERTY" means those properties identified on Schedule
4.1.15.E and all Improvements located thereon.
"EUROPEAN REAL PROPERTY" means, collectively, the European Leased Real Property
and the European Owned Real Property.
"EUROPEAN REAL PROPERTY LEASE" means each lease between the owner thereof as
lessor and GM or relevant member of the GM Group as lessee of the European
Leased Real Property.
"EXCLUDED ASSETS" has the meaning set forth in Section 1.2.
"EXCLUDED EUROPEAN REAL PROPERTY" means those properties listed on Schedule
4.1.15.G.
"EXPECTED VALUE" means the expected net asset value of the Sale Companies and
JV Companies in an amount equal to US $22,779,000, representing for Delphi
Teknik Oto Yan Sanayi Limited Sirketi US $2,612,000, for Delphi Interior Systems
South Africa (Pty) Limited US $-1,767,000, for Delphi Asientos SA US
$10,343,000, and for Delphi Vestiduras Fronterizas, S.A. de C.V. US $11,591,000.
The Expected Value of any Sale Company or JV Company shall not include any asset
impairment adjustments, and the effects of remeasurement on the financial
statements of the Turkish Business for the 10 month period ended August 31,
1998, recorded on the books of the Sale Company or JV Company, as the case may
be.
"FINANCIAL STATEMENTS " has the meaning set forth in Section 4.1.11(a).
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"GAAS" means United States generally accepted auditing standards, consistently
applied.
"GERMAN BUSINESS" means the Business as currently conducted by Delphi Automotive
Systems Deutschland GmbH and to be transferred pursuant to the applicable
Transfer Agreement.
"GM" has the meaning set forth in the first paragraph of this Agreement.
5
<PAGE> 14
"GM ACCOUNTING PROCEDURES" has the meaning set forth in Section 4.1.11(b).
"GM BAILED ASSETS" has the meaning set forth in Section 1.2.1.
"GM GROUP" means GM and each of its Affiliates (or any of them) and "MEMBER OF
THE GM GROUP" shall be construed accordingly.
"GM INDEMNITEE" and "GM INDEMNITEES" have the meanings set forth in Section
10.2.2.
"GM'S KNOWLEDGE" or "TO THE KNOWLEDGE OF GM" or "TO THE KNOWLEDGE OF ANY MEMBER
OF THE GM GROUP" or any similar expression means the actual knowledge of the
employees of GM and/or members of the GM Group listed on Schedule A.
"GROUP BUSINESS" means all or any of the US Business, the Europe Business (or
any of the businesses comprising the Europe Business) or the Mexico Business as
the context requires.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended.
"IMPROVEMENTS" means factories, plants, buildings, structures, fixtures, and
other improvements.
"INCLUDE" or "INCLUDING" means including without limitation.
"INDEMNITEE" has the meaning set forth in Section 10.4.1.
"INDEMNITOR" has the meaning set forth in Section 10.4.1.
"INTELLECTUAL PROPERTY" means all patents and patent applications, trademarks,
service marks and trade names (including any registrations or applications
therefore) and associated goodwill, Technical Information, and licenses or
sublicenses of the foregoing, in each case used or held for use exclusively or
primarily in the Combined Business.
"INVENTORY" means all inventory, including raw materials, work-in-process,
finished products, stores, stock, supplies, packaging and spare parts relating
to the Combined Business wherever located.
"INVENTORY WORKING PAPERS" has the meaning set forth in Section 2.3.2.
"ITALIAN BUSINESS" means the Business as currently conducted by Delphi
Automotive Systems Srl at Desio, Italy and to be transferred pursuant to the
applicable Transfer Agreement.
"JV COMPANIES" means the companies listed on Schedule 1.5, brief particulars of
which are set out thereon.
6
<PAGE> 15
"JV SHARES" means the shares in the JV Companies registered in the name of the
relevant Securities Sellers (as appropriate);
"LAWS" means, for all purposes other than Article 7 hereof, all laws, statutes,
ordinances, codes, guidelines, rules, administrative rulings, or regulations of
any federal, state, national, overseas or local governmental authority binding
on or affecting the Person referred to in the context in which such word is
used.
"LEASED REAL PROPERTY" means, collectively, the US Leased Real Property and the
European Leased Real Property.
"LETTER AGREEMENT" means the Letter Agreement dated the date hereof between the
Parties relating to the Combined Business.
"LIEN" means any lien, charge, claim, pledge, security interest, conditional
sale agreement or other title retention agreement, lease, license, mortgage,
security agreement, deed of trust, pledge, hypothecation, restriction,
reservation, encroachment, easement, adverse right or interest, option or other
encumbrance (including the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code of any jurisdiction).
"LISTED CONTRACTS" means the Combined Business' contracts and commitments
required to be listed on Schedule 4.1.13.A.
"LOSSES" has the meaning set forth in Section 10.2.1(a).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
assets, liabilities, properties, condition (financial or otherwise), results of
operations or prospects of the Combined Business taken as a whole, or on the
ability of the Parties to consummate the transactions contemplated hereby.
"MEXICO BUSINESS" means the Business as currently conducted by Vestiduras at its
three manufacturing plants located at (i) Calle Valentin Fuentes No.1190,
Partido La Fuente; (ii) Calle Rio Bravo s/n, Parque Rio Industrial Bravo,
Zaragoza, and (iii) Ejercito Nacional 6525, Fraccionamiento El Marques, Paitido
Iglesias, all three plants at Ciudad Juarez, State of Chihuahua, Mexico and to
be transferred pursuant to the applicable Transfer Agreement (excluding assets
located in Mexico but included in the US Business).
"MLCG" means GM's mid-luxury car group.
"NET WORTH AMOUNT" has the meaning set forth in Section 2.4.1.
"NET WORTH STATEMENT" has the meaning set forth in Section 2.4.1.
"NET WORTH WORKING PAPERS" has the meaning set forth in Section 2.4.3.
"OEM" means an original equipment manufacturer of complete automobiles and light
trucks.
7
<PAGE> 16
"ORDINARY COURSE OF BUSINESS" means for all purposes, other than Article 7
hereof, the ordinary course of business of the Combined Business or any Group
Business (as appropriate) consistent with GM's past practice within the
automotive supply industry.
"OTHER OEM BAILED ASSETS" has the meaning set forth in Section 1.2.3.
"OVERSEAS EMPLOYEES" means each individual who is employed by any Asset Seller
or otherwise in relation to the Seating Business (but excluding the US Business)
as at Closing, and listed in the relevant Transfer Agreement.
"OWNED REAL PROPERTY" means, collectively, the US Owned Real Property and the
European Owned Real Property.
"PARTY" or "PARTIES" means Purchaser and/or GM.
"PENSION SCHEMES" means, as regards to each Group Business comprising the Europe
Business, those occupational pension schemes listed on Schedule C, brief
particulars of which are listed thereon.
"PERMITS" means permits, concessions, grants, franchises, licenses, and other
governmental authorizations and approvals specifically listed on Schedule
4.1.8.B, (excluding permits addressed by Article 7) issued to GM or any member
of the GM Group and that are currently used for the purpose of carrying on the
Combined Business and that relate to the Acquired Assets, Sale Companies or the
JV Companies.
"PERMITTED EXCEPTIONS" means, with respect to the Owned Real Property: (a) liens
for any current real estate or ad valorem taxes or assessments not yet
delinquent; (b) inchoate mechanic's, material person's, laborer's, and carrier's
lien and other similar inchoate liens arising by operation of law or statute in
the Ordinary Course of Business for obligations which are not delinquent and
which will be paid or discharged in the Ordinary Course of Business; (c) matters
disclosed by the Survey; (d) rights of the public and adjoining property owners
in streets and highways abutting and adjacent to the Owned Real Property; (e)
easements, covenants, restrictions, and other encumbrances of public record
which do not interfere with the current use of the Owned Real Property; (f)
those items listed on Schedule 4.1.15.C; (g) zoning ordinances which are not
violated; (h) those matters listed on Schedule 6.2; and (i); and such other
matters, the existence of which, in the aggregate, would not have a material
adverse effect on the operation of such owned Real Property.
"PERMITTED LIENS" has the meaning set forth in Section 4.1.5(a).
"PERSON" means an individual, a corporation, a partnership, a limited liability
company, an association, a firm, a trust or other entity or organization.
"PERSONAL PROPERTY" means tangible personal property (other than Inventory),
including machinery, equipment, tools, tooling, dies, jigs, molds, patterns,
gauges, production fixtures,
8
<PAGE> 17
material handling equipment, business machines, office furniture and fixtures,
in-factory vehicles, trucks, model shop equipment, laboratory test fixtures, and
other fixed assets and tangible personal property, whether located on the Owned
Real Property, the Leased Real Property, at the place of business of a member of
the GM Group engaged in the Combined Business or elsewhere.
"POLISH ASSET BUSINESS" means the Business as currently conducted by Delphi
Automotive Systems Poland S.p. z.o.o. at Warsaw, Poland and to be transferred
pursuant to the applicable Transfer Agreement.
"POLISH BUSINESS" means, collectively, the Polish Asset Business and the Polish
Share Business.
"POLISH SHARE BUSINESS" means the Delphi Gliwice S.p. z.o.o. Business at
Gliwice, Poland.
"PRIME RATE" has the meaning set forth in Section 2.5.1.
"PRODUCTIVE INVENTORY" means Inventory of the Seating Business that is directly
used in the production process of the Seating Business, or that is or becomes
Products of the Seating Business and is reflected as assets on the books of any
Seating Business.
"PRODUCTS" means current passenger vehicle seating (both front and rear) and
seating components as designed, manufactured, assembled, processed, offered for
sale, marketed, sold, imported, installed or serviced by the Combined Business
as of the Closing Date.
"PROMISSORY NOTES" has the meaning set forth in Section 9.13.
"PURCHASE PRICE" means an amount equal to the Basic Price and the Contingent
Purchase Price constituting the consideration payable for the Acquired Assets
and the Sale Securities under this Agreement and the Transfer Agreements.
"PURCHASER" has the meaning set forth in the first paragraph of this Agreement.
"PURCHASER GROUP" means the Purchaser and each of its Affiliates (or any of
them) and "MEMBER OF THE PURCHASER GROUP" shall be construed accordingly.
"PURCHASER INDEMNITEE" and "PURCHASER INDEMNITEES" have the meanings set forth
in Section 10.2.1(a).
"REAL PROPERTY" means, collectively, the US Real Property and the European Real
Property.
"RELEVANT PERCENTAGE" has the meaning set for in Section 10.5(k).
"RESTRICTIONS" has the meaning set forth in Section 4.1.15(a).
9
<PAGE> 18
"SALE COMPANIES" means the companies listed on Schedule 1.5, brief particulars
of which are set out thereon.
"SALE SECURITIES" means, collectively, the Sale Shares and the JV Shares.
"SALE SHARES" means the entire issued share capital of each of the Sale
Companies.
"SAVING" has the meaning set forth in Section 10.5(k).
"SEATING BUSINESS" means, collectively, the US Business and the Europe Business
but excluding the Business carried on by the Sale Companies and JV Companies.
"SECURITIES PURCHASERS" means, as regards to the purchase of the Sale Shares or
JV Shares, the relevant member of the Purchaser Group whose name is set opposite
the relevant Sale Company or JV Company set forth in Schedule 1.5.
"SECURITIES SELLERS" means, as regards to the sale of the Sale Shares or the JV
Shares, the relevant member of the GM Group whose name is set opposite the
relevant Sale Company or JV Company set forth in Schedule 1.5.
"SOUTH AFRICAN BUSINESS" means the Business as currently conducted by Delphi
Interior Systems South Africa (Pty) Limited at Port Elizabeth, Republic of South
Africa.
"SPANISH ASSET BUSINESS" means the Business as currently conducted by Delphi
Componentes SA at Logrono, Spain, and to be transferred pursuant to the
applicable Transfer Agreement.
"SPANISH BUSINESS" means, collectively, the Spanish Asset Business and the
Spanish Share Business.
"SPANISH SHARE BUSINESS" means the Business as currently conducted by Delphi
Asientos SA at Epila, Spain.
"SURVEY" means the survey of the U.S. Owned Real Property and the U.S. Leased
Real Property (other than the MLCG Support Space in Flint, Michigan) referred to
in Section 6.3.
"TARGETED INVENTORY RANGE" means Productive Inventory in an amount ranging from
US $46.6 million to US $57.1 million.
"TAXES" means any federal, sate, national, governmental, supra-governmental,
local, municipal tax or assessment (including any interest and/or charges and/or
penalties). "Taxes" includes, but is not limited to, income, capital gains,
capital, license, premium, franchise, transfer, sales, use, gross receipts,
value added, excise, ad valorem, property, withholding, payroll or employment,
goods or services, severance, occupation, minimum, windfall profits and stamp
taxes and customs duties.
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"TECHNICAL INFORMATION" means all technical information in any form owned or
(subject to the terms of the Contracts listed on Schedule 1.1.1.B) acquired by
a member of the GM Group and used or held for use exclusively or primarily in
the Combined Business, and pertaining to the design, manufacture, use,
marketing, sale, installation or service of the Products, together with all
copyrights (including any registrations or applications therefore) in all
materials containing such information.
"THIRD PARTY CLAIM" has the meaning set forth in Section 10.4.1.
"TRANSFER AGREEMENTS" means the transfer agreements between relevant members of
the GM Group and relevant members of the Purchaser Group implementing (as
required by local law) the sale and purchase of the Acquired European Assets and
the Sale Securities as set forth in Schedule B.
"TRANSFER DOCUMENTS" means such bills of sale, deeds, assignments, subleases,
licenses, and other good and sufficient instruments of transfer, including a
covenant deed to the US Owned Real Property and assignments of leases, subleases
or licenses with respect to US Leased Real Property, conveying and transferring
to Purchaser title to the Acquired Assets as provided in this Agreement.
"TRANSITION SERVICES" means the services covered by the Transition Services
Agreement.
"TRANSITION SERVICES AGREEMENT" means the Transitions Services Agreement dated
the date hereof between the Parties relating to the Combined Business.
"TURKISH BUSINESS" means the Business as currently conducted by Delphi Teknik
Oto Yan Sanayi Limited Sirketi at Bursa, Turkey.
"UAW" means the International Union, United Automobile, Aerospace, and
Agricultural Implement Workers of America.
"UK BUSINESS" means the Business as currently conducted by Delphi Automotive
Systems UK Limited at Nuneaton, England and Spondon Derby, England and to be
transferred pursuant to the applicable Transfer Agreement.
"UNAUDITED STATEMENTS" has the meaning set forth in Section 4.1.11(a).
"UNITED STATES" means the 50 states and the District of Columbia of the United
States of America.
"US ALLOCATION" has the meaning set forth in Section 2.7.1.
"US BUSINESS" means the Business as currently conducted by GM (through its
Delphi Interior and Lighting Systems Division) at (i) its Auburn Hills, Michigan
plant, Grand Rapids, Michigan plant, and customer support space at the Great
Lakes Customer Center,
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Flint, Michigan, and certain assets located in Juarez, Mexico, Rio Bravo,
Mexico and Fuentes, Mexico, as set forth in the Schedules referred to in Section
4.1.5.
"US LEASED REAL PROPERTY" means all of GM's right, title and interest in and to
each of the leasehold estates commonly referred to as the GM facility at Auburn
Hills, Michigan, and the MLCG support space in Flint, Michigan.
"US OWNED REAL PROPERTY" means those properties identified on Schedule 4.1.15.A
and all Improvements located thereon.
"US REAL PROPERTY" means for all purposes, other than Article 7 hereof, the US
Leased Real Property and the US Owned Real Property, including Improvements and
with respect to the US Owned Real Property only, together with (i) all rights,
easements, tenements, hereditaments, appurtenances, privileges, immunities,
mineral rights, and other benefits belonging or appertaining thereto which run
with said real property, and (ii) all right, title and interest, if any, of GM
in and to (A) any land lying in the bed of any street, road, avenue, open or
proposed, adjoining said real property, (B) any award made or to be made in lieu
of the land described in the preceding clause (A), (C) and unpaid award for
damage to said real property, and (D) all strips and rights-of-way abetting or
adjoining said real property, if any. The US Owned Real Property includes,
without limitation, all Improvements located on the land described in the
preceding sentence.
"US REAL PROPERTY LEASE" means each lease between the owner thereof as lessor
and GM or relevant member of the GM Group as lessee of the US Leased Real
Property.
"VAT" has the meaning set forth in Section 11.13.
"VESTIDURAS" means Delphi Vestiduras Fronterizas, S.A. de C.V., a corporation
organized and legally existing under the laws of the Republic of Mexico.
Certain capitalized terms used throughout this Agreement, including without
limitation those in Articles 5 and 7, have the meanings set forth herein. Unless
the context of this Agreement otherwise requires, (a) words of any gender shall
be deemed to include either gender, (b) words using the singular or plural
number shall also include the plural or singular number, respectively, and (c)
references to "hereof", "herein", "hereby" and similar terms shall refer to this
entire Agreement.
1. CONVEYANCE OF THE ACQUIRED ASSETS AND THE SALE
SECURITIES.
1.1. Acquired Assets.
1.1.1. Acquired US Assets.
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Upon the terms and subject to the conditions set forth in this Agreement, at
Closing, GM agrees to sell, transfer, assign, convey and deliver to Purchaser or
a member of the Purchaser Group, and Purchaser or a member of the Purchaser
Group agrees to purchase, accept and acquire from GM free and clear of all Liens
(except Permitted Exceptions and Permitted Liens) all of the assets, rights and
properties used or held for use primarily or exclusively in the US Business
(collectively, the "Acquired US Assets"), including the US Owned Real Property;
GM's interest as lessee in the US Leased Real Property; the Personal Property
relating to the US Business; the Inventory relating to the US Business; the
Contracts relating to the US Business; the Permits relating to the US Business;
the Administrative Assets relating to the US Business; the Intellectual Property
relating to the US Business; and the benefit of those prepaid expenses
identified on Schedule 1.1.1.A subject in each case to Section 1.2, and in the
case of the Intellectual Property, further subject to the pre-existing Contracts
and rights of joint owners listed on Schedule 1.1.1.B. Schedule 1.1.1.c.
lists the members of Purchaser Group who will be acquiring the Acquired US
Assets and the specific Acquired US Asset to be acquired by such member.
1.1.2. Acquired European Assets.
Upon the terms and subject to the conditions set forth in the applicable
Transfer Agreements and this Agreement, on the Closing Date, GM shall cause each
of the Asset Sellers to sell, transfer, assign, convey and deliver to the Asset
Purchasers and Purchaser shall cause each of the Asset Purchasers to purchase,
accept and acquire from the Asset Sellers free and clear of all Liens, except as
set forth in the applicable Transfer Agreement, certain of the assets, rights
and properties used or held for use in the Europe Asset Business as set forth in
the Transfer Agreements (collectively, the "Acquired European Assets"), and
referred to in Schedule B.
1.2. Excluded Assets.
Notwithstanding anything to the contrary in Section 1.1 of this Agreement or the
applicable Transfer Agreements, the following properties, assets and rights (the
"Excluded Assets") shall not be included or deemed to be included in the
Acquired Assets.
1.2.1. GM Bailed Assets.
The machinery, equipment, special tools or tooling, dies, molds, patterns, jigs,
gauges, production fixtures and special material handling equipment identified
on Schedule 1.2.1.A, and all and any customer dunnage and containers used by the
Combined Business and owned by GM or a member of the GM Group (collectively, "GM
Bailed Assets"). The GM Bailed Assets shall remain in the possession of the
Seating Business at Closing and shall be provided to Purchaser and/or the
relevant Asset Purchaser on a bailment basis for use in the operation of the
Seating Business according to the existing terms of GM's purchase orders
applicable to bailed assets set forth on Schedule 1.2.1.B, for the purpose of
furnishing to GM, or other members of the GM Group, all or part of their
respective requirements for Products.
1.2.2. Personnel and Medical Records.
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All personnel and medical records of employees and former employees of any
member of the GM Group who worked at any time for any reason at or in the
Seating Business; provided, however, Purchaser will so far as legally
permissible under applicable data protection, medical confidentiality or similar
local laws be provided the originals of all personnel and medical records of
employees of any member of the GM Group who have accepted employment with, or
whose employment transfers (as a matter of local law) to Purchaser or any other
member of the Purchaser Group pursuant to the sale hereunder, after posted
written notice to such employees. All such personnel and medical records of such
employees shall be books and records governed by Section 9.3.1 of this
Agreement. Upon the written request of GM, Purchaser shall promptly return or
cause the return of any and all of these records to GM (or another member of the
GM Group as directed) at which time GM shall provide Purchaser or cause
Purchaser to be provided with copies of the personnel and medical records of
such employees. If an employee objects or does not consent to provision of
personnel or medical records to Purchaser, the records will not be provided,
except to the extent permitted by the applicable local law.
1.2.3. Third Party Assets.
All assets owned by third parties, including computer hardware or equipment and
computer software, and located at the Owned Real Property or the Leased Real
Property, as listed on Schedule 1.2.3. Data processing assets of any third party
may be handled under a separate agreement with such third party. Any machinery,
equipment, special tools or tooling, dies, molds, patterns, jigs, gauges,
production fixtures, special material handling equipment, customer dunnage and
containers owned by a third party OEM outside of the GM Group ("Other OEM Bailed
Assets").
1.2.4. Certain Current Assets.
Cash, bank accounts, all and any accounts receivable or debts due to any member
of the GM Group (whether or not then payable) and prepaid expenses (other than
prepaid expenses specifically listed on Schedule 1.1.1.A) of the Seating
Business as of Closing.
1.2.5. Certain Contracts.
Contracts or commitments for the borrowing or lending of money, credit cards
issued to or through any member of the GM Group, lines of credit, or guarantees
of indebtedness; letters of credit, performance or payment bonds, or guarantees
of performance; or contracts or commitments with any investment banker,
financial advisor, finder, or broker. Any such contract or commitment involving
in excess of $200,000 is listed on Schedule 1.2.5.
1.2.6. Product Evaluation Vehicles. Pooled Vehicles.
Any vehicles assigned pursuant to GM's Product Evaluation Program, pooled, and
work vehicles. Schedule 1.2.6 contains a brief description of such programs.
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1.2.7. Tax Refunds.
Any refund of Taxes, or claim for refund of Taxes, of any kind relating to any
period prior to the Closing Date, and any deferred Tax assets of any member of
the GM Group.
1.2.8. Certain Real Property.
The (i) Great Lakes Customer Center, Flint, Michigan (other than the MLCG
support space); (ii) the engineering building and administration building in
Warren, Michigan; (iii) Lorna Hardware Shop; and (iv) any right, title or
interest in the Leased Real Property as a lessor, sublessor or assignor.
1.2.9. Intellectual Property.
All patents, patent applications and inventions not used or held for use
exclusively or primarily in the Combined Business; "GM", "Delphi" and all other
trademarks, service marks, trade names and brand names of GM or any other member
of the GM Group not used or held for use exclusively or primarily in the
Combined Business; all know-how, proprietary rights, confidential information
and copyrights not used or held for use exclusively or primarily in the Combined
Business; and all licenses or sublicenses of intellectual property or technical
information not used or held for use exclusively or primarily in the Combined
Business; provided, however that Purchaser and other members of the Purchaser
Group will have the rights and licenses contemplated in Section 9.8.
1.2.10. Privileged Information and Materials.
Information and materials protected by the attorney-client privilege (or its
equivalent in jurisdictions outside the United States); environmental-related
documents that are "GM Proprietary Documents" or "Privileged Documents", in each
case as defined in Article 7 and the lack of which excluded information and
materials are not material to the operation of the Business.
1.2.11. Insurance.
The benefit of any member of the GM Group's insurance policies relating to the
operation of the Seating Business (including any right to proceeds thereunder).
1.3. Post-Closing Asset Deliveries.
If GM, in its reasonable discretion, determines after the Closing that books,
records, or other materials constituting Acquired Assets are still in the
possession of GM or any other member of the GM Group, GM shall or shall cause
such other member of the GM Group to promptly deliver them to Purchaser (or as
Purchaser may direct) at no cost to Purchaser or any member of the Purchaser
Group. If Purchaser, in its reasonable discretion, determines after the Closing
that books, records, or other materials not constituting Acquired Assets were
delivered to Purchaser or any other member of the Purchaser Group, Purchaser
shall or shall
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cause such other member of the Purchaser Group to promptly return or cause the
return of them to GM (or as it may direct) and GM will pay Purchaser's
reasonable direct out-of-pocket costs.
1.4. Non-assignable Permits and Contracts.
1.4.1. Non-assignability.
To the extent that any Contract, Permit or Real Property Lease included in the
Acquired Assets is not capable of being assigned to Purchaser at the Closing or
without the consent, approval or waiver of the other party thereto or any third
party (including a governmental unit, authority or department) or the issuer
thereof, or if such assignment or attempted assignment would constitute a breach
thereof, or a violation of any Law, this Agreement shall not constitute or be
deemed to constitute an assignment thereof, or an attempted assignment thereof,
unless and until any such consent, approval or waiver is obtained. All
Contracts, Permits and Real Property Leases material to the operation of the
Seating Business, which are not assignable or which may be assigned, transferred
or conveyed only upon receipt of an appropriate consent, approval or waiver are
listed on Schedule 1.4.1.
1.4.2. Efforts to Obtain Consents. Approvals and Waivers.
At Purchaser's request, GM shall and/or shall cause such other member of the GM
Group (as appropriate) to use (in each case at GM's expense) all reasonable
efforts, and Purchaser shall, at Purchaser's expense, cooperate and cause
cooperation by such other member of the Purchaser Group with GM or other members
of the GM Group (as appropriate), to obtain the consents, approvals and waivers
and to resolve the impracticalities of assignment referred to in Section 1.4.1
as soon as reasonably practicable after the Closing; provided, however, that
neither any member of the GM Group nor any member of the Purchaser Group shall
be obligated to pay any consideration therefor to the third party from whom the
consent, approval or waiver is requested.
1.4.3. If Waivers. Approvals or Consents Cannot be Obtained.
To the extent that the consents, approvals and/or waivers referred to in Section
1.4.1 are not obtained, or until the impracticalities of assignment referred to
therein are resolved, the sole responsibility of the GM Group with respect to
such matters, notwithstanding Section 1.1., shall be to, during the 18 month
period (except with respect to certain assignable contracts covering the work of
certain sub-contractors to Tarmac carrying out design for the works of the
landlord for such property, in which case the period shall be 6 years)
commencing with the Closing, use all reasonable efforts, at GM's expense, to:
(i) provide to Purchaser the benefits of any Permit or Contract, all as referred
to in Section 1.4.1, to the extent involving the Seating Business; (ii)
cooperate in any reasonable and lawful arrangement designed to provide such
benefits to Purchaser (but subject to Purchaser or any Asset Purchaser assuming
the obligations thereunder and indemnifying GM (or such other relevant member of
the GM Group) against all losses, liabilities. costs damages and proceedings
arising out of, or as a consequence of the performance or non-performance of
such Permit or Contract after the
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Closing Date, without incurring any financial obligation to Purchaser or any
Asset Purchaser other than to provide such benefits; and (iii) enforce for the
account of Purchaser or any Asset Purchaser any rights of GM (or any other
member of the GM Group) arising from or under the Permits, Contracts or Real
Property Leases referred to in Section 1.4.1 against such issuer thereof or
other party or parties thereto (including the right to elect to terminate in
accordance with the terms thereof on the request of Purchaser).
1.4.4. Obligation of Purchaser to Perform.
To the extent that Purchaser or any Asset Purchaser is provided the benefits
pursuant to Section 1.4.3 of any Permit, Contract or Real Property Lease,
Purchaser shall perform or cause performance by the relevant Asset Purchaser(s),
on behalf of GM or the relevant member of the GM Group, for the benefit of the
issuer thereof or the other party or parties thereto the obligations of GM or
the relevant member of the GM Group thereunder or in connection therewith, but
only to the extent that: (i) such action by Purchaser or any Asset Purchaser
would not result in any material default thereunder or in connection therewith;
and (ii) such obligation would have been a liability assumed by Purchaser
pursuant to Article 3 but for the non-assignability or non-transferability
thereof, and if Purchaser or any Asset Purchaser shall fail to perform to the
extent required herein, GM, without waiving any rights or remedies that it may
have under this Agreement or applicable Laws, may immediately, after notifying
Purchaser or the applicable Asset Purchaser and providing such entity a
reasonable opportunity to cure such condition if such breach or failure to
perform is curable, suspend its performance under Section 1.4.3 in respect of
the instrument which is the subject of such failure to perform unless and until
such situation is remedied.
1.5. Sale Securities.
With respect to the Sale Companies and JV Companies, upon the terms and subject
to the conditions set forth in the applicable Transfer Agreements and this
Agreement, on the Closing Date, GM shall cause each of the Securities Sellers to
sell, transfer, assign, convey and deliver to the Securities Purchasers the Sale
Securities and Purchaser shall cause each of the Securities Purchasers to
purchase, accept and acquire such Sale Securities, in each case as set forth in
Schedule 1.5.
2. PURCHASE PRICE.
As full payment for the Acquired Assets and the Sale Securities, the Purchaser
agrees to, and agrees to cause the Asset Purchasers and the Securities
Purchasers to, pay the Purchase Price to GM, the Asset Sellers and the
Securities Sellers, as the case may be, in accordance with the terms of this
Agreement and the Transfer Agreements.
2.1. Purchase Price.
The aggregate purchase price for the Acquired Assets and the Sale Securities
shall be the Basic Price plus any amounts that may be payable pursuant to the
Letter Agreement.
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2.1.1. Basic Price.
"Basic Price" means an amount equal to Two Hundred Twelve Million One Hundred
Thirty-Eight Thousand Three Hundred Fifty-Three US Dollars (US $212,138,353)
(the "Estimated Basic Price") (i) minus the amount, if any, by which Productive
Inventory on the Closing Date is less than the low end of (or plus the amount,
if any, by which Productive Inventory on the Closing Date is more than the high
end of) the Targeted Inventory Range, in each case determined in accordance with
Section 2.3; and (ii) minus the amount, if any, by which the Net Worth Amount is
less than (or plus the amount, if any, by which the Net Worth Amount is more
than) the Expected Value, in each case determined in accordance with Section
2.4. The portion of the Basic Price to be paid by Purchaser, the Asset
Purchasers and the Securities Purchasers for the Acquired US Assets, the
Acquired European Assets and the Sale Securities will be as previously agreed
to by the Parties. Any adjustment to the Basic Price pursuant to Section 2.3
shall be applied to the Basic Price for the Acquired Assets to which such
adjustment relates. Any adjustments to the Basic Price pursuant to Section 2.4
shall be applied to the Basic Price for the Sale Securities to which such
adjustment relates.
2.2. Closing Payment.
At Closing, Purchaser shall, and shall cause the Asset Purchasers and the
Securities Purchasers to, pay to GM, an aggregate amount equal to the Estimated
Basic Price (collectively, the "Closing Payment"). The Closing Payment will be
paid at Closing by wire transfer in U.S. Dollars in immediately available funds
to the account of GM at Citibank, New York City, pursuant to GM notice delivered
to Purchaser prior to Closing.
2.3. Preparation of Closing Inventory Statement.
2.3.1. Within sixty (60) days of the Closing, GM shall deliver a
statement of Productive Inventory existing at the Closing Date
("Closing Inventory Statement") to Purchaser accompanied by an audit
report of Deloitte & Touche stating that: (i) they have audited the
Closing Inventory Statement in accordance with generally accepted
auditing standards; and (ii) in their opinion, the Closing Inventory
Statement has been prepared in accordance with GAAP on the First In,
First Out (FIFO) basis. It is understood that in applying GAAP for
the Closing Inventory Statement all accounting methods, policies,
practices, procedures, classifications, judgments and estimation
methodologies shall be consistent with those used in the GM
Accounting Procedures, except that the LIFO inventory reserve
applicable to such GAAP financial statements shall not be applied to
the Closing Inventory Statement. Contemporaneously, GM shall deliver
to Purchaser a schedule setting forth a calculation of the Basic
Price, as adjusted pursuant to clause (i) of Section 2.1.1, and the
amount of any payment to be made, and by whom, pursuant to Section
2.5.
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2.3.2. Purchaser and GM, each at its own expense, shall cooperate
fully and shall use all reasonable efforts to cause their respective
accountants and (as appropriate) those of their respective
Affiliates to consult in advance in determining the proper
procedures for taking inventories, and other matters. If so
requested by Purchaser or any Asset Purchaser, GM for itself and on
behalf of the applicable Asset Seller shall, and shall cause
Deloitte & Touche to permit Purchaser and the applicable Asset
Purchaser and their accountants to review the working papers of GM
or of other relevant members of the GM Group and Deloitte & Touche
relating to the Closing Inventory Statement (collectively, the
"Inventory Working Papers"). GM shall, and shall cause each member
of the GM Group to, allow the Purchaser, the applicable Asset
Purchaser and their accountants to be present when the physical
inventories that are the basis for the Closing Inventory Statement
are taken.
2.3.3. In the event Purchaser is in disagreement with the Closing
Inventory Statement or with GM's calculation of the Basic Price,
Purchaser shall, within thirty (30) Business Days after receipt of
the Closing Inventory Statement, the schedule setting forth the
calculation of the Basic Price, the accompanying audit report, and
if requested, the Inventory Working Papers, notify GM of such
disagreements in writing, and failing service of any notice of
disagreement as aforesaid, GM's calculation shall be final and
binding on the Parties. If Purchaser and GM shall not have resolved
all such disagreements within the next twenty (20) Business Days
immediately following notice thereof by Purchaser, both GM and
Purchaser shall immediately refer those items of disagreement to a
three-member dispute resolution panel. The panel shall consist of
the Chief Financial Officer, or his designee, of each Party, plus
one person designated by them together. The panel may establish
procedures for resolution of the disputes, including a requirement
that reasonable requests made by one Party to the other for
information shall be honored in order that each of the Parties may
be advised of relevant facts. A majority decision of the dispute
resolution panel shall control but shall not be binding unless the
Parties agree in writing in advance of submittal that it shall be
binding. Resolution of the matters in dispute shall be made as soon
as practicable in accordance with this Agreement. Any cost and fee
of such dispute resolution panel shall be shared equally by GM and
Purchaser. Each Party agrees for itself and on behalf of the Asset
Sellers and Asset Purchasers (respectively) not to seek other legal
action with respect to the Closing Inventory Statement: (i) unless
and until such efforts have been unsuccessful in resolving the
dispute; (ii) at least sixty (60) days have elapsed after a written
notice of disagreement was delivered to GM with respect to such
matter; and (iii) the disputed amount, in the aggregate, for the
Closing Inventory Statement and the Net Worth Statement, exceeds Two
Hundred Thousand Dollars ($200,000).
2.3.4. The fees and expenses of Deloitte & Touche incurred pursuant to
this Section 2.3 shall be paid by GM.
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2.4. Preparation of Net Worth Statement.
2.4.1. As soon as possible following Closing, GM shall prepare and
cause its accountants, Deloitte & Touche, to audit a balance sheet
(the "Net Worth Statement") setting out (in aggregate terms) the net
asset value of the Sale Companies (excluding the Polish Share
Business) and JV Companies (multiplied in the case of each JV
Company by the ownership percentage interest acquired by the
applicable Securities Purchaser in such JV Company) taken together
as at the Closing Date (the "Net Worth Amount"). The Net Worth
Amount shall exclude any asset impairment adjustments, and the
effects of remeasurement on the financial statements of the Turkish
Business for the 10 month period ended August 31, 1998, recorded on
the books of the Sale Companies and JV Companies, as the case may
be. In calculating the Net Worth Amount, the financial statements of
the Mexico Business shall exclude the values of the following
accounts, instead replacing these balances with a total of $600,000
(Six Hundred Thousand Dollars) (USD):
GL 2923 Long-term Notes Receivables, Other Trade
GL 3500 Intangible Assets
GL 3700 Deferred Income Taxes, Noncurrent;
provided that there is no material change in the aggregate amounts
of these accounts as listed in the Statement of Net Assets to be
sold as of July 31, 1998 previously provided to Purchaser.
2.4.2. Within sixty (60) days of Closing, GM shall instruct Deloitte &
Touche to deliver the Net Worth Statement to Purchaser,
accompanied by an audit report of Deloitte & Touche stating that
they have audited the Net Worth Statement in accordance with GAAS.
It is understood that, in applying GAAP to the Net Worth Statement,
all accounting methods, policies, practices, procedures,
classifications, judgments and estimation methodologies shall be
consistent with those used in the GM Accounting Procedures as these
pertain to the Sale Companies and JV Companies, the Net Worth Amount
shall exclude any impairment reserve recorded in the 1997 Audited
Statements and the effects of remeasurement on the financial
statements of the Turkish Business for the 10 month period ended
August 31, 1998 shall not be applied to the Net Worth Statement set
forth in this Section 2.4.2. Contemporaneously, GM shall deliver to
Purchaser a schedule setting forth a calculation of the Basic Price,
as adjusted pursuant to clause (ii) of Section 2.1.1, and the amount
of any payment to be made, and by whom, pursuant to Section 2.5 on
the books of the Sale Companies and JV Companies, as the case may
be.
2.4.3. Purchaser and GM, each at its own expense, shall cooperate
fully and shall use all reasonable efforts to cause their respective
accountants and (as appropriate) those of their respective
Affiliates to consult in advance in determining the
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proper procedures for taking inventories, and other matters. If so
requested by Purchaser or any Securities Purchaser, GM for itself
and on behalf of the applicable Securities Seller shall, and shall
cause Deloitte & Touche to permit Purchaser and the applicable
Securities Purchaser and their accountants to review, the working
papers of GM or of other relevant members of the GM Group and
Deloitte & Touche relating to the Net Worth Statement (collectively,
the "Net Worth Working Papers").
2.4.4. In the event Purchaser is in disagreement with the Net Worth
Statement or with GM's calculation of the Basic Price, Purchaser
shall, within thirty (30) Business Days after receipt of the Net
Worth Statement, the schedule setting forth the calculation of the
Basic Price, the accompanying audit report, and if requested, the
Net Worth Working Papers, notify GM of such disagreement in writing,
and failing service of any notice of disagreement as aforesaid, the
Net Worth Statement shall be final and binding on the Parties. If
Purchaser and GM shall not have resolved any such disagreement
within the next twenty (20) Business Days immediately following
notice thereof by purchaser, both GM and Purchaser shall immediately
refer those items of disagreement to a three-member dispute
resolution panel. The panel shall consist of the Chief Financial
Officer, or his designee, of each Party, plus one person designated
by them together. The panel may establish procedures for resolution
of the dispute, including a requirement that reasonable requests
made by one Party to the other for information shall be honored in
order that each of the Parties may be advised of relevant facts. A
majority decision of the dispute resolution panel shall control but
shall not be binding unless the Parties agree in writing in advance
of submittal that it shall be binding. Resolution of the matters in
dispute shall be made as soon as practicable in accordance with this
Agreement. Any cost and fee of such dispute resolution panel shall
be shared equally by GM and Purchaser. Each Party hereby agrees for
itself and for and on behalf of the Securities Sellers and
Securities Purchasers (respectively) not to seek other legal action
with respect to the Net Worth Statement: (i) unless and until such
efforts have been unsuccessful in resolving the dispute; (ii) at
least sixty (60) days have elapsed after a written notice of
disagreement was delivered to GM with respect to such matter; and
(iii) the disputed amount, in the aggregate, for the Closing
Inventory Statement and the Net Worth Statement, exceeds Two Hundred
Thousand Dollars ($200,000).
2.4.5. The fees and expenses of Deloitte & Touche incurred pursuant to
this Section 2.4 shall be paid by GM.
2.5. Purchase Price Adjustment.
2.5.1. On the fifth (5th) Business Day following the determination of
any adjustment to the Basic Price pursuant to Section 2.1 in
accordance with the procedures set forth in Sections 2.3 or 2.4,
either: (i) GM shall pay Purchaser the amount, if any, by which the
Closing Payment exceeds the Basic Price; or (ii)
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Purchaser shall pay GM the amount, if any, by which the Basic Price
exceeds the Closing Payment, in either case, together with simple
interest from the Closing Date to the date of payment at the Prime
Rate in effect on the Closing Date, by wire transfer in U.S. dollars
in immediately available funds to an account designated by the
receiving Party. As used herein, "Prime Rate" means the rate of
interest from time to time announced publicly by Citibank, N.A. at
its offices in New York, New York as its base rate in the United
States. In the event Purchaser, raises any objection to any
information in the Closing Inventory Statement, the Net Worth
Statement or the calculation of the Basic Price, Purchaser or GM (as
appropriate), shall pay any undisputed amounts pursuant hereto; and
any disputed amounts shall be paid at such time as objections are re
solved in accordance with Section 2.3.3 or Section 2.4.4 hereof
2.6. Prorations. Adjustments of Expenses Following the Closing.
2.6. 1. Prorations.
(a) To the extent that any member of the GM Group makes any
payment relating to the Seating Business prior to, on or
following the Closing Date with respect to any item listed
in sub-paragraph (b) below relating to periods following the
Closing Date, Purchaser shall reimburse GM on a per diem
basis, and
(b) To the extent Purchaser or any member of the Purchaser
Group makes any payment relating to the Seating Business
following the Closing Date with respect to any item listed
below relating to periods on or prior to the Closing Date,
GM shall reimburse Purchaser on a per diem basis, in each
case for the following:
(i) water, wastewater treatment, sewer charges and other
similar types of charges with respect to the Seating
Business;
(ii) electric, fuel, gas, telephone and other utility
charges;
(iii) payroll expenses (excluding, except as otherwise
provided in the Transfer Agreements, vacation pay) and
other employee-related payments (of whatsoever kind)
or assessments, other than as expressly provided in
the Transfer Agreement relating to the sale of the
German Business, and installments on special benefit
assessments, provided that such items will be prorated
for periods after the Closing Date only with respect
to employees of GM engaged in the US Business and
Overseas Employees;
(iv) reimbursable employee business expenses;
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(v) rentals and other charges under the Real Property
Leases and other leases to be transferred to or
assumed by the Purchaser or the relevant member of the
Purchaser Group pursuant to this Agreement or the
Transfer Agreements; and
(vi) payments and charges due pursuant to any Contract
other than pursuant to collective bargaining
agreements, Employee Benefit Plans, and employee
payroll-related items except as set forth in Section
2.6.1.(b)(iii), Permit, commitment or other binding
arrangement to which GM or any member of the GM Group
is a party or is obligated and which are being assumed
by the Purchaser or any member of the Purchaser Group
pursuant to this Agreement.
In connection with the foregoing, at the Closing, GM shall deliver to Purchaser
a list of all outstanding bills and invoices for, and the amount of electric,
fuel, gas, and other utility charges due within thirty (30) days following the
Closing, where the failure to pay such amounts within such 30-day period will
result in termination of the relevant contract or in interest, penalties and/or
late charges in excess of US $5,000 individually.
2.6.2. Further Assurance.
To the extent that, after Closing, any member of the GM Group, on the one hand,
or any member of the Purchaser Group, on the other hand, receives any bill or
other invoice for any of the items listed in Section 2.6.1 or similar items,
relating to both pre-Closing and post-Closing periods, GM or Purchaser shall,
or (as appropriate) shall cause such member of the GM Group and the Purchaser
Group, respectively, within ten (10) Business Days send any such bill or invoice
to the other Party. If necessary to avoid incurring interest, penalties and/or
late charges, the Party, or its Affiliate, as the case may be, receiving any
such bill or invoice shall pay all amounts shown to be due thereon, and shall
invoice the other Party for all amounts owed by such other Party (or Affiliate
thereof) thereunder, and such other Party shall, or shall cause an Affiliate
thereof to, reimburse such amounts in accordance with Section 2.6.3.
2.6.3. Payments.
Any payments due under this Section 2.6 shall be made within five (5) days after
the end of the month in which a bill or invoice is sent to a Party (or Affiliate
thereof); provided, however, that the disputed portion of any such item shall be
paid within five (5) days after the final determination thereof on an
item-by-item basis. When either Party (or Affiliate thereof) makes a payment to
a third party which is required to be reimbursed to such Party (or Affiliate
thereof) by the other Party, the reimbursement payment shall be considered the
repayment of an advance.
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2.6.4. Prosecution of Claims.
Any Party liable for more than fifty percent (50%) of the amount apportioned or
to be borne under this Agreement with respect to any item referred to in this
Section 2.6 may, at its option, prosecute by litigation or administrative
proceeding, at its sole expense and risk, including the obligation to pay such
amount and full penalties thereon, if any, in the name of the other Party (or
its Affiliate as appropriate) and receive any and all claims for refund,
abatement or recovery without any subsequent obligation to remit or prorate any
portion thereof to the other Party (or its Affiliate as appropriate). The other
Party shall cooperate and (if applicable) shall cause its Affiliate to cooperate
with any such prosecution of claims at the expense of the Party (or its
Affiliate as appropriate) prosecuting such claim, but shall not be required to
incur any risk or expense.
2.7. Allocation of Purchase Price with respect to Acquired Assets.
2.7.1. The Parties have previously agreed as to the allocation of the
Basic Price and the Assumed Liabilities (and all other
capitalized costs) relating to the US Business among the
Acquired US Assets for all purposes (including financial,
accounting and tax purposes) (the "US Allocation").
2.7.2. Purchaser and GM shall each report the federal, state and
local income and other tax consequences of the purchase and
sale contemplated hereby in a manner consistent with the US
Allocation, including, if applicable, the preparation and
filing of Forms 8594 under Section 1060 of the Code with their
respective federal income Tax Returns for the taxable year
which includes the Closing Date, and neither will take any
position inconsistent with the US Allocation unless otherwise
required under applicable law. GM shall provide Purchaser and
Purchaser shall provide GM with a copy of any information
required to be furnished to the Secretary of the Treasury
under Section 1060 of the Code.
2.7.3. As regards the sale of the Acquired European Assets pursuant
to the Transfer Agreements, Purchaser shall cause the Asset
Purchasers and GM shall cause the Asset Sellers, to make all
applicable filings and returns and ensure that such filings
and returns are consistent with the allocations set forth in
the Transfer Agreements and as previously agreed to by the
Parties.
2.7.4. If the Parties cannot agree on the US Allocation, then if the
Parties mutually agree, an independent third party will be
retained at the shared cost of the Parties and the Parties
will be bound by the US Allocation of that third party. If the
Parties do not mutually agree to retain an independent third
party, GM and Purchaser (and their
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respective Affiliates) shall be free to make inconsistent
filings or returns including Forms 8594.
3. ASSUMPTION OF LIABILITIES RELATING TO SEATING BUSINESS.
3.1. Assumed Liabilities.
At and as of the Closing and as additional consideration for the purchase of the
Acquired Assets, Purchaser shall, or shall cause the relevant Asset Purchaser
to, assume and agree to pay, perform and discharge the following obligations,
liabilities and responsibilities of GM and other members of the GM Group with
respect to the Seating Business ("Assumed Liabilities"):
(a) the obligations of the relevant member of the GM Group to be
performed after the Closing under the Contracts, licenses, Permits and
Real Property Leases included in the Acquired Assets and assigned,
novated or otherwise transferred or to be transferred to Purchaser or
any relevant member of the Purchaser Group pursuant to this Agreement
and/or the Transfer Agreements;
(b) the obligation to pay for goods ordered in the Ordinary Course of
Business by relevant member of the GM Group prior to the Closing Date
that are necessary for use in the Seating Business and that are
received by the relevant member or the Purchaser Group after the
Closing Date;
(c) the obligations of GM or other relevant members of the GM Group to be
assumed by Purchaser pursuant to Article 5 or the relevant Transfer
Agreement; and
(d) environmental liabilities to be assumed by Purchaser pursuant to
Article 7.
Purchaser will not assume any pre-Closing obligations or liabilities of any of
GM or the Asset Sellers with respect to the Seating Business except the Assumed
Liabilities or as otherwise specifically agreed pursuant to the terms of this
Agreement or the Transfer Agreements.
3.2. Excluded Liabilities.
Without limiting the generality of Article 3, except for the Assumed
Liabilities, Purchaser shall not assume or become liable and GM or the
respective member of the GM Group shall continue to be responsible for any debts
relating to the Seating Business, liabilities, obligations, or commitments of GM
or any other member of the GM Group, whether contingent or otherwise, fixed or
absolute, known or unknown, if and to the extent that such liability, obligation
or commitment relates to the conduct of the Seating Business or the ownership of
the Acquired Assets prior to the Closing Date, including all such debts,
liabilities, obligations, or commitments relating to employment and employment
practices, terms and conditions of employment, wages and hours, employee
benefits, employment
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discrimination, wrongful discharge, accounts payable and accrued liabilities
(provided that responsibility for salaries and benefits shall be as set forth in
Article 5 below), product liability claims for Products manufactured prior to
the Closing Date, litigation, product returns, environmental liabilities within
the parameters of Article 7 below, tax liabilities within the parameters of
Sections 10.5 and 11. 13, license fees, utility charges and other pre-Closing
obligations consistent with Section 2.6. Specifically, without limiting the
foregoing, Purchaser shall not assume:
(a) any claim, action, suit, arbitration, grievance or proceeding relating
to the Seating Business pending as of the Closing Date,
notwithstanding the disclosure thereof in Schedules 4.1.6.A, 4.1.6.B,
or pursuant to Article 5, except as provided in Section 5.11.
(b) any subsequent claim, action, suit, arbitration, grievance or
proceeding to the extent arising out of or relating to such pending
matters or any other event occurring on or prior to the Closing Date
or resulting from the manner in which GM or any Asset Seller conducted
the Seating Business on or prior to the Closing Date, except as
provided in Section 5.11.
(c) any liability of GM or any Asset Seller for any federal, state, local
or foreign income taxes for any periods prior to or subsequent to the
Closing whether or not relating to the Seating Business;
(d) any obligation or liability arising from product warranty claims, with
respect to Products manufactured or services rendered by GM or the
Asset Sellers on or prior to the Closing Date; and
(e) any product liability claims, whether made before or after the Closing
Date, to the extent such claims are based on design defects for
Products made after the Closing Date but designed and validated with
the customer prior to the Closing Date.
4. REPRESENTATIONS AND WARRANTIES.
4.1. Representations and Warranties of GM.
GM, for itself and on behalf of each of the Asset Sellers and Securities
Sellers, represents and warrants to Purchaser, for itself and on behalf of the
relevant Asset Purchasers and Securities Purchasers, as follows as of the date
of this Agreement:
4. 1. 1. Corporate Data.
GM and each Asset Seller and Securities Seller is a corporation duly organized,
validly existing, and to the extent legally applicable, in good standing under
the laws of its jurisdiction of incorporation, and has the requisite corporate
power and authority to own the
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Acquired Assets and/or the Sale Securities owned by it and to carry on the
Combined Business as presently conducted by each of them.
4.1.2. Corporate Power: Due Authorization.
GM and each Asset Seller and Securities Seller has the requisite corporate power
and authority to execute and deliver this Agreement and/or the Ancillary
Agreements to which it is a party, and to perform its respective obligations
hereunder and thereunder and to consummate the transactions contemplated herein
and therein. The execution, delivery, performance, and consummation of this
Agreement and the Ancillary Agreements have been duly authorized by all
necessary action on the part of GM and each of the Asset Sellers and the
Securities Sellers. This Agreement and each Ancillary Agreement has been duly
authorized, executed and delivered by GM and each Asset Seller and Securities
Seller a party thereto and are valid and legally binding obligations of GM and
each Asset Seller and the Securities Seller a party thereto, and enforceable
against GM and each Asset Seller and Securities Seller a party thereto in
accordance with their respective terms, except as enforcement of such terms may
be limited by bankruptcy, insolvency, reorganization, moratorium, or similar
laws or proceedings affecting the enforcement of creditors' rights generally and
by the availability of equitable remedies and defenses.
4.1.3. Qualification.
Each of GM and each Asset Seller, Securities Seller, Sale Company and JV Company
is duly qualified or licensed to do business in all jurisdictions where it owns
or leases Real Property or maintains stocks of business inventories relating to
the Combined Business, except with respect to jurisdictions where the failure to
be so qualified or to be so licensed would not have a Material Adverse Effect
and, in the case of each Sale Company and JV Company, a material adverse effect
on such company.
4.1.4. Sufficiency of Acquired Assets.
(a) The Acquired Assets, together with the Technical Information and
Intellectual Property rights to be licensed from GM to Purchaser
and/or obtained from third parties pursuant hereto and the Excluded
Assets constitute all properties and assets the use of which is
necessary for the continued conduct of the Seating Business as it is
now being conducted.
(b) The Transition Services to be provided pursuant to the Transition
Services Agreement, the corporate overhead services currently provided
by GM or relevant members of the GM Group as referred to in Schedule
4.1.4, and the Excluded Assets, together constitute all services, the
use of which is necessary for the continued conduct of the Seating
Business as it is now being conducted.
4.1.5. Assets
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(a) GM and/or relevant members of the GM Group has/have good and valid
title to the Personal Property and Inventory included in the Acquired
Assets or (as appropriate) forming part of the assets of the sale
companies or JV Companies as at the date of this Agreement in each
case, free and clear of any Lien, except: (i) purchase money security
interests arising in the Ordinary Course of Business; (ii) security
interests relating to progress payments created or arising pursuant to
government contracts set forth on Schedule 4.1.5.A; (iii) security
interests relating to vendor tooling arising in the Ordinary Course of
Business; or (iv) as set forth on Schedule 4.1.5.A ("Permitted
Liens"). At the Closing on the Closing Date, GM or the relevant Asset
Seller will, subject to the receipt of the Closing Payment pursuant to
Section 2.2, sell, transfer, assign, convey and deliver to Purchaser
or the relevant Asset Purchaser good and valid title to the Personal
Property and Inventory included in the Acquired Assets, in each case
free and clear of any Liens except Permitted Liens.
(b) Schedule 4.1.5.B sets forth a list of substantially all machinery,
equipment and capitalized tools included in the Acquired Assets or
forming part of the assets of the Sale Companies or the JV Companies.
(c) The Inventory will, as of the Closing Date, be of usable and
merchantable quality, except as disclosed in the Closing Inventory
Statement or the Net Worth Statement, consistent with Inventory levels
necessary, in GM's reasonable opinion, to support the Combined
Business. All finished goods included in the Inventory are saleable in
the Ordinary Course of Business and will, on the Closing Date, be of
such quality as to meet or exceed GM's existing quality control
standards and any applicable governmental quality control standards,
as applied by GM in its normal and customary manufacturing procedures.
(d) The Personal Property and Real Property included in the Combined
Business being transferred to Purchaser have been maintained in the
Ordinary Course of Business and are in such condition (considering age
and purpose for which used) as to enable the Business to be conducted
as currently conducted without material disruption.
(e) Except for obligations to repair or replace, no payments are required
with respect to the GM Bailed Assets or the Other OEM Bailed Assets.
The Other OEM Bailed Assets are provided on such third party's
existing terms and shall be in the possession of the Seating Business
at Closing.
4.1.6. Litigation.
(a) Except as identified on Schedules 4.1.6.A, or 4.1.7.B, or disclosed
pursuant to Article 5, there is no significant action at law or in
equity; no arbitration proceeding; action, proceeding, complaint or
investigation before or by any
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federal, foreign, state or local governmental or regulatory
commission, agency or other administrative or regulatory body or
authority, pending, or to GM's knowledge, threatened by or against (i)
GM or any of its Affiliates with respect to the Combined Business,
(ii) the operations, business or affairs of the Combined Business,
(iii) any of the Acquired Assets, or (iv) GM's or any member of the GM
Group's right to own the Acquired Assets or operate the Combined
Business.
(b) Except as identified on Schedule 4.1.6.B, there is no significant
labor dispute, arbitration, grievance, strike or written request for
union representation pending, or to the knowledge of any member of the
GM Group, threatened against GM or any member of the GM Group with
respect to the Combined Business or affecting the Combined Business or
the Combined Business' operations, and neither GM nor any member of
the GM Group knows of any occurrence or any events which would give
rise to any such labor dispute, arbitration, grievance, strike or
written request for representation.
4.1.7. Intellectual Property and Technical Information.
(a) Schedules 9.8.5.A, 9.8.5.B, 9.8.6.A, 9.8.6.B, 9.8.8, 9.8.9 and
4.1.7.A list all Intellectual Property (including, without limitation,
issued patents, applications, divisions, continuations and
continuations-in-part, reissues and patents of addition, but excluding
Technical Information) which is used or held for use exclusively or
primarily in the conduct of the Combined Business. Schedules 9.8.5.A,
9.8.5.B, 9.8.6.A, 9.8.6.B and 9.8.8 identify all foreign patents and
patent applications owned by GM corresponding to the United States
patents and patent applications listed on those schedules. Subject to
rights granted to others pursuant to Contracts listed on Schedule 1.
1.1.B, GM warrants that it has the right to transfer the Intellectual
Property included in the Acquired Assets.
(b) Except as listed on Schedule 4.1.7.B, none of the Intellectual
Property has been knowingly misappropriated from anyone else; neither
GM nor any of its Affiliates has received claim or notice that the use
of the Intellectual Property infringes or results in a product that
infringes upon the rights of anyone else, and neither GM nor any of
its Affiliates is aware that any such infringement exists; neither GM
nor any of its Affiliates is aware that any infringement or improper
use by anyone else of the Intellectual Property exists, and there is
no action or proceeding instituted by or on behalf of GM or any of its
Affiliates in which an act constituting an infringement of any of the
rights to the Intellectual Property was alleged to have been committed
by anyone else; and, neither GM nor any of its Affiliates has
knowingly taken or omitted to take any action which would have the
effect of waiving any rights to the Intellectual Property, the waiver
of which would adversely affect the conduct of the Combined Business
or the use of the Acquired Assets or allow anyone
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else to compete more effectively with the Combined Business than it
now does.
(c) Except for the Intellectual Property listed on Schedule 9.8.3.A,
9.8.3.B, 9.8.5.A, 9.8.5.B, 9.8.6.A, 9.8.6.13, 9.8.8, and 9.8.9, and
4.1.7.A, the Technical Information, and the Excluded Assets listed in
Section 1.2.9, neither GM nor any of its Affiliates owns, directly or
indirectly, in whole or in part, any Intellectual Property, invention,
proprietary right, or brand name (i) which GM or any of its
Affiliates is presently using in the conduct of the Combined Business;
(ii) the use of which is. necessary for the Combined Business; or
(iii) which pertains to the art in which the Combined Business is
engaged.
4.1.8. Compliance with Other Instruments and Laws: Permits.
Neither GM nor any other member of the GM Group is in violation of any term of
any charter, by-law, mortgage, indenture, instrument, Permit or agreement
(including employment agreements and national or local bargaining agreements),
or of any judgment, decree, or order which names GM (or any other member of the
GM Group), or in violation of any term of any other instrument, contract, or
agreement, which violation, in either case, would have a Material Adverse
Effect. No Sale Company or JV Company is in violation of any term of its
charter, by-laws or organizational documents or any judgment, order or decree
applicable to it. Except as provided on Schedules 4.1.6.A, 4.1.6.B or Schedule
4.1.8.A, the Combined Business is in compliance in all material respects with
all Laws and Permits applicable to the conduct of the Combined Business. All
Permits necessary for the conduct of the Combined Business and the ownership and
operation of the Acquired Assets, as listed on Schedule 4.1.8.B have been duly
obtained, and, except as indicated on Schedule 4.1.8.A, are in full force and
effect, and there is no action, suit, claim, proceeding or investigation,
pending or, to GM's knowledge, threatened against or affecting GM or any member
of the GM Group, which may result in the revocation, cancellation or suspension,
or any materially adverse modification, of any such Permit. The execution,
delivery and performance of, and compliance with, this Agreement and the
Ancillary Agreements will not result in any such violation or be in conflict
with or constitute a default under any of the foregoing.
4.1.9. Brokers.
Neither GM nor any member of the GM Group has employed any finder, broker,
agent, or other intermediary in connection with the negotiation or consummation
of this Agreement, any Ancillary Agreement or any of the transactions
contemplated hereby, other than Morgan Stanley & Co. which is acting for GM and
whose fees and expenses will be paid by GM.
4.1.10. Consents.
No consent, approval, order, authorization of, or registration, declaration, or
filing with, any governmental or judicial agency, body or authority or any other
third party is required in order to give effect to the valid execution,
delivery, and performance of this Agreement and the Ancillary Agreements by GM
or any relevant member of the GM Group or the
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22
consummation by GM or any relevant member of the GM Group of the transactions
contemplated hereby and thereby, except for: (i) the consents relating to
Contracts or Permits, as referred to in Section 1.4.1; (ii) filings, consents
and approvals required under local law for the transfer to Purchaser or the
relevant Asset Purchaser or Securities Purchaser of Acquired Assets or Sale
Securities located outside of the United States as set forth on Schedule 4.1.
10; and (iii) filings and consents required for the transfer to Purchaser of the
Owned Real Property, and Leased Real Property as set forth on Schedule 4.1.10
and (iv) filings and consents required for transfer to Purchaser of the
Intellectual Property.
4.1.11. Financial Statements.
(a) GM has delivered to Purchaser: (i) in the case of each of the Sale
Companies and JV Companies, unaudited balance sheets and income
statements as of December 31, 1997, attached hereto as Schedule
4.1.11.A; (ii) unaudited pro forma income statements for the Combined
Business for the seven (7) month period ended July 31, 1998, attached
hereto as Schedule 4.1.11.B; and (iii) in the case of each of the Sale
Companies and JV Companies, unaudited balance sheets and income
statements as of July 31, 1998 attached hereto as Schedule 4.1.11.C.
The unaudited financial statements referred to in the foregoing
clauses (i), (ii) and (iii) are referred to collectively as the
"Unaudited Statements".
(b) The Unaudited Statements were derived from the accounting books and
records of GM and other members of the GM Group and were prepared
using the same accounting methods, policies, practices and procedures,
including classifications and methodologies, which are consistent with
those used historically by GM or the appropriate member of the GM
Group with respect to its respective portion of the Combined Business
("GM Accounting Procedures"). The books and records of the Combined
Business are accurate and complete in all material respects with
respect to the purpose for which they were prepared. With respect to
the plant level financial information, GM Accounting Procedures are in
accordance with GAAP. Certain other assets, liabilities and costs
which may be allocable to certain portions of the Combined Business
are recorded in consolidation at GM, and are not included in, or may
be only partially allocated to the plant financial statements.
(c) The Unaudited Statements constitute an accurate record of the
financial affairs of the Combined Business in accordance with GM
Accounting Procedures, and accurately set forth such financial
information in the Unaudited Statements of the Combined Business in
accordance with the books and records of GM. The Unaudited Statements
present fairly, in all material respects, the financial position and
results of operations of the Combined Business at the dates and for
the periods indicated therein in accordance with GM Accounting
Procedures.
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(d) On the date of its most recent balance sheet included in the Unaudited
Statements, each Sale Company and JV Company had no liabilities that
were not fully disclosed, reflected or reserved against in such
balance sheet in accordance with GAAP, and except for liabilities
incurred in the Ordinary Course of Business, since the date of such
balance sheet, no Sale Company or JV Company has incurred any
liabilities required to be disclosed in accordance with GAAP. Except
as reflected in the Unaudited Statements, (i) since July 31, 1998 no
Sale Company or JV Company has declared, paid or agreed to declare or
pay any dividend or other distribution to holders of its capital stock
and (ii) no such dividend or distribution is currently payable.
(e) Except to the extent of reserves therefore in the Net Worth Statement,
(i) JCI accounts receivables, if any, currently on the books of the
Turkish Business and the Mexico Business are collectible in the
Ordinary Course of Business with respect to such receivables and (ii)
the accounts receivable of each Sale Company and each JV Company have
arisen in the Ordinary Course of Business and are reflected in
accordance with GAAP. Lear will use reasonable efforts to collect JCI
receivables.
4.1.12. Events Subsequent to Latest Annual Financial Statements.
Except as shown on Schedule 4.1.12, since December 31, 1997, the Combined
Business has been conducted and carried on only in the Ordinary Course of
Business and neither GM nor any member of the GM Group has, with respect to its
respective portion of the Combined Business (and other than in the Ordinary
Course of Business or as disclosed to Purchaser by GM in connection with this
transaction or consented to by Purchaser): (i) incurred any material obligations
or liabilities or entered into any material transaction, contract or commitment;
(ii) mortgaged, pledged, or subjected any of the Acquired Assets or assets
forming part of the assets of the Sale Companies or JV Companies to any Lien
other than a Permitted Lien; (iii) acquired or disposed of material assets or
properties, or entered into any agreement or other arrangement for any such
acquisition or disposition; (iv) forgiven or canceled any debts or claims or
waived any rights of a material value other than in the normal operation of its
credit policies; (v) entered into or significantly amended any distributorship
arrangements; (vi) suffered any damage, destruction, or loss, in any case or in
the aggregate (whether or not covered by insurance), having a Material Adverse
Effect; (vii) suffered any other Material Adverse Effect; (viii) changed any
accounting methods or practices (including, without limitation, any change in
depreciation or amortization policies or rates) used with respect to the
Combined Business; or (ix) agreed to do any of the items set forth above in
clauses (i) through (viii).
4.1.13. Contracts.
(a) Except as listed on Schedule 1.1.1.B or 4.1.13.A neither GM nor any
other member of the GM Group is, in respect of the Combined Business,
a party to, or subject to, any oral or written:
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(i) contract or commitment for purchase, sale or lease (other than
contracts described in clause (iii) below) of tangible personal
property involving any receipt to or expenditure by GM of more
than US $200,000 or which has a term extending beyond one (1) year
after the date of this Agreement without the right on the part of
GM or other member of the GM Group to cancel such contract or
commitment by thirty (30) days' or less notice without any
liability to GM or other member of the GM Group;
(ii) contract to obtain services involving any expenditure by any
member of the GM Group of more than US $200,000;
(iii) contract for the sale or lease of, or warranty relating to, the
Combined Business' Products or the furnishing of its services that
(a) contains significant additional or substantially different
terms than GM's standard forms, or (b) involves an aggregate
amount reasonably expected to be paid or received in connection
therewith exceeding US $200,000;
(iv) sales agency, sales representative, broker, distributor, or
similar contracts which cannot be canceled without payment of any
premium or penalty upon notice of 60 days or less, involving in
excess of $200,000;
(v) equity joint venture, joint research or development, joint
financing, teaming or partnership contract or arrangement or any
other agreement involving the sharing of profits;
(vi) guarantee, performance bond, surety, indemnification or similar
commitments relating to the performance of any obligation by any
person or entity other than a member of the GM Group in respect to
the Combined Business, involving in excess of $200,000, or
otherwise necessary for the operation of the Combined Business;
(vii) plans, contracts or agreements pursuant to which a member of the
GM Group, with respect to the Combined Business, has any
obligation in excess of US $200,000 to the persons listed on
Schedule 5.1 I.A; and
(viii) other Contract(s) of the Combined Business involving in excess
of $200,000.
(b) Except as disclosed on Schedule 4.1.13.B, each of the Listed Contracts
is valid and in full force and effect according to its terms; no notice
of termination thereof or material default thereunder has been sent or
received by any member of the GM Group and neither any member of the GM
Group, nor, to GM's knowledge, any other party to any of the Listed
Contracts, is (or with
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notice or lapse of time would be) in material breach thereof; there
are no material unresolved disputes under any of the Listed Contracts.
Except as set forth in Schedule 4.1.13.B, the Contracts in respect of
the Combined Business were entered into in the Ordinary Course of
Business.
(c) Schedule 4.1.13.C or any schedule provided for in Article 5 lists all
collective bargaining agreements with any labor union or other
representative of employees connected with the Combined Business
(including national and local agreements, amendments, supplements,
letters, and memoranda of understanding of any kind).
(d) GM has previously made available to Purchaser (i) copies of all written
Listed Contracts and agreements listed on Schedule 4.1.13.C, (ii) a
written description of any oral Listed Contract, and (iii) copies of
GM's standard forms, if any, for contracts for the sale or lease of,
and warranties relating to, the Products of the Combined Business, or
the furnishing of its services.
4.1.14. Regulatory Matters.
Except as set forth on Schedule 4.1.14, no member of the GM Group is required to
file or otherwise provide reports or data, other information, or applications
with respect to the Products manufactured by the Combined Business with any
federal, state, national or local governmental authorities or departments
(whether in the United States or elsewhere) with jurisdiction over the
manufacture, use, or sale of such Products, and no regulatory approvals are
required with respect to such Products.
4.1.15. Real Property.
4.1.15.A US Real Property
(a) The US Owned Real Property and US Leased Real Property described on
Schedules 4.1.15.A. and 4.1.15.B., respectively, constitute, together
with the excluded US Real Property referred to in Section 1.2.8, all of
the US Real Property used or held for use primarily or exclusively in
relation to the US Business and forming part of the sale under this
Agreement or on which the US Acquired Assets are located. Except for
Permitted Exceptions, GM has good, marketable and insurable title to
the US Owned Real Property, free and clear of all leases, covenants,
conditions, restrictions, reservations, reversions, licenses,
easements, mortgages and other security interests, liens, claims,
charges, options, rights of purchase and other encumbrances
(collectively "Restrictions"). Except as disclosed on Schedule
4.1.15.C. no member of the GM Group is, in respect of the US Business,
a party to any contract or option to purchase, sell, assign or
otherwise acquire or dispose of, or to grant or create any restriction
on or affecting any US Real Property, and since December 31, 1997, no
member of the GM Group has in respect of the US
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Business purchased, sold, assigned or otherwise acquired or disposed of
any real property used in respect of the US Business.
(b) Except for the US Leased Property Leases, there is no US Real Property
leased by GM or its Affiliates which is used or held for use primarily
or exclusively in the US Business.
(c) Except as disclosed on Schedule 4.1.15.D the US Owned Real Property and
US Leased Real Property are adequately serviced by all utilities
necessary for the effective operations of the US Business as currently
operated.
(d) No condemnation or eminent domain proceedings have been initiated by
service of process on any member of the GM Group which relate to the US
Owned Real Property or the US Leased Real Property, and no such
proceedings are, to the best knowledge of any member of the GM Group,
threatened or have been filed by any relevant governmental authority
with respect to the US Owned Real Property or the US Leased Real
Property.
(e) None of the members of the GM Group have received written notice of a
material uncured default under or that existing Improvements materially
violate any of the covenants, restrictions, rights-of-way, licenses,
agreements or easements affecting title to or relating to the use of
the US Owned Real Property or the US Leased Real Property and except as
disclosed by the Survey, nor has any member of the GM Group received
any notice of any material fence dispute, boundary dispute, boundary
line question, water dispute, or drainage dispute concerning or
affecting the US Owned Real Property.
4.1-15.B European Real Properties
(a) The European Owned Real Property and European Leased Real Property,
respectively, constitute, together with the Excluded European Real Property
described on Schedule 4.1.15.G, all of the real property currently used in
relation to the material operation of the Europe Business, the Sale
Companies and the JV Companies and, as regards the Acquired European Assets,
on which the Acquired European Assets are located , except for the Excluded
European Real Property and which form part of the sale pursuant to the terms
of the applicable Transfer Agreements. Except for Permitted Exceptions, GM
has good, marketable and insurable title to the European Owned Real
Property, free and clear of Restrictions. Except as disclosed on Schedule
4.1.15.E, no member of the GM Group is, in respect of the Europe Business, a
party to any contract or option to purchase, sell, assign or otherwise
acquire or dispose of, or to grant or create any restriction on or affecting
any European Real Property, and since December 31, 1997, no member of the GM
Group has in respect of the Europe Business purchased, sold, assigned or
otherwise acquired or disposed of any real property used in respect of the
Europe Business.
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(b) Except for the European Real Property and the Excluded European Real
Property, there is no real property leased by GM or its Affiliates which is
used or held for use primarily or exclusively in the Europe Business.
(c) The European Owned Real Property and European Leased Real Property are
adequately serviced by all utilities necessary for the effective operations
of the Europe Business as currently operated.
(d) Except for Permitted Exceptions no compulsory purchase or enforcement
proceedings have been initiated by service of process on any member of the
GM Group which relate to the European Owned Real Property or the European
Leased Real Property, and no such proceedings are, to the best knowledge of
any member of the GM Group, threatened or have been filed by any relevant
governmental authority with respect to the European Owned Real Property or
the European Leased Real Property.
(e) None of the members of the GM Group have received written notice of a
material breach of the covenants, restrictions, rights-of-way, licenses,
agreements or easements affecting title to or relating to the use of the
European Owned Real Property or the European Leased Real Property, nor has
any member of the GM Group received any notice of any material fence
dispute, boundary dispute, boundary line question, water dispute, or
drainage dispute concerning or affecting the European Owned Real Property.
(f) for the purpose of this sub-section 4.1.15.B(f) the term "Permitted
Exceptions" shall be deemed to have been amended as follows:
aa) at sub-section (a) of the definition the words "not yet delinquent"
shall be deleted;
(bb) at sub-section (b) of the definition the words "inchoate
mechanic's, material person's, laborer's and carrier's lien and other
similar inchoate" shall be deleted;
(cc) at sub-section (c) of the definition the words "full structural"
shall be inserted before the word "survey";
(dd) at sub-section (e) of the definition the words "which do not
interfere with the current use of the Owned Real Property" shall be
deleted and replaced by the words "or otherwise which would be revealed
by appropriate searches and inquiries of the local and other relevant
authorities and registers";
(ee) at sub-section (f) of the definition, the words "Schedule
4.1.15.C" shall be deleted and replaced with the words "Schedue
4.1.15.E";
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(ff) at sub-section (g) of the definition the word "zoning" shall be
deleted and replaced by the word "planning";
(gg) at sub-section (h) of the definition the words "or otherwise
disclosed" shall be inserted after the words "Schedule 6.2";
4.1.16. Tax Matters.
For the avoidance of doubt, Section 4.1.16(a) to (c) inclusive only applies to
the Seating Business and Sections 4.1.16(d) to (p) inclusive only apply to the
Sale Companies and the JV Companies.
For purposes of this Section 4.1.16, the terms Sale Companies and JV Companies
shall include any subsidiary, any predecessors, or any person or other entity
from which the Sale Companies or the JV Companies incur a successor liability
for Taxes as a result of transferee or joint and several liability. Except as
disclosed on Schedule 4.1.16:
(a) There are no Liens for Taxes upon any of the Acquired Assets and no
event has occurred which with the passage of time or the giving of
notice or both, could reasonably be expected to result in a Lien for
Taxes on any of the Acquired Assets.
(b) None of the Acquired US Assets is tax exempt use property under the
Code. None of the Acquired US Assets is property that is required to be
treated as being owned by any other person pursuant to the safe harbor
lease provision of former Code section 168 (f)(8).
(c) No portion of the cost of any of the Acquired US Assets was financed
directly or indirectly from the proceeds of any tax-exempt state or
local government obligation described in Code section 103(a).
(d) Each JV Company and Sale Company has paid or accrued all Taxes that
have become due and are under no liability to pay any penalty,
interest, surcharge or fine in connection with any Taxes other than any
penalty, interest, surcharge, or fine which has been recorded on the
Net Worth Statement.
(e) Each JV Company and Sale Company has punctually filed all such tax
returns, given all such notices, provided all such information and
maintained all such records in relation to Taxes as are required to be
filed or provided by each JV Company and Sale Company for all
jurisdictions and for all years in which any such returns, notices, or
information were required. To the knowledge of GM, all tax returns are
accurate in all material respects.
(f) Each JV Company and Sale Company has duly complied with its obligations
in relation to pay as you earn or employment Tax and earnings-related
or other social security contributions and its reporting obligations to
its relevant Tax
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authority in connection with any salary or benefits provided to
employees and directors of each JV Company and Sale Company.
(g) Each JV Company and Sale Company is duly registered for value added or
sales tax and has made, given, obtained and kept full, complete,
correct and up-to-date records, invoices and other documents
appropriate or required for the purposes thereof and is not in arrears
with any payment or returns due thereunder.
(h) All documents which are required to be stamped or notarized and are in
the possession of the JV Companies or Sale Companies or by virtue of
which the JV Companies or Sale Companies have any material right have
been duly stamped or notarized.
(i) None of the JV Companies or the Sale Companies have executed or filed
with any taxing authority any agreement extending or having the effect
of extending the period for assessment, reassessment, collection of any
Taxes and no power of attorney granted by any of the JV Companies or
the Sale Companies with respect to Taxes is currently in force.
(j) No audits or other administrative proceedings or court proceedings are
presently pending with respect to any Taxes or tax returns of any of
the JV Companies or the Sale Companies.
(k) None of the JV Companies or the Sale Companies has entered into any
agreement with the relevant taxation authority relating to Taxes which
affects any taxable year ending after the Closing Date.
(l) None of the JV Companies or the Sale Companies are parties to any tax
sharing or other agreement regarding the sharing of Taxes that is in
effect after the Closing Date.
(m) Each JV Company and Sale Companies is a foreign person within the
meaning of Code section 1445.
(n) None of the JV Companies or the Sale Companies have a permanent
establishment or conduct a trade or business in any country other than
the country in which they are incorporated.
(o) None of the JV Companies or the Sale Companies has any application
pending with any taxing authority requesting permission for any changes
in accounting methods that relates to its business or operations and
that affects any taxable year ending after the Closing Date.
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(p) No elections under the "check-the-box" regulations contained in
Treasury Regulation 301.7701-1 have been made with respect to any of
the JV Companies or Sale Companies.
4.1.17. No Conflicts.
Neither the execution, delivery and performance of this Agreement or the
Ancillary Agreements by GM, the Asset Sellers or the Securities Sellers nor the
consummation of the sale of the Acquired Assets or the Sale Securities or any
other transaction contemplated by this Agreement or the Ancillary Agreements,
does or will:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the articles of incorporation or by-laws of
GM, an Asset Seller or Securities Seller;
(b) subject to obtaining the consents, approvals and waivers, making the
filings and giving the notices disclosed on Schedule 4.1.17.B, conflict
in any material respect with or result in a material violation or
breach of any term or provision of any applicable Law other than such
conflicts, violations or breaches as would occur solely as a result of
the legal or regulatory status of Purchaser or any of its Affiliates;
or
(c) except as disclosed on Schedule 4.1.17.C, (i) conflict in any material
respect with or result in a material violation or breach of, (ii)
constitute a material default under, (iii) require GM, an Asset Seller
or a Securities Seller to obtain any such consent, approval or waiver
of, make any filing with or give any notice to any Person as a result
or under the terms of, or (iv) result in the creation or imposition of
any Lien, other than Permitted Liens, upon GM, an Asset Seller or a
Securities Seller or any of their respective assets and properties
(including the Acquired Assets and the Sale Securities) under any
Contract or Permit to which any of them is a party or by which any of
their respective assets and properties is bound.
4.1.18. Employee Pension Benefits Plans.
The Internal Revenue Service has issued a favorable determination letter with
respect to each Employee Pension Benefits Plan (a) that is sponsored by GM from
which assets will be transferred to an Employee Pension Benefits Plan sponsored
by the Purchaser and (b) that is intended to be qualified under Section 401(a)
of the Code, and to GM's knowledge, no circumstances exist and no events have
occurred that are likely to adversely affect such qualified status. GM has
provided Purchaser with a copy of each such determination letter.
4.1.19. Related Party Transactions.
Except for the Transition Services, the Component Supply Agreement, related
party transactions listed on Schedules 1.4.1, 4.1.4 and 4.1.13.A, sales of
Product to GM and the
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other members of the GM Group, and matters referred to in Schedule 4.1.19,
neither GM nor any of its Affiliates has any other business relationships (as
lessor, supplier, customer or otherwise) with the Combined Business.
4.1.20. Full Disclosure.
Except as expressly disclosed to Purchaser, the Financial Statements and other
Schedules hereto (i) are true and complete in all material respects and (ii) do
not contain any untrue statement of a material fact and (iii) to GM's Knowledge
do not omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in the context in which made, not
materially false or misleading.
4.1.21. Awarded Business.
The Combined Business has been awarded lifetime contracts for certain GM
programs, as described in the Component Supply Agreement. The information
relating to products and prices set forth in the Supply Schedule attached as
Exhibit A to the Component Supply Agreement is accurate in all material
respects.
4.1.22. Absence of Other Representations or Warranties.
Except for the representations and warranties expressly set forth in this
Agreement and the Ancillary Agreements, GM, the Asset Sellers and the Securities
Sellers make no representations or warranties, express or implied, with respect
to the Acquired Assets, the Assumed Liabilities, the sale of the Sale Securities
or the Combined Business, and in particular but without limitation GM, the Asset
Sellers and the Securities Sellers are making no representations with respect to
any plan(s) of Purchaser for the future conduct of the Combined Business. For
the avoidance of doubt, no warranty or representation is given on the contents
of the Confidential Offering Memorandum dated November 1997, on any other
documents or other information not contained in this Agreement or the Ancillary
Agreements, or on any projected volumes of the Combined Business, all which were
produced only for information purposes.
4.1.23. Capitalization of Sale Companies and JV Companies and Related
Matters.
(a) Each Sale Company and JV Company is a corporation duly authorized,
validly existing and, to the extent legally applicable, in good
standing under the laws of its jurisdiction of incorporation and has
the requisite corporate power and authority to own or lease its
properties and to carry on the Combined Business as presently conducted
by each of them. Each Sale Company and JV Company is duly qualified to
do business in all jurisdictions where it is required to be so
qualified, except where the failure to be so qualified would not have a
material adverse effect on such company.
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(b) Schedule 4.1.23.B sets forth (i) the total authorized capital stock of
each Sale Company and JV Company and the par value thereof and (ii) the
total issued and outstanding capital stock of each Sale Company and JV
company and the owner thereof. The Sale Securities constitute the only
shares of capital stock of the Sale Companies and JV Companies which
are issued and outstanding other than as set forth on Schedule 4.1.23.B
in respect of the JV Companies. No Sale Company or JV Company holds any
of its shares of capital stock in its treasury.
(c) Except as set forth on Schedule 4.1.23.B, (i) each Sale Company and JV
Company is wholly owned by the relevant Securities Seller, and (ii) the
Sale Securities are duly authorized, validly issued, fully paid up and
non-assessable and are not subject to any preemptive rights, and, (iii)
there are no voting trust agreements or other contracts, agreements or
arrangements restricting voting or dividend rights or transferability
with respect to the Sale Securities.
(d) Except as set forth on Schedule 4.1.23.B, there is no outstanding
security, right, subscription, warrant, option, privilege or other
agreement, commitment or contract, preemptive, contractual or otherwise
that gives the right to (i) purchase or otherwise receive or be issued
any share capital of a Sale Company or a JV Company or any security of
any kind convertible into or exchangeable or exercisable for any share
capital of a Sale Company or a JV Company; or (ii) receive or exercise
any benefits or rights similar to any rights enjoyed by or accruing to
a holder of share capital of a Sale Company or a JV Company, including
any rights to participate in the equity or income of a Sale Company or
a JV Company, or to participate in or direct the election of any
directors of a Sale Company or a JV Company or the manner in which any
share capital of a Sale Company or a JV Company are voted.
(e) Each Sale Company and JV Company has no interest in the share capital
of any other Person.
(f) Each Securities Seller owns and has good and valid title to the
relevant Sales Shares or the relevant JV Shares free and clear of all
Liens or other adverse interest of any kind or nature whatsoever.
4.1.24. Additional Disclosure
Additional disclosures relating to certain representations and warranties, as to
which schedules were not contemplated elsewhere in this Article 4 are set forth
in Schedule 4.1.24.
4.2. Representations and Warranties of Purchaser.
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Purchaser, for itself and on behalf of each of the Asset Purchasers and
Securities Purchasers warrants and represents to GM, for itself and on behalf of
the relevant Asset Sellers and Securities Sellers, as follows as of the date of
the Agreement:
4.2.1. Corporate Data.
Purchaser and each Asset Purchaser and Securities Purchaser is a corporation
duly organized, validly existing, and to the extent legally applicable in good
standing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to purchase the Acquired Assets and/or
Sale Securities, and to conduct the Combined Business as contemplated by this
Agreement.
4.2.2. Corporate Power; Due Authorization.
Purchaser, the Asset Purchasers and Securities Purchasers have the requisite
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements to which Purchaser and/or each of the Asset Purchasers and
Securities Purchasers is a party, and to perform their obligations hereunder and
thereunder and to consummate the transactions contemplated herein and therein.
The execution, delivery, performance, and consummation of this Agreement and the
Ancillary Agreements have been duly authorized by all necessary action on the
part of Purchaser and each of the Asset Purchasers and Securities Purchasers.
This Agreement and each Ancillary Agreement has been duly authorized, executed
and delivered by Purchaser and each Asset Purchaser and Securities Purchaser a
party thereto, and are valid and legally binding obligations of Purchaser and
each Asset Purchaser and Securities Purchaser a party thereto, and enforceable
against Purchaser and each Asset Purchaser and Securities Purchaser a party
thereto in accordance with their respective terms, except as enforcement of such
terms may be limited by bankruptcy, insolvency, reorganization, moratorium, or
similar laws or proceedings affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies and defenses.
4.2.3. Qualification.
Each of Purchaser, the Asset Purchasers and the Securities Purchasers is duly
qualified or licensed to do business in all jurisdictions where the failure so
to qualify or to be so licensed would have a Material Adverse Effect.
4.2.4. No Consent Required.
No consent, approval, order, authorization of, or registration, declaration or
filing with any governmental or judicial agency, body or authority or other
third party is required in order to give effect to the valid execution,
delivery, and performance of this Agreement and the Ancillary Agreements by
Purchaser or any relevant member of the Purchaser Group or the consummation by
Purchaser or any relevant member of the Purchaser Group of the transactions
contemplated hereby and thereby, except for: (i) the consents relating to
Contracts or Permits, as referred to in Section 1.4.1; (ii) filings, consents
and approvals required under local law for the transfer to Purchaser or the
relevant Asset Purchaser or
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Securities Purchaser of Acquired Assets or Sale Securities located outside of
the United States as set forth on Schedule 4.1.10; and (iii) filings and
consents required for the transfer to Purchaser of Owned Real Property and
Leased Real Property as set forth on Schedule 4.1.10; and (iv) filings and
consents required for transfer to Purchaser of the Intellectual Property.
4.2.5. Brokers.
Purchaser has employed no finder, broker, agent, or other intermediary in
connection with the negotiation or consummation of this Agreement, any Ancillary
Agreement or any of the transactions contemplated hereby for which any member of
the GM Group would be liable.
4.2.6. No Conflicts.
The execution and delivery of this Agreement or the Ancillary Agreements by
Purchaser, the Asset Purchaser or the Securities Purchaser will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the articles of incorporation
or by-laws of Purchaser, an Asset Purchaser or a Securities
Purchaser;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed on Schedule 4.2.6.B
conflict in any material respect with or result in a material
violation or breach of any term or provision of any applicable Law
other than such conflicts, violations or breaches as would occur
solely as a result of the legal or regulatory status of GM or any
of its Affiliates; or
(c) except as disclosed on Schedule 4.2.6.C, (i) conflict in any
material respect with or result in a material violation or breach
of, (ii) constitute a material default under, (iii) require
Purchaser, an Asset Purchaser or a Securities Purchaser to obtain
any such consent, approval or action of, make any filing with or
give any notice to any person as a result or under the terms of,
or (iv) result in the creation or imposition of any Lien upon
Purchaser, an Asset Purchaser or a Securities Purchaser or any of
their respective assets and properties under, any indenture,
mortgage, lease, agreement, obligation or permit or consent to
which any of them is a party or by which any of their respective
assets and properties is bound.
4.3. Interpretation.
For the purposes of interpretation of the representations and warranties
contained in this Article 4 references to any United States legal term or
concept in this Agreement shall, in respect of any jurisdiction other than the
United States, be construed as references to the term or concept which most
nearly corresponds in that jurisdiction to the United States legal term or
concept.
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5. PERSONNEL MATTERS.
For the avoidance of doubt, Sections 5.1 to 5.21 of this Article 5 only apply to
employees employed in the US Business.
5.1. Responsibility for Employees.
(a) Schedule 5.1.A identifies all employees (the "Employees") of GM or its
Affiliates who were employed by (or otherwise accorded employment
rights with respect to) the US Business, or utilized primarily in the
operation of the US Business as of August 31, 1998 by name, location,
function and, as to hourly and regular salaried employees, status
(e.g., active, GM JOBS Program, lay-off or leave of absence) as of such
date. Effective as of Closing, Purchaser will employ those individuals
identified on Schedule 5.1.A, which are in the following categories:
active hourly trim employees at Grand Rapids; other active hourly
employees at Grand Rapids; active hourly employees at Auburn Hills;
stabilized salaried employees, identified as such on Schedule 5.1.A;
and any individuals hired by the US Business in the Ordinary Course of
Business after the date of such Schedule.
As used herein, the terms "GM JOBS Program," "lay-off" and "leave of
absence" shall have the meanings set forth in the 1996 GM-UAW National
Collective Bargaining Agreement ("UAW Agreement") when used with
respect to individuals employed or formerly employed on an hourly
basis, or in the GM Policies for Salaried Employees (the "Salaried
Policies") when used with respect to individuals employed or formerly
employed on a salaried basis.
Employees who begin employment with Purchaser pursuant to this Section
are referred to as the "Transferred Employees".
Purchaser agrees not to lay off any Transferred Salaried Employees
before October 1, 1999. Notwithstanding this covenant Purchaser shall
have the right to deal with these employees as at-will employees, and
nothing in this Agreement shall alter or otherwise affect Purchaser's
right to discharge, suspend, or take other action deemed appropriate by
Lear, in its sole discretion, with respect to any such employees for
performance-based reasons or misconduct, or to terminate such employee
on terms mutually agreeable to employee and Purchaser.
(b) At closing, hourly employees and salaried employees, in each case, who
are identified on Schedule 5.1.A and are on leave, including disability
leave
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(whether or not any applicable waiting period relating to such
disability leave is then satisfied) (each a "GM Leave Employee") shall
remain employed by GM. GM Leave Employees, however, who return to work
in accordance with termination of leave eligibility under existing GM
policies and procedures, will at such time commence active employment
with Purchaser and become Transferred Employees. If a GM Employee (who
was on a disability leave at Closing), within 30 days of becoming a
Transferred Employee, becomes disabled as a recurring disability
pursuant to GM disability leave policies in existence at Closing, GM
will bear the cost of the recurring disability leave. Purchaser will
treat such employee in all other respects as a Transferred Employee.
GM hourly and salaried employees who are absent at Closing due to
illness or injury and, prior to reporting to work at Purchaser
subsequently go on a sick leave of absence for the same condition,
prior to returning to work, will be treated as GM Leave Employees. GM
hourly and salaried employees who are absent at Closing and return to
work within one week after closing without going on an approved leave
will become Transferred Employees at Closing and report to work at
Purchaser when able or available.
For each hourly GM Leave Employee who commences active employment with
Purchaser, Purchaser will transfer one hourly employee back to GM in
accordance with procedures set forth in Section 5.2(c), without regard
to the limitations in that Section concerning the number or location of
such employees. GM will be solely responsible for all wages and
benefits for employees transferred from Purchaser back to GM in
accordance with this paragraph, as of the date Lear makes available for
active GM employment the hourly employee designated to return to GM.
(c) Purchaser agrees that it will use its best effort to not hire
without the prior written consent of GM, on a regular, contract or
other basis, any employee in its U.S. Operations, who was employed on a
salaried basis and who retired from GM or any of its Affiliates within
18 months prior to Closing. GM's written consent will not be
unreasonably withheld or delayed.
5.2. Special Provisions Relating to Hourly Employees.
(a) Effective as of the Closing, Purchaser will assume the 1996 UAW-GM
National Agreement, Supplements, and Exhibits, as applied to the hourly
employees, as required by Document No. 91 of the UAW Agreement. Purchaser will
maintain for the benefit of the Hourly Transferred Employees such employee
benefit and pension plans as required by the UAW Agreement. Purchaser will
assume the GM seniority status of hourly Transferred Employees for all purposes
under the UAW Agreement. Purchaser will also assume the applicable local
collective bargaining agreements. Purchaser will comply with all terms and
conditions of any memorandum of understanding
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("MOU") negotiated between GM and the UAW regarding the effects of the
sale. The parties agree that, to the maximum extent possible, this
Agreement will be interpreted by GM and Purchaser in a manner
consistent with the provisions of the MOU. To the extent, however, that
any provision of the MOU is inconsistent with any provision of this
Agreement, the provisions of the MOU shall supersede this agreement.
(b) During the term of the UAW Agreement in effect at Closing,
Purchaser will accept written applications from Hourly Transferred
Employees to return to employment with GM and these employees will be
eligible to accept bona fide active openings within GM on the same
basis as laid-off GM UAW hourly employees. Hourly Transferred Employees
who so apply may accept bona fide active openings within GM at any time
in the future, and GM will make offers to these Hourly Transferred
Employees, who have applied on or before September 14, 1999, on the
basis of seniority GM-wide, within a trade or any non-skilled
classification, as bona fide active openings arise. Any Hourly
Transferred Employee returned to employment with GM under
Section 5.2(b) will cease to be a Transferred Employee and will be
referred to herein as an "Hourly Returned Employee" as of the date
such employee returns to employment with GM. No Hourly Returned
Employee who returns to employment with GM pursuant to this Section
5.2(b) will have any right to return to employment with Purchaser.
(c) Grand Rapids. At Closing, Purchaser will employ all active hourly trim
employees (up to 215 trim employees) previously employed by GM ("GM Trim
Employees") and all other active hourly employees at Grand Rapids ("GM Other
Hourly Employees"). For up to three years post Closing, Purchaser will have
the right to transfer back to GM, GM Trim Employees and GM Other Hourly
Employees to reach an employment level of 560, the "Grand Rapids Target
Number". GM Trim Employees and GM Other Hourly Employees whom Purchaser
designates to return consistent with the provisions set forth below, will be
transferred back to GM, and GM will be responsible for wages and benefits of
each such returning employee, as of the date such employee returns to GM or
is placed in the Grand Rapids JOBS Bank. (JOBS Bank wages and benefits shall
be determined in accordance with the provisions of Section 5.2(f)).
Within 30 days after Closing, Purchaser will provide GM a preliminary
status report outlining the expected flow of employees back to GM and will
promptly provide GM any changes that may be made to this status report from
time to time. Purchaser will provide GM with written notice prior to
returning any Hourly Transferred Employees to employment with GM pursuant to
Sections 5.2 (the "Purchaser Return Notice"). The Purchaser Return Notice
will specify the number of employees which Purchaser will return to GM, the
number of employees in each classification, and the date on which Purchaser
will return such employees to GM; provided however, that the date of return
of the employees to GM will be no less than 30 days from the date on which
such notice is delivered to GM, and names and
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social security numbers of such employees will be provided to GM prior to
the expiration of this thirty-day period. As used in this Agreement, the
term "Intended Return Date" will mean the date on which Purchaser will
return employees to GM as specified in the Purchaser Return Notice. This
written notice shall be provided to the director of the GM National Employee
Placement Center, Room 9-128, 3044 West Grand Boulevard, Detroit, MI 48202.
Notwithstanding the foregoing, in the event that GM notifies Purchaser that
it has an accelerated need for employees which varies from the status
report, Purchaser and GM will use reasonable efforts to accommodate their
respective business needs.
For a period of three years post Closing, Purchaser will pay GM a rate
of $23,256 per annum for each GM Trim Employee who returns to GM, is placed
in the Grand Rapids JOBS Bank, is no longer actively employed in the trim
operations, or is otherwise terminated from employment with Purchaser.
Notwithstanding the previous sentence, if Lear hires an employee to directly
replace a GM Trim Employee (a "Lear Trim Employee"), Purchaser will pay GM
the following reduced rate per annum for each replaced GM Trim Employee
(until such time as the Lear Trim Employee is no longer actively employed in
the trim operations, at which time the rate will revert to $23,256 per
annum):
9/1/98- 9/l/99- 9/l/2000-
8/31/99 8/31/2000 8/31/2001
$11,850 per $5,200 per $2,300 per
employee employee employee
For a period of five years post Closing, Purchaser will pay GM at an
annual rate as scheduled below for each GM Other Hourly Employee who returns
to GM, is placed in the Grand Rapids JOBS Bank, is no longer actively
employed in the manufacture of seat adjuster products under current supply
agreements and direct replacement products, or is otherwise terminated from
employment with Purchaser. Purchaser's maximum aggregate obligation under
this provision will be US $20,200,000.
For each GM Other Hourly Employee who returns to GM, is placed in the
Grand Rapids JOBS Bank, is no longer actively employed in the manufacture of
seat adjuster products under current supply agreements and direct
replacement products, or is otherwise terminated from employment with
Purchaser, Purchaser will pay GM at the following annual rates:
9/1/98- 9/l/99- 9/l/2000- 9/1/2001- 9/l/2002-
8/31/99 8/31/2000 8/31/2001 8/31/2002 8/31/2003
$32,000 per $25,600 per $19,200 per $12,800 per $6,400 per
employee employee employee employee employee
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Notwithstanding the previous paragraph, if Lear hires an employee to
directly replace a GM Other Hourly Employee (a "Lear Other Hourly
Employee"), Purchaser will pay GM at the following annual rates, until such
time as the Lear Other Hourly Employee is no longer actively employed in the
manufacture of seat adjuster products under current supply agreements and
direct replacement products, or terminates employment with Purchaser (in
which case, the annual rates stated above for GM Other Hourly Employees will
take effect):
9/1/98- 9/l/99- 9/l/2000- 9/1/2001- 9/l/2002-
8/31/99 8/31/2000 8/31/2001 8/31/2002 8/31/2003
$11,850 per $12,200 per $19,200 per $12,800 per $6,400 per
employee employee employee employee employee
All payments described in this Section 5.2(c) will be made on a monthly
basis, based on employment levels determined on the last day of each
calendar month.
(d) At Closing, Purchaser will employ all active hourly employees at Auburn
Hills. With regard to Auburn Hills employees, GM will pay Purchaser a
pre-determined amount per year per employee for each Auburn Hills hourly
employee who was employed by GM at Closing and remains actively employed by
Purchaser, in accordance with the following schedule: the first 12
consecutive calendar months following the Closing -- US $12,000; the second
12-month period -- US $8,000; the third 12-month period -- US $4,000. These
payments will be made on a monthly basis, based on employment levels
determined on the last day of each calendar month. Payments for an
individual employee will cease when any one of the following occurs: (1) the
employee flows back to GM or otherwise terminates employment with Purchaser;
(2) the employee is offered an opportunity to flow back to GM but Purchaser
refuses to release the employee; or (3) three years post-Closing.
On or before the third business day of the month, beginning with October 5,
1998, Purchaser will submit to GM a summary of actual active employment at
Auburn Hills. In addition, Purchaser will also provide a reconciliation of
changes from the prior month including employee's name, reason for change
(e.g., flowback, attrition, Purchaser refusal to allow flowback), and
effective date of change, including, upon GM's request, reasonable
supporting data and information such that GM can satisfy itself of the
accuracy of the employee changes. This summary will be utilized for the
purpose of calculating the actual monthly payment from GM to Purchaser.
(e) Prior to Closing, GM will endeavor to eliminate the JOBS Banks;
however, at Closing, active hourly employees to be employed by Purchaser
will include hourly workers remaining in the JOBS Banks at Closing, thereby
honoring UAW seniority provisions. GM shall, on a monthly basis, reimburse
Purchaser for wages and benefits of employees in the JOBS Banks at Closing
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<PAGE> 57
until such employees are actively employed by Purchaser or GM. The amount of
such reimbursement shall be computed as the cost of each excess employee's
total wages and benefits. For purposes of any reimbursement pursuant to this
Section, "wages" shall mean actual wages paid to the employee while the
employee is inactive and in the JOBS Bank and "benefits" shall equal $65.00
per person per equivalent calendar day. Requests for reimbursement shall
include sufficient payroll documentation to facilitate GM audit. Equivalent
calendar day means that if a JOBS employee is inactive for 40 hours, but is
allowed to work overtime for 8 hours in a weekly period, then the benefits
will be reduced by 1 equivalent day.
(f) If, during the term of the 1996 UAW-GM National Agreement (the "1996
UAW Agreement"), Purchaser needs to increase employment levels to fulfill
supply agreements between Purchaser and GM in existence at Closing,
Purchaser will offer to rehire former Grand Rapids and Auburn Hills
employees on the basis of seniority if such employees remain in a GM JOBS
Bank. Any such employee hired by Purchaser shall, upon such hiring, become a
Transferred Employee. If no such employees remain in a JOBS Bank, Purchaser
may hire new employees.
(g) In the absence of sufficient applications from Grand Rapids Hourly
Employees to return to GM, Purchaser may return employees to reach the Grand
Rapids Target Number, beginning with the lowest seniority employees within a
trade or non-skilled classification. If there are insufficient applicants to
return to GM or bona fide openings do not exist within GM, Purchaser will
release temporary employees prior to returning employees. Any headcount
reductions which Purchaser seeks to make beyond the Grand Rapids Target
Number will be handled by Purchaser consistent with applicable labor
agreements, and Purchaser will be solely responsible for the costs
associated with such reductions.
(h) Purchaser will be responsible for all wages and benefits for active
Transferred Hourly Employees, subject to GM's obligations with respect to
wages and benefits for certain employees, as described in Section 5.2.
Except as otherwise specified in this Agreement, GM will be responsible for
the payment of all wages and benefits under the various GM plans from the
date eligible employees are designated to return to GM as provided in
Section 5.2 for any employee who returns to GM and becomes eligible for
these benefits following the Closing. Purchaser will be responsible for the
payment of all wages and benefits for such employees under the various Lear
plans from the Closing Date to date eligible employees are designated to
return to GM.
5.3. Special Provisions Relating to Salaried Employees.
Effective as of Closing, Purchaser will provide employment to all salaried
employees defined as "Stabilized". On or before Closing, Purchaser may make
employment offers to salaried employees defined as "Category II." Category II
employees, however, may choose to remain GM employees. GM will work with
Purchaser to develop a transition plan for Category II
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employees. All salaried employees who begin employment with Purchaser will
become Salaried Transferred Employees. Purchaser will provide Salaried
Transferred Employees with a salary and benefits package which is comparable in
the aggregate to those provided by GM immediately prior to the Closing, and will
continue to provide such salaries and benefits through October 1, 1999.
Purchaser will recognize service with GM for all purposes except, unless
provided otherwise herein, for benefit accrual purposes under the Replacement
Retirement Plan sponsored by the Purchaser.
5.4. Assumption of Liabilities.
Except as otherwise specifically provided in this Article 5, Section 3.2(a),
Section 3.2(b), and in Section 10.2.1 (a)(iv), Purchaser agrees to assume all
liabilities and obligations with respect to Transferred Employees. Purchaser
also agrees to indemnify GM for any adverse consequences suffered by GM or any
of its Affiliates that reasonably relate to any failure by Purchaser to assume
such liabilities or obligations. The adverse consequences referred to in the
preceding sentence, with respect to which Purchaser will indemnify GM, include
separation costs incurred by GM or its affiliates to transferred employees who
are terminated without cause or laid off by Purchaser in violation of this
Article 5 and who GM or any of its Affiliates is required to re-employ, or to
whom GM or any of its Affiliates is required to pay wages, salaries or any
employee benefits, whether pursuant to any Laws, any Employee Benefit Plan, the
UAW Agreement or salaried policy in effect at the date of this Agreement.
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<PAGE> 59
5.5. Retirement Program and Pension Plans.
Responsibility for the provision of retirement and pension benefits to
Transferred Employees will be shared on a pro rata basis, based on years of
credited service with GM and years of credited service with Purchaser.
Notwithstanding the preceding sentence, (A) except as provided in (C) below,
Purchaser shall assume complete responsibility for all pension benefits owed to
Hourly Transferred Employees who are not on the Closing Date vested under the
General Motors Hourly-Rate Employees Pension Plan (the "GM Pension Plan"); (B)
except as provided in (C) below, Purchaser shall assume complete responsibility
for all retirement benefits owed to Salaried Transferred Employees who are not
on the Closing Date vested under the General Motors Retirement Program for
Salaried Employees ("GM Retirement Program"); and (C) GM will retain complete
responsibility for all retirement and pension benefits owed to Transferred
Employees who on or before October 1, 1999 retire (excluding any disability
retirement not approved by GM or any Mutual Satisfactory Retirement) from
Purchaser or to Hourly Transferred Employees who on or before October 1, 1999
return to GM. For employees described in (A) and (B) above, GM shall direct the
trustees of the GM Pension Plan and the trustees of the GM Retirement Program to
transfer in cash, from the trust under the GM Pension Plan to the trust under
the Replacement Pension Plan, or from the trust under the GM Retirement Program
to the trust under the Replacement Retirement Program, an amount determined in
accordance with Section 5.5.7. For employees described in (C) above, Purchaser
shall direct the trustees of the Replacement Pension Plan or Replacement
Retirement Program, as the case may be to transfer in cash, from the trust under
such plan or program to the trust under the GM Pension Plan or GM Retirement
Program, as the case may be, an amount determined in accordance with Section
5.5.7.
5.5.1. Replacement Retirement Program.
(A) Effective as of the Closing Date, Purchaser will provide benefits to
Salaried Transferred Employees under an Employee Pension Benefit Plan sponsored
by the Purchaser (the "Replacement Retirement Program"). All Salaried
Transferred Employees (the "Salaried Participants") who were participants in the
GM Retirement Program at Closing, shall be eligible to participate in the
Replacement Retirement Program. The Replacement Retirement Program shall provide
for, except in the case of Salaried Participants who retire (including
disability retirement approved by GM) on or before October 1, 1999, recognition
for vesting and eligibility but not benefit accrual purposes all service
credited to Salaried Participants under the GM Retirement Program as of Closing.
Notwithstanding the preceding sentence, the Replacement Retirement Program will
recognize for benefit accrual purposes the credited service accrued under the GM
Retirement Program as of Closing for any Salaried Participant (entitled to be
credited with service under the preceding sentence) for whom the Purchaser is
completely responsible for retirement or pension benefits in accordance with
Section 5.5 hereof.
(B) All Salaried Participants who are vested as of Closing and who retire
(including disability retirement approved by GM) from Purchaser after the
Closing Date shall be entitled, to a Part A Basic Benefit, if any, from the
Replacement Retirement Program for each year of
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<PAGE> 60
applicable credited service accrued under the Replacement Retirement Program
(reduced for age where appropriate), and a Pro Rata Share of the applicable
supplement, if any, provided for in the Replacement Retirement Program.
(C) Any Salaried Participant who is vested as of Closing and who retires under
the Replacement Retirement Program without eligibility to retire under the GM
Retirement Program shall be entitled to a monthly benefit, until age 62 and one
(1) month, from the Replacement Retirement Program equal to the benefit that
would be payable under the Replacement Retirement Program, determined as if the
Salaried Participant was then retiring from Purchaser with combined GM
Retirement Program and Replacement Retirement Program credited service. Ater the
Salaried Participant attains or would have attained age 62 and one (1) month,
the Replacement Retirement Program shall pay monthly benefits based on
Replacement Retirement Program credited service.
(D) Unless GM and Purchaser agree to a disability retirement, any Salaried
Participant who is vested under the Replacement Retirement Program, who is later
re-employed by GM and retires from GM, and who is not otherwise eligible to
retire under the replacement Retirement Program, will be eligible under the
Replacement Retirement Program only for unreduced benefits at age 62 and one (1)
month, at the benefit levels in effect under the Replacement Retirement Program
as of the date of the retirement from GM, increased until age 62 and one (1)
month as if the Replacement Retirement Program benefits had commenced as of the
date the Salaried Participant retired from GM.
To the extent permitted by law, all benefit payments to any Salaried Participant
under the Replacement Retirement Program shall be discontinued upon
re-employment with GM or Purchaser on a regular, contract, or other basis.
5.5.2. GM Retirement Program Amendments.
GM shall amend the GM Retirement Program to provide Salaried Participants the
following as of the Closing:
(a) With respect to Salaried Participants who retire on or before October
1, 1999, the benefit under the GM Retirement Program shall be
determined by taking into account for all purposes, including benefit
accruals, the credited service accrued under the Replacement Retirement
Program for service with Purchaser on or before October 1, 1999 and no
additional credited service shall be recognized for any period for
which the GM Retirement Program has already provided credited service.
(b) Except as provided in paragraph (a) above, with respect to Salaried
Participants, the benefit under the GM Retirement Program shall be
determined by taking into account solely for eligibility purposes the
credited service accrued under the Replacement Retirement Program.
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(c) All Salaried Participants who are vested under the GM Retirement
Program as of Closing and who retire (including disability retirement
approved by GM) from Purchaser after closing shall be entitled to a
Part A Benefit from the GM Retirement Program (reduced for age where
appropriate) equal to a (i) Part A Basic Benefit (calculated on the
basis of the credited service accrued under the GM Retirement Program,
the Basic Benefit Rate in effect at the time of retirement from
Purchaser and the Benefit Class Code at Closing) (ii) a Pro Rata Share
(as defined in Section 5.5.6) of the applicable supplement and (iii)
for those Salaried Participants who were participants in Part B of the
GM Retirement Program as of Closing, (I) a Part B Primary Benefit based
on the contributions of the individual Salaried Participant remaining
in the GM Retirement Program as of the date of retirement from
Purchaser and the Part B Primary Benefit rates in effect at such time,
and (II) a Part B Supplementary Benefit calculated based on the
Participant's credited service accrued under the GM Retirement Program
and the formula under the GM Retirement Program in effect at such time.
Such benefit under the GM retirement Program shall be determined as if
the Salaried Participant was then retiring from GM and by taking into
account solely for eligibility for payment purposes but not for benefit
accrual purposes the age of the individual and the service credited
under the Replacement Program with Purchaser after the Closing.
(d) Any Salaried Participant who retires from Purchaser, but is not
otherwise eligible to retire under the GM Retirement Program, is
eligible only for unreduced benefits at age 62 and one (1) month at the
benefit levels in effect under the GM Retirement Program as of the date
of retirement from Purchaser, increased until age 62 and one (1) month
as if the Retirement Program benefits had commenced as of the date of
the retirement from Purchaser.
(e) Unless GM and Purchaser agree to a disability retirement, any Salaried
Participant who is vested under the Replacement Retirement Program and
who returns to employment with GM and retires under the GM Retirement
Program before becoming eligible to retire under the Replacement
Retirement Program shall be entitled to a monthly benefit until age 62
and one (1) month, from the GM Retirement Program equal to the benefit
that would be payable under the GM Retirement Program, determined as if
the Salaried Participant was then retiring from GM with combined GM
Retirement Program and Replacement Retirement Program credited service.
After the Salaried Participant attains or would have attained age 62
and one (1) month, the GM Retirement Program shall pay monthly benefits
based only on GM Retirement Program credited service.
(f) For Salaried Participants entitled to a Part B Supplementary Benefit
from the GM Retirement Program, the average monthly base salary for
calculation of such benefit shall be based on the Salaried
Participant's final average base
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salary with GM under the GM Retirement Program determined as of Closing
increased by three percent (3%) simple interest per year for each full
year of salaried employment with Purchaser after Closing.
(g) Any break in service, other than a retirement, under the Replacement
Retirement Program shall also break the Salaried Participant's credited
service under the GM Retirement Program with entitlement only to a
deferred vested benefit at the benefit levels in effect under the GM
Retirement Program as of the break in service from Purchaser and the
Salaried Participant's salary determined in accordance with Section
5.5.2.(f) above as of the break in service from Purchaser.
(h) To the extent permitted by applicable law, all benefit payments to any
Salaried Participant under the GM Retirement Program shall be
discontinued upon re-employment with Purchaser or GM on a regular,
contract, or other basis.
(i) The Surviving Spouse of any Salaried Participant, who was vested under
the GM Retirement Program at Closing, shall be eligible for payment
from the GM Retirement Program of a survivor monthly benefit or a REA
pre-retirement monthly survivor benefit, whichever is applicable, based
on the Salaried Participant's credited service accrued under the GM
Retirement Program at Closing and the benefit levels in effect under
the GM Retirement Program on the earlier of death or the date such
Salaried Participant terminated employment with the Purchaser and the
Salaried Participant's salary determined in accordance with Section
5.5.2.(f). All other GM Salaried Retirement Program terms shall apply,
including, but not limited to, those regarding eligibility and duration
of surviving spouse benefits.
5.5.3. Replacement Pension Plan.
Effective as of the Hire Date, Purchaser will establish a new defined benefit
pension plan (the "Replacement Pension Plan") covering the Hourly Transferred
Employees (the "Hourly Participants") which, in accordance with this Agreement
and Purchaser's obligation to assume the UAW Agreement, will duplicate the terms
and benefits provided for under the GM Hourly-Rate Employees Pension Plan (the
"Pension Plan") for the Hourly Participants until the UAW Agreement expires. For
purposes of Section 5.5.3 and 5.5.4, the term "credited service" shall have
the meaning set forth in the UAW Agreement. The Replacement Pension Plan will
also provide for the following effective as of the Closing:
(a) Except in the case of Hourly Participants who retire (including
disability retirement approved by GM) or who return to GM on or before
October 1, 1999, recognition for vesting, and eligibility credited
service accrued under the GM Pension Plan as of Closing.
Notwithstanding the preceding sentence, the Replacement Pension Plan
will also recognize for benefit accrual purposes the credited service
accrued under the GM Pension Plan as of Closing for any
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Hourly Participant for whom the Purchaser is completely
responsible for pension benefits in accordance with Section 5.5
hereof.
(b) All Hourly Participants who are vested and who retire (including a
disability retirement approved by GM) from Purchaser or who return to
GM after October 1, 1999, shall be entitled to a basic benefit from the
Replacement Pension Plan equal to the basic benefit rate at the time of
retirement times years of credited service accrued under the
Replacement Pension Plan (reduced for age where appropriate), and a
supplement in an amount equal to the difference between the basic
benefit and the Pro Rata Share of the applicable supplement provided
for in the Replacement Pension Plan.
(c) Unless GM and Purchaser agree to a "Mutually Satisfactory Retirement"
(as defined in the Pension Plan) for an Hourly Participant or a
disability retirement approved by GM, any Hourly Participant who is
vested in the GM Pension Plan as of Closing and retires under the
Replacement Pension Plan without eligibility to retire on a voluntary
basis under the Pension Plan, shall be entitled to a monthly benefit
from the Replacement Pension Plan until age 62 and one (1) month equal
to the benefit that would be payable under the Replacement Pension
Plan, determined as if the Hourly Participant was then retiring from
Purchaser with combined GM Pension Plan and Replacement Pension Plan
credited service. After the Hourly Participant attains or would have
attained age 62 and one (1) month, the Replacement Pension Plan shall
pay monthly benefits based only on Replacement Pension Plan credited
service.
(d) Except as provided in Section 5.5.3(e) below, any Hourly Participant
who is vested under the Replacement Pension Plan and who is re-employed
by GM after October 1, 1999 with continuous service with Purchaser to
the date of re-employment, shall be entitled to a benefit from the
Replacement Pension Plan, upon retirement from GM, determined as if the
Hourly Participant was then retiring from Purchaser and by taking into
account for vesting, and eligibility but not for benefit accrual
purposes (i) the age of the individual and (ii) the service credited
under the GM Pension Plan (including any additional service credited as
a result of re-employment by GM after Closing). The benefit will
include a basic benefit (reduced for age where appropriate) equal to
the basic benefit rate at the time of retirement times years of
credited service accrued under the Replacement Pension Plan, and a
supplement in an amount equal to the difference between the basic
benefit and the Pro-Rata Share of the applicable supplement provided in
the Replacement Pension Plan.
(e) Unless GM and Purchaser agree to a Mutual Retirement (as defined in the
Pension Plan) for an Hourly Participant or a disability retirement
approved by GM, any Hourly Participant, who is vested under the
Replacement Pension Plan and who is later re-employed by GM and
retires from GM but is not otherwise eligible to retire under the
Replacement Pension Plan, shall be
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eligible under the Replacement Pension Plan only for unreduced benefits
at age 62 and one (1) month at the benefit levels in effect under the
Replacement Pension Plan as of the date of the retirement from GM
increased until age 62 and one (1) month as if the Replacement Pension
Plan benefits had commenced as of the date the Hourly Participant
retired from GM.
(f) To the extent permitted by law, all benefit payments to any Hourly
Participant under the Replacement Hourly Pension Plan shall be
discontinued upon re-employment with GM or Purchaser on a regular,
contract, or other basis.
5.5.4. GM Pension Plan Amendments.
GM shall amend the GM Pension Plan to provide for the following effective as of
Closing:
(a) With respect to Hourly Participants who retire or return to GM on or
before October 1, 1999, the benefit under the GM Pension Plan shall be
determined by taking into account for all purposes, including benefit
accruals, The Credited Service accrued under the Replacement Pension
Plan for service with Purchaser on or before October 1, 1999 and no
credited service shall be recognized for any period for which the GM
Pension Plan has already provided credited service.
(b) All Hourly Participants who are vested under the GM Pension Plan as of
Closing and retire (including a disability retirement approved by GM
under the GM Pension Plan) from Purchaser after October 1, 1999, shall
be entitled to a benefit from the GM Pension Plan determined as if the
Hourly Participant was then retiring from GM on a normal or early
voluntary basis or a disability retirement (if approved by GM under the
GM Pension Plan) , and by taking into account solely for eligibility
for payment but not for benefit accrual purposes the age of the
individual and the service credited under the Replacement Pension Plan
after Closing. The benefit will include a basic benefit (reduced for
age where appropriate) equal to the basic benefit rate at the time of
retirement times years of credited service accrued under the Pension
Plan (determined on the basis of the Basic Benefit Rate in effect at
such time and the Benefit Class Code attained with Purchaser), and a
supplement in an amount equal to the difference between the basic
benefit and the Pro-Rata Share of the applicable supplement provided
for in the GM Pension Plan. All other applicable provisions of the GM
Pension Plan shall apply.
(c) Any Hourly Participant who is vested in the GM Pension Plan as of the
Closing and retires from Purchaser but is not otherwise eligible to
retire under the GM Pension Plan, shall be eligible under the GM
Pension Plan only for unreduced benefits at age 62 and one (1) month at
the benefit levels in effect under the GM Pension Plan as of the date
of retirement from Purchaser,
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increased until age 62 and one (1) month as if the Pension Plan
benefits had commenced as of the date of the retirement from Purchaser.
(d) Unless GM and Purchaser agree to a disability retirement, any Hourly
Participant who is vested under the Replacement Pension Plan and who
returns to employment with GM and retires under the GM Pension Plan
without eligibility to retire under the Replacement Pension Plan
(except for a Mutually Satisfactory Retirement with Purchaser's
approval) shall be entitled to a monthly payment, until age 62 and one
(1) month, from the GM Pension Plan equal to the benefit that would be
payable under the GM Pension Plan, determined as if the Hourly
Participant was then retiring from GM with combined GM Pension Plan and
Replacement Pension Plan benefit accrual credited service. After the
Hourly Participant attains or would have attained age 62 and one (1)
month, The GM Pension Plan shall pay monthly benefits based only on GM
Pension Plan benefit accrual credited service.
(e) Pension Plan disability and survivor benefits payable to or on behalf
of any Hourly Participant who was vested under the GM Pension Plan as
of Closing and who becomes disabled or dies while employed by Purchaser
shall be determined as if such Hourly Participant continued to be
employed by GM but the amount of such benefit shall be based solely on
such Hourly Participant's credited service accrued under the GM Pension
Plan as of Closing and the benefit levels in effect under the GM
Pension Plan at the time of disability or death.
(f) Any break in service, other than a retirement, under the Replacement
Pension Plan shall also break the Hourly Participant's credited service
under the GM Pension Plan with entitlement only to a deferred vested
retirement at the benefit levels in effect under the GM Pension Plan as
of the break in service from Purchaser.
(g) Any benefits payable from the GM Pension Plan under this Section 5.5.4
shall be based on the provisions applicable to other GM-UAW employees
and retirees, including any increase in benefit rates under the GM
Pension Plan.
To the extent permitted by applicable law, all benefit payments to any Hourly
Participant under the GM Pension Plan shall be discontinued upon re-employment
with Purchaser or GM on a regular, contract, or other basis.
5.5.5. Recognition of Age and Credited Service Grants.
Purchaser acknowledges that neither GM nor the GM Pension Plan or GM Retirement
Program shall be required to recognize any grants of additional age or
additional credited service given to Salaried Participants or Hourly
Participants by Purchaser and/or the Replacement Pension Plan or Replacement
Retirement Program, including but not limited to extra credited service or age
offered as an early retirement inducement. Similarly, if a
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Transferred Employee is re-employed by GM, neither Purchaser nor the Replacement
Pension Plan or Replacement Retirement Program shall be required to recognize
any grants of additional age or credited service provided after re-employment by
GM and/or the GM Pension Plan or GM Retirement Program, including but not
limited to inducements for early retirement. Nothing herein shall be construed
to limit GM's or Purchaser's right to amend the GM Pension Plan, GM Retirement
Program, Replacement Retirement Program or Replacement Pension Plan under ERISA
and the Code.
5.5.6. Pro-Rata Share.
For purposes of this Article 5, "Pro-Rata Share" shall mean, with respect to
each Salaried Participant or Hourly Participant, the quotient of (i) the number
of years of credited service (including fractional years) under the GM
Retirement Program or GM Pension Plan (or Replacement Retirement Program or
Replacement Pension Plan, if referring to the Pro-Rata Share to be paid by the
Replacement Retirement Program or the Replacement Pension Plan) for each
Salaried or Hourly Participant, divided by (ii) the total number of years of
credited service (including fractional years) under the GM Retirement Program
and Replacement Retirement Program, or GM Pension Plan and Replacement Pension
Plan, respectively, with regard to such Salaried Participant or Hourly
Participant as of the date of their retirement from Purchaser or GM or other
relevant determination date.
5.5.7. Transfer of Liabilities and Assets.
(a) With respect to each Transferred Employee who retires from Purchaser
before October 1, 1999 ("Pre-October 1, 1999 Retiree"), the amount to
be transferred in accordance with Section 5.5 will be calculated as
follows. First, the monthly benefits which each such retiree would have
received from the Replacement Retirement Program or the Replacement
Pension Plan at the actual date of retirement (including the
Purchaser's Basic Benefit, and if applicable, the Purchaser's
retirement supplement) will be determined based on applicable benefit
rates under the Replacement Retirement Program or the Replacement
Pension Plan as of the retiree's actual date of retirement reflecting
benefit increases already in place at Closing to be effective through
September 14, 1999. Second, the present value of such benefit payments
to each such retiree shall be calculated without regard to any
post-retirement benefit adjustments other than those noted above,
assuming the benefit is paid as a life annuity and using GM's SFAS 87
assumptions (e.g., discount rates, mortality assumptions, etc.)
utilized to determine GM's year end disclosure as of December 31, 1997.
Such present value shall be determined as of the Valuation Date based
on the Transferred Employee's status (i.e., living or deceased) on such
employee's retirement date.
(b) With respect to each Hourly Transferred Employee who returns to GM
before October 1, 1999 ("Pre-October 1, 1999 Hourly Returned
Employee"), the amount to be transferred in accordance with Section 5.5
will be calculated as follows. First, an Accumulated Benefit Obligation
(as defined under SFAS
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87) for each such employee based on combined credited service
as of the Valuation Date with GM and Purchaser will be calculated as
of the Valuation Date using benefit rates set forth in the GM-UAW
contract in effect at Closing reflecting benefit increases scheduled
to be effective on September 14, 1999. All other assumptions for
computing the Accumulated Benefit Obligations (as defined under SFAS
87) shall be taken from GM's SFAS 87 assumptions utilized to determine
GM's year-end disclosure as of December 31, 1997 (e.g., retirement
assumptions, discount rates, mortality assumptions, etc.). Second, the
Accumulated Benefit Obligation for each such employee shall be
multiplied by a fraction determined for each such employee. The
numerator of such fraction will be the employee's credited service
with Purchaser and the denominator of such fraction will be the
numerator plus the employee's credited service with GM at the
Valuation Date. The amount to be transferred with respect to each
Pre-October 1, 1999 Hourly Returned Employee shall equal the product
of the Accumulated Benefit Obligation and such fraction. An employee's
status (i.e., living or deceased) shall be determined on the date such
employee transfers back to GM. Notwithstanding the above, for a
Transferred Employee covered by Section 5.5(A) ("Unvested Hourly
Particpant"), the amount to be transferred shall equal the present
value as of the Valuation Date of each employee's accrued benefit as
of the earlier of the employee's return to GM or the Valuation Date
using the benefit rates set forth in the UAW Agreement in effect
through September 14, 1999. The assumptions for computing this present
value shall be based solely on the discount rate and mortality
assumption utilized to determine GM's SFAS 87 year-end disclosure as of
December 31, 1997 and shall also be based on an assumed retirement age
equal to the employee's age as of the employee's normal retirement
date.
(c) With respect to each Unvested Hourly Participant, the amount to be
transferred in accordance with Section 5.5 will be calculated as
follows. The present value of each employee's accrued benefit as of the
Closing Date will be calculated as of the Closing Date using the
benefit rates set forth in the UAW Agreement in effect on the Closing
Date reflecting benefit increases scheduled to be effective through
September 14, 1999. The assumptions for computing this present value
shall be based solely on the discount rate and mortality assumption
utilized to determine GM's SFAS 87 year-end disclosure as of December
31, 1997 and shall also be based on an assumed retirement age equal to
the employee's age as of the employee's normal retirement date.
(d) With respect to a Transferred Employee covered by Section 5.5(B)
("Unvested Salaried Participant"), the amount to be transferred in
accordance with Section 5.5 will be calculated as follows. The present
value of each employee's accrued benefit as of the Closing Date will be
calculated as of the Closing Date using the benefit rates set forth in
the GM Retirement Program in effect on the Closing Date reflecting
benefit increases scheduled to be effective
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through September 14, 1999. The assumptions for computing this present
value shall be based solely on the discount rate and mortality
assumption utilized to determine GM's SFAS 87 year-end disclosure as of
December 31, 1997 and shall also be based on an assumed retirement age
equal to the employee's age as of the employee's normal retirement
date.
(e) The amount to be transferred under paragraphs (a), (b), (c) and (d)
hereof shall be increased by interest at Prime Rate on the Valuation
Date from the Valuation Date to the date of transfer.
(f) For purposes of this Section 5.5.7 the Valuation Date shall be defined
as October 1, 1999.
(g) The transfer of assets shall comply with Section 414(l) of the Internal
Revenue Code. However, to the extent that the amount required to be
transferred under Section 414(1) is different than the amount
determined in accordance with this Section 5.5.7, the Amount required
under section 414(1) will be transferred. On the date of such transfer,
GM will either pay to (or receive from) Purchaser, as the case may be,
the excess (or the deficit) of the amount computed under this Section
5.5.7, over the amount transferred in accordance with Section 414(l),
with interest at prime rate on the Valuation Date from the Valuation
Date to the date of transfer.
(h) The determination of amounts to be transferred in accordance with this
Section 5.5.7 shall be made by the GM actuary with respect to transfers
from the GM Retirement Program or the GM Pension Plan and by the
Purchaser's actuary with respect to transfers from the replacement
retirement program or the Replacement Pension Plan. The transferor's
actuary shall provide the actuary selected by the transferee with all
the documentation reasonably necessary to verify such determination
within 180 days of the Valuation Date. The Purchaser will verify such
determination within 180 days of the receipt of such calculation.
Thereafter, Purchaser and GM shall cooperate to file as soon as
reasonably possible all documents, including Forms 531OA, which may
be legally required to effect the liability and asset transfer. The
transfer shall take place on the first business that that is at least
thirty-one days following such filing. Notwithstanding the above, if
the transferee's actuary informs the transferor within 180 days of
receiving supporting documentation from the transferor, that he
disagrees with the transferor's actuary then, first GM and the
Purchaser shall negotiate, in good faith, to resolve such dispute, and
if unable to come to an agreement, then GM and the Purchaser shall
agree upon and engage an impartial actuary, who shall be entitled to
the privileges and immunities of an arbitrator, to resolve any
disagreement and whose determination as to any such disagreement (if
not contrary to ERISA) shall be conclusive, final and binding. The
parties shall share equally all costs and fees of such impartial
actuary. Thereafter, Purchaser and GM shall cooperate to file as soon
as reasonably possible all documents, including Forms 5310A,
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which may be legally required to effect the liability and asset
transfer. The transfer shall take place on the first business day that
is at least thirty-one days following such filing.
(i) The retirement program or pension plan that is the transferee of assets
transferred in accordance with Section 5.5.7 shall assume all
liabilities for all accrued benefits as of the effective date of the
transfer under the transferor plan in respect of the participants to
whom, and credited service to which, such transfer relates, and the
transferor plan shall be relieved of all liabilities for such benefits.
GM and the Purchaser shall provide each other with such records and
information as may be necessary or appropriate to carry out their
obligations under this Section 5.5.7, and they shall cooperate in the
filing of documents required by the transfer of assets and liabilities
described herein.
5.6. Certain Insurance Matters.
(a) Except as otherwise provided in Section 5.6, for the purpose of
coordination of benefits provisions for health care coverage, for
covered expenses relating to periods after the Closing, Purchaser's
health care coverage shall in all cases (including health care coverage
in retirement for Transferred Employees who retire from Purchaser) be
primary in relation to GM coverage.
(b) Purchaser shall not extend Employee Welfare Benefit Plan coverage to
and GM shall retain liability for any individual who is confined to a
hospital at Closing until such individual is discharged after Closing.
(c) Following the Closing, any Transferred Employee who is provided GM
retiree health care or life insurance coverage under a retiree health
care or life insurance plan then maintained by GM, must elect
participation in a retiree health care or life insurance plan
maintained by Purchaser, if eligible, and submit expenses as provided
in Section 5.6(a).
(d) Provision of post-retirement health care and life insurance coverage
for all Transferred Employees other than in (e) below shall be the
primary responsibility of Purchaser, and Purchaser's health care and
life and disability benefits program shall take into account combined
GM and Purchaser credited service for eligibility; subject, however, to
all applicable plan terms, including but not limited to the right to
amend, modify, suspend or terminate the plans.
(e) Upon retirement from Purchaser, GM shall provide post-retirement health
care and life insurance coverage to the following Transferred
Employees:
(i) Hourly and Salaried Transferred Employees eligible to retire from
GM as of Closing on a voluntary basis with corporate contributions
for post-retirement health care and life insurance coverage.
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(ii) Hourly and Salaried Transferred Employees who retire on a
voluntary basis under the Pension Plan or Retirement Program on or
before October 1, 1999 and are otherwise eligible for
post-retirement health care and corporate contributions for life
insurance coverage.
(iii) Hourly Returned Employees within the meaning of Section 5.2(b)
who return to GM on or before October 1, 1999, and who are
eligible for such benefit coverage.
(iv) Hourly Returned Employees within the meaning of Section 5.2(b) who
return to GM after October 1, 1999 and who are eligible for such
benefit coverage.
The provision of post-retirement health care and life insurance coverage by GM
is subject to all applicable benefit plan terms, including but not limited to
the right to amend, modify, suspend or terminate the plans.
(f) With respect to post-retirement health care and life insurance coverage
provided to Transferred Employees pursuant to Section 5.6(e) through
the tenth anniversary of Closing or an earlier point in time mutually
agreed to by the parties (the "Determination Date"), Purchaser will
reimburse GM annually for a portion of the cost for insured plans and
benefit payments and administrative cost for self-insured plans of such
programs allocated on a Pro Rata Share basis, based on years of service
at Purchaser over total years of service at both Purchaser and GM;
provided that in the case of Hourly Transferred Employees who return to
GM and retire on a "Mutual Retirement", Purchaser's Pro Rata Share
reimbursement will not begin until such Transferred Employees would
have been eligible to retire from Purchaser with employer provided
post-retirement health care and contributions for life insurance
coverage. With respect to post-retirement health care and contributions
for life insurance coverage provided to Transferred Employees pursuant
to Section 5.6(d) through the Determination Date, GM will reimburse
Purchaser annually for a portion of the cost for insured plans and
benefit payments and administrative cost for self-insured plans of such
programs allocated on a Pro Rata Share basis, based on years of service
at GM over total years of service at both Purchaser and GM; provided
that in the case of Hourly Transferred Employees who retire on a
"Mutual Retirement" or Salaried Transferred Employees who retire on an
Incentive Retirement, GM's Pro Rata Share reimbursement will not begin
until such Transferred Employees otherwise would have been eligible to
retire from GM with employer provided post-retirement health care and
contributions for life insurance coverage.
On the Determination Date, if Purchaser's and GM's Standard and Poor's
investment ratings, "Ratings", are no lower than their respective
Ratings on
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the Closing Date, the parties shall settle their prospective
obligations under this Section 5.6(f) and each party from that date
forward will become solely responsible for its post retirement health
care and life insurance costs as described in Sections 5.6(d) and
5.6(e). If on the Determination Date, either party has Ratings lower
than their Ratings on the Closing Date, the parties shall continue
annual reimbursements as described in the above paragraph.
Notwithstanding any party's lower Ratings, the parties may mutually
agree to a settlement of their prospective obligations under this
Section 5.6(f). If GM assigns its obligations under this Section
5.6(f), the Ratings of the assignee will control whether a settlement
must occur. The Ratings considered for an assignee shall be the Ratings
on the date of assignment and the Ratings on the Determination Date.
With respect to post-retirement health care and life insurance costs
related to Transferred Employees pursuant to Section 5.6(e) and Section
5.6(d) after the Determination Date, GM shall pay to Purchaser, if (a)
below exceeds (b) below, or Purchaser shall pay to GM, if (b) below
exceeds (a) below, in cash, an amount equal to the excess of (a) GM's
Pro Rata Share of the EPBO as of the Determination Date using SFAS 106
(or its successor accounting principle) assumptions in all cases except
for the discount rate as explained below, or its successor accounting
principle, for the Transferred Employees subject to Section 5.6(d)
determined using Purchaser's plan as it applies to such group of
Transferred Employees for the plan year containing the Determination
Date and Purchaser's SFAS 106 (or its successor accounting principle)
assumptions except for the discount rate as explained below, or its
successor accounting principle, as of the December 31st immediately
preceding the Determination Date, compared to (b) Purchaser's Pro Rata
Share of the EPBO as of the Determination Date using SFAS 106 (or its
successor accounting principle) assumptions in all cases except for the
discount rate as explained below, or its successor accounting
principle, for the Transferred Employees subject to Section 5.6(e)
determined using GM's plan as it applies to such group of Transferred
Employees for the plan year containing the Determination Date and GM's
SFAS 106 (or its successor accounting principle) assumptions except for
the discount rate as explained below, or its successor accounting
principle, as of the December 31st immediately preceding the
Determination Date. For purposes of determining the EPBO under this
paragraph, the calculation shall include all Transferred Employees who,
as of the Determination Date, have not terminated employment prior to
eligibility for post-retirement health care and employer contributions
for life insurance coverage. For purposes of this Section 5.6, the Pro
Rata Share shall have the same meaning as in Section 5.5.6 with respect
to Transferred Employees who have retired as of *the Determination
Date; for all other Transferred Employees included in this calculation
of EPBO as of the Determination Date, the denominator of the Pro Rata
Share shall include the credited service as of the Determination Date
plus the expected period of time from the Determination Date to each
such Transferred Employee's average
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expected retirement date (weighted by EPBO at each possible retirement
age, rather than an unweighted average), based on the applicable SFAS
106 (or its successor accounting principle) assumptions as of the
December 31 immediately preceding the Determination Date.
Further, the valuation of either party's prospective obligation under
this Section 5.6(f) shall be made using a discount rate equivalent to
the numerical average of the 30 Year Treasury Bill rate in effect on
the first day of each month for a twelve month period prior to and
including the Determination Date, as published in the Wall Street
Journal, New York Edition, plus 200 basis points for amounts
transferred that will not be place in a trust as described below, or
plus 300 basis points for amounts transferred that will be placed in a
trust as described below. The cash payment to settle the obligations
should be based on the above valuation method.
Cash transferred by either party with regard to its prospective
obligations for Hourly Transferred Employees under this Section 5.6(f)
shall be placed in a VEBA Trust if the Test Amount exceeds $10 million.
For purposes of determining whether a VEBA Trust contribution is
required under this Section 5.6(f) (the "Test Amount"), the 30 year
Treasury Bill Rate plus 250 basis points will be used. The
determination of amounts to be transferred in accordance with this
Section 5.6(f) shall be made by the party's respective actuaries. The
actuaries shall exchange all of the documentation reasonably necessary
to verify their respective determinations within 120 days of the
Determination Date. Such calculations will be verified and the cash
transferred within 180 days of the Determination Date. Interest on the
amount transferred will be accrued from the Determination Date to the
date of transfer at the Prime Rate in effect on the Determination Date.
If either party's actuary disagrees with the calculations under this
Section 5.6(f), the parties shall negotiate, in good faith, to resolve
such dispute. If the parties are unable to resolve such dispute, they
shall agree upon and engage an impartial actuary, who shall be entitled
to the privileges and immunities of an arbitrator, to resolve any
disagreement and whose determination as to any such disagreement shall
be conclusive, final and binding on the parties. The Parties shall
share equally all costs and fees of such impartial actuary.
The parties shall mutually indemnify each other for any claims arising
out of their respective actions with regard to their respective
obligations to retirees and their dependents and beneficiaries as
allocated between the parties pursuant to this Section 5.6(f).
5.7. Purchaser Benefit Plans.
Except as otherwise provided in this Section 5, nothing herein shall prejudice
the right of Purchaser or GM to amend or terminate any of its plans, programs,
policies or arrangements applicable to any Transferred Employee or Special
Status Employee following the Closing.
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5.8. Employee Information: Cooperation in Establishing Purchaser Benefit
Plans.
(a) GM and Purchaser will each provide the other any relevant information
with respect to an employee's employment with, and compensation from GM
or Purchaser, or rights or benefits under any Employee Benefit Plan
which either Party may reasonably request and require.
(b) Purchaser will establish Employee Welfare Benefit Plans, in accordance
with applicable laws, for the Transferred Employees, as applicable, on
a timely basis so that such plans will be in effect on Closing and GM
shall administer such Purchaser plans through December 31, 1998.
5.9. Wrongful Acts.
Notwithstanding anything to the contrary in this Agreement, GM shall not be
liable for any adverse consequences arising from a wrongful act by Purchaser
with respect to any Transferred Employee. Notwithstanding anything to the
contrary in this Agreement, Purchaser shall not be liable for any adverse
consequences arising from a wrongful act by GM with respect to any employee or
former employee of GM or its Affiliates, including, without limitation, all
employees identified on Schedule 5.1.A, all Overseas Employees, and all
employees of the JV Companies and the Sales Companies.
5.10. Provisions Regarding Purchaser's Agreements. Benefit Plans and
Policies.
(a) Except as otherwise provided in this Section 5, coverage and benefits
for Transferred Employees or their dependents under any employee
benefit plan or any related policies or programs offered by Purchaser
("Purchaser Plans"), shall apply without regard to eligibility for such
coverage or benefits under any GM Employee Benefit Plan, and shall be
primary.
(b) Purchaser and GM each shall reimburse the other for any liability
incurred in respect of Transferred Employees due to any violation of
law with respect to or failure by Purchaser or GM to abide by the terms
or conditions of their respective collective bargaining agreements, or
any Employee Pension Benefit Plan, Employee Welfare Benefit Plan or any
other plans, policies or programs maintained by Purchaser or GM for any
Transferred Employee, Hourly Returned Employee or Special Status
Employee.
5.11. Grievances.
GM represents that it has disclosed to Purchaser (or will disclose prior to the
Closing) all pending labor grievances and arbitration proceedings which relate
to the US Business. Prior to the Closing, GM will disclose all labor grievances
and arbitration proceedings which relate to the US Business which remain
unresolved on the Closing Date. The parties will address (i) grievances open as
of the date of the Closing and (ii) grievances filed after the date of
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Closing relating to an event, occurrence or cause of action arising prior to
Closing which affect or relate to the rights of GM or Purchaser under this
Agreement (collectively, "the Grievances") as set forth below. Purchaser and GM
will cooperate in the defense of the Grievances. Purchaser will not settle any
of the Grievances without GM's consent, if such settlement will result in
liability for GM. Such consent will not be unreasonably withheld. GM will not
settle any of the Grievances without Purchaser's consent if such settlement will
result in liability for Purchaser. Such consent will not be unreasonably
withheld. If the seniority of a grievant is reinstated as a result of the
disposition of a Grievance or a court or administrative order, Purchaser will
reinstate the grievant as if the grievant had been an Hourly Transferred
Employee as of the date of the Closing. In general, for Hourly Transferred
Employees who have been continuously employed, back pay liability relating to
periods prior to Closing will be allocated to GM. Back pay liability relating
to periods subsequent to Closing will be allocated to Purchaser. In general, for
employees who become Hourly Transferred Employees because they are reinstated
through the grievance procedure, back pay liability relating to periods prior to
Closing will be allocated to GM. Back pay liability relating to periods
subsequent to Closing will be allocated to Purchaser. The parties will discuss
treatment of Grievances involving unusual circumstances. If GM or the Purchaser
withholds consent to a settlement of a Grievance recommended by the other or
elects to continue to defend the Grievance jointly with the other, then the
party that withholds consent shall be liable to the other for the portion of the
back pay or other liability resulting from the ultimate disposition of such
Grievance (or subsequent settlement) which is in excess of the liability that
would have resulted from the settlement recommended by the other party and
rejected by the party that withholds consent.
5.12. Savings Plan Transfers.
Purchaser agrees to establish for all Transferred Employees a savings plan
(under Section 401(k) of the Code) effective as of Closing. To the extent
allowed by applicable law, Purchaser agrees that Hourly Transferred Employees
with account balances in the GM Personal Savings Plan will be eligible to
transfer such account balances in accordance with the provisions of the plan to
the Purchaser's savings plan applicable to Hourly Transferred Employees. To the
extent allowed by applicable law, Salaried Transferred Employees with account
balances in the GM Savings-Stock Purchase Program will be eligible to transfer
such account balances in accordance with the provisions of the program to the
Purchaser's savings plan applicable to Salaried Transferred Employees. The
manner of such transfer shall be a withdrawal from the GM Plan or Program.
5.13. Allocation of Responsibility for Suggestions Existing as of Closing.
Purchaser will investigate and review any suggestions related to the US Business
pending as of Closing. GM will cooperate with Purchaser to facilitate the
investigation and review of all such suggestions. With regard to any suggestions
submitted on or prior to the Closing Date, GM will be responsible for payment of
any suggestion award related to savings realized on or prior to Closing, with
Purchaser responsible for payment related to savings realized after Closing.
Purchaser will assume responsibility for suggestions related to the U.S.
Businesses
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submitted by any Transferred Employee after Closing and before September 14,
1999, regardless of whether submitted on Purchaser or GM suggestion forms.
5.14. Vehicle Purchase Program.
Without cost to Purchaser, Transferred Employees will continue to be eligible
through October 1, 1999 to participate in the GM New and Used Vehicle Purchase
Program, in accordance with policies in effect for GM employees. Under either
program, it is the responsibility of the Transferred Employee to take delivery
of the new or used vehicle by October 1, 1999.
5.15. Profit Sharing.
Regardless of the vesting date, GM will pay to each Transferred Employee any
profit sharing due with respect to 1998 on a pro rata basis using the number of
days worked during 1998 by the Transferred Employees for GM and for Purchaser.
5.16. Vacation.
(a) Hourly Employees. Within 60 days following the end of the calendar
years 1998, 1999, 2000, and 2001, GM and Purchaser shall determine the total
dollar value of vacation pay accrued for the applicable year with respect to an
Hourly Transferred Employee who was employed at both GM and Purchaser for such
year (the "Vacation Pay"). The Vacation Pay thus determined shall be allocated
between GM and Purchaser pro rata based on pay periods worked (and portions
thereof) at GM and Purchaser, respectively, during the applicable year. From the
allocated Vacation Pay amounts both GM and purchaser shall subtract any actual
vacation used while working at GM or Purchaser, respectively, during the
applicable year by employees who were employed at both GM and Purchaser for such
year (the "Net Vacation Pay"). In the event the Purchaser's Net Vacation Pay
exceeds GM's Net Vacation Pay, then Purchaser shall pay to GM the difference
between Purchaser's Net Vacation Pay and GM's Net Vacation Pay. In the event the
GM's Net Vacation Pay exceeds Purchaser's Net Vacation Pay, then GM shall pay to
Purchaser the difference between GM's Net Vacation Pay and Purchaser's Net
Vacation Pay.
(b) Salaried Employees. Within 60 days of Closing, GM will pay to
Purchaser the value of all accrued and unused vacation as of the Closing, offset
by the value of all vacation used but not accrued as of Closing.
5.17. Training.
Purchaser will participate in joint activities through the UAW-GM Center for
Human Resources ("CHR") in the same manner as provided prior to the Closing Date
for the duration of the current GM-UAW Agreement. This includes funding levels,
the funding approval process, and full participation in jointly developed and
negotiated programs. Purchaser's funding obligations will be met by monthly
payments to the CHR in an amount equal to the funding obligation incurred by
Purchaser each month pursuant to the UAW Agreements
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Memorandum of Understanding Joint Activities (III Funding). Purchaser's funding
rate for overtime hours will be based on the procedure in place for determining
such funding rate pursuant to the GM-UAW National Agreement for Grand Rapids and
Auburn Hills.
5.18. Tuition Reimbursement Expenses.
GM shall be responsible for payment of all tuition reimbursement expenses which
are properly payable under the Tuition Assistance Plan for Salaried Transferred
Employees for classes commenced or approved prior to Closing. Tuition
reimbursement expenses with respect to Salaried Transferred Employees will be
paid by Purchaser's tuition assistance plan for classes which commence on or
after Closing and which have not been approved prior to Closing.
5.19. Workers' Compensation.
(a) GM shall be responsible for workers' compensation claims of Transferred
Employees based on injuries or illnesses which arose out of and in the
course of employment with GM on or prior to Closing, regardless of when
such claim is made.
(b) Purchaser will be responsible for workers' compensation claims of
Transferred Employees based on injuries and illnesses which arise out
of and in the course of employment with Purchaser after Closing.
(c) With regard to workers' compensation claims for which GM retains
responsibility and which involve the payment of lost-time workers'
compensation benefits for any GM Leave Employee, Purchaser will make
reasonable efforts consistent with the provisions of the UAW Agreement,
the applicable local agreement, and the applicable law, to place such
employee in suitable employment. In the event GM and Purchaser disagree
as to any workers' compensation claimant's ability to return to work,
both GM and Purchaser will submit the disagreement to a binding third
party medical arbitrator (selected by mutual agreement of Purchaser and
GM). The cost of such arbitrator shall be shared equally by Purchaser
and GM. GM and Purchaser shall cooperate in good faith to administer
the allocation of the workers' compensation benefits provided for in
this Section 5.19.
5.20. Legal Services Plan.
Purchaser will provide legal services and administrative support to Transferred
Hourly Employees ("Purchaser Legal Services Plan") through the UAW-GM Legal
Services Plan for the duration of the UAW Agreement, including funding required
by that Agreement. Purchaser will pay for this plan based on Purchaser's
accruals for the plan at the GM accrual rates. Purchaser will provide funding on
or prior to October 1, 1999.
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5.21. GM Pre-Closing Indemnity.
GM hereby agrees to indemnify and hold harmless the Purchaser for itself, its
successors and assigns (and on behalf of the Asset Purchasers and Securities
Purchasers) from any liability asserted against the Purchaser, any Asset
Purchaser or any Securities Purchaser under Title IV of ERISA or Chapter 43 of
the Code by reason of all or part of the Combined Business having at some time
prior to Closing been part of the GM Group or having formed with any part of the
GM Group a group of trades or businesses under common control within the
meaning of Section 414(c) of the Code.
Overseas Employees
5.22. Transfer of Overseas Employees.
The Parties acknowledge and agree that all Overseas Employees shall transfer
from the relevant Asset Seller to the relevant Asset Purchaser by operation of
applicable local law and/or pursuant to the terms of the Transfer Agreement
relating to that jurisdiction and the Purchaser shall cause the relevant Asset
Purchasers to the extent required to offer employment to the Overseas Employees
in accordance therewith and on the same terms and conditions of employment
(including, without limitation, applicable Benefit Arrangements except pension
arrangements of the Overseas Employees at the UK Business) as were in place
immediately prior to Closing.
5.23. Novation of Contracts of Employment of Overseas Employees.
The Parties agree to use all reasonable endeavors to cause the contracts of
employment of any Overseas Employees, other than those employed by a Sale
Company or JV Company, whose contracts of employment do not transfer (for
whatever reason) by operation of law to be novated from the relevant Asset
Seller to the relevant Asset Purchaser with effect from Closing on substantially
the same, or equivalent to, terms and conditions of employment (including,
without limitation, applicable Benefit Arrangements) as were in place
immediately prior to Closing.
5.24. Purchaser Post-Closing Indemnity (Overseas Employees).
The Purchaser shall indemnify GM for itself and on behalf of the relevant Asset
Sellers against all claims and liabilities in respect of the Overseas Employees
including, without limitation, claims for any redundancy or severance payments
and any liability for unfair or wrongful dismissal or discrimination or as a
result of any other act or omissions by any member of the Purchaser Group, in
each case relating to the employment or termination of the employment of any
Overseas Employee after Closing and all claims arising from infringement of the
rights of any employee, trade union representative or other employee
representative to information, consultation or negotiation.
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5.25. GM Pre-Closing Indemnity (Overseas Employees),
GM shall indemnify the Purchaser for itself and on behalf of the relevant Asset
Purchasers against all claims and liabilities in respect of the Overseas
Employees including, without limitation, claims for any redundancy or severance
payments and any liability for unfair or wrongful dismissal or discrimination or
as a result of any other act or omission by GM or the relevant member of the GM
Group (other than at the request of or with the acquiescence or consent of the
Purchaser or any member of the Purchaser Group), in each case relating to the
employment or termination of the employment of any Overseas Employee prior to
Closing and all claims arising from infringement of the rights of any employee,
trade union representative or other employee representative to information,
consultation or negotiation.
5.26. Consultation and Negotiation Duties.
The Purchaser represents and warrants that relevant members of the Purchaser
Group have provided relevant members of the GM Group with sufficient information
so as to enable them to comply in a timely manner with their information,
consultation and negotiation duties under any relevant national or European
Union legislation or regulations or any works council agreement or other
agreement with employees or elected or trade union representatives of such
employees.
5.27. Pension Schemes and Benefit Plans.
Without prejudice to the generality of the foregoing, each Transfer Agreement
relating to the sale of Acquired Assets in any jurisdiction outside the United
States shall incorporate provisions dealing with the transfer of any rights of
Overseas Employees under any Pension Schemes. All benefit plans that are
operated by the Sale Companies and the JV Companies and subject to the laws of
any jurisdiction outside the United States have, in all material respects, been
maintained in compliance with all applicable requirements and, if they are
intended to be funded or book reserved are appropriately funded or book
reserved. There are no outstanding premiums on the insurance policies relating
to benefit plans operated by the Spanish Share Business and the Spanish Asset
Business as of the Closing Date and such insurance policies shall be transferred
to the applicable member of the Purchaser Group at the Closing.
5.28. Sales of Productive Assets.
Notwithstanding the above, it is hereby acknowledged and agreed that the sale of
Acquired Assets hereunder and pursuant to the relevant Transfer Agreements
relating to the German Business shall only be a sale of the assets identified in
the relevant Schedules to this Agreement and the relevant Transfer Agreement
and, in particular, such sales do not and shall not be deemed to include or
require the transfer of employees (other than, as regards the Wuppertal and
Russelsheim engineering and support operations forming part of the German
Business, those persons listed as Overseas Employees) engaged in the Business at
such locations to the relevant Asset Purchaser.
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6. REAL PROPERTY MATTERS.
6.1. Conveyance.
With respect to the US Owned Real Property, GM will at the Closing execute and
deliver to Purchaser an appropriate covenant deed in recordable form sufficient
to vest in Purchaser good, marketable and insurable fee simple title to such US
Owned Real Property, subject only to the Permitted Exceptions. The parties will
grant (or reserve) appropriate easements if reasonably necessary, for access,
utilities and other required matters so that each may reasonably operate and
utilize its respective property which is adjacent to the other's property so
conveyed. With respect to US Real Property Leases, GM will at Closing execute
and deliver to Purchaser an appropriate assignment sufficient to vest in
Purchaser GM's leasehold estate in the US Real Property Leased and/or sublease
the entire premises covered by such US Real Property Lease to Purchaser for the
remaining term of such Lease and with respect to any US Real Property Lease,
with respect to which Purchaser receives a sublease, Purchaser will accept a
subsequent assignment of such Real Property Lease in lieu of such sublease.
6.2. Title
GM has delivered to Purchaser commitments for ALTA Owner's Title Insurance
Policies (10-17-92 Policy 136) with respect to the, US Owned Real Property and
commitments for ALTA Leasehold Owner's Policies (10-17-92 Policy 138) with
respect to certain US Leased Real Property issued by Title Insurer(s) approved
by Purchaser, and has delivered copies of each exception to title referred to
therein. At the Closing GM shall cause to be delivered to purchaser in form
reasonably satisfactory to Purchaser an ALTA Owner's Title Insurance Policies
(10-17-92 Policy 136), in the amount of Two Million Twenty Five Thousand -
Dollars (US $2,025,000), relating to the Grand Rapids, Michigan, plant dated as
of the Closing Date, issued to Purchaser by which title insurance policy insures
that the fee simple absolute title to the parcel of US Owned Real Property
described therein is marketable and valid and vested in Purchaser, subject only
to the Permitted Exceptions. GM shall cause to be delivered to Purchaser in form
reasonably satisfactory to Purchaser an ALTA Leasehold Owner's Policies
(10-17-92) Policy 138, in the amount of Two Million Dollars (US $ 2,000,000)
relating to the plant in Auburn Hills, Michigan dated as of the Closing Date,
issued to Purchaser by such title insurer, which title insurance policy insures
the leasehold interest of Purchaser under the US Real Property Leases with
respect to the plant in Auburn Hills, Michigan. The premiums for such policy as
well as the title commitment charges, including charges for title examination,
shall be paid by GM. Purchaser will be responsible for all endorsements to the
title policies requested by Purchaser, except for those endorsements necessary
for GM to insure over any title exception that is not a Permitted Exception so
that GM shall deliver title to the US Owned Real Property subject only to the
Permitted Exceptions. The documents described on Schedule 6.2 are unrecorded
agreements, easements, restrictions and other encumbrances. Schedule 6.2
requires in certain instances the termination, release or amendment of such
unrecorded agreements, easements, restrictions and other encumbrances. The
provisions of Schedule 6.2 requiring Purchaser and/or GM to accomplish any
matters with respect to such unrecorded agreements,
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easements, restrictions and other encumbrances shall be performed by the Parties
as provided on Schedule 6.2.
6.3. Land Survey.
GM has delivered surveys ("Survey") to Purchaser and the Title Insurer, at GM's
expense, prepared in accordance with minimum standard detail requirements for
1997 ALTA/ACSM surveys, Class A, prepared by a surveyor licensed in the
jurisdiction in which the US Real Property is located showing the US Owned Real
Property, the Auburn Hills, Michigan plant, and all known easements and rights
granted by license thereon which can be depicted on the Survey, all Improvements
(including fences and driveways), and access to and from a dedicated and
accepted public right-of-way.
6.4. Auburn Hills Plant.
The Parties acknowledge that the lease relating to the Auburn Hills, Michigan,
facility shall be amended to delete tenant's option thereunder to extend the
current 8-year term.
6.5. European Real Property Matters.
At the Closing, GM shall cause each of the Asset Sellers under the applicable
Transfer Agreement to sell, transfer, assign, convey and deliver, as applicable,
to each of the Asset Purchasers such right and interest in the European Real
Property as set forth in the Transfer Agreements. European Real Property shall
be dealt with in accordance with the provisions of the applicable Transfer
Agreements.
7. ENVIRONMENTAL MATTERS.
PART I
United States Business. For the avoidance of doubt, Sections 7.1 to
7.10.3 of this Article 7 only apply to the United States Business.
7.1. Definitions.
The following terms, as used in Sections 7.1 to 7.13.5, shall have the
following meanings for the purposes of Part I and Part 11 of Article 7 only,
whether used in the singular or plural (other terms are defined in the Sections
to which they pertain):
7.1.1 ACM. "ACM" means any asbestos-containing material as defined by
Environmental Laws.
7.1.2 Acquired United States Assets. "Acquired United States Assets"
means the assets, rights and properties used or held for use primarily or
exclusively in the United States Business.
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7.1.3 Adverse Consequences. "Adverse Consequences" means any
liabilities, compensatory or punitive damages, treble damages to the
extent recoverable under CERCLA or state CERCLA equivalent statutes,
natural resource damages, penalties, costs and fines, including
reasonable attorney's fees, but excluding: (a) consequential, special
or incidental damages (such as loss of profits, loss of business
opportunity, loss of use, diminution in value of any property, or
business interruption); and (b) any attorney's or consultant's fees or
other costs incurred by an indemnitee for any matter in which the
indemnitor has in good faith accepted its defense and indemnity
obligations.
7.1.4 Clean Closure. An Environmental Condition will be "Clean Closed,"
when GM can establish the following:
(a) no Hazardous Material is present at a level which exceeds the
highest of ("Industrial Remediation Standard"): (1) natural
background as determined in accordance with sound and accepted
scientific and engineering judgment and practice: (2) the minimum
legal requirements for remediation standards established under
applicable Environmental Laws for industrial property, including
Restrictive Covenants as defined herein; or (3) the level
determined by a site-specific risk assessment consistent with
applicable Environmental Law, or
(b) the closure is approved by the Governmental Authority,
consistent with applicable Environmental Law.
7.1.5 Environmental Condition. "Environmental Condition" means the
presence of any Hazardous Material in the soils, surface water, outside
ambient air or ground water on the United States Real Property in
concentrations above the least stringent remediation standard
acceptable under Environmental Laws for industrial property. This term
shall include an Environmental Condition resulting from a NonCompliance
Matter. The presence of any Hazardous Material in or on any of the
United States Real Property or in or on any of the Acquired United
States Assets or the buildings (including fixtures, appurtenances, or
equipment) located in or comprising any part of the United States Real
Property is not considered an Environmental Condition. If no
appropriate remediation standard is specified under Environmental Laws,
the remediation standard shall be established using RECOGNIZED risk
assessment methodologies as set forth in Section 7.3.3 (Remedial Action
Factors).
7.1.6 Environmental Laws. "Environmental Laws" means all applicable
federal, territorial, national, common law, state and local laws,
ordinances, statute, code, enactment, permit, consent, authorization,
license, regulations, final orders and final judgments, rule, decree,
injunction, or other requirement having the force and effect of law
which are legally enforceable concerning the introduction, emission,
discharge or release of any Hazardous Material into the air, soil or
surface or ground water; the transportation, storage, treatment or
disposal of any Hazardous Material; the
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remediation or investigation of contamination of air, soil, or surface
or ground water by any Hazardous Material; the regulation of storage
tanks; or otherwise relating to pollution or the protection of human
health and the environment. Environmental Laws include, but are not
limited to, the following federal statutes and similar state and local
laws: Clean Air Act, 42 U.S.C. 7401, et seq.; Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. 9601, et seq.; as amended by the Superfund Amendments and
Reauthorization Act of 1986 "CERCLA"; Federal Water Pollution Control
Act, 33 U.S.C. 1251, et seq.; Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C." 1001, et seq.; Oil Pollution Act
of 1990, et seq.; U.S.C. 2701 et seq.; Pollution Prevention Act of
1990, 42 U. S.C. 13 10 1, et seq.; Resource Conservation and Recovery
Act of 1976, 42 U.S.C. 6901, et seq.; as amended by, the Hazardous and
Solid Waste Amendments of 1984, "RCRA"; Safe Drinking Water Act, 42
U.S.C. 3001 et seq.; Solid Waste Disposal Act, 42 U.S.C. 6901, et seq.;
the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C.
Section 136 et seq.; the Atomic Energy Act, 42 U.S.C. Section 2011 et
seq.; the Hazardous Materials Transportation Act, 42 U.S.C. Section
1801 et seq.; and the Toxic Substances Control Act, 15 U.S.C. 2601, et
seq.; The following are not considered Environmental Laws: (a) laws,
ordinances, regulations, final orders or final judgments, concerning
primarily worker safety, including the Occupational Safety and Health
Act "OSHA", and any similar state or local law or regulation; or (b)
unpromulgated agency guidance documents, guidelines or directives which
are not legally enforceable or duly promulgated.
7.1.7 GM Indemnitees. "GM Indemnitees" means GM, its successors and
assigns, and their respective officers, directors, shareholders and
employees.
7.1.8 Governmental Authority. "Governmental Authority" means any local,
state or federal governmental agency with jurisdiction in the relevant
matter pursuant to any Environmental Laws.
7.1.9 Hazardous Material. "Hazardous Material" means any substance
regulated, defined, or designated as a "hazardous substance,"
"extremely or imminently hazardous substance," "hazardous material,"
"hazardous chemical," "hazardous or toxic pollutant," "pollutant,"
"toxic substance," "hazardous waste" or similar terms under
Environmental Laws; and including, without limitation, petroleum and
petroleum products including crude oil and any fractions thereof;
asbestos; and natural gas, synthetic gas, and any mixtures thereof.
7.1.10 Knowledge. "Knowledge" means the actual knowledge, as of the
date of this Agreement, of GM officers, directors, and the plant
managers and environmental supervisors set forth on Schedule 7.1.9.
7.1.11 Non-Compliance Matter. "Non-Compliance Matter" means a violation
of an Environmental Law by GM. The Release (except failure to report a
Release in violation of Environmental Law) or presence of any Hazardous
Materials in or on the soils, land surface or substrata, surface water,
ground water or any other
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environmental medium in, or in the vicinity of, the United States Real
Property, or in or on any of the Acquired United States Assets or the
buildings (including fixtures, appurtenances or equipment) located in
or comprising any part of the United States Real Property are not
considered NonCompliance Matters.
7.1.12 Purchaser's Indemnitees. "Purchaser's Indemnitees" means
Purchaser, its successors and assigns, and their respective officers,
directors, shareholders and employees.
7.1.13 Release. "Release" means any spill, emission, escape, leak,
pumping, injection, deposit, disposal, discharge, dispersal, leaching,
movement or migration into or through the environment (as defined under
CERCLA) of any Hazardous Material, including any exacerbation or
aggravation thereof, and the movement or migration, gradual or
otherwise, of any Hazardous Material through or in the air, soil,
surface water, ground water, or land surface or subsurface strata or
formation.
7.1.14 Restrictive Covenant. "Restrictive Covenant" means restrictive
covenants on the United States Real Property consistent with
Purchaser's use and development of the United States Real Property for
industrial purposes as described herein. The term "Restrictive
Covenant" includes but is not limited to a restrictive covenant
utilizing the relevant model form adopted by the Michigan Department of
Environmental Quality, and shall include any of the following: (i) an
agreement not to install wells on the United States Real Property, (ii)
the maintenance of caps, impermeable barriers or any existing building
or other existing structure on the United States Real Property, subject
to the review rights set forth in Sections 7.3.9 and 7.3.10, (iii)
maintenance of adequate security, including fences or similar
structures, to restrict access; and (iv) any other reasonable
restrictive covenant consistent with Purchaser's use and development of
the United States Real Property for industrial purposes that Purchaser
and GM agree to negotiate in good faith. The terms of a Restrictive
Covenant shall include a mechanism to remove the restrictions under
appropriate circumstances. Any maintenance required under subsections
(ii) or (iii) hereunder shall not result in expenses to Purchaser that
would not be incurred in the ordinary course of Purchaser's business.
7.1.15 United States Business. "United States Business" means the
Business conducted at the United States Real Property.
7.1.16 United States Real Property. "United States Real Property" means
the properties listed on Schedule 7.1.16.
7.2. Environmental Assessments and Compliance Audits.
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7.2.1. Environmental Confidentiality and Access Agreement.
GM and Purchaser entered into an Environmental Confidentiality and
Access Agreement dated March 4, 1998 (the "ECA"), which is attached to this
Agreement as Exhibit 7.2.1. Except as provided in the ECA, the ECA will
expire on the Closing Date.
7.2.2. Environmental Assessments.
GM's consultants conducted environmental assessments of certain parcels
of the United States Real Property and prepared final environmental
assessment reports, including all related environmental sampling and
analytical data (the "GM Environmental Assessments"). GM has delivered final
copies of all GM Environmental Assessments to Purchaser. Schedule 7.2.2.A
lists the GM Environmental Assessments delivered to Purchaser. Under the
ECA, Purchaser conducted its own environmental assessments of certain
parcels of the United States Real Property, and prepared final environmental
assessment reports, including all related environmental sampling and
analytical data. (the "Purchaser Environmental Assessments"). Purchaser has
delivered final copies of all Purchaser Pre-Closing Environmental
Assessments to GM. Schedule 7.2.2.B lists the Purchaser Environmental
Assessments delivered to GM. Neither party warrants the accuracy or
completeness of the environmental assessments.
7.2.3. Environmental Compliance Audits.
GM's consultants conducted an environmental compliance audit of the
United States Business operations at certain facilities and prepared final
compliance audit reports (the "GM Compliance Audit Reports"). GM has
delivered final copies of all GM Compliance Audit Reports to Purchaser.
Schedule 7.2.3.A lists the GM Compliance Audit Reports delivered to
Purchaser. Under the ECA, Purchaser conducted its own environmental
compliance audit of certain United States Business operations and prepared
final compliance audit reports (the "Purchaser Compliance Audits").
Purchaser has delivered final copies of all Purchaser Compliance Audits to
GM. Schedule 7.2.3.B lists the Purchaser Compliance Audit Reports delivered
to GM. Neither party warrants the accuracy or completeness of the
environmental compliance audits.
7.2.4. Baseline Environmental Assessment.
Purchaser warrants that it will not prepare or file with the State of
Michigan a Baseline Environmental Assessment as presently defined in Part
201 of the NREPA for the Grand Rapids, Michigan and the Auburn Hills,
Michigan facilities, with respect to any Environmental Condition which GM
agrees to remediate under Section 7.3.1.
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7.3. GM Remediation and Corrective Action.
7.3.1. GM Remediation.
GM will address and/or remediate, in accordance with Sections 7.3.4
(PCBs) and 7.3.5 (ACM), and Section 7.10.3 (Apportionment), the
Environmental Conditions created or caused by GM that are identified in
either the GM Environmental Assessments or the Purchaser Environmental
Assessments and which the parties have agreed to list on Schedule 7.3.1;
7.3.2. Remedial Action Plans.
GM will develop and implement remedial action plans for the
Environmental Conditions under Section 7.3.1 (GM Remediation) only if
remedial action is: (a) required by any Environmental Law; (b) required by a
Governmental Authority under a judicial or administrative order issued under
an Environmental Law; (c) required to prevent an actual or immediate threat
to human health or the environment at the United States Real Property or
surrounding property; or (d) GM, in its sole discretion, decides to perform
remedial activity after conducting a risk-based evaluation. Except for
situations described in Section 7.10.3 (Apportionment) and 7.10.2
(Purchaser's Defense and Indemnification Obligations), GM is solely
responsible for the costs of developing and implementing a remedial action
plan under this Section 7.3.2 (Remedial Action Plans).
7.3.3. Remedial Action Factors.
GM will use the following factors to develop remedial action plans:
(a) the requirements under then existing Environmental Laws;
(b) technical feasibility;
(c) cost of the proposed alternatives;
(d) ongoing industrial use; and
(e) risk based evaluations, human health and environmental risk based
factors, where applicable, including, but not limited to: (i)
reasonable and relevant exposure pathways consistent with continued
industrial use (ii) typical simulated exposure distributions consistent
with the relevant exposure pathways; (iii) fate and transport
characteristics; (iv) local geology and hydrogeology; (v) toxicity of
the materials in question: (vi) Restrictive Covenants on the United
States Real Property; and (vii) other relevant factors employed in
assessing risks to human health and the environment under generally
accepted risk assessment principles and methodologies.
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7.3.4. PC BS.
Subject to the limitations set forth in Section 7.10.1(f), GM will
remediate PCB contamination caused or created by GM in the Grand Rapids
buildings (including fixtures, appurtenances and equipment) that exceeds
acceptable levels set forth in Environmental Laws for industrial property.
GM will remediate the affected area consistent with applicable Environmental
Law.
7.3.5. ACM.
GM will conduct an asbestos survey only of the Grand Rapids facility in
accordance with generally accepted engineering standards prior to the
Closing. The survey, to the extent practicable, will identify any exposed
and damaged ACM in the assets and buildings at the Grand Rapids facility. GM
has provided a written report of its ACM survey to Purchaser before the
Closing Date. If the ACM survey report identifies any damaged, exposed,
accessible, and friable ACM, GM will repair, replace or encapsulate the ACM
within a reasonable period of time after the Closing Date. For purposes of
this section, "accessible" means any ACM that is not sealed or enclosed or
maintained in a condition that makes release of airborne asbestos fibers
unlikely.
7.3.6. GM Compliance Action Plans.
GM will develop and implement compliance action plans to correct the
ongoing Non-Compliance Matters identified in the GM Environmental Compliance
Audit or Purchaser's Environmental Compliance Audit and which the parties
have agreed to list on Schedule 7.3.6;
7.3.7. No Other Obligation.
Except as expressly described in this Article 7, GM has no remediation,
defense or indemnification obligations.
7.3.8. Non-Interference.
In implementing any remedial action or compliance action required under
Part I of this Article 7, or in exercising any right of access, GM will not
unreasonably interfere with Purchaser's operation of the United States
Business or use of the Acquired United States Assets or the United States
Real Property, unless required by a Governmental Authority.
7.3.9. Purchaser's Review Period.
GM will provide Purchaser with a copy of any proposed remedial action
plan or compliance action plan at least thirty (30) days before the earlier
of; (a) the scheduled start date for activities under the plan; or (b) the
date. GM is required, under Environmental Law, to submit the plan to a
Governmental Authority. Purchaser is
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entitled to review or comment on any part of the proposed plan.
Purchaser will complete its review promptly, but in no event more than
fifteen (15) days after Purchaser's receipt of any plan, unless
required sooner by a Governmental Authority.
7.3.10. Modification Based on Purchaser's Input.
GM must modify or amend a remedial action plan or compliance action
plan (unless otherwise required by a Governmental Authority) if the
Purchaser establishes that the planned action: (a) would unreasonably
interfere or unreasonably impair the ability of Purchaser to operate the
United States Business or use the Acquired United States Assets or the
United States Real Property; (b) does not meet the remediation requirements
of this Article 7; (c) will not remedy a Non-Compliance Matter under
Environmental Laws; (d) would fail to correct an actual and immediate threat
to human health or the environment; or (e) can be modified so that it can be
completed in a shorter period of time at a similar or lower cost to GM. If
the parties are unable to agree on the applicability of these criteria, the
dispute resolution provisions of Section 7.12 shall apply.
7.3.11. Implementation.
After review of proposed changes and comments, in accordance with this
Section 7.3 (GM Remediation and Corrective Action), GM will implement the
remedial action plans and compliance action plans: (a) in accordance with
the time schedule; (b) in a good, safe, workerlike manner; (c) without
placing any encumbrances, other than reasonable Restrictive Covenants
required as part of a remedial action or compliance action, on the Acquired
United States Assets or United States Real Property; and (d) in a manner
that does not unreasonably interfere with Purchaser's ability to operate the
United States Business, use the Acquired United States Assets, or use the
United States Real Property, unless otherwise required by a Governmental
Authority.
7.3.12. Clean Closure.
Once an Environmental Condition for which GM has responsibility under
Section 7.3.1 is Clean Closed, GM will have no further remediation, defense
or indemnification obligations to Purchaser unless such Closure is deemed
inadequate and/or reopened by a Governmental Authority under applicable and
legally enforceable Environmental Laws. After GM completes a Clean Closure,
and subject to the preceding sentence, Purchaser will be solely responsible
and liable for the condition Clean Closed to the extent provided in Part I
of this Article 7, and Purchaser will defend and indemnify GM in accordance
with Section 7.10.2 (Purchaser's Defense and Indemnification Obligations).
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7.3.13. Purchaser's Obligations.
Purchaser will cooperate and assist GM in implementing remedial action
and compliance action plans in accordance with Section 7.9.1 (Purchaser's
Obligations in Connection with GM's Remedial Actions).
7.4. Access
7.4.1. GM Access.
After the Closing Date and upon reasonable notice to Purchaser, and
without undue disruption of the United States Business, GM and its
representatives may enter the United States Real Property to:
(a) conduct remedial action or compliance action under Section 7.3 (GM
Remediation and Corrective Action);
(b) perform its obligations or exercise its rights under Part I of this
Article 7;
(c) investigate or remediate an environmental condition on an adjacent
GM facility (except that, if such investigation or remediation exceeds
twelve months, GM will make all reasonable efforts to minimize the
number of times access is needed or obtain alternate access, and shall
not unreasonably disrupt or interfere with Purchaser's use of the
United States Real Property).
(d) install, maintain and use any environmental monitoring or
remediation equipment required by a remedial action or compliance
action plan or a Government Authority;
(e) investigate or remediate a claim for indemnification, but only if
GM has ongoing remedial, defense or indemnity obligations to Purchaser
under Part I of this Article 7; and
(f) inspect the Acquired United States Assets and United States Real
Property for Purchaser's performance of its obligations under a
Restrictive Covenant or Section 7.5.3. or 7.10.3.
7.4.2. Access Limitations.
GM's access under this Section 7.4 (Access) is subject to the
following: (a) Purchaser's reasonable requirements caused by daily
operations or emergency conditions; and (b) Purchaser's reasonable health,
safety and environmental requirements.
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7.5. United States Real Property - Use Restrictions.
7.5.1. Generator-Only Status.
In the event that Purchaser allows any of the United States Real
Property to become a treatment, storage or disposal facility as that term is
defined in RCRA and State RCRA equivalent statute, Purchaser agrees that GM
will have no further responsibility with respect to any Environmental
Conditions or those Non-Compliance Matters not included in Schedule 7.3.5 at
such facility as of the date such facility becomes a treatment, storage or
disposal facility. Purchaser further agrees to indemnify and hold GM
harmless with respect to any such Environmental Conditions or Non-Compliance
Matters existing at such facility on or after the date such facility becomes
a treatment, storage or disposal facility.
7.5.2. Transfers.
Except for any transfer by Purchaser to GM, any agreement for the
transfer of any interest in the United States Real Property through sale,
lease, lease assignment, license, sublease, easement or otherwise, will (a)
incorporate the rights and obligations of Purchaser and GM under Part I of
this Article 7 and impose the obligations on any subsequent user, occupant
or transferee of the United States Real Property; (b) restrict use of the
United States Real Property to industrial (including warehouse) use
consistent with any Restrictive Covenants that may be placed on the United
States Real Property; (c) provide that Restrictive Covenants may be
eliminated as an encumbrance upon the United States Real Property in
accordance with their terms; and (d) provide that the Restrictive Covenants
are directly enforceable by GM against Purchaser and any subsequent user,
occupant or transferee of the United States Real Property.
7.5.3. Removal of Improvements.
If Purchaser demolishes or removes a building, structure or other
improvement which is located above an Environmental Condition for which GM
has some responsibility under Part I of this Article 7, Purchaser will, at
its sole cost, replace the building, structure or other improvement with a
barrier or other engineering control of equivalent protection or take other
appropriate action with regard to the Environmental Condition.
7.5.4. Cost of New Development.
If Purchaser develops any part of the United States Real Property and
such development requires the removal and disposal or other disposition of
soil, sediment or water that is within an Environmental Condition for which
GM has some responsibility under Part I of this Article 7, Purchaser agrees
to pay all costs associated with the removal and disposal or other
disposition of such soil, sediment or water, except as follows: subject to
the limitations set forth in Sections 7.10.1(f)(i)
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and (v), GM agrees to pay twenty percent (20%) of the increased cost of such
removal and disposal or other disposition resulting from the Environmental
Conditions. GM's obligation under this Section 7.5.4 shall only be triggered
if the increased cost of such removal and disposal or other disposition
exceeds $25,000 per development for any development that commences during
the first three (3) years after the Closing Date and $50,000 per development
for any development that commences between the third and fifth anniversary
of the Closing Date. For purposes of this Section 7.5.4, development shall
mean the placement of a new building, structure, equipment, or other capital
improvement on the United States Real Property. Purchaser agrees to promptly
notify GM in writing if Purchaser becomes aware of facts that may give rise
to a claim under this Section 7.5.4, and shall provide reasonable access to
GM to observe the activities giving rise to any such claim.
7.5.5. Notice Filing.
GM is entitled to file any notice or other instrument after providing
prior reasonable notice to Purchaser: (a) required by any current or future
Environmental Law for any remedial or compliance action by GM under Part I
of this Article 7, (b) necessary to implement any Restrictive Covenant
authorized to be imposed under Part I of this Article 7; or (c) necessary to
prohibit the demolition or removal of any Building, structure or other
improvement located on the United States Real Property and within an
Environmental Condition for which GM has some responsibility under Part I of
this Article 7. An instrument filed under this Section 7.5.5 (Notice Filing)
must permit Purchaser to remove the building, structure or other improvement
in accordance with Section 7.5.3 (Removal of Improvements).
7.6. Transition - Permits / Environmental Committee.
7.6.1. Environmental Permits.
As of the date of this Agreement, GM holds the environmental permits,
licenses, and authorizations listed in Schedule 7.6.1 (the "Environmental
Permits"). GM represents and warrants that as of the date of this Agreement,
the Environmental Permits constitute all such permits required by
Environmental Laws, except as disclosed on Schedule 7.8.7 and that no action
is pending to revoke any of the Environmental Permits. GM has received no
notice from a Governmental Authority that any reasonable basis exists to
deny, or require GM to modify substantially, any of the Environmental
Permits.
7.6.2. Transfer.
At Closing, GM, at its own cost, will transfer to Purchaser the
Environmental Permits listed on Schedule 7.6.1.A - permits which can be
transferred to Purchaser as a matter of law. Schedule 7.6.1.B lists
Environmental Permits which cannot be transferred to Purchaser as a matter
of law or which cannot be transferred before
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Closing. Schedule 7.6.1.C lists Environmental Permits that will not be
transferred to Purchaser by GM, and will remain with GM as permittee, or will be
closed by GM. GM will cooperate with Purchaser to transfer to Purchaser or to
obtain reissuance to Purchaser the Environmental Permits listed on Schedule
7.6.1.B. However, Purchaser will be solely responsible for obtaining or
effecting the transfer or reissuance to Purchaser of all Environmental Permits
listed on Schedule 7.6.1.B. GM and Purchaser will cooperate with one another to
obtain any consents, reviews or approvals necessary to transfer, reissue or
obtain the Environmental Permits.
7.6.3. Environmental Committee.
Purchaser and GM will establish an Environmental Committee to facilitate
environmental transition issues. The Environmental Committee will:
(a) consist of two representatives from each Party;
(b) meet from time to time as necessary under prevailing circumstances, or
at the request of either Party, at a mutually agreed location;
(c) coordinate the scheduling and implementation of remedial action plans
and compliance action plans under Section 7.3 (GM Remediation and Corrective
Action);
(d) coordinate and facilitate the transfer of Environmental Permits;
(e) coordinate and facilitate the separation or transfer of utility
services;
(f) coordinate the scheduling of transition issues involving utilities,
services, or wastes; and
(g) address other scheduling or coordination issues arising under this
Article 7.
Each Party will designate from time to time, by written notice to the other, a
contact person who will be primarily responsible for coordinating and managing
that Party's participation on the Environmental Committee. The Environmental
Committee does not have the authority to (a) act as a dispute resolution
committee, or (b) modify or amend the terms of this Agreement.
7.7. Waste Management.
7.7.1. Hazardous Waste Removal.
GM will properly dispose of any hazardous waste, as defined under RCRA or
State RCRA equivalent statutes generated by GM at the United States Real
Property
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and manifested as of the Closing Date. GM will remove the hazardous waste
containers from the United States Real Property before or shortly after the
Closing Date. Immediately following the Closing, Purchaser will remove and
properly dispose of (under its own generator identification number as set forth
in Section 7.7.2) any wastes, including but not limited to hazardous wastes,
resulting from Purchaser's Pre-Closing investigation(s) of the United States
Real Property and Acquired United States Assets.
7.7.2. Post-Closing Waste Management.
To the extent allowed by law, Purchaser will obtain new RCRA and TSCA
generator identification numbers for hazardous waste and PCBs. Except to the
extent the law requires otherwise, Purchaser will refrain from using any
generator identification numbers issued to GM for the United States Real
Property. Purchaser will be responsible for all wastes, including but not
limited to hazardous wastes, generated or accumulated by Purchaser after the
Closing at the United States Real Property. GM shall be responsible for any
wastes generated or accumulated by GM in the course of any remediation for which
GM is responsible under Part I of this Article 7.
7.7.3. No Arrangement for Disposal.
GM and Purchaser acknowledge that this sale and transfer of assets is in the
ordinary course of business and is not intended, nor will be deemed to be, an
arrangement for treatment, storage or disposal of any of the Acquired United
States Assets or any substances or materials contained on the United States Real
Property, and Purchaser will not assert any claim or cause of action against GM
based on these matters.
7.8. GM's Representations and Warranties.
In addition to GM's representations and warranties in Section 7.6.1
(Environmental Permits), GM represents and warrants that, as of the date of this
Agreement:
7.8.1 No Actions. Except as set forth on Schedule 7.8.1, there is no civil,
criminal or administrative action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or demand letter, existing or,
to GM's Knowledge, threatened, relating to the United States Business, the
Acquired United States Assets or the United States Real Property under any
Environmental Law which, as of the Closing Date, has not been cured,
resolved or paid, as the case may be.
7.8.2 No Notices. Except as set forth on Schedule 7.8.2, GM has not received
from any Governmental Authority any written request for information, notice
of claim, demand or notification that GM is or may be potentially
responsible for the investigation or cleanup of any Release or any
threatened Release relating to the
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United States Business, the Acquired United States Assets or the United
States Real Property.
7.8.3 No Listing. Except as set forth on Schedule 7.8.3, none of the United
States Real Property is listed or proposed for listing on the National
Priority List promulgated pursuant to CERCLA or any similar list of sites of
environmental contamination under state CERCLA equivalent statutes.
7.8.4 Except as set forth in Schedule 7.8.4, to GM's Knowledge, the United
States Real Property, the United States Business and the Acquired United
States Assets are not in violation of Environmental Laws.
7.8.5 Except as set forth in Schedule 7.8.5, to GM's Knowledge, no Hazardous
Materials have been used, stored, manufactured, treated, processed or
transported on or from the United States Real Property or Acquired United
States Assets except as reasonable to the conduct of the United States
Business and in compliance with Environmental Laws.
7.8.6 Except as set forth on Schedule 7.8.6, to GM's Knowledge, there has
been no disposal, release or threatened release of Hazardous Materials on or
from the United States Real Property or Acquired United States Assets,
except in compliance with Environmental Laws.
7.8.7 Except as set forth on Schedule 7.8.7, to GM's Knowledge, the
Environmental Permits are in full force and effect and GM is in compliance
with all terms thereof.
7.8.8 No Liens. Except as set forth on Schedule 7.8.8, no Lien has attached
to the Acquired United States Assets or the United States Real Property
under any Environmental Law which has not been removed or discharged of
record.
7.8.9 Except in the case of fraud or willful misconduct, Purchaser's sole
and exclusive remedy for breach of representations and warranties set forth
in this Section 7.8 shall be limited to the remedies set forth in Section
7.10.1 (GM's Defense and Indemnification Obligations).
7.9. Purchaser's Covenants, Obligations and Acknowledgments.
7.9.1. Purchaser Obligations in Connection with GM's Remedial Actions.
Purchaser will:
(a) reasonably cooperate with GM and its representatives to assist GM
in implementing remedial actions or compliance actions in accordance
with Section 7.3.10 (Implementation), including, without limitation,
assisting GM
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in obtaining any required governmental approvals, consents,
authorizations, waivers, or permits;
(b) consent to the imposition of Restrictive Covenants in order to
assist GM in obtaining Clean Closure of Environmental Conditions
identified in Section 7.3.1 (GM Remediation);
(c) take other actions that are reasonably necessary and appropriate to
allow GM to implement any remedial action or compliance action plan,
including, without limitation, restricting public access to the United
States Real Property and maintaining equipment or material installed by
GM in connection with a remedial action plan or compliance action plan
(actions required under this Section 7.9.1(c) shall not result in
expenses to Purchaser that would not be incurred in the ordinary course
of Purchaser's business);
(d) exercise due care so as not to adversely affect the installation,
operation, or maintenance of any action, measure or remedy existing or
taken at the United States Real Property before the Closing Date or
later under any remedial action or compliance action plan; and
(e) provide GM reasonable access to services, including potable water,
electric and telephone utilities, security or conveyance facilities, in
connection with GM's post-closing activities on the United States Real
Property. GM will pay the costs for the services it uses, or reimburse
the Purchaser for such costs upon receipt of a detailed invoice, as
appropriate under the circumstances.
7.9.2. Disclosure and Recordation.
Purchaser will record any information or notice under applicable state
Environmental Law disclosure requirements, provided, however, that Purchaser
will not record any information or notice concerning Environmental Conditions
caused or created by GM without GM's consent, unless otherwise required by law.
If such information or notice is required by law, Purchaser agrees to give GM
prior notice of such information or notice in the event that GM has any
remediation or indemnity obligation with respect to the Environmental
Conditions.
7.9.3. Purchaser's Additional Acknowledgments.
Purchaser acknowledges that except as set forth in Sections 7.6.1
(Environmental Permits) and 7.8 (GM's Representations and Warranties), (a) GM
has not made any representations or warranties to Purchaser with respect to
environmental matters; (b) Purchaser has examined and investigated the physical
nature and environmental condition of the United States Real Property as set
forth in the Purchaser's Environmental Assessments and Purchaser's Compliance
Audits at Schedules 7.2.2 B and 7.2.3 B; and (c) Purchaser has not discovered
any facts not disclosed to GM in writing which are inconsistent with or contrary
to GM's
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representations and warranties in Sections 7.6.1 (Environmental Permits) and 7.8
(GM's Representations and Warranties).
7.10. Defense and Indemnification Obligations.
7.10.1. GM's Defense and Indemnification Obligations.
Subject to Sections 7.3.11 (Clean Closure) and 7.10.3 (Apportionment)
GM will indemnify and defend the Purchaser's Indemnitees from and against any
and all Adverse Consequences to which they may be subjected as a result of a
claim based upon the following:
(a) any claim which pertains to an Environmental Condition or
Non-Compliance Matter for which GM has responsibility under Section 7.3
(GM Remediation and Correction Action), including off-site migration,
or which pertains to PCBs or ACM for which GM has responsibility under
Sections 7.3.4 or 7.3.5;
(b) any off-site treatment, transportation, storage or disposal of
Hazadous Materials generated and manifested by GM prior to closing or
generated by GM after closing in the course of implementing its
obligations under Part I of this Article 7.
(c) GM's acts or omissions during its access to the Acquired United
States Assets or the United States Real Property pursuant to Section
7.4.1 (GM Access), provided the claim is asserted within 24 months
after the cause of action arises;
(d) any claim by a lessor of property to GM (which lease interest is
now passing to Purchaser as a result of this Agreement) seeking
compliance with an Environmental Law or recovery of fines, penalties or
other statutory sanctions or impositions, if the claim (i) pertains to
violations of Environmental Laws by GM while it was in possession of
the property and that has not been remedied or eliminated, and (ii) is
based on the lessor's rights under its lease with GM;
(e) third party claims relating to breaches of GM's representations and
warranties made at Sections 7.6.1 and 7.8, provided (i) the claim is
asserted within five (5) years after the Closing Date, (ii) GM's
liability for any Claim is limited to the amount of Adverse
Consequences in excess of $25,000 for any Claim discovered during the
first three (3) years after the Closing Date and $50,000 for any Claim
discovered between the third and fifth anniversary of the Closing Date;
(iii) Purchaser discovered the breach during normal and routine
operations of the business; and (iv) GM's liability for such claims is
limited to an aggregate maximum of $5,000,000. Except in the case of
fraud
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or willful misconduct, this Section 7.10.1(e) contains the sole and
exclusive provisions relating to recovery for a breach of any
representation or warranty under Sections 7.6.1 and 7.8;
(f) claims for Environmental Conditions caused or created by GM not
identified under Section 7.3, provided (i) the claim is asserted within
five (5) years after the Closing Date; (ii) the claim is either a third
party claim or a claim relating to Environmental Conditions which
Purchaser is obligated to address under applicable Environmental Laws;
(iii) GM's liability for any Claim is limited to the amount of Adverse
Consequences in excess of $25,000 for any Claims discovered during the
first three (3) years after the Closing Date and $50,000 for any Claims
discovered between the third and fifth anniversary of the Closing Date;
(iv) Purchaser discovered the Environmental Condition during normal and
routine operations of the business; and (v) GM's liability for such
claims is limited to an aggregate maximum of $5,000,000. The $5,000,000
maximum hereunder shall apply in the aggregate to claims brought under
Sections 7.3.4, 7.5.4, 7.10.1(e), 7.10.1(f), 7.18.3, 7.22.1(e),
and 7.22.1(f). For purposes of Sections 7.10.1(e)(ii) and
(f)(iii), a "Claim" shall mean all claims discovered as set forth
herein during a three-month calendar quarter.
7.10.2. Purchaser's Defense and Indemnification Obligations.
Subject to Section 7.10.3 (Apportionment), Purchaser will indemnify,
defend and hold harmless GM Indemnitees from and against any and all Adverse
Consequences, to which they may be subjected as a result of a claim based upon:
(a) any Release, Non-Compliance Matter, or Environmental Condition
relating to the United States Real Property, the United States
Business, or the Acquired United States Assets caused or created by
Purchaser after the Closing Date or created or caused by Purchaser at
any time in the course of performing its pre-closing due diligence
activities;
(b) any Release, Non-Compliance Matter or Environmental Condition
existing before the Closing Date to the extent caused by, contributed
to, or aggravated by Purchaser;
(c) any offsite treatment, offsite transportation, offsite storage, or
offsite disposal of Hazardous Materials generated and manifested by
Purchaser;
(d) claims asserted with respect to any Environmental Condition after
it has been Clean Closed, subject to Section 7.3.12 (Clean Closure);
(e) the presence of PCBs or ACMs in or on the United States Real
Property except to the extent that GM has explicitly provided Purchaser
an indemnity under Section 7.10.1 (GM's Defense and Indemnification
Obligations);
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(f) any claims for Environmental Conditions created or caused by GM not
identified under Section 7.3, provided: (i) the Environmental Condition
is discovered more than five (5) years after the Closing Date; (ii) the
claim is either a third party claim or a claim relating to
Environmental Conditions which GM is obligated to remediate under
applicable Environmental Laws; (iii) Purchaser's liability for any
Claim is limited to the amount of Adverse Consequences in excess of
$25,000 between the fifth and eighth anniversary of the Closing Date
and $50,000 thereafter; and (iv) Purchaser's liability for such
claims, is limited to an aggregate maximum of $5,000,000. For purposes
of Section 7.10.2(f)(iii), a "Claim" shall mean all claims discovered
during a three-month calendar quarter.
7.10.3. Apportionment.
Purchaser will be responsible for any additional costs or liability
from the intermingling of a Release on the United States Real Property with an
Environmental Condition for which GM is responsible, but only if the
intermingling Release was caused or created by Purchaser, its agents, employees,
contractors, successors or assigns. Each party will be responsible for any
additional adverse consequences caused by its own post closing actions or
omissions which contribute to or aggravate any Environmental Condition or
Non-Compliance Matter for which the other Party is responsible under Sections
7.10.1 (GM's Defense and Indemnification Obligations) or 7.10.2 (Purchaser's
Defense and Indemnification Obligations). Liability will be determined by the
Parties as soon as reasonably practicable based upon each Party's relative
contribution to the Environmental Condition or Non-Compliance Matter.
PART II
The terms of Sections 7.10.4 through 7.13.5 shall apply to Article 7, Parts I
and III.
7.10.4. Indemnification Procedures.
Any claim for indemnity under this Article 7 shall be governed by the
indemnification procedures of Sections 10.2.2 and 10.4 of this Agreement.
7.10.5. Third-Party Claims.
Neither Party will initiate any action with any third party, including
any Governmental Authority or Regulatory Authority, which could reasonably be
expected to lead to a claim, against the other Party unless the action is a
disclosure in accordance with Section 7.11.3 (Disclosures). Upon a disclosure
under Section 7.11.3 (Disclosures), each Party is entitled to pursue any actions
reasonably necessary in connection with the claim. If either Party, in
performance of this Article 7, remediates or incurs costs or damages from a
condition for which a third party may be
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responsible or liable, the Parties will cooperate in pursuing any claim for
recovery of costs and damages against the responsible third party. Cooperation
includes but is not limited to a Party acting as the real party in interest and
assigning any rights or causes of action against any third party relating to a
claim or the proceeds of a claim to the other Party.
7.11. Confidentiality.
7.11.1. Environmental Confidentiality Agreement.
This Agreement supersedes the terms and conditions of the ECA except
for any accrued claims, including but not limited to, accrued claims against
third parties who have signed the ECA acknowledgment.
7.11.2. Confidentiality Obligations.
Except as provided in Section 7.11.3 (Disclosures), neither Party will
disclose to any third party the following:
(a) environmental information, including reports, provided under the
ECA or this Agreement;
(b) information concerning remediation or compliance actions under this
Article 7;
(c) information concerning investigations, inspections, or audits
performed under this Article 7;
7.11.3. Disclosures.
Subject to Section 7.11.4 (Notification) either Party may:
(a) comply with any Environmental Law or Applicable Environmental Law
that requires disclosure of information about the environmental
condition of the Combined Business or the Acquired Assets;
(b) respond to a Governmental Authority's or Regulatory Authority's
legally authorized request (written or oral) for information during an
on-site inspection of the Acquired Assets;
(c) mitigate a penalty if the penalty is not subject to any
indemnification under this Article 7; and
(d) disclose information that is: (i) necessary to operate the Combined
Business; (ii) necessary to perform its obligations or exercise its
rights under
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this Agreement; or (iii) necessary for a good faith attempt to obtain
debt or equity financing related to the Acquired Assets; provided that
before disclosure, the disclosing Party will require the third party to
sign an acknowledgment and covenant, enforceable by both GM and
Purchaser, prohibiting the third party from making any further
disclosure of the information to any other person or entity without the
other Party's written consent.
7.11.4. Notification.
Each Party will notify the other Party of any disclosure the disclosing
Party intends to make under Section 7.11.3 (Disclosures), but only to the extent
the disclosure relates to matters for which the other Party has, or may have,
primary responsibility under this Article 7. The Party receiving the
notification, will have a reasonable time, under the circumstances, to review
the intended disclosure. The disclosing Party will consider requests by the
other Party to modify the disclosure and will use reasonable efforts to
incorporate the other Party's comments in any disclosure and to avoid
unnecessarily disclosing information the other Party considers confidential. If
either Party received a demand, request or order for DISCLOSURE FROM a
Governmental Authority or a Regulatory Authority or a court for any
ENVIRONMENTAL information, the receiving party will (a) promptly provide the
other party with a copy of the demand, request or order and, (b) to the extent
allowed by law, afford the other Party with the opportunity to contest the
disclosure. Both Parties will reasonably cooperate with one another to contest
the demand, request or order.
7.11.5. Public Information.
This Section 7.11 (Confidentiality) will not apply to any information
that already has been disclosed and is in the public domain unless the
disclosure is in violation of this Article 7, the ECA, the Services Agreement,
or any acknowledgment and covenant required under Section 7.11.3 (Disclosures)
or under the ECA.
7.12. Dispute Resolution.
7.12.1 Dispute Resolution Procedures.
If a dispute arises between the parties hereto and that dispute cannot
be resolved through good faith discussions within a reasonable period of time,
either party hereto may notify the other party that the dispute is to be
submitted to arbitration. In the event that notice of submission of the dispute
to arbitration is provided by either party, the parties jointly shall select an
environmental expert reasonably qualified (including reasonably qualified as to
the customs and practices, Environmental Laws or Applicable Environmental Laws
of the jurisdiction where the dispute physically arises) to arbitrate such
dispute (the "Independent Expert"). The Independent Expert shall have the right
to obtain the assistance of legal counsel mutually acceptable to GM and
Purchaser in arbitrating the dispute, if the
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Independent Expert determines that such assistance is necessary. Notwithstanding
any other provision hereof, the parties hereto shall each bear its own costs and
one-half of the cost of the Independent Expert and its legal counsel, if any. If
the parties hereto cannot agree on an Independent Expert, they shall apply to
the American Arbitration Association for the appointment of an Independent
Expert. The Independent Expert shall establish an expedited procedure for
hearings and resolving the dispute. Unless the parties hereto agree otherwise,
the Independent Expert shall be required to render a decision resolving the
dispute, with a written opinion stating the reasons therefor, no more than 60
days after the Independent Expert is retained. The decision -of the Independent
Expert shall be final and binding and a court of competent jurisdiction may
enter judgment thereon. The dispute resolution procedures of this Section 7.12.1
shall constitute the exclusive remedy of the parties hereto with respect to any
disputes arising out of the environmental provisions in Article 7.
7.13. Miscellaneous.
7.13.1. Designation of Representatives.
Each Party will designate, by written notice to the other, a contact
person who will be primarily responsible for coordinating and managing that
Party's activities and responsibilities under this Article 7.
7.13.2. Exclusivity.
This Article 7 will! exclusively govern all matters related to current
and future Environmental Laws and current and future Applicable Environmental
Laws and the environmental condition and compliance status of the Combined
Business and the Acquired Assets. The rights and obligations provided in this
Article 7 contain the exclusive remedies of the Parties with respect to
environmental matters and will be in lieu of, and not in addition to, all other
remedies which may exist at law, in equity or under any other contract or
agreement and neither Party may assert any claim with respect to any
environmental matter against the other which is not authorized in this Article
7. The Parties hereby expressly waive any and all remedies or causes of action
with respect to environmental matters that each might otherwise have against the
other, but that are not authorized under this Article 7. All of the
representations, warranties, covenants, agreements and indemnities set forth in
this Agreement, or any other agreement between the Parties with respect to the
transactions contemplated by this Agreement, other than those specifically set
forth in this Article 7 will BE DEEMED to exclude all matters relating to the
environmental condition of the Acquired Assets or compliance of the Acquired
Assets and the Combined Business, with current and future Environmental Laws and
current and future Applicable Environmental Laws. The Parties reserve the right
to seek injunctive or other relief to the extent available under the law for any
breach of this Article 7 and any damage or cost recovery in respect of the
breach in any dispute resolution or other proceeding regarding any
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breach under Section 7.12 (Dispute Resolution) or otherwise will, except as
otherwise set forth in Section 7.12 (Dispute Resolution), be limited to the
Adverse Consequences caused by the breach.
7.13.3. Covenant Not to Sue.
Except for breaches of this Article 7 by the other Party, each Party
covenants not to sue the other Party for any environmental matter relating to
the Combined Business (a) for which the other Party has no defense or indemnity
obligation under this Article 7; or (b) for which the other Party's defense and
indemnification obligations under this Article 7 have expired under contract
(including this Agreement), current or future Environmental Laws, Applicable
Environmental Laws, other laws, or the common law or in equity. In addition,
except for matters reserved under Sections 7.3.12, 7.16.10 and 7.21.40) (Clean
Closure), Purchaser covenants not to sue GM for any environmental matter which
has been Clean Closed under Sections 7.3.12, 7.16.10 or 7.21.40) (Clean
Closure). If a claim has been asserted before the expiration of an applicable
time period, the other Party's obligation to defend and indemnify will continue
for that claim. Nothing in this Article 7, will affect the Parties' rights and
causes of action arising under Section 11.3 (Assignment).
7.13.4. Reporting.
Except as provided in Section 7.11 (Confidentiality), Purchaser will
submit all required reports to Governmental Authorities or Regulatory
Authorities for any environmental matter for which Purchaser has primary
responsibility under this Article 7. Except as provided in Section 7.11
(Confidentiality), GM will submit all required reports to Governmental
Authorities or Regulatory Authorities for environmental matters for which GM has
primary responsibility under this Article 7. The parties will cooperate
reasonably to prepare and submit the reports. Notwithstanding Section 7.11
(Confidentiality), if Purchaser is required by Environmental Law or Applicable
Environmental Law to submit a report dealing solely with the operation of the
Combined Business before the Closing Date, GM will, at its sole cost, prepare
and submit the report. Subject to Section 7.11 (Confidentiality), Purchaser
will, at its sole cost, be responsible for all reports required to operate the
Combined Business after the Closing Date. If current or future Environmental
Laws or Applicable Environmental Laws require reports which cover a time period
that includes some time both before and after the Closing Date, the Parties will
cooperate reasonably to prepare and submit a joint report, unless Environmental
Laws or Applicable Environmental Laws allow separate reporting for pre- and
post-Closing periods. Where a joint report is required or where both Parties are
required to submit reports, each Party will provide the other Party the
opportunity to review and comment under Section 7.11.4 (Notification).
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7.13.5. Notices.
Notices required under this Article 7 will be considered given when
provided in accordance with Section 11.2 to the persons designated below:
For GM:
Anthony P. Thrubis
Office of General Counsel
General Motors Corporation.
Mail Code 482-112-149
3044 West Grand Boulevard
Detroit, Michigan 48202
Marilyn J. Dedyne
General Motors Corporation
Mail Code 482-310-004
485 West Milwaukee
Detroit, Michigan 48202
For Purchaser:
Rebecca M. Spearot
Lear Corporation
21557 Telegraph Road
Southfield, Michigan 48034
PART III: Non-US Business. For the avoidance of doubt, Sections 7.14 to 7.22.3
of this Article 7 only apply to the Non-US Business.
7.14. Definitions.
The following terms, as used in Sections 7.10.4 to 7.22 shall have the following
meanings for the purposes of Part II and Part III of Article 7 only whether used
in the singular or plural (other terms are defined in the Sections to which they
pertain):
7.14.1 Acquired International Assets. "Acquired International Assets"
MEANS THE assets, rights and properties used or held for use primarily
or exclusively in the NonUS Business.
7.14.2 Adverse Consequences. "Adverse Consequences" means any
liabilities or compensatory damages, natural resource damages,
penalties, costs and fines, including reasonable attorney's fees, but
excluding: (a) consequential, special or incidental damages (such as
loss of profits, loss of business opportunity, loss of use. diminution
in value of any property, or business interruption); and (b) any
attorney's
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or consultant's fees or other costs incurred by an indemnitee for any
matter in which the indemnitor has in good faith accepted its defense
and indemnity obligations.
7.14.3 Applicable Environmental Laws. "Applicable Environmental Laws"
means the Environmental Laws of the jurisdiction in which the
Environmental Condition, Non-Compliance Matter, Release or off-site
disposal of Hazardous Matter physically arises.
7.14.4 Clean Closure. An Environmental Condition will be "Clean
Closed", when the party conducting clean closure can establish the
following:
(a) no Hazardous Material is present at a level which exceeds the
highest of: (1) natural background as determined in accordance
with sound and accepted scientific and engineering judgment and
practice; (2) the minimum legal requirements for remediation
standards established under Applicable Environmental Laws for
industrial property, including Restrictive Covenants as defined
herein (3) any obligation (to the extent more stringent than
Applicable Environmental Laws) contained in the lease to the
relevant JV Company or Sale Company if the facility or property in
question is leased to a JV Company or Sale Company or (4) the
level determined by a site-specific risk assessment allowed by and
consistent with Applicable Environmental Laws, ("Industrial
Remediation Standard"), or
(b) the closure is approved by the Regulatory Authority,
consistent with Applicable Environmental Laws.
7.14.5 Environmental Condition. "Environmental Condition" means the
presence of any Hazardous Material in the soils, surface water, outside
ambient air or ground water on the NonUS Properties or the Short
Presence Properties and/or any real property formerly but not at the
Closing Date owned by any Sale Company or JV Company, in concentrations
above the least stringent remediation standard acceptable under
Applicable Environmental Law for industrial property. This term shall
include an Environmental Condition resulting from a GM Non-Compliance
Matter or a Purchaser Non-Compliance Matter. The presence of any
Hazardous Material in or on any of the Non-US Properties or the Short
Presence Properties or in or on any of the Acquired International
Assets, or the buildings (including fixtures, appurtenances, or
equipment) located in or comprising any part of the Non-US Properties
or SHORT Presence Properties is not considered an Environmental
Condition. Where Applicable Environmental Laws allows choice between
use of remediation standards and recognized risk assessment
methodologies as set forth in Sections 7.16.3(e) and 7.21.4(c)(v)
(Remedial Action Factors) such recognized risk assessment methodologies
shall be used.
7.14.6 Environmental Laws . "Environmental Laws" means all applicable
federal, territorial, national, common law, provincial, constitutional,
state and local laws, ordinances, statute and subordinate legislation.
code, enactment, permit, consent,
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authorization, license, registration, filing, exemption, regulations,
final orders and final judgments, rule, decree, injunction, or other
requirement having the force and effect of law which are legally
enforceable concerning the introduction, emission, discharge or release
of any Hazardous Material into the air, soil or surface or ground
water; the transportation, storage, treatment or disposal of any
Hazardous Material; the remediation or investigation of contamination
of air, soil, or surface or ground water by any Hazardous Material; the
regulation of storage tanks; or otherwise relating to pollution or the
protection of human health and the environment. Environmental Laws
shall not include laws, ordinances, regulations, final orders or final
judgments, concerning primarily worker safety, and any similar
national, state or local law or regulation.
7.14.7 GM Indemnitees. "GM Indemnitees" means GM, the Asset Sellers,
the Securities Sellers, their successors and assigns, and their
respective officers, directors and employees.
7.14.8 GM Nor.-Compliance Matter. "GM Non-Compliance Matter" means a
violation of an Applicable Environmental Law by GM and/or the relevant
Asset Seller and/or the relevant Securities Seller and/or prior, to
Closing relevant Sale Company and/or prior to Closing relevant JV
Company in or about the Non-US Properties and/or the Short Presence
Properties. The Release (except failure to report a Release in
violation of Applicable Environmental Law) or presence of any Hazardous
Materials in or on the soils, land surface or substrata, SURFACE WATER,
ground water or any other environmental medium in, or in the vicinity
of the Non-US Properties or Short Presence Properties or in or on any
of the Acquired International Assets or the buildings (including
fixtures, appurtenances or equipment) located in or comprising any part
of the Non-US Properties or Short Presence Properties are not
considered Non-Compliance Matters.
7.14.9 Hazardous Material. "Hazardous Material" means any substance
regulated, defined, or designated as a "hazardous substance",
"extremely or imminently hazardous substance", "substance resulting in
environmental degradation", "hazardous material", "hazardous chemical",
"hazardous or toxic pollutant", "pollutant", "toxic substance",
"hazardous waste" or similar terms under the Applicable Environmental
Laws; and including, without limitation, petroleum and petroleum
products including crude oil and any fractions thereof; asbestos; and
natural gas, synthetic gas, AND ANY mixtures thereof.
7.14.10 Knowledge. "Knowledge" means the actual knowledge, as of the
date of this Agreement, of GM officers, directors. and the plant
managers and environmental supervisors set forth on Schedule 7.14. 10.
7.14.11 Non-US Business. "Non-US Business" means collectively the
Business conducted at the Non-US Properties and the Short Presence
Properties.
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7.14.12 Non-US Properties. "Non-US Properties" means the GM properties
which are pursuant to this Agreement transferred to the Purchaser or
relevant Asset Purchaser or Securities Purchaser and which are
described on Schedule 7.14.12.
7.14.13 Purchaser Non-Compliance Matte "Purchaser Non-Compliance
Matter" means a violation of an Applicable Environmental Law by the
Purchaser and/or the relevant Asset Purchaser and/or relevant
Securities Purchaser and/or post Closing the Sale Companies and/or post
Closing the JV Companies in or about the Non-US Properties or Short
Presence Properties. The Release (except failure to report a Release in
violation of Applicable Environmental Law) or presence of any Hazardous
Materials in or on the soils, land surface or substrata, surface water,
ground water or any other environmental ntediurn in, or in the vicinity
of, the Non-US Properties or Short Presence Properties or in or on any
building (including fixtures, appurtenances or equipment) located it.
or comprising any part of the Non-US Properties or Short Presence
Properties are not considered Non-Compliance Matters.
7.14.14 Purchaser's Indemnitees. "Purchaser's Indernriftees" means
Purchaser, the Asset Purchasers, the Securities Purchasers and/or post
Closing the JV Companies and/or post Closing the Sale Companies their
successors and assigns, and their respective officers, directors, and
employees.
7.14.15 Regulatory Authority. "Regulatory Authority" means any local,
state, federal, provincial or national agency or other such legal
person or entity, with jurisdiction in the relevant matter pursuant to
the Applicable Environmental Laws.
7.14.16 "Release" means any spill, emission, escape, leak, pumping,
injection, deposit, disposal, discharge, dispersal, leaching, movement
or migration into or through the environment of any Hazardous Material
including any exacerbation or aggravation thereof, and the movement or
migration, gradual or Otherwise, of any Hazardous Material through or
in the air, soil, surface water, ground water, or land surface or
subsurface strata or formation.
7.14.17 Restrictive Covenant. "Restrictive Covenant" means restrictive
covenants on real property to the extent allowed by Applicable
Environmental Laws and consistent with use and development of the real
property for industrial purposes as DEFINED herein. The term
"Restrictive Covenant" includes but is not limited to (i) an agreement
not to install potable wells, (ii) the maintenance of caps, impermeable
barriers or any existing building or other existing structure subject
to the review rights set forth in Sections 7.16.7, 7.16.8 and 7.21.4,
(iii) maintenance of adequate security, including fences or similar
structures to restrict access, and (iv) any other reasonable
restrictive covenant consistent with use and development of the
relevant property for industrial purposes that the Purchaser and GM
agree to negotiate in good faith. The terms of a Restrictive Covenant
shall include a mechanism to remove the restrictions under appropriate
circumstances. Any maintenance required under sub-sections (ii) or
(iii) hereunder shall not result in expenses to the property owner or
occupier that would not be incurred in the ordinary course of business.
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7.14.18 Short Presence Properties. "Short Presence Properties" means
collectively the GM properties or parts thereof which will be operated by the
Purchaser or a member of the Purchaser Group for a short time and then returned
to GM or the relevant member of the GM Group and which are described on Schedule
7.14.18.
7. 15. Non-US Environmental Assessments and Compliance Audits.
7.15.1. Environmental Confidentiality and Access Agreement.
As stated at Section 7.2.1, above GM and Purchaser entered into an
Environmental Confidentiality and Access Agreement dated March 4, 1998 (the
"ECA"), which is attached to this Agreement as Exhibit 7.2.1. Except as provided
in the ECA, the ECA will expire on the Closing Date.
7.15.2. Environmental Assessments.
GM's consultants conducted environmental assessments of certain parcels
and prepared final environmental assessment reports, (the "GM Non-US
Environmental Assessments"). GM has delivered final copies of all GM Non-US
Environmental Assessments to Purchaser. Schedule 7.15.2.A lists the GM Non-US
Environmental Assessments delivered to Purchaser. Under the ECA, Purchaser
conducted its own environmental assessments of certain parcels and prepared
final environmental assessment reports, including all related environmental
sampling and analytical data (the "Purchaser Non-US Environmental Assessments").
Purchaser has delivered final copies of all Purchaser Non-US Environmental
Assessments to GM. Schedule 7.15.2.B lists the Purchaser Non-US Environmental
Assessments delivered to GM. Neither party warrants the accuracy or completeness
of the environmental assessments.
7.15.3. Environmental Compliance Audits.
GM's consultants conducted an environmental compliance audit of certain
facilities and prepared final compliance audit reports (the "GM Non-US
Compliance Audit Reports"). GM has delivered final copies of all GM Non-US
Compliance Audit Reports to Purchaser. Schedule 7.15.3.A lists the GM Non-US
Compliance Audit Reports delivered to Purchaser. Under the ECA, Purchaser
conducted its own environmental compliance audit of certain facilities and
prepared final compliance audit reports (the "Purchaser Non-US Compliance
Audits"). Purchaser has delivered final copies of all Purchaser Non-US
Compliance Audits to GM. Schedule 7.15.3.B lists the Purchaser Non-US Compliance
Audit Reports delivered to GM. Neither party warrants the accuracy or
completeness of the environmental compliance audits.
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7.16. GM Remediation and Corrective Action - Non- US.
7.16.1. GM Remediation.
GM will address and/or remediate, in accordance with Section 7.22.3
(Apportionment), Environmental Conditions at the Non-US Properties created or
caused by GM or the relevant Sale Company and/or the relevant JV Company that
are identified in either the GM Non-US Environmental Assessments or the
Purchaser Non-US Environmental Assessments and which the parties have agreed to
list on Schedule 7.16. 1.
7.16.2. G Remedial Action Plans.
GM will develop and implement remedial action plans for the
Environmental Conditions under Section 7.16.1 (GM Remediation) only if remedial
action is: (a) required by any Applicable Environmental Law; (b) required by a
Regulatory Authority under a judicial or administrative order issued under an
Applicable Environmental Law; G required to prevent an actual or immediate
threat to human health or the environment at the Non-US Properties or
surrounding property; or (d) GM, in its sole discretion, decides to perform
remedial activity after conducting a risk-based evaluation. Except for
situations described in Section 7.22.3 (Apportionment) and 7.22.2 (Purchaser's
Defense and Indemnification Obligations Non-US), GM is solely responsible for
the costs of developing and implementing a remedial action plan under this
Section 7.16.2 (Remedial Action Plans).
7.16.3. Remedial Action Factors. GM will use the following factors to
develop remedial action plans:
(a) the requirements under then existing Applicable Environmental Laws;
(b) technical feasibility;
(c) cost of the proposed alternatives;
(d) ongoing industrial use; and
(e) risk based evaluations, human health and environmental risk based
factors, where applicable, including, but not limited to: (i)
reasonable and relevant exposure pathways consistent with continued
industrial use; (ii) typical simulated exposure distributions
consistent with the relevant exposure pathways; (iii) fate and
transport characteristics; (iv) local geology and hydrogeology; (v)
toxicity of the materials in question; (vi) Restrictive Covenants of
the Non-US Properties-, and (vii) other relevant factors employed in
assessing risks to human health and the environment under generally
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accepted risk assessment principles and methodologies in the relevant
legal jurisdiction.
7.16.4. G Compliance Action Plans.
GM will develop and implement compliance action plans with respect to
the Non-US Properties and the Short Presence Properties to correct
Non-Compliance Matters identified in either the GM Non-US Environmental
Compliance Audit or Purchaser's Non-US Environmental Compliance Audit and which
the parties have agreed to list on Schedule 7.16.4.
7.16.5. No Other Obligation.
Except as expressly described in this Article 7, neither GM nor any
Securities Seller nor any Asset Seller has any remediation, defense or
indemnification obligations.
7.16.6. Non-Interference.
In implementing any remedial action or compliance action required under
Part III of this Article 7, or in exercising any right of access, GM will not
unreasonably interfere with Purchaser's operation of the Non-US Business or use
of the Acquired International Assets, Short Presence Properties or the Non-US
Properties unless required by a Regulatory Authority.
7.1 5 .7. Purchaser's Review Period.
GM will provide Purchaser with a copy of any proposed remedial action
plan or compliance action plan at least thirty (30) days before the earlier of.
(a) the scheduled start date for activities under the plan; or (b) the date GM
is required, under current Applicable Environmental Law to submit the plan to a
Regulatory Authority. Purchaser is entitled to review or comment on any part of
the proposed plan. Purchaser will complete its review promptly, but in no event
more than fifteen (15) days after Purchaser's receipt of any plan, unless
required sooner by a Regulatory Authority.
7.16.8. Modification based on Purchaser's Input.
GM must modify or amend a remedial action plan or compliance action
plan (unless otherwise required by a Regulatory Authority) if the Purchaser
establishes that the planned action: (a) would unreasonably interfere or
unreasonably impair the ability of Purchaser to operate the Non-US Business or
use the Acquired International Assets, the Non-US Properties or the Short
Presence Properties; (b) does not meet the remediation requirements of Part III
of this Article .7. (c) will not remedy a NonCompliance Matter under Applicable
Environmental Laws; (d) would fail to correct an actual and immediate threat to
human health or the environment; or (e) can be
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modified so that it can be completed in a shorter period of time at a similar or
lower cost to GM. If the parties are unable to agree on the applicability of
these criteria, the dispute resolution provisions of Section 7.12 shall apply.
7.16.9. Implementation.
After review of proposed changes and comments, in accordance with this
Section 7.16 (GM Remediation and Corrective Action Non-US), GM will implement
the remedial action plans and compliance action plans: (a) in accordance with
the time schedule; (b) in a good, safe, workerlike manner; (c) without placing
any encumbrances, other than reasonable Restrictive Covenants required as part
of a remedial action or compliance action on the Acquired International Assets,
the NonUS Properties or the Short Presence Properties; and (d) in a manner that
does not unreasonably interfere with Purchaser's ability TO OPERATE THE NON-US
BUSINESS OR USE the Acquired International Assets, the Non-US Properties or the
Short Presence Properties unless otherwise required by a Regulatory Authority.
7.16.10. Clean Closure.
Once an Environmental Condition for which GM has responsibility under
Section 7.16.1 is Clean Closed, GM will have no further remediation, defense or
indemnification obligations to Purchaser unless such Closure is deemed
inadequate and/or reopened by a Regulatory Authority under Applicable
Environmental Laws. After GM completed a Clean Closure and subject to the
preceding sentence, Purchaser will be solely responsible and liable for the
condition Clean Closed to the extent provided in Part III of this Article 7 and
indemnify the GM Indemnities in accordance with Section 7.22.2 (Purchaser's
Defense and Indemnification Obligations).
7.16.1l. Purchaser's Obligations.
Purchaser will cooperate and will procure that the relevant Asset
Purchaser, and/or Securities Purchaser, and/or after Closing the relevant Sale
Company and/or JV Company will cooperate and assist GM in implementing remedial
action and compliance action plans in accordance with Section 7.21.1
(Purchaser's Obligations in Connection with GM's Remedial Actions - NonUS).
7 17. Access - Non-US.
7.17.1. GM Access.
After the Closing Date and upon reasonable notice to Purchaser, and
without undue disruption of Non-US Business, GM and its representatives may
enter the NonUS Properties and/or the Short Presence Properties to:
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(a) conduct remedial action or compliance action under Section 7.16 (GM
Remediation and Corrective Action - Non-US);
(b) perform its obligations or exercise its rights under Part III of
this Article 7;
(c) investigate or remediate an environmental condition on an adjacent
GM facility (except that, if. such investigation or remediation exceeds
twelve months, GM will make all reasonable efforts to minimize the
number of times access is needed, or obtain alternate access and shall
not unreasonably disrupt or interfere with Purchaser's use of the
Non-US Properties);
(d) install, maintain and use any environmental monitoring or
remediation equipment required by a remedial action or compliance
action plan or a Regulatory Authority;
(e) investigate or remediate a claim for indemnification, but only if
GM has ongoing remedial, defense or indemnity obligations to the
Purchasers' Indemnitees under Part III of this Article 7; and
(f) inspect the Acquired International Assets, the Non-US Properties
and the Short Presence Properties for Purchaser's performance of its
obligations under a Restrictive Covenant or Section 7.18.2 or 7.22.3.
7.17.2. Access Limitations.
GM's access under this Section 7.17 (Access) is subject to the
following: (a) Purchaser's reasonable requirements caused by daily operations or
emergency conditions; and (b) Purchaser's reasonable health, safety and
environmental requirements.
7.18. Use Restrictions - Non-US.
7.18.1. Transfers.
Except for any transfer by Purchaser or member of the Purchaser Group
to GM, or member of the GM Group, any agreement for transfer of any interest in
the Non-US Properties through sale, lease, lease assignment, license, sublease,
easement or otherwise will (a) incorporate the rights and obligations of
Purchaser and GM under Part III of this Article 7 and impose the obligations on
any subsequent user, occupant or transferee of the Non-US Properties; (b)
restrict use of the Non-US Properties to industrial (including warehouse) use
consistent with any Restrictive Covenants that may be placed on the relevant
Non-US Properties; (c) provide that Restrictive Covenants may be eliminated as
an encumbrance upon the relevant NonUS Properties in accordance with their
terms; and (d) provide that the restrictive
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covenants are directly enforceable by GM against Purchaser or the relevant
member of the Purchaser Group and any subsequent user, occupant or transferee of
the Non-US Properties.
7.18.2. Removal of Improvements.
If Purchaser or member of the Purchaser Group or any relevant Sale Company
or JV Company demolishes or removes a building, structure or other improvement
which is located above an Environmental Condition for which GM has some
responsibility under Part III of this Article 7, Purchaser will, at its sole
cost, replace the building, structure or other improvement with a barrier or
other engineering control of equivalent protection or take other appropriate
action with regard to the Environmental Condition.
7.18.3. Cost of New Development.
If Purchaser or member of the Purchaser Group or, after Closing any Sale
Company or JV Company develops any part of the Non-US Properties and such
development requires the removal and disposal or other disposition of soil,
sediment or water that is within an Environmental Condition for which GM has
some responsibility under Part III of this Article 7, Purchaser agrees to pay
all costs associated with the removal and disposal or other disposition of such
soil, sediment or water except as follows: subject to the limitations set forth
in Section 7.22.1(f)(i) and (v), GM agrees to pay twenty percent (20%) of the
increased cost of such removal and disposal or other disposition resulting from
the Environmental Conditions. GMs obligation under this Section 7.18.3 shall
only be triggered if the increased cost of such removal and disposal or other
disposition exceeds $25,000 per development for any development that commences
during the first three (3) years after the Closing Date and $50,000 per
development for any development that commences between the third and fifth
anniversary of the Closing Date. For purposes of this Section 7.18.3,
development shall mean the placement of a new building, structure, equipment or
other capital improvement on the Non-US Properties. Purchaser agrees to promptly
notify GM in writing if Purchaser becomes aware of facts that may give rise to a
claim under this Section 7.18.3 and shall provide reasonable access to GM to
observe the activities giving rise to any such claim.
7.18.4. Notice Filing.
GM or any member of the GM Group is entitled to file any notice or other
instrument after providing prior reasonable notice to Purchaser: (a) required by
any current or future Applicable Environmental Law for any remedial or
compliance action by GM under Part III of this Article 7, (b) necessary to
implement any Restrictive Covenant authorized to be imposed under Part III of
this Article 7; or (c) necessary to prohibit the demolition or removal of any
building, structure or other improvement located on the relevant Non-US
Properties and within an Environmental Condition for which GM has some
responsibility under Part III of this Article 7. An
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instrument filed under this Section 7.18.4 (Notice Filing) must permit Purchaser
to remove the building, structure or other improvement in accordance with
Section 7.18.2 (Removal of Improvements).
7.19. Transition - Non-US Permits - Environmental Committee and Waste
Management.
7.19.1. Non-US Environmental Permits.
As of the date of this Agreement in respect of the Non-US Properties and
the Short Presence Properties, GM or the relevant Sale Company or JV Company or
Asset Seller holds or has the benefit of all permits, licenses, and
authorizations listed in Schedule 7.19.1 (the "Non-US Environmental Permits").
GM represents and warrants that as of the date of this Agreement, the Non-US
Environmental Permits constitute all such permits required by Applicable
Environmental Laws, except as disclosed on Schedule 7.20.7 and that no action is
pending to revoke any of the Non-US Environmental Permits. GM has received no
notice from a Regulatory Authority that any reasonable basis exists to deny, or
require GM or the relevant Sale Company or JV Company or Asset Seller to modify
substantially any of the Non-US Environmental Permits.
7.19.2. Non-US IS Environmental Permits - Transition.
Within 21 days of Closing Purchaser, or the relevant Asset Purchaser, at its own
cost, will transfer or cause to be transferred to Purchaser or relevant Asset
Purchaser the Non-US Environmental Permits listed on Schedule 7.19.2. On change
of name of the Sale Companies and JV Companies post-Closing, the Sale Companies
and JV Companies may need to have reissued to them their Non-US Environmental
Permits in the new names of the Sale Companies and JV companies. GM will
cooperate with Purchaser to obtain such reissuance of the Non-US Environmental
Permits. However, Purchaser or the relevant Sale Companies and JV Companies will
be solely responsible for obtaining or effecting such reissuance of their Non-US
Environmental Permits. To the extent lawful under Applicable Environmental Laws,
GM or the relevant member of the GM Group will permit the Purchaser or the
relevant Asset Purchaser or relevant member of the Purchaser Group to operate at
the Short Presence Properties with the benefit of GM's or the relevant GM Group
member's environmental permits applicable to operations at the Short Presence
Properties. The costs of such operations under such environmental permits shall
be borne between the parties as set out in the Schedules to the Transition
Services Agreement. However to the extent that the Purchaser or relevant member
of the Purchaser Group cannot lawfully operate at any Short Presence Property
under an environmental permit of GM or relevant member of the GM Group,
Purchaser will be solely responsible for obtaining any and all environmental
permits required under Applicable Environmental Laws for its operations or those
of any member of the Purchaser Group conducted at the Short Presence Properties.
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7.19.3. Environmental Committee.
Purchaser and GM agree that the Environmental Committee established under
Section 7.6.3 will also facilitate environmental transition issues in relation
to the Non-US Properties and the Short Presence Properties.
7.19.4. Hazardous Waste Removal.
GM will properly dispose of any hazardous waste, as defined under
Applicable Environmental Law generated by GM or the relevant Asset Seller, Sale
Company or JV Company at any of the Non-US Properties and Short Presence
Properties and manifested as of the Closing Date. GM will remove the hazarous
waste containers from any of the Non-US Properties or the Short Presence
Properties before or shortly after the Closing Date. Immediately following the
Closing, Purchaser will remove and properly dispose of any wastes, including but
not limited to hazardous wastes, resulting from Purchaser's Pre-Closing
investigation(s) of any of the Non-US Properties, Short Presence Properties or
Acquired International Assets.
7.19.5. Post-Closing Waste Management.
Purchaser will be responsible for all wastes, including but not limited to
hazardous wastes, generated or accumulated by Purchaser or the relevant Asset
Purchaser or Securities Purchaser, Sale Company or JV Company or any OTHER
person acting as their agent after the Closing. GM shall be responsible for any
wastes generated or accumulated by GM in the course of any remediation for which
GM is responsible under Part III of this Article 7.
7.19.6. No Arrangement for Disposal
GM and Purchaser acknowledge that the transactions contemplated by this
Agreement constitute a sale and transfer of assets and shares in the ordinary
course of business and are not intended, nor will be deemed to be, an
arrangement for treatment, storage or disposal of any of the Acquired
International Assets or any substances or materials contained on the Non-US
Properties or the Short Presence Properties and Purchaser will not assert and
will procure that post-Closing the relevant Asset Purchaser and Securities
Purchaser will not assert any claim or cause of action against GM, the Asset
Sellers or Securities Sellers based on these matters.
7.20. GM's Representations and Warranties - Non-US.
In addition to GM's representations and warranties in Section 7.19.1
(Environmental Permits), GM represents and warrants that, as of the date of this
Agreement:
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7.20.1 No Actions. Except as set forth on Schedule 7.20. 1, there is no civil,
criminal or administrative action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or demand letter, existing or, to
GM's Knowledge, threatened, relating to the Non-US Business, Non-US Properties,
Short Presence Properties, or Acquired International Assets under ANY APPLICABLE
ENVIRONMENTAL Law which, as of the Closing Date, has not been cured, resolved or
paid, as the case may be.
7.20.2 No Notices. Except as set forth on Schedule 7.20.2, GM has not received
from any Regulatory Authority any written request for information, notice of
claim, demand or notification that GM is or may be potentially responsible for
the investigation or cleanup of any Release or any threatened Release relating
to the Non-US Business, Non-US Properties, Short Presence Properties, or
Acquired International Assets.
7.20.3 Except as set forth in Schedule 7.20.3, to GM's Knowledge, the Non-US
Properties, Short Presence Properties and Acquired International Assets are not
in violation of Applicable Environmental Laws.
7.20.4 Except as set forth in Schedule 7.20.4, to GM's Knowledge, no Hazardous
Materials have been used, stored, manufactured, treated, processed or
transported on or from the NON-US Properties, Short Presence Properties, or
Acquired International Assets except as reasonable to the conduct of the Non-US
Business and in compliance with Applicable Environmental Laws.
7.20.5 Except as set forth on Schedule 7.20.5, to GM's Knowledge, there has been
no disposal, release or threatened release of Hazardous Materials on or from the
Non-US Properties, Short Presence Properties, or Acquired International Assets
except in compliance with Applicable Environmental Laws.
7.20.6 No Liens. Except as set forth on Schedule 7.20.6, no Lien has attached to
the Non-US Properties, Short Presence Properties, or Acquired International
Assets under any Applicable Environmental Law which has not been removed or
discharged of record.
7.20.7 Except as set forth on Schedule 7.20.7 to GM's Knowledge, the Non-US
Environmental Permits are in full force and effect and GM is in compliance with
all material terms thereof.
7.20.8 Except in the case of fraud or willful misconduct, Purchaser's sole and
exclusive remedy for breach of representations and warranties set forth in this
Section 7.20 shall be limited to the remedies set forth in Section 7.22. 1.
7.20.9 The representations and warranties in Sections 7.20.1 through 7.20.6
shall also apply to any real property formerly but not at the Closing Date owned
by any Sale Company or JV Company except that such representations and
warranties shall be
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deemed made as of the time such real property was previously transferred by the
Sale Company or the JV Company.
7. 21. Purchaser's Covenants, Obligations and Acknowledgments - Non-US.
7.21.1. Purchaser Obligations in Connection with GM's Remedial Actions-
Non-US.
Purchaser will or will procure that the relevant Asset Purchaser or
Securities Purchaser or post-Closing the relevant Sale Company or JV
Company will:
(a) reasonably cooperate with GM and its representatives to assist GM in
implementing remedial actions or compliance actions in accordance with
Section 7.16.10 (Implementation), including, without limitation,
assisting GM in obtaining or filing any required regulatory approvals,
licenses, consents, authorizations, waivers, permits, registrations,
filings, exemptions or the like;
(b) consent to the imposition of Restrictive Covenants in order to assist
GM in obtaining Clean Closure of Environmental Conditions identified in
Section 7.16.1 (GM Remediation);
(c) take other actions that are reasonably necessary and appropriate to
allow GM to implement any remedial action or compliance action plan,
including, without limitation, restricting public access and maintaining
equipment or material installed by GM in connection with a remedial
action plan or compliance action plan (action required under this Section
7.21.1(c) shall not result in expenses to Purchaser or the Securities
Purchaser or the relevant Asset Purchaser or post-Closing the relevant
Sale Company or JV Company that would not be incurred in the ordinary
course of its business);
(d) exercise due care so as not to adversely affect the installation,
operation, or maintenance of any action, measure or remedy existing or
taken before the Closing Date or later under any remedial action or
compliance action plan; and
(e) provide GM reasonable access to services, including potable water,
electric and telephone utilities, security or conveyance facilities, in
connection with GM's post-Closing activities. GM will pay the costs for
the services it uses, or reimburse the Purchaser or the relevant Asset
Purchaser or relevant Securities Purchaser or post-Closing the relevant
Sale Company or relevant JV Company for such costs upon receipt of a
detailed invoice, as appropriate under the circumstances.
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7.21.2. Disclosure and Recordation.
Purchaser or the relevant Asset Purchaser, or relevant Securities
Purchaser or post-Closing the relevant Sale Company or JV Company will record
any information or a notice under Applicable Environmental Law disclosure
requirements, provided, however, that Purchaser or the relevant Asset Purchaser
or relevant Securities Purchaser or post-Closing the relevant Sale Company or JV
Company will not record any information or notice concerning Environmental
Conditions at any of the GM facilities outside the US (including the Non-US
Properties and the Short Presence Properties) caused or created by GM or any
Asset Seller or Security Seller or Sale Company or JV Company without GM's
consent, unless otherwise required by law. If such information or notice is
required by law, Purchaser agrees to give GM prior notice of such information or
notice in the event that GM has any remediation or indemnity obligation with
respect to the Environmental Conditions.
7.21.3. Purchaser's Additional Acknowledgments.
Purchaser acknowledges that except as set forth in Sections 7.19.1 (Non-US
Environmental Permits) and 7.20 (GM's Representations and Warranties - Non-US),
(a) GM has not made any representations or warranties to Purchaser with respect
to environmental matters: (b) Purchaser has examined and investigated the
physical nature and environmental condition of certain parcels and facilities
as set forth in the Non-US Environmental Assessments and Compliance Audits at
Schedules 7.15.2B and 7.15.3B; and (c) Purchaser has not discovered any facts
not disclosed to GM in writing which are inconsistent with or contrary to GM's
representations and warranties in Sections 7.19.1 (Non-US Environmental Permits)
and 7.20 (GM's Representations and Warranties - Non-US).
7.21.4. Purchaser Remediation and Corrective Action - Non-US.
(a) Purchaser Remediation. Purchaser will address and/or remediate, in
accordance with Section 7.22.2 (Apportionment), Environmental Conditions
created or caused by the Purchaser or any Asset Purchaser or any member of
the Purchaser Group or any agent or contractor of the Purchaser or of the
Purchaser Group during their period of occupancy or presence on any of the
Short Presence Properties;
(b) Purchaser Remedial Action Plans. Purchaser will develop and implement
remedial action plans for the Environmental Conditions under Section
7.21.4(a) (Purchaser Remediation) only if remedial action is: (i) required
by any Applicable Environmental Law; (ii) required by a Regulatory
Authority under a judicial or administrative order issued under an
Applicable Environmental Law; (iii) required to prevent an actual or
immediate threat to human health or the environment at the Short Presence
Properties or property surrounding the Short Presence Properties or (iv)
Purchaser, in its sole discretion, decides to perform remedial activity
after conducting a risk-based
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evaluation. Except for situations described in Section 7.22.3 (Apportionment)
and 7.22.1 (GM's Defense and Indemnification Obligations- Non-US), Purchaser is
solely responsible for the costs of addressing, developing and implementing a
remedial action Plan under this Section 7.21.4(b) (Remedial Action Plans);
(c) Remedial Action Factors. Purchaser will use the following factors to
develop remedial action Plans:
(i) the requirements under then existing Applicable Environmental Laws;
(ii) technical feasibility;
(iii) cost of the proposed alternatives;
(iv) ongoing industrial use; and
(v) risk based evaluations, human health and environmental risk based
factors, where applicable, including, but not limited to: (i) reasonable
and relevant exposure pathways consistent with continued industrial use;
(ii) typical simulated exposure distributions consistent with the relevant
exposure pathways; (iii) fate and transport characteristics; (iv) local
geology and hydrogeology; (v) toxicity of the materials in question; and
(vi) other relevant factors employed in assessing risks to human health
and the environment under generally accepted risk assessment principles
and methodologies in the relevant legal jurisdiction.
(d) Purchaser Compliance Action Plans - Non-US. Purchaser will develop and
implement compliance action plans with respect to the Short Presence Properties,
to correct Non-Compliance Matters created or caused by Purchaser or any Asset
Purchaser or any member of the Purchaser Group or any agent or contractor of the
Purchaser Group after the Closing Date on any Short Presence Property;
(e) No Other Obligation. Except as expressly described in this Article 7,
neither Purchaser nor the relevant Asset Purchaser nor the relevant Securities
Purchaser nor any member of the Purchaser Group have any remediation, defense or
indemnification obligations.
(f) Non-Interference. In developing, addressing or implementing any remedial
action or compliance action required under this Section 7.21.4, or in exercising
any right of access, neither the Purchaser nor any Asset Purchaser nor any
member of the Purchaser Group nor any agent or contractor of the Purchaser Group
will unreasonably interfere with GM's use of the Short Presence Properties
unless required by a Regulatory Authority;
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(g) GM's Review Period. Purchaser will provide GM with a copy of any proposed
remedial action plan or compliance action plan at least thirty (30) days before
the earlier of: (i) the scheduled start date for activities under the plan; or
(ii) the date Purchaser or relevant member of the Purchaser Group is required,
under current Applicable Environmental Law to submit the plan to a Regulatory
Authority. GM is entitled to review or comment on any part of the proposed plan.
GM will complete its review promptly, but in no event more than fifteen (15)
days after GM's receipt of any plan, unless required sooner by a Regulatory
Authority;
(h) Modification Based on GM's Input. Purchaser must modify or amend a
remedial action plan or compliance action plan compiled pursuant to Section
7.21.4(h) (unless otherwise required by a Regulatory Authority) if GM
establishes that the planned action: (i) would unreasonably interfere or
unreasonably impair the ability of GM to operate the Short Presence Properties;
(ii) does not meet the remediation requirements of Part III of this Article 7;
(iii) will not remedy a Non-Compliance Matter under current Applicable
Environmental Laws; (iv) would fail to correct an actual and immediate threat to
human health or the environment; or (v) can be modified so that it can be
completed in a shorter period of time at a similar or lower cost to Purchaser.
If the parties are unable to agree on the applicability of these criteria, the
dispute resolution provisions of Section 7.12 shall apply;
(i) Implementation. After review of proposed changes and comments, in accordance
with this Section 7.21.4 (Purchaser Remediation and Corrective Action - Non-US),
Purchaser will implement the remedial action plans and compliance action plans:
(i) in accordance with the time schedule; (ii) in a good, safe, workerlike
manner; (iii) without placing any encumbrances other than reasonable Restrictive
Covenants required as part of a remedial action or compliance action on the
Short Presence Properties; and (iv) in a manner that does not unreasonably
interfere with GM's ability to operate the Short Presence Properties unless
otherwise required by a Regulatory Authority;
(j) Clean Closure. Once an Environmental Condition for which the Purchaser has
responsibility under Section 7.21.4(a) is Clean Closed, Purchaser will have no
further, remediation, defense or indemnification obligations to GM unless such
Closure is deemed inadequate and/or reopened by a Regulatory Authority under the
then existing Applicable Environmental Laws. After completion of a Clean
Closure, and subject to the preceding sentence, GM will be solely responsible
and liable for the condition Clean Closed to the extent provided in Part III of
this Article 7, and GM will defend and indemnify the Purchaser's Indemnitees in
accordance with Section 7.22.1 (GM's Defense and Indemnification Obligations);
(k) GM's Covenants, Obligations and Acknowledgements - Non-US. GM will, and
will procure that any relevant member of the GM Group will:
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(i) reasonably cooperate with Purchaser and its representatives to assist
Purchaser in implementing remedial actions or compliance actions in
accordance with Section 7.21.40(j) (Implementation), including, without
limitation, assisting Purchaser in obtaining or filing any required
regulatory approvals, licenses, consents, authorizations, waivers,
permits, registrations, filings, exemptions or the like;
(ii) consent to the imposition of Restrictive Covenants in order to assist
Purchaser in obtaining Clean Closure of any Environmental Conditions for
which Purchaser is responsible;
(iii) take other actions that are reasonably necessary and appropriate to
allow Purchaser to implement any remedial action or compliance action
plan, including, without limitation, restricting public access and
maintaining equipment or material installed by Purchaser and/or GM as the
case may be in connection with a remedial action plan or compliance action
plan;
(iv) exercise due care so as not to adversely affect the installation,
operation, or maintenance of any action, measure or remedy existing or
taken before the Closing Date or later under any remedial action or
compliance action plan; and
(v) provide Purchaser access to services, including potable water,
electric and telephone utilities, security or conveyance facilities, in
connection with Purchaser's remedial action or compliance action
activities. Purchaser will pay the costs for the services it uses, or
reimburse GM or the relevant member of the GM Group for such costs upon
receipt of a detailed invoice, as appropriate under the circumstances.
(l) Purchaser Access. After cessation or expiry of occupancy or presence by
Purchaser or the relevant Asset Purchaser or member of the Purchaser Group of
any Short Presence Property and upon reasonable notice to GM, and without undue
disruption, Purchaser and its representatives may enter the relevant Short
Presence Property to:
(i) conduct remedial action or compliance action under Section 7.21.4
(Purchaser Remediation and Corrective Action - Non-US);
(ii) perform its obligations or exercise its rights under Part III of this
Article 7;
(iii) investigate or remediate an environmental condition on an adjacent
GM facility (except that, if such investigation or remediation exceeds
twelve months, Purchaser will make all reasonable efforts to minimize the
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number of times access is needed or obtain alternative access, and shall
not unreasonably disrupt or interfere with GM's use or any use by any
member of the GM Group of the property;
(iv) install, maintain and use any environmental monitoring or
remediation equipment required by a remedial action or compliance action
plan or a Regulatory Authority;
(v) investigate or remediate a claim for indemnification, but only if
Purchaser has ongoing remedial, defense or indemnity obligations to the
GM Indemnitees under Part III of this Article 7;
(vi) inspect the Short Presence Properties for GM's performance of its
obligations under a Restrictive Covenant.
(m) Access Limitations. Purchaser's access under Section 7.21.4(m)
(Access) is subject to the following: (i) GM's or any member of GM Group's
reasonable requirements caused by daily operations or emergency
conditions; and (ii) GM's or any member of GM Group's reasonable health,
safety and environmental requirements.
7.22. Defense and Indemnification Obligations - Non-US.
7.22.1. GM's Defense and Indemnification Obligations.
Subject to Sections 7.16.10 (Clean Closure), 7.22.1(g) (JV Company Adverse
Consequences) and 7.22.3 (Apportionment) GM will indemnify and defend the
Purchaser for and on behalf of the Purchaser's Indemnitees from and against any
and all Adverse Consequences to which they may be subjected as a result of a
claim based upon the following:
(a) any claim which pertains to an Environmental Condition or
Non-Compliance Matter on any of the Non-US Properties or Short Presence
Properties for which GM has responsibility under Section 7.16 (GM
Remediation and Correction Action) including offsite migration;
(b) any off-site treatment, transportation, storage or disposal of
Hazardous Material generated by and manifested to GM or any Sale Company
or any JV Company prior to closing or generated by GM after closing in the
course of implementing its obligations under Part III of Article 7;
(c) GM's acts or omissions during its access to the Acquired International
Assets; the Non-US Properties or the Short Presence Properties pursuant to
Section 7.17.1 (GM Access), provided the claim is asserted within 24
months after the cause of action arises;
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(d) any claim by a lessor of any of the Non-US Properties (which lease
interest is now passing to Purchaser as a result of this Agreement)
seeking compliance with Applicable Environmental Law or recovery of fines,
penalties or other statutory sanctions or impositions, if the claim (i)
pertains to an Environmental Condition or Non-Compliance Matter created or
caused prior to closing by GM or any relevant Sale Company or JV Company
while it was in possession of the relevant Non-US Properties for which GM
has responsibility under Section 7.16 and that has not been remedied or
eliminated, (ii) is based on the lessor's rights under its lease with GM
or the Sale Company or the JV Company as may be the case;
(e) third party claims relating to breaches of GM's representations and
warranties made at Section 7.20, provided (i) the claim is asserted within
five years after the Closing Date, (ii) GM's liability for any such Claim
is limited to the amount of Adverse Consequences in excess of $25,000 for
any Claim discovered during the first three (3) years after the Closing
Date and $50,000 for any Claim discovered between the third and fifth
anniversary of the Closing Date; (iii) Purchaser discovered the breach
during normal and routine operations of the Non-US Business; and (iv) GM's
liability for such claims together with any and all claims under Parts I
and III of this Article 7 is limited to an aggregate maximum of
$5,000,000. Except in the case of fraud or willful misconduct this Section
7.22.1(e) contains the sole and exclusive provisions relating to recovery
for a breach of any representation or warranty under Section 7.20;
(f) claims for Environmental Conditions caused or created by GM or its
agents or contractors not identified under Section 7.16, including
Environment Conditions at any real property formerly but not at the
Closing Date owned by any Sale Company or JV Company provided (i) the
claim is asserted within five years after the Closing Date; (ii) the claim
is either a third party claim or a claim relating to Environmental
Conditions which Purchaser is obligated to address under Applicable
Environmental Laws; (iii) GM's liability for any Claim is limited to the
amount of Adverse Consequences in excess of $25,000 for any Claims
discovered during the first three (3) years after the Closing Date and
$50,000 for any Claims discovered between the third and fifth anniversary
of the Closing Date; (iv) Purchaser discovered the Environmental Condition
during normal and routine operations of the Non-US Business; and (v) GM's
liability for such claims together with any and all claims under Parts I
and III of this Article 7 is limited to an aggregate maximum of
$5,000,000. The $5,000,000 maximum shall apply in the aggregate to claims
brought under both Parts I and III of this Article 7. For purposes of
Subsections 7.22.1 (e)(ii) and 7.22.1 (f)(iii), a "Claim" shall mean all
claims discovered as set forth herein during a three-month calendar
quarter;
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(g) JV Company Adverse Consequences. With respect to any Adverse
Consequences of a JV Company suffered by a Purchaser's Indemnitee (but not
Adverse Consequences) of a Purchaser's Indemnitee owning such a JV
Company), GM's liability shall be limited to that percentage of any such
Adverse Consequences that the ownership interest of the relevant
Securities Seller at Closing constituted as a percentage of the total
issued share capital of such JV Company;
(h) Claims asserted with respect to any Environmental Condition at the
Short Presence Properties after it has been Clean Closed, subject to
Section 7.16.10 (Clean Closure).
7.22.2. Purchaser's Defense and Indemnification Obligations - Non-US.
Subject to Section 7.21.4 (j) (Clean Closure), 7.22.3 (Apportionment),
Purchaser will indemnify, defend and hold harmless GM for and on behalf of the
GM Indemnitees from and against any and all Adverse Consequences to which they
may be subjected as a result of a claim based upon:
(a) any Release, Non-Compliance Matter, or Environmental Condition
relating to the Non-US Properties, the Short Presence Properties, the
Acquired International Assets or the NON-US Business caused or created by
Purchaser any member of the Purchaser Group or any Asset Purchaser or any
Sale Company or any Securities Purchaser or any JV Company or any agent or
contractor thereof after Closing or created or caused by Purchaser or any
Asset Purchaser or any Securities Purchaser any time in the course of
performing its pre-closing due diligence activities;
(b) any Release, Non-Compliance Matter or Environmental Condition at the
Non-US Properties existing before the Closing Date to the extent caused
by, contributed to, or aggravated by Purchaser or any Asset Purchaser or
any Securities Purchaser or any member of the Purchaser Group;
(c) any offsite treatment, offsite transportation, offsite storage or
offsite disposal of Hazardous Materials generated or manifested by
Purchaser or any Sale Company or any JV Company or any Securities
Purchaser post Closing;
(d) any liability under Applicable Environmental Laws to any third party
(including any employee of GM or of any Asset Seller) in respect of any
Release, Non-Compliance Matter or Environment Condition relating to the
Short Presence Properties arising from Purchaser's or Asset Purchaser's or
member of the Purchaser Group's or agent or contractor of the Purchaser
Group's occupation of, or acts or omissions at the Short Presence
Properties provided the claim by the third party is made within 5 years of
the Purchaser's or any member of the Purchaser's Group's or Asset
Purchaser's vacation of, or act or omission by the Purchaser or member of
the Purchaser's
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Group or Asset Purchaser or agent or contractor of the Purchaser Group
in or about, the Short Presence Properties to which claim relates;
(e) any claims for Environmental Conditions caused by GM not identified
under Section 7.22.1, provided: (i) the Environmental Condition is
discovered more than five years after the Closing Date; (ii) the claim is
either a third party claim or a claim relating to Environmental Conditions
which GM is obligated to remediate under Applicable Environmental Laws;
(iii) Purchaser's liability for any Claim is limited to the amount of
Adverse Consequences in excess of $25,000 between the fifth and eighth
anniversary of the Closing Date and $50,000 thereafter; and (iv)
Purchaser's liability for such claims together with any and all claims
under Parts I and III of this Article 7 is limited to an aggregate maximum
of $5 million. For purposes of the Subsection 7.22.2(e)(iii), a "Claim"
shall mean all claims discovered during a three-month calendar quarter;
(f) Claims asserted with respect to any Environmental Condition at the Non
US Properties after it has been Clean Closed, subject to Section 7.21.4(j)
(Clean Closure).
(g) Purchaser's acts or omissions during its access to the Short Presence
Properties pursuant to Section 7.21.4(l) (Purchaser's Access) provided the
claim is asserted within 24 months after the cause of action arises.
7.22.3. Apportionment.
Purchaser will be responsible for any additional costs or liability from
the intermingling of a Release post-Closing on the Non-US Properties with an
Environmental Condition for which GM is responsible under Section 7.16, and GM
shall be responsible for any additional costs or liability from the
intermingling of an Environmental Condition existing at the Short Presence
Properties prior to the Closing Date or a Release at the Short Presence
Properties following the cessation of the Purchaser's or relevant member of the
Purchaser's Group's occupation or presence of the relevant Short Presence
Property with an Environmental Condition for which the Purchaser is responsible
under Section 7.21.4 but only if the intermingling of such Environment Condition
or Release was caused or created (i) in the case of the Purchaser's
responsibility hereunder by Purchaser, any member or agent or contractor of the
Purchaser's Group, any Asset Purchaser or any Securities Purchaser or after
Closing by the relevant Sale Company or JV Company and in any case their agents
or contractors and (ii) in the case of GM's responsibility by GM, or any member
of the GM Group and in any case their agents or contractors. Each party will be
responsible for any additional Adverse Consequences caused by its own post
closing actions or omissions which contribute to or aggravate any Environmental
Condition or Non-Compliance Matter for which the other Party is responsible
under Sections 7.22.1 (GM's Defense and Indemnification Obligations - Non-US) or
7.22.2 (Purchaser's Defense and Indemnification Obligations - Non-US). Liability
will be determined by
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the Parties as soon as reasonably practicable based upon each Party's
relative contribution to the Environmental Condition or Non-Compliance
Matter.
8. CLOSING.
8.1. The Closing.
The closing (the "Closing") of the transactions contemplated hereby shall take
place at the offices of GM, 3001 West Big Beaver Road, Suite 500, Troy, MI 48084
on August 31, 1998 effective as of the close of business on such date, or on
such other date or at such other time as the Parties may agree. All transactions
at the closing of this Agreement and transactions at the closings of the
Transfer Agreements shall be deemed to have occurred simultaneously.
Notwithstanding the foregoing or anything to the contrary in the Transfer
Agreements, none of the closings contemplated under any of the Transfer
Agreements shall occur unless and until closing of this Agreement shall occur.
8.2. Ancillary Agreements.
At the Closing, the Parties shall, and shall cause the members of the GM Group
in the case of GM and the members of the Purchaser Group in the case of
Purchaser to, execute and deliver each to the other the following agreements to
which they are a party:
8.2.1 The Component Supply Agreement.
8.2.2. (a) Assignment of patents and patent applications in Schedules 9.8.5.A,
9.8.6.A and 9.8.6.B from GM to Purchaser.
(b) Assignment of patents and patent applications in Schedule 9.8.5.B
from Delphi Automotive Systems Deutschland GmbH to Purchaser.
(c) Assignment of a partial interest in patents and patent applications
in Schedule 9.8.8 from GM to Purchaser.
(d) Assignment of trademarks in Schedule 9.8.9 from GM to Purchaser.
(e) License from GM to Purchaser as provided in Sections 9.8.1 through
9.8.3(a) and 9.8.4.
(f) License from Purchaser to GM as provided in Sections 9.8.5 through
9.8.7 and 9.8.9 through 9.8.10.
(g) License from Adam Opel AG to Purchaser as provided in Section
9.8.3(b).
(h) Assignments of Technical Information from Delphi Automotive
Systems Deutschland GmbH, Delphi Italia Automotive Systems,
S.r.L., Delphi Automotive Systems Poland S.p. z.o.o., Delphi
Componentes S.A., and Delphi Automotive Systems UK Limited to
Purchaser; and licenses FROM those entities to Purchaser as
provided in Section 9.8.2.
8.2.3. An assignment and assumption for the US Leased Real Property and
any US Owned Real Property documentation as required by Article 6.
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8.2.4. The Transfer Agreements and all other documents required pursuant
thereto.
8.2.5. The Transition Services Agreement.
8.2.6. Letter Agreement.
8.2.7 Short Term Lease for Warren Engineering Building.
8.3. GM's Obligations.
At the Closing, GM shall, and shall cause the relevant members of the GM Group
to, deliver to Purchaser the following, in proper form for recording where
appropriate:
8.3.1 Executed assignments for the Permits and Contracts.
8.3.2 All appropriate Transfer Documents necessary to transfer to Purchaser
or the relevant Asset Purchaser such title to the Acquired Assets as
is warranted by GM herein or as required by the Transfer Agreements.
8.3.3 Appropriate certificate dated as of the Closing Date and signed by an
authorized officer of GM which evidence the authorization of the
execution, delivery and performance of this Agreement and the
Ancillary Agreements and the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements.
8.3.4 Appropriate receipts.
8.3.5 An executed withholding certificate from GM, and any other applicable
member of the GM Group, in a form acceptable to Purchaser, that the
transactions contemplated by this Agreement are exempt from Taxes
which may apply by reason of Section 897, Section 1445, Section 3406,
or any other provision of the Code.
8.3.6 Certain Notes and Amendments thereto of the South African Business,
endorsed in blank as provided in Section 9.13.
8.3.7 All other documents and papers reasonably requested by Purchaser to
effect the transactions contemplated hereby and by the Transfer
Agreements.
8.4. Purchaser's Obligations.
At the Closing, Purchaser shall, and shall cause the relevant members of the
Purchaser Group to, deliver to GM, in proper form for recording where
appropriate:
8.4.1 The Closing Payment as required by and in accordance with
Section 2.1.3.
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8.4.2 An appropriate assumption agreement or other document or documents
pursuant to which Purchaser or the relevant Asset Purchaser assumes
the Assumed Liabilities.
8.4.3 Appropriate certificate dated as of the Closing Date and signed by an
authorized officer of Purchaser which evidence the authorization of
the execution, delivery and performance of this Agreement and the
Ancillary Agreements.
8.4.4 All other documents and papers reasonably requested by GM to effect
the transactions contemplated hereby and by the Transfer Agreements.
9. CERTAIN ADDITIONAL COVENANTS.
9.1. Further Assurances.
If at any time after the Closing any further action is necessary or desirable to
carry out the purposes of this Agreement or the Ancillary Agreements, each of
the Parties will take or procure that their respective Affiliates take such
further action (including the execution and delivery of such further
instructions and documents) as any other Party may reasonably request.
9.2. Transition Services to Purchaser and the Purchaser Group and On-going
Assistance.
9.2.1. GM and Purchaser, and their respective agents, shall, at
their own expense, render assistance to each other in order
to effect an orderly transfer of the Combined Business from
GM and relevant members of the GM Group to Purchaser and the
relevant members of the Purchaser Group. In addition, Lear
will cause its employees who previously performed the same
functions on behalf of the GM Group to provide GM with such
documents and information as necessary, consistent with the
past practice to complete the accounting books and records
of each facility included in the Combined Business as of
August 31, 1998. In addition, for a period not to exceed
eighteen (18) months from the Closing Date, GM will provide,
or cause the provision to the Combined Business of, certain
ongoing human resources, banking, accounting, technical, and
other administrative support services.
9.3. Books and Records and Litigation Assistance.
9.3.1 Purchaser shall and shall cause relevant members of the
Purchaser Group to preserve and keep all books, records,
computer files,
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software programs and any data processing files delivered to
Purchaser by GM or a member of the GM Group pursuant to the
provisions of this Agreement for a period of not less than
five (5) years from the Closing Date, or for any longer period
as may be required by any government agency, ongoing
litigation, law, regulation, audit or appeal of Taxes, or Tax
examination at Purchaser's sole cost and expense. During such
period, Purchaser shall make such books and records available
to GM or a member of the GM Group as may be reasonably
required by GM or a member of the GM Group in connection with
any legal proceedings against or governmental investigations
of GM or any other members of the GM Group or in connection
with any Tax examination, audit or appeal of Taxes of GM or a
member of the GM Group, the Combined Business or the Acquired
Assets. GM or a member of the GM Group shall reimburse
Purchaser for the reasonable out-of-pocket expenses incurred
in connection with any request by GM to make available records
pursuant to the foregoing sentence. In the event Purchaser
wishes to destroy or dispose of such books and records after
five (5) years from the Closing Date, it shall first give not
less than ninety (90) days' prior written notice to GM, and GM
shall have the right, at its option, upon prior written notice
given to Purchaser within sixty (60) days of receipt of
Purchaser's notice, to take possession of said records within
ninety (90) days after the date of Purchaser's notice to GM
hereunder.
9.3.2 Purchaser shall from time to time, at the reasonable
request of GM, cooperate fully with GM in providing GM or
other members of the GM Group (as appropriate), to the extent
possible through employees of a relevant member of the
Purchaser Group, being formerly employed by GM or other
members of the GM Group, with technical assistance and
information in respect to any claims brought against GM or
other members of the GM Group involving the conduct of the
Combined Business prior to Closing, including consultation
and/or the appearance(s) of such persons on a reasonable basis
as expert or fact witnesses in trials or administrative
proceedings. GM shall reimburse Purchaser or the relevant
member of the Purchaser Group for its direct out-of-pocket
costs (travel, employee time (other than for clerical
services), hotels, etc.) of providing such services. In
particular, Purchaser for itself and on behalf of the relevant
members of the Purchaser Group agrees to: (i) retain all
documents required to be maintained by federal, state.
national or local legislation or regulations and all documents
that may be reasonably required to establish due care or to
otherwise assist GM or a member of the GM Group in pursuing,
contesting or defending such claims; (ii) make available its
documents and records in connection with any pursuit, contest
or defense including documents that may be considered to be
"confidential" or subject to trade secret protection (except
that (a) no
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documents or records protected by the attorney client
privilege in favor of Purchaser or any member of Purchaser
Group must be made available if making these documents or
records available would cause the loss of this privilege (in
any case, however, Purchaser must notify GM of the existence
of such privileged documents) and (b) GM or the relevant
member of the GM Group will agree to keep confidential
documents and records that are confidential or are subject to
trade secret protection); (iii) at the request of GM or a
member of the GM Group, appoint a mutually acceptable,
knowledgeable, technical representative to assist GM or a
member of the GM Group in connection with any of the matters
referred to in Section 10.2.1 of this Agreement; (iv) promptly
respond to discovery requests in connection with such claim,
understanding and acknowledging that the requirements of
discovery in connection with litigation require timely
responses to interrogatories, requests to produce and
depositions and also understanding and acknowledging that any
delays in connection with responses to discovery may result in
sanctions; (v) make available, as may be reasonably necessary
and upon reasonable advance notice and for reasonable periods
so as not to interfere materially with Purchaser's business,
mutually acceptable engineers, technicians or other
knowledgeable individuals to assist GM or a member of the GM
Group in connection with such claim, including investigation
into claims and occurrences described in this section and
preparing for and giving factual and expert testimony at
depositions, court proceedings, inquiries, hearings and trial;
(vi) make available facilities and exemplar parts for the sole
and limited use of assisting GM or a member of the GM Group
in the contest or defense; and (vii) subject to the provisions
of Section 10.4.2 herein, acknowledge that GM or a member of
the GM Group is responsible for and will control, as between
the Parties, the conduct of the pursuit, contest or defense.
9.4. Technical Information.
GM or another member of the GM Group has delivered, or will deliver on or before
the Closing, to the relevant member of the Purchaser Group, a copy of all
Technical Information included in the Acquired Assets. For a period of not less
than ten (10) years commencing at the Closing Date, Purchaser shall and shall
cause relevant members of the Purchaser Group to use all reasonable efforts
consistent with the Purchaser's standard practices to maintain all Technical
Information applicable to product design, test, release and validation it
acquires from GM or any member of the GM Group in connection with the purchase
of the Acquired Assets under Section 1.1 at a location at which they shall be
reasonably accessible to GM or a member of the GM Group upon request.
9.5. Payment and Collections.
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GM shall, and shall cause relevant members of the GM Group to, take such action
as may be reasonably necessary to segregate payments made or collections
received by GM or a relevant member of the GM Group on behalf of Purchaser or
relevant members of the Purchaser Group after Closing, and Purchaser shall, and
shall cause relevant members of the Purchaser Group to, take such action as may
be reasonably necessary to segregate payments made or collections received by
Purchaser or a relevant member of the Purchaser Group on behalf of GM or
relevant members of the GM Group after Closing, in order to ensure that the cost
of the related liability or the benefits of the related assets accrue to the
appropriate Party in accordance with the terms of this Agreement or the Transfer
Agreements. To the extent that any such collections are received after Closing
in the form of checks or other negotiable instruments payable to the other
Party, GM or Purchaser, as appropriate, shall promptly take all necessary action
to endorse or cause to be endorsed such checks or instruments to permit the
appropriate Party to collect the proceeds of such checks and instruments.
9.6. Non-Competition.
(i) GM and the members of the GM Group acknowledge that an important part of the
benefits that Purchaser and the members of the Purchaser Group will receive in
connection with the transactions contemplated by this Agreement and the Transfer
Agreements is the ability to carry on the Combined Business free from
competition by GM and its Affiliates. In order that Purchaser and the members of
the Purchaser Group may enjoy such benefits, for a period of five (5) years
after the Closing Date, GM will refrain, and will cause its Affiliates to
refrain, from directly or indirectly engaging, alone or in association with any
other Person, or own, share in the earnings of, or invest in the equity
securities of (preferred stock that is nonvoting except under extraordinary
circumstances will not be deemed equity securities), any Person engaged, in the
design, engineering, testing, manufacture, assembly, processing, marketing,
servicing, installation, sale and/or distribution of (i) fully assembled
automotive seat systems; (ii) head restraints; (iii) trim covers; (iv) seat
adjusters; and (v) other seating components, including frames ("Competitive
Business" when referring to such activities generally, and "Competing Products"
when referring to the foregoing products) in North America, the present member
states of the European Union, Mexico, Poland, Turkey and the Republic of South
Africa; provided, however, that the restrictions contained in this Section 9.6
will not prohibit in any way: (A) the acquisition of a controlling interest or
merger with any Person, or a division or business unit thereof, which is not
primarily engaged in a Competitive Business, acquired by or merged, directly or
indirectly, into GM after the Closing Date; provided GM will take all reasonable
steps to dispose, as quickly as practicable after such acquisition or merger, of
any portion of the business of any such Person, division or business unit that
constitutes a Competitive Business; (B) the acquisition by GM, directly or
indirectly, of a non-controlling ownership interest in any Person, or a division
or business unit thereof, or any other entity engaged in a Competitive Business,
if the Competitive Business accounts for less than 15% of the operating revenues
of such Person or $5,000,000 (U.S.) of operating revenue (whichever is the
greater); (C) the acquisition by GM, directly or indirectly, of less than 5% of
the publicly traded stock of any Person engaged in a Competitive Business; (D)
GM or any GM Affiliate from providing consulting services to, licensing any
technology GM or any GM Affiliate owns or has license to use to, or financing
(on its own behalf or on behalf of any other Person), any Person for the purpose
of designing
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or manufacturing on behalf of GM or any member of the GM Group or selling to GM
or any member of the GM Group components and parts for automotive applications
in each case only to the extent set forth and permitted in Section 9.8; (E) GM
or any GM Affiliate from directly or indirectly competing with Purchaser or any
Purchasing Entities on total interior systems ("total interior systems" means
doors, seats, floor system, roof system, and instrument panels integrated into a
delivered unit), including the design, engineering, testing, assembly,
processing, marketing, servicing, installation, sale and/or distribution (but
not the manufacture) of Competing Products in connection with such total
interior systems; (F) GM or any GM Affiliate from directly or indirectly
competing with Purchaser or any Purchasing Entities on occupant safety systems,
including the design, engineering, testing, assembly, processing, marketing,
servicing, installation, sale and/or distribution (but not the manufacture) of
Competing Products in connection with such occupant safety systems; (G)
financing activities of General Motors Acceptance Corporation and its
subsidiaries in its ordinary course of business; (H) consistent with the
generally applicable GM troubled supplier practices, direct or indirect
activities of GM or any member of the GM Group to advise, operate, manage or
finance a troubled supplier of GM or its Affiliates; and (1) any business or
activity conducted by any Affiliate, subsidiary, or division of GM (excluding
the Combined Business) as of the Closing Date shall be deemed not to breach this
Section 9.6.
(ii) If GM is required to dispose (a "Divestiture") of a business unit as part
of an acquisition otherwise permitted by Section 9.6(i)(A), GM shall give
Purchaser written notice ("Divestiture Notice") of the desired terms of such
Divestiture. Purchaser shall keep the desired terms of the Divestiture
confidential. Purchaser shall thereupon have sixty (60) days in which to elect
whether or not to purchase the business unit that is subject to the Divestiture
on the terms included in the Divestiture Notice. If Purchaser elects to purchase
such business unit, it shall have one hundred twenty (120) days thereafter to
complete the purchase. If Purchaser shall fail to give written notice within
said sixty (60) day period of its intention to purchase or, if the offer is
accepted, to complete the purchase within one hundred eighty (180) days after
receipt of the Divestiture Notice from GM (provided such failure to complete the
sale is not caused by any action of GM), GM shall thereafter be free to dispose
of such business unit.
9.7. Change of Name of Sale Companies and JV Companies.
Purchaser shall cause the applicable Securities Purchaser to change the name of
the relevant Sale Company or JV Company following Closing to a name not
containing the word "Delphi", such change to take effect pursuant to the terms
of the respective Transfer Agreement governing the sale of such Sale Company or
JV Company.
9.8. Intellectual Property and Technical Information Rights and Licenses.
9.8.1. Purchaser will have the right (including the right to authorize
relevant members of the Purchaser Group) to continue to sell or
dispose of any existing inventories or service materials of the
Combined Business bearing any trademark, service mark, trade
name, or related corporate name of GM or relevant members of the
GM Group for a period of up to six (6) months after the Closing
Date in a manner consistent with
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past practice of the Combined Business and the name and
reputation associated therewith.
9.8.2. Purchaser will have a non-exclusive, irrevocable, fully-paid
license (including the right to sublicense others) to use all
technical information in any form owned or (subject to the terms
of the Contracts listed on Schedule 1.1.1.B) acquired by a
member of the GM Group and used or held for use both in the
Combined Business and in one or more other businesses, and
pertaining to the design, manufacture, use, marketing, sale,
installation or service of the Products, together with all
copyrights (including any registrations or applications
therefore) in all materials containing such information, to
manufacture, have manufactured, use, market, offer to sell,
sell, import, install and service vehicle seating systems and
components. Purchaser will protect documents and other materials
containing such technical information against disclosure to
others with the same care Purchaser protects its own documents
and materials containing similar information.
9.8.3. (a) Purchaser will have a non-exclusive, irrevocable, fully-paid
license (including the right to sublicense others) under (i) the
patents listed on Schedule 9.8.3.A, (ii) any other patents owned
by GM or any other member of the GM Group which cover the
manufacture, use, offer to sell, sale or import of the Products,
and (iii) any other patents owned by GM or any other member of
the GM Group anywhere in the world corresponding to the patents
mentioned in (i) or (ii) of this Section 9.8.3 (a), to
manufacture, have manufactured, use, offer to sell, sell and
import vehicle seating systems and components.
(b) Purchaser will have a non-exclusive, irrevocable, fully-paid
license (including the right to sublicense others) under the
non-US patents listed on Schedule 9.8.3.B to manufacture, have
manufactured, use, offer to sell, sell and import vehicle
seating systems and components.
9.8.4. (a) Purchaser will have a non-exclusive, irrevocable, fully-paid
sublicense (including the right to sublicense its Affiliates)
under the intellectual property assets (other than trademarks,
service marks, trade dress and trade names, and registrations
and applications therefore) GM transferred to ITT Automotive
Electrical Systems, Inc. pursuant to an Assets Purchase
Agreement dated March 31, 1994 - to manufacture, have
manufactured, use and sell seat adjusters, provided that with
respect to seat adjusters for recreational vehicles such
sublicense shall not become effective until March 31, 1999.
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(b) Purchaser will have a nonexclusive, irrevocable, fully paid
sublicense under the patents licensed to GM in the 22 May 1998
settlement agreement between the Lemelson Medical, Education and
Research Foundation, Limited Partnership et al and GM, only to
the extent and level of the annual production of products
manufactured in the fields licensed in that agreement by GM's
Delphi seating business unit during the year prior to the date
of this Agreement.
9.8.5. GM will retain a non-exclusive, irrevocable, fully-paid license
(including the right to sublicense its Affiliates) under the
patents and patent applications listed on Schedule 9.8.5.A and
9.8.5.B and Technical Information to manufacture, have
manufactured, use, market, offer to sell, sell, import, install
and service; (i) products other than vehicle seating systems and
components; (ii) seating systems and components manufactured
solely at the two GM Group vehicle plants located at Oklahoma
City, Oklahoma, and Vauxhall, England, for vehicles assembled in
such plants; (iii) vehicle seating systems and components for
which the business has already been awarded to another supplier
prior to the date of this Agreement; and (iv) vehicle seating
systems and components for which Purchaser does not win the
business, or for which Purchaser is awarded the business but is
unable to deliver at world class levels of technology, quality,
service and price; provided, that such license or sublicense may
not be used under clause (iv) until Purchaser has received
written notice of such condition and failed to correct such
condition within a reasonable time. GM will protect documents
and other materials containing such Technical Information
against disclosure to others with the same care GM protects its
own documents and materials containing similar information.
However, this Section will not affect GM's or its Affiliates'
obligations under the Component Supply Agreement or any other
agreement between one or more members of the GM Group and one or
more members of the Purchaser Group relating to supply of
seating systems and components.
9.8.6. GM will retain a non-exclusive, irrevocable, fully-paid license
(including the right to sublicense its Affiliates) under the
patents and patent applications listed on Schedules 9.8.6.A and
9.8.6.B to manufacture, have manufactured, use, offer to sell,
sell and import (i) products other than vehicle seating systems
and components, and (ii) seating systems and components for
vehicles sold by GM or its Affiliates. However, this Section
will not affect GM's or its Affiliates' obligations under the
Component Supply Agreement or any other agreement between one or
more members of the GM Group and one or more members of the
Purchaser Group relating to supply of seating systems and
components.
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9.8.7. GM will retain a non-exclusive, irrevocable, fully-paid license
to sublicense others under the patents and patent applications
listed on Schedules 9.8.5.A, 9.8.5.B, 9.8.6.A and 9.8.6.B and
Technical Information to manufacture, use, market, offer to
sell, sell, import, install and service seating systems and
components as service parts for past model vehicles sold by GM
or its Affiliates. GM will protect documents and other materials
containing such Technical Information against disclosure to
others with the same care GM protects its own documents and
materials containing similar information. However, this Section
will not affect GM's or its Affiliates' obligations under any
other agreement between one or more members of the GM Group and
one or more members of the Purchaser Group relating to supply of
seating system and component service parts.
9.8.8. (a) GM will retain an undivided interest in the patents listed
on Schedule 9.8.8. Each Party may exercise all incidents of
ownership in such patents without consulting with or accounting
to the other Party, provided, however, that for a period of
five (5) years after the Closing Date, GM will not assign its
interest in any such patent to a Competitive Business nor grant
a license under any such patent to manufacture, use, offer to
sell, sell or import seating systems or components for vehicles
not sold by GM or its Affiliates, and Purchaser will not assign
its interest in any such patent to a non-automotive seat
manufacturer nor grant a license under any such patent to
manufacture, use, offer to sell, sell or import non-automotive
seating systems or components.
(b) Maintenance fees for the patents listed on Schedule 9.8.8
will be borne by the Parties equally. GM will pay maintenance
fees as they become due for such patents, and Purchaser will
reimburse GM for its share of such fees. Either Party may give
notice to the other at any time that it elects to no longer pay
any such fee; the Party giving such notice will thereby forfeit
its ownership interest in such patent (and assign to the other
Party any license agreements under that patent), but will
retain a nonexclusive, irrevocable, fully-paid license under
that patent.
(c) If either Party (the "Disposing Party") elects to dispose
of its interest in a patent listed on Schedule 9.8.8 (other
than by granting a license under the patent), it will give the
other Party (the "Other Party") written notice (the "Disposition
Notice") of the desired terms of such disposition. The Other
Party will keep the desired terms of such disposition
confidential. The Other Party will thereupon have sixty (60)
days in which to elect whether or not to purchase such interest
on the terms included in the Disposition Notice. If the Other
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Party elects to purchase such interest, it will have one
hundred twenty (120) days thereafter to complete the purchase.
If the Other Party fails to give written notice within said
sixty (60) day period of its intention to purchase or, if the
offer is accepted, to complete the purchase within one hundred
eighty (180) days after receipt of the Disposition Notice
(provided such failure to complete the sale is not caused by any
action of the Disposing Party), the Disposing Party will
thereupon be free to dispose of such interest for a price and
terms at least as favorable to the Disposing Party as those
stated in the Disposition Notice.
9.8.9. GM will retain a non-exclusive, fully-paid license to use and to
sublicense others to use the trademarks listed on Schedule 9.8.9
in connection with seating systems and components as service
parts for past model vehicles sold by GM or its Affiliates.
However, this Section will not affect GM's or its Affiliates'
obligations under any other agreement between one or more
members of the GM Group and one or more members of the Purchaser
Group relating to supply of seating system and component service
parts.
9.8.10. GM will retain a non-exclusive, irrevocable, fully-paid license
(including the right to sublicense its Affiliates) under the
patents and patent applications listed on Schedules 9.8.5.A,
9.8.5.B, 9.8.6.A and 9.8.6.B and Technical Information to
manufacture, have manufactured, use, market, offer to sell,
sell, import, install and service occupant safety and total
interior systems and components associated with seating systems
and components (but not the manufacture of vehicle seating
systems or components except as otherwise provided in this
Section 9.8). GM will protect documents and other materials
containing such Technical Information against disclosure to
others with the same care GM protects its own documents and
materials containing similar information. GM may extend these
licenses to the successors to its Delphi Automotive Systems
occupant safety and total interior systems and components
businesses.
9.8.11 In this Section 9.8, Affiliate means any business or other
entity directly or indirectly controlling, controlled by or
under common control with the specified entity, and control
means ownership or actual control of at least twenty percent
(20%) of the shares or other equity interest having power to
elect directors or persons performing a similar function.
9.9. Government Grants.
9.9.1 GM agrees that if and to the extent that any of the grants paid
by the Ministry of Economy and Finance in Spain or any other
Spanish governmental or autonomous community authority to Delphi
Asientos,
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S.A. are, repayable to the Ministry of Economy and Finance in
Spain or any other Spanish governmental or autonomous community
authority, except to the extent repayment is a consequence of
acts or omissions of Purchaser or a member of the Purchaser
Group then upon Purchaser (or relevant member of the Purchaser
Group) submitting evidence reasonably satisfactory to GM that
such government grants have been repaid (in whole or in part),
GM will promptly reimburse Purchaser (or as it may direct) such
sum.
9.9.2 GM agrees that if and to the extent that any of the grants paid
by the Board for Regional Industrial Development of the
Department of Trade and Industry in the Republic of South Africa
to Delphi Interior Systems South Africa (Pty) Limited are,
repayable to the Board for Regional Industrial Development of
the Department of Trade and Industry in the Republic of South
Africa, except in the case where repayment is wholly as a
consequence of acts or omissions of Purchaser or a member of the
Purchaser Group, then upon Purchaser (or relevant member of the
Purchaser Group) submitting evidence reasonably satisfactory to
GM that such government grants have been repaid (in whole or in
part), GM will promptly reimburse Purchaser (or as it may
direct) such sum.
9.9.3 Following Closing, Purchaser and GM shall use their respective
best efforts to procure that the final installment (being
300,000 pounds sterling) of the grant payable by the Department
of Trade and Industry ("DTI") in the United Kingdom (the "Final
Payment") shall be paid to Lear Corporation (UK) Limited ("Lear
UK") as successor in title to the UK Business. Without prejudice
to the generality of the foregoing, GM and Purchaser shall each
procure that Delphi Automotive Systems UK Limited ("Delphi UK")
and Lear UK (respectively) shall enter into the form of novation
or transfer agreement ("Novation Documentation") required by the
DTI and, in addition, Purchaser shall provide a guarantee
acceptable to the DTI in support of the obligations and
responsibilities of Lear UK pursuant to the terms of the
Novation Documentation so as to facilitate payment of the Final
Payment to Lear UK. Forthwith following receipt of the Final
Payment, Purchaser shall procure that Lear UK shall pay GM (or
as it may direct) such sum. If the DTI shall not have paid the
Final Payment to Lear UK due to any failure of Lear UK or
Purchaser to enter into the Novation Documentation, or to comply
with their obligations under the Novation Documentation, or to
comply with their obligations pursuant to this Section 9.9.3 on
or prior to November 30, 1998, then Purchaser shall promptly
reimburse GM (or as it may direct) the sum of 300,000 pounds
sterling by way of a reduction of the Basic Price relating to
the sale of the UK Business.
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9.9.4 Purchaser agrees that if and to the extent that any of the
grants paid by the DTI in the United Kingdom to Delphi UK are
repayable to the DTI by any member of the GM Group, as a
consequence of either the sale of the UK Business by Delphi UK
to Lear UK or acts or omissions of Purchaser or a member of the
Purchaser Group, then upon GM (or relevant GM Affiliate)
submitting evidence reasonably satisfactory to Purchaser that
such governmental grants have been repaid (in whole or in part),
Purchaser will promptly reimburse GM (or as it may direct) such
sum.
9.9.5 If GM (or as it may direct) shall have received the Final
Payment as envisaged by Section 9.9.3, GM agrees that if and to
the extent that any of the grants paid by the DTI in the United
Kingdom to Delphi UK or Lear UK, respectively, are, subsequently
repayable to the DTI by any member of the Purchaser Group, then
upon the Purchaser (or relevant member of the Purchaser Group)
submitting evidence reasonably satisfactory to GM that such
governmental grants have been recalled (in whole or in part)
because of some act or omission which the Purchaser Group could
not have avoided with its reasonable best efforts, GM will
promptly pay or reimburse the Purchaser (or as it may direct)
such sum not exceeding 300,000 pounds sterling.
9.9.6 Purchaser agrees that if and to the extent that any of the
grants paid by the Ministry of Economy and Finance in Spain or
any other Spanish governmental or autonomous community authority
to Delphi Componentes, S.A. are repayable to the Ministry of
Economy and Finance in Spain or any other Spanish governmental
or autonomous community authority, as a consequence of acts or
omissions of Purchaser or a member of the Purchaser Group
(including the failure of Purchaser or a member of the Purchaser
Group to maintain in the Logrono (La Rioja) region a minimum of
288 employees until March 15, 1999), then upon GM (or relevant
GM Affiliate) submitting evidence reasonably satisfactory to
Purchaser that such governmental grants have been repaid (in
whole or in part), Purchaser will promptly reimburse GM (or as
it may direct) such sum.
9.10. Delphi Gliwice - Return of Shareholder Additional Payments.
On August 10, 1998, a meeting of the shareholders of Delphi Gliwice S.P.z.o.o.
("Delphi Gliwice") resolved to repay additional shareholder payments made by GM
to Delphi Gliwice. On August 17, 1998, a notice was published in the Polish
Court and Economic Journal publishing such resolution. The repayment of such
additional shareholder payment may be made not earlier than November 17, 1998 by
Delphi Gliwice to its then shareholder. Accordingly, on November 17, 1998
Purchaser shall pay to GM by wire transfer an amount
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in US dollars in immediately available funds to the account of GM at Citibank,
New York City an amount equal to the Repayment Amount (subject to the exchange
rate as of the date of transfer less any transfer fees). For purposes hereof,
"Repayment Amount" shall mean the aggregate of the sum of bank account balances
as follows: (a) US$2,574,337.83, (b) PLN 207,470.60, and (c) the PLN amount
standing to the credit of the petty cash bank account of Delphi Gliwice as of
the close of business on August 28, 1998, together with interest on the amounts
in (a), (b) and (c) from August 28, 1998 to the date of actual payment to GM
calculated at the rate(s) applicable to the accounts in which such amounts were
held on August 28, 1998 whether earned or not. GM represents and warrants that
the amounts in (a) and (b) are the amounts standing to the credit of Delphi
Gliwice as at the close of business on August 28, 1998.
9.11. Payments from Fiat Auto.
Purchaser acknowledges that the payments referred to in a letter dated July 23,
1998 from Fiat Auto are receivable by Delphi Automotive Systems Sri (the "Fiat
Payments") but that such payments will initially be received by Lear Corporation
Italia S.p.A. Purchaser shall cause Lear Corporation Italia S.p.A. (or any other
recipient member of the Purchaser Group) to use diligent efforts to obtain
recovery of the Fiat Payments and shall keep GM informed regarding the progress
of such recovery. Forthwith following receipt of the Fiat Payments by Lear
Corporation Italia S.p.A. (or any other recipient member of the Purchase Group)
Purchaser shall pay, or cause to be paid, the Fiat Payments (subject to the
exchange rate as of the date of transfer to Purchaser, less any transfer fees)
to GM by wire transfer in US dollars immediately available funds to the account
of GM at Citibank, New York City. Purchaser shall not agree to any variation in
the amount of the Fiat Payments without the prior consent of GM.
9.12. Peregrine.
Purchaser agrees to purchase from Jay Alex & Associates ("Jay Alex")(successor
to Peregrine U.S., Inc. ("Peregrine")) certain seat assemblies used by the
Seating Business, in accordance with a certain Component Supply Agreement
("Peregrine Agreement") dated as of December 31, 1996 between GM, General Motors
of Canada Limited and Peregrine. GM agrees that, if GM amends the price or
payment terms of the Peregrine Agreement to make such terms more favorable to
Jay Alex, then GM will allow such more favorable price or payment terms to be
passed on to Purchaser under the Component Supply Agreement with respect to such
seat assemblies.
9.13. South African Business Inter-Company Loan
At Closing, Purchaser agrees to purchase from GM, the following promissory notes
("Promissory Notes"):
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(1) Promissory Note from South African Business to GM dated December 20, 1996,
as amended prior to the date hereof, with a Principal Amount of South African
Rand (ZAR) 15,435,006 and an accrued unpaid interest amount as of August 31,
1998 of ZAR 594,119; and
(2) Promissory Note from South African Business to GM dated March 5, 1998, as
amended prior to the date hereof, with a Principal Amount of ZAR 4,148,361 and
an accrued unpaid interest amount as of August 31, 1998 of ZAR 159,677.
At Closing, GM shall deliver to Purchaser the Promissory Notes, and amendments
thereto, and Purchaser agrees to simultaneously pay GM consideration for the
Promissory Notes in an amount equal to the U.S. Dollar (USD) $3,165,317, the
equivalent of ZAR 20,337,163, calculated using an exchange rate of 6.425 ZAR per
USD.
9.14. Certain Mexico Business Matters
Notwithstanding anything to the contrary in the Mexico Business Transfer
Agreement: (i) at the Closing Purchaser will pay GM the entire Basic Price
allocable to the Mexico Business, and GM will assume Purchaser's obligation
under Section 1.2 of the Mexico Business Transfer Agreement, by paying on
September 1, 1998 to Controladora General Motors, S.A. de C.V. ("Controladora")
on behalf of Purchaser, the principal amount and all accrued interest of the
promissory note (the "Mexico Note") issued by the Mexico Business to
Controladora; (ii) Purchaser as of September 10, 1998 will cause the Mexico
Business to credit GM, as payment in full for all Intra Company Payables, with
amounts due and payable under the Mexico Note; and (iii)(a) if amounts owed
under the Mexico note exceed the amount of the Intra Company Payables, Purchaser
will pay or cause to be paid to GM as of September 10, 1998, the amount by which
the Mexico Note exceeds the amount of the Intra Company Payables or (b) if
amounts owed under the Intra Company Payables exceeds the amount of the Mexico
Note, GM will pay or cause to be paid to Purchaser as of September 10, 1998, the
amount by which the Intra Company Payables exceeds the amount of the Mexico
Note. For purposes of this Section 9.14, "Intra Company Payables" refers to
amounts owed under all outstanding invoices and open accounts issued by the
Mexico Business in the ordinary course of business on or before the Closing Date
to GM for services performed by the Mexico Business on or before the Closing
Date.
9.15. ITT Component Supply Agreement
In accordance with a certain Component Supply Agreement, dated as of March 31,
1994 between ITT Automotive Electrical Systems, Inc. and GM, Purchaser agrees to
purchase the Components described therein from the Seller described therein in
accordance with the provisions of Article 2 of such agreement.
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9.16. Post Closing Financial Schedule.
GM agrees to prepare and deliver, within 10 days of the Closing Date, a schedule
of the operating results of the Combined Business for the year ended December
31, 1997 (the "Schedule"), to be adjusted for the items set forth below, and to
cause Deloitte & Touche LLP to audit such Schedule, in order to express an
opinion on the fairness of presentation of such Schedule, in conformity with the
basis of calculation set forth in this section, in all material respects. The
Schedule shall be prepared in accordance with GAAP, adjusted to exclude the
effects of the following items for the year ended December 31, 1997: (a) the
plant closing charge to close the Trenton facility, (b) separation and
relocation costs incurred in the closure of the Trenton facility, (c) an asset
impairment reserve attributable to the Business, (d) operating losses for the
Trenton facility incurred during the year, (e) the portion of the
post-retirement benefit cost attributable to interest on the obligation to
retirees of the Business, (f) adjustments related to the LIFO inventory reserve,
(g) the operating results, including the effect of any labor subsidies from NAO,
related to the Brea plant location, and (h) corporate allocations for services
provided by General Motors Central Office. It is agreed that the costs related
to the requirements of this section will be borne by GM.
10. INDEMNIFICATION.
Notwithstanding anything to the contrary in this Article 10, this Article 10
does not apply to environmental claims, all of which will be handled in the
manner set forth in Article 7.
10.1. Survival.
The representations and warranties contained in this Agreement and, to the
extent applicable, the Transfer Agreements shall survive the Closing and
continue in full force and effect for two (2) years after the Closing; provided,
however, that the representations and warranties contained (i) in Section 4.1.16
will survive for the applicable statute of limitations plus a period of fifteen
(15) days and (ii) in Sections 4.1.23(b), (c), (d) and (f), will survive without
limitation. If, prior to the close of business on the date the survival period
terminates, GM or Purchaser, as the case may be, has served written notice on
the other of a claim for indemnity hereunder and such claim has not been finally
resolved or disposed of at such date, then any representation or warranty that
is the basis for such claim shall continue to survive as to that claim only and
shall remain a basis for indemnity until such claim is finally resolved.
10.2. Indemnification.
10.2. 1. Indemnification Provisions for the Benefit of Purchaser.
(a) GM agrees to indemnify Purchaser, for itself and on behalf of the
relevant members of the Purchaser Group and their officers, directors,
employees, and agents (individually a "Purchaser Indemnitee" and
collectively the "Purchaser Indemnitees") and to hold each Purchaser
Indemnitee harmless from and against all damages, losses, and expenses
(including reasonable expenses of
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investigation and attorneys' fees) ("Losses") to the extent caused by or arising
out of(i) any breach of any warranty or representation of GM or any Asset Seller
or Securities Seller contained in this Agreement or in any Transfer Agreement;
(ii) except for claims pursuant to the following clauses (iii), (iv), (v) and
(vi), any breach of the covenants or responsibilities of GM or any Asset Seller
or Securities Seller set forth in this Agreement or any Ancillary Agreement
(other than the Component Supply Agreement); (iii) any failure of GM or any
member of the GM Group to pay, perform or discharge any liabilities or
obligations of GM or any member of the GM Group relating to the Seating Business
(including any obligations with respect to the excluded liabilities set forth in
Section 3.2) other than (a) the Assumed Liabilities and (b) the obligations of
Purchaser under Article 5; (iv) directly or indirectly, the conduct of the
Seating Business or the ownership of the Acquired Assets prior to the Closing,
including wages and employee benefits, employee severance pay, employee
separation costs, employee termination costs, employment discrimination claims,
product liability claims, other litigation, license fees and utility charges
other than (a) the Assumed Liabilities and (b) the obligations of Purchaser
under Article 5; (v) any product liability claims to the extent arising out of
product liability claims for Products manufactured by the Combined Business
prior to the Closing Date or other product liability claims against the
Purchaser or any member of the Purchaser Group to the extent such claims are
based on design defects for Products made after the Closing Date but designed
and validated prior to the Closing Date; and (vi) any breach of the obligations
of GM or any member of the GM Group under Article 2 or Article 5, provided,
however, that Purchaser makes a written claim for indemnification against GM
setting forth in reasonable detail the specific facts and circumstances
pertaining thereto as soon as practicable following the discovery of such claim
(provided, however, that any failure to make such claim as soon as practicable
will not waive any rights of a Purchaser Indemnitee except to the extent that
the rights of the Indemnitor are prejudiced thereby) or, in respect of a Third
Party Claim, in accordance with the procedures set forth in Section 10.4; and
provided, further, that neither GM nor any Asset Seller or Securities Seller
shall be liable for Losses pursuant to Section 10.2.1 (a)(i) (other than those
arising out of or related to breach of the representations and warranties set
forth in Sections 4.1.1, 4.1.2, 4.1.3 and 4.1.9) unless and until the amount of
all such indemnifiable Losses in the aggregate exceeds a Two Hundred Thousand
Dollars (US $200,000) deductible (the "Deductible Amount"), after which point GM
will be obligated to indemnify Purchaser from and against such indemnifiable
Losses in excess of the Deductible Amount until the amount of indemnifiable
Losses pursuant to Section 10.2.1 (a)(i) or (ii) in the aggregate reaches a cap
equal to the Basic Price (the "Cap Amount") after which point GM will have no
further obligation with respect to Losses pursuant to Section 10.2.1 (a)(i) or
(ii). With respect to any Losses of a JV Company (but not Losses of a Purchaser
Indemnitee owning such JV Company). GM's liability shall be limited to that
percentage of any such Losses that the ownership interest of the relevant
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Securities Seller at Closing constituted as a percentage of the total
issued share capital of such JV Company.
(b) GM agrees to indemnify any Purchaser Indemnitee from and against Losses
any Purchaser Indemnitee may suffer to the extent caused by or arising
out of any third-party claim in respect of any pre-Closing liabilities
of the Seating Business other than Assumed Liabilities.
(c) Purchaser's rights under subsections (a) and (b) of this Section 10.2.1
shall be independent of each other; provided that, Purchaser may not
recover more than once for a particular indemnifiable Loss.
(d) GM will defend any suit or other claim against a member of the
Purchaser Group alleging infringement of any patent or other
intellectual property right by Products sold to a member of the GM
Group pursuant to the Component Supply Agreement. GM also will defend
any suit or other claim against a member of the Purchaser Group by
Treves, S.A. or Trety S.A. or a related party alleging that the Spanish
Asset Business improperly employs any Treves/Trety product, process or
equipment technology. In any such suit, GM will hold the members of the
Purchaser Group harmless against any money damages or costs awarded in
such suit including reasonable attorney's fees. GM will have full
control of the defense of any such action, through counsel of its own
selection, and may settle any such action at its own expense, provided
that Purchaser shall be permitted to join in the defense and settlement
of any such action and to employ counsel at its own expense, and
provided further that any settlement which affects future operations of
the Purchaser Group is first approved by Purchaser (which approval will
not be withheld unreasonably).
10.2.2. Indemnification Provisions for the Benefit of GM.
Purchaser agrees to indemnify GM, for itself and on behalf of the relevant
members of the GM Group and their officers, directors, employees, and agents
(individually a "GM Indemnitee" and collectively the "GM Indemnitees") and to
hold each GM Indemnitee harmless from and against all Losses to the extent
caused by or arising out of: (i) any breach of warranty or representation of
Purchaser or any Asset Purchaser or Securities Purchaser contained in this
Agreement or in any Transfer Agreement; (ii) except for claims pursuant to the
following clauses (iii), (iv) and (v), any breach of the covenants or
responsibilities of Purchaser or any Asset Purchaser or Securities Purchaser set
forth in this Agreement or any Ancillary Agreement (other than the Component
Supply Agreement); (iii) any failure of Purchaser or any member of the Purchaser
Group to pay, perform or discharge any of the Assumed Liabilities; (iv) except
as otherwise provided in Sections 3.2, 10.2.1(a)(v) and 10.2.1(d) and Article 5,
directly or indirectly, the conduct of the Seating Business or the ownership of
the Acquired Assets after the Closing, including wages and employee benefits,
employee severance pay, employee separation costs, employee termination costs,
employment discrimination claims, product liability claims, other litigation
(except as
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provided in Section 10.2.1(d)), license fees, and utility charges; and (v) any
breach of the obligations of Purchaser or any member of the Purchaser Group
under Article 2 or Article 5; provided, however, that GM makes a written claim
for indemnification against Purchaser setting forth in reasonable detail the
specific facts and circumstances pertaining thereto as soon as practicable
following the discovery of such claim (provided, however, that any failure to
make such claim as soon as practicable will not waive any rights of a GM
Indemnitee except to the extent that the rights of the Indemnitor are prejudiced
thereby) or, in respect of a Third Party Claim, in accordance with the
procedures set forth in Section 10.4 and provided, further, that neither
Purchaser nor any Asset Purchaser or Securities Purchaser shall be liable for
Losses pursuant to Section 10.2.2(i) unless and until the amount of all such
indemnifiable Losses in the aggregate exceeds the Deductible Amount, after which
point Purchaser will be obligated to indemnify GM from and against such
indemnifiable Losses in excess of the Deductible Amount until the amount of
indemnifiable Losses pursuant to section 10.2.2(i) or (ii) in the aggregate
reaches the Cap Amount, after which point purchaser will have no further
obligation with respect to Losses pursuant to Section 10.2.2(i) or (ii).
10.2.3. Mitigation
Notwithstanding anything to the contrary in this Article 10, no Party shall have
an obligation to indemnify the other Party with respect to any Losses to the
extent such Losses could have reasonably been mitigated by such other Party.
10.3. Claims related to Purchase Price Adjustments.
Notwithstanding anything else contained in this Agreement or any Transfer
Agreement, neither Party shall be entitled to and shall procure that none of its
Affiliates shall make any claim pursuant to the terms of this Agreement and/or
any Transfer Agreement in respect of the same particular matter or circumstance
more than once and, consistent therewith, any amount, particular matter or
circumstance to the extent taken into account in determining the Closing
Inventory Statement or Net Worth Statement shall not form the basis of any claim
for breach of warranty or representation hereunder. Notwithstanding the
foregoing, if the Party making a claim in respect of a particular matter or
circumstance is not aware of Losses relating to such particular matter or
circumstance when the claim is made, such Party shall be entitled to make a
claim for such Losses after it becomes aware of such Losses even through the
claim is in respect of the same particular matter or circumstance, but may not
be compensated twice for the same Loss.
10.4. Indemnification Procedure as to Third-Partv Claims.
10.4.1. When a Party obtains knowledge of the commencement of any
third party claim, action, suit, or proceeding or of the
occurrence of any event or the existence of any state of
facts which may become the basis of a third-party claim (any
such claim, action, suit, or proceeding or event or state of
facts being hereinafter referred to in this Section 10.4 as a
"Third Party Claim"), in respect of which such Party (an
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"Indemnitee") is entitled to indemnification under this
Agreement (whether on its behalf or on behalf of any of its
Affiliates), such Indemnitee shall promptly notify the
indemnitor under this Agreement (the "Indemnitor") of such
Third Party Claim in writing; provided, however, that any
failure to give such notice will not waive any rights of the
Indemnitee except to the extent that the rights of the
Indemnitor are prejudiced thereby. With respect to any Third
Party Claim as to which such notice is given by the
Indemnitee to the Indemnitor, the Indemnitor may, subject to
the provisions of Section 10.4.2 below, assume the defense
and settlement of such Third Party Claim; provided, however,
that (i) the Indemnitee shall cooperate with the Indemnitor
in the defense and settlement of such Third Party Claim in
any manner reasonably requested by the Indemnitor; the
Indemnitee will not, and it will use all reasonable efforts
to ensure that its employees will not, make an admission of
liability in respect of any Third Party Claim and as soon as
it becomes aware of a Third Party Claim it shall issue an
instruction to relevant employees requiring them not to make
any disclosure or statement to any third party in relation to
any Third Party Claim or any product or service to which such
Third Party Claim relates without the prior written consent
of the Indemnitor (such consent not to be unreasonably
withheld or delayed); (ii) the Indemnitee shall have the
right to pay or settle such Third Party Claim at any time, in
which event the Indemnitee shall be deemed to have waived any
right to indemnification therefor by the Indemnitor if the
Indemnitor has not consented to such payment or settlement
(provided that such consent shall not be unreasonably
withheld or delayed); and (iii) the Indemnitor shall not
consent to the entry of any judgment or enter into any
settlement with respect to such Third Party Claim without the
written consent of the Indemnitee, which consent shall not be
unreasonably withheld or delayed. With respect to any Third
Party Claim assumed by the Indemnitor, the Indemnitee shall
be permitted to join in the defense and settlement of such
Third Party Claim and to employ counsel at its own expense.
10.4.2. If (i) the Indemnitor fails to assume the defense of such
Third Party Claim or, having assumed the defense and
settlement of such Third Party Claim, fails reasonably to
contest such Third Party Claim in good faith, or (ii) the
remedy sought by the claimant with respect to such Third
Party Claim is not solely for money damages, the Indemnitee,
without waiving its right to indemnification, may (but shall
have no obligation to) assume the defense and settlement of
such Third Party Claim (at the Indemnitor's expense in the
case of clause (i)); provided, however, that (A) in the case
of clause (ii) only, the Indemnitor shall be permitted to
join in the defense and settlement of such Third Party Claim
and to employ counsel at its own expense. (B) the Indemnitor
shall cooperate with the Indemnitee in the defense
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and settlement of such Third Party Claim in any reasonable
manner requested by the Indemnitee, and (C) in the case of
clause (ii) only, the Indemnitee shall not consent to the
entry of any judgment or enter into any settlement with
respect to such Third Party Claim without the written consent
of the Indemnitor (which consent shall not be unreasonably
withheld or delayed).
10.4.3. As used in this Section 10.4, the term Indemnitee shall be
deemed to include the plural thereof where the rights or
obligations of more than one Indemnitee may be involved.
10.5. Tax Indemnity.
(a) GM shall indemnify Purchaser, the JV Companies and the Sale Companies
for all Taxes of the JV Companies or the Sale Companies to the extent
that provision or reserve in respect of such Taxes was not (1) made in
the Net Worth Statement or (2) otherwise taken into account in the
preparation of the Net Worth Statement (as expressly accounted for in
the work papers for the Net Worth Statement) (i) for taxable periods
ending on or before the Closing Date and (ii) for any period not ending
on or before the Closing Date, for the portion any Taxes attributable
to the period ending on the Closing Date. For purposes of attributing
Taxes to the portion of the period ending on the Closing Date pursuant
to clause (ii) above, Taxes determined by reference to income, capital
gains, gross income, gross receipts, sales, net profits, windfall
profits or similar items shall be determined on a closing of the books
method and all other Taxes shall be determined by the ratio of the
number of days in the portion of the period ending on the Closing Date
to the total number of days in the period. GM's indemnity for Taxes
related to a JV Company shall be limited to the Relevant Percentage of
the total issued share capital of the JV Company owned by GM. GM shall
be entitled, as an offset to any required indemnification, to the
benefit of any provision or reserve which exceeds the amount of Taxes
ultimately paid. GM shall not be required to indemnify Purchaser for
any Taxes if a recovery for such Taxes has been made under the
warranties contained in this agreement.
(b) GM shall be liable and indemnify Purchaser for all (i) Taxes
attributable to the ownership of the Acquired Assets or any operations
of the Seating Business and (ii) for Taxes of any Asset Seller, in
either case, for all taxable periods (or portions thereof) ending on or
before the Closing Date and shall promptly reimburse Purchaser for any
such Taxes that Purchaser and/or relevant Asset Purchaser pays or
incurs. For the avoidance of doubt, GM shall not be liable for any
Taxes in respect of the means adopted with the agreement of the
Purchaser prior to, on or after completion to achieve the repayment or
settlement of debts owed by Delphi Interior Systems South Africa (Pty)
Limited to any member of the GM Group.
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(c) Purchaser and/or relevant Asset Purchaser shall be liable and indemnify
GM for all Taxes attributable to the ownership of the Acquired Assets
or any operations of the Seating Business for all taxable periods (or
portions thereof) after the Closing Date and shall promptly reimburse
GM for any such Taxes that GM pays or incurs.
(d) For purposes of allocating Taxes under paragraphs (b), and (c) above,
for any period that includes but does not end on the Closing Date, (i)
GM shall be liable for any Taxes determined by reference to income,
capital gains, gross income, gross receipts, sales, net profits,
windfall profits or similar items accrued on or before the Closing
Date; and (ii) liability for all other Taxes shall be allocated pro
rata between Purchaser and GM based on the number of days in the
taxable period, defined in accordance with local custom, for which each
party is liable for Taxes hereunder.
(e) GM shall cause each JV Company and each Sale Company to prepare and
file all tax returns and reports due on or prior to the Closing Date,
which returns and reports shall be prepared and filed timely and on a
basis consistent with existing procedures for preparing such returns
and reports and in a manner consistent with prior practice with respect
to the treatment of specific items on the returns or reports; provided,
however, that if the treatment of an item on any such return or report
has not been provided by prior practice, GM shall cause the JV Company
or the Sale Company, as the case may be, to report such items in a
manner that would result in the least amount of Tax liability to the
Purchaser and the applicable JV Company or Sale Company for periods
ending after the Closing Date. Purchaser shall cause each JV Company
and Sale Company to prepare and file all tax returns and reports due
after the Closing Date, which returns and reports, to the extent they
relate to taxable periods beginning prior to, but including the Closing
Date, and for the purpose of determining GM's liability for Taxes,
shall be prepared and filed timely and on a basis consistent with
existing procedures for preparing such returns and in a manner
consistent with prior practice with respect to the treatment of
specific items on the returns and reports, unless such treatment does
not have sufficient legal support to avoid the imposition of penalties.
GM will not be liable for any Taxes of any JV Company or Sale Company
to the extent such Taxes resulted (i) from Purchaser's, JV Company's,
or Sale Company's, as the case may be, voluntary filing of an amended
tax return for any period ending on or prior to the Closing Date, (ii)
from JV Company's or Sale Company's, as the case may be, deliberate
omission after the Closing Date to make any claim, election or
disclaimer or to give any notice or consent the making of which was
assumed in computing any reserve for Taxes made in the Net Worth
Statement and which was provided to Purchaser in writing on a timely
basis, or (iii) from JV Company's or Sale Company's, as the case may
be, voluntary making or giving any claim, election, disclaimer or
notice after the Closing Date, provided than an exclusion in (i), (ii),
or (iii) will not apply if the action (or failure to act) was (1)
required, in the good faith judgment of
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Purchaser, JV Company, or Sale Company, as the case may be, to avoid
the possible imposition of penalties or (2) was required by, or
otherwise necessitated by, a claim by any taxing authority with respect
to any Taxes or tax return of the Purchaser, JV Company, or Sale
Company or any affiliate of Purchaser, JV Company, or Sale Company. In
the event GM is liable under Section 10.5(a) hereof for Taxes due in
connection with any returns caused to be filed by Purchaser, GM shall
pay the amount of such liability to the Purchaser within 14 days of the
request.
(f) Purchaser, each JV Company, each Sale Company, and GM shall provide
each other with such assistance as may reasonably be requested by the
others in connection with the preparation of any return or report of
Taxes, any audit or other examination by any taxing authority, or any
judicial or administrative proceedings relating to liabilities for
Taxes. Such assistance shall include making employees available on a
mutually convenient basis to provide additional information or
explanation of material provided hereunder and shall include providing
copies of relevant tax returns and supporting material. The Party
requesting assistance hereunder shall reimburse the assisting Party for
reasonable out-of-pocket expenses incurred in providing assistance.
Purchaser, each JV Company, each Sale Company, and each member of the
GM Group shall retain for the full period of any statute of limitations
and provide the others with any records or information which may be
relevant to such preparation, audit, examination, proceeding or
determination.
(g) If in connection with any examination, investigation, audit or other
proceeding in respect of any tax return covering the operations of any
JV Company or Sale Company on or before the Closing Date, any
governmental body or authority issues to any JV Company or Sale Company
a written notice of deficiency, a notice of reassessment, a proposed
adjustment, an assertion of claim or demand concerning the taxable
period covered by such return, such notice of deficiency, notice of
reassessment, proposed adjustment, assertion of claim or demand shall
be treated as a Third Party Claim and the provisions of section 10.4 of
this Agreement shall apply.
(h) Subject to the prompt reimbursement requirements of Sections 10.5(b)
and 10.5(c), no liability under Section 10.5 shall be payable until the
occurrence of any action by any Tax authority that is final or, if not
final, is acquiesced in by the indemnifying party during the course of
any audit or any proceeding relating to Taxes. All payments required to
be made by the indemnifying party pursuant to Section 10.5 shall be
made within fourteen (14) Business Days of this occurrence of the event
described in the immediately preceding sentence.
(i) The provisions of this Section 10.5 shall not be governed by the
limitations contained in the other provisions of Section 10 and to the
extent of any inconsistency between this Section 10.5 and the other
provisions of Section
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10, the provisions of this Section 10.5 shall control. Notwithstanding
the preceding sentence, Section 10.7 shall apply to the provisions of
this Section 10.5. The obligation to indemnify pursuant to this Section
10.5 shall survive for a period equal to the statute of limitations
applicable to the Taxes to which the indemnification relates plus a
period of fifteen (15) days.
(j) For purposes of this Section 10.5, (i) the term JV Companies and the
term Sale Company shall include any subsidiary, any predecessor, or any
Person or entity from which the JV Companies or the Sale Companies
incurs a liability for Taxes as a result of transferee or joint and
several liability.
(k) If, at GM's request and expense, the auditors of any JV Company or Sale
Company determine that any liability for Taxes which has resulted in a
payment having been made or becoming due from GM under this Section
10.5 has given or will give rise to a corresponding saving (the
"Saving") for the Purchaser or any JV Company or Sale Company, the
Purchaser will as soon as reasonably practicable thereafter repay to GM
the Relevant Percentage of the lesser of: (i) the present value (using
a discount rate of equal to the interest rate on a bond of equal
maturity of the relevant government plus 1%) of the amount of the
Saving (as determined by the auditors) less any costs incurred by the
relevant JV Company or Sale Company or the Purchaser; and (ii) the
amount paid by GM in respect to any liability for Taxes which gave rise
to the Saving less any part of that amount previously repaid to GM
under these provisions or otherwise. "Relevant Percentage" means the
percentage of the total issued share capital owned by GM in the case of
a JV Company and 100% in the case of a Sale Company.
(1) If the Purchaser, a JV Company, or a Sale Company is or becomes
entitled to recover from a Person other than the Purchaser, a JV
Company, a Sale Company or any entity within the same group of
companies as the Purchaser, any JV Company, or any Sale Company any
amount relating to a liability for Taxes which has resulted in a
payment being made by GM under these provisions, the Purchaser shall,
or shall cause the relevant JV Company or Sale Company to, notify GM of
its entitlement and, if required by GM, take or cause the relevant JV
Company or Sale Company to take all reasonable steps to enforce that
recovery. GM shall indemnify the Purchaser, or relevant JV Company or
Sale Company, against any reasonable costs and expenses incurred in
enforcing the recovery. If the Purchaser or relevant JV Company or Sale
Company recovers any amount, GM shall be entitled to, either through
payment or offset, the Relevant Percentage of the lesser of: (i) the
amount recovered or (ii) the amount previously paid by GM in respect of
the liability for Taxes in question.
10.6. Exclusive Remedy.
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Except in the case of fraud or willful misconduct, and subject to the
following sentence, the Parties acknowledge that the indemnification
provisions set forth in this Article 10 shall be their and their
Affiliates' exclusive post-Closing remedy for any breach of warranty or
misrepresentation, or breach of any covenant contained in this
Agreement or any Transfer Agreement; and the Parties shall not be
entitled to a rescission of this Agreement or any Transfer Agreement or
to any further indemnification rights or claims of any nature
whatsoever in respect thereof, all of which the Parties for themselves
and on behalf of their respective Affiliates' expressly waive. Nothing
contained herein, however, shall limit the rights of any Party to seek
and obtain injunctive relief to specifically enforce the other Party's
obligations hereunder. Notwithstanding anything to the contrary
contained in this Agreement or in any Transfer Agreement, each of the
Parties shall procure that none of their respective Affiliates shall
claim any post-Closing remedy for any breach of warranty or
misrepresentation, or breach of any covenant or other obligation
contained in this Agreement or any Transfer Agreement except pursuant
to and in accordance with the indemnification provisions of this
Article 10. This Section 10.6 is subject to Section 7.13.2.
10.7. Dispute Resolution.
In the event of any dispute between the Parties relating to this
Agreement, other than with respect to Third Party Claims (which shall
be handled in the manner set forth in Section 10.4) and claims relating
to the Closing Inventory Statement (which shall be handled in the
manner set forth in Section 2.3) and claims relating to the Net Worth
Statement (which shall be handled in the manner set forth in Section
2.4) the Parties shall use all reasonable efforts to resolve such
dispute at an appropriate business level within their respective
business organizations. In the event such efforts fail, such dispute
shall be submitted to a dispute resolution panel. On a case-by-case
basis, the panel shall consist of the Chief Financial Officer, or such
individual's designee, of each Party, plus one person designated by
them together. The panel may establish procedures for submission of the
dispute, including that reasonable requests made by one Party to the
other for information shall be honored in order that each of the
Parties may be advised of relevant facts. A majority decision shall
control and be binding unless the Parties agree in writing in advance
of submittal that it shall not be binding. Each Party agrees that
neither it nor any of its Affiliates will seek to enforce the
indemnification provisions of this Article 10 as to such matter unless
and until such efforts have been unsuccessful in resolving the dispute
and at least 60 days have elapsed after a written claim for
indemnification was made with respect to such matter.
11. MISCELLANEOUS.
11.1. Bulk Sales Laws.
The parties hereto acknowledge and agree that no filings with respect
to any bulk sales or similar laws of any state or foreign jurisdiction
have been made, nor are they intended to be made, nor are such filings
a condition precedent to the Closing; and in consideration of such
waiver by Purchaser, GM agrees to defend and indemnify Purchaser and
members of the Purchaser Group against and hold Purchaser and members
of the Purchaser Group harmless from any and all claims, demands,
liabilities, and obligations arising out of the failure or
140
<PAGE> 149
alleged failure of GM or any member of the GM Group to comply with any
such law in respect of the sale of the Acquired Assets to Purchaser and
the Asset Purchasers.
11.2. Notices.
Subject to Section 7.13.5, all notices, requests, consents, or other
communications permitted or required under this Agreement shall be in
writing and shall be deemed to have been given when personally
delivered, or when sent if sent via facsimile (with receipt confirmed),
or on the first Business Day after sent by reputable overnight carrier,
or on the third Business Day after sent by registered or certified
first class mail (with receipt confirmed), to the following:
If to GM: General Motors Corporation
767th Avenue
New York, New York 10153
Attn: Treasurer
Fax No: (212) 418-3630
If to Purchaser: Lear Corporation
21557 Telegraph Road
P.O. Box 5008
Southfield, MI 48086-5008
Attn: Vice President, Secretary and General Counsel
Fax No: (248) 746-1677
with copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: John L. MacCarthy
Fax No: (312) 558-5700
provided, however, if either Party shall have designated a different
addressee by notice, then to the last addressee so designated.
11.3. Assignment.
This Agreement shall be binding and inure to the benefit of the
successors and assigns of each of the Parties, but no rights,
obligations, duties, or liabilities of either Party may be assigned
without the prior written consent of the other, which shall not be
unreasonably withheld. Notwithstanding the foregoing, any Party may
assign its rights and obligations (or any portion thereof) to an
Affiliate of such Party, provided that no such assignment shall relieve
the assigning Party of any of its obligations hereunder, but such
Affiliate must assign back its rights and obligations if such Affiliate
is no longer an Affiliate of such Party. In addition, GM may assign,
without the prior written consent of Purchaser, this Agreement and
141
<PAGE> 150
any or all of its rights, interests and obligations hereunder to a
corporation or other business entity to which all or substantially all
of the assets of its Delphi Automotive Systems business sector or any
constituent part thereof is sold or otherwise transferred, provided
that no such assignment shall relieve GM of any of its obligations
hereunder.
11.4. Entire Agreement.
This Agreement, the Ancillary Agreements and the Exhibits and Schedules
referenced and incorporated herein and therein represent the entire
agreement and understanding between the Parties with respect to the
transactions contemplated herein and therein. This Agreement and the
Ancillary Agreements supersede all prior agreements, understandings,
arrangements, covenants, representations, or warranties, written or
oral, by any officer, employee, or representative of either Party
dealing with the subject matter hereof and thereof. In the event of any
inconsistency or discrepancy between the provisions of any Transfer
Agreement and the provisions of the Master Agreement, the Master
Agreement shall prevail. The Parties will cause the relevant member of
the GM Group and the Purchaser Group, respectively, to implement all
actions and, if necessary, amend such Transfer Agreement to conform to
the Master Agreement and to cure any conflict or inconsistency between
the provisions of such Transfer Agreement and the Master Agreement.
11.5. Waiver.
Any waiver by GM or Purchaser of any breach or of a failure to comply
with any provision of this Agreement (i) shall be valid only if set
forth in a written instrument signed by the Party to be bound, and (ii)
shall not constitute, or be construed as, a continuing waiver of such
provision, or a waiver of any other breach of, or failure to comply
with, any provision of this Agreement.
11.6. Severability.
Should any provision, or any portion thereof, of this Agreement for any
reason be held invalid or unenforceable, such decision shall not affect
the validity or enforceability of any of the other provisions, or
portions thereof, of this Agreement, which other provisions, and
portions, shall remain in full force and effect, and the application of
such invalid or unenforceable provision, or portion thereof, to persons
or circumstances other than those as to which it is held invalid or
unenforceable shall be valid and be enforced to the fullest extent
permitted by law.
11.7. Amendment.
This Agreement may only be amended only in writing by duly authorized
representatives or officers of the Parties.
11.8. Fees and Expenses.
142
<PAGE> 151
Except as otherwise expressly provided in this Agreement, each Party
shall be responsible for its own costs and expenses incurred in
connection with the preparation of this Agreement, the performance of
its obligations hereunder and the consummation of the transactions
contemplated hereby, including, without limitation, the fees and
expenses of any advisor, accountant, investment banker, attorney,
broker, consultant or other representative retained by such Party, and
including fees associated with its HSR filings in the United States and
any competition filings made with regulatory authorities in any other
country.
11.9. Third Parties.
Nothing contained in this Agreement is intended to or shall be
construed to confer upon or give to any person, firm, corporation,
association, labor union, or trust other than the Parties, their
Affiliates and their respective permitted successors and assigns, any
claims, rights, or remedies under or by reason of this Agreement. No
member of Purchaser Group or GM Group, other than Purchaser and GM, may
have any direct rights or obligations under this Agreement.
11.10. Headings.
The headings contained in this Agreement are inserted for convenience
only and shall not be deemed to constitute a part hereof.
11.11. Counterparts.
More than one counterpart of this Agreement may be executed by the
Parties, and each fully executed counterpart shall be deemed an
original, but all of which, together shall constitute one and the same
instrument.
11.12. Governing Law.
The validity, interpretation and effect of this Agreement shall be
construed and enforced in accordance with the laws of the State of
Michigan, without giving effect to rules governing the conflict of
laws.
11.13. Sales or Transfer Taxes.
Notwithstanding any other provision of this Agreement, all sales taxes,
documentary and stamp taxes or duties, registration taxes, transfer
taxes, use taxes, gross receipts taxes, goods and services taxes, value
added taxes ("VAT") and all charges for filing and recording documents
in connection with the transfer of the Acquired Assets or the Sale
Securities (including intellectual property filing and recording fees)
as well as any permit, transfer, and filing fees required in order to
obtain government approvals and consents relating to the transactions
contemplated by this agreement and any Ancillary Agreements will be
borne by GM and Purchaser equally. To the extent that any VAT can be
recovered by Purchaser as a credit against Purchaser's output VAT or
otherwise, such tax shall not be borne equally but
143
<PAGE> 152
shall be paid solely by Purchaser and the provisions of the Transfer
Agreements in respect of VAT shall apply more particularly.
[Signature Page Follows]
144
<PAGE> 153
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized officers.
GENERAL MOTORS CORPORATION
By: Fred J. Bellar
--------------------------
Fred J. Bellar, III
Director, Venture Development
LEAR CORPORATION
By: Joseph F. McCarthy
---------------------------
Joseph F. McCarthy
Vice President, Secretary and General Counsel
145
<PAGE> 154
LIST OF SCHEDULES AND EXHIBITS
SCHEDULE
DESIGNATION SCHEDULE DESCRIPTION
- ----------- --------------------
A GM Knowledge
B Transfer Agreements
C Pension Schemes
1.1.1.A Prepaid Expenses
1.1.1.B Patent Joint Owners and Intellectual Property Contracts
1.1.1.C Acquired US Assets
1.1.2 Asset Purchasers and Asset Sellers
1.2.1.A GM Bailed Assets
1.2.1.B PO Bailment Terms and Conditions
1.2.3 Third Party Assets
1.2.5 Excluded Financing Contracts
1.2.6 PEP Cars, Pooled Vehicles and Work Vehicles
1.4.1 Certain Contracts, Permits and Leases
1.5 Securities Purchasers and Securities Sellers
2.1.1 Allocation of Basic Price
4.1.4 Corporate Overhead Services
4.1.5.A Permitted Liens
4.1.5.B Machinery, Equipment, and Capitalized Tools
4.1.6.A Litigation
4.1.6.B Significant Labor Disputes
4.1.7.A Intellectual Property Contracts
4.1.7.B Intellectual Property Matters
4.1.8.A Permit Exceptions/Non-Compliance
4.1.8.B Permits
4.1.10 Consents
4.1.11.A Unaudited Balance Sheet and Income Statement for each of
the Sale Companies and JV Companies as of 12/31/97
4.1.11.B Combined Business Pro Forma Statements as of 7/31/98
4.1.11.C Unaudited Balance Sheet and Income Statement for Each of
the Sale Companies and JV Companies as of 7/31/98
4.1.12 Events Subsequent to Latest Financial Statements
4.1.13.A Contracts
4.1.13.B Contracts - Exceptions
4.1.13.C Collective Bargaining Agreements
4.1.14 Regulatory Matters
4.1.15.A US Owned Real Property
4.1.15.B US Leased Real Property
4.1.15.C Exceptions to Contracts to Purchase or Sell US Real Property
4.1.15.D Exceptions to Adequacy of Utilities
4.1.15.E European Owned Real Property
4.1.15.F European Leased Real Property
<PAGE> 155
SCHEDULE
DESIGNATION SCHEDULE DESCRIPTION
- ----------- --------------------
4.1.15.G Excluded European Real Property
4.1.16 Tax Matters Disclosure
4.1.17.B Necessary Consents on Approvals - Seller
4.1.17.C Potential Liens - Seller
4.1.19 Related Party Transactions
4.1.23.B Authorized Capital and Par Value
4.1.23.C Authorized Capital Exceptions
4.1.24 Additional Disclosure
4.2.6.B Necessary Consents and Approvals - Buyer
4.2.6.C Potential Liens - Buyer
5.1.A Transferred Employees (US)
6.2 Unrecorded Agreements, Easements, Restrictions, and Other
Encumbrances
7.1.9 Relevant US Plant Managers and Environmental Supervisors
7.1.16 United States Real Property
7.2.2.A GM US Environmental Assessments Delivered to Purchaser
7.2.2.B Purchaser US Environmental Assessments Delivered to GM
7.2.3.A GM US Environmental Compliance Audit Reports Delivered
to Purchaser
7.2.3.B Purchaser US Environmental Compliance Audit Reports
Delivered to GM
7.3.1 Environmental Conditions at United States Real Property
7.3.6 Non-Compliance Matters at United States Real Property
7.6.1 Environmental Permits at United States Real Property
7.6.1.A Environmental Permits to be Transferred as a Matter of Law
at United States Real Property
7.6.1.B Environmental Permits That Cannot be Transferred as a
Matter of Law or Which Cannot be Transferred before
Closing at United States Real Property
7.6.1.C Environmental Permits Not Being Transferred at United
States Real Property
7.8.1 Pending Civil, Criminal and Administrative Actions at
United States Real Property
7.8.2 Pending Governmental Requests for Information Regarding
Releases at United States Real Property
7.8.3 United States Real Property Appearing on National Priorities
List under CERCLA or State Site Lists of Environmental
Contamination
7.8.4 Violations of Environmental Laws at United States Real
Property
7.8.5 Hazardous Materials Use at United States Real Property
7.8.6 Hazardous Materials Disposal/Release at United States Real
<PAGE> 156
SCHEDULE
DESIGNATION SCHEDULE DESCRIPTION
- ----------- --------------------
Property
7.8.7 Environmental Permits Not in Effect or Non-compliant at
United States Real Property
7.8.8 Liens Under Environmental Law Attached to Acquired
Assets or Real Property
7.14.10 Relevant Plant Managers and Environmental Supervisors at
Non-US Properties and Short Presence Properties
7.14.12 Non-US Properties
7.14.18 Short Presence Properties
7.15.2.A GM Non-US Environmental Assessments Delivered to
Purchaser
7.15.2.B Purchaser Non-US Environmental Assessments Delivered to
GM
7.15.3.A GM Non-US Compliance Audit Reports Delivered to GM
7.15.3.B Purchaser Non-US Compliance Audit Reports Delivered to
GM
7.16.1 Environmental Conditions at Non-US Properties
7.16.4 Non-Compliance Matters at Non-US Properties and Short
Presence Properties
7.19.1 Non-US Environmental Permits
7.19.2 Non-US Environmental Permits - Transfer
7.20.1 Non-US Pending Civil, Criminal and Administrative Actions
7.20.2 Non-US Pending Regulatory Requests for Information
7.20.3 Non-US Violations of Applicable Environmental Laws
7.20.4 Non-US Hazardous Materials Use
7.20.5 Non-US Hazardous Materials Disposal/Release
7.20.6 Liens Attached to Non-US Properties, Short Presence
Properties or the Acquired International Assets under current
Applicable Environmental Laws
7.20.7 Non-US Environmental Permits Not in Effect or Non-
Compliant
9.8.3.A Licensed Seating Patents
9.8.3.B Seating Patents Licensed by Adam Opel AG
9.8.5.A Delphi Seating Patents
9.8.5.B Delphi Automotive Systems Deutschland GmbH Seating
Patents
9.8.6.A US Seating Patents Purchased by GM from Employees of
Adam Opel AG In Germany
9.8.6.B Additional Seating Patents
9.8.8 Joint Seating Patents
9.8.9 Trademarks
<PAGE> 157
SCHEDULE
DESIGNATION SCHEDULE DESCRIPTION
- ----------- --------------------
EXHIBIT
DESIGNATION EXHIBIT DESCRIPTION
- ----------- -------------------
7.2.1 Environmental Confidentiality and Access Agreement
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF NET INCOME PER SHARE
(In millions, except share information)
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
--------------------------- --------------------------- ---------------------------
Basic Diluted Basic Diluted Basic Diluted
------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Income before
extraordinary items $ 115.5 $ 115.5 $ 208.2 $ 208.2 $ 151.9 $ 151.9
Extraordinary items - - (1.0) (1.0) - -
------------- ------------- ------------- ------------- ------------- ------------
Net income $ 115.5 $ 115.5 $ 207.2 $ 207.2 $ 151.9 $ 151.9
============= ============= ============= ============= ============= ============
Weighted Average Shares:
Common shares outstanding 66,947,135 66,947,135 66,304,770 66,304,770 60,485,696 60,485,696
Exercise of stock options (1) - 1,076,240 - 1,943,313 - 3,275,938
Exercise of warrants (2) - - - - - -
------------- ------------- ------------- ------------- ------------- ------------
Common and equivalent shares
outstanding 66,947,135 68,023,375 66,304,770 68,248,083 60,485,696 63,761,634
============= ============= ============= ============= ============= ============
Per Common and Equivalent Share:
Income before
extraordinary items $ 1.73 $ 1.70 $ 3.14 $ 3.05 $ 2.51 $ 2.38
Extraordinary items - - (0.01) (0.01) - -
------------- ------------- ------------- ------------- ------------- ------------
Net income per share $ 1.73 $ 1.70 $ 3.13 $ 3.04 $ 2.51 $ 2.38
============= ============= ============= ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1995 December 31, 1994
-------------------------- ---------------------------
Basic Diluted Basic Diluted
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Income before
extraordinary items $ 94.2 $ 94.2 $ 59.8 $ 59.8
Extraordinary items (2.6) (2.6) - -
------------ ------------ ------------ -------------
Net income $ 91.6 $ 91.6 $ 59.8 $ 59.8
============ ============ ============ =============
Weighted Average Shares:
Common shares outstanding 48,944,181 48,944,181 42,602,167 42,602,167
Exercise of stock options (1) - 3,544,757 - 3,321,954
Exercise of warrants (2) - - - 1,514,356
------------ ------------ ------------ -------------
Common and equivalent shares
outstanding 48,944,181 52,488,938 42,602,167 47,438,477
============ ============ ============ =============
Per Common and Equivalent Share:
Income before
extraordinary items $ 1.92 $ 1.79 $ 1.40 $ 1.26
Extraordinary items (0.05) (0.05) - -
------------ ------------ ------------ -------------
Net income per share $ 1.87 $ 1.74 $ 1.40 $ 1.26
============ ============ ============ =============
</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.
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
<S> <C>
AB Extruding (Sweden) Lear Corporation Mendon (Delaware)
AB Trelleborgplast (Sweden) Lear Corporation Mexico S. A. de C. V. (99.6%) (Mexico)
AII Automotive Industries Canada Inc. (Canada) Lear Corporation Poland Gliwice S.p. z o.o.
Alfombras San Luis S. A. (Argentina) Lear Corporation Poland S.p. z o.o. (Poland)
Amtex, Inc. (50%) (Pennsylvania) Lear Corporation Poland II S.p. z o.o. (Poland)
Asia Pacific Components Co., Ltd. (Thailand) (98%) Lear Corporation Spain Holdings S.L.
Auto Interiors India Private Ltd. (25%) Lear Corporation Spain S.L.
Autoform Kunststoffteile GmbH (Germany) Lear Corporation Sweden AB (Sweden)
Autotrim, S.A. de C.V. (40%) (Mexico) Lear Corporation Sweden Gnosjoplast AB (Sweden)
AVB Anlagen und Vorrichtungsbau GmbH (55%) (Germany) Lear Corporation UK Holdings Ltd. (UK)
Aviken Plast AB (Sweden) Lear Corporation UK Interior Systems Ltd. (UK)
Chongqing Lear Chang'an Automotive Interior Trim Co., Ltd. (China) Lear Corporation Verwaltungs GmbH (Germany)
(35.75%) Lear de Venezuela, C.A. (Venezuela)
Consorcio Industrial Mexicanos de Autopartes S.A. de C.V. (Mexico) Lear do Brazil Ltda. (Brazil)
Corporate Eagle Two LLC (50%) Lear Donnelly Overhead Systems, L.L.C. (50%)
Davart Group Ltd. (UK) Lear Donnelly Mexico, S. de R.L. de C.V. (50%)
Detroit Automotive Interiors L.L.C. (49%) (Michigan) Lear East, Inc.
Donnelly Eurotrim Ltd. (Ireland) (50%) Lear East L.P.
El Trim (Pty.)Ltd. (51%) Lear Foreign Sales Corp. (US Virgin Islands)
Empetek autodily s.r.o. (Czech Republic) (50%) Lear Holdings S.r.l. de C.V. (Mexico)
Empresas Industriales Mexicanos de Autopartes, S.A. de C.V. Lear Inespo Comercial Industrial Ltda. (50.01%) (Brazil)
(74.98%) (Mexico) Lear Investments Company, L.L.C. (Delaware)
Favesa S.r.l. de C.V. (Mexico) Lear Mexican Holdings, L.L.C. (Delaware)
General Seating of America, Inc. (Delaware) (50%) Lear Midwest, Inc.
General Seating of Canada Ltd. (Canada) (50%) Lear Midwest Automotive, Limited Partnership
General Seating of Thailand Corp. Ltd (50%) Lear Operations Corporation (Delaware) (1)
Gruppo Pianfei S.r.L. (Italy) Lear Seating Holdings Corp. # 50 (Delaware)
Guildford Kast Plastifol Dynamics Ltd. (33.3%) (UK) Lear Seating Holdings Corp. #100 (Delaware)
Hanil Lear Automotive Parts Private Ltd. (India) (50%) Lear Seating Private Limited (India)
Industrias Cousin Freres, S.L. (49.99%) (Spain) Lear Seating (Thailand) Corp., Ltd. (98%) (Thailand)
Industrias Lear de Argentina, S.A. (Argentina) Lear Technologies, L.L.C.
Industrias Lear Trim S. de R.L. de C.V. Lear Teknik Oto Yan Sanayi Limited Sirket (Turkey)(66.67%)
Industria Textil Dragui S.A. (Argentina) Lear Trim L.P. (Delaware)
Interco S.p.A. Lear UK Acquisition Limited
Interiores Automotrices Summa S.A. de C.V. (40%) (Mexico) Lear UK ISM Limited
Interiores Para Autos, S.A. de C. V. (40%) (Mexico) Lear Vijayjyot Seating Private Limited (India)(50%)
Interni S.A. (Brazil) (25%) LECA S.p. z o.o. (Poland)
Jiangxi Jiangling Lear Interior Systems Co. Ltd. (32%)(China) Markol Otomotiv Yan Sanayi VE Ticaret A.S. (35%) (Turkey)
John Cotton Plastics Ltd. (UK) Masland Industries of Canada Limited (Canada)
KRC Sewing Company (Pty) Ltd. (51%) (South Africa) Masland (UK) Limited (UK)
KRC Trim Products (Pty)Ltd. (51%) (South Africa) Masland Transportation, Inc. (Delaware)
LCT, Inc (Michigan) NAB Corporation (Delaware) (2)
L.S. Servicos Ltda. (Brazil) No-Sag Drahtfedern Spitzer & Co. KG (62.5%) (Austria)
Lear Automotive Corporation Singapore Pte. Ltd. (Singapore) OOO Lear (Russia)
Lear Bahia Ltd. (Brazil) Pianfei Engineering S.r.L. (Italy)
Lear Car Seating do Brasil Ltda. (Brazil) Pianfei Glass SA (Spain)(35%)
Lear Corporation Asientos, S.A. (Spain) Pianfei Ipa S.p.A. (Italy)
Lear Corporation Australia Pty. Ltd. (Australia) Pianfei Melfi S.p.A. (Italy)
Lear Corporation Austria GmbH (Austria) Pianfei Sicilia S.r.L. (Italy)
Lear Corporation Austria GmbH & Co. KG (Austria) Pianfei Sud S.p.A. (Italy)
Lear Corporation Automotive Components (Pty.) Ltd. (South Africa) Precision Fabrics Group (29%) (North Carolina)
Lear Corporation Beteiligungs GmbH (Germany) Protos S.r.L. (Italy)
Lear Corporation Canada Ltd. (Canada) PRPI S.p.A. (Italy)
Lear Corporation China Ltd. (65%) (Mauritius) P.T. Lear Corporation Indonesia (51%)
Lear Corporation do Brasil Ltda (Brazil) Rael Handels GmbH (Austria)
Lear Corporation Drahtfedern GmbH (Germany) Ramco Investments Limited (Mauritius)
</TABLE>
<PAGE> 2
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE COMPANY (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Lear Corporation France S.A.R.L (France) Rolloplast Formsprutning AB (Sweden)
Lear Corporation (Germany) Ltd. (Delaware) S.A.L.B.I. AB (50%) (Sweden)
Lear Corporation GmbH & Co. KG (Germany) Shanghai Lear Automobile Interior Trim Co., Ltd (China)(35.75%)
Lear Corporation Global Development, Inc. (Delaware) Shanghai Songjiang Lear Automotive Carpet & Accoustics Co.
Lear Corporation Hungary KFT Ltd (China) (35.75%)
Lear Corporation Italia Holding S.r.L. (Italy) Societe No Sag Francaise (56%) (France)
Lear Corporation Italia S.p.A. (Italy) Sommer Masland (UK) Limited (50%) (UK)
Lear Corporation Italia Specialty Car Group S.p.A. Spitzer GmbH (62.5%) (Austria)
Lear Corporation Italia Sud S.p.A. (Italy) Stapur SA (Argentina)(5%)
Lear Corporation (Nottingham) Limited (UK) Strapazzini Auto S.p.A.
Lear Corporation (S.A.)(Pty.) Ltd. (South Africa) Strapazzini Resine S.r.L. (Italy)
Lear Corporation (SSD) Ltd. (UK) SWECA Sp. z o.o. (Poland)
Lear Corporation (UK) Ltd. (UK) UPM S.r.L. (Italy) (39%)
Lear Corporation (SSD) NV(Belgium)
Lear Corporation Portugal-Components Para Automoveis, Lda.
(Portugal)
</TABLE>
(1) Lear Operations Corporation also conducts business under the names
Lear Corporation, Lear Corporation of Georgia, Lear Corporation of
Kentucky, and Lear Corporation of Ohio.
(2) NAB Corporation also conduct business under the name Lear Corporation.
All Subsidiaries are wholly-owned unless otherwise indicated.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into Lear
Corporation's previously filed Registration Statements on Form S-8 File
Nos. 33-55783, 33-57237, 33-61739, 333-03383, 333-06209, 333-16413,
333-16415, 333-28419, 333-59467, 333-62647 and Form S-3 File Nos.
33-16341 and 333-43085
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
March 26, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 1,374
<ALLOWANCES> 16
<INVENTORY> 350
<CURRENT-ASSETS> 2,198
<PP&E> 1,776
<DEPRECIATION> 594
<TOTAL-ASSETS> 5,677
<CURRENT-LIABILITIES> 2,498
<BONDS> 1,463
0
0
<COMMON> 1
<OTHER-SE> 1,299
<TOTAL-LIABILITY-AND-EQUITY> 5,677
<SALES> 9,059
<TOTAL-REVENUES> 9,059
<CGS> 8,198
<TOTAL-COSTS> 8,198
<OTHER-EXPENSES> 22
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> 210
<INCOME-TAX> 94
<INCOME-CONTINUING> 116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.70
</TABLE>
