<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BREED TECHNOLOGIES, INC.
(EXACT NAME OF CO REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 3714 22-2767118
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
---------------
FOR INFORMATION REGARDING ADDITIONAL REGISTRANTS, SEE "TABLE OF ADDITIONAL
REGISTRANTS".
---------------
5300 OLD TAMPA HIGHWAY
LAKELAND, FLORIDA 33807
(941) 668-6473
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
CHARLES J. SPERANZELLA, JR.
PRESIDENT AND CHIEF OPERATING OFFICER
BREED TECHNOLOGIES, INC.
5300 OLD TAMPA HIGHWAY
LAKELAND, FLORIDA 33807
(941) 668-6473
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH A COPY TO:
MARY A. BERNARD, ESQ.
KING & SPALDING
1185 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036-4003
(212) 556-2100
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
TITLE OF CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/4% Senior
Subordinated Notes due
2008.................. $330,000,000 100% $330,000,000 $97,350
- ----------------------------------------------------------------------------------------------------------
Guarantees of 9 1/4%
Senior Subordinated
Notes due 2008........ -- -- -- (2)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933.
(2) Pursuant to Rule 457(n), no additional registration fee is payable with
respect to the Guarantees of the Additional Registrants.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIMARY
STATE OR OTHER STANDARD
JURISDICTION OR INDUSTRIAL
EXACT NAME OF REGISTRANT AS INCORPORATION CLASSIFICATION L.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER OR ORGANIZATION CODE NUMBER IDENTIFICATION NO.
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Artistic Analytical Methods,
Inc. ...................... Michigan 3670 38-3109498
- --------------------------------------------------------------------------------
Auto Trim, Inc. ............ Texas 3710 98-0071609
- --------------------------------------------------------------------------------
BREED Alabama, Inc. ........ Alabama 3710 59-3468911
- --------------------------------------------------------------------------------
BREED Arizona, Inc. ........ Arizona 3710 59-3468925
- --------------------------------------------------------------------------------
BREED Asian Holdings,
Inc. ...................... Delaware 6749 22-3495982
- --------------------------------------------------------------------------------
BREED Automotive Technology,
Inc. ...................... Delaware 6749 51-0307885
- --------------------------------------------------------------------------------
BREED Automotive of Florida,
Inc. ...................... Florida 3710 59-3014427
- --------------------------------------------------------------------------------
BREED Automotive, L.P. ..... Delaware 3710 75-2572348
- --------------------------------------------------------------------------------
BREED Automotive West,
Inc. ...................... Delaware 6749 88-0329613
- --------------------------------------------------------------------------------
BREED International
Manufacturing Development
Corp. ..................... Delaware 3710 59-3380800
- --------------------------------------------------------------------------------
BREED Manufacturing of
Texas, Inc. ............... Texas 3710 58-1868063
- --------------------------------------------------------------------------------
BREED Nevada, Inc. ......... Nevada 6749 59-3468943
- --------------------------------------------------------------------------------
BREED Steering Systems,
Inc. ...................... Delaware 3710 59-3405344
- --------------------------------------------------------------------------------
BREED Tennessee Holdings,
L.P. ...................... Delaware 3710 59-3468927
- --------------------------------------------------------------------------------
BTI Michigan, Inc. ......... Michigan 3710 59-3468917
- --------------------------------------------------------------------------------
BTI Tennessee, Inc. ........ Tennessee 3710 59-3468919
- --------------------------------------------------------------------------------
Force Imaging Technologies,
Inc. ...................... Illinois 3670 36-2018440
- --------------------------------------------------------------------------------
Hamlin, Incorporated........ Delaware 3670 39-1128574
- --------------------------------------------------------------------------------
Innovative Mim Technologies,
Inc. ...................... Delaware 3710 59-3440945
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
The address, including zip code, and telephone number, including area code,
of the principal executive offices of each of the additional registrants is
the same as for Breed Technologies, Inc., as set forth on the facing page of
this Registration Statement.
The name, address, including zip code, and telephone number, including area
code of the agent for service for each of the Additional Registrants is the
same as for Breed Technologies, Inc., as set forth on the facing page of this
Registration Statement. Copies of communications to any Additional Registrant
should be sent to Mary A. Bernard, King & Spalding, 1185 Avenue of the
Americas, New York, New York 10036 (telephone number (212) 556-2100).
<PAGE>
BREED TECHNOLOGIES, INC.
CROSS REFERENCE TABLE
LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION IN PROSPECTUS
- ----------------------------------- -------------------------------------------
<S> <C>
A.INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration
Statement and Outside Front Outside Front Cover Page of Prospectus;
Cover Page of Prospectus...... Cover Page of the Registration Statement
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back
Cover Pages of Prospectus..... Cover Page
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other Summary; Risk Factors; The Company;
Information................... Selected Consolidated Financial
Information--BREED
4. Terms of the Transaction........ Summary; The Exchange Offer; Description of
the Notes; United States Federal Income
Tax Considerations
5. Pro Forma Financial
Information................... Summary; Unaudited Pro Forma Financial Data
6. Material Contacts with the
Company Being Acquired........ Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters.................. Not Applicable
8. Interests of Named Experts and
Counsel....................... Legal Matters
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Not Applicable
B.INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Prospectus Summary; Risk Factors;
Registrants................... Capitalization; Management's Discussion
and Analysis of Financial Condition and
Results of Operations--BREED; Selected
Consolidated Financial Information--
BREED; Business; Management; Description
of the Notes; Financial Statements
11. Incorporation of Certain
Information by Reference...... Not Applicable
12. Information With Respect to S-2
or S-3 Registrants............ Not Applicable
13. Incorporation of Certain
Information by Reference...... Not Applicable
14. Information With Respect to
Registrants Other Than S-3 or Not Applicable
S-2 Registrants...............
C.INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information With Respect to S-3
Companies..................... Not Applicable
16. Information With Respect to S-2
or S-3 Companies.............. Not Applicable
17. Information With Respect to
Companies Other Than S-2 or
S-3 Companies................. Not Applicable
D.VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents
or Authorizations are to be
Solicited..................... Not Applicable
19. Information if Proxies, Consents
or Authorizations are not to
be Solicited, or in an
Exchange Offer................ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE , 1998
BREED TECHNOLOGIES, INC.
OFFER TO EXCHANGE ALL OF ITS OUTSTANDING
9 1/4% SENIOR SUBORDINATED NOTES DUE 2008
FOR 9 1/4% SENIOR SUBORDINATED NOTES
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
-----------
Breed Technologies, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal relating to
the Exchange Offer (the "Letter of Transmittal"), to exchange $1,000 principal
amount of its 9 1/4% Senior Subordinated Notes due 2008 (the "New Notes"),
which will be registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for each $1,000 principal amount of its outstanding 9
1/4% Senior Subordinated Notes due 2008 (the "Old Notes," and, together with
the New Notes, the "Notes"), of which an aggregate of $330,000,000 in principal
amount is outstanding as of the date of this Prospectus. The form and terms of
the New Notes are identical in all material respects to the form and terms of
the Old Notes, except for certain transfer restrictions and registration rights
relating to the Old Notes and except that, if the Exchange Offer is not
consummated by October 25, 1998, the rate at which the Old Notes bear interest
will be increased pursuant to the terms of the Registration Rights Agreement
(as defined herein). See "Exchange Offer; Registration Rights." The Old Notes
were originally issued and sold (the "Offering") by the Company in a private
placement to NationsBanc Montgomery Securities LLC and Prudential Securities
Incorporated (the "Initial Purchasers") on April 28, 1998 (the "Closing Date")
and were resold by the Initial Purchasers in transactions exempt from, or not
subject to, the registration requirements under the Securities Act.
The New Notes mature on April 15, 2008, unless previously redeemed. Interest
on the New Notes will be payable semiannually on April 15 and October 15 of
each year, commencing October 15, 1998. The New Notes will be redeemable, in
whole or in part, at the option of the Company at any time on or after April
15, 2003, at the redemption prices set forth herein, plus accrued and unpaid
interest to the date of redemption. In addition, at any time on or prior to
April 15, 2001, the Company may redeem New Notes with the net proceeds of one
or more equity offerings at a redemption price equal to 109.25% of the
principal amount thereof, plus accrued and unpaid interest to the date of
redemption, provided that at least 65% of the aggregate principal amount of New
Notes issued remains outstanding after each such redemption. Upon a Change of
Control (as defined herein), the Company will be required to make an offer to
repurchase all outstanding New Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of repurchase. See
"Description of the Notes."
The New Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined herein) of the Company, including indebtedness incurred pursuant to
the New Credit Facility (as defined herein). The New Notes will rank pari passu
in right of payment with all future senior subordinated indebtedness of the
Company, if any, and will rank senior in right of payment to all future
subordinated indebtedness of the Company, if any. The New Notes will be
guaranteed, on a senior subordinated basis, by the active domestic subsidiaries
of the Company (the "Subsidiary Guarantors") other than BTI Capital Trust and
certain domestic subsidiaries owned by a foreign subsidiary of the Company. The
New Notes will be effectively subordinated in right of payment to all
indebtedness and other liabilities (including trade payables) of the Company's
subsidiaries that are not Subsidiary Guarantors. As of April 30, 1998, the
Company and the Subsidiary Guarantors have $525.0 million of indebtedness
outstanding ranking senior to the New Notes (excluding $11.2 million in letters
of credit). As of March 31, 1998, the Company's subsidiaries that are not
Subsidiary Guarantors have an aggregate of $275.0 million of accounts payable
and third-party indebtedness outstanding. See "Description of the Notes--
Subordination."
<PAGE>
The Company will accept for exchange any and all validly tendered Old Notes
on or prior to 5:00 p.m., New York City time, on , 1998 (if and as
extended, the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The
Exchange Offer."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other than broker-dealers, as set
forth below, and any such holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and that such holder has no arrangement or understanding
with any person to participate in the distribution of such New Notes. Any
holder who tenders in the Exchange Offer with the intention to participate, or
for the purpose of participating, in a distribution of the New Notes or who is
an affiliate of the Company may not rely upon such interpretations by the
staff of the Commission and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction. Holders of
Old Notes wishing to accept the Exchange Offer must represent to the Company
in the Letter of Transmittal (as defined herein) that such conditions have
been met.
Each broker-dealer (other than an affiliate of the Company) that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has
agreed that, starting on the Expiration Date and ending on the close of
business 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." Any broker-dealer who is an affiliate of the Company
may not rely on such no-action letters and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction
The Company will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use
of Proceeds" and "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE NEW NOTES OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS , 1998
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by the Company may be
examined without charge at, or copies obtained upon payment of prescribed fees
from, the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and are also available for
inspection and copying at the regional offices of the Commission located at
Seven World Trade Center, New York, New York 10048 and at 500 West Madison
Street, Chicago, Illinois 60661-2511. The Commission also maintains a web site
that contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov. Such material can also be inspected at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement", which term shall encompass all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and
the rules and regulations promulgated thereunder, covering the New Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement. For further information with respect to the
Company and the New Notes offered in the Exchange Offer, reference is made to
the Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the document or matter
involved, and each such statement is qualified in its entirety by such
reference. The Registration Statement, including the exhibits thereto, can be
inspected and copied at the public reference facilities maintained by the
Commission and its regional offices at the locations listed above.
As a result of the filing of the Registration Statement with the Commission,
the Subsidiary Guarantors (as defined herein) will become subject to the
informational requirements of the Exchange Act, and in accordance therewith
will be required to file periodic reports and other information with the
Commission. The Company intends to request the Commission to conditionally
exempt the Subsidiary Guarantors from the informational requirements of the
Exchange Act pursuant to Staff Accounting Bulletin No. 53 and Rule 12(h) of
the Exchange Act. In the event that neither the Company nor any Subsidiary
Guarantor is subject to the informational requirements of the Exchange Act,
the Company will be required under the Indenture (as defined herein) to
continue to file with the Commission the annual and quarterly reports,
information, documents or other reports, including, without limitation,
reports on Forms 10-K, 10-Q and 8-K, which would be required pursuant to the
information requirements of the Exchange Act.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and historical and pro forma
financial statements and notes thereto included or incorporated by reference in
this Prospectus. Unless the context otherwise requires, (i) references to
"BREED" or the "Company" are to Breed Technologies, Inc. and its direct and
indirect subsidiaries (including SRS), (ii) references to "SRS" are to the
safety restraint systems business of AlliedSignal Inc. ("AlliedSignal")
acquired by the Company on October 30, 1997 (the "SRS Acquisition"), (iii)
references to the "1997 Acquisitions" are to the acquisition of certain assets
and liabilities of the North American steering wheel operations ("USS") of
United Technologies in October 1996 and the acquisition of the Custom Trim
group of companies ("Custom Trim") in February 1997, (iv) references to any
"fiscal" year of the Company or of SRS refer to the Company's or SRS's fiscal
year ended or ending June 30 or December 31, respectively, in such year, and
(v) references to the "model year" of automobiles mean the twelve-month period
generally commencing on September 1 of the prior year, although specific model
years may vary by manufacturer and vehicle.
THE COMPANY
The Company is a worldwide leader in the design, development, manufacture and
sale of automotive occupant protection systems and components. Its principal
products include sensors, electronics and related software, airbags and
inflators, seatbelt systems and steering wheels. The Company's products are
used in over 400 vehicle models manufactured by over 45 automobile
manufacturers ("OEMs"), including General Motors ("GM"), Fiat, Ford, Chrysler,
Suzuki and most of the world's largest OEMs. The Company presently sells
products to customers in over 14 countries worldwide and believes that it is
the largest independent supplier of both seatbelt systems and steering wheels
in the world.
The Company's goal is to become the leading worldwide supplier of complete,
integrated occupant protection systems, which consist of (i) sensors and
electronics (including crash and occupant protection sensors, diagnostic
electronics and related software), (ii) airbag modules (consisting primarily of
airbags and inflators), (iii) seatbelt systems (including pretensioners and
retractors) and (iv) steering wheels. To accomplish this goal, the Company has
pursued strategic acquisitions, acquiring ten companies since August 1994. On
October 30, 1997, the Company consummated its largest acquisition to date, the
SRS Acquisition, for an aggregate purchase price of $710.0 million in cash. SRS
is the largest independent supplier of seatbelt systems and the third largest
independent supplier of airbag systems in the United States and is a leading
supplier of seat belts and airbag systems to OEMs worldwide. The SRS
Acquisition expanded the Company's capabilities by adding seatbelt systems and
complementary airbag technology, which should enable the Company to supply
complete, integrated occupant protection systems to OEMs on a worldwide basis.
The SRS Acquisition also significantly expanded the Company's penetration with
each of the three largest North American OEMs (GM, Ford and Chrysler) and with
Fiat in Europe.
In addition to the SRS Acquisition, the Company has recently completed
several other significant acquisitions, including the acquisition of Gallino
Plasturgia, S.r.l. ("Gallino"), an Italian manufacturer of steering wheels and
plastic interior and exterior parts, the acquisition of USS, a steering wheel
manufacturer, and the acquisition of Custom Trim, which produces leather
wrapped steering wheels and other automotive leather wrapped products. As a
result of its acquisition strategy, BREED has rapidly evolved from
predominantly the producer of a single product--electromechanical sensors ("EMS
sensors")--to a leading manufacturer of all of the components required for
complete, integrated occupant protection systems. The Company believes that it
is now one of only three independent suppliers capable of providing OEMs with
such complete, integrated occupant protection systems on a worldwide basis. The
Company believes that this capability positions it to better respond to OEMs'
continuing consolidation of their supplier base and their increasing use of
full-service suppliers able to provide a broad range of products and services
worldwide.
4
<PAGE>
As part of its strategy to become the leading worldwide supplier of complete,
integrated occupant protection systems, in December 1997 the Company and
Siemens Aktiengesellschaft ("Siemens") agreed to form a joint venture (the
"Siemens Joint Venture") pursuant to a joint venture agreement (the "Joint
Venture Agreement"). In connection with the Siemens Joint Venture, Siemens made
a $115.0 million equity investment in the Company (the "Siemens Investment"),
the proceeds of which were used to finance a portion of the purchase price of
the SRS Acquisition. The Siemens Joint Venture provides for the worldwide
research, development, engineering, assembly and marketing of integrated
occupant protection systems incorporating at least one component manufactured
by each of BREED and Siemens (a "JV System"). When fully operational over the
next several years, the Siemens Joint Venture is expected to assume the sales
and marketing, as well as the research, development and engineering, functions
for both the Company's and Siemens' integrated occupant protection systems. The
Company expects that components comprising JV Systems will continue to be
produced separately by Siemens and BREED but will be sold by the Siemens Joint
Venture under trade names owned by it. Further, it is anticipated that all
sales and marketing personnel relating to JV Systems and components will be
employed by the Siemens Joint Venture and that billing and collection
activities will be handled by the Siemens Joint Venture on a pass-through
basis. Completion of the Siemens Joint Venture is subject to approval from
regulatory authorities in Europe. See "Recent Transactions--Siemens Joint
Venture."
The Company believes that consumer safety concerns, as well as rapid
technological changes in various components, have created a demand for
"intelligent" occupant protection systems. Intelligent or "variable deployment"
systems will be able to react differently to individual crash situations based
on such variables as occupant size and position, vehicle speed and type of
crash. These next generation intelligent systems will combine airbags, seat
belts and multiple electronic sensors to provide information to ensure proper
airbag inflation and seat belt tension. A critical element of these intelligent
systems will be the complex algorithm that interprets data sent by sensors to
analyze crash and occupant variables and to trigger the appropriate levels of
restraint. Because of the complexity of intelligent systems and the number of
components needed to complete each system, the Company believes that only
providers of complete, integrated systems will be able to meet this demand. The
Company believes that some OEMs will begin to install these next generation
complete, integrated occupant protection systems beginning in model years 2001
and 2002. The Company believes that the combination of Siemens' expertise in
sensors and electronics and the Company's expertise in airbags, seatbelt
systems and steering wheels, as well as BREED's experience in the complex
algorithm required by integrated systems, will expedite their joint development
of these next generation, complete, integrated occupant protection systems.
The Company was incorporated under the laws of the State of Delaware in 1986.
The Company's principal executive offices are located at 5300 Old Tampa
Highway, P.O. Box 33050, Lakeland, Florida 33807-3050 and its telephone number
is (941) 668-6000.
RECENT DEVELOPMENTS
During the three months ended December 31, 1997, the Company formulated a
repositioning program designed to reduce operating costs and increase
productivity (the "Repositioning Program"). The Repositioning Program consists
primarily of a 25% planned reduction in the Company's global workforce (or
approximately 4,900 employees) through the elimination of redundant and
overlapping positions resulting from recent acquisitions, the consolidation of
the Company's manufacturing, sales and engineering facilities primarily in
North America and Europe through the closing of approximately 50% (or 32) of
its manufacturing facilities and 33% (or 10) of its sales and engineering
facilities and the disposal of certain non-core assets. The Company expects the
Repositioning Program to generate approximately $855 million in aggregate
cumulative cost savings (which includes approximately $780 million of cash
savings), which will be realized over the five-year period ending June 30,
2002.
5
<PAGE>
In connection with the Repositioning Program, the Company incurred a $244.0
million repositioning charge (the "Repositioning Charge") during the three
months ended December 31, 1997, which included the following: (i) $30.8 million
relating to planned work force reductions; (ii) $31.4 million relating to
proposed facility consolidations (not including any SRS facilities); (iii)
$77.6 million relating to the write-down of goodwill associated with the
disposal of long-lived assets; (iv) $41.3 million relating to the write-down to
net realizable value of certain long-lived assets in connection with the
Gallino Disposition (as defined herein); and (v) $62.9 million relating to the
write-down of impaired production and other equipment and the write-off of
assets used to manufacture products being replaced by new technologies. In
connection with the Repositioning Program, the Company also incurred disruption
costs of approximately $9.0 million during the nine months ended March 31, 1998
(the "Disruption Costs") in connection with closing and consolidating
manufacturing facilities.
In addition, during the three months ended December 31, 1997, (i) in
connection with the purchase price allocation for the SRS Acquisition, the
Company incurred a $77.5 million charge relating to the write-off of in-process
research and development for acquired technology that has not been established
as technologically feasible (the "R&D Write-Off") and (ii) the Company incurred
a $28.4 million charge against cost of sales for inventory and long-term
customer contracts relating to manufacturing processes that will be exited (the
"COS Charge" and, together with the R&D Write-Off and the Repositioning Charge,
the "December 1997 Charges").
RECENT TRANSACTIONS
On October 30, 1997, the Company consummated the SRS Acquisition. The SRS
Acquisition was financed with (i) borrowings under a $900.0 million bridge
credit facility (the "Bridge Credit Facility") arranged by NationsBank, N.A.
("NationsBank"), (ii) the proceeds of the Siemens Investment and (iii) the
proceeds from the issuance and sale to Prudential Securities Credit Corp.
("PSCC"), of $200.0 million of Series B Convertible Preferred Stock of the
Company (the "Series B Preferred"). On November 25, 1997, the Company sold
$257.7 million of its 6.50% Convertible Subordinated Debentures due 2027 (the
"Convertible Debentures") to BTI Capital Trust, which, concurrently therewith,
sold $250.0 million aggregate liquidation amount of its 6.50% Convertible Trust
Preferred Securities (the "Preferred Securities") (which are guaranteed by the
Company) in a private transaction under Rule 144A under the Securities Act (the
"Preferred Securities Offering"). The Company used a portion of the net
proceeds received in connection with the Preferred Securities Offering to
redeem all of the outstanding Series B Preferred in accordance with the terms
thereof. Consummation of the Bridge Credit Facility and the initial borrowings
thereunder in connection with the SRS Acquisition, the Siemens Investment, the
Preferred Securities Offering and the application of the proceeds therefrom are
referred to herein as the "SRS Financing Transactions." The SRS Financing
Transactions and the SRS Acquisition are referred to herein collectively as the
"SRS Transactions."
THE EXCHANGE OFFER
Securities Offered.......... $330,000,000 aggregate principal amount of 9 1/4%
Senior Subordinated Notes due 2008, which have
been registered under the Securities Act (the
"New Notes," and together with the Old Notes, the
"Notes"). See "Description of the Notes."
The Exchange Offer.......... Pursuant to the Exchange Offer, New Notes will be
issued in exchange for a like principal amount of
Old Notes that are validly tendered and not
withdrawn. Holders of Old Notes whose Old Notes
are not tendered and accepted in the Exchange
Offer will continue to hold such Old Notes and
will be entitled to all the rights and
6
<PAGE>
preferences and will be subject to the
limitations applicable thereto under the
Indenture governing the Old Notes and the New
Notes.
Resale...................... Based on interpretations by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes the New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than broker-dealers, as set forth
below, and any such holder that is an "affiliate"
of the Company or any Subsidiary Guarantor within
the meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and
that such holder is not participating in, does
not intend to participate in, and has no
arrangement or understanding with any person to
participate in the distribution of such New
Notes. Any holder who tenders in the Exchange
Offer with the intention to participate, or for
the purpose of participating, in a distribution
of the New Notes or who is an affiliate of the
Company or any Subsidiary Guarantor may not rely
upon such interpretations by the staff of the
Commission and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any secondary
resale transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liabilities under the Securities
Act for which the holder is not indemnified by
the Company. Each broker-dealer (other than an
affiliate of the Company or any Subsidiary
Guarantor) that receives New Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. The Company has agreed that,
starting on the Expiration Date and ending on the
close of business 180 days after the Expiration
Date, it will make this Prospectus available to
any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." Any
broker-dealer who is an affiliate of the Company
or any Subsidiary Guarantor may not rely on such
no-action letters and must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with a
secondary resale transaction. The Exchange Offer
is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old
Notes in any jurisdiction in which this Exchange
Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws
of such jurisdiction.
Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, unless extended, in
which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange
Offer is extended.
7
<PAGE>
The Exchange Offer is subject to certain
Conditions to the Exchange customary conditions, which may be waived by the
Offer....................... Company. See "The Exchange Offer--Conditions of
the Exchange Offer." The Exchange Offer is not
conditioned upon any minimum principal amount of
Old Notes being tendered.
Procedures for Tendering Each holder of Old Notes wishing to accept the
Old Notes................... Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or a facsimile thereof,
together with such Old Notes and any other
required documentation to IBJ Schroder Bank &
Trust Company, the Exchange Agent, at the address
set forth herein and therein. By executing the
Letter of Transmittal, each holder will represent
to the Company that, among other things, the New
Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business
of the person receiving such New Notes, whether
or not such person is the holder, that neither
the holder nor any such other person is
participating in, intends to participate in or
has an arrangement or understanding with any
person to participate in the distribution of such
New Notes and that neither the holder nor any
such other person is an "affiliate" of the
Company or any Subsidiary Guarantor within the
meaning of Rule 405 under the Securities Act or,
that if such holder or other person is an
affiliate of the Company or any Subsidiary
Guarantor, such holder or other person will
comply with the registration and prospectus
delivery requirements of the Securities Act to
the extent applicable. See "The Exchange Offer--
Terms of the Exchange Offer--Procedures for
Tendering Old Notes" and "The Exchange Offer--
Terms of the Exchange Offer--Guaranteed Delivery
Procedures."
Special Procedures for
Beneficial Owners........... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Old Notes in the
Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender
on his own behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering his Old Notes, either
make appropriate arrangements to register
ownership of the Old Notes in such owner's name
or obtain a properly completed bond power from
the registered holder. The transfer of registered
ownership may take considerable time and may not
be able to be completed prior to the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer--Procedures for Tendering Old
Notes."
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures.................. Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
8
<PAGE>
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date, or
who cannot complete the procedure for book-entry
transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Terms of the Exchange Offer--Guaranteed Delivery
Procedures."
Acceptance of Old Notes and
Delivery of New Notes....... Subject to certain conditions (as described more
fully in "The Exchange Offer--Conditions of the
Exchange Offer"), the Company will accept for
exchange any and all Old Notes that are properly
tendered in the Exchange Offer and not withdrawn,
prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to
the Exchange Offer will be delivered as promptly
as practicable following the Expiration Date.
Withdrawal Rights...........
Except as otherwise provided herein, tenders of
Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer--Withdrawal of Tenders of Old
Notes."
Certain Federal Income Tax
Considerations.............. For a discussion of certain federal income tax
considerations relating to the exchange of the
New York Notes for the Old Notes, see "Certain
Federal Income Tax Considerations."
Exchange Agent.............. IBJ Schroder Bank & Trust Company is the Exchange
Agent. The address, telephone number and
facsimile number of the Exchange Agent are set
forth in "The Exchange Offer--Exchange Agent."
Consequences of Failure to
Exchange Old Notes.......... Holders of Old Notes who do not exchange their
Old Notes for New Notes pursuant to the Exchange
Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set
forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to
exemptions from, or in transactions not subject
to, the registration requirements of the
Securities Act and applicable sate securities
laws. In general, the Old Notes may not be
offered or sold, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. The Company does not currently anticipate
that it will register Old Notes under the
Securities Act. See "Description of the Notes--
Registration Rights."
9
<PAGE>
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer applies to $330,000,000 aggregate principal amount of Old
Notes. The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) holders of the New Notes will
not be entitled to certain rights of holders of Old Notes under the
Registration Rights Agreement, which will terminate upon consummation of the
Exchange Offer. The New Notes will evidence the same debt as the Old Notes,
will be entitled to the benefits of the Indenture and will be treated as a
single class thereunder with any Old Notes that remain outstanding.
Securities Offered.......... $330,000,000 aggregate principal amount of the
Company's 9 1/4% Senior Subordinated Notes Due
2008, which have been registered under the
Securities Act.
Maturity Date............... April 15, 2008.
Interest Payment Dates...... April 15 and October 15 of each year, commencing
October 15, 1998.
Guarantees.................. The Company's payment obligations under the Notes
will be jointly and severally guaranteed on a
senior subordinated basis (the "Subsidiary
Guarantees") by the Company's existing and future
active domestic subsidiaries (the "Subsidiary
Guarantors") other than BTI Capital Trust and
certain domestic subsidiaries owned by a foreign
subsidiary of the Company, subject to certain
limitations. The Subsidiary Guarantees will be
subordinated to all senior indebtedness of the
Subsidiary Guarantors. See "Description of the
Notes--Subsidiary Guarantees."
Optional Redemption......... The Notes are redeemable, in whole or in part, at
the option of the Company, at any time on or
after April 15, 2003 at the redemption prices set
forth herein, plus accrued and unpaid interest to
the date of redemption. In addition, at any time
on or prior to April 15, 2001, the Company may,
at its option, redeem Notes with the net proceeds
of one or more Equity Offerings, at a redemption
price equal to 109.25% of the principal amount
thereof, plus accrued and unpaid interest to the
date of redemption, provided that at least 65% of
the aggregate principal amount of Notes issued
remains outstanding after each such redemption.
See "Description of the Notes--Optional
Redemption."
Ranking..................... The Notes are general unsecured obligations of
the Company subordinated in right of payment to
all existing and future Senior Indebtedness of
the Company, including indebtedness incurred
pursuant to the New Credit Facility. The Notes
rank pari passu in right of payment with all
future senior subordinated indebtedness of the
Company, if any, and will rank senior in right of
payment to all future subordinated indebtedness
of the Company, if any. The Notes are guaranteed,
on a senior subordinated basis, by the Subsidiary
Guarantors and effectively subordinated in right
of payment to all indebtedness and other
liabilities (including trade payables) of the
10
<PAGE>
Company's subsidiaries that are not Subsidiary
Guarantors. As of April 30, 1998, the Company and
the Subsidiary Guarantors had $525.0 million of
Indebtedness outstanding ranking senior to the
Notes (excluding $11.2 million in letters of
credit). As of March 31, 1998, the Company's
subsidiaries that are not Subsidiary Guarantors
had an aggregate of $275.0 million of accounts
payable and third-party indebtedness outstanding.
See "Description of the Notes--Subordination."
The Indenture dated as of April 28, 1998,
pursuant to which the Old Notes were, and the New
Notes will be, issued (the "Indenture") permits
the Company and its subsidiaries to incur
additional indebtedness, including Senior
Indebtedness, subject to certain limitations. See
"Capitalization" and "Description of the Notes--
Subordination."
Change of Control........... Upon a Change of Control, the Company is
required, subject to certain conditions, to offer
to repurchase all outstanding Notes at a purchase
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the date of repurchase. See "Description
of the Notes--Change of Control."
Certain Covenants........... The Indenture contains certain covenants that,
among other things, restricts the Company and its
Restricted Subsidiaries (as defined herein) with
respect to: (i) the incurrence of additional
debt; (ii) restricted payments; (iii) asset
sales; (iv) transactions with affiliates; (v)
dividend and other payment restrictions affecting
Restricted Subsidiaries; (vi) certain liens; and
(vii) certain consolidations, mergers or sales of
assets. All of these restrictions are subject to
a number of important limitations and
qualifications. See "Description of the Notes--
Covenants."
Exchange Offer; Holders of New Notes (other than as set forth
Registration Rights......... below) are not entitled to any registration
rights with respect to the New Notes. Pursuant to
a Registration Rights Agreement (the
"Registration Rights Agreement") between the
Company and the Initial Purchasers, the Company
agreed, for the benefit of the holders of Old
Notes, to file an Exchange Offer Registration
Statement. The Registration Statement of which
this Prospectus is a part constitutes the
Exchange Offer Registration Statement (as defined
herein). Under certain circumstances, certain
holders of Notes (including holders who may not
participate in the Exchange Offer or who may not
freely resell New Notes received in the Exchange
Offer) may require the Company to file, and cause
to become effective, a shelf registration
statement under the Securities Act, which would
cover resales of Notes by such Holders. The
interest rate on the Notes is subject to increase
under certain circumstances if the Company is not
in compliance with its obligations under the
Registration Rights Agreement. See "Exchange
Offer; Registration Rights."
Use of Proceeds............. The Company will not receive any proceeds from
the Exchange Offer. All of the net proceeds from
the Offering, together with borrowings under a
new $675.0 million revolving credit facility with
11
<PAGE>
NationsBank and certain other lenders (the "New
Credit Facility"), were used (i) to repay all
borrowings outstanding under the Bridge Credit
Facility (which aggregated to approximately
$800.0 million on the Closing Date) and (ii) for
general corporate purposes. See "Use of
Proceeds." The Offering and the use of the net
proceeds therefrom, together with borrowings
under the New Credit Facility, to repay all
borrowings outstanding under the Bridge Credit
Facility are referred to herein as the
"Refinancing of the Bridge Credit Facility."
Risk Factors................
See "Risk Factors" as well as the other
information set forth in this Prospectus for a
discussion of certain factors that should be
considered by Holders of Old Notes before making
a decision to tender Old Notes in the Exchange
Offer.
12
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma statement of earnings data for fiscal 1997 give effect to the
SRS Transactions, the 1997 Acquisitions and the Refinancing of the Bridge
Credit Facility as if they had occurred on July 1, 1996. The pro forma
statement of earnings data for the nine months ended March 31, 1998 give effect
to the SRS Transactions and the Refinancing of the Bridge Credit Facility as if
they had occurred on July 1, 1997. See "Unaudited Pro Forma Financial Data."
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
FISCAL YEAR NINE MONTHS
ENDED ENDED
JUNE 30, 1997 MARCH 31, 1998
------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
STATEMENT OF EARNINGS DATA(1):
Net sales....................................... $1,753.8 $1,245.5
Cost of sales................................... 1,434.2 1,086.2
-------- --------
Gross profit.................................... 319.6 159.3
Selling, general and administrative expenses.... 108.5 70.9
Research, development and engineering expenses.. 86.4 69.8
Repositioning Charge............................ -- 244.0
R&D Write-Off................................... -- 77.5
Amortization of intangibles..................... 26.5 19.3
-------- --------
Operating income (loss)......................... 98.2 (322.2)
Interest expense, net........................... 85.7 59.2
Other income (expenses), net.................... 12.2 (2.3)
-------- --------
Earnings (loss) before income taxes,
distributions on Preferred Securities and
extraordinary item............................. 24.7 (383.7)
Income taxes (benefit).......................... 4.1 (59.4)
Distributions on Preferred Securities........... 16.3 12.2
-------- --------
Earnings (loss) before extraordinary loss....... $ 4.3 $ (336.5)
======== ========
OTHER DATA:
Depreciation and amortization................... $ 91.8 $ 59.9
EBITDA(2)....................................... 190.0 87.6
Adjusted EBITDA(3).............................. 250.0 156.6
Cash interest expense(4)........................ 84.7 59.8
Ratio of adjusted EBITDA to cash interest
expense........................................ 3.0x 2.6x
Ratio of earnings to fixed charges(5)........... 1.3x --
</TABLE>
- --------
(1) The pro forma statement of earnings data include all amortization of
deferred financing costs relating to the New Credit Facility and the
Offering. Assuming that the SRS Transactions and the Refinancing of the
Bridge Credit Facility had occurred as of the first day of the respective
periods, unamortized fees relating to the Bridge Credit Facility and the
credit facility that it replaced would have been recorded as an
extraordinary loss, net of tax benefit. See "Unaudited Pro Forma Financial
Data."
(2) EBITDA represents operating income (loss) plus (i) depreciation and
amortization and (ii) the December 1997 Charges. EBITDA is presented
because it provides useful information regarding the Company's ability to
service debt. The definition of Consolidated EBITDA under the Indenture
adds back, among other things, the December 1997 Charges. EBITDA should not
be considered as an alternative measure of operating results or cash flow
from operations (as determined in accordance with generally accepted
accounting principles).
13
<PAGE>
(3) Adjusted EBITDA represents EBITDA plus (i) $60.0 million of annual cost
savings (or the appropriate portion thereof) to the Company resulting from
actions taken to date by the Company under the Repositioning Program and
(ii) in the case of the nine months ended March 31, 1998, $9.0 million of
Disruption Costs. Adjusted EBITDA should not be considered as an
alternative measure of operating results or cash flow from operations (as
determined in accordance with generally accepted accounting principles).
(4) Cash interest expense reflects, for the applicable period, aggregate
interest expense during such period minus non-cash interest expense during
such period attributable to the amortization of deferred financing costs.
Non-cash interest expense was $15.9 million for the nine months ended March
31, 1998.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of debt issuance costs and the
portion of rental expense that is representative of the interest factor.
Earnings were insufficient to cover fixed charges by $383.7 million for the
nine months ended March 31, 1998. The ratio of earnings to fixed charges
for the nine months ended March 31, 1998 reflects the December 1997
Charges.
14
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial data set forth below for, and as of the
end of, each of the years in the five-year period ended June 30, 1997 and for
the nine months ended March 31, 1997 and 1998 are derived from the consolidated
financial statements of the Company, of which (i) the financial statements for
fiscal 1993, 1994 and 1995 were audited by KPMG Peat Marwick LLP, (ii) the
financial statements for fiscal 1996 and 1997 were audited by Ernst & Young LLP
and (iii) the financial statements for the nine months ended March 31, 1997 and
1998 are unaudited.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED MARCH 31,
------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA(1):
Net sales............. $191.6 $324.7 $401.0 $431.7 $794.9 $ 550.6 $ 968.0
Cost of sales......... 133.9 206.8 244.6 277.1 631.3 433.9 837.4
------ ------ ------ ------ ------ ------- --------
Gross profit.......... 57.7 117.9 156.4 154.6 163.6 116.7 130.6
Selling, general and
administrative
expenses............. 22.8 28.9 33.1 38.2 70.6 51.3 59.7
Research, development
and engineering
expenses............. 9.6 14.8 18.5 23.6 36.1 27.3 49.9
Repositioning Charge.. -- -- -- -- -- -- 244.0
R&D Write-Off......... -- -- -- -- -- -- 77.5
Amortization of
intangibles.......... -- -- 0.3 2.0 6.3 4.3 13.0
------ ------ ------ ------ ------ ------- --------
Operating income
(loss)............... 25.3 74.2 104.5 90.8 50.6 33.8 (313.5)
Interest income
(expense), net....... (1.1) 0.5 0.7 (1.1) (24.5) (16.2) (62.1)
Other income
(expenses), net...... 3.4 (1.7) 4.9 8.6 3.5 3.0 1.2
------ ------ ------ ------ ------ ------- --------
Earnings (loss) before
income taxes,
distributions on
Preferred Securities
and extraordinary
item................. 27.6 73.0 110.1 98.3 29.6 20.6 (374.4)
Income taxes
(benefit)............ 9.3 28.4 37.8 35.3 14.8 8.1 (54.3)
Distributions on
Preferred
Securities........... -- -- -- -- -- -- 5.7
------ ------ ------ ------ ------ ------- --------
Earnings (loss) before
extraordinary loss... 18.3 44.6 72.3 63.0 14.8 12.5 (325.8)
Extraordinary loss,
net of tax benefit... -- -- -- -- -- -- (0.7)
------ ------ ------ ------ ------ ------- --------
Net earnings (loss)... $ 18.3 $ 44.6 $ 72.3 $ 63.0 $ 14.8 $ 12.5 $ (326.5)
====== ====== ====== ====== ====== ======= ========
OTHER DATA:
Depreciation and
amortization......... $ 7.5 $ 8.9 $ 13.9 $ 20.1 $ 48.5 $ 34.1 $ 44.6
EBITDA(2)............. 32.8 83.1 118.4 110.9 99.8 67.9 81.0
Cash interest
expense(3)........... 2.1 1.1 0.8 2.7 26.8 17.8 47.8
Ratio of EBITDA to
cash interest
expense.............. 15.6x 75.5x 148.0x 41.0x 3.7x 3.8x 1.7x
Ratio of earnings to
fixed charges(4)..... 13.5x 52.3x 96.3x 34.0x 2.0x 2.1x --
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------------------ AS OF
1993 1994 1995 1996 1997 MARCH 31, 1998
----- ----- ----- ----- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)... $63.7 $94.7 $75.5 $90.2 $(47.2) (24.7)
Total assets................... 147.5 206.3 278.7 503.8 877.2 1,671.8
Total debt..................... 11.7 11.6 13.6 162.8 423.4 883.1
Preferred Securities........... -- -- -- -- -- 250.0
Total stockholders' equity..... 104.7 151.2 218.7 275.1 266.4 23.4
</TABLE>
- --------
(1) The Company has completed ten acquisitions since August 1994. Consequently,
the results of operations of the Company have been significantly impacted
by the results of operations and the integration and acquisition costs
relating to these acquisitions and, accordingly, comparisons of results of
operations for fiscal 1996 and fiscal 1997 and for the nine months ended
March 31, 1997 and 1998 are not as meaningful as comparisons of results in
prior periods.
(2) EBITDA represents operating income (loss) plus (i) depreciation and
amortization and (ii) the December 1997 Charges. EBITDA is presented
because it provides useful information regarding the Company's ability to
service debt. The definition of Consolidated EBITDA under the Indenture
adds back, among other things, the December 1997 Charges. EBITDA should not
be considered as an alternative measure of operating results or cash flow
from operations (as determined in accordance with generally accepted
accounting principles).
(3) Cash interest expense reflects, for the applicable period, aggregate
interest expense during such period minus non-cash interest expense during
such period attributable to the amortization of deferred financing costs.
Non-cash interest expense was $15.9 million for the nine months ended March
31, 1998.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of debt issuance costs and the
portion of rental expense that is representative of the interest factor.
Earnings were insufficient to cover fixed charges by $374.4 million for the
nine months ended March 31, 1998. The ratio of earnings to fixed charges
for the nine months ended March 31, 1998 reflects the December 1997
Charges.
16
<PAGE>
RISK FACTORS
An investment in the Notes involves a high degree of risk. Prospective
investors should carefully consider the following risk factors, in addition to
the other information set forth in this Prospectus or incorporated by
reference herein, in evaluating an investment in the Notes.
SUBSTANTIAL LEVERAGE. The Company has been and will continue to be, highly
leveraged. Pro forma for the Refinancing of the Bridge Credit Facility, as of
March 31, 1998, the Company's consolidated indebtedness would have been $908.9
million and its stockholders' equity would have been $14.1 million. See
"Capitalization." Pro forma for the SRS Transactions, the 1997 Acquisitions
and the Refinancing of the Bridge Credit Facility, earnings were insufficient
to cover fixed charges by $383.7 million for the nine months ended March 31,
1998. The Indenture and the New Credit Facility permit the Company and its
subsidiaries to incur additional indebtedness, subject to certain limitations.
The degree to which the Company is leveraged could have important consequences
for the holders of the Notes, including, but not limited to, the following:
(i) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness and
will not be available for other purposes; (ii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or other purposes may be impaired; (iii) the Company's leverage
may increase its vulnerability to economic downturns and limit its ability to
withstand competitive pressures; and (iv) the Company's ability to capitalize
on significant business opportunities may be limited.
The ability of the Company to meet its debt service obligations will depend
on the future operating performance and financial results of the Company,
which will be subject in part to factors beyond the control of the Company.
Although management believes that the Company's cash flow will be adequate to
meet its interest and principal payments, there can be no assurance that the
Company will continue to generate earnings in the future sufficient to cover
its fixed charges. If the Company is unable to generate earnings in the future
sufficient to cover its fixed charges and is unable to borrow sufficient funds
under either the New Credit Facility or from other sources, it may be required
to refinance all or a portion of its existing debt (including the Notes) or to
sell all or a portion of its assets. There can be no assurance that a
refinancing would be possible, nor can there be any assurance as to the timing
of any asset sales or the proceeds that the Company could realize therefrom.
In addition, the terms of the New Credit Facility and the Indenture restrict
the Company's ability to sell assets and the use of the proceeds therefrom.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--BREED--Liquidity and Capital Resources."
If for any reason, including a shortfall in anticipated operating results or
proceeds from asset sales, the Company were unable to meet its debt service
obligations, it would be in default under the terms of the New Credit
Facility. In the event of such a default, the lenders under the New Credit
Facility could elect to declare all of such indebtedness immediately due and
payable, including accrued and unpaid interest, and to terminate their
commitments with respect to funding obligations under the New Credit Facility.
In addition, such lenders could proceed against their collateral, which
consists of substantially all of the domestic assets of the Company. Any
default with respect to the New Credit Facility could result in a default
under other indebtedness or result in a bankruptcy of the Company. Such
defaults could delay or preclude payment of principal of, or interest on, the
Notes. See "Description of the Notes--Subordination."
INTEGRATION AND MANAGEMENT OF ACQUIRED BUSINESSES. Since August 1994, the
Company has completed ten acquisitions, including the SRS Acquisition in
October 1997. The SRS Acquisition was significantly larger than any
acquisition previously completed by the Company and represents a substantial
increase in the scope of the Company's business. Pro forma for the SRS
Acquisition and the 1997 Acquisitions, the Company's fiscal 1997 net sales
would have been $1,753.8 million compared to $794.9 million on an actual
basis. The Company has limited experience in the design, development,
manufacture and sale of seatbelt systems, which represent a significant
portion of the SRS business. Pro forma for the SRS Acquisition and the 1997
Acquisitions, seatbelt system sales would have accounted for 27.1% of the
Company's fiscal 1997 net sales. There can be no assurance that the Company
will be able to successfully integrate the operations of SRS or the other
recently acquired
17
<PAGE>
businesses into the Company's operations. In particular, the Company may
experience (i) difficulty in assimilating the operations and personnel of the
acquired companies, (ii) disruption of the Company's ongoing business, (iii)
the inability of management to maximize the financial and strategic position
of the Company by the successful incorporation of acquired products or
technologies into the Company's offerings, (iv) difficulty in the maintenance
of uniform standards, controls, procedures and policies and (v) the impairment
of relationships with employees and customers.
In addition, pursuant to the Company's Repositioning Program, the Company
intends to consolidate a significant number of its manufacturing, sales and
engineering facilities and, in connection with such program, incurred the
$244.0 million Repositioning Charge and the $28.4 million COS Charge during
the three months ended December 31, 1997. See "Prospectus Summary--Recent
Developments." Any failure on the part of the Company to successfully
implement its Repositioning Program and integrate and manage the operations of
SRS or the other recently acquired businesses could have a material adverse
effect on the Company's financial condition and results of operations. The
Company has little history of operations on a combined basis with SRS and the
other recently acquired businesses. Accordingly, the historical and pro forma
financial information presented in this Prospectus may not be indicative of
the results that would have been obtained had the acquisitions occurred on the
dates assumed therein or of results that may be obtained in future periods.
See "Unaudited Pro Forma Financial Data."
RISKS ASSOCIATED WITH SIEMENS JOINT VENTURE. When fully operational over the
next several years, the Siemens Joint Venture is expected to assume the sales
and marketing, as well as the research, development and engineering, functions
for the Company's integrated occupant protection systems and components. As a
result, because the Siemens Joint Venture will employ the personnel
responsible for such functions, the Company expects to substantially reduce
its sales and marketing and research, development and engineering staff. In
the event that the Siemens Joint Venture is terminated, there can be no
assurance that the Company will be able to rehire a sufficient number of such
personnel and any inability to do so could have a material adverse effect on
the Company. Further, all significant operating decisions regarding the joint
venture must be approved by Siemens and the Company. In the event of a
deadlock regarding material operating decisions, either party may sell their
interest in the Siemens Joint Venture to the other or the Siemens Joint
Venture may be terminated. See "Recent Transactions--Siemens Joint Venture."
If the Company sells its interest in the Siemens Joint Venture or the Siemens
Joint Venture is otherwise terminated, the Company will likely no longer have
access to Siemens' expertise in sensors and electronics, which may materially
adversely affect the Company's ability to develop next generation,
intelligent, integrated occupant protection systems. Any failure to develop
such systems would adversely affect the Company's competitive position and
could have a material adverse effect on the Company's financial condition and
results of operations.
Pursuant to the Joint Venture Agreement, the Company and Siemens are
required to fund the operations of the Siemens Joint Venture pursuant to an
operating budget to be agreed upon by the parties. The New Credit Facility and
the Notes restrict the amount that the Company can invest in the Siemens Joint
Venture. The New Credit Facility limits the Company's investments in the
Siemens Joint Venture to $2.0 million in fiscal 1998, $10.0 million in fiscal
1999 and 2000 and $15.0 million in each year thereafter provided that the
Company may make investments in the Siemens Joint Venture in excess of the
specified amounts beginning in fiscal 2000 and thereafter if, after adding
such specified amounts to consolidated fixed charges (as defined in the New
Credit Facility), the Company is in compliance with the covenants in the New
Credit Facility. Any inability to make sufficient investments in the Siemens
Joint Venture could have a material adverse effect on the operations of the
Siemens Joint Venture. See "Description of New Credit Facility" and
"Description of the Notes--Covenants--Restricted Payments." Completion of the
Siemens Joint Venture is subject to approval from regulatory authorities in
Europe.
DEPENDENCE ON THE DEVELOPMENT OF NEW PRODUCTS. In recent years, automotive
occupant protection systems have changed significantly, based on changes in
government regulations, the demand by OEMs and consumers for improved systems
and rapid advances in the technology underlying these systems. The Company
believes that occupant protection systems will continue to change rapidly,
with industry participants seeking to
18
<PAGE>
develop and introduce intelligent occupant protection systems that will be
able to react differently to particular crash situations and to make
improvements in other components of occupant protection systems. The Company
believes that its future success will depend in part on its ability to enhance
its existing products and to develop new products that meet changing
government regulatory requirements and satisfy OEM and consumer requirements,
particularly requirements for intelligent occupant protection systems. There
can be no assurance that the Company will meet these objectives and any
failure to do so could have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Research and
Development."
RELIANCE ON MAJOR CUSTOMERS. Pro forma for the SRS Acquisition and the 1997
Acquisitions, sales to GM, Chrysler, Ford and Fiat represented approximately
23%, 21%, 14% and 18%, respectively, of the Company's net sales for the first
nine months of fiscal 1998 and 21%, 16%, 17% and 18%, respectively, of the
Company's net sales during fiscal 1997. A significant portion of sales to
Chrysler during these periods were for seatbelts and airbags for the Chrysler
Caravan minivan. These customers are not committed to purchase any specified
quantities of products from the Company and there can be no assurance that
these customers will continue to purchase products from the Company at levels
consistent with previous purchases. Industry analysts predict that the current
labor dispute involving two GM plants in Flint, Michigan could lead to a
halting of the output at nearly all of GM's North American assembly
operations. Such an impact on production at GM could result in a decline in
the orders that GM places for the Company's products, which could have a
material adverse effect on the Company's financial condition and results of
operations. A significant decline in sales of the Company's products to these
customers would have a material adverse effect on the Company's financial
condition and results of operations. See "Business--Customers."
EFFECTS OF LIKELY PRICE DECREASES. The Company anticipates that the prices
of automotive occupant protection systems and components such as those sold by
the Company will continue to decline over the next several years as a result
of competitive pressures and OEM requirements. The Company's future
profitability, therefore, will depend, among other things, on its ability to
continue to reduce its per-unit costs and maintain a cost structure,
internally and with its suppliers, that will enable it to offer competitive
prices. There can be no assurance that the Company will be successful in doing
so. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--BREED."
DEPENDENCE ON THE AUTOMOTIVE INDUSTRY. Sales of products to the automotive
industry have accounted for substantially all of the Company's net sales. The
automobile market is cyclical and dependent on general economic conditions.
Future declines in car production in the United States or in markets outside
the United States could have a material adverse effect on the Company's
financial condition and results of operations. In addition, most of the
Company's customers are unionized and may, from time to time, experience labor
disruptions. Any disruption in production by one or more of the Company's
customers could have an adverse effect on the Company's financial condition
and results of operations.
GOVERNMENT REGULATION. The North American market for automotive occupant
protection systems has been significantly affected by federal safety
regulations and the Company believes that such regulations will continue to
have a significant effect on this market. Specifically, the rapid installation
of driver-side and passenger-side airbags was initially caused in the United
States by federal safety regulations. Recently, there has been negative
publicity concerning airbag performance, particularly the performance of
passenger-side airbags, and it is possible that federal safety regulations
will be revised in response to the concerns raised. It is difficult to predict
the nature of any such regulatory changes or the impact of such changes on the
Company's financial condition and results of operations.
PRODUCT LIABILITY. The sale of sensors, electronics and related software,
airbags and inflators, seatbelt systems, steering wheels and related
components entails an inherent risk of product liability claims. Although the
Company maintains product liability insurance covering certain types of
claims, the Company's policies are subject to substantial deductibles and
there can be no assurance that the coverage limits of the Company's insurance
policies will be adequate or that any particular loss will be covered. Such
insurance can be expensive and in the future may not be available on
acceptable terms, if at all. A successful claim brought against the Company
not covered by the Company's insurance or resulting in a recovery in excess of
its insurance coverage could have a material adverse effect on the Company's
financial condition and results of operations.
19
<PAGE>
WARRANTY AND RECALL EXPOSURE. The Company warrants to its OEM customers that
its products are free from defects and that they meet certain OEM designated
specifications. The OEMs in turn offer product warranties to the purchasers of
vehicles. In some instances of common complaint, the automobile manufacturer
will institute a vehicle recall or will be required by a governmental agency
to conduct a recall. As a result, from time to time, BREED has received claims
against it and requests for payment from its OEM customers to remedy
complaints made by the purchasers of vehicles. There can be no assurance that
the Company will not incur substantial warranty or recall expense in the
future. Such complaints and the related expenses could have a material adverse
effect on the Company's relationship with its OEM customers and on its
financial condition and results of operations.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly
operating results may vary significantly depending on factors such as the
timing of significant orders, the level of sales by automobile manufacturers,
disruptions caused by labor disputes and the seasonal patterns of its
customers, especially those located in Europe. A large portion of the
Company's expenses are fixed and cannot be adjusted in response to a shortfall
in quarterly revenues. There can be no assurance that the Company will operate
profitably in any quarter.
LONG LEAD TIMES FOR SALES. The Company typically competes for new business
at the beginning of the development of new vehicle models and upon the
redesign of existing models by its customers. New model development generally
begins three to five years prior to the marketing of such models to the
public. As a result of the relatively long lead times required for sales of
automotive occupant protection systems and components, it may be difficult for
the Company to obtain new sales to replace any unexpected decline in sales to
existing customers. The failure of the Company to obtain new business for new
models or to retain or increase business on redesigned existing models could
adversely affect the Company's financial condition and results of operations.
COMPETITION. The markets for automotive occupant protection systems and
components are highly competitive. Increased competition could result in price
reductions and loss of market share, which would adversely affect the
Company's financial condition and results of operations. Many of the Company's
current and potential competitors have greater financial and other resources
than the Company. There can be no assurance that the Company will be able to
continue to compete successfully with its existing competitors or will be able
to compete successfully with new competitors. See "Business--Competition."
RISKS ASSOCIATED WITH INTERNATIONAL SALES. Pro forma for the SRS Acquisition
and the 1997 Acquisitions, international sales accounted for approximately 42%
and 47% of the Company's net sales in fiscal 1997 and the nine months ended
March 31, 1998, respectively. The Company expects that international sales
will continue to account for a significant portion of its business in the
future. The Company's ability to compete effectively outside the United States
will depend on its ability to develop the relationships and, if demand
requires, additional facilities necessary to service international customers.
In addition, the Company's financial results attributable to international
sales may be affected by fluctuations in currency exchange rates, increases in
duty rates, difficulties in obtaining export licenses, trade and tariff
regulations, political instability, difficulties or delays in collecting
accounts receivable and difficulties in staffing and managing international
operations. Pro forma for the SRS Acquisition and the 1997 Acquisitions, sales
in Asia accounted for approximately 6% and 5% of the Company's net sales for
fiscal 1997 and the nine months ended March 31, 1998, respectively. In recent
months, certain Asian currencies have been devalued significantly in relation
to the U.S. dollar and financial markets in Asia have experienced significant
turmoil. There can be no assurance that the Company's sales in Asia will not
be materially adversely affected by such developments.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon the continued services of its executive officers and other key
management. The loss of the services of any one or more of such key personnel
could have an adverse effect on the Company and there can be no assurance that
the Company would be able to find suitable replacements for such key
personnel.
20
<PAGE>
DEPENDENCE ON SUPPLIERS. Certain key components used in the Company's
products, such as restraints control modules and certain hybrid inflators, are
currently purchased from single sources. In addition, the Company subcontracts
the manufacture of certain of its subassemblies to third parties. The
inability to obtain sufficient sources of components or subassemblies as
required, or to obtain or develop alternative sources at competitive prices
and quality if and as required in the future, could result in delays in
product shipments or increase the Company's supply costs, either of which
would adversely affect the Company's financial condition and results of
operations.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company relies on a number of
patents, trade secrets and non-disclosure agreements to protect its
technology. There can be no assurance that any patents now or hereafter owned
by the Company will afford protection against competitors which develop
similar technology. In addition, upon expiration of such patents, competitors
may develop and sell products based on technologies similar or equivalent to
those currently covered by the Company's patents. In addition, the laws of
some foreign countries do not protect the Company's patents and other
proprietary rights to the same extent as do the laws of the United States.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to prevent imitation of its products or
technology, that the Company's proprietary information will not become known
to competitors, that the Company can effectively protect its rights to
unpatented proprietary information or that the Company's competitors will not
independently develop products or technologies that are superior to the
Company's products or technologies without infringing on the Company's
intellectual property rights. Although the Company believes that its products
and technology do not infringe on the proprietary rights of others, there can
be no assurance that third parties will not assert infringement claims in the
future.
SAFETY AND ENVIRONMENTAL CONSIDERATIONS. Sodium azide, which is used in the
propellant for certain of the Company's inflators, is flammable and has
exhibited toxicity in laboratory animal tests. In addition, the manufacture of
propellant containing sodium azide, as well as primers used in certain of the
Company's products, entails certain hazards. The Company's method of
production limits the quantity of these energetic materials in process at any
one time and utilizes certain safety measures. Notwithstanding these
precautions, the Company has on occasion experienced fires and explosions at
its manufacturing facilities. Although the Company's facilities and processes
are designed in a manner intended to minimize risks associated with the use of
energetic materials such as sodium azide and primers, there can be no
assurance that the Company will not encounter additional incidents or safety
issues relating to the use and manufacture of these energetic materials. The
Company also uses various other hazardous and toxic substances in its
manufacturing processes, including certain solvents, lubricants, and
pyrotechnic materials. The inadvertent release of any of these substances, or
sodium azide or primers, into the environment could subject the Company to
significant liability for clean-up costs or fines, which could have a material
adverse effect on the Company's financial condition and results of operations.
Additionally, the Company may be required to make significant expenditures to
ensure that the Company's facilities and operations continue to satisfy
environmental regulations and these regulations may change significantly in
the future.
RISKS RELATING TO YEAR 2000. Based on a recent assessment, the Company
determined that it will be required to modify or replace portions of its
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The Company presently believes that
with modifications to existing software and conversions to new software, the
year 2000 issue will not pose significant operational problems for its
computer systems. However, if such modifications and conversions are not made,
or are not timely completed, the year 2000 issue could have a material impact
on the operations of the Company.
CONTROL OF THE COMPANY BY PRINCIPAL STOCKHOLDERS. As of April 30, 1998,
Allen K. Breed and Johnnie Cordell Breed and trusts established for their
benefit beneficially owned approximately 47% of the outstanding Common Stock
of the Company. As a result, Mr. and Mrs. Breed are able to exercise control
over the Company's affairs through their ability to elect all of the directors
of the Company and control the vote on all matters requiring stockholder
approval. There can be no assurance that the interests of Mr. and Mrs. Breed
and those of the holders of the Notes will not conflict. See "Principal
Stockholders."
21
<PAGE>
LIMITATION ON SUBSIDIARY GUARANTEES; FRAUDULENT CONVEYANCE CONCERNS. The
issuance of a Subsidiary Guarantee by a Subsidiary Guarantor may be subject to
review under federal or state fraudulent conveyance laws in the event of the
bankruptcy or other financial difficulty of such Subsidiary Guarantor.
Depending upon the standard applied in connection with such review, such
review could result in the indebtedness evidenced by a Subsidiary Guarantee
being voided or subordinated to all other indebtedness of such Subsidiary
Guarantor (in addition to the senior indebtedness of such Subsidiary Guarantor
to which such Subsidiary Guarantee is expressly subordinated), and could
result in payments previously made in respect of such Subsidiary Guarantee
being returned to such Subsidiary Guarantor.
For example, under applicable law, if a court, in a lawsuit by an unpaid
creditor or representative of creditors of a Subsidiary Guarantor, were to
find that when such Subsidiary Guarantor incurred the indebtedness evidenced
by its Subsidiary Guarantee, such Subsidiary Guarantor (a)(i) was insolvent or
was rendered insolvent by reason of such incurrence, (ii) was engaged in a
business or transaction for which the assets remaining with such Subsidiary
Guarantor constituted unreasonably small capital or (iii) intended to incur,
or believed (or reasonably should have believed) that it would incur,
indebtedness beyond its ability to pay such indebtedness as it matures and (b)
received less than reasonably equivalent value or fair consideration for the
incurrence of such indebtedness, then the Subsidiary Guarantee could be
voided, or claims in respect of the Subsidiary Guarantee could be subordinated
to all other Indebtedness of such Subsidiary Guarantor. In addition, any
amounts previously paid by a Subsidiary Guarantor pursuant to a Subsidiary
Guarantee could be voided and required to be returned to such Subsidiary
Guarantor, or to a fund for the benefit of the creditors of such Subsidiary
Guarantor. The measure of insolvency for purposes of the foregoing
considerations will vary depending upon the law of the jurisdiction being
applied. Generally, however, a Subsidiary Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, is
greater than the saleable value of all of its assets at a fair valuation or if
the present fair saleable value of its assets is less than the amount that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and matured or (ii)
it could not pay its debts as they become due.
A court will likely find that a Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for its guarantee to the extent
that its liability thereunder exceeds any direct benefit it received from the
issuance of the Notes. Each Subsidiary Guarantee will limit the liability of
the Subsidiary Guarantor thereunder to the maximum amount that it could pay
without the guarantee being deemed a fraudulent transfer. There can be no
assurance that this limitation will be effective. If this limitation is not
effective, the issuance of a Subsidiary Guarantee by a Subsidiary Guarantor
could be deemed to render insolvent such Subsidiary Guarantor. If this
limitation is effective, there can be no assurance that the limited amount so
guaranteed would be sufficient to pay amounts owed under the Notes in full.
SUBORDINATION OF THE NOTES AND THE SUBSIDIARY GUARANTEES. The Notes and the
Subsidiary Guarantees are unsecured, general obligations of the Company and
the Subsidiary Guarantors, respectively, subordinated in right of payment to
all existing and future senior indebtedness of the Company and the Subsidiary
Guarantors, including Indebtedness under the New Credit Facility. As of April
30, 1998, the Company and the Subsidiary Guarantors had approximately $525.0
million of Indebtedness outstanding ranking senior to the Notes (excluding
$11.2 million in letters of credit), and the Company had $138.8 million of
additional borrowing availability under the New Credit Facility (which
reflects $11.2 million in outstanding letters of credit) all of which would be
Senior Indebtedness. In the event of the bankruptcy, liquidation or
reorganization of the Company or a Subsidiary Guarantor, the assets of the
Company or such Subsidiary Guarantor would be available to pay obligations on
the Notes only after all senior indebtedness of the Company or such Subsidiary
Guarantor, as the case may be, has been repaid in full. Consequently,
sufficient assets may not exist to pay amounts due on the Notes. In addition,
the subordination provisions of the Indenture provide that no cash payments
may be made with respect to the Notes during the continuance of a payment
default under certain Senior Indebtedness of the Company. Furthermore, if
certain nonpayment defaults exist with respect to certain Senior Indebtedness,
the holders of such Senior Indebtedness would be able to prevent payments on
the Notes for certain periods of time. See "Description of the Notes--
Subordination."
22
<PAGE>
None of the Company's foreign subsidiaries are Subsidiary Guarantors, and
the Notes are effectively subordinated in right of payment to all indebtedness
and other liabilities (including trade payables) of these subsidiaries. As of
March 31, 1998, the Company's subsidiaries that are not Subsidiary Guarantors
had approximately $275.0 million of accounts payable and third-party
indebtedness outstanding. The right of the Company to receive assets of any of
its subsidiaries that are not Subsidiary Guarantors upon liquidation or
reorganization of such subsidiary are subordinated to the claims of that
subsidiary's creditors (including trade creditors), except to the extent the
Company itself is recognized as a creditor of such subsidiary. See
"Description of the Notes--Subordination."
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW
NOTES. Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register Old Notes under the Securities Act.
Based on interpretations by the staff of the Commission, set forth in no-
action letters issued to third parties, the Company believes the New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any holder thereof (other than
broker-dealers, as set forth below, and any such holder that is an "affiliate"
of the Company or a Subsidiary Guarantor within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business and such holder is
not participating in, does not intend to participate in and has no arrangement
or understanding with any person to participate in the distribution of such
New Notes. Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the New
Notes or who is an affiliate of the Company or a Subsidiary Guarantor may not
rely upon such interpretations by the staff of the Commission and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Holders of Old Notes wishing to accept the
Exchange Offer must represent to the Company in the Letter of Transmittal that
such conditions have been met. Each broker-dealer (other than an affiliate of
the Company or a Subsidiary Guarantor) that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting
on the Expiration Date and ending on the close of business 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution". Any
broker-dealer who is an affiliate of the Company or any Subsidiary Guarantor
may not rely on such no-action letters and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction. Following the Exchange Offer, none of the
Notes will be entitled to the contingent increase in interest rate provided
for (in the event of a failure to consummate the Exchange Offer in accordance
with the terms of the Registration Rights Agreement) pursuant to the Old
Notes.
RESTRICTIONS IMPOSED BY THE NEW CREDIT FACILITY AND THE INDENTURE. The New
Credit Facility and the Indenture contain a number of significant covenants
that, among other things, restrict the ability of the Company to dispose of
assets, incur additional indebtedness, repay other indebtedness, pay
dividends, make certain investments or acquisitions, including investments in
the Siemens Joint Venture, repurchase or redeem capital stock, engage in
mergers or consolidations, or engage in certain transactions with subsidiaries
and affiliates and otherwise restrict corporate activities. There can be no
assurance that such restrictions will not adversely affect
23
<PAGE>
the Company's ability to finance its future operations or capital needs or
engage in other business activities (including, without limitation, pursuing
the Siemens Joint Venture) that may be in the best interest of the Company. In
addition, the New Credit Facility also requires the Company to maintain
compliance with certain financial ratios. The ability of the Company to comply
with such ratios may be affected by events beyond the Company's control. A
breach of any of these covenants or the inability of the Company to comply
with the required financial ratios could result in a default under the New
Credit Facility. In the event of any such default, the lenders under the New
Credit Facility could elect to declare all borrowings outstanding under the
New Credit Facility to be due and payable, to require the Company to apply all
of its available cash to repay such borrowings or to prevent the Company from
making debt service payments on the Notes. If the Company were unable to repay
any such borrowings when due, the lenders could proceed against their
collateral. If the indebtedness under the New Credit Facility or the Notes
were to be accelerated, there can be no assurance that the assets of the
Company would be sufficient to repay such indebtedness in full. See
"Description of the Notes" and "Description of New Credit Facility."
CHANGE OF CONTROL AND POSSIBLE INABILITY TO REPURCHASE NOTES. The Indenture
requires the Company, in the event of a Change of Control, to make an offer to
purchase all outstanding Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of repurchase.
The New Credit Facility restricts such a purchase and such an offer would
require the approval of the lenders thereunder. In addition, certain events
involving a change of control may be an event of default under the New Credit
Facility or other indebtedness of the Company that may be incurred in the
future. Accordingly, the right of the holders of the Notes to require the
Company to repurchase the Notes may be of limited value if the Company cannot
obtain the required approval under the New Credit Facility. In addition, even
if such approval were obtained, there can be no assurance that the Company
will have the financial resources necessary to purchase the Notes upon a
Change of Control. Failure to offer to repurchase the Notes under such
circumstances, however, would constitute an event default under the Indenture.
See "Description of the Notes--Repurchase at the Option of Holders--Change of
Control."
LACK OF PUBLIC MARKET FOR THE NEW NOTES. The New Notes will constitute a new
issuance of securities for which there is currently no trading market. The New
Notes will not be listed on any securities exchange and the Company does not
intend to seek approval for quotation through any automated quotation system.
No assurance can be given that an active public or other market will develop
for the New Notes or as to the liquidity of or the trading market for the New
Notes. If a trading market does not develop or is not maintained, holders of
the New Notes may experience difficulty in reselling the New Notes or may be
unable to sell them at all. If a market for the New Notes develops, any such
market may cease to continue at any time. If a public trading market develops
for the New Notes, future trading prices of the New Notes will depend on many
factors, including, among other things, prevailing interest rates, the
Company's results of operations and the market for similar securities and
other factors, including the financial condition of the Company.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on April 28, 1998 to the Initial
Purchasers in reliance on Section 4(2) of the Securities Act. The Initial
Purchasers offered and sold the Old Notes only (i) to "qualified institutional
buyers" (as defined in Rule 144A) in compliance with Rule 144A, (ii) to a
limited number of other institutional "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that, prior to their
purchase of Old Notes, delivered to the Initial Purchasers a letter containing
certain representations and agreements and (iii) to certain persons in
offshore transactions in reliance on Regulations under the Securities Act.
In connection with the sale of the Old Notes, the Company and the Initial
Purchasers entered into the Registration Rights Agreement, which generally
requires the Company (i) to cause the Old Notes to be registered
24
<PAGE>
under the Securities Act or (ii) to file with the Commission the Exchange
Offer Registration Statement with respect to the Exchange Offer. The Exchange
Offer is being made pursuant to the Registration Rights Agreement to satisfy
the Company's obligations thereunder with regard to the Notes. The term
"holder" with respect to the Exchange Offer means any person in whose name Old
Notes are registered on the trustee's books or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Old Notes are held of record by The Depository Trust Company
("DTC") who desires to deliver such Old Note, by book-entry transfer at DTC.
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes the New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any holder thereof (other than
broker-dealers, as set forth below, and any such holder that is an "affiliate"
of the Company or any Subsidiary Guarantor within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating in, does not intend to participate in, and
has no arrangement or understanding with any person to participate in the
distribution of such New Notes. Any holder who tenders in the Exchange Offer
with the intention to participate, or for the purpose of participating, in a
distribution of the New Notes or who is an affiliate of the Company or any
Subsidiary Guarantor may not rely upon such interpretations by the staff of
the Commission and, in the absence of an exemption therefrom, must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Failure to comply with such
requirements in such instance may result in such holder incurring liabilities
under the Securities Act for which the holder is not indemnified by the
Company. Each broker-dealer (other than an affiliate of the Company or any
Subsidiary Guarantor) that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. The Company has agreed that, starting on the Expiration Date
and ending on the close of business 180 days after the Expiration Date, it
will make the Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution." Any broker-dealer who is an
affiliate of the Company may not rely on such no-action letters and must
comply with the registration and prospectus delivery requirements in
connection with a secondary resale transaction.
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in
which this Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
By tendering in the Exchange Offer, each holder of Old Notes will represent
to the Company that, among other things, (i) the New Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of business of
the person receiving such New Notes, whether or not such person is the holder,
(ii) neither the holder of Old Notes nor any such other person is
participating in, intends to participate, or has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, (iii) neither the holder nor any such other person is an "affiliate" of
the Company or any Subsidiary Guarantor within the meaning of Rule 405 under
the Securities Act or, if such holder is an "affiliate," that such holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if the holder is not a broker-
dealer, that neither the holder nor any such other person is engaged in or
intends to engage in the distribution of such New Notes, or (v) if such holder
is a broker-dealer, that will receive New Notes for its own account in
exchange for Old Notes, that the Old Notes to be exchanged for the New Notes
were acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus in connection
with any resale of such New Notes.
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on
whether to participation in the Exchange Offer.
25
<PAGE>
TERMS OF THE EXCHANGE OFFER
General. Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and
all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. Subject to the minimum denomination
requirements of the New Notes, the Company will issue $1,000 principal amount
of New Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in amounts that are integral multiples of $1,000 principal amount.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) holders of the New Notes
will not be entitled to certain rights of holders of Old Notes under the
Registration Rights Agreement, which will terminate upon consummation of the
Exchange Offer. The New Notes will evidence the same debt as the Old Notes,
will be entitled to the benefits of the Indenture and will be treated as a
single class thereunder with any Old Notes that remain outstanding. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount
of Old Notes being tendered for exchange.
As of the date of this Prospectus, $330,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1998 to registered Holders
of Old Notes.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the provisions of the Registration Rights Agreement and the
applicable requirements of the Exchange Act and the rules and regulations of
the Commission thereunder. Old Notes which are not tendered for exchange in
the Exchange Offer will remain outstanding and interest thereon will continue
to accrue.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purposes of receiving the New Notes from the Company. If any tendered
Old Notes are not accepted for exchange because of an invalid tender, the
occurrence of certain other events set forth herein or otherwise, certificates
for any such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments. The term "Expiration Date" shall
mean 5:00 p.m., New York City time, on , 1998, unless the Company, in its
sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Although the Company has no current intention to extend the
Exchange Offer, the Company reserves the right to extend the Exchange Offer at
any time and from time to time by giving oral or written notice to the
Exchange Agent and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service. During any extension of the Exchange Offer, all Old
Notes previously tendered pursuant to the Exchange Offer and not withdrawn
will remain subject to the Exchange Offer. The date of the exchange of the New
Notes for Old Notes will be the first New York Stock Exchange trading day
following the Expiration Date.
26
<PAGE>
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders. If the Exchange Offer is
amended in any manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of time, depending
upon the significance of the amendment and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
period.
In all cases, issuance of the New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of a properly completed and duly executed Letter of
Transmittal and all other required documents; provided, however, that the
Company reserves the absolute right to waive any conditions of the Exchange
Offer or defects or irregularities in the tender of Old Notes. If any tendered
Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or non-
exchanged Old Notes or substitute Old Notes evidencing the unaccepted portion,
as appropriate, will be returned without expense to the tendering holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at DTC pursuant to the book-entry transfer into the Exchange
Agent's account at DTC pursuant to the book-entry procedures described below,
such non-exchanged Old Notes will be credited to an account maintained with
DTC), unless otherwise provided in the Letter of Transmittal, as promptly as
practicable after the expiration or termination of the Exchange Offer.
Interest on the New Notes. Holders of Old Notes that are accepted for
exchange will not receive accrued interest thereon at the time of exchange.
However, each New Note will bear interest from the most recent date to which
interest has been paid on the Old Notes or New Notes, or if no interest has
been paid on the Old Notes or New Notes, from April 28, 1998.
Procedures for Tendering Old Notes. The tender to the Company of Old Notes
by a holder thereof pursuant to one of the procedures set forth below will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal. A holder of the Old Notes may tender such Old Notes by (i)
properly completing and signing a Letter of Transmittal or a facsimile thereof
(all reference in this Prospectus to a Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with any
corresponding certificate or certificates representing the Old Notes being
tendered (or confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC pursuant to the book-entry procedures
described below) and any required signature guarantees, to the Exchange Agent
at its address set forth in the Letter of Transmittal on or prior to the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the New Notes to be issued in exchange therefor are to be
issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall
include any participant in DTC (also referred to as a book-entry facility)
whose name appears on a security listing as the owner of Old Notes), the
signature of such signer need not be guaranteed. In any other case, the
tendered Old Notes must be endorsed or accompanied by written instruments of
transfer in form satisfactory to the Company and duly executed by the
registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor institution" as defined by Rule
17Ad-15 under the Exchange Act (any of the foregoing hereinafter referred to
as an "Eligible Institution"). If the New Notes or Old Notes not exchanged are
27
<PAGE>
to be delivered to an address other than that of the registered holder
appearing on the note register for the Old Notes, the signature in the Letter
of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish an account with respect to the
Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with DTC's procedure for such transfer.
Although delivery of the Old Notes may be effected through book-entry transfer
into the Exchange Agent's account at DTC, an appropriate Letter of Transmittal
with any required signature guarantee and all other required documents must in
each case be transmitted to and received or confirmed by the Exchange Agent at
the address set forth in the Letter of Transmittal on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC), is received by the
Exchange Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided below) from an Eligible
Institution is received by the Exchange Agent. Issuances of New Notes in
exchange for Old Notes tendered pursuant to a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided
below) by an Eligible Institution will be made only against submission of a
duly signed Letter of transmittal (and any other required documents) and
deposit of the tendered Old Notes (or confirmation of a book-entry transfer of
such Old Notes into the Exchange Agent's account at DTC pursuant to the book-
entry procedures described below).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any and all tenders not in
proper form or the acceptance for exchange of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right
to waive any of the conditions of the Exchange Offer or any defect or
irregularity in the tender of any Old Notes. None of the Company, the Exchange
Agent or any other person will be under any duty to give notification of any
defects or irregularities in tenders or incur any liability for failure to
give any such notification. Any Old Notes received by the Exchange Agent that
are not validly tendered and as to which the defects or irregularities have
not been cured or waived, or if Old Notes are submitted in principal amount
greater than the principal amount of Old Notes being tendered by such
tendering holder, such unaccepted or non-exchanged Old Notes will be returned
by the Exchange Agent to the tendering holder, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration
Date.
In addition, the Company reserves the right in its sole discretion (i) to
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date and (ii) to the extent permitted by applicable law, to
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers will differ from the
terms of the Exchange Offer.
28
<PAGE>
Book Entry Transfer. The Company understands that the Exchange Agent will
make a request promptly after the date of this Prospectus to establish an
account with respect to the Old Notes at DTC for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in DTC's system may make book-entry delivery
of Old Notes by causing DTC to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with DTC's
procedure for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
an appropriate Letter of Transmittal with any required signature guarantee and
all other required documents must in each case be transmitted to and received
or confirmed by the Exchange Agent at the address set forth in the Letter of
Transmittal on or prior to the Expiration Date, or, if the guaranteed delivery
procedures described below are compiled with, within the time period provided
under such procedures.
Guaranteed Delivery Procedures. If the holder desires to participate in the
Exchange Offer and such holder's Old Notes are not immediately available, or
time will not permit such holder's Old Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) on or
prior to the Expiration Date, the Exchange Agent has received from an Eligible
Institution a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the
form provided by the Company (by telegram, telex, facsimile transmission, mail
or hand delivery), setting forth the name and address of the tendering holder,
the name(s) in which the Old Notes are registered, the certificate number(s)
of the Old Notes to be tendered and the amount tendered, and stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery, such Old Notes, in proper form for transfer (or a
confirmation of book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC), will be delivered by such Eligible Institution
together with any other documents required by the Letter of Transmittal and
(iii) the certificates for all physically tendered Old Notes, in proper form
for transfer, or a confirmation of book-entry transfer such Old Notes into the
Exchange Agent's account at DTC, as the case may be, and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
within three New York Stock Exchange Trading Days after the date of execution
of the Notice of Guaranteed Delivery. Unless Old Notes being tendered by the
above-described method are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), The Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by Eligible Institutions for the purposes described in this paragraph
are available from the Exchange Agent.
Terms and Conditions of the Letter of Transmittal. The Letter of Transmittal
contains, among other things, the following terms and conditions, which are
part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's true and lawful agent and
attorney-in-fact with respect to such tendered Old Notes, with full power of
substitution, among other things, to cause the Old Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Old
Notes and to acquire New Notes issuable upon the exchange of such tendered Old
Notes, and that, when the same are accepted for exchange, the Company will
acquire good and unencumbered title to the tendered Old Notes, free and clear
of all liens, restrictions, charges and encumbrances and adverse claims. The
Transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Company to be necessary or desirable to
complete and give effect to the transactions contemplated by the Letter of
Transmittal. All authority conferred by the Transferor will survive the death,
bankruptcy or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and
other legal representatives of such Transferor.
By executing a Letter of Transmittal, each holder will make to the Company
the representations set forth above under the heading "--Purpose and Effect of
the Exchange Offer."
29
<PAGE>
Withdrawal of Tenders of Old Notes. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii)
contain a statement that such holder is withdrawing his election to have such
Old Notes exchanged, (iv) be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes in the name of the person
withdrawing the tender and (v) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer, any
notice of withdrawal must specify the name and number of the account at DTC.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described above, such Old Notes
will be credited to an account maintained with DTC for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described above under "--Procedures for Tendering Old
Notes" at any time prior to the business day prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, or any extension of
the Exchange Offer, the Company shall not be required to accept for exchange,
or exchange New Notes for, any Old Notes, and may terminate the Exchange offer
as provided therein before the acceptance of such Old Notes, if:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority which,
in the reasonable judgment of the Company, seeks to or would prohibit,
restrict or otherwise render illegal consummation of the Exchange Offer; or
(b) any change, or any development involving a prospective change, in the
business or financial affairs of the Company or any of its subsidiaries has
occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company, or
(c) there shall occur a change in the current interpretations by the
staff of the Commission which, in the Company's reasonable judgment, might
materially impair the Company's ability to proceed with the Exchange Offer.
If the Company determines in its sole discretion that any of the above
conditions is not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the Expiration
Date, subject, however, to the right of holders to withdraw such Old Notes
(see "--Terms of the Exchange Offer--Withdrawal of Tenders of Old Notes") or
(iii) waive such unsatisfied conditions with respect to the Exchange Offer and
accept all validly tendered Old Notes which have not been withdrawn. If such
waiver constitutes a material change to the Exchange Offer, the Company will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and the Company will extend the
Exchange Offer for a period of time, depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the Exchange
Offer would otherwise expire during such period.
30
<PAGE>
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Hand or Overnight Courier: By Registered or Certified Mail:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
One State Street P.O. Box 84
New York, New York 10004 Bowling Green Station
New York, New York 10274-0084
Attn: Securities Processing Window
Subcellar One (SC-1) Attn: Reorganization Operations
Department
By Facsimile Transmission (for Eligible Distributions only):
(212) 858-2611
Confirm by Telephone:
(212) 858-2103
For information with respect to the Exchange Offer, call
Luis Perez of the Exchange Agent:
(212) 858-2815
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will
be paid to any such officers and employees who engage in soliciting tenders.
The Company has not retained any dealer-manager or other soliciting agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes
and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and transfer agent and registrar, accounting and legal fees and printing
costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, New Notes, or
Old Notes for principal amounts not tendered or accepted for exchange, are to
be delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered or if a transfer tax is imposed
for any reason other than the exchange of the Old Notes
31
<PAGE>
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities within the meaning of Rule 144 of the
Securities Act. Accordingly, such Old Notes may be resold only (i) to the
Company or any subsidiary thereof, (ii) inside the United States to a
qualified institutional buyer in compliance with rule 144A, (iii) inside the
United States to an institutional accredited investor that, prior to such
transfer, furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Old Notes (the form of which letter can be obtained from the Trustee) and, if
such transfer is in respect of an aggregate principal amount of Old Notes at
the time of transfer of less than $100,000, an opinion of counsel acceptable
to the Company that such transfer is in compliance with the Securities Act,
(iv) outside the United States in compliance with Rule 904 under the
Securities Act, (v) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available) or (vi) pursuant to an
effective registration statement under the Securities Act. The liquidity of
the Old Notes could be adversely affected by the Exchange Offer.
ACCOUNTING TREATMENT
The New Notes would be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company. The costs of the Exchange Offer and the unamortized expenses related
to the issuance of the Old Notes will be amortized over the term of the New
Notes.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds from the Offering were approximately $318.4 million. The Company used
(i) approximately $287.3 million of the net proceeds from the Offering,
together with the net proceeds of borrowings of approximately $525.0 million
under the New Credit Facility, to repay all borrowings outstanding under the
Bridge Credit Facility, which aggregated $800.0 million (excluding $10.0
million in letters of credit) on the Closing Date and (ii) approximately $31.1
million of the net proceeds for general corporate purposes.
32
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of March 31, 1998 (i) on an actual basis and (ii) as adjusted for
the Refinancing of the Existing Credit Facility. The following table should be
read in conjunction with the "Unaudited Pro Forma Financial Data" and the
Consolidated Financial Statements and Notes thereto of BREED included and
incorporated by reference in this Offering Memorandum.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt(1)..................................... $ 72,201 $ 72,201
========== ==========
Long-term debt:
New Credit Facility.................................. $ -- $ 506,667
Other long-term debt(2).............................. 810,870
Notes............................................... -- 330,000
---------- ----------
Total long-term debt............................... 810,870 836,667
Company-obligated Mandatorily Redeemable Convertible
Preferred Securities of BTI Capital Trust holding
solely Convertible Debentures(3)...................... 250,000 250,000
Stockholders' equity:
Series A Preference Shares; $.001 par value per
share;
50,000,000 shares authorized;
1 share issued and outstanding;
one share issued and outstanding as adjusted(4)..... -- --
Common Stock; $.01 par value per share;
50,000,000 shares authorized;
shares issued and outstanding;
issued and outstanding as adjusted(5).......... 366 366
Additional paid-in capital........................... 193,821 193,821
Warrants............................................. 1,905 1,905
Retained earnings.................................... (141,687) (150,960)
Foreign currency translation adjustment.............. (30,745) (30,745)
Unearned compensation................................ (254) (254)
---------- ----------
Total stockholders' equity......................... 23,406 14,133
---------- ----------
Total capitalization............................... $1,084,276 $1,100,800
========== ==========
</TABLE>
- -------
(1) Includes debt of the Company's foreign subsidiaries under revolving credit
facilities and under real estate mortgages.
(2) Includes the long-term portion of the foreign subsidiary debt referred to
in Note 1 above.
(3) On November 25, 1997, the Company sold $257.7 million of its Convertible
Debentures to BTI Capital Trust which, concurrently therewith, sold $250.0
million aggregate liquidation amount of Preferred Securities (which are
guaranteed by the Company) in a private transaction under Rule 144A under
the Securities Act.
(4) Each Series A Preference Share represents 1/1000 of a share of 1997 Series
A Convertible Non-Voting Preferred Stock and, subject to adjustment, is
convertible into one share of Common Stock. On January 20, 1998, Siemens
converted 4,883,226 of its Series A Preference Shares into an equal number
of shares of Common Stock. Siemens continues to hold one Series A
Preference Share. See "Recent Transactions--Siemens Investment."
(5) In connection with the Siemens Investment, the Company amended its
Certificate of Incorporation on January 14, 1998 to increase the number of
authorized shares of Common Stock to 75,000,000.
33
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial statements are based on the
historical financial statements of (i) the Company, (ii) the business acquired
in the 1997 Acquisitions and (iii) SRS. The unaudited pro forma condensed
consolidated statement of earnings for the twelve months ended June 30,1997
gives effect to the SRS Transactions, the 1997 Acquisitions and the
Refinancing of the Bridge Credit Facility as if they had occurred on July 1,
1996. The unaudited pro forma condensed consolidated statement of earnings for
the nine months ended March 31, 1998 gives effect to the SRS Transactions and
the Refinancing of the Bridge Credit Facility as if they had occurred on July
1, 1997.
The 1997 Acquisitions consist of the following: (i) the Company's
acquisition of USS, which was completed on October 25, 1996; and (ii) the
Company's acquisition of Custom Trim, which was completed on February 25,
1997. All acquisitions, including the SRS Acquisition, have been accounted for
using the purchase method of accounting.
The unaudited pro forma financial statements have been prepared using the
purchase method of accounting, whereby the total cost of the SRS Acquisition
and the 1997 Acquisitions has been allocated to the tangible and intangible
assets acquired and liabilities assumed based upon their respective fair
values at the effective date of such acquisitions. The allocations with
respect to the SRS Acquisition are based on studies and valuations that have
not yet been completed. Accordingly, such allocations are preliminary and
subject to revisions.
As part of the purchase price allocation for the SRS Acquisition, the
Company evaluated the in-process research and development of SRS. Under
generally accepted accounting principles, if the technological feasibility of
the acquired technology has not been established and the technology has no
future alternative uses, such in-process research and development must be
written-off. Accordingly, the unaudited pro forma financial statements reflect
the R&D Write-Off of $77.5 million, which the Company incurred during the
three months ended December 31, 1997.
In addition, during the three months ended December 31, 1997, the Company
formulated its Repositioning Program. In connection with the Repositioning
Program, the Company incurred the $244.0 million Repositioning Charge during
the three months ended December 31, 1997. In addition, during the three months
ended December 31, 1997, the Company incurred the $28.4 million COS Charge
against cost of sales for inventory and long-term customer contracts relating
to manufacturing processes that will be exited.
The following unaudited pro forma financial statements do not purport to
represent what the Company's results of operations or financial condition
would have been had the SRS Transactions, the 1997 Acquisitions and the
Refinancing of the Bridge Credit Facility occurred on the dates indicated or
to predict the Company's results of operations or financial condition in the
future. The unaudited pro forma financial statements give effect only to the
adjustments set forth in the accompanying notes and do not reflect any other
benefits anticipated by management as a result of the SRS Acquisition and the
1997 Acquisition and the implementation of its business strategy.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE TWELVE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
1997 ACQUISITIONS
--------------------
CUSTOM PRO FORMA
BREED USS(A) TRIM(B) SRS(C) ADJUSTMENTS PRO FORMA
----------- -------- --------- ------ ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 794.9 $ 50.8 $ 68.1 $910.8 $ (70.8)(d) $ 1,753.8
Cost of sales........... 631.3 44.8 54.2 765.3 (61.4)(d) 1,434.2
----------- -------- -------- ------ ---------- -----------
Gross profit............ 163.6 6.0 13.9 145.5 (9.4) 319.6
Selling, general and
administrative
expenses............... 70.6 1.4 2.0 36.7 (2.2)(d) 108.5
Research, development
and engineering ex-
penses................. 36.1 1.5 -- 50.6 (1.8)(d) 86.4
Amortization of intangi-
bles................... 6.3 -- 1.0 3.2 16.0 (e) 26.5
----------- -------- -------- ------ ---------- -----------
Operating income
(loss)................. 50.6 3.1 10.9 55.0 (21.4) 98.2
Other income (expense),
net.................... 3.5 (0.6) 3.7 7.2 (1.6)(d) 12.2
Interest expense, net... 24.5 -- 2.7 -- 3.4 (f) 85.7
55.1 (g)
----------- -------- -------- ------ ---------- -----------
Earnings (loss) before
income taxes,
distributions on
Preferred Securities
and extraordinary
item................... 29.6 2.5 11.9 62.2 (81.5) 24.7
Income taxes (benefit).. 14.8 1.3 4.6 23.3 (2.6)(d) 4.1
(37.3)(h)
Distributions on Pre-
ferred Securities...... -- -- -- -- 16.3 (i) 16.3
----------- -------- -------- ------ ---------- -----------
Earnings (loss) before
extraordinary loss(j).. $ 14.8 $ 1.2 $ 7.3 $ 38.9 $ (57.9) $ 4.3
=========== ======== ======== ====== ========== ===========
EARNINGS PER SHARE(K):
Basic.................. $ 0.47 $ 0.14
=========== ===========
Diluted................ $ 0.47 $ 0.12
=========== ===========
Basic weighted average
number of common
shares outstanding.... 31,648,249 31,648,249
=========== ===========
Diluted weighted
average number of
common shares
outstanding........... 31,867,366 4,883,226 (l) 36,750,592
=========== ========== ===========
OTHER DATA:
Depreciation and amor-
tization.............. $ 91.8
Ratio of earnings to
fixed charges(m)...... 1.1x
</TABLE>
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
BREED(N) SRS(O) ADJUSTMENTS PRO FORMA
------------- -------- ------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.................. $ 968.0 $ 297.4 $ (19.9)(d) $ 1245.5
Cost of sales.............. 837.4 266.5 (17.7)(d) 1086.2
------------- -------- -------- -------------
Gross profit............... 130.6 30.9 (2.2) 159.3
Selling, general and
administrative expenses... 59.7 11.8 (0.6)(d) 70.9
Research, development and
engineering expenses...... 49.9 19.9 -- 69.8
Repositioning Charge....... 244.0 -- -- 244.0
R&D Write-Off.............. 77.5 -- -- 77.5
Amortization of
intangibles............... 13.0 1.0 5.3 (e) 19.3
------------- -------- -------- -------------
Operating income (loss).... (313.5) (1.8) (6.9) (322.2)
Other income (expense),
net....................... 1.2 (3.9) 0.4 (d) (2.3)
Interest expense, net...... 62.1 -- (13.5)(f) 59.2
10.6 (g)
------------- -------- -------- -------------
Earnings (loss) before in-
come taxes, distributions
on Preferred Securities
and extraordinary item.... (374.4) (5.7) (3.6) (383.7)
Income taxes (benefit)..... (54.3) (1.7) (0.4)(d) (59.4)
(3.0)(h)
Distributions on Preferred
Securities................ 5.7 -- 6.5 (i) 12.2
------------- -------- -------- -------------
Earnings (loss) before
extraordinary loss(j)..... $ (325.8) $ (4.0) $ (6.7) $ (336.5)
============= ======== ======== =============
EARNINGS PER SHARE(K):
Basic and diluted loss... $ (9.92) $ (10.22)
============= =============
Basic and diluted
weighted average number
of common shares
outstanding............. 32,922,510 32,922,510
============= =============
OTHER DATA:
Depreciation and
amortization............ $ 59.9
Ratio of earnings to
fixed charges(m)........
</TABLE>
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(a) Represents USS's results of operations for the four months ended October
25, 1996, the date of acquisition.
(b) Represents Custom Trim's results of operations for the eight months ended
February 22, 1997, the date of acquisition.
(c) Represents SRS's results of operations for the twelve months ended June
30, 1997.
(d) Represents the exclusion of the results of operations attributable to
certain operations of SRS that were not acquired by the Company in the SRS
Acquisition, estimated by the Company as follows:
<TABLE>
<CAPTION>
TWELVE
MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 1997 MARCH 31, 1998
------------- --------------
(IN MILLIONS)
<S> <C> <C>
Net sales....................................... $70.8 $19.9
Cost of sales................................... 61.4 17.7
Selling, general and administrative............. 2.2 0.6
Engineering, research and development........... 1.8 --
Other income (expense), net..................... 1.6 (0.4)
Income taxes.................................... 2.6 0.4
</TABLE>
The reduction in income taxes was estimated using the effective tax rate of
SRS for the twelve months ended June 30, 1997.
(e) Estimated goodwill and preliminary allocation of purchase price to
identifiable intangible assets acquired in the SRS Acquisition are as
follows (in millions):
<TABLE>
<S> <C> <C>
Purchase price............................................. $710.0
Less:
Estimated fair market value of SRS (net assets acquired
less assumed liabilities)................................ $122.8
Adjustment for planned closings of facilities............. (45.0) (77.8)
------ ------
632.2
Adjustment for estimated costs of planned employee
termination.............................................. 16.7
Estimated costs related to SRS Acquisition................. 15.0
Other...................................................... 19.4
------
Cost in excess of net assets acquired..................... 683.3
Less estimated in-process research and development......... (77.5)
------
Excess of purchase price over net assets acquired......... $605.8
======
</TABLE>
<TABLE>
<CAPTION>
AMORTIZATION
VALUE OF PERIOD IN
INTANGIBLES YEARS
------------- ------------
(IN MILLIONS)
<S> <C> <C>
Trained workforce................................. $ 10.3 10
Developed technology.............................. 158.1 22
Goodwill.......................................... 437.4 40
------
$605.8
======
</TABLE>
The allocations with respect to the SRS Acquisition are based on studies and
valuations that have not yet been completed. Accordingly, such allocations are
preliminary and subject to revision.
37
<PAGE>
The amortization expense of intangibles incurred as a result of the SRS
Acquisition is as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 1997 MARCH 31, 1998
------------- --------------
(IN MILLIONS)
<S> <C> <C>
Goodwill amortization related to SRS
Acquisition.................................. $19.2 $14.4
Amortization of intangible assets previously
recorded by SRS.............................. (3.2) (1.0)
Amortization of intangible assets recorded by
SRS post-acquisition......................... (8.1)
----- -----
Net increase in goodwill amortization......... $16.0 $ 5.3
===== =====
</TABLE>
(f) Reflects various financing and advisory fees relating to the New Credit
Facility and the Offering, which aggregate $23.9 million and will be paid
in cash. Fees of $12.3 million relating to the New Credit Facility are
being amortized over the weighted average life of the facility of 5.5
years and fees of $11.6 million relating to the Offering are being
amortized over the ten-year life of the Notes. These fees would have
affected the amortization of deferred financing costs as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 1997 MARCH 31, 1998
-------------- --------------
(IN MILLIONS)
<S> <C> <C>
Amortization of fees relating to New Credit
Facility.................................... $2.2 $ 1.7
Amortization of fees relating to the
Offering.................................... 1.2 0.9
Less amortization of fees on Bridge Credit
Facility.................................... -- (15.9)
Less amortization of fees on previous credit
facility replaced by Bridge Credit
Facility.................................... -- (0.2)
---- ------
$3.4 $(13.5)
==== ======
</TABLE>
(g) Represents the additional interest expense that would have been incurred
if the Notes and borrowings under the New Credit Facility incurred in
connection with the Refinancing of the Bridge Credit Facility had been
outstanding for the entire period.
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 1997 MARCH 31, 1998
-------------- --------------
(IN MILLIONS)
<S> <C> <C>
Interest expense on the New Credit Facility... $41.6 $31.2
Interest expense on the Notes................. 30.5 22.9
Interest expense under the Bridge Credit
Facility and credit facility replaced by
Bridge Credit Facility....................... (17.0) (41.9)
Interest expense attributable to PSCC
Financing.................................... -- (1.6)
----- -----
Net increase in interest expense.............. $55.1 $10.6
===== =====
</TABLE>
The interest rate for the New Credit Facility is based on base interest
rates selected by the Company plus applicable margins.
For each increase or decrease of 0.25% in the base interest rates under the
New Credit Facility, assuming $525.0 million of aggregate borrowings
outstanding under the New Credit Facility, the annual interest expense
attributable to the New Credit Facility would increase or decrease by $1.3
million. For each increase or decrease of 0.25% in the interest rate
applicable to the Notes, the annual interest expense attributable to the Notes
would increase or decrease by $0.8 million.
38
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(CONTINUED)
(h) The income tax expense (benefit) is calculated using the historical
effective income tax rates as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 1997 MARCH 31, 1998
-------------- --------------
(IN MILLIONS)
<S> <C> <C>
Earnings (loss) before income taxes,
distributions on Preferred Securities and
extraordinary item......................... $ 24.7 $(383.7)
Distributions on Preferred Securities....... 16.3 12.2
------ -------
8.4 (395.9)
Historical effective tax rate............... 49% 15%
------ -------
Pro forma income tax expense (benefit)...... 4.1 (59.4)
Previously recorded income taxes expense
(benefit).................................. 41.4 (56.4)
------ -------
Pro forma adjustment........................ $(37.3) $ (3.0)
====== =======
</TABLE>
(i) Represents distributions at the annual rate of 6.50% that would have been
recorded if the Preferred Securities had been outstanding for the entire
period.
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 1997 MARCH 31, 1998
-------------- --------------
(IN MILLIONS)
<S> <C> <C>
Distributions on the Preferred Securities.... $16.3 $12.2
Distributions previously recorded............ -- (5.7)
----- -----
$16.3 $ 6.5
===== =====
</TABLE>
39
<PAGE>
(j) Assuming that the SRS Transactions and the Refinancing of the Bridge
Credit Facility had occurred as of the first day of the respective
periods, unamortized fees relating to the Bridge Credit Facility and the
credit facility that it replaced would have been recorded as an
extraordinary loss, net of tax benefit.
In July 1996, the Company acquired Gallino, a manufacturer of steering
wheels and plastic interior and exterior parts based in Italy, for $74
million in cash and the assumption of $52 million of liabilities. During
the three months ended June 30, 1997, the Company committed to a plan to
dispose of the plastic interior and exterior parts business (the "Gallino
Disposition") and is currently in negotiations with a third party relating
to the sale of this business. The following table sets forth the
adjustments necessary to exclude the results of operations attributable to
the assets being disposed of in connection with the Gallino Disposition:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------------------------------- ----------------------------------------
GALLINO PRO FORMA GALLINO PRO FORMA
PRO FORMA ADJUSTMENTS EXCLUDING GALLINO PRO FORMA ADJUSTMENTS EXCLUDING GALLINO
--------- ----------- ----------------- --------- ----------- -----------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $1,753.8 $(182.2) $1,571.6 $1,245.5 $(125.7) $1,119.8
Cost of sales........... 1,434.2 (168.4) 1,265.8 1,086.2 (117.9) 968.3
-------- ------- -------- -------- ------- --------
Gross profit............ 319.6 (13.8) 305.8 159.3 (7.8) 151.5
Selling, general and
administrative
expenses............... 108.5 (9.9) 98.6 70.9 (6.5) 64.4
Research, development
and engineering
expenses............... 86.4 (2.5) 83.9 69.8 (3.1) 66.7
Repositioning Charge.... -- -- -- 244.0 -- 244.0
R&D Write-Off........... -- -- -- 77.5 -- 77.5
Amortization of
intangibles............ 26.5 -- 26.5 19.3 -- 19.3
-------- ------- -------- -------- ------- --------
Operating income
(loss)................. 98.2 (1.4) 96.8 (322.2) 1.8 (320.4)
Other income (expense),
net.................... 12.2 (1.0) 11.2 (2.3) (1.7) (4.0)
Interest expense, net... 85.7 (3.8) 81.9 59.2 (2.8) 56.4
-------- ------- -------- -------- ------- --------
Earnings (loss) before
income taxes,
distributions on
Preferred Securities
and extraordinary
item................... 24.7 1.4 26.1 (383.7) 2.9 (380.8)
Income taxes (benefit).. 4.1 0.7 4.8 (59.4) 0.4 (59.0)
Distribution on
Preferred Securities... 16.3 -- 16.3 12.2 -- 12.2
-------- ------- -------- -------- ------- --------
Earnings (loss) before
extraordinary loss..... $ 4.3 $ 0.7 $ 5.0 $ (336.5) $ 2.5 $ (334.0)
======== ======= ======== ======== ======= ========
</TABLE>
(k) Earnings per share have been adjusted to conform to the provisions of
SFAS No. 128.
(l) The pro forma basic weighted average number of common shares outstanding
does not include the impact of the conversion by Siemens of 4,883,226 of
its Series A Preference Shares into an equal number of shares of Common
Stock, which occurred on January 20, 1998. The pro forma diluted weighted
average number of common shares outstanding includes the impact of
converting such Series A Preference Shares into Common Stock as of the
beginning of the period for the twelve months ended June 30, 1997, but are
not included in the nine months ended March 31, 1998 because they are
anti-dilutive.
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(CONTINUED)
(m) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, whether expensed or capitalized, amortization
of debt issuance costs and an estimated portion of rental expense that is
representative of the interest factor in such rentals. Earnings were
insufficient to cover fixed charges by $383.7 million for the nine months
ended March 31, 1998. The ratio of earnings to fixed charges for the nine
months ended March 31, 1998 reflects the December 1997 Charges.
(n) The BREED statement of earnings for the nine months ended March 31, 1998
includes the results of operations for the 1997 Acquisitions for the
entire period.
(o) Represents SRS's results of operations for the four months ended October
30, 1997, the date of acquisition.
41
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION--BREED
The selected consolidated financial data set forth below for, and as of the
end of, each of the years in the five-year period ended June 30, 1997, for the
nine months ended March 31, 1997 and 1998 and as of March 31, 1998 are derived
from the consolidated financial statements of BREED, of which (i) the
financial statements for fiscal 1993, 1994 and 1995 were audited by KPMG Peat
Marwick LLP, (ii) the financial statements for fiscal 1996 and 1997 were
audited by Ernst & Young LLP and (iii) the financial statements for the nine
months ended March 31, 1997 and 1998 are unaudited. In the opinion of
management, the financial statements for the nine months ended March 31, 1997
and 1998 include all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the results of operations and
financial position for such periods. The results of operations for the nine
months ended March 31, 1998 are not necessarily indicative of the results to
be expected for the full year or any future period. The following data should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto of BREED and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--BREED."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR MARCH 31,
------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ --------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA(1):
Net sales.............. $191.6 $324.7 $401.0 $431.7 $794.9 $ 550.6 $ 968.0
Cost of sales.......... 133.9 206.8 244.6 277.1 631.3 433.9 837.4
------ ------ ------ ------ ------ ------- -------
Gross profit........... 57.7 117.9 156.4 154.6 163.6 116.7 130.6
Selling, general and
administrative
expenses.............. 22.8 28.9 33.1 38.2 70.6 51.3 59.7
Research, development
and engineering
expenses.............. 9.6 14.8 18.5 23.6 36.1 27.3 49.9
Repositioning Charge... -- -- -- -- -- -- 244.0
R&D Write-Off.......... -- -- -- -- -- -- 77.5
Amortization of
intangibles........... -- -- 0.3 2.0 6.3 4.3 13.0
------ ------ ------ ------ ------ ------- -------
Operating income
(loss)................ 25.3 74.2 104.5 90.8 50.6 33.8 (313.5)
Interest income
(expense), net........ (1.1) 0.5 0.7 (1.1) (24.5) (16.2) (62.1)
Other income
(expenses), net....... 3.4 (1.7) 4.9 8.6 3.5 3.0 1.2
------ ------ ------ ------ ------ ------- -------
Earnings (loss) before
income taxes,
distributions on
Preferred Securities
and extraordinary
item.................. 27.6 73.0 110.1 98.3 29.6 20.6 (374.4)
Income taxes
(benefit)............. 9.3 28.4 37.8 35.3 14.8 8.1 (54.3)
Distributions on
Preferred Securities.. -- -- -- -- -- -- 5.7
------ ------ ------ ------ ------ ------- -------
Earnings (loss) before
extraordinary loss.... 18.3 44.6 72.3 63.0 14.8 12.5 (325.8)
Extraordinary loss, net
of tax benefit........ -- -- -- -- -- -- (0.7)
------ ------ ------ ------ ------ ------- -------
Net earnings (loss).... $ 18.3 $ 44.6 $ 72.3 $ 63.0 $ 14.8 $ 12.5 $(326.5)
====== ====== ====== ====== ====== ======= =======
EARNINGS PER SHARE FROM
CONTINUING OPERATIONS:
Basic earnings......... $ 0.62 $ 1.43 $ 2.30 $ 2.00 $ 0.47 $ 0.39 $ (9.90)
====== ====== ====== ====== ====== ======= =======
Diluted earnings....... $ 0.62 $ 1.42 $ 2.29 $ 1.99 $ 0.47 $ 0.39 $ (9.90)
====== ====== ====== ====== ====== ======= =======
OTHER DATA:
Capital expenditures... $ 17.0 $ 23.6 $ 69.3 $ 45.4 $ 75.9 $ 61.4 $ 50.1
Depreciation and
amortization.......... 7.5 8.9 13.9 20.1 48.5 34.1 44.6
EBITDA(2).............. 32.8 83.1 118.4 110.9 99.8 67.9 81.0
Cash interest
expense(3)............ 2.1 1.1 0.8 2.7 26.8 17.8 47.8
Ratio of EBITDA to cash
interest expense...... 15.6x 75.5x 148.0x 41.0x 3.7x 3.8x 1.7x
Ratio of earnings to
fixed charges(4)...... 13.5x 52.3x 96.3x 34.0x 2.0x 2.1x --
<CAPTION>
AS OF JUNE 30, AS OF
------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 63.7 $ 94.7 $ 75.5 $ 90.2 $(47.2) (24.7)
Total assets........... 147.5 206.3 278.7 503.8 877.2 1,671.8
Total debt............. 11.7 11.6 13.6 162.8 423.4 883.1
Preferred Securities... -- -- -- -- -- 250.0
Total stockholders'
equity................ 104.7 151.2 218.7 275.1 266.4 23.4
</TABLE>
42
<PAGE>
- --------
(1) The Company has completed ten acquisitions since August 1994.
Consequently, the results of operations of the Company have been
significantly impacted by the results of operations and the integration
and acquisition costs relating to these acquisitions and, accordingly,
comparisons of results of operations for fiscal 1996 and 1997 and for the
nine months ended March 31, 1997 and 1998 are not as meaningful as
comparisons of results in prior periods.
(2) EBITDA represents operating income (loss) plus (i) depreciation and
amortization and (ii) the December 1997 Charges. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service debt. The definition of Consolidated EBITDA under the Indenture
adds back, among other things, the December 1997 Charges. EBITDA should
not be considered as an alternative measure of operating results or cash
flow from operations (as determined in accordance with generally accepted
accounting principles).
(3) Cash interest expense reflects, for the applicable period, aggregate
interest expense during such period minus non-cash interest expense during
such period attributable to the amortization of deferred financing costs.
Non-cash interest expense was $15.9 million for the nine months ended
March 31, 1998.
(4) For purposes of computing the ratio of earnings to fixed charges earnings
consist of earnings before income taxes plus fixed charges. Fixed charges
consist of interest expense, whether expensed or capitalized, amortization
of debt issuance costs and an estimated portion of rental expense that is
representative of the interest factor in such rentals.. Earnings were
insufficient to cover fixed charges by $374.4 million for the nine months
ended March 31, 1998. The ratio of earnings to fixed charges for the nine
months ended March 31, 1998 reflects the December 1997 Charges.
43
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA--SRS
The selected combined financial data set forth below as of December 31, 1995
and 1996 and September 30, 1997 and for each of the years in the three-year
period ended December 31, 1996 and for the nine months ended September 30,
1996 and 1997 are derived from the combined financial statements of SRS, of
which (i) the combined financial statements for fiscal 1994, 1995 and 1996
were audited by Price Waterhouse LLP and (ii) the combined financial
statements for the nine months ended September 30, 1996 and 1997 are
unaudited. In the opinion of management, the financial statements for the nine
months ended September 30, 1996 and 1997 include all adjustments, consisting
only of normal recurring adjustments, necessary to fairly present the results
of operations and financial position for such periods. The results of
operations for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year or any future
period. The following data should be read in conjunction with the Combined
Financial Statements and Notes thereto of SRS and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--SRS."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR SEPTEMBER 30,
---------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ -------- --------
ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL
------ ------ ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................. $747.3 $882.8 $951.3 $ 715.9 $ 678.3
Cost of goods sold................. 671.9 781.9 849.8 630.9 608.3
Selling, general and administrative
expenses.......................... 30.8 35.8 42.1 32.4 30.6
------ ------ ------ -------- --------
Income from operations............. 44.6 65.1 59.4 52.6 39.4
Other income (expense), net........ (4.1) (5.6) 7.0 (1.6) (2.8)
------ ------ ------ -------- --------
Income before taxes on income...... 40.5 59.5 66.4 51.0 36.6
Taxes on income.................... 15.6 21.2 25.4 21.0 15.0
------ ------ ------ -------- --------
Net income......................... $ 24.9 $ 38.3 $ 41.0 $ 30.0 $ 21.6
====== ====== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
ACTUAL ACTUAL ACTUAL
--------- --------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $ 22.7 $ 29.5 $ 40.2
Total assets................................. 410.8 429.7 444.7
Total debt................................... -- -- --
</TABLE>
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--BREED
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of the Company included
and incorporated by reference herein.
OVERVIEW
The Company is a worldwide leader in the design, development, manufacture
and sale of automotive occupant protection systems and components. The
Company's goal is to become the leading worldwide supplier of complete,
integrated occupant protection systems. Consistent with this strategy, the
Company has significantly expanded its business through the following ten
acquisitions since August 1994:
.October 1997--acquired SRS for $710.0 million in cash.
. February 1997--acquired Custom Trim, located in Canada and Mexico, which
produces leather wrapped steering wheels and other automotive leather
wrapped products, for approximately $70.0 million in cash.
. November 1996--acquired Artistic Analytical Methods, Inc., a designer of
advanced algorithm technology used in the interpretation of crash pulse
data, for $1.0 million in cash.
. October 1996--acquired USS, which produces steering wheels, airbag
covers, horn pads and related molded products in the United States,
Mexico and England, for $154.0 million in cash.
. July 1996--acquired Gallino, a manufacturer of steering wheels and
plastic interior and exterior parts based in Italy, for $74.0 million in
cash and the assumption of $52.0 million of liabilities.
. May 1996--acquired Force Imaging Technologies, Inc., a developer,
manufacturer and distributor of proprietary, high-profile, variable force
sensors, for $3.0 million in cash.
. April 1996--acquired MOMO S.p.A. and G. Holding, S.r.l. (collectively,
"MOMO"), an original equipment manufacturer and aftermarket supplier of
premium steering wheels and alloy road wheels, for $45.2 million in cash.
. April 1996--acquired Italtest, S.r.l., a European supplier of printed
circuit boards to automotive and commercial markets, for $1.8 million in
cash.
. June 1995--acquired VTI Hamlin OY ("VTI"), a Finnish company that designs
and manufactures silicon capacitive micro-machined accelerometers and
angular rate and differential and absolute pressure sensors, for $1.7
million in cash.
. August 1994--acquired Hamlin, Incorporated, a manufacturer of crash
sensors and reed switch products with operations in the United States,
Mexico and Europe, for 838,324 shares of Common Stock.
In addition, as part of its strategy to become the leading worldwide
supplier of complete, integrated occupant protection systems, in December 1997
the Company agreed to form the Siemens Joint Venture, which provides for,
among other things, the worldwide research, development, engineering, assembly
and marketing of integrated occupant protection systems, or "JV Systems." The
Company believes that the combination of Siemens' expertise in sensors and
electronics and the Company's expertise in airbags, seatbelt systems and
steering wheels as well as its experience in the complex algorithm required by
integrated systems will expedite their joint development of next generation,
intelligent, integrated occupant protection systems. See "Risk Factors--
Siemens Joint Venture" and "Recent Transactions--Siemens Joint Venture."
The recent results of operations of the Company have been significantly
impacted by the results of operations and the integration and acquisition
costs relating to acquisitions and, accordingly, comparisons of results of
operations for the nine months ended March 31, 1998 and 1997 and for fiscal
1997 and fiscal 1996 are not as meaningful as comparisons of results in prior
periods.
45
<PAGE>
Recent Developments
In July 1996, the Company acquired Gallino, a manufacturer of steering
wheels and plastic interior and exterior parts based in Italy. During the
three months ended June 30, 1997, the Company committed to the Gallino
Disposition, pursuant to which the Company plans to dispose of the plastic
interior and exterior parts business. The Company is currently in negotiations
with a third party relating to the sale of this business. Net sales and losses
attributable to the plastic interior and exterior parts business of Gallino
were $182.2 million and $0.7 million, respectively, in fiscal 1997.
During the three months ended December 31, 1997, the Company formulated its
Repositioning Program which is designed to reduce operating costs and increase
productivity. The Repositioning Program consists primarily of a 25% planned
reduction in the Company's global workforce (or approximately 4,900 employees)
through the elimination of redundant and overlapping positions resulting from
recent acquisitions, the consolidation of the Company's manufacturing, sales
and engineering facilities primarily in North America and Europe through the
closing of approximately 50% (or 32) of its manufacturing facilities and 33%
(or 10) of its sales and engineering facilities, and the disposal of certain
non-core assets. The Company expects the Repositioning Program to generate
approximately $855 million in aggregate cumulative cost savings (which
includes approximately $780 million of cash savings), which will be realized
over the five-year period ending June 30, 2002.
In connection with the Repositioning Program, the Company incurred the
$244.0 million Repositioning Charge during such period, which included the
following: (i) $30.8 million relating to planned work force reductions; (ii)
$31.4 million relating to proposed facility consolidations (not including any
SRS facilities); (iii) $77.6 million relating to the write-down of goodwill
associated with the disposal of long-lived assets; (iv) $41.3 million relating
to the write-down to net realizable value of certain long-lived assets in
connection with the Gallino Disposition; and (v) $62.9 million relating to the
write-down of impaired production and other equipment and the write-off of
assets used to manufacture products being replaced by new technologies.
In connection with the Repositioning Program, the Company incurred
Disruption Costs of approximately $9.0 million during the nine months ended
March 31, 1998 in connection with closing and consolidating manufacturing
facilities. These disruption costs included: (i) unabsorbed fixed overhead,
(ii) temporary increases in labor, (iii) premium freight, (iv) excessive
inventory scrap and (v) inefficiencies associated with consolidating
facilities. These costs were included in cost of sales.
In addition, during the three months ended December 31, 1997, (i) in
connection with the purchase price allocation for the SRS Acquisition, the
Company incurred the $77.5 million R&D Write-Off relating to the write-off of
in-process research and development for acquired technology that has not been
established as technologically feasible, and (ii) the Company incurred the
$28.4 million COS Charge against cost of sales for inventory and long-term
contracts relating to manufacturing processes that will be exited.
Shift in Historical Product Mix and Product Margins
Historically, a large percentage of the Company's net sales and gross profit
has been attributable to sales of electromechanical sensors ("EMS sensors").
EMS sensors generally have higher gross margins than other products sold by
the Company. Beginning in fiscal 1996, sales of EMS sensors to OEMs began to
decline, reflecting OEMs' increased reliance on electronic sensors sourced
internally. Pro forma for the SRS Acquisition and the 1997 Acquisitions, EMS
sensor sales declined to $165.1 million (9%) of net sales in fiscal 1997 from
$225.6 million (15%) and $271.5 million (20%) of net sales in fiscal 1996 and
fiscal 1995, respectively. In addition, the Company's product mix has been
affected by recent acquisitions, which expanded product offerings
46
<PAGE>
having lower gross margins, particularly steering wheels and plastic trim
components. The following table sets forth the percentage of net sales
attributable to each product category for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED PRO FORMA
FISCAL YEAR MARCH 31, NINE MONTHS
------------------- PRO FORMA ------------ ENDED
FISCAL YEAR MARCH 31,
1995 1996 1997 1997(1) 1997 1998 1998(2)
----- ----- ----- ------------ ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Electronics and
sensors................ 85.5% 70.1% 33.6% 15.3% 35.0% 16.9% 12.8%
Airbag systems.......... 13.7 22.9 9.4 25.0 11.5 19.8 24.9
Steering wheels......... -- 4.5 33.4 21.9 29.3 27.2 20.7
Seatbelt systems........ -- -- -- 27.1 -- 21.6 30.6
Interiors and plastics.. -- -- 22.9 10.4 21.5 13.4 10.1
Other................... 0.8 2.5 0.7 0.3 2.7 1.1 0.9
----- ----- ----- ----- ----- ----- -----
Total................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- --------
(1) Gives effect to the SRS Acquisition and the 1997 Acquisitions as if they
had occurred at the beginning of the period presented.
(2) Gives effect to the SRS Acquisition as if it occurred at the beginning of
the period presented.
The markets for automotive occupant protection systems and components are
highly competitive and the Company is experiencing, and expects to continue to
experience, downward pricing pressures for its products. See "Risk Factors--
Effects of Likely Price Decreases."
International Operations
The Company operates primarily in North America and Europe (primarily
Italy). Net sales in North America accounted for 86%, 75% and 48% of the
Company's net sales in fiscal 1995, 1996 and 1997, respectively, and net sales
in Europe accounted for 14%, 25% and 52% of the Company's net sales in fiscal
1995, 1996 and 1997. The increase in net sales in Europe during fiscal 1996
was primarily attributable to the acquisition of Gallino. Operating income
attributable to North American operations was 96%, 97% and 92% in fiscal 1995,
1996 and 1997. Operating income attributable to European operations was 4%, 3%
and 8% in fiscal 1995, 1996 and 1997, respectively, while operating margin
attributable to European operations is substantially lower than that generated
by North American operations primarily because European net sales consist of
sales of a higher proportion of low margin products, such as steering wheels,
interiors and plastics. Pro forma for the SRS Acquisition and the 1997
Acquisitions, net sales in North America, Europe and Asia were 60%, 35%, and
5% of the Company's net sales for the nine months ended March 31, 1998,
respectively.
Product Development
In response to OEMs' increased reliance upon electronic sensing systems, the
Company is developing its own advanced electronic sensing systems. The
Company's research and development activities are currently focused primarily
on the development of new intelligent occupant protection systems, next
generation inflator technologies and enhancements or cost improvements for
existing products. In addition, in December 1997 the Company and Siemens
agreed to form the Siemens Joint Venture. When fully operational over the next
several years, the Siemens Joint Venture is expected to assume the research,
development and engineering functions for both the Company's and Siemens'
integrated occupant protection systems as well as the sales and marketing
activities with respect thereto.
Siemens Joint Venture
In December 1997, the Company and Siemens agreed to form the Siemens Joint
Venture, which provides for the worldwide research, development, engineering,
assembly and marketing of integrated occupant protection systems, or "JV
Systems". When fully operational over the next several years, the Siemens
Joint Venture is
47
<PAGE>
expected to assume the sales and marketing, as well as the research,
development and engineering, functions for both the Company's and Siemens'
integrated occupant protection systems. The Company expects that components
comprising JV Systems will continue to be produced separately by Siemens and
the Company but will be sold by the Siemens Joint Venture under trade names
owned by it. Further it is anticipated that all sales and marketing personnel
relating to JV Systems and components will be employed by Siemens Joint
Venture and that billing and collection activities will be handled by the
Siemens Joint Venture on a pass-through basis. Accordingly, the Company
expects its own sales and marketing expenses, as well as its research,
development and engineering expenses, to decrease as the Siemens Joint Venture
begins to conduct these functions. However, the Company will recognize its
proportionate share of such expenses incurred by the Siemens Joint Venture as
the Company's interest in the Siemens Joint Venture will be accounted for by
the Company under the equity method of accounting. The Company and Siemens
will be required to fund any such expenses incurred by the Siemens Joint
Venture to the extent revenues and external funding sources (such as loans
from the third parties) are insufficient to cover budgeted operating expenses
and capital expenditures. The Company does not anticipate that the Siemens
Joint Venture will borrow amounts from unaffiliated third parties and,
consequently, the Company expects that the Company and Siemens will be
required to fund all of the operating expenses of the Siemens Joint Venture.
See "Risk Factors--Risks Associated with Siemens Joint Venture."
RESULTS OF OPERATIONS
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
Net Sales. Net sales for the nine months ended March 31, 1998 were $968.0
million, an increase of $417.4 million or 76%, from the nine months ended
March 31, 1997. The increase in net sales was primarily due to growth from the
acquisition of Custom Trim on February 25, 1997 and the SRS Acquisition. These
two acquisitions accounted for approximately $421.8 million of the increase in
net sales for the nine months ended March 31, 1998. The increases were
partially offset by a decline in sales of EMS sensors and inflator and airbag
modules.
EMS sensor sales for the nine months ended March 31, 1998 were $85.6
million, a decrease of 33%, from the nine months ended March 31, 1997. This
decrease is primarily due to lower demand as major customers continued to
shift from EMS to electronic sensors that are sourced internally.
Inflator and airbag module sales (excluding SRS) decreased 24% to $63.0
million, for the nine months ended March 31, 1998 as compared to the nine
months ended March 31, 1997. The decrease was primarily due to the planned
phase-out of all mechanical airbag systems at Chrysler and Fiat, and the
reduction of shipments into Asia of all inflators and airbags due to the
economic situation in Asia.
The Company's mix of sales by class of similar product has experienced
certain changes as described above. The other principal changes are due to the
SRS Acquisition in October 1997 which had sales by class of similar product
weighted differently from that of the Company.
Cost of Sales. Cost of sales for the nine months ended March 31, 1998 were
$837.4, as compared to $433.9 million for the nine months ended March 31,
1997. The increase primarily reflected the additional production costs of
$375.9 million for the nine months ended March 31, 1998, resulting from the
acquisition of Custom Trim during fiscal 1997 and the acquisition of SRS in
fiscal 1998. In addition, the Company incurred approximately $9.0 million
during the nine months ended March 31, 1998 related to disruption costs
associated with the closing of seven manufacturing facilities and the ongoing
relocation of a facility in North America to Mexico, as well as the COS Charge
of $28.4 million.
Gross Profit. Gross profit as a percentage of net sales was 14% for the nine
months ended March 31, 1998 compared to 21% for the nine months ended March
31, 1997. The decrease in gross margin was primarily attributable to a shift
in product mix from high margin EMS sensors to those of lower margin products
acquired in recent acquisitions and disruption costs. Also, during the nine
months ended March 31, 1998, the Company incurred the COS Charge of $28.4
million and $9.0 million of Disruption Costs. Excluding the COS Charge and
48
<PAGE>
disruption costs, gross profit as a percentage of net sales would have been
17% for the nine months ended March 31, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended March 31, 1998 were $59.7
million (6% of net sales) compared to $51.3 million (9% of net sales) for the
nine months ended March 31, 1997. Selling, general and administrative expenses
as a percentage of net sales decreased primarily as a result of cost
improvements associated with the reduction of headcount and reduced spending.
Research, Development and Engineering Expenses. Research, development and
engineering expenses for the nine months ended March 31, 1998 were $49.9
million as compared to $27.3 million for the nine months ended March 31, 1997.
These increases primarily reflected costs associated with acquired businesses
of $23.8 million for the nine months ended March 31, 1998. The Company
incurred the R&D Write-Off of $77.5 million in the second quarter of fiscal
1998 to write-off in-process research and development for technology acquired
in connection with the SRS Acquisition that has not yet been established as
technologically feasible. The Company expects to benefit from this technology
as the products are launched over the next five years.
Operating Income (Loss). Operating income (loss) for the nine months ended
March 31, 1998 decreased significantly from the nine months ended March 31,
1997 primarily due to the December 1997 Charges. Also, included in cost of
sales during the three months ended March 31, 1998 were Disruption Costs of
$9.0 million. Exclusive of the effects of the December 1997 Charges and
disruption costs, operating income would have been $45.4 million or 5% of net
sales for the nine months ended March 31, 1998, compared to $33.8 million or
6% of net sales for the nine months ended March 31, 1997.
Interest Expense. Interest expense for the nine months ended March 31, 1998
was $63.7 million an increase of $45.9 million from the nine months ended
March 31, 1997. The increase in interest expense was primarily due to the
increase in average outstanding borrowings as a result of the acquisitions of
USS and Custom Trim in fiscal 1997 and SRS in fiscal 1998 and the fees
associated with the Bridge Loan Facility.
Income Taxes. The estimated fiscal 1998 annual effective tax rate has been
revised to a 14% benefit to reflect the impact of the December 1997 Charges
(i) taken in jurisdictions where the Company may not be able to recognize the
full income tax benefit due to limitations imposed by Financial Accounting
Standards Statement No. 109 (SFAS 109) and (ii) no tax benefit on write-down
of goodwill included in the Repositioning Charge. SFAS 109 states that a
valuation allowance is recognized if, it is more likely than not, some portion
or all of the deferred tax asset will not be realized. Because of limitations
on the utilization of net operating losses from foreign jurisdictions, a
valuation allowance for a portion of the deferred income tax benefit related
to the December 1997 Charges was recorded.
Extraordinary Loss. The extraordinary loss recorded in the nine months ended
March 31, 1998 related to the write-off of unamortized debt costs of the
previous bank credit facility.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales. Net sales increased 84.1% to $794.9 million in fiscal 1997 from
$431.7 million in fiscal 1996, primarily due to the acquisitions made in the
fourth quarter of fiscal 1996 and during fiscal 1997. These acquisitions
accounted for approximately $435.0 million of year-over-year sales growth,
including approximately $260.0 million attributable to sales of steering
wheels. The increase in net sales was partially offset by a decline in sales
of the Company's EMS sensors and all-mechanical airbag systems.
EMS sensor sales decreased 26.8% to $165.1 million in fiscal 1997 from
$225.6 million in fiscal 1996 as major OEM customers continued the shift to
electronic sensors sourced internally. This decline was partially offset by an
increase in the sale of auxiliary and safing sensors, which are components in
electronic sensor systems. Sales of these sensor products increased by $10.4
million in fiscal 1996 to fiscal 1997.
49
<PAGE>
Inflator and airbag systems sales decreased 16.4% to $74.3 million in fiscal
1997 from $88.9 million in fiscal 1996, primarily due to a phase-out of all-
mechanical airbag systems at Fiat and Chrysler, partially offset by new
program launches for inflator products sourced to Delphi, Mazda and Suzuki.
Cost of Sales. Cost of sales increased 127.9% to $631.3 million in fiscal
1997 from $277.0 million in fiscal 1996. The increase primarily reflects (i)
additional costs of sales attributable to the acquisitions made in the fourth
quarter of fiscal 1996 and during fiscal 1997, (ii) an increase in fixed
manufacturing costs, primarily depreciation, as a result of capacity expansion
for the Company's inflator products and (iii) charges of approximately $10.0
million related to the closing in fiscal 1997 of three plants acquired in
previous acquisitions.
Gross Profit. Gross profit as a percentage of net sales decreased to 20.6%
in fiscal 1997 from 35.8% in fiscal 1996, reflecting the declining sales of
high-margin EMS sensors and a higher percentage of net sales (more than 50%)
being generated by lower margin products, primarily steering wheels, acquired
in recent acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 84.8% to $70.6 million in fiscal 1997 from
$38.2 million in fiscal 1996, primarily reflecting costs associated with the
acquired businesses ($33.6 million), which was partially offset by reductions
in expenses associated with the existing business.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased 53.1% to $36.1 million in fiscal 1997 from
$23.6 in fiscal 1996, reflecting costs associated with the acquired businesses
($8.0 million) and a significant increase in spending for new product
development in the existing business. New product development initiatives
included non-azide and reduced-sized inflators, hybrid side-impact inflators,
and electronic sensing, especially for intelligent systems.
Interest Expense. Interest expense increased to $26.8 million in fiscal 1997
from $2.7 million in fiscal 1996. This increase reflected an increase in
average outstanding borrowings during fiscal 1997, which borrowings were used
to finance acquisitions and capital spending programs.
Income Taxes. The higher effective tax rate of 49.9% in fiscal 1997 compared
to 35.9% in fiscal 1996 was primarily due to the amortization of goodwill
without tax benefit and higher foreign tax rates. Fiscal 1996 also included a
benefit related to a reduction in taxes provided in prior years.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales increased by 7.7% to $431.7 million in fiscal 1996 from
$401.0 million in fiscal 1995, primarily due to growth from the acquisitions
of MOMO and VTI, along with new product sales. The acquisitions accounted for
$23.7 million of the year-over-year sales growth. Sales from new products,
including driver-side and passenger-side electronic airbag systems, added
$44.8 million in sales to Ford, Fiat, GM and Mazda. The increase attributable
to new product sales was partially offset by a decline in the Company's EMS
sensor sales to major customers. EMS sensor sales decreased 16.9% to $225.6
million in fiscal 1996 from $271.5 million in fiscal 1995.
Cost of Sales. Cost of sales increased 13.3% to $277.0 million in fiscal
1996 from $244.6 million in fiscal 1995. The increase primarily reflected
additional costs of sales attributable to sales by MOMO and VTI.
Gross Profit. Gross profit as a percentage of net sales decreased to 35.8%
in fiscal 1996 from 39.0% in fiscal 1995. The decrease in gross profit margin
was primarily due to a shift in product mix to lower-margin products. Sales of
high-margin EMS sensors decreased 16.9% while sale of lower-margin products,
including inflators and airbag systems, increased significantly during fiscal
1996. Major airbag program launches in fiscal 1996 at Fiat added $39.3 million
in net sales, but high start-up related expenses led to negligible gross
profit attributable to these sales. In addition, the high manufacturing cost
of low-volume VTI products contributed to the year-over-year margin decline.
50
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 15.5% to $38.2 million in fiscal 1996 from
$33.1 million in fiscal 1995, reflecting costs associated with acquired
businesses and higher marketing costs as a result of an emphasis on worldwide
opportunities and international expansion efforts.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased 27.6% to $23.6 million in fiscal 1996 from
$18.5 million in fiscal 1995. This increase was primarily related to the
development and testing of (i) electronic sensor products, including occupant
sensing and accelerometer development, (ii) the next generation inflators,
including non-azide and down-sized inflators, (iii) new side-impact products
and (iv) the development of technologies related to airbag modules, steering
wheels, airbag fabric and associated components.
Interest Expense. Interest expense increased to $2.7 million in fiscal 1996
from $0.8 million in fiscal 1995. This increase reflected an increase in
average outstanding borrowings during 1997, which borrowings were used to
finance acquisitions and capital spending programs.
Income Taxes. The higher effective tax rate of 35.9% in fiscal 1996 compared
to 34.3% in fiscal 1995 was primarily due to the absence in fiscal 1996 of a
tax benefit realized in fiscal 1995 for losses of certain foreign entities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for working capital, servicing
the Company's indebtedness, capital expenditures and acquisitions. Management
believes that cash generated from operations together with borrowings
available under the New Credit Facility will be sufficient to meet the
Company's working capital, debt service and capital expenditure needs, as well
as required investments in the Siemens Joint Venture, for at least the next
twelve months. The Company's ability to invest in the Siemens Joint Venture is
limited under the New Credit Facility and the Notes. See "Risk Factors--Risks
Associated with Siemens Joint Venture."
Cash flows from operating activities for the nine months ended March 31,
1998 was a deficit of $29.9 million compared with a $47.8 million surplus for
the nine months ended March 31, 1997. The decrease in cash flows was primarily
attributed to the net loss of $326.5 million, net of the noncash items and
accruals included in the repositioning and other special charges.
The Company had a working capital deficit of $24.7 million at March 31,
1998, compared to a deficit of $47.2 million at June 30, 1997 and working
capital of $90.2 million at June 30, 1996. The lower working capital deficit
at March 31, 1998 compared to June 30, 1997 was attributable to a
reclassification of a majority of the Bridge Credit Facility as long-term
debt, which indebtedness was incurred to finance in part the SRS Acquisition.
The decrease in working capital to a deficit at June 30, 1997 from $90.2
million of working capital at June 30, 1996 was attributable to higher levels
of accounts receivable during fiscal 1997 relating to higher sales volume and
increased inventory levels to support sales growth.
During the nine months ended March 31, 1998, the Company increased its
outstanding indebtedness by $459.7 million which resulted primarily from the
acquisition of SRS and the financing of capital expenditures. The Company had
unused availability under the Bridge Credit Facility as of March 31, 1998 of
approximately $90 million.
In fiscal 1997 and the nine months ended March 31, 1998, the Company made
capital expenditures of $75.9 million and $50.1 million, respectively, to
expand capacity and tool new products. Investments continue to be made in new
equipment throughout the Company to support productivity improvements, cost
reduction programs and to add capacity for existing and new products. The
Company estimates that capital expenditures during the balance of fiscal 1998
will aggregate approximately $80.0 million and will be used to support
productivity improvements, cost reduction programs, reconfiguration of
manufacturing facilities relating to the Repositioning Program and to expand
capacity for existing new products.
51
<PAGE>
On October 30, 1997, Siemens made a $115.0 million equity investment in the
Company by acquiring 4,883,227 Series A Preference Shares. The Company used
the proceeds of the Siemens Investment to pay a portion of the purchase price
for the SRS Acquisition. See "Recent Transactions--Siemens Investment." On
January 20, 1998, Siemens converted 4,883,226 of its Series A Preference
Shares into an equal number of shares of Common Stock.
On October 30, 1997, the Company sold to PSCC $200.0 million of Series B
Preferred. The Company used the net proceeds therefrom to pay a portion of the
purchase price for the SRS Acquisition. On November 25, 1997, the Company used
a portion of the net proceeds received in connection with the sale of the
Convertible Debentures to BTI Capital Trust which, concurrently therewith,
sold $250.0 million of Preferred Securities (which are guaranteed by the
Company) in a private transaction under Rule 144A under the Securities Act, to
redeem all of the outstanding Series B Preferred in accordance with the terms
thereof.
On October 30, 1997, the Company entered into the Bridge Credit Facility,
under which the Company had aggregate borrowing availability of $900.0
million. The Company used the net proceeds of the Offering together with
borrowings under the New Credit Facility to repay all borrowings outstanding
under the Existing Credit Facility.
On April 28, 1998, the Company entered into the New Credit Facility.
Following the Refinancing of the Bridge Facility, the Company has
approximately $138.8 million of borrowing availability under the New Credit
Facility (which reflects $11.2 million in outstanding letters of credit). The
New Credit Facility consists of (i) a revolving credit facility providing up
to $150.0 million of availability, including a $25.0 million sublimit for the
issuance of standby letters of credit, a $75 million sublimit for foreign
currency denominated borrowings and a $20 million sublimit for swing loans to
be provided by NationsBank, (ii) a $325 million term loan and (iii) a $200
million term loan. The New Credit Facility matures at various times between
the sixth and eighth anniversaries of the Closing Date. See "Description of
New Credit Facility."
YEAR 2000
Based on a recent assessment, the Company determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company presently believes that with modifications to existing
software and conversions to new software, the year 2000 issue will not pose
significant operational problems for its computer systems. The Company cannot
currently quantify the cost of these modifications and conversions. However,
if such modifications and conversions are not made, or are not timely
completed, the year 2000 issue could have a material impact on the operations
of the Company.
FORWARD LOOKING STATEMENTS
Statements herein regarding estimated annual cost savings under the
Repositioning Program and the Company's anticipated performance in future
periods constitute forward-looking statements within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Such
statements are subject to certain risks and uncertainties that could cause
actual amounts to differ materially from those projected. With respect to
estimated cost savings, management has made assumptions regarding, among other
things, the timing of plant closures, the amount and timing of expected short-
term operating losses and reductions in fixed labor costs. The realization of
annual cost savings is subject to certain risks, including, among other
things, the risks that expected operating losses have been underestimated,
expected cost reductions have been overestimated, unexpected costs and
expenses will be incurred and anticipated operating efficiencies will not be
achieved. Further, statements herein regarding the Company's performance in
future periods are subject to risks relating to, among other things,
difficulties in integrating acquired businesses, deterioration of
relationships with material customers, possible significant product liability
claims, decreases in demand for the Company's products, and adverse changes in
general market and industry conditions. Management believes these forward
looking statements are reasonable; however, undue reliance should not be
placed on such forward looking statements, which are based on current
expectations.
52
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--SRS
The following management's discussion and analysis of the results of
operations of SRS reflects the results of operations for the periods discussed
as adjusted to exclude, for each period discussed, the results of operations
attributable to certain operations of SRS that were not acquired by the
Company in the SRS Acquisition. See "Selected Historical Combined Financial
Information--SRS."
RESULTS OF OPERATIONS
Set forth below is certain statements of operations data for each of the
years in the three-year period ended December 31, 1996 and for the nine months
ended September 30, 1996 and 1997 which have been adjusted to exclude, for
each period presented, the Company's estimate of operations attributable to
certain operations of SRS that were not acquired by the Company in the SRS
Acquisition. See Note (d) to Notes to Unaudited Pro Forma Condensed
Consolidated Statement of Earnings for the twelve months ended June 30, 1997
and the six and twelve months ended December 31, 1997. The statement of
operations data set forth below is based on the Company's estimates.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR SEPTEMBER 30,
------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- --------------- ---------------- ----------------
AS AS AS AS AS
ACTUAL ADJUSTED ACTUAL ADJUSTED ACTUAL ADJUSTED ACTUAL ADJUSTED ACTUAL ADJUSTED
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.................. $747.3 $637.6 $882.8 $771.8 $951.3 $873.3 $715.9 $659.0 $678.3 $629.0
Cost of goods sold..... 671.9 574.8 781.9 683.1 849.8 780.8 630.9 580.5 608.3 563.3
Selling, general and
administrative
expenses.............. 30.8 25.4 35.8 31.2 42.1 38.9 32.4 30.0 30.6 29.1
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
operations............ 44.6 37.4 65.1 57.5 59.4 53.6 52.6 48.5 39.4 36.6
Other income (expense),
net................... (4.1) (2.5) (5.6) (5.8) 7.0 3.8 (1.6) (3.7) (2.8) 2.7
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income before taxes on
income................ 40.5 34.9 59.5 51.7 66.4 57.4 51.0 44.8 36.6 33.9
Taxes on income........ 15.6 13.4 21.3 19.0 25.4 22.0 21.0 18.4 15.0 13.9
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income............. $ 24.9 $ 21.5 $ 38.3 $ 32.7 $ 41.0 $ 35.4 $ 30.0 $ 26.4 $ 21.6 $ 20.0
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Sales. Total sales decreased 5% to $629.0 million for the nine months ended
September 30, 1997 from $659.0 million for the nine months ended September 30,
1996. Third-party sales also decreased 4% to $623.7 million for the nine
months ended September 30, 1997 from $649.0 million for the nine months ended
September 30, 1996, primarily due to lower airbag sales in the small car sales
market, phase down of seat cushion sales to Morton, unfavorable foreign
exchange due to strong dollar and lower pricing due to the competitive market
place. Intercompany sales decreased 47% to $5.3 million for the nine months
ended September 30, 1997 from $10.0 million for the nine months ended
September 30, 1996, primarily due to lower airbag sales to AlliedSignal Japan
(which sells to Isuzu) due to weaker market position as a result of roll-over
concern and new competition in the sport utility vehicle market.
Cost of Goods Sold. Costs of goods sold decreased 3% to $563.3 million for
the nine months ended September 30, 1997 from $580.5 million for the nine
months ended September 30, 1996. This decrease was as a result primarily of
cost reduction efforts implemented during the year, which were offset by the
impact of lower customer pricing and the unfavorable effect of foreign
exchange as noted above.
53
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 3% to $29.1 million for the nine months
ended September 30, 1997 from $30.0 million for the nine months ended
September 30, 1996, primarily reflecting lower expenses associated with the
lower sales volume.
Taxes on Income. The effective tax rate was 41% for both of the nine months
ended September 30, 1997 and 1996. The difference between the effective tax
rate of 41% and the federal rate of 35% is primarily due to foreign and state
taxes.
FISCAL 1996 COMPARED TO FISCAL 1995
Sales. Total sales increased 13% to $873.3 million in 1996 from $771.8
million in 1995. Third-party sales increased 13% to $862.2 million in 1996
from $761.6 million in 1995, primarily due to higher seat belt sales in the
North America truck market and a full year of airbag sales to Opel and Fiat
which were launched in September 1995. Intercompany sales increased 9% to
$11.1 million in 1996 from $10.2 million in 1995, primarily due to higher
production volumes.
Cost of Goods Sold. Cost of goods sold increased 14% to $780.8 million in
1996 from $683.1 million in 1995. This increase primarily reflected increased
costs associated with the increase in sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 25% to $38.9 million in 1996 from $31.2
million in 1995, primarily reflecting increased marketing efforts in Europe
and Asia and a larger allocation of corporate charges.
Taxes on Income. The higher effective tax rate of 38% in 1996 compared to
37% in 1995 was primarily due to increased earnings in foreign jurisdictions
with an overall higher effective tax rate.
FISCAL 1995 COMPARED TO FISCAL 1994
Sales. Total sales increased 21% to $771.8 million in 1995 from $637.6
million in 1994. Third-party sales increased by 19% to $761.6 million in 1995
from $637.6 million in 1994, primarily due to the growth from acquisitions of
the seatbelt division of Gilardini S.p.A. in February 1994 and General Safety
Corporation in November 1994 and the launching of airbag programs in North
America and Italy. Intercompany sales were $10.2 million in 1995 primarily
relating to sales to AlliedSignal Japan (which sells to Isuzu).
Cost of Goods Sold. Cost of goods sold increased 19% to $683.1 million in
1995 from $574.8 million in 1994. The increase primarily reflected increases
in sales volume as described above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 32% to $31.2 million in 1995 from $25.4
million in 1994 and primarily related to the increase in sales volume.
Taxes on Income. The lower effective tax rate of 37% in 1995 compared to 39%
in 1994 was primarily due to income in lower tax jurisdictions and investment
tax credits realized in Italy.
54
<PAGE>
BUSINESS
The Company is a worldwide leader in the design, development, manufacture
and sale of automotive occupant protection systems and components. Its
principal products include sensors, electronics and related software, airbags
and inflators, seatbelt systems and steering wheels. These products are used
in over 400 vehicle models manufactured by over 45 automobile manufacturers,
including General Motors, Fiat, Ford, Chrysler, Suzuki and most of the other
largest OEMs in the world. The Company presently sells products to customers
in over 14 countries worldwide and believes that it is the largest independent
supplier of both seatbelt systems and steering wheels in the world.
INDUSTRY OVERVIEW
The automotive supply industry in general, and the occupant protection
industry in particular, are undergoing significant consolidation. To lower
costs and improve quality, OEMs are reducing their supplier base by awarding
sole-source contracts to full-service suppliers who are able to deliver a
larger proportion of the components in a vehicle. The pace of consolidation is
accelerating as suppliers look for strategic alliances, partnerships and
acquisitions to complement engineering and manufacturing capabilities, as well
as to expand their geographic coverage. As the business and operations of OEMs
have become more global, OEMs are increasingly seeking suppliers who can
provide products and services worldwide. OEMs rigorously evaluate suppliers on
the basis of product quality, price, reliability of delivery, product design
capability, financial strength, new technology implementation, quality and
condition of facilities, geographic service area and overall management.
Suppliers that obtain superior ratings are given priority consideration for
the sourcing of new business. The Company believes that the new environment
provides an opportunity for full-service suppliers of integrated product lines
to increase revenues and profits by capturing business from other suppliers
who are unable to provide a full range of products and services and by
acquiring suppliers that further enhance product, manufacturing and service
capabilities and expand geographic markets.
Since 1989, when airbags were first offered as standard features in
passenger vehicles, the automotive occupant protection market has been one of
the fastest growing sectors of the automotive industry. While the rapid
installation of driver-side airbags was initially caused in the United States
by federal safety regulations, consumer demand based on safety concerns and
dislike of passive seatbelt systems has been the impetus for market growth in
recent years. A combination of consumer demand for safety and crash protection
and federal regulation has also driven OEMs to begin installing passenger-side
airbags, which are expected to be included in most domestic vehicles
manufactured after the current 1998 model year. In addition, side-impact and
rear-passenger airbags have recently begun to be installed in high-end
automobile models and are anticipated to represent a rapidly growing segment
of the occupant protection system market. Although airbag installation rates
in Europe and Asia have historically lagged behind installation rates in North
America, European and Asian installation rates are forecasted to increase
significantly due to increased consumer awareness of and demand for improved
occupant protection.
The Company believes that consumer safety concerns, as well as rapid
technological changes in various components, have created a demand for
"intelligent" occupant protection systems. Intelligent or "variable
deployment" systems will be able to react differently to individual crash
situations based on such variables as occupant size and position, vehicle
speed and type of crash. These next generation intelligent systems will
combine airbags, seat belts and multiple electronic sensors to provide
information to ensure proper airbag inflation and seat belt tension. A
critical element of these intelligent systems is the complex algorithm
(software) that interprets data sent by the sensors to analyze crash and
occupant variables and to trigger the appropriate levels of restraint. Because
of the complexity of intelligent systems and the number of components needed
to complete each system, the Company believes that only providers of complete,
integrated systems will be able to meet this demand. The Company believes that
some OEMs will begin to install these next generation occupant protection
systems beginning in model years 2001 and 2002.
55
<PAGE>
STRATEGY
The Company's goal is to become the leading worldwide supplier of complete,
integrated occupant protection systems. The Company believes that the Siemens
Joint Venture and the ten acquisitions completed by the Company since August
1994, most notably the SRS Acquisition, contribute significantly toward
achieving this objective. In pursuit of this goal, the Company employs the
following strategies:
. Maintain Technological Leadership Position. The Company plans to expand
and build upon its technical expertise to develop new, technologically
advanced products. The Company has pursued a strategy of acquiring
companies with leading research, design and manufacturing capabilities,
which has strengthened its technological leadership position.
Acquisitions since August 1994 have augmented the Company's
technological expertise, particularly in electronics and sensing
capabilities and the software that interprets crash data. The Company
intends to maintain its leadership position through the continued
development of next generation non-azide inflator and module technology,
electronic sensor capabilities, occupant sensing devices, intelligent or
variable deployment systems and software that interprets crash data.
Advanced inflator technologies and electronic sensors under development
by the Company will support the variable deployment inflators critical
to an intelligent occupant protection system. In addition, the Siemens
Joint Venture, which will combine Siemens' expertise in sensors and
electronics with the Company's expertise in airbags, seatbelt systems
and steering wheels, as well as its expertise in the complex algorithm
required by integrated systems, will support the development of next
generation intelligent occupant protection systems. The Company also
plans to continue to improve its engineering, testing and manufacturing
process technologies and to build on its extensive knowledge of crash
characteristics gained from its test laboratories, crash sleds and
computer crash simulations.
. Enhance Position as Supplier of Complete, Integrated Occupant Protection
Systems. The Company believes its ability to design, develop,
manufacture and sell complete, integrated occupant protection systems
that integrate airbags, seat belts, steering wheels, and sensors,
electronics and related software, for driver-side, passenger-side, rear-
passenger and side-impact systems gives it a competitive advantage. As a
result of the SRS Acquisition, the Company designs, develops and
manufactures complete seatbelt systems, including components such as
buckles, retractors and pretensioners, and thus the Company controls the
process for each of the principal components of a complete, integrated
occupant protection system. Through the Siemens Joint Venture, the
Company will seek to leverage Siemens' and the Company's complementary
areas of technological expertise for the development and marketing of
integrated occupant protection systems. The Company intends to leverage
its integrated product line, along with its design, development,
engineering, testing and manufacturing capabilities, in order to better
meet the needs of OEMs seeking to source complete, integrated occupant
protection systems from a limited number of suppliers.
. Reduce Costs and Improve Productivity. As prices for occupant protection
systems and components continue to decline, the Company's ability to
reduce costs and improve productivity will become increasingly
important. The Company has reduced its production costs by concentrating
its manufacturing activities in regions with lower labor costs and
implementing new, less expensive methods to produce its products.
Increased vertical integration of its product offerings has also
enhanced the Company's ability to control costs, assure quality, ensure
supply and reduce the time needed to deliver products to its customers.
The Company has begun implementing lean manufacturing techniques and
processes designed to significantly improve operating efficiencies and further
reduce costs. In September 1997, the Company began implementing the "Toyota
Production System" operating strategy, which embodies the ideals of waste
elimination, continuous improvement in operations and business process re-
engineering. Through this operating strategy, the Company expects to gain
operating efficiencies across all stages of its business, including developing
new concepts into manufactured products, processing purchase orders and
servicing customer accounts.
56
<PAGE>
The Company also recently began implementing its Repositioning Program,
which will reduce operating costs and increase productivity. The Repositioning
Program consists primarily of a 25% planned reduction in the Company'sglobal
workforce (or approximately 4,900 employees) through the elimination of
redundant and overlapping positions resulting from recent acquisitions, the
consolidation of the Company's manufacturing, sales and engineering facilities
primarily in North America and Europe through the closing of approximately 50%
(or 32) of its manufacturing facilities and 33% (or 10) of its sales and
engineering facilities and the disposal of certain non-core assets.
. Enhance Customer Relationships. The Company seeks to enhance its long-
term relationships with existing customers and establish relationships
with new customers by providing competitive pricing, high quality
products, leading technologies and the ability to provide complete,
integrated occupant protection systems. This strategy will become
increasingly important if OEMs continue to decrease the number of
suppliers from which they purchase systems and components. The Company
has acquired significant new customers as a result of its acquisitions
and in many cases has been successful in strengthening these
relationships. For example, the SRS Acquisition further expanded the
Company's customer base and substantially increased the Company's
business with several large OEMs, most notably Chrysler and Fiat.
Through the Siemens Joint Venture, the Company expects to have access to
customers not previously served by the Company. The Company supports
major customers by dedicating certain of its engineering staff to such
customers and providing proprietary computer modeling programs that
simulate sensor and system performance using vehicle data supplied by
the customer.
. Expand International Presence. As the business of OEMs becomes more
global, OEMs are increasingly seeking suppliers that can provide
products and services on a worldwide basis. Through its ten acquisitions
completed since August 1994 and the Siemens Joint Venture, the Company
has significantly expanded its worldwide capabilities. The Company
intends to leverage these new capabilities in an effort to solidify its
relationships with OEMs that have expressed an interest in intelligent
systems. The Company currently has a significant presence in Europe (pro
forma for the SRS Acquisition and the 1997 Acquisitions, European sales
accounted for 35% of the Company's net sales in the nine months ended
March 31, 1998) and intends to focus its efforts on expanding sales to
key OEMs in Asia and South America.
PRODUCTS
The following table sets forth the percentage of net sales attributable to
each product category of the Company for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS PRO FORMA
ENDED NINE MONTHS
FISCAL YEAR PRO FORMA MARCH 31, ENDED
------------------- FISCAL YEAR ------------ MARCH 31,
1995 1996 1997 1997(1) 1997 1998 1998(2)
----- ----- ----- ----------- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Electronics and
sensors................ 85.5% 70.1% 33.6% 15.3% 35.0% 16.9% 12.8%
Airbag systems.......... 13.7 22.9 9.4 25.0 11.5 19.8 24.9
Steering wheels......... -- 4.5 33.4 21.9 29.3 27.2 20.7
Seatbelt systems........ -- -- -- 27.1 -- 21.6 30.6
Interiors and plastics.. -- -- 22.9 10.4 21.5 13.4 10.1
Other................... 0.8 2.5 0.7 0.3 2.7 1.1 0.9
----- ----- ----- ----- ----- ----- -----
Total................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- --------
(1) Gives effect to the SRS Acquisition and the 1997 Acquisitions as if they
had occurred at the beginning of the period presented.
(2) Gives effect to the SRS Acquisition as if it occurred at the beginning of
the period presented.
57
<PAGE>
Electronics and Sensor Products
The Company's principal electronics and sensor product lines consist of
proprietary electronic and EMS sensors, as well as relay and reed switch
products. Pro forma for the SRS Acquisition and the 1997 Acquisitions, sales
of electronics and sensor products accounted for 15.3% of the Company's net
sales in fiscal 1997. The Company's electronics and sensors are used in the
manufacture of, among other platforms, the Ford F-Series pickup, GM Blazer and
Ford Explorer.
In response to OEMs' increased reliance upon electronic sensing systems, the
Company is developing its own advanced electronic sensing devices. The most
important of these devices is the Restraints Control Module ("RCM")--the
"brain" of the intelligent occupant protection system being developed by the
Company. The RCM serves as both an electronic crash sensor (replacing multiple
EMS sensors in prior generation systems) and a diagnostic module. The RCM
utilizes a proprietary algorithm to interpret individual crash characteristics
(as detected by the frontal and side-impact sensors) and to determine an
appropriate response by coordinating the various occupant protection
mechanisms within the occupant compartment (driver-side, passenger-side, rear-
passenger and side-impact airbags and seat belt pretensioners). Future
generations of RCMs are also expected to interpret information received from
occupant detection sensors (which will identify occupant presence, size and
location) and rollover sensors, both of which are currently being developed by
the Company, and in turn initiate a tailored response utilizing variable
output airbags and seat belt pretensioners. This controlled response is
expected to provide higher levels of occupant protection and to reduce the
potential for injuries caused by airbag deployment.
The Company is the world leader in the production of EMS sensors, having
sold more than 100 million units since 1987. These crash sensors detect a
change in velocity of the vehicle by, in the case of the Company's patented
"ball-in-tube" technology, the movement of a gold-plated ball through a finely
machined tube, which closes an electrical circuit causing the initiation of
the airbag. Reed switches operate on similar principles. While the production
of EMS crash sensing devices has declined, and is expected to continue to
decline due to the increased functionality of electronic sensors, the research
and modeling that went into the development of these devices is applicable to
the newer generation electronic sensing devices currently being developed by
the Company.
In addition to crash and occupant detection, the Company's sensing devices
can be used in a number of other automotive and non-automotive products. Reed
switches are used to sense position or proximity in a wide range of commercial
equipment, such as photocopy machines, exercise equipment, security systems
and cellular phones. They also have potential applications as airbag de-
activation switches, seat position sensors and seat belt engagement sensors,
the latter two applications being part of intelligent occupant protection
systems. The Company also has a full range of pressure sensors which utilize
its micro-machined silicon sensor technology. These products can be used to
detect acceleration pressure or angular rate changes and have a number of
applications including rollover sensing, electronically controlled suspension,
anti-lock braking, fuel vapor recovery, manifold absolute pressure products
and monitoring refrigerant pressure, combustion pressure, fuel levels and
brake line and tire pressure.
The Company has recently developed the Tailorable Occupant Protection System
("TOPS") consisting of occupant-position sensors, weight sensors and seat-
buckle-switch sensors. These sensing systems work together with the Company's
passive restraints, seat belts, electronics and algorithms to determine the
occupant's size and position as well as the presence of a child safety seat.
The Company has also recently developed the dynamic occupant position test
sled, which utilizes sensors located in a vehicle instrument panel to
determine if an occupant will be placed out of position relative to the
automobile's airbag, during pre-impact braking conditions. The test sled will
work in conjunction with the Company's occupant sensing system to provide the
maximum and appropriate level of occupant protection during vehicular crashes.
58
<PAGE>
Airbag and Inflator Products
The Company offers airbags and inflators for driver-side, passenger-side and
side-impact systems used by OEMs in North America, Asia and Europe. Pro forma
for the SRS Acquisition and the 1997 Acquisitions, sales of airbag and
inflator products accounted for 25.0% of the Company's net sales in fiscal
1997. The Company's airbags and inflators are used in the manufacture of,
among other platforms, the Chrysler Ram pickup, GM/Opel Vectra, Chrysler
Caravan minivan and Isuzu Rodeo.
The Company offers a variety of inflators and modules, including sodium
azide-based pyrotechnic inflators and all-solid propellant, non-azide Eco-
Safe(TM) inflators for both driver-side and passenger-side applications, and a
hybrid (combination solid and gas generant) side-impact inflator. The Eco-Safe
inflator represents the Company's newest generation of environmentally
friendly, compact inflators. All of the Company's inflators can be custom
designed to provide a variety of inflation levels to satisfy applications from
depowered systems (currently being considered to address concerns for the
safety of children and adults of small stature) to full output systems. In
addition to the Company's thorax and head/thorax Twin-Bag(TM) side-impact
module designs, the Company has in development a head curtain airbag system
that features both inflated and non-inflated surfaces working together to
offer a wide side-protection area. For the next generation intelligent
occupant protection system, the Company is developing variable deployment
inflators.
The Company supplies hybrid inflators for both passenger-side and side-
impact applications, which are expected to complement the side-impact hybrid
inflators offered by the Company. The Company has been addressing the need for
improved side-impact protection and recently announced the SoftPak(TM)
head/thorax module with a patented venting system and crescent cushion fold.
This technology is designed to improve the protection of occupants who may not
be in a standard seated position.
The Company also offers a self-contained all-mechanical driver-side airbag
module and steering wheel. The entire system can be used to replace an
existing steering wheel on a vehicle manufactured without a driver-side
airbag. This system has provided an entry for the Company into a number of
markets, particularly in Asia, where manufacturers did not anticipate the
consumer demand for airbags. The all-mechanical system solved the
manufacturers' dilemma and has led, in several instances, to development
contracts for the Company to design full electronic systems for future vehicle
platforms.
Seat Belts Systems
As a result of the SRS Acquisition, the Company designs, develops and
manufactures complete seatbelt systems. Pro forma for the SRS Acquisition and
the 1997 Acquisitions, sales of seatbelt systems accounted for 27.1% of the
Company's net sales in fiscal 1997. The Company's seatbelts are used in the
manufacture of, among other platforms, the Chrysler Caravan minivan, GM pickup
and Ford Taurus.
Seatbelt systems include retractors, buckles, seat-integrated belts,
electric and mechanical height adjusters and pyrotechnic and mechanical
pretensioners, which are devices that remove slack from a seat belt system
within milliseconds of a collision. The Company is a vertically integrated
manufacturer of the webbing, metal and plastic components and finishing of
seatbelt systems.
The Company is a leader in the development of seat belts that are integrated
into the seats of the vehicle, as opposed to being attached to the upper part
of the interior known as the "B-pillar." Seat-integrated belts offer comfort,
convenience and appearance benefits to drivers and passengers, while providing
styling and assembly benefits to OEMs. Seat-integrated belts are currently
used on several luxury cars and are expected to be adopted more widely for use
on other vehicles.
Steering Wheels
The Company is currently the world's largest independent manufacturer of
steering wheels. It supplies steering wheels to OEMs in North America, Europe
and Asia. The Company's steering wheel products range from high-end steering
wheels trimmed with higher quality wood and leather for some of the world's
best known
59
<PAGE>
luxury and high performance automobiles (such as Ferrari and Lamborghini) to
molded plastic steering wheels for lower-priced, higher volume vehicles. Pro
forma for the SRS Acquisition and the 1997 Acquisitions, sales of steering
wheels accounted for 21.9% of the Company's net sales in fiscal 1997. The
Company's steering wheels are used in the manufacture of, among other
platforms, the Ford Taurus/Sable, Fiat Bravo and Ford F-Series pickup.
As "host" to the driver-side airbag, the steering wheel plays an important
role in occupant protection systems. The Company's control over the design and
manufacture of its steering wheels provides the Company with the opportunity
to deliver integrated steering wheel/airbag systems that address several OEM
concerns. By molding the steering wheel over an airbag system, the Company can
provide a more aesthetically pleasing product, with no gap surrounding the
airbag module, and provide greater flexibility for design innovations. One
such innovation involves the Company's uniforce sensor, a sensing film that is
situated in the center of the steering wheel and allows for the implementation
of multi-function controls (e.g., radio, cruise control, heating and air
conditioning, etc.) directly on the steering wheel. In addition, by
integrating the steering wheel and airbag system as a unit, the product can be
installed in one step rather than the three steps currently required to
install an airbag system, making the integrated system more desirable to the
OEM.
CUSTOMERS
The Company supplies its products primarily to automotive OEMs in North
America, Europe and Asia. The Company's products are included in over 400
vehicle models manufactured by over 45 OEMs, including popular models such as
Ford's Taurus, Expedition and Explorer, as well as various Ford pick-up truck
lines, and GM's Buick LeSabre and Park Avenue, Cadillac Eldorado and Seville,
Pontiac Grand Am and Chevrolet Blazer and S/T and C/K pick-up truck lines.
Historically, Ford and GM have represented a significant portion of the
Company's revenues. As a result of the SRS Acquisition and the acquisition of
Gallino, Fiat and Chrysler have become significant customers. Pro Forma for
the SRS Acquisition and the 1997 Acquisitions, sales to GM, Chrysler, Ford and
Fiat represented approximately 23%, 21%, 14% and 18%, respectively, of the
Company's net sales for the first nine months of fiscal 1998 and 21%, 16%, 17%
and 18%, respectively, of the Company's net sales during fiscal 1997. A
significant portion of sales to Chrysler during these periods were for
seatbelts and airbags for the Chrysler Caravan minivan. These customers are
not committed to purchase any specified quantities of products from the
Company. See "Risk Factors--Reliance on Major Customers."
The Company has received numerous awards from OEM customer organizations in
recognition of the high quality of its products, including the total Quality
Excellence Award awarded by the Auto Alliance (a joint venture between Ford
and Mazda), Nissan's Quality Master Award and GM-Delco's World Class Quality
Award.
In addition to its OEM customer business, the Company sells its reed switch
and silicon sensor products to a number of manufacturers of both automotive
and non-automotive equipment. Significant customers for these products include
Delphi, Autoliv, Siemens, Bosch, Temic, TRW, Xerox, SMP and Nordic Track, as
well as automotive OEMs such as Mitsubishi, Toyota and GM.
SALES AND ENGINEERING SUPPORT
The Company generally competes for new business at the beginning of the
development process for new vehicle models. The Company also competes for new
business upon the redesign of existing models by its customers or, in the case
of inflaters and modules, as a replacement supplier for existing models. The
development of new models and redesign of existing models generally begin
three to five years and two to three years, respectively, prior to the
marketing of such models to the public. See "Risk Factors--Long Lead Times for
Sales."
60
<PAGE>
OEM customers typically require early involvement of their suppliers in the
design and engineering aspects of product development. Automobile
manufacturers seek the Company's assistance in sensor and system design and
calibration so that particular characteristics of each vehicle model are taken
into account. Through the lengthy vehicle design process, sensors and systems
are repeatedly evaluated by the Company in simulations and sled tests,
culminating in the testing of finished vehicles with installed prototype
sensors and systems to ensure compliance with standards and specifications of
the federal government and manufacturers' safety requirements. The Company has
dedicated certain of its engineering staff to the support of its major
customers.
The Company also supports its customers with its proprietary computer
modeling programs that simulate sensor and system performance using vehicle
data supplied by the customer. Using this software, the Company assists its
customers in determining calibration and installation location and adapting
the Company's products for use in the customer's vehicles. The Company's
programs can also provide customers with computer modeling of occupant motion
and injury during a simulated crash, crash pulse and inflator optimization and
finite element analysis of vehicle and component structures.
In December 1997, the Company and Siemens agreed to form the Siemens Joint
Venture. When fully operational over the next several years, the Siemens Joint
Venture is expected to assume the sales and marketing functions for both the
Company's and Siemens' integrated occupant protection systems and components.
Accordingly, the Company expects its sales and marketing staff and related
expenses to decrease as the Siemens Joint Venture begins to conduct the sales
and marketing functions. The Company expects that the Company and Siemens will
be required to fund such expenses incurred by the Siemens Joint Venture. See
"Risk Factors--Risks Associated with Siemens Joint Venture," "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Overview--Siemens Joint Venture" and "Recent Transactions--Siemens Joint
Venture."
PROPRIETARY RIGHTS
The Company currently owns a significant number of United States and related
foreign patents. The Company has also trademarked certain names. While the
Company considers its patents and trademarks to be valuable assets, it does
not believe that its competitive position is dependent on patent or trademark
protection or that its operations are dependent on any individual patent.
There can be no assurance that the protection offered by any patents will be
adequate to protect the Company's rights and interests in its technology. See
"Risk Factors--Patents and Proprietary Technology."
RESEARCH AND DEVELOPMENT
The Company places significant emphasis on new product and technology
development and has increased its research and development activities in each
of the last three years. Pro forma for the SRS Acquisition and the 1997
Acquisitions, BREED's research, development and engineering expenses were
$86.4 million for fiscal 1997. The Company's research and development
activities are currently focused primarily on the development of new
intelligent occupant protection systems, next-generation inflator technologies
and enhancements or cost improvements to existing products. See "Risk
Factors--Dependence on the Development of New Products." In December 1997, the
Company and Siemens agreed to form the Siemens Joint Venture. When fully
operational over the next several years, the Siemens Joint Venture is expected
to assume the research, development and engineering functions for both the
Company's and Siemens' integrated occupant protection systems and components.
Accordingly, the Company expects its research, development and engineering
staff and expenses to decrease as the Siemens Joint Venture begins to conduct
these research, development and engineering functions. The Company expects
that the Company and Siemens will be required to fund all such expenses
incurred by the Siemens Joint Venture. See "Risk Factors--Risks Associated
with Siemens Joint Venture," "Management's Discussion and Analysis of Results
of Operations and Financial Condition--Overview--Siemens Joint Venture" and
"Recent Transactions--Siemens Joint Venture."
61
<PAGE>
The Company has begun utilizing virtual reality in the development and
engineering of occupant safety systems. The Company's new three-dimensional
virtual reality safety systems will be integrated with virtual vehicle
prototypes to simulate how an occupant interacts with an automobile's airbag
during a crash. The Company believes this virtual reality safety system will
facilitate the Company's engineers' ability to view numerous airbag
deployments and determine which occupant restraint system will provide optimum
protection in various crash scenarios.
COMPETITION
The Company competes with independent suppliers and partially or fully
integrated manufacturers of occupant protection systems and other automotive
components. In addition, many of the Company's customers are integrated
manufacturers that produce or could produce a substantial portion of their own
requirements for certain components. Increased competition, pricing pressures
and the demands of OEMs have caused an industry-wide trend toward
consolidation. The Company competes primarily on the basis of its product
quality, price, reliability of delivery, product design capability and
engineering support, financial strength, new technology implementation,
production capabilities and geographic service area. In addition, the ability
to introduce new products to the market has become an increasingly important
factor in maintaining a competitive position in the market. See "Risk
Factors--Competition."
The Company's principal competitors in the integrated occupant protection
system market are TRW, Autoliv, Delphi and Takata. These competitors produce
most of the components comprising their integrated systems. Further, these
companies have significant financial and other resources and are able to
compete as global suppliers.
The Company's principal competitors in the market for electronics and
sensors are TRW, Bosch, Siemens, Autoliv, Temic, Delphi (through Delco) and
Nippondenso and the internal electronics divisions of Ford. The Company's
principal competitors in the sale of inflators and airbags are Autoliv,
Takata, TRW, OEA and Tally, which offer inflator products on a worldwide
basis, and Temic, which offers inflator products in Europe. The Company
competes for sales of steering wheels in North America with TRW, Petri,
Centoco, Toyoda Gosei and Neaton, and in Europe with Autoliv, Dalphi Metal,
Delphi and Petri. The Company's principal competitors for sales of seat belts
are Autoliv, Takata, TRW and Delphi.
GOVERNMENT REGULATION
Automotive Regulations
Airbag systems installed in automobiles sold in the United States must
comply with government regulations, including those which require the
installation of passive restraint devices in all new cars, light trucks and
vans. In order to comply with these regulations, airbag systems must meet
specifications intended to ensure that certain types of injuries occurring as
a result of specified crash conditions fall within established severity
levels. The Company's customers are required to self-certify that airbag
systems installed in vehicles sold in the United States satisfy these
requirements. See "Risk Factors--Government Regulation."
Environmental Regulations
The Company uses various hazardous and toxic substances in its manufacturing
processes including certain solvents and lubricants, as well as sodium azide
and other pyrotechnic materials. The Company's operations are subject to
numerous federal, state and local laws, regulations and permit requirements
relating to the handling, storage, disposal and transportation of certain of
these substances. The Company's foreign operations are also subject to various
environmental and transportation-related statutes and regulations. Generally,
these foreign requirements tend to be no more restrictive than those in effect
in the U.S. The Company believes that it is in substantial compliance with
existing laws and regulations and has obtained or applied for the necessary
permits to conduct its business operations. Compliance by the Company with
applicable environmental laws has not had
62
<PAGE>
a material adverse effect on the Company's financial condition or competitive
position to date. Although no assurances can be given, the Company does not
believe that compliance with existing environmental or other governmental laws
or regulations will have a material adverse effect on its results of
operations or financial condition. See "Risk Factors--Safety and Environmental
Considerations."
EMPLOYEES
As of March 31, 1998, the Company had approximately 17,592 full-time
employees worldwide. Certain of the Company's North American employees and
most of its overseas employees are unionized. The Company has not experienced
any significant work stoppages during the past three years and considers its
relations with its employees to be good.
During the three months ended December 31, 1997, the Company began
implementing the Repositioning Program, pursuant to which the Company plans to
reduce its global workforce by 25% (or approximately 4,900 employees). The
Company currently expects the reduction in its global workforce to be
substantially completed within the next 12 to 18 months.
PRINCIPAL FACILITIES
The Company's corporate headquarters, consisting of approximately 195,000
square feet including manufacturing and engineering facilities, is located in
Lakeland, Florida. As of March 31, 1998, the Company also owned or leased
approximately 71 other facilities, located throughout the United States,
Mexico, and Europe. The Company intends to consolidate certain of its
manufacturing, sales and engineering facilities in connection with the
Repositioning Program. See "Prospectus Summary--Recent Developments." The
Company believes its current facilities are adequate to meet its needs in the
foreseeable future and that, if necessary, suitable additional or alternative
space will be available to accommodate the Company's needs on commercially
reasonable terms.
LEGAL PROCEEDINGS
On April 16, 1998, the Company was served with a complaint in the matter of
Takata Corporation v. AlliedSignal, Inc. and BREED Technologies, Inc., (United
States District Court, District of Delaware, case no. 98-94). The suit alleges
patent infringement on the part of AlliedSignal and BREED relating to the
production of two seat belt retractors formerly manufactured by AlliedSignal
and now manufactured by BREED. The suit seeks monetary damages and injunctive
relief. Under the Asset Purchase Agreement relating to the SRS Acquisition
(the "Asset Purchase Agreement"), AlliedSignal will be required to indemnify
the Company (on a net after tax basis) against any monetary damages incurred
by the Company in connection with this lawsuit, including any reasonable
royalties that might be paid in respect of sales made through February 2000.
Pursuant to the Asset Purchase Agreement, AlliedSignal will defend the
litigation on behalf of the Company, and the Company believes that
AlliedSignal will vigorously defend the matter. While the outcome of this
lawsuit cannot be predicted with certainty, based upon currently available
information, the Company does not believe that this lawsuit will have a
material adverse effect on the Company's financial condition or results of
operations.
In addition, the Company is party to other litigation incidental to its
business from time to time. The Company is not currently a party to any
litigation that management of the Company believes, if determined adversely to
the Company, would have a material adverse effect on the Company's financial
condition or results of operations.
63
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company as of May 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Johnnie Cordell Breed............... 54 Chairman of the Board of Directors and
Chief Executive Officer
Charles J. Speranzella, Jr.......... 42 President, Chief Operating Officer and
Director
Robert M. Rapone.................... 41 Executive Vice President, Operations
Worldwide
Frank J. Gnisci..................... 47 Executive Vice President and Chief
Financial Officer
Allen K. Breed...................... 70 Director
Larry W. McCurdy.................... 62 Director
Robert W. Shower.................... 60 Director
Alberto Negro....................... 59 Director
Dr.-Ing. Franz Wressnigg............ 54 Director
</TABLE>
Johnnie Cordell Breed was elected Chairman of the Board of Directors in
March 1998 and Chief Executive Officer in August 1997 and has been a director
of the Company since its inception in 1987. From August 1997 to March 1998,
Mrs. Breed served as Co-Chairman of the Board of Directors. She served as
President and Chief Operating Officer of the Company from September 1995 until
August 1997 and as Vice Chairman from 1986 through August 1995. In 1982, Mrs.
Breed co-founded Transcor, Inc., a provider of transportation travel services.
She is currently the Secretary, Treasurer and sole stockholder of Transcor,
Inc. Mrs. Breed is a trustee of Columbia College of South Carolina. Mrs. Breed
is the wife of Allen K. Breed.
Charles J. Speranzella, Jr. was elected President and Chief Operating
Officer of the Company in June 1998 and a director in October 1997. He joined
the Company as General Counsel and Assistant Secretary in September 1994. He
served as Managing Senior Vice President, General Counsel and Assistant
Secretary from February 1995 until August 1997. Mr. Speranzella was elected
Corporate Secretary in May 1995 and became Executive Vice President, General
Counsel and Secretary in July 1995. From 1979 until joining the Company, he
held various senior positions at Matra Hachette's Fairchild Space and Defense
Corporation and Martin Marietta.
Robert M. Rapone joined the Company as Executive Vice President, Operations
Worldwide in September 1997. From 1995 to 1997, Mr. Rapone was Vice President
of Operations for Autoliv, one of the largest independent suppliers of airbag
and seatbelt systems in the world. From 1989 to 1995, Mr. Rapone was employed
by Federal Mogul, most recently as Director of Connectivity.
Frank J. Gnisci joined the Company as Executive Vice President and Chief
Financial Officer in September 1997. From 1994 to 1997, Mr. Gnisci served as
Vice President of Finance for Terex Corporation, a manufacturer of heavy
construction vehicles and equipment. From 1991 to 1994, Mr. Gnisci was Vice
President of Finance for Babcock Industries, Inc., a manufacturer of conveyor
systems. Mr. Gnisci was Vice President and Controller of Gold Fields Mining
Corporation from 1987 to 1991.
Allen K. Breed, founder of the Company, was elected Chairman Emeritus of the
Board of Directors of the Company in March 1998. From August 1997 to March
1998, Mr. Breed served as Co-Chairman of the Board of Directors. Mr. Breed was
Chairman of the Board of Directors and Chief Executive Officer from the
Company's inception in 1987 until August 1997. Mr. Breed is the husband of
Johnnie Cordell Breed.
Larry W. McCurdy was elected a director of the Company in September 1992.
Since March 1997, Mr. McCurdy has served as Chairman, President and Chief
Executive Officer of Echlin, Inc., an automotive components supplier
("Echlin"). From 1985 until March 1997, Mr. McCurdy served as President and
Chief Executive Officer of Moog Automotive, Inc., a manufacturer of automotive
aftermarket products (Moog Automotive, Inc. was sold to Cooper Industries,
Inc. in October 1992). From 1983 to 1985, Mr. McCurdy served as President and
Chief Operating Officer of Echlin. Prior to 1983, Mr. McCurdy held various
senior management
64
<PAGE>
positions with Tenneco Inc. Mr. McCurdy is a director of Lear Seating
Corporation and Mohawk Industries, Inc. and serves as a trustee of Milliken
University.
Robert W. Shower was elected a director of the Company in October 1997. From
1992 through his retirement in July 1996, Mr. Shower served as an officer and
director of Seagull Energy Corporation, an oil and gas exploration and
production company ("Seagull"). While at Seagull, Mr. Shower served as a
Senior Vice President from 1992 to 1994, as Chief Financial Officer from 1992
to 1996, as an Executive Vice President from 1994 to 1996, and as a director
from May 1992 through July 1996. Prior to joining Seagull, Mr. Shower served
as Senior Vice President, Corporate Development for Albert Fisher, Inc., a
fruit and vegetable distribution company, from 1991 until 1992. Mr. Shower
currently serves as a director of Lear Seating Corporation, Highlands
Insurance Group and Edge Petroleum Corporation.
Alberto Negro retired as Chief Executive Officer of Fiat Auto USA, Inc. in
June 1997 after 29 years of service with Fiat. Mr. Negro also served as
Chairman of SAE Overseas Meeting Group, a society of automotive engineers, and
served on the Executive Committee of recent IBEC and Convergence Conferences
from 1995 to 1997.
Dr.-Ing. Franz Wressnigg has served as the Group President of Siemens
Automotive, an automotive parts manufacturer, since 1993. Previously he served
as a member of the Board of Directors of Siemens Austria, Vienna from 1989
until 1993 and in various other management positions with Siemens since 1967.
Dr. Wressnigg is the designee of Siemens to serve on the Board of Directors
pursuant to the Stockholders Agreement described below. See "The
Transactions--Siemens Investment."
Pursuant to the Stockholders Agreement entered into in connection with the
Siemens Investment, Mrs. Breed and her husband, who beneficially own an
aggregate of approximately 47% of the outstanding Common Stock as of March 15,
1998, have agreed to vote their shares to elect a designee of Siemens to the
Board of Directors. Siemens designated Dr. Wressnigg to be this director and
he was elected a director of the Company at the Company's annual stockholders'
meeting held on November 20, 1997. The holders of Series A Preference Shares
(initially Siemens) also have the right, voting as a class, to elect one
director of the Company under certain circumstances. See "Recent
Transactions--Siemens Investment."
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve at the discretion of the Board of Directors.
65
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of May 31, 1998, (i) by each
person who is known to the Company to beneficially own more than 5% of the
outstanding shares of the Common Stock, (ii) by each executive officer of the
Company, (iii) by each director of the Company and (iv) by all directors and
executive officers of the Company as a group. Except as set forth below, the
stockholders named below have sole voting and investment power with respect to
all shares of Common Stock shown as being beneficially owned by them.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ---------- -------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Johnnie Cordell Breed................................ 16,955,600(1) 46.3%
Allen K. Breed....................................... 17,095,302(2) 46.7
Charles J. Speranzella, Jr........................... 55,721(3)(4) *
Robert M. Rapone..................................... -- (4) --
Frank J. Gnisci...................................... -- --
Larry W. McCurdy..................................... 13,349(5) *
Robert W. Shower..................................... 2,000 *
Alberto S. Negro..................................... 1,000 *
All directors and executive officers as a group (8
persons)............................................ 17,157,179(6) 46.8
OTHER 5% STOCKHOLDERS:
The Capital Group Companies, Inc..................... 2,647,980(7) 7.2
Fidelity Management & Research Co.................... 2,546,200(8) 7.0
Pioneer Management Corporation....................... 3,203,700(9) 8.8
Siemens Aktiengesellschaft........................... 4,883,227(10) 13.3
</TABLE>
- --------
* Less than 1%.
(1) Includes 8,477,750 shares of Common Stock held by A. Breed, L.P., a Texas
limited partnership ("ABL"), and 8,477,750 shares of Common Stock held by
J. Breed L.P., a Texas limited partnership ("JBL"). Also includes 100
shares of Common Stock held as a joint tenant with Mr. Breed.
(2) Includes 8,477,750 shares of Common Stock held by ABL and 8,477,750
shares of Common Stock held by JBL. Mr. Breed has indirect voting control
over the shares held by ABL and Mrs. Breed has indirect voting control
over the shares held by JBL. Mr. and Mrs. Breed have agreed to vote all
shares held by ABL and JBL together as they may mutually agree. Also
includes 100 shares of Common Stock held as a joint tenant with Mrs.
Breed and 139,702 shares of Common Stock held by the Breed Charitable
Foundation.
(3) Includes 54,341 shares of Common Stock that may be acquired pursuant to
stock options exercisable within 60 days.
(4) Excludes 400,000 shares of Common Stock that may be acquired pursuant to
stock options exercisable if the trading price of the Common Stock
exceeds certain specified levels.
(5) Includes 13,349 shares of Common Stock that may be acquired pursuant to
stock options exercisable within 60 days.
(6) Includes 57,497 shares of Common Stock that may be acquired pursuant to
stock options granted to executive officers and directors and exercisable
within 60 days.
(7) Based upon information in Schedule 13G, filed with the Commission on
February 10, 1998, the Capital Group Companies is located at 333 South
Hope Street, Los Angeles, California 90071.
(9) Pioneer Management Corporation is located at 60 State Street, Boston,
Massachusetts 02109.
(10) Includes one Series A Preference Share, which is convertible into one
share of Common Stock. See "Recent Transactions--Siemens Joint Venture
and Investment." Siemens Aktiengesellschaft is located at Werner-von-
Siemens-Strasse, D-91052 Erlangen, Germany.
66
<PAGE>
RECENT TRANSACTIONS
SRS ACQUISITION
General. Pursuant to the Asset Purchase Agreement, on October 30, 1997, the
Company purchased substantially all the assets and assumed certain liabilities
of AlliedSignal related to the design, development, manufacture, marketing and
selling of automotive occupant restraint products and systems (including, but
not limited to, seat belt and airbag assemblies and components) for $710.0
million in cash. The purchase price is subject to post-closing adjustment
based on the adjusted book value of the acquired business, any retained cash
balances and any amounts paid with respect to certain intracompany
obligations.
Post-Closing Covenants. The parties to the Asset Purchase Agreement agreed
to certain customary post-closing covenants, including without limitation
covenants related to taxes, employee matters and the assumption of certain
liabilities. The Company has submitted to AlliedSignal, Inc. a post-closing
purchase adjustment in accordance with the terms of the Asset Purchase
Agreement. The final adjustment will be determined in accordance with the
terms of the Agreement.
Indemnification. AlliedSignal and certain affiliated sellers jointly and
severally agreed to indemnify (on a net after-tax basis) the Company and its
directors, officers, employees, agents, consultants, representatives,
affiliates, successors and permitted assigns in respect of any claims,
liabilities, obligations, lawsuits, damages (excluding loss of profits and
other consequential damages), costs and out-of-pocket expenses arising out of
or relating to: (i) breaches of any covenant or agreement made by AlliedSignal
in the Asset Purchase Agreement or certain ancillary agreements; (ii) breaches
of certain representations and warranties; (iii) certain designated
liabilities not being assumed by the Company; and (iv) the conduct of certain
businesses retained by AlliedSignal and the ownership, use and possession of
certain assets retained by AlliedSignal. AlliedSignal also provided special
limited indemnifications to the Company for certain claims related to
environmental, intellectual property and recalls and service action matters.
The indemnity provided to the Company pursuant to the Asset Purchase Agreement
is subject to specified deductibles and caps (which generally limit the
aggregate liability of AlliedSignal to one-half of the unadjusted purchase
price).
The Company agreed to indemnify (on a net after-tax basis) AlliedSignal and
its directors, officers, employees, agents, consultants, representatives,
affiliates, successors and permitted assigns in respect of any losses arising
out of the following: (i) breaches of any covenant or agreement made by the
Company in the Asset Purchase Agreement or certain ancillary agreements; (ii)
breaches of certain representations and warranties; (iii) certain designated
liabilities assumed by the Company; (iv) conduct of the SRS business and the
ownership, use and possession of the acquired assets; and (v) any liability to
any person for any finder's, broker's or other similar fee or commission
related to the transaction.
Ancillary Agreements. The Company and AlliedSignal also executed certain
ancillary agreements in connection with the SRS Acquisition, including (i) a
transition services agreement, providing for the transition of certain
overhead services provided to the SRS business by AlliedSignal and (ii)
manufacturing and supply agreements permitting the Company to manufacture
certain components used by AlliedSignal and requiring AlliedSignal to supply
the Company's requirements for certain other components.
Additional Information. The description of the SRS Acquisition set forth
herein, including the description of the Asset Purchase Agreement, is
qualified and should be read together with the Company's Current Report on
Form 8-K dated October 30, 1997, including the exhibits filed therewith, as
amended by the Company's Current Report on Form 8-K/A filed on January 13,
1998.
SIEMENS INVESTMENT
Stock Purchase Agreement. On October 30, 1997, pursuant to a Stock Purchase
Agreement dated October 14, 1997 (the "Stock Purchase Agreement"), Siemens
acquired 4,883,227 Series A Preference Shares for an aggregate purchase price
of $115.0 million. Pursuant to the Stock Purchase Agreement, the Company made
67
<PAGE>
certain customary representations and warranties concerning its business,
agreed to certain post-closing covenants, including an agreement to provide
Siemens with substantially equivalent rights to those granted in the future to
any stockholder acquiring an equal or smaller percentage of voting interest in
the Company as Siemens, agreed to indemnify Siemens for breaches of
representations and warranties for a period of up to 18 months, agreed to
indemnify Siemens for breaches of covenants and granted Siemens certain anti-
dilution rights. The indemnification obligations of the Company are subject to
a $1.5 million deductible and a cap of $30.0 million. On January 20, 1998,
Siemens converted 4,883,226 of its Series A Preference Shares into an equal
number of shares of Common Stock. The Company also granted Siemens certain
demand and piggy-back registration rights that require the Company from time
to time, subject to certain limitations, to register Siemens' shares of Common
Stock for public sale. As of the date hereof, Siemens is the record holder of
one Series A Preference Share.
Stockholders Agreement. In connection with the Siemens Investment, the
Company entered into a Stockholders Agreement (the "Stockholders Agreement")
with Siemens, Allen K. Breed, Johnnie Cordell Breed, ABL and JBL,
(collectively, the "Breed Holders"). The Stockholders Agreement obligates the
Breed Holders to vote their shares and take other necessary and appropriate
corporate action to elect a designee of Siemens to the Board of Directors of
the Company at any time the right of the holders of Series A Preference Shares
to elect a member of the Board of Directors is not in effect and to ensure
that the Siemens director is a member of the Audit Committee of the Board of
Directors. The Stockholders Agreement also (i) grants Siemens rights of first
offer for up to five years with respect to certain future issuances of Common
Stock or securities convertible into Common Stock by the Company (subject to
certain exceptions), (ii) allows Siemens to participate in certain sales of
Common Stock by the Breed Holders, (iii) grants the Company and the Breed
Holders rights of first offer for up to three years with respect to any sales
of Common Stock by Siemens or its affiliates (subject to certain exceptions),
(iv) prohibits Siemens for three years from acquiring certain securities of
the Company (subject to certain exceptions), (v) grants Siemens rights of
first offer for up to three years with respect to transfers of certain
securities by the Breed Holders (subject to certain exceptions) and (vi)
grants the Siemens director special consent rights with respect to certain
business activities of the Company, including the conduct by the Company of
any business in the field of electronic components for automotive safety
restraint systems, other than through the Siemens Joint Venture or as then
conducted by designated subsidiaries of the Company. The Stockholders
Agreement terminates upon the earlier to occur of the date on which Siemens
and certain of its affiliates first collectively beneficially own less than
the number of shares of Common Stock issued or issuable pursuant to the
conversion of the shares of Series A Preference Shares acquired by Siemens
pursuant to the Stock Purchase Agreement or the delivery of a "First Make-
Whole Notice" (as defined in the Make-Whole Agreement).
The Make-Whole Agreement. In connection with the Siemens Investment, the
Company entered into a Make-Whole Agreement (the "Make-Whole Agreement") with
Siemens. Under the Make-Whole Agreement, within 30 days after a "Triggering
Event," Siemens will have the right to require the Company, at the Company's
election, either (i) to repurchase the Series A Preference Shares purchased
pursuant to the Stock Purchase Agreement (and any securities issuable with
respect to such Series A Preference Shares) for a purchase price equal to
$115.0 million plus $15,753 per day for each day between December 15, 1997 and
the termination of the right (the "Make-Whole Price") or (ii) if the net
proceeds from the bona fide sale of such Series A Preference Shares by Siemens
to a third party financial institution do not equal the Make-Whole Price, to
issue to Siemens such number of Series A Preference Shares (subject to certain
limits) the net proceeds from the sale of which would equal the amount of the
deficit. Under the Make-Whole Agreement, a "Triggering Event" means, among
other things, any of the following: (a) the parties shall have been unable,
after diligent and good faith efforts, to obtain the requisite governmental
approvals with respect to the formation of the Siemens Joint Venture; or (b)
the formation of the Siemens Joint Venture shall not have been completed by
June 30, 1998. The Make-Whole Agreement terminates (x) if, prior to Siemens'
delivery of a notice that it has entered into an agreement to sell its Series
A Preference Shares to a third party financial institution as described above,
Siemens sells or otherwise transfers any of the securities subject to the
Make-Whole Agreement to any person other than a direct or indirect subsidiary
of Siemens or (y) if Siemens has not delivered such a notice by the later to
occur of (i) July 31, 1998 or (ii) 45 days after a Triggering Event.
68
<PAGE>
SIEMENS JOINT VENTURE
Purpose. The Siemens Joint Venture will engage in the research, development,
engineering, assembly, marketing and sale of motor vehicle occupant safety
restraint systems, or JV Systems, and the purchase, marketing and sale of
components of such systems. A JV System must contain, at a minimum, an
electronic sensor or control produced by Siemens together with either an
airbag component, seat belt component or a steering wheel produced by the
Company. The parties have agreed that all activities (including, without
limitation, developing, assembling, marketing and selling) with respect to JV
Systems will be done through the Siemens Joint Venture, subject to limited
exceptions. Each party has also agreed to appoint the Siemens Joint Venture on
a non-exclusive basis as its worldwide distributor with respect to components
of JV Systems. The Company expects that components comprising JV Systems will
continue to be produced separately by Siemens and BREED but will be sold under
trade names owned by the Siemens Joint Venture.
Structure. The Siemens Joint Venture Company (the "JV Company") will be a
limited partnership formed under the laws of Germany, with a limited liability
company formed under the laws of Germany as its general partner (the "General
Partner") and Siemens and the Company, or their affiliates, as the limited
partners. Both the JV Company and the General Partner will be owned
effectively 50% by both the Company and Siemens. The JV Company and the
General Partner will have their administrative head offices in Germany.
Siemens and the Company will initially contribute assets to the General
Partner in return for their respective interests in the General Partner. In
return for its interest in the JV Company, Siemens will contribute to the JV
Company its shares in PARS Passive Ruckhaltesysteme GmbH ("PARS"), Siemens'
advanced crash test facility and occupant safety system development center. In
return for its interest in the JV Company, the Company will contribute to the
JV Company its ownership interest in a newly formed U.S. partnership (the
"U.S. Partnership") to which the Company has contributed assets related to the
development, research and testing of JV Systems which are comparable to those
existing at PARS. PARS and the U.S. Partnership will become subsidiaries of
the JV Company. Siemens and the Company will contribute cash to the Siemens
Joint Venture on an as needed basis in accordance with the operating budget
developed by the JV Company management and approved by the Partners' Board.
Governance. The Siemens Joint Venture will be governed by three bodies: the
Partnership Meeting, the Partners' Board and Management. The Partnership
Meeting will have overall authority with respect to the Siemens Joint Venture,
with the power to resolve, among other things, amendments to the governing
documents, a merger, sale of substantially all of the assets, or the
dissolution of the JV Company and the appointment or dismissal of Management.
Resolutions adopted by the Partnership Meeting require the approval of Siemens
and the Company. The Partners' Board will supervise Management and will have
the power, among other things, to establish the principles of business policy
with respect to the JV Company and to supervise and direct Management. The
Partners' Board will consist of six members, three appointed by Siemens and
three appointed by the Company, and each member will have one vote. Any
decision of the Partners' Board generally will require the affirmative vote of
a majority of the members present provided a quorum of five members is
present. Management will have the broadest powers to manage and will supervise
the business and affairs of the Siemens Joint Venture except with respect to
matters specifically reserved to the Partnership Meeting or the Partners'
Board. Management will be responsible for, among other things, preparing all
business plans and operating budgets of the JV Company, which must be approved
by the Partners' Board. Management will consist of the Chief Executive Officer
and Chief Financial Officer and any decision will require the consent of both
such individuals. The initial Chief Executive Officer will be appointed by
Siemens and the initial Chief Financial Officer will be appointed by the
Company, subject in each case to approval by the other party.
In the event of a deadlock in a decision that is required for the continuing
operations of the Siemens Joint Venture, then such decision, if at the
Management level, will be submitted to the Partners' Board for resolution or,
if such decision is at the Partners' Board level, will be submitted to the
Partnership Meeting for resolution. Further, if such deadlock in a decision is
at the Partnership Meeting level, such decision will be submitted to the
chairmen of Siemens and the Company for resolution. If the chairmen are unable
to resolve the decision, Siemens
69
<PAGE>
and the Company will have the opportunity to purchase the other party's
interest in the Siemens Joint Venture, with the higher bidder receiving the
right to purchase, and if neither party desires to purchase the other party's
interest, then the Siemens Joint Venture will be dissolved.
Noncompetition Covenants. Pursuant to the Joint Venture Agreement, each of
Siemens and the Company are subject to certain noncompetition covenants,
including restrictions against soliciting or hiring the employees of each
other or of the Siemens Joint Venture, obligations to present to the Siemens
Joint Venture any research and development opportunities related to the JV
Systems that are presented to Siemens or the Company, restrictions against
selling motor vehicle occupant safety restraint components, either directly or
indirectly, to third parties that compete with the Siemens Joint Venture in
the sale of JV Systems, and an agreement that the preferred suppliers of the
Siemens Joint Venture will be Siemens or the Company, provided the supply
contract terms are comparable to those obtainable from competitors.
Operating Costs and Capital Contributions. The Siemens Joint Venture will
operate pursuant to a business plan and operating budget approved by the
Partners' Board and subject to annual review, which provides for the sharing
of costs based on Siemens' and the Company's respective percentage ownership
interests. When fully operational over the next several years, the Siemens
Joint Venture is expected to assume the sales and marketing, as well as the
research, development and engineering, functions for both the Company's and
Siemens' integrated occupant protection systems and components. The Company
expects that all sales and marketing personnel relating to JV Systems and
components will be employed by the Siemens Joint Venture and billing and
collection activities will be handled by the Siemens Joint Venture on a pass-
through basis. Accordingly, the Company expects its own sales and marketing
expenses, as well as its research, development and engineering expenses, to
decrease as the Siemens Joint Venture begins to conduct these functions.
However, the Company will recognize its proportionate share of such expenses
incurred by the Siemens Joint Venture as the Company's interest in the Siemens
Joint Venture will be accounted for by the Company under the equity method of
accounting. Siemens and the Company will provide funding to the Siemens Joint
Venture to the extent revenues and external funding sources (such as loans
from banks or other third parties) are inadequate to cover budgeted operating
expenses and capital expenditures. The Company currently does not anticipate
that the Siemens Joint Venture will borrow any amount from unaffiliated third
parties to fund its operations. Neither party can be compelled to provide
funding for operating expenses and capital expenditures above budgeted amounts
unless such further funding, not to exceed U.S. $500,000 per fiscal year for
each party, is required to prevent insolvency of the JV Company or to enable
the parties to transfer losses.
Allocation of Profits. Profits and losses of the Siemens Joint Venture will
be allocated in accordance with the parties' respective interests.
Warranty, Liability and Other Indemnification. Any liabilities associated
with products produced or developed or services rendered prior to the
formation of the Siemens Joint Venture will remain with Siemens and the
Company, as applicable, and Siemens and the Company will hold the Siemens
Joint Venture harmless from any and all claims of third parties relating
therefrom. In addition, Siemens and the Company will be responsible for
warranties and liabilities, including recall actions, related to their
respective components marketed by the Siemens Joint Venture to customers and
will indemnify the Siemens Joint Venture and the other party for third party
claims related thereto. Any liability that is not clearly allocated to either
Siemens or the Company will be the responsibility of the Siemens Joint
Venture.
Intellectual Property. Any technology developed by the Siemens Joint Venture
(either by itself or with one of the parties) will belong jointly to Siemens
and the Company. Any technology developed by either party prior to the
formation of the Siemens Joint Venture or by either party separately will
remain the property of such party and will be licensed by such party to the
Siemens Joint Venture.
Change of Control. After the formation of the Siemens Joint Venture, a
change of control with respect to either Siemens or the Company could result
in the sale of all or part of such party's interest in the Siemens Joint
Venture to the other party if, and to the extent, the other party so requests.
In the event of such a sale, the purchase price would be based on the
appraised fair market value of the interest.
70
<PAGE>
Transfer Restrictions. Neither Siemens nor the Company may transfer or
encumber its interest in the Siemens Joint Venture, other than a transfer to
an affiliate, for a period of six years. After such six-year period, transfers
are permitted subject to a right of first refusal of the other party and only
with the written consent of the other party, which consent may only be
withheld for cause relating to the identity of the potential third party
purchaser.
Termination. The term of the Siemens Joint Venture will be indefinite,
subject to the right of either party to terminate the Siemens Joint Venture
with six months prior written notice after the sixth anniversary date of the
formation of the Siemens Joint Venture and subject to termination for certain
extraordinary events.
71
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The New Notes are to be issued under the Indenture, dated as of April 28,
1998 (the "Indenture"), among the Company, the Subsidiary Guarantors referred
to below and IBJ Schroder Bank & Trust Company, trustee (the "Trustee"). The
Indenture is subject to and governed by the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The form and terms of the New Notes are
identical in all material respects to the form and terms of the Old Notes,
except that the New Notes will be registered under the Securities Act and,
therefore, will not bear legends restricting transfer thereof. The New Notes
will evidence the same debt as the Old Notes and will be treated as a single
class under the Indenture with any Old Notes that remain outstanding. The Old
Notes and New Notes are herein collectively referred to as the "Notes".
The following summary of the material provisions of the Indenture does not
purport to be complete and is subject to, and qualified in its entirety by,
reference to the provisions of the Indenture, including the definitions of
certain terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act. For definitions of certain capitalized
terms used in the following summary, see "Certain Definitions" below. A copy
of the Indenture and the form of Notes have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
PRINCIPAL, MATURITY AND INTEREST
The Notes mature on April 15, 2008, will be limited initially in aggregate
principal amount to $330,000,000 and will be unsecured senior subordinated
obligations of the Company. The Indenture provides for the issuance of up to
$100.0 million aggregate principal amount of additional Notes having identical
terms and conditions to the Notes (the "Additional Notes"), subject to
compliance with the covenants contained in the Indenture. Any Additional Notes
will be part of the same issue as the Notes offered hereby and will vote on
all matters with the Notes offered hereby. For purposes of this "Description
of the Notes," reference to the Notes does not include Additional Notes. No
offering of any such Additional Notes is being or will in any manner be deemed
to be made by this Prospectus. In addition, there can be no assurance as to
when or whether the Company will issue any such Additional Notes or as to the
aggregate principal amount of such Additional Notes.
Each Note bears interest at the rate set forth on the cover page hereof from
April 28, 1998 or from the most recent interest payment date to which interest
has been paid or duly provided for, payable semiannually on April 15 and
October 15 in each year, commencing October 15, 1998, until the principal
thereof is paid or duly provided for, to the person in whose name the Note (or
any predecessor Note) is registered at the close of business on the April 1 or
October 1 next preceding such interest payment date. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months.
The principal of and premium, if any, and interest on the Notes is payable,
and the Notes will be exchangeable and transferable, at the office or agency
of the Company in The City of New York maintained for such purposes (which
initially will be the office of the Trustee located at One State Street, New
York, New York 10004); provided, however, that, at the option of the Company,
interest may be paid by check mailed to the address of the Person entitled
thereto as such address appears in the security register. The Notes will be
issued only in registered form without coupons and only in denominations of
$1,000 and any integral multiple thereof. No service charge will be made for
any registration of transfer or exchange or redemption of Notes, but the
Company may require payment in certain circumstances of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
As of the Closing Date, all of the Company's Subsidiaries (including BTI
Capital Trust) were Restricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current and future
Subsidiaries as Unrestricted Subsidiaries, subject to certain limitations.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
The Notes are not be entitled to the benefit of any sinking fund.
72
<PAGE>
SUBORDINATION
The Notes are unsecured senior subordinated obligations of the Company. The
Notes are, to the extent set forth in the Indenture, subordinate in right of
payment to the prior payment in full of all present and future Senior
Indebtedness. Upon any payment or distribution of assets of the Company to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshalling of assets or any
bankruptcy, insolvency or similar proceedings of the Company, whether
voluntary or involuntary (except in connection with the consolidation or
merger of the Company or its liquidation or dissolution following the
conveyance, transfer or lease of its properties and assets substantially as an
entirety, upon the terms and conditions described under "Consolidation, Merger
and Sale of Assets"), the holders of Senior Indebtedness will first be
entitled to receive payment in full, in cash or cash equivalents, of all
amounts due or to become due on or in respect of such Senior Indebtedness
(including interest accruing after the commencement of any such proceeding at
the rate specified in the applicable Senior Indebtedness) before the Holders
of Notes are entitled to receive any payment or distribution of any kind with
respect to the Notes or on account of the purchase or redemption or other
acquisition of Notes by the Company or any Subsidiary of the Company. In the
event that, notwithstanding the foregoing, the Trustee or the Holder of any
Note receives any payment or distribution of assets of the Company of any kind
or character (excluding equity or subordinated securities of the Company
provided for in a plan of reorganization or readjustment that, in the case of
subordinated securities, are subordinated in right of payment to all Senior
Indebtedness to at least the same extent as the Notes are so subordinated),
before all the Senior Indebtedness is paid in full, then such payment or
distribution will be held in trust for the holders of Senior Indebtedness and
will be required to be paid over or delivered forthwith to the trustee in
bankruptcy or other Person making payment or distribution of assets of the
Company for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay the Senior Indebtedness in full.
The Company may not make any payments on account of the Notes or on account
of the purchase or redemption or other acquisition of Notes if a default in
the payment of principal of (or premium, if any) or interest on Designated
Senior Indebtedness has occurred and is continuing or a default in the payment
when due of any other obligation under the New Credit Facility has occurred
and is continuing (a "Senior Payment Default"). In addition, if any default
(other than a Senior Payment Default) has occurred and is continuing with
respect to any Designated Senior Indebtedness permitting the holders thereof
(or a trustee or agent on behalf thereof) to accelerate the maturity thereof
(a "Senior Nonmonetary Default") and the Company and the Trustee have received
written notice thereof from the agent under the New Credit Facility or from an
authorized Person on behalf of any holder of Designated Senior Indebtedness,
then the Company may not make any payments on account of the Notes or on
account of the purchase or redemption or other acquisition of Notes for a
period (a "blockage period") commencing on the date the Company and the
Trustee receive such written notice (a "Blockage Notice") and ending on the
earliest of (x) 179 days after the date on which the applicable Blockage
Notice is received unless a Senior Payment Default has occurred and is
continuing at the end of such 179-day period, (y) the date, if any, on which
the Designated Senior Indebtedness to which such default relates is discharged
or such default is waived or otherwise cured and (z) the date, if any, on
which such blockage period has been terminated by written notice to the
Company or the Trustee from the agent under the New Credit Facility or from
the Person who gave the Blockage Notice. However, the Company may make
payments on the Notes without regard to the foregoing if the Company and the
Trustee receive written notice approving such payment from a representative of
the Designated Senior Indebtedness affected by such Senior Payment Default or
Senior Nonmonetary Default. In any event, not more than one blockage period
may be commenced during any period of 360 consecutive days, and there must be
a period of at least 181 consecutive days in each period of 360 consecutive
days when no blockage period is in effect. No Senior Nonmonetary Default that
existed or was continuing on the date of the commencement of any blockage
period with respect to the Designated Senior Indebtedness initiating such
blockage period will be, or can be, made the basis for the commencement of a
subsequent blockage period, unless such default has been cured or waived for a
period of not less than 90 consecutive days. In the event that,
notwithstanding the foregoing, the Company makes any payment to the Trustee or
the Holder of any Note prohibited by these blockage provisions, then such
payment will be held in trust for the holders of Senior Indebtedness and will
be required to be paid over and delivered forthwith to the
73
<PAGE>
holders of the Senior Indebtedness remaining unpaid, to the extent necessary
to pay in full all the Senior Indebtedness.
Whenever the Company is prohibited from making any payment on or in respect
of the Notes, the Company will also be prohibited from making, directly or
indirectly, any legal defeasance or covenant defeasance of the Notes as
described under "--Legal Defeasance and Covenant Defeasance" and from making
any payment of any kind on account of the redemption, purchase or other
acquisition of the Notes.
The Subsidiary Guarantees are, to the extent set forth in the Indenture,
subordinated in right of payment to the prior payment in full of all senior
debt of the Subsidiary Guarantors, upon terms substantially comparable to the
subordination of the Notes to all Senior Indebtedness.
The subordination provisions described above will cease to be applicable to
the Notes upon any defeasance or covenant defeasance of the Notes as described
under "--Legal Defeasance and Covenant Defeasance."
As a result of the subordination provisions described above, in the event of
an insolvency, bankruptcy, reorganization or liquidation of the Company,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and assets which would otherwise
be available to pay obligations in respect of the Notes will be available only
after all Senior Indebtedness has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes. See
"Risk Factors--Subordination of the Notes and the Subsidiary Guarantees."
At April 30, 1998 the Company had $525.0 million of Senior Indebtedness
outstanding (all of which was secured) and the Company had additional
borrowing availability of $138.8 million under the New Credit Facility (which
reflects $11.2 million in outstanding letters of credit), all of which would
be secured Senior Indebtedness, if borrowed. The terms of the Indenture permit
the Company and its Restricted Subsidiaries to incur additional Senior
Indebtedness, subject to certain limitations, including Indebtedness that may
be secured by Liens on property of the Company and its Restricted
Subsidiaries. See the discussion below under the captions "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock" and
"--Certain Covenants--Liens." In addition, the Notes are effectively
subordinated to all existing and future indebtedness and other liabilities
(including trade payables) of the Company's subsidiaries that are not
Subsidiary Guarantors (the "Non-Guarantor Subsidiaries"). As of March 31,
1998, the Company's Non-Guarantor Subsidiaries had $275.0 million of accounts
payable and third-party indebtedness outstanding. See "Risk Factors--
Subordination of the Notes and the Subsidiary Guarantees."
SUBSIDIARY GUARANTEES
Payment of the principal of and premium, if any, and interest on the Notes,
when and as the same become due and payable, is guaranteed, jointly and
severally, on an unsecured senior subordinated basis by the Subsidiary
Guarantors referred to below. The Subsidiary Guarantees will, to the extent
set forth in the Indenture, be subordinated in right of payment to the prior
payment in full of all senior indebtedness of the Subsidiary Guarantors, upon
terms substantially comparable to the subordination of the Notes to all Senior
Indebtedness. The obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee will be limited so as not to constitute a fraudulent
conveyance under applicable law. See "Risk Factors--Limitation on Subsidiary
Guarantees: Fraudulent Conveyance Concerns."
The Indenture requires that each active Domestic Restricted Subsidiary
(other than BTI Capital Trust and any Domestic Subsidiary that is owned by a
Foreign Subsidiary) be a Subsidiary Guarantor, as well as each other
Restricted Subsidiary that guarantees any other Indebtedness of the Company or
of a Domestic Restricted Subsidiary.
Subject to the provisions of the following paragraph, the Indenture will
provide that no Subsidiary Guarantor may consolidate with or merge with or
into any other Person or convey, sell, assign, transfer, lease or
74
<PAGE>
otherwise dispose of its properties and assets substantially as an entirety to
any other Person (other than the Company or another Subsidiary Guarantor)
unless: (a) the Person formed by or surviving such consolidation or merger (if
other than such Subsidiary Guarantor) or to which such properties and assets
are transferred assumes all of the obligations of such Subsidiary Guarantor
under the Indenture and its Subsidiary Guarantee, pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee and (b)
immediately after giving effect to such transaction, no Default or Event of
Default has occurred and is continuing.
The Indenture provides that, in the event of (a) a conveyance, sale,
assignment, transfer or other disposition of all of the Capital Stock of a
Subsidiary Guarantor to a Person that is not an Affiliate of the Company (by
way of merger, consolidation or otherwise), (b) a conveyance, sale,
assignment, transfer or other disposition of all or substantially all of the
assets of such Subsidiary Guarantor to a Person that is not an Affiliate of
the Company (by way of merger, consolidation or otherwise) or (c) the
designation of such Subsidiary Guarantor as an Unrestricted Subsidiary, in any
such case in compliance with the terms of the Indenture, then such Subsidiary
Guarantor will be deemed automatically and unconditionally released and
discharged from all of its obligations under its Subsidiary Guarantee without
any further action on the part of the Trustee or any Holder of the Notes;
provided that the Net Cash Proceeds of such sale, transfer or other
disposition (if any) are applied in accordance with the covenant described
under the caption "--Repurchase at the Option of Holders--Asset Sales."
OPTIONAL REDEMPTION
Except as provided below, the Notes are not be redeemable at the Company's
option prior to April 15, 2003. Thereafter, the Notes are redeemable at the
election of the Company, as a whole or from time to time in part, on not less
than 30 nor more than 60 days' prior notice to the Holders at the following
redemption prices (expressed as percentages of principal amount) set forth
below, together with accrued and unpaid interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed
during the 12-month period beginning on April 15, of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003.............................................................. 104.625%
2004.............................................................. 103.083
2005.............................................................. 101.542
2006 and thereafter............................................... 100.000
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior to
April 15, 2001, the Company may redeem, on one or more occasions, up to 35% of
the sum of (i) the initial aggregate principal amount of the Notes and (ii)
the initial aggregate principal amount of any Additional Notes with the net
proceeds of one or more Equity Offerings at a redemption price equal to
109.25% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided that, immediately after giving effect to such redemption, at
least 65% of the initial aggregate principal amount of the Notes (including
any Additional Notes) remains outstanding; provided further that such
redemptions occur within 90 days of the date of closing of the related Equity
Offering.
If less than all the Notes or Additional Notes, if any, are to be redeemed,
the particular Notes to be redeemed will be selected not more than 60 days
prior to the redemption date by the Trustee by lot or such other method as the
Trustee deems fair and appropriate.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
75
<PAGE>
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs at any time, then each Holder will have the
right to require that the Company purchase such Holder's Notes and Additional
Notes, if any, in whole or in part in integral multiples of $1,000, at a
purchase price in cash equal to 101% of the principal amount of such Notes and
Additional Notes, if any, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to the offer described below (the "Change of
Control Offer") and the other procedures set forth in the Indenture.
Within 30 days following any Change of Control, the Company will notify the
Trustee thereof and give written notice of such Change of Control to each
Holder of Notes and Additional Notes by first-class mail, postage prepaid, at
its address appearing in the security register, stating, among other things,
(i) the purchase price and the purchase date, which will be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is
mailed or such later date as is necessary to comply with requirements under
the Exchange Act; (ii) that any Note or Additional Note not tendered will
continue to accrue interest; (iii) that, unless the Company defaults in the
payment of the purchase price, any Notes or Additional Notes accepted for
payment pursuant to the Change of Control Offer will cease to accrue interest
after the Change of Control purchase date; and (iv) certain other procedures
that a Holder must follow to accept a Change of Control Offer or to withdraw
such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes and Additional Notes that might be tendered by Holders of the
Notes and Additional Notes, if any, seeking to accept the Change of Control
Offer. The New Credit Facility restricts such a purchase of Notes and
Additional Notes, if any, by the Company prior to full repayment of
Indebtedness under the New Credit Facility and a Change of Control Offer would
require the approval of the lenders thereunder. In addition, certain events
involving a Change of Control may be an event of default under the New Credit
Facility or other indebtedness of the Company that may be incurred in the
future. Accordingly, the right of the Holders of the Notes and Additional
Notes, if any, to require the Company to repurchase the Notes and Additional
Notes, if any, may be of limited value if the Company cannot obtain the
required approval under the New Credit Facility. There can be no assurance
that in the event of a Change in Control the Company will be able to obtain
the necessary consents from the lenders under the New Credit Facility to
consummate a Change of Control Offer. The failure of the Company to make or
consummate the Change of Control Offer or pay the applicable Change of Control
purchase price when due would result in an Event of Default and would give the
Trustee and the Holders of the Notes and Additional Notes, if any, the rights
described under "Events of Default and Remedies." See "Risk Factors--Change of
Control and Possible Inability to Repurchase Notes."
The existence of a Holder's right to require the Company to purchase such
Holder's Notes or Additional Notes, if any, upon a Change of Control may deter
a third party from acquiring the Company in a transaction that constitutes a
Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford Holders of Notes or Additional
Notes, if any, the right to require the Company to repurchase such Notes or
Additional Notes, if any, in the event of a highly leveraged transaction or
certain transactions with the Company's management or its affiliates,
including a reorganization, restructuring, merger or similar transaction
involving the Company (including, in certain circumstances, an acquisition of
the Company by management or its affiliates) that may adversely affect Holders
of the Notes or Additional Notes, if such transaction is not a transaction
defined as a Change of Control. See "Certain Definitions" below for the
definition of "Change of Control." A transaction involving the Company's
management or its affiliates, or a transaction involving a recapitalization of
the Company, would result in a Change of Control if it is the type of
transaction specified in such definition.
The Company will comply with the applicable tender offer rules including
Rule 14e-l under the Exchange Act, and any other applicable securities laws
and regulations in connection with a Change of Control Offer.
76
<PAGE>
Asset Sales
(a) The Company will not, and will not permit any Restricted Subsidiary to,
engage in any Asset Sale unless (i) the consideration received by the Company
or such Restricted Subsidiary for such Asset Sale is not less than the fair
market value of the assets sold (as determined by the Board of Directors of
the Company, whose good faith determination will be conclusive) and (ii) the
consideration received by the Company or the relevant Restricted Subsidiary in
respect of such Asset Sale consists of at least 75% (A) cash or cash
equivalents or (B) the assumption by the transferee of Indebtedness of the
Company or a Restricted Subsidiary that is senior to or pari passu with the
Notes or the Subsidiary Guarantees, as the case may be, and release of the
Company or such Restricted Subsidiary from all liability on such Indebtedness,
or a combination of the foregoing.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may, at its option, within 12 months after such Asset Sale, (i)
apply all or a portion of the Net Cash Proceeds to the permanent reduction of
amounts outstanding under the New Credit Facility or other credit facility
referred to in clause (i) of the definition of Permitted Indebtedness or to
the repayment of other Senior Indebtedness of the Company or a Restricted
Subsidiary or (ii) invest (or enter into a legally binding agreement to
invest) all or a portion of such Net Cash Proceeds in properties and assets to
replace the properties and assets that were the subject of the Asset Sale or
in properties and assets that will be used in businesses of the Company or its
Restricted Subsidiaries, as the case may be, existing on the Closing Date. If
any such legally binding agreement to invest such Net Cash Proceeds is
terminated, the Company may, within 90 days of such termination or within 12
months of such Asset Sale, whichever is later, invest such Net Cash Proceeds
as provided in clause (b)(i) or (b)(ii) (without regard to the parenthetical
contained in such clause (b)(ii)) above. The amount of such Net Cash Proceeds
not so used as set forth above in this paragraph (b) constitutes "Excess
Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5,000,000, the
Company will, within 30 days thereafter, make an offer to purchase from all
Holders of Notes and Additional Notes, if any, and from the holders of any
Pari Passu Indebtedness, to the extent required by the terms thereof, on a pro
rata basis, in accordance with the procedures set forth in the Indenture or
the agreements governing any such Pari Passu Indebtedness, the maximum
principal amount (expressed as a multiple of $1,000) of the Notes and
Additional Notes, if any, and any such Pari Passu Indebtedness that may be
purchased with the Excess Proceeds. The offer price as to each Note and
Additional Note, if any, and any such Pari Passu Indebtedness will be payable
in cash in an amount equal to (solely in the case of the Notes and Additional
Notes) 100% of the principal amount of such Note and Additional Note, if any,
and (solely in the case of Pari Passu Indebtedness) no greater than 100% of
the principal amount (or accreted value, as applicable) of such Pari Passu
Indebtedness, plus in each case accrued and unpaid interest, if any, to the
date of repurchase. To the extent that the aggregate principal amount of Notes
and Additional Notes, if any, and any such Pari Passu Indebtedness tendered
pursuant to an excess proceeds offer is less than the Excess Proceeds, the
Company may use the portion of the Excess Proceeds not required to be used to
repurchase the Notes and Additional Notes and such Pari Passu Indebtedness for
general corporate purposes. If the aggregate principal amount of Notes and
Additional Notes, if any, and any such Pari Passu Indebtedness validly
tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, the
Notes and Additional Notes and any such Pari Passu Indebtedness to be
purchased will be selected on a pro rata basis (based upon the principal
amount of Notes and Additional Notes and the principal amount or accreted
value of such Pari Passu Indebtedness tendered by each holder). Upon
completion of such offer to purchase, the amount of Excess Proceeds will be
reset to zero.
CERTAIN COVENANTS
Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, take any of the following actions:
(a) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Capital Stock of the Company or any Restricted
Subsidiary, other than (i) dividends or distributions payable solely
77
<PAGE>
in Qualified Equity Interests, (ii) dividends or distributions by a
Restricted Subsidiary payable to the Company or another Restricted
Subsidiary or (iii) pro rata dividends or distributions on common stock of
a Restricted Subsidiary held by minority stockholders, provided that such
dividends do not in the aggregate exceed the minority stockholders' pro
rata share of such Restricted Subsidiary's net income from the first day of
the Company's fiscal quarter during which the Closing Date occurred;
(b) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of Capital Stock (or any options, warrants or
other rights to acquire shares of Capital Stock) of (i) the Company or any
Unrestricted Subsidiary or (ii) any Restricted Subsidiary held by any
Affiliate of the Company (other than, in either case, any such Capital
Stock owned by the Company or any of its Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, Pari Passu Indebtedness or any
Subordinated Indebtedness (except a payment of principal at Stated
Maturity), or make any payment on or in respect of the Convertible
Debentures; or
(d) make any Investment (other than a Permitted Investment) in any Person
(such payments or other actions described in (but not excluded from)
clauses (a) through (d) being referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect to, the proposed
Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the first
paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified
Stock," and
(iii) the aggregate amount of all Restricted Payments declared or
made after the Closing Date does not exceed the sum of:
(A) 50% of the aggregate Consolidated Net Income of the Company
during the period (taken as one accounting period) from the first
day of the Company's fiscal quarter during which the Closing Date
occurred to the last day of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such proposed Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income is a loss, minus 100% of such
amount), plus
(B) the aggregate net proceeds, including the fair market value of
property other than cash (as determined by the Board of Directors,
whose good faith determination will be conclusive), received by the
Company after the Closing Date from the issuance or sale (other than
to a Subsidiary) of, or as a capital contribution in respect of,
Qualified Equity Interests of the Company (excluding from this
computation proceeds of an Equity Offering received by the Company
that are used by it to redeem Notes as discussed above), plus
(C) the aggregate net proceeds, including the fair market value of
property other than cash (as determined by the Board of Directors,
whose good faith determination will be conclusive), received by the
Company after the Closing Date from the issuance or sale (other than
to a Subsidiary) of debt securities or Disqualified Stock that have
been converted into or exchanged for Qualified Stock of the Company,
together with the aggregate net cash proceeds received by the
Company at the time of such conversion or exchange, plus
(D) $10.0 million.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may take any of the following actions, so long as, with respect to clauses
(e), (f), (g) and (j) below, no Default or Event of Default has occurred and
is continuing or would occur:
(a) The payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not have
been prohibited by the foregoing provision.
78
<PAGE>
(b) The repurchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Subsidiary) of, Qualified Equity Interests of the
Company.
(c) The purchase, redemption, defeasance or other acquisition or
retirement for value of any Pari Passu Indebtedness or Subordinated
Indebtedness in exchange for, or out of the net cash proceeds of a
substantially concurrent issuance and sale (other than to a Subsidiary) of
Qualified Equity Interests of the Company.
(d) The purchase, redemption, defeasance or other acquisition or
retirement for value of Pari Passu Indebtedness or Subordinated
Indebtedness in exchange for, or out of the net cash proceeds of a
substantially concurrent issuance or sale (other than to a Subsidiary) of,
Subordinated Indebtedness, so long as the Company or a Restricted
Subsidiary would be permitted to refinance such original Subordinated
Indebtedness with such new Subordinated Indebtedness pursuant to clause
(xiv) of the definition of Permitted Indebtedness.
(e) The repurchase of any Subordinated Indebtedness at a purchase price
not greater than 101% of the principal amount of such Subordinated
Indebtedness in the event of a "change of control" in accordance with
provisions similar to the "Change of Control" covenant; provided that,
prior to or simultaneously with such repurchase, the Company has made the
Change of Control Offer as provided in such covenant with respect to the
Notes and has repurchased all Notes validly tendered for payment in
connection with such Change of Control Offer.
(f) The payment of dividends or other distributions on the Preferred
Securities (and corresponding payments of interest on the Convertible
Debentures in an amount equal to the amount of such dividends or other
distributions) on or prior to March 31, 1999; and the payment of such
dividends or other distributions (and such corresponding payments of
interest) after March 31, 1999, provided that, immediately after giving
effect to any such payment made after March 31, 1999, the Company could
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the first paragraph of the covenant described
under the caption "--Incurrence of Indebtedness and Issuance of
Disqualified Stock."
(g) Loans or advances to officers, directors and employees of the Company
or any of its Restricted Subsidiaries made in the ordinary course of
business after the Closing Date in an amount not to exceed $5.0 million in
the aggregate at any one time outstanding.
(h) The acquisition by a Receivables Subsidiary in connection with a
Receivables Program of Capital Stock of a Trust or other Person established
by such Receivables Subsidiary in connection with such Receivables Program.
(i) Payments or distributions to stockholders pursuant to appraisal
rights in respect of up to 10% of the Capital Stock of the Company or any
Restricted Subsidiary required by law in connection with a consolidation,
merger or transfer of assets that complies with the covenant described
under "--Consolidation, Merger and Sale of Assets" below.
(j) The purchase, redemption, defeasance or other acquisition or
retirement for value of Capital Stock of the Company or any Restricted
Subsidiary from employees, former employees, directors or former directors
of the Company or any such Restricted Subsidiary (or permitted transferees
of such employees, former employees, directors or former directors or their
respective estates) pursuant to any employment agreement, management equity
subscription agreement or stock option agreement, provided that the
aggregate price paid for all such repurchased, redeemed, defeased or
acquired or retired shares of Capital Stock does not exceed $2.0 million in
any 12-month period.
The payments described in clauses (b), (c), (e), (f) and (g) of this
paragraph will be Restricted Payments that will be permitted to be taken in
accordance with this paragraph but will reduce the amount that would otherwise
be available for Restricted Payments under the foregoing clause (iii) of the
first paragraph of this covenant and the payments described in clauses (a) and
(d) of this paragraph will be Restricted Payments that will be permitted to be
taken in accordance with this paragraph and will not reduce the amount that
would
79
<PAGE>
otherwise be available for Restricted Payments under the foregoing clause
(iii) of the first paragraph of this covenant.
For the purpose of making any calculations under the Indenture, (i) if a
Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company
will be deemed to have made an Investment in amount equal to the fair market
value or net book value of the net assets of such Restricted Subsidiary at the
time of such designation as determined by the Board of Directors of the
Company, whose good faith determination will be conclusive, (ii) any property
transferred to or from an Unrestricted Subsidiary will be valued at fair
market value at the time of such transfer, as determined by the Board of
Directors of the Company, whose good faith determination will be conclusive
and (iii) subject to the foregoing, the amount of any Restricted Payment, if
other than cash, will be determined by the Board of Directors of the Company,
whose good faith determination will be conclusive.
If the aggregate amount of all Restricted Payments calculated under the
first paragraph of this covenant includes an Investment in an Unrestricted
Subsidiary or other Person that thereafter becomes a Restricted Subsidiary,
the aggregate amount of all Restricted Payments calculated under the first
paragraph of this covenant will be reduced by the lesser of (x) the net asset
value of such Subsidiary at the time it becomes a Restricted Subsidiary and
(y) the initial amount of such Investment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under this covenant
will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise), to the extent such net reduction is not included in
the Company's Consolidated Net Income; provided that the total amount by which
the aggregate amount of all Restricted Payments may be reduced may not exceed
the lesser of (x) the cash proceeds received by the Company and its Restricted
Subsidiaries in connection with such net reduction and (y) the initial amount
of such Investment.
In computing Consolidated Net Income of the Company for purposes of the
foregoing clause (iii)(A) of the first paragraph of this covenant, (i) the
Company may use audited financial statements for the portions of the relevant
period for which audited financial statements are available on the date of
determination and unaudited financial statements and other current financial
data based on the books and records of the Company for the remaining portion
of such period and (ii) the Company will be permitted to rely in good faith on
the financial statements and other financial data derived from the books and
records of the Company that are available on the date of determination. If the
Company makes a Restricted Payment that, at the time of the making of such
Restricted Payment, would in the good faith determination of the Company be
permitted under the requirements of the Indenture, such Restricted Payment
will be deemed to have been made in compliance with the Indenture
notwithstanding any subsequent adjustments made in good faith to the Company's
financial statements affecting Consolidated Net Income of the Company for any
period.
Incurrence of Indebtedness and Issuance of Disqualified Stock.
The Company will not, and will not permit any Restricted Subsidiary to,
create, issue, assume, guarantee or in any manner become directly or
indirectly liable for the payment of, or otherwise incur (collectively,
"incur") any Indebtedness (including Acquired Indebtedness) or issue any
Disqualified Stock, except that the Company or a Restricted Subsidiary may
incur Indebtedness or issue Disqualified Stock if, at the time of such event,
the Fixed Charge Coverage Ratio for the immediately preceding four full fiscal
quarters for which internal financial statements are available, taken as one
accounting period, would have been equal to at least 2.0 to 1.0.
In making the foregoing calculation for any four-quarter period that
includes the Closing Date, pro forma effect will be given to the Refinancing
of the Bridge Credit Facility, as if such transactions had occurred at the
beginning of such four-quarter period. In addition (but without duplication),
in making the foregoing calculation, pro forma effect will be given to: (i)
the incurrence of such Indebtedness and (if applicable) the application of the
net proceeds therefrom, including to refinance other Indebtedness, as if such
Indebtedness was incurred and the application of such proceeds occurred at the
beginning of such four-quarter period, (ii) the incurrence,
80
<PAGE>
repayment or retirement of any other Indebtedness by the Company or its
Restricted Subsidiaries since the first day of such four-quarter period as if
such Indebtedness was incurred, repaid or retired at the beginning of such
four-quarter period, (iii) if such four-quarter period ends before December
31, 1998, the SRS Acquisition as if such Acquisition occurred at the beginning
of such four-quarter period and (iv) the acquisition (whether by purchase,
merger or otherwise) or disposition (whether by sale, merger or otherwise) of
any other company, entity or business (as defined in Rule 11-01 under Article
11 of Regulation S-X under the Securities Act) acquired or disposed of by the
Company or any Restricted Subsidiary, as the case may be, since the first day
of such four-quarter period, as if such acquisition or disposition occurred at
the beginning of such four-quarter period and, (v) any pro forma expenses and
cost reductions calculated on a basis consistent with Regulation S-X under the
Securities Act attributable to any acquisition referred to in the foregoing
clause (iv). In making a computation under the foregoing clause (i) or (ii),
(A) interest on Indebtedness bearing a floating interest rate will be computed
as if the rate in effect on the date of computation had been the applicable
rate for the entire period (taking into account any Hedging Obligations
applicable to such Indebtedness if such Hedging Obligations have a remaining
term at the date of determination in excess of 12 months), (B) if such
Indebtedness bears, at the option of the Company, a fixed or floating rate of
interest, interest thereon will be computed by applying, at the option of the
Company, either the fixed or floating rate and (C) the amount of Indebtedness
under a revolving credit facility will be computed based upon the average
daily balance of such Indebtedness during such four-quarter period.
Pro forma for the SRS Transactions, the 1997 Acquisitions and the
Refinancing of the Existing Credit Facility, the Company's Fixed Charge
Coverage Ratio for the 12 months ended December 31, 1997 would have been 1.7:
1.
Notwithstanding the foregoing, the Company may, and may, to the extent
expressly permitted below, permit the Restricted Subsidiaries to, incur any of
the following Indebtedness ("Permitted Indebtedness"):
(i) Indebtedness of the Company or any Restricted Subsidiary under the
New Credit Facility or one or more other credit facilities in an aggregate
principal amount at any one time outstanding not to exceed the greater of
(x) $675.0 million or (y) the amount of the Borrowing Base, less in either
case (A) any amounts applied to the permanent reduction of the New Credit
Facility or any such other credit facility pursuant to the covenant
described under the caption "--Repurchase at the Option of Holders--Asset
Sales" and (B) the amount of Indebtedness of all Receivables Subsidiaries
then outstanding in excess of $150.0 million.
(ii) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the Closing Date, other than Indebtedness described under clause (i)
above or clause (xii) below.
(iii) Indebtedness owed by the Company to any Wholly Owned Restricted
Subsidiary or owed by any Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary (provided that such Indebtedness is held by the
Company or such Wholly Owned Restricted Subsidiary); provided, however,
that any Indebtedness of the Company owing to any such Wholly Owned
Restricted Subsidiary is unsecured and subordinated in right of payment
from and after such time as the Notes shall become due and payable (whether
at Stated Maturity, acceleration, or otherwise) to the payment and
performance of the Company's obligations under the Notes.
(iv) Indebtedness represented by the Notes (other than the Additional
Notes, if any) and the Subsidiary Guarantees.
(v) Indebtedness of the Company or any Restricted Subsidiary in respect
of Hedging Obligations incurred in the ordinary course of business.
(vi) Capitalized Lease Obligations of the Company or any Restricted
Subsidiary, provided that the aggregate amount of Indebtedness under this
clause (vi) and clause (vii) below does not exceed 3.5% of the total assets
of the Company and its consolidated subsidiaries at any one time
outstanding.
(vii) Indebtedness of the Company or any Restricted Subsidiary under
purchase money mortgages or secured by purchase money security interests so
long as (x) such Indebtedness is not secured by any property or assets of
the Company or any Restricted Subsidiary other than the property and assets
so
81
<PAGE>
acquired and (y) such Indebtedness is created within 90 days of the
acquisition of the related property; provided that the aggregate amount of
Indebtedness under this clause (vii) and clause (vi) above does not exceed
3.5% of the total assets of the Company and its consolidated subsidiaries
at any one time outstanding.
(viii) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments in connection with the acquisition or disposition of
assets, including, without limitation, shares of Capital Stock.
(ix) Guarantees by any Restricted Subsidiary (A) of Indebtedness referred
to in clause (i) above or (B) made in accordance with the provisions of the
covenant described under the caption "--Certain Covenants--Guarantees of
Indebtedness by Restricted Subsidiaries."
(x) Indebtedness of the Company or any Restricted Subsidiary, not
otherwise permitted by the first paragraph under this covenant and any
other clause of this definition, in an aggregate principal amount not to
exceed $20.0 million at any one time outstanding.
(xi) Indebtedness incurred by a Receivable Subsidiary, other than
Indebtedness described in clause (iii) above, in an amount not exceeding
95% of the aggregate unpaid balance of the Receivables and Related Assets
of such Receivables Subsidiary at the time of such incurrence pursuant to a
Receivables Program, provided that, after giving effect thereto, if the
aggregate amount of Indebtedness incurred by all Receivable Subsidiaries
under this clause (xi) then outstanding exceeds $150.0 million, the Company
could incur $1.00 of Indebtedness under the foregoing clause (i).
(xii) Indebtedness of one or more Foreign Subsidiaries under one or more
credit facilities in an aggregate principal amount at any one time
outstanding not to exceed $140 million.
(xiii) Guarantees by the Company of Indebtedness of any Restricted
Subsidiary, that was permitted to be incurred by another provision of this
covenant.
(xiv) Any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
outstanding Indebtedness, other than Indebtedness incurred pursuant to
clause (i), (iii), (v), (vi), (vii), (ix), (x), (xi), (xii) or (xiii)
above, including any successive refinancings thereof, so long as (A) any
such new Indebtedness is in a principal amount that does not exceed the
principal amount so refinanced, plus the amount of any premium required to
be paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined
by the Company as necessary to accomplish such refinancing, plus the amount
of the expenses of the Company reasonably estimated to be incurred in
connection with such refinancing, (B) in the case of any refinancing of
Subordinated Indebtedness of the Company or any Subsidiary Guarantors, such
new Indebtedness is made subordinate to the Notes or the Subsidiary
Guarantees, as the case may be, at least to the same extent as the
Indebtedness being refinanced and (C) such refinancing Indebtedness does
not have a Weighted Average Life less than the Weighted Average Life of the
Indebtedness being refinanced and does not have a final scheduled maturity
earlier than the final scheduled maturity, or permit redemption at the
option of the holder earlier than the earliest date of redemption at the
option of the holder, of the Indebtedness being refinanced.
Liens
The Company will not, and will not permit any Subsidiary Guarantor to,
create, incur, affirm or suffer to exist any Lien of any kind securing any
Pari Passu Indebtedness or Subordinated Indebtedness (including any
assumption, guarantee or other liability with respect thereto by any
Subsidiary Guarantor) upon any property or assets (including any intercompany
notes) of the Company or any Subsidiary Guarantor now owned or acquired in the
future, or any income or profits therefrom, unless the Notes are directly
secured equally and ratably with (or prior to in the case of Subordinated
Indebtedness) the obligation or liability secured by such Lien, and except for
any Lien securing Acquired Indebtedness created prior to the incurrence of
such Indebtedness by the Company or any Subsidiary Guarantor, provided that
any such Lien extends only to the assets that were subject
82
<PAGE>
to such Lien securing such Acquired Indebtedness prior to the related
acquisition by the Company or the Subsidiary Guarantor.
Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or
make any other distributions on or in respect of its Capital Stock, (b) pay
any Indebtedness owed to the Company or any other Restricted Subsidiary, (c)
make loans or advances to the Company or any other Restricted Subsidiary or
(d) transfer any of its properties or assets to the Company or any other
Restricted Subsidiary, except for such encumbrances or restrictions existing
under or by reason of any of the following:
(i) Any agreement that was in effect on the Closing Date.
(ii) Customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary.
(iii) The refinancing or successive refinancings of Indebtedness incurred
under the agreements that were in effect on the Closing Date, so long as
such encumbrances or restrictions are no less favorable to the Company or
any Restricted Subsidiary than those contained in such original agreement.
(iv) Any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property or assets of the
Person, so acquired.
(v) Any agreement providing for the incurrence of Indebtedness by a
Restricted Subsidiary in compliance with the covenant described under the
caption "--Incurrence of Indebtedness and Issuance of Disqualified Stock,"
provided that such Restricted Subsidiary is or becomes a Subsidiary
Guarantor.
(vi) Contained in any agreement pursuant to which Indebtedness was issued
if (A) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant contained
in such Indebtedness, (B) the encumbrance or restriction is not materially
more disadvantageous to the Holders of the Notes than is customary in
comparable financings (as determined by the Company) and (C) the Company
determines that any such encumbrance or restriction will not materially
affect the Company's ability to make principal or interest payments on the
Notes.
(vii) In the case of clause (d) above, any security agreements or
mortgages securing Indebtedness of a Restricted Subsidiary to the extent
such encumbrance or restriction restricts the transfer of the property
subject to such security agreements or mortgages.
(viii) Purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (d) above on the property so acquired.
(ix) Provisions with respect to the disposition or distribution of assets
or property in joint venture agreements and other similar agreements.
(x) Any agreement entered into by a Restricted Subsidiary that provides
for the sale or disposition of all or substantially all of the Capital
Stock or assets of such Restricted Subsidiary pending the closing of such
sale or disposition.
Limitation on Layering Indebtedness
The Company and each Subsidiary Guarantor will not, directly or indirectly,
incur or otherwise permit to exist any Indebtedness that is subordinate in
right of payment to any Indebtedness of the Company or such Subsidiary
Guarantor, as the case may be, unless such Indebtedness is also pari passu
with, or subordinate in right of payment to, the Notes or the Subsidiary
Guarantee issued by such Subsidiary Guarantor, as the case may be, or
subordinate in right of payment to the Notes or such Subsidiary Guarantee, as
the case may be.
83
<PAGE>
Consolidation, Merger and Sale of Assets
The Company may not consolidate with or merge with or into any other Person
(whether or not the Company is the surviving Person) or, directly or
indirectly, convey, sell, assign, transfer, lease or otherwise dispose of all
or substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Subsidiaries taken as a whole), in one
transaction or a series of related transactions, unless each of the following
conditions is satisfied:
(a) Either (i) the Company is the surviving corporation or (ii) the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person that acquires by conveyance,
sale, assignment, transfer, lease or other disposition the properties and
assets of the Company substantially as an entirety (the "Surviving Entity")
(A) is a corporation, partnership or trust organized and validly existing
under the laws of the United States, any state thereof or the District of
Columbia and (B) expressly assumes, by a supplemental indenture in form
reasonably satisfactory to the Trustee, all of the Company's obligations
under the Indenture and the Notes.
(b) Immediately after giving effect to such transaction, no Default or
Event of Default has occurred and is continuing.
(c) Immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth of the Company (or of the Surviving
Entity if the Company is not the continuing obligor under the Indenture) is
equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction.
(d) Immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred at the beginning of
the most recently ended four full fiscal quarter period for which internal
financial statements are available), the Company (or the Surviving Entity
if the Company is not the continuing obligor under the Indenture) could
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the first paragraph of the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock."
(e) If the Company is not the continuing obligor under the Indenture,
each Subsidiary Guarantor, unless it is the other party to the transaction
described above, has by supplemental indenture, upon the reasonable request
of the Trustee, confirmed that its Subsidiary Guarantee applies to the
Surviving Entity's obligations under the Indenture and the Notes.
(f) The Company delivers, or causes to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an officers'
certificate and an opinion of counsel, each stating that such transaction
complies with the requirements of the Indenture.
In the event of a merger of a Wholly Owned Restricted Subsidiary into the
Company, the Company need not comply with the foregoing clauses (c) and (d).
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries that constitutes all or substantially all of the properties and
assets of the Company on a consolidated basis, will be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
In the event of any transaction described in and complying with the
conditions listed in the first paragraph of this covenant in which the Company
is not the continuing obligor under the Indenture, the Surviving Entity will
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and thereafter the Company will, except in
the case of a lease, be discharged from all its obligations and covenants
under the Indenture and Notes.
Transactions with Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction with, or
for the benefit of, any Affiliate of the Company, unless (a) such transaction
84
<PAGE>
is on terms that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could have been obtained in an
arm's length transaction with third parties who are not Affiliates and (b)
either (i) with respect to any transaction or series of related transactions
involving aggregate payments in excess of $2,000,000, but less than
$10,000,000, the Company delivers a resolution of the Board of Directors of
the Company set forth in an officers' certificate to the Trustee certifying
that such transaction or transactions comply with clause (a) above and that
such transaction or transactions have been approved by the Board of Directors
(including a majority of the Disinterested Directors) of the Company or (ii)
with respect to a transaction or series of related transactions involving
aggregate payments equal to or greater than $10,000,000, the Company delivers
(x) an officers' certificate to the Trustee certifying that such transaction
or transactions have been approved by the Board of Directors (including a
majority of the Disinterested Directors) of the Company and (y) a written
opinion from a nationally recognized investment banking firm or an independent
financial advisor of national standing to the effect that such transaction or
transactions are fair to the Company or such Restricted Subsidiary from a
financial point of view.
The foregoing covenant will not restrict any of the following:
(A) Transactions among the Company and/or its Restricted Subsidiaries.
(B) The Company from paying reasonable and customary regular compensation
or fees to, or entering into customary expense reimbursement,
indemnification or similar arrangements with, directors and officers of the
Company or any Restricted Subsidiary.
(C) So long as Siemens is not an Affiliate of the Company, transactions
with the Siemens Joint Venture provided such transactions are either (i) in
accordance with the terms and provisions of the Joint Venture Agreement,
(ii) in accordance with the operating budget of the Siemens Joint Venture,
which operating budget has been adopted and approved in accordance with the
terms of the Joint Venture Agreement or (iii) approved by the Company and
Siemens.
(D) Transactions permitted by the provisions of the covenant described
under the caption "--Certain Covenants--Restricted Payments."
(E) Transactions between a Receivables Subsidiary and any Person in which
the Receivables Subsidiary has an Investment.
(F) In the case of joint ventures (other than the Siemens Joint Venture)
in which the Company has an interest, so long as other parties to the joint
venture that are not Affiliates of the Company own at least 50% of the
equity of such joint venture, transactions between such joint venture and
the Company or any Restricted Subsidiary.
Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (a) to the Company or a Wholly Owned
Restricted Subsidiary, (b) issuances or sales to foreign nationals of shares
of Capital Stock of Foreign Restricted Subsidiaries, to the extent required by
applicable law, or issuances or sales to directors of directors' qualifying
shares, (c) if, immediately after giving effect to such issuance or sale,
neither the Company nor any of its Subsidiaries owns any shares of Capital
Stock of such Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) or (d) if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary and any remaining Investment in such
Person would have been permitted to be made under the covenant described under
the caption "--Certain Covenants--Restricted Payments" if made on the date of
such issuance or sale.
The Company will not permit any Restricted Subsidiary that is a Subsidiary
Guarantor to issue Preferred Stock.
85
<PAGE>
Payments for Consent
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
Guarantees of Indebtedness by Restricted Subsidiaries
All of the Company's active Domestic Restricted Subsidiaries will be
Subsidiary Guarantors. As described above, the Indenture permits, under
certain circumstances, the release and discharge of the Subsidiary Guarantee
issued by a Subsidiary Guarantor.
In addition, except with respect to the guarantee by a Foreign Restricted
Subsidiary of the payment of Indebtedness of another Foreign Restricted
Subsidiary, the Company will not permit any Restricted Subsidiary that is not
a Subsidiary Guarantor, directly or indirectly, to guarantee, assume or in any
other manner become liable for the payment of any Indebtedness of the Company
or any Indebtedness of any other Restricted Subsidiary, unless (a) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for a guarantee of payment of the Notes by such Restricted
Subsidiary and (b) with respect to any guarantee of Subordinated Indebtedness
by a Restricted Subsidiary, any such guarantee is subordinated to such
Restricted Subsidiary's guarantee with respect to the Notes at least to the
same extent as such Subordinated Indebtedness is subordinated to the Notes,
provided that the foregoing provision will not be applicable to any guarantee
by any Restricted Subsidiary that existed at the time such Person became a
Restricted Subsidiary and was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary.
Any guarantee by a Restricted Subsidiary of the Notes pursuant to the
preceding paragraph may provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer to any Person not an Affiliate of the Company of all of the Company's
and the Restricted Subsidiaries' Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by the Indenture), (ii) the release or discharge of the
guarantee that resulted in the creation of such guarantee of the Notes, except
a discharge or release by or as a result of payment under such guarantee or
(iii) the designation of such Restricted Subsidiary as an Unrestricted
Subsidiary in accordance with the terms of the Indenture.
Unrestricted Subsidiaries
(a) The Board of Directors of the Company may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as (i) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary, (ii) no default with respect to any Indebtedness of such
Subsidiary would permit (upon notice, lapse of time or otherwise) any holder
of any other Indebtedness of the Company or any Restricted Subsidiary to
declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity, (iii) any Investment
in such Subsidiary made as a result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of the covenant
described under the caption "--Certain Covenants--Restricted Payments," (iv)
neither the Company nor any Restricted Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or oral,
with such Subsidiary other than those that might be obtained at the time from
Persons who are not Affiliates of the Company and (v) neither the Company nor
any Restricted Subsidiary has any obligation to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary, or to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results.
(b) The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary; provided that (i) no Default or Event
of Default has occurred and is continuing following such
86
<PAGE>
designation and (ii) the Company could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the first
paragraph of the covenant described under the caption "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Disqualified Stock" (treating any
Indebtedness of such Unrestricted Subsidiary as the incurrence of Indebtedness
by a Restricted Subsidiary).
Reports
The Company is required to file on a timely basis with the Commission, to
the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the
annual reports, quarterly reports and other documents that the Company would
be required to file if it were subject to Section 13 or 15(d) of the Exchange
Act. The Company is also be required (a) to supply to the Trustee and each
Holder of Notes, or supply to the Trustee for forwarding to each such Holder,
without cost to such Holder, copies of such reports and documents within 15
days after the date on which the Company files such reports and documents with
the Commission or the date on which the Company is required to file such
reports and documents and (b) if filing such reports and documents with the
Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective Holder of Notes promptly upon written request.
EVENTS OF DEFAULT AND REMEDIES
Each of the following will be "Events of Default" under the Indenture:
(a) Default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days
(whether or not prohibited by the subordination provisions of the
Indenture).
(b) Default in the payment of the principal of (or premium, if any, on)
any Note when due (whether or not prohibited by the subordination
provisions of the Indenture).
(c) Failure to perform or comply with the Indenture provisions described
under the captions "--Repurchase at the Option of the Holders--Change of
Control," "--Repurchase at the Option of the Holders--Asset Sales" or "--
Certain Covenants--Consolidation, Merger and Sale of Assets."
(d) Default in the performance, or breach, of any covenant or agreement
of the Company or any Subsidiary Guarantor contained in the Indenture or
any Subsidiary Guarantee (other than as contemplated by clauses (a), (b)
and (c) above) and continuance of such default or breach for a period of 60
days after written notice has been given to the Company by the Trustee or
to the Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding.
(e) An event of default has occurred under any mortgage, bond, indenture,
loan agreement or other document evidencing Indebtedness of the Company or
any Significant Subsidiary, which Indebtedness has an aggregate outstanding
principal amount of $10,000,000 or more, and such default (i) results in
the acceleration of such Indebtedness prior to its Stated Maturity or (ii)
constitutes a failure to make any payment when due of any such
Indebtedness.
(f) Failure by the Company or any of its Restricted Subsidiaries to pay
one or more final judgments the uninsured portion of which exceeds in the
aggregate $10,000,000, which judgment or judgments are not paid, discharged
or stayed for a period of 60 days.
(g) Any Subsidiary Guarantee issued by a Significant Subsidiary ceases to
be in full force and effect or is declared null and void or any Subsidiary
Guarantor denies that it has any further liability under any Subsidiary
Guarantee, or gives notice to such effect (other than by reason of the
termination of the Indenture or the release of any such Subsidiary
Guarantee in accordance with the Indenture), and such condition has
continued for a period of 30 days after written notice of such failure
requiring the Subsidiary Guarantor and the Company to remedy the same has
been given (x) to the Company by the Trustee or (y) to the Company and the
Trustee by the Holders of 25% in aggregate principal amount of the Notes
then outstanding.
87
<PAGE>
(h) The occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default (other than as specified in clause (h) above) occurs
and is continuing, the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Notes then outstanding may, and the Trustee
at the request of such Holders will, declare the principal of, and accrued and
unpaid interest on, all of the outstanding Notes immediately due and payable
and, upon any such declaration, such principal and interest will become due
and payable immediately.
If an Event of Default specified in clause (h) above occurs and is
continuing, then the principal of all of the outstanding Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration and its consequences if (i) the Company has paid or
deposited with the Trustee a sum sufficient to pay (A) all overdue interest on
all Notes, (B) all unpaid principal of (and premium, if any, on) any
outstanding Notes that has become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, (C) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by the Notes and, (D) all sums paid or
advanced by the Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel;
and (ii) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on the Notes that have
become due solely by such declaration of acceleration, have been cured or
waived. No such rescission will affect any subsequent default or impair any
right consequent thereon.
No Holder has any right to institute any proceeding with respect to the
Indenture or any remedy thereunder, unless the Holders of at least 25% in
aggregate principal amount of the outstanding Notes have made written request,
and offered reasonable indemnity, to the Trustee to institute such proceeding
within 60 days after receipt of such notice and the Trustee, within such 60-
day period, has not received directions inconsistent with such written request
by Holders of a majority in aggregate principal amount of the outstanding
Notes. Such limitations do not apply, however, to a suit instituted by a
Holder for the enforcement of the payment of the principal of, premium, if
any, or interest on such Note on or after the respective due dates expressed
in such Note.
The Holders of not less than a majority in aggregate principal amount of the
outstanding Notes may, on behalf of the Holders of all of the Notes, waive any
past defaults under the Indenture, except a default in the payment of the
principal of (and premium, if any) or interest on any Note, or in respect of a
covenant or provision that under the Indenture cannot be modified or amended
without the consent of the Holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee will mail to each Holder of the Notes notice of the
Default or Event of Default within 90 days after the occurrence thereof.
Except in the case of a Default or an Event of Default in payment of principal
of (and premium, if any, on) or interest on any Notes, the Trustee may
withhold the notice to the Holders of the Notes if a committee of its trust
officers in good faith determines that withholding such notice is in the
interests of the Holders of the Notes.
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company and the Subsidiary Guarantors of their
respective obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within five
days of any Default.
88
<PAGE>
LEGAL DEFEASANCE OR COVENANT DEFEASANCE
The Company may, at its option and at any time, terminate the obligations of
the Company and any Subsidiary Guarantors with respect to the outstanding
Notes ("defeasance"). Such defeasance means that the Company will be deemed to
have paid and discharged the entire Indebtedness represented by the
outstanding Notes, except for (i) the rights of Holders of outstanding Notes
to receive payments in respect of the principal of (and premium, if any, on)
and interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office
or agency for payments in respect of the Notes and segregate and hold such
payments in trust, (iii) the rights, powers, trusts, duties and immunities of
the Trustee and (iv) the defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to terminate the
obligations of the Company and any Subsidiary Guarantor with respect to
certain covenants set forth in the Indenture and described under "--Certain
Covenants" above, and any omission to comply with such obligations would not
constitute a Default or an Event of Default with respect to the Notes
("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (a) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of the Notes, money in an amount, or
U.S. Government Obligations (as defined in the Indenture) that through the
scheduled payment of principal and interest thereon will provide money in an
amount, or a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay and discharge the
principal of (and premium, if any, on) and interest on the outstanding Notes
at maturity (or upon redemption, if applicable) of such principal or
installment of interest; (b) no Default or Event of Default has occurred and
is continuing on the date of such deposit or, insofar as an event of
bankruptcy under clause (h) of "Events of Default" above is concerned, at any
time during the period ending on the 91st day after the date of such deposit;
(c) such defeasance or covenant defeasance may not result in a breach or
violation of, or constitute a default under, the Indenture or any material
agreement or instrument to which the Company or any Subsidiary Guarantor is a
party or by which it is bound; (d) in the case of defeasance, the Company must
deliver to the Trustee an opinion of counsel stating that the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling, or since the date hereof there has been a change in applicable federal
income tax law, to the effect, and based thereon such opinion must confirm
that, the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred; (e) in the case of covenant defeasance, the Company must have
delivered to the Trustee an opinion of counsel to the effect that the Holders
of the Notes outstanding will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such covenant defeasance had not
occurred; and (f) the Company must have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to either the defeasance or the covenant
defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
Upon the request of the Company, the Indenture will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange
of the Notes, as expressly provided for in the Indenture) and the Trustee, at
the expense of the Company, will execute proper instruments acknowledging
satisfaction and discharge of the Indenture when (a) either (i) all the Notes
theretofore authenticated and delivered (other than destroyed, lost or stolen
Notes that have been replaced or paid and Notes that have been subject to
defeasance under "--Legal Defeasance and Covenant Defeasance") have been
delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation (A) have become due and payable, (B)
will become due and payable at maturity within one year or (C) are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company, and the Company has irrevocably deposited or
caused to be deposited with the
89
<PAGE>
Trustee funds in trust for the purpose in an amount sufficient to pay and
discharge the entire indebtedness on such Notes not theretofore delivered to
the Trustee for cancellation, for principal (and premium, if any, on) and
interest on the Notes to the date of such deposit (in the case of Notes that
have become due and payable) or to the Stated Maturity or redemption date, as
the case may be; (b) the Company has paid or caused to be paid all sums
payable under the Indenture by the Company; and (c) the Company has delivered
to the Trustee an officers' certificate and an opinion of counsel, each
stating that all conditions precedent provided in the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Modifications and amendments of the Indenture and any Subsidiary Guarantee
may be made by the Company, any affected Subsidiary Guarantor and the Trustee
with the consent of the Holders of a majority in aggregate outstanding
principal amount of the Notes; provided, however, that no such modification or
amendment may, without the consent of the Holder of each outstanding Note
affected thereby,
(a) change the Stated Maturity of the principal of, or any installment of
interest on, any Note, or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or change
the place of payment where, or the coin or currency in which any Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date);
(b) reduce the percentage in principal amount of outstanding Notes, the
consent of whose Holders is required for any such amendment or for any waiver
of compliance with certain provisions of, or certain defaults and their
consequences provided for under, the Indenture;
(c) waive a default in the payment of principal of, or premium, if any, or
interest on the Notes or reduce the percentage or aggregate principal amount
of outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults; or
(d) modify any of the provisions of the Indenture relating to the
subordination of the Notes or the Subsidiary Guarantees in a manner materially
adverse to the Holders.
The Holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
Without the consent of any Holders, the Company and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental to
the Indenture for any of the following purposes: (a) to evidence the
succession of another Person to the Company and the assumption by any such
successor of the covenants of the Company in the Indenture and in the Notes;
or (b) to add to the covenants of the Company for the benefit of the Holders,
or to surrender any right or power herein conferred upon the Company; or (c)
to add additional Events of Default; or (d) to provide for uncertificated
Notes in addition to or in place of the certificated Notes; or (e) to evidence
and provide for the acceptance of appointment under the Indenture by a
successor Trustee; or (f) to secure the Notes or any Subsidiary Guarantee; or
(g) to cure any ambiguity, to correct or supplement any provision in the
Indenture that may be defective or inconsistent with any other provision in
the Indenture, or to make any other provisions with respect to matters or
questions arising under the Indenture, provided that such actions pursuant to
this clause (g) do not adversely affect the interests of the Holders in any
material respect; or (h) to comply with any requirements of the Commission in
order to maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
IBJ Schroder Bank & Trust Company, the Trustee under the Indenture, will be
the initial paying agent, exchange agent and registrar for the Notes.
90
<PAGE>
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. Under the Indenture, the Holders of a majority in
outstanding principal amount of the Notes will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions. If an Event of
Default has occurred and is continuing, the Trustee will exercise such rights
and powers vested in it under the Indenture and use the same degree of care
and skill in its exercise as a prudent Person would exercise under the
circumstances in the conduct of such Person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage
in other transactions; provided, however, that, if it acquires any conflicting
interest (as defined), it must eliminate such conflict upon the occurrence of
an Event of Default or else resign.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees are governed by, and
construed in accordance with, the laws of the State of New York.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below under "Certificated Notes", the New Notes sold
will be issued in the form of one Global Note (the "Global Note"). The Global
Note will be deposited with the Trustee as custodian for The Depository Trust
Company (the "Depositary") and registered in the name of Cede & Co., as
nominee of the Depositary (such nominee being referred to herein as the
"Global Note Holder"). Except as set forth below, the Global Note may be
transferred, in whole and not in part, only to the Depository or another
nominee of the Depository. Investors may hold their beneficial interests in
the Global Note directly through the Depository if they have an account with
the Depository or indirectly through organizations that have accounts with the
Depository.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants with portions of the principal amount of the Global
Note and (ii) ownership of the Notes evidenced by the Global Note will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of
some states require that certain Persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to own, transfer
or pledge Notes evidenced by the Global Note will be limited to such extent.
For certain other restrictions on the transferability of the Notes, see
"Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of
the related New Notes evidenced by the Global Note.
91
<PAGE>
Beneficial owners of the related New Notes evidenced by the Global Note will
not be considered the owners or Holders thereof under the New Notes and the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Notes.
Payments in respect of the principal of and premium, if any, and interest on
New Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the
Global Note Holder in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the Persons in whose names Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial
owners of any Notes. The Company believes, however, that it is currently the
policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of New Notes will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Certificated Notes
The New Notes represented by the Global Note are exchangeable for
certificated New Notes in registered, definitive form (the "Certificated
Notes") of like tenor as such Notes if (i) the Company notifies the Trustee in
writing that the Depositary is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that
it elects to change the issuance of Notes in the form of Certificated
Securities under the Indenture upon surrender by the Global Note Holder of its
Global Note.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person is merged with or into the Company or becomes a Restricted
Subsidiary or (b) assumed in connection with the acquisition of assets from
such Person; provided that any Indebtedness of such Person that is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon
consummation of the transaction by which such Person is merged with or into
the Company, becomes a Restricted Subsidiary or such assets are acquired from
such Person will not be Acquired Indebtedness.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any specified Person, means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. Notwithstanding the foregoing, no Person (other
than the Company or any Subsidiary of the Company) in whom a Receivables
Subsidiary makes an Investment in connection with a Receivables Program shall
be deemed to be an Affiliate of the Company or any of its Subsidiaries solely
by reason of such Investments.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer") by the Company or
a Restricted Subsidiary, directly or indirectly, in one or a series of related
transactions, of (a) any
92
<PAGE>
Capital Stock of any Restricted Subsidiary (other than directors' qualifying
shares or shares required by applicable law to be held by a Person other than
the Company or a Restricted Subsidiary), (b) all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries
representing a division or line of business or (c) any other properties or
assets of the Company or any Restricted Subsidiary, other than in the ordinary
course of business. For the purposes of this definition, the term "Asset Sale"
does not include any transfer of properties or assets (i) that is governed by
the provisions of the Indenture described under "--Certain Covenants--
Consolidation, Merger and Sale of Assets," (ii) between or among the Company
and its Restricted Subsidiaries pursuant to transactions that do not violate
any other provision of the Indenture, (iii) to any Person to the extent it
constitutes a Restricted Payment that is permitted under the covenant
described under the caption "--Certain Covenants--Restricted Payments," (iv)
consisting of inventory or worn out, obsolete or permanently retired equipment
and facilities, (v) consisting of Receivables and Related Assets transferred
pursuant to a Receivables Program, (vi) the gross proceeds of which (exclusive
of indemnities) do not exceed $1.0 million in connection with any transfer,
(vii) that are the subject of the Gallino Disposition or (viii) that
constitutes a Permitted Investment.
"Banks" means the banks and other financial institutions that from time to
time are lenders under the New Credit Facility.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
80% of the face amount of the accounts receivable owned by the Company and its
Restricted Subsidiaries (other than any Receivables Subsidiary) and (b) 60% of
the book value of all inventory owned by the Company and its Restricted
Subsidiaries, all calculated on a consolidated basis and in accordance with
GAAP as of the last day of the immediately preceding fiscal quarter for which
internal financial statements are available on such date.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" of any Person means any and all shares, partnership
interests, participations, rights in or other equivalents of, or interest in,
the equity of such Person, but excluding any debt securities convertible into
such equity.
"Change of Control" means the occurrence of any of the following events:
(a) Any Person or "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than a majority of the voting power
of all classes of Voting Stock of the Company.
(b) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Company, was
approved by a vote of 66 2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office.
(c) The Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than a transaction that complies with the
provisions described under "--Certain Covenants--Consolidation, Merger and
Sales of Assets."
"Closing Date" means the date on which the Notes are originally issued under
the Indenture.
93
<PAGE>
"Consolidated EBITDA" means, for any period, the sum of, without
duplication, Consolidated Net Income for such period, plus (or, in the case of
clause (e) below, plus or minus) the following items to the extent included in
computing Consolidated Net Income for such period (a) Fixed Charges for such
period, plus (b) the federal, state, local and foreign income tax expense of
the Company and its Restricted Subsidiaries for such period, plus (c) the
depreciation and amortization expense of the Company and its Restricted
Subsidiaries for such period, plus (d) one time charges associated with cash
disruption costs not to exceed $15.0 million in fiscal year 1998 and $15.0
million in fiscal year 1999, plus (e) any other non-cash charges for such
period and minus non-cash credits for such period, other than non-cash charges
or credits resulting from changes in prepaid assets or accrued liabilities in
the ordinary course of business plus (f) the December 1997 Charges; provided
that income tax expense, depreciation and amortization expense and non-cash
charges and credits of a Restricted Subsidiary will be included in
Consolidated EBITDA only to the extent (and in the same proportion) that the
net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income for such period.
"Consolidated Net Income" means, for any period, the net income (or net
loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any
net after-tax extraordinary gains or losses (less all fees and expenses
relating thereto), (b) any net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to Asset Sales, (c) the net income
(but not the net loss) of any Person (other than the Company or a Restricted
Subsidiary), in which the Company or any Restricted Subsidiary has an equity
interest, except that the aggregate amount of dividends or other distributions
actually paid to the Company or any Restricted Subsidiary in cash during such
period will be included in such Consolidated Net Income, (d) the net income
(or loss) of any Person acquired by the Company or any Restricted Subsidiary
in a "pooling of interests" transaction attributable to any period prior to
the date of such acquisition, (e) the net income (but not the net loss) of any
Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary of such net
income is at the date of determination restricted, directly or indirectly,
except that the aggregate amount of such net income that could be paid to the
Company or a Restricted Subsidiary thereof by loans, advances, intercompany
transfers, principal repayments or otherwise will be included in such
Consolidated Net Income and (f) dividends paid or accrued on the Preferred
Securities or any other Preferred Stock issued by the Company or any
Restricted Subsidiary; provided, however, that, so long as the Company retains
a minority investment in the Siemens Joint Venture, Consolidated Net Income
for any period will include the Company's proportionate share of the net
income or net loss of the Siemens Joint Venture for such period determined as
if the Siemens Joint Venture were accounted for by the Company on an equity
accounting basis in accordance with GAAP and, provided further that
notwithstanding the foregoing proviso, if the Siemens Joint Venture generates
net income for any period, the amount of such net income that is included in
Consolidated Net Income for such period may not exceed the aggregate amount of
(i) dividends or other distributions plus (ii) other payments by the Siemens
Joint Venture under any management agreement, royalty agreement or other
similar arrangement, in either case actually paid to the Company or any
Restricted Subsidiary in cash during such period.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity of the Company and its Restricted Subsidiaries as set forth on the most
recently available quarterly or annual consolidated balance sheet of the
Company and its Restricted Subsidiaries, less any amounts attributable to
Disqualified Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of the Company
or any of its Restricted Subsidiaries and less, to the extent included in
calculating such stockholders' equity of the Company and its Restricted
Subsidiaries, the stockholders' equity attributable to Unrestricted
Subsidiaries, each item to be determined in conformity with GAAP (excluding
the effects of foreign currency adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 52).
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under the
New Credit Facility and (ii) any other issue of Senior Indebtedness or
refinancing thereof permitted by the definition of Senior Indebtedness, having
a principal amount of at least $25.0 million.
94
<PAGE>
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver
a resolution of the Board of Directors, to make a finding or otherwise take
action under the Indenture, a member of the Board of Directors who does not
have any material direct or indirect financial interest in or with respect to
such transaction or series of transactions.
"Disqualified Stock" means any class or series of Capital Stock that, either
by its terms, or by the terms of any security into which it is convertible or
exchangeable or by contract or otherwise (a) is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to one year
after the final Stated Maturity of the Notes, (b) is redeemable at the option
of the holder thereof at any time prior to one year after such final Stated
Maturity or (c) at the option of the holder thereof, is convertible into or
exchangeable for debt securities at any time prior to one year after such
final Stated Maturity; provided that any Capital Stock that would not
constitute Disqualified Stock but for provisions therein giving holders
thereof the right to cause the issuer thereof to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes will not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in the covenants described under
the captions "--Repurchase at the Option of Holders--Asset Sales" and "--
Repurchase at the Option of Holders--Change of Control" and such Capital Stock
specifically provides that the issuer will not repurchase or redeem any of
such stock pursuant to such provision prior to the Company's repurchase of
such of the Notes as are required to be repurchased pursuant to the covenants
described under the captions "--Repurchase at the Option of Holders--Asset
Sales" and "--Repurchase at the Option of Holders--Change of Control."
"Domestic Subsidiary" means any Subsidiary whose jurisdiction of
incorporation, organization or formation is the United States, any state
thereof or the District of Columbia.
"Equity Offering" means an offer and sale by the Company of its common stock
(which is Qualified Stock) to one or more Persons other than a Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fixed Charges" means, for any period, without duplication, the sum of (a)
the amount that, in conformity with GAAP, would be set forth opposite the
caption "interest expense" (or any like caption) on a consolidated statement
of operations of the Company and its Restricted Subsidiaries for such period,
including, without limitation, (i) amortization of debt discount, (ii) the net
cost of interest rate contracts (including amortization of discounts), (iii)
the interest portion of any deferred payment obligation, (iv) amortization of
debt issuance costs and (v) the interest component of Capitalized Lease
Obligations, plus (b) cash dividends paid on Preferred Stock and Disqualified
Stock by the Company and any Restricted Subsidiary (to any Person other than
the Company and its Restricted Subsidiaries), including cash dividends on the
Preferred Securities, plus (c) all interest on any Indebtedness of any Person
guaranteed by the Company or any of its Restricted Subsidiaries; provided,
however, that Fixed Charges will not include (i) any gain or loss from
extinguishment of debt, including the write-off of debt issuance costs and
(ii) the fixed charges of a Restricted Subsidiary to the extent (and in the
same proportion) that the net income of such Subsidiary was excluded in
calculating Consolidated Net Income pursuant to clause (e) of the definition
thereof for such period.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a)
Consolidated EBITDA for such period to (b) Fixed Charges for such period.
"Foreign Subsidiary" means any Subsidiary other than a Domestic Subsidiary.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied,
that are in effect on the Closing Date.
"guarantee" means, as applied to any obligation, (a) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of all or any part of such
obligation and (b) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which
95
<PAGE>
is to assure in any way the payment or performance (or payment of damages in
the event of non-performance) of all or any part of such obligation,
including, without limitation, the payment of amounts drawn down under letters
of credit.
"Hedging Obligations" means the obligations of any Person under (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates or the value of foreign
currencies.
"Holder" means the Person in whose name a Note is, at the time of
determination, registered on the Registrar's books.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (a) every obligation of such Person for money
borrowed, (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, (c) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person (other than up to $10.0
million of obligations at any time outstanding with respect to letters of
credit securing obligations entered into the ordinary course of business of
such Person to the extent such letters are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed not later than the fifth
Business Day following receipt of a demand for reimbursement following payment
on the letter of credit), (d) every obligation of such Person issued or
assumed as the deferred purchase price of property or services, (e) the amount
of every Capitalized Lease Obligation of such Person, (f) all Disqualified
Stock of such Person valued at its maximum fixed repurchase price (including,
without duplication, accrued and unpaid dividends), (g) all obligations of
such Person under or in respect of Hedging Obligations and (h) every
obligation of the type referred to in clauses (a) through (g) of another
Person and all dividends of another Person the payment of which, in either
case, such Person has guaranteed. For purposes of this definition, the
"maximum fixed repurchase price" of any Disqualified Stock that does not have
a fixed repurchase price will be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were repurchased on any
date on which Indebtedness is required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Stock, such fair market value will be determined in
good faith by the board of directors of the issuer of such Disqualified Stock.
Notwithstanding the foregoing, trade accounts payable and accrued liabilities
arising in the ordinary course of business and any liability for federal,
state or local taxes or other taxes owed by such Person will not be considered
Indebtedness for purposes of this definition.
"Investment" in any Person means (a) any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of guarantee
or similar arrangement) or capital contribution to such Person, the purchase
or other acquisition of any Capital Stock, Indebtedness or other securities
issued by such Person, the acquisition (by purchase or otherwise) of all or
substantially all of the business or assets of such Person, or the making of
any investment in such Person, (b) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary, (c) the transfer of any assets or
properties from the Company or a Restricted Subsidiary to an Unrestricted
Subsidiary, other than the transfer of assets or properties made in the
ordinary course of business and (d) the fair market value of the Capital Stock
(or any other Investment), held by the Company or any of its Restricted
Subsidiaries, of (or in) any Person that has ceased to be a Restricted
Subsidiary, including, without limitation, by reason of any transaction
permitted by clause (d) of the covenant described under the caption "--Certain
Covenants--Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries." Investments exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
96
<PAGE>
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations, but only as and when received, in the form
of, or stock or other assets when disposed of for, cash or cash equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Company or any Restricted Subsidiary), net of (a) brokerage commissions
and other fees and expenses (including fees and expenses of legal counsel,
accountants and investment banks) related to such Asset Sale, (b) provisions
for all taxes payable or required to be accrued in accordance with GAAP as a
result of such Asset Sale, (c) payments made to retire Indebtedness where
payment of such Indebtedness is secured by a Lien on the assets that are the
subject of such Asset Sale, (d) amounts required to be paid to any Person
(other than the Company or any Restricted Subsidiary) owning a beneficial
interest in the assets that are subject to the Asset Sale and (e) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the
case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the seller after
such Asset Sale, including pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale.
"New Credit Facility" means the credit agreement dated as of April 28, 1998
between the Company, NationsBank, N.A., as agent, and the Banks, as such
agreement may be amended, restated, supplemented, refinanced or otherwise
modified from time to time, which credit agreement is incorporated by
reference as an exhibit to the Registration Statement of which this Prospectus
forms a part.
"Pari Passu Indebtedness" means any Indebtedness of the Company or any
Subsidiary Guarantor, whether outstanding at the date of the Indenture or
incurred thereafter, that ranks pari passu in right of payment with the Notes
or any Subsidiary Guarantee, as the case may be.
"Permitted Holder" means (i) Allen K. Breed and Johnnie Cordell Breed, any
trust existing solely for the benefit of Allen K. Breed and/or Johnnie Cordell
Breed and the estate or any executor, administrator, conservator or other
legal representative of Allen K. Breed or Johnnie Cordell Breed and (ii)
Siemens and its Affiliates.
"Permitted Investments" means any of the following:
(a) Investments in (i) securities with a maturity of one year or less
issued or directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof); (ii)
certificates of deposit or acceptances with a maturity of one year or less
of any financial institution that is a member of the Federal Reserve System
having combined capital and surplus of not less than $500,000,000; (iii)
commercial paper with a maturity of one year or less issued by a
corporation that is not an Affiliate of the Company and is organized under
the laws of any state of the United States or the District of Columbia and
having the highest rating obtainable from Moody's Investors Service, Inc.
or Standard & Poor's Ratings Services and (iv) money market mutual funds
that invest substantially in securities of the type described in the
preceding clauses (i) through (iii).
(b) Investments by the Company or any Restricted Subsidiary in another
Person, if as a result of such Investment such other Person (i) becomes a
Restricted Subsidiary or (ii) is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the Company
or a Restricted Subsidiary.
(c) Investments by the Company or any of the Restricted Subsidiaries in
any one of the other of them.
(d) Investments in existence on the Closing Date.
(e) Investments made as a result of the receipt of non-cash consideration
in an Asset Sale permitted under the covenant described under the caption
"--Repurchase at the Option of Holders--Asset Sales."
(f) Investments in assets owned or used in the ordinary course of
business.
(g) Investments in any Person in the form of a capital contribution of
the Company's common stock.
97
<PAGE>
(h) Property and assets, including cash, constituting the Company's
initial contribution to the Siemens Joint Venture pursuant to the Joint
Venture Agreement, and other Investments in the Siemens Joint Venture that
do not exceed, during any fiscal quarterly period, an amount equal to 9% of
the net sales of the Company and its consolidated subsidiaries for the
immediately preceding fiscal quarterly period determined in accordance with
GAAP.
(i) Other Investments that do not exceed $10.0 million in the aggregate
at any time outstanding.
(j) Any acquisition of assets, Capital Stock or other securities to the
extent made in exchange for the issuance of Capital Stock (other than
Disqualified Stock) of the Company.
(k) Investments in securities of trade creditors or customers received
pursuant to any plan or reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers.
(l) Investments by the Company or a Restricted Subsidiary in a
Receivables Subsidiary.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued
after the Closing Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any Person means any and all Capital Stock of such
Person, other than Disqualified Stock.
"Receivables and Related Assets" means accounts receivable, instruments,
chattel paper, obligations, general intangibles and other similar assets,
including interests in merchandise or goods, the sale or lease of which give
rise to the foregoing, related contractual rights, guarantees, insurance
proceeds, collections, other related assets and proceeds of all of the
foregoing.
"Receivables Program" means, with respect to any Person, any accounts
receivable securitization program pursuant to which such Person, directly or
indirectly, pledges, sells or otherwise transfers or encumbers its accounts
receivable, including to a trust, limited liability company, special purpose
entity or other similar entity.
"Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary of the
Company (i) created for the purpose of financing receivables created in the
ordinary course of business of the Company and its Restricted Subsidiaries and
(ii) the sole assets of which consist of Receivables and Related Assets of the
Company and its Restricted Subsidiaries and related Permitted Investments.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary and includes BTI Capital Trust.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law, whether or not
allowed) and other amounts due on or in connection with any Indebtedness of
the Company (other than the Notes or Pari Passu Indebtedness), whether
outstanding on the date of the Indenture or thereafter incurred, unless, in
the case of any particular Indebtedness, the instrument creating or evidencing
the same or pursuant to which the same is outstanding expressly provides that
such Indebtedness will be subordinate in right of payment to any Indebtedness
or other general unsecured obligations of the Company. Without limiting the
generality of the foregoing, "Senior Indebtedness" includes the principal of
and premium, if any, and interest (including interest accruing after the
occurrence of an event of default or after the filing of a petition initiating
any proceeding
98
<PAGE>
pursuant to any bankruptcy law, whether or not allowed) on all obligations of
every nature of the Company from time to time owed to the Banks under the New
Credit Facility, provided, however, that any Indebtedness under any
refinancing, refunding or replacement of the New Credit Facility will not
constitute Senior Indebtedness to the extent that the Indebtedness thereunder
is by its express terms subordinate to any other Indebtedness of the Company.
Notwithstanding the foregoing, "Senior Indebtedness" will not include (a)
Indebtedness evidenced by the Notes, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Indebtedness of the Company,
(c) Indebtedness that, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to the
Company, (d) Indebtedness that is represented by Disqualified Stock, (e)
Indebtedness for goods, materials or services purchased in the ordinary course
of business or Indebtedness consisting of trade payables or other current
liabilities (other than Indebtedness in respect of any services rendered by or
purchased from, or current liabilities owing to, banks or financial
institutions or the current portion of any long-term Indebtedness that would
constitute Senior Indebtedness but for the operation of this clause (e)), (f)
Indebtedness of or amounts owed by the Company for compensation to employees
or for services rendered to the Company, (g) any liability for foreign,
federal, state, local or other taxes owed or owing by the Company, (h)
Indebtedness of the Company to a Subsidiary of the Company or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries, (i) that
portion of any Indebtedness that, at the time of the incurrence, is incurred
by the Company in violation of the Indenture and (j) amounts owing under
leases (other than Capital Lease Obligations).
"Significant Subsidiary" means any Restricted Subsidiary of the Company that
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-K promulgated by the Commission as such Rule is in
effect on the date of the Indenture.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness or any installment of
interest thereon is due and payable, and will not, in either case, include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated in right of payment to the Notes or
the Subsidiary Guarantee issued by such Subsidiary Guarantor, as the case may
be.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company
and/or one or more Subsidiaries of the Company.
"Subsidiary Guarantee" means a guarantee of the Notes by a Restricted
Subsidiary in accordance with the provisions of the Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary that issues a
Subsidiary Guarantee.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary in accordance with the
covenant described under the caption "--Certain Covenants--Unrestricted
Subsidiaries" and (b) any Subsidiary of an Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of any Person (irrespective of whether or not, at the time, stock of any other
class or classes has, or might have, voting power by reason of the happening
of any contingency).
"Weighted Average Life" means, as of the date of determination with respect
to any Indebtedness or Disqualified Stock, the quotient obtained by dividing
(a) the sum of the products of (i) the number of years from
99
<PAGE>
the date of determination to the date or dates of each successive scheduled
principal or liquidation value payment of such Indebtedness or Disqualified
Stock, respectively, multiplied by (ii) the amount of each such principal or
liquidation value payment by (b) the sum of all such principal or liquidation
value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all of
the outstanding Capital Stock (other than directors' qualifying shares or
shares of Foreign Restricted Subsidiaries required to be owned by foreign
nationals pursuant to applicable law) of which is owned, directly or
indirectly, by the Company.
EXCHANGE OFFER; REGISTRATION RIGHTS
In connection with the original issuance and sale of the Old Notes, the
Initial Purchasers and their assignees became entitled to the benefits of the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Company agreed that it would, for the benefit of the holders of the Notes,
at the expense of the Company (i) file on or prior to the 60th calendar day
following the Closing Date the Registration Statement of which this Prospectus
forms a part (the "Exchange Offer Registration Statement") with the Commission
with respect to a registered offer to exchange the Old Notes for the New Notes
and (ii) use its best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act on or prior to the
150th calendar day following the Closing Date and (iii) use its best efforts
to consummate the Exchange Offer on or prior to the 180th calendar day
following the Closing Date. Promptly after the Exchange Offer Registration
Statement is declared effective, the Company will offer the New Notes in
exchange for surrender of the Old Notes. The Company will keep the Exchange
Offer open for not less than 20 business days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
holders of the Notes. For each Old Note tendered to the Company pursuant to
the Exchange Offer and not validly withdrawn by the holder thereof, the holder
of such Old Note will receive a New Note having a principal amount equal to
the principal amount of such surrendered Note.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several no-action letters to third parties, and
subject to the immediately following sentence, the Company believes that the
New Notes may be offered for resale, resold and otherwise transferred by the
holders thereof without further compliance with the registration and
prospectus delivery provisions of the Securities Act. However, any purchaser
of Notes who is an "affiliate" of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretation by the staff of the Commission set
forth in the above-mentioned no-action letters, (ii) will not be able to
tender its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the [Old] Notes unless such sale or
transfer is made pursuant to an exemption from such requirements.
Each holder of the Old Notes who wishes to exchange such Old Notes for the
New Notes in the Exchange Offer will be required to represent that (i) it is
not an affiliate of the Company, (ii) any New Notes to be received by it will
be acquired in the ordinary course of its business and (iii) at the time of
commencement of the Exchange Offer, it has no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
the New Notes. In addition, in connection with any resales of New Notes, any
broker-dealer (a "Participating Broker") who acquired the New Notes for its
own account as a result of market-making activities or other trading
activities must deliver a prospectus meeting the requirements of the
Securities Act. The Commission has taken the position that the Participating
Brokers may fulfill their prospectus delivery requirements with respect to the
New Notes (other than a resale of an unsold allotment from the original sale
of the Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company is required to
allow the Participating Brokers to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
New Notes.
In the event that any changes in law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange
Offer, or if for any reason the Exchange Offer is not consummated
100
<PAGE>
within 180 calendar days of the Closing Date or in certain other
circumstances, the Company will, at its expense, (i) as promptly as
practicable, and in any event on or prior to 60 calendar days after such
filing obligation arises, file with the Commission a shelf registration
statement (the "Shelf Registration Statement") covering resales of the Old
Notes or the New Notes, as the case may be, (ii) use its best efforts to cause
the Shelf Registration Statement to be declared effective under the Securities
Act on or prior to 60 calendar days after such filing occurs and (iii) keep
effective the Shelf Registration Statement until two years after its effective
date (or such shorter period that will terminate when all the Notes covered
thereby have been sold pursuant thereto or in certain other circumstances),
subject to certain exceptions. The Company will, in the event of the filing of
a Shelf Registration Statement, provide to each holder of the Notes covered by
the Shelf Registration Statement copies of the prospectus that is a part of
the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement for the Notes has become effective and take certain
other actions as are required to permit unrestricted resales of the Old Notes
or the New Notes, as the case may be. A holder of selling such Old Notes or
New Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to the purchaser, will be subject to certain of
the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to such holder (including certain
indemnification obligations). In addition, each holder of the Notes will be
required to deliver certain information to be used in connection with the
Shelf Registration Statement in order to have its Notes included in the Shelf
Registration Statement.
In the event that either (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the 60th calendar day following
the Closing Date or (b) the Exchange Offer is not consummated or a Shelf
Registration Statement is not declared effective on or prior to the 180th
calendar day following the Closing Date, the interest rate borne by the Notes
will be increased by 0.25% per annum for the first 90 days following the 60-
day period referred to in clause (a) above or the 180-day period referred to
in clause (b) above. Such interest will increase by an additional 0.25% per
annum at the beginning of each subsequent 90-day period in the case of clause
(a) or clause (b) above; provided, however, that in no event will the interest
rate borne by the Notes be increased by more than 1.5%. Upon the filing of the
Exchange Offer Registration Statement, the consummation of the Exchange Offer
or the effectiveness of a Shelf Registration Statement, as the case may be,
the interest rate borne by the Notes from the date of such filing,
consummation or effectiveness, as the case may be, will be reduced to the
original interest rate set forth on the cover of this Prospectus; provided,
however, that if after any such reduction in interest rate, a different event
specified in clause (a) or (b) above occurs, the interest rate may again be
increased pursuant to the foregoing provisions.
101
<PAGE>
DESCRIPTION OF NEW CREDIT FACILITY
The following is a summary of the material terms and conditions of the New
Credit Facility, which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. This summary does not purport
to be a complete description of the New Credit Facility and is subject to its
detailed provisions and various documents entered into in connection with the
New Credit Facility.
The New Credit Facility is available to the Company and, to the extent
approved by NationsBank, as administrative agent for the New Credit Facility,
certain foreign subsidiaries of the Company. Borrowings under the New Credit
Facility were used to repay a portion of the amounts outstanding under the
Bridge Credit Facility, to pay fees and expenses relating to the Refinancing
of the Bridge Credit Facility, and for working capital and general corporate
purposes.
The New Credit Facility consists of (1) a revolving credit facility of up to
$150.0 million (the "Revolving Credit Facility"), (2) a term loan in the
amount of $325.0 million (or other amount, as provided below) ("Term Loan A")
and (3) a term loan in the amount of $200.0 million (or other amount, as
provided below) ("Term Loan B", and together with Term Loan A, the "Term
Loans"). The Revolving Credit Facility includes (a) a $25.0 million sublimit
for the issuance of standby letters of credit, (b) a $75.0 million sublimit
for foreign currency denominated borrowings and (c) a $20.0 million sublimit
for swing line loans to be provided by NationsBank ("Swing Line Loans"). All
amounts outstanding under the Revolving Credit Facility are payable on the
sixth anniversary of the closing of the New Credit Facility. Term Loan A is
payable in quarterly installments, subject to annual amortization, based on a
principal amount equal to $325.0 million, ranging from $27.5 million for the
fiscal 1999 to $97.5 million for the fiscal 2004. Term Loan B is payable in
annual installments, subject to annual amortization, based on a principal
amount equal to $200.0 million, ranging from $1.3 million for the fiscal 1999
to $96.3 million for the fiscal 2006.
Interest accrues on the loans made under the Revolving Credit Facility
(other than Swing Line Loans) and on Term Loan A at either LIBOR (adjusted for
any reserves) plus a specified margin ranging from 1.125% to 2.125%, or the
base rate, which is the higher of NationsBank's prime rate and the federal
funds rate plus 0.50% (the "Base Rate"), plus a specified margin ranging from
0.125% to 1.125%, at the Company's option. Interest accrues on Term Loan B at
either LIBOR (adjusted for any reserves) plus a specified margin ranging from
1.375% to 2.375%, or the Base Rate plus a specified margin ranging from 0.625%
to 1.375%, at the Company's option. Swing Line Loans bear interest at the Base
Rate plus a specified margin ranging from 0.125% to 1.125%. The applicable
margins are determined by reference to a leverage ratio of the Company and its
subsidiaries. The post-default rate on outstanding loans is 2.000% above the
otherwise applicable rate of interest.
The aggregate amount outstanding under the New Credit Facility will be
prepaid by amounts equal to the net proceeds, or a specified portion thereof,
from certain indebtedness and equity issuances and specified asset sales by
the Company and its subsidiaries, and by a specified percentage of cash flow
in excess of certain expenditures, costs and payments. The Company may at its
option reduce the amount available under the New Credit Facility to the extent
such amounts are unused or prepaid in certain minimum amounts, provided that
any holder of Term Loan B shall have, under certain circumstances, the right
to refuse to permit the Company to optionally prepay all or any portion of
Term Loan B.
In connection with the Closing of the New Credit Facility, the Company paid
certain administrative and arranging fees to NationsBank. In addition, the
Company paid certain annual administration fees to NationsBank for its own
account as well as a commitment fee and certain fees relating to letters of
credit to NationsBank for its own account and the account of the other lenders
under the New Credit Facility.
The New Credit Facility is secured by a security interest in substantially
all of the real and personal property, tangible and intangible, of the Company
and its domestic subsidiaries as well as a pledge of all of the stock of such
domestic subsidiaries, a pledge of not less than 65% of the voting stock and
all of the non-voting common stock of each direct foreign subsidiary of the
Company and each direct foreign subsidiary of each
102
<PAGE>
domestic subsidiary of the Company, and a pledge of all of the capital stock
of any subsidiary of a subsidiary of the Company that is a borrower under the
New Credit Facility. The security interest, other than the pledge of stock,
will be released if the unsecured long-term indebtedness of the Company has
received certain minimum ratings or the leverage ratio of the Company and its
subsidiaries has decreased below a certain threshold. The New Credit Facility
is guaranteed by all of the domestic subsidiaries of the Company.
The New Credit Facility contains a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, prepay other indebtedness, pay dividends,
repurchase or redeem capital stock, enter into certain investments or create
new subsidiaries, enter into sale and lease-back transactions, make certain
acquisitions, engage in mergers or consolidations, create liens, make capital
expenditures, or engage in certain transactions with affiliates, and that
otherwise restrict corporate and business activities. In addition, under the
New Credit Facility, the Company is required to comply with specified
financial ratios and tests, including minimum net worth test, a fixed charge
coverage ratio, an interest coverage ratio and a leverage ratio.
DESCRIPTION OF PREFERRED SECURITIES
On November 25, 1997, the Company sold $257.7 million of the Convertible
Debentures to BTI Capital Trust which, concurrently therewith, sold $250.0
million aggregate liquidation amount of Preferred Securities (which are
guaranteed by the Company) in a private transaction under Rule 144A under the
Securities Act. The Preferred Securities represent preferred undivided
beneficial interests in the assets of BTI Capital Trust (the "Trust"), which
consist solely of the Convertible Debentures. The Company owns, directly or
indirectly, all the common securities (the "Common Securities" and, together
with the Preferred Securities, the "Trust Securities") representing individual
undivided beneficial interests in the assets of the Trust.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 6.5% of the liquidation amount of $50 per
Preferred Security, accruing from, and including, November 25, 1997, the date
of issuance of the Preferred Securities, and payable quarterly in arrears on
February 15, May 15, August 15 and November 15 of each year, commencing
February 15, 1998 (the "Distributions"). Each Preferred Security is
convertible on or after January 25, 1998, at the option of the holder into
shares of Common Stock, at the rate of 2.1973 shares of Common Stock for each
Preferred Security (equivalent to a conversion price of $22.755 per share of
Common Stock), subject to adjustment in certain circumstances.
The payment of Distributions out of moneys held by the Trust and payments on
liquidation of the Trust or the redemption of Preferred Securities are
guaranteed by the Company (the "Preferred Securities Guarantee"). The
Preferred Securities Guarantee covers payments of Distributions and other
payments on the Preferred Securities only if and to the extent that the
Company has made a payment of principal or other payments on the Convertible
Debentures held by the Trust as its sole assets. The obligations of the
Company under the Preferred Securities Guarantee rank (i) subordinate and
junior in right of payment to all other liabilities of the Company except any
liabilities that may be pari passu expressly by their terms, (ii) pari passu
with the most senior preferred or preference stock, if any, issued from time
to time by the Company, and with any guarantee now or hereafter entered into
by the Company and (iii) senior to the Common Stock.
The Convertible Debentures are redeemable by the Company, in whole or in
part, from time to time, on or after November 25, 2000, or at any time, in
whole or in part, in certain circumstances upon the occurrence of certain
specified tax events. If the Company redeems any Convertible Debentures, the
proceeds from such redemption will be applied to redeem a like amount of Trust
Securities. The Preferred Securities will be redeemed upon maturity of the
Convertible Debentures on November 15, 2027. Upon the repayment of the
Convertible Debentures, the proceeds from such repayment will be applied to
redeem a like amount of Trust Securities. In addition, upon the occurrence of
certain special events arising from a change in laws or a change in legal
interpretation regarding tax or investment company matters, unless the
Convertible Debentures are
103
<PAGE>
redeemed, the Trust shall be dissolved, with the result that the Convertible
Debentures will be distributed to the holders of the Trust Securities, on a
pro rata basis, in lieu of any cash distribution.
In the event of the involuntary or voluntary dissolution, winding up or
termination of the Trust, after satisfaction of liabilities to creditors of
the Trust as required by applicable law, the holders of the Preferred
Securities will be entitled to receive for each Preferred Security, a
liquidation amount of $50 plus accrued and unpaid Distributions thereon to the
date of payment, unless, in connection with such dissolution, winding-up or
termination of the Trust, the Convertible Debentures are distributed to the
holders of the Preferred Securities.
The Company has the right to defer payments of interest on the Convertible
Debentures by extending the interest payment period on the Convertible
Debentures at any time (so long as no event of default has occurred and is
continuing under the indenture applicable to the Convertible Debentures) for
up to 20 consecutive quarters (each, an "Extension Period"); provided that no
such Extension Period may extend beyond the maturity date of the Convertible
Debentures. If interest payments are so deferred, Distributions on the
Preferred Securities will also be deferred. During any Extension Period,
Distributions on the Preferred Securities will continue to accrue with
interest thereon (to the extent permitted by applicable law) at an annual rate
of 6.50% per annum, compounded quarterly. Additionally, during any Extension
Period, holders of Preferred Securities will be required to include deferred
interest income in the form of original issue discount ("OID") in their gross
income for United States federal income tax purposes in advance of receipt of
cash distributions with respect to such deferred interest payments. The
Company has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Convertible
Debentures.
Generally, the holders of the Preferred Securities will not have any voting
rights.
On March 19, 1998, the Company filed a shelf registration statement (the
"Preferred Securities Shelf Registration Statement") to cover resales of the
Preferred Securities, the Convertible Debentures and the Common Stock issuable
upon conversion of the Preferred Securities and the Convertible Debentures.
Amendments to the Preferred Securities Shelf Registration Statement were filed
on June 4, 1998 and June 15, 1998, and the Preferred Securities Shelf
Registration Statement was declared effective on , 1998. The Company has
agreed to use its best efforts to maintain the effectiveness of the Preferred
Securities Shelf Registration Statement until November 19, 1999 except that it
will be permitted to suspend the use of the Preferred Securities Shelf
Registration Statement during certain periods under certain circumstances.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, proposed
Treasury regulation, judicial authority and administrative rulings and
practice. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no ruling from the Service has
been or will be sought. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements
and conditions set forth herein. Any such changes or interpretations may or
may not be retroactive and could affect the tax consequences to holders.
Certain holders (including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign corporations and persons who
are not citizens or residents of the United States) may be subject to special
rules not discussed below. The Company recommends that each holder consult
such holder's own tax advisor as to the particular consequences of exchanging
such holder's Old Notes for New Notes, including the applicability and effect
of any state, local or foreign tax laws.
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an "exchange" for federal income tax purposes because the
Exchange Notes should not be considered to differ materially in kind or extent
from the Old Notes. Rather, the New Notes received by a holder will be treated
as a continuation of the Old Notes in the hands of such holder. As a result,
there will be no federal income tax consequences to holders exchanging Old
Notes for New Notes pursuant to the Exchange Offer.
104
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Notes where such
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date, it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
such date, all dealers effecting transactions in the New Notes may be required
to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
the New Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in a Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for all of the holders of Old Notes) other than commissions or concessions of
any brokers or dealers and transfer taxes and will indemnify the holders of
the Old Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the New Notes offered hereby will be passed upon for the
Company by King & Spalding, New York, New York.
EXPERTS
The audited consolidated financial statements of the Company at June 30,
1996 and 1997 and for each of the years in the two-year period ended June 30,
1997 included in this Prospectus have been audited by Ernst & Young LLP,
independent public accountants, as indicated in their report with respect
thereto, which, as to 1997 is based in part on the report of KPMG S.p.A.,
independent auditors. The financial statements referred to above are included
herein in reliance upon the authority of said firms as experts in accounting
and auditing in giving said report.
The audited consolidated financial statements of the Company for the year
ended June 30, 1995 included in this Prospectus have been audited by KPMG Peat
Marwick LLP, independent auditors, as stated in their report appearing herein,
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing.
105
<PAGE>
The combined financial statements of Safety Restraint Systems, a division of
AlliedSignal Inc., as of December 31, 1995 and 1996 and for each of the three
years in the period ended December 31, 1996 included herein have been so
included in reliance on the report (which contains an explanatory paragraph
relating to Safety Restraint Systems' transactions and relationships with
AlliedSignal Inc.) of Price Waterhouse LLP, independent accountants given on
the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act
and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information concerning the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the following
regional offices of the Commission: Seven World Trade Center, Suite 1300, New
York, New York 10048 and at Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained by writing to the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a
Web site that contains reports, proxy statements and other information
regarding registrants that file electronically with the Commission. The
address of such site is http://www.sec.gov. Such material can also be
inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
106
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BREED:
Reports of Independent Auditors......................................... F-2
Consolidated Balance Sheets at June 30, 1997 and 1996................... F-5
Consolidated Statements of Earnings for the three years in the period
ended June 30, 1997.................................................... F-6
Consolidated Statements of Cash Flows for the three years in the period
ended June 30, 1997.................................................... F-7
Consolidated Statement of Stockholders' Equity for the three years in
the period ended
June 30, 1997.......................................................... F-8
Notes to Consolidated Financial Statements.............................. F-9
Consolidated Condensed Balance Sheets (Unaudited)--March 31, 1997 and
June 30, 1997.......................................................... F-26
Consolidated Condensed Statements of Operations (Unaudited)--Nine months
ended
March 31, 1998 and 1997 ............................................... F-27
Consolidated Condensed Statements of Cash Flows (Unaudited)--Nine months
ended
March 31, 1998 and 1997................................................ F-28
Consolidated Statement of Stockholders' Equity (Unaudited)--Nine months
ended
March 31, 1998......................................................... F-29
Notes to Consolidated Condensed Financial Statements (Unaudited)........ F-30
SRS:
Report of Independent Accountants....................................... F-37
Combined Balance Sheets as of September 30, 1997 (Unaudited) and
December 31,
1996 and 1995.......................................................... F-38
Combined Statements of Operations--nine months ended September 30, 1997
and 1996 (Unaudited) and each of the three years in the period ended
December 31, 1996...................................................... F-39
Combined Statements of Cash Flows--nine months ended September 30, 1997
and 1996 (Unaudited) and each of the three years in the period ended
December 31, 1996...................................................... F-40
Notes to Financial Statements........................................... F-41
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BREED Technologies, Inc.
We have audited the accompanying consolidated balance sheets of BREED
Technologies, Inc. and subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for the years then ended. 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 did not audit
the financial statements of MOMO S.p.A., a wholly-owned subsidiary acquired
April 15, 1996, which statements reflect total assets of $106,398,000 as of
June 30, 1997 and net sales of $73,093,000 for the year then ended. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to data included for MOMO S.p.A.,
is based solely on the report of the other auditors. The consolidated
financial statements of BREED Technologies, Inc. and subsidiaries for the year
ended June 30, 1995, were audited by other auditors whose report, dated July
21, 1995, expressed an unqualified opinion on those statements.
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, based on our audits and the report of other auditors, the
1997 and 1996 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BREED
Technologies, Inc. and subsidiaries at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
July 31, 1997, except for Note 12, as to which the date is August 27, 1997
Tampa, Florida
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BREED Technologies, Inc.:
We have audited the consolidated statements of earnings, stockholders'
equity, and cash flows of BREED Technologies, Inc. and subsidiaries for the
year ended June 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of BREED Technologies, Inc. and subsidiaries for the year ended June 30,
1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Tampa, Florida
July 21, 1995
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Momo S.p.A.
We have audited the accompanying combined and consolidated balance sheet of
the Momo group as of 30 June 1997 and the related combined and consolidated
income statement, retained earnings and cash flows for the year then ended.
These financial statements are the responsibility of the management of Momo
S.p.A. Our responsibility is to express an opinion on the financial statements
based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides 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 Momo group as of 30
June 1997, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles as
defined in the United States.
KPMG S.p.A.
Milan, 25 July 1997
F-4
<PAGE>
BREED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------
1997 1996
-------- --------
IN THOUSANDS
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 18,707 $ 95,830
Accounts receivable, principally trade.................... 207,951 110,656
Inventories............................................... 75,347 52,890
Prepaid expenses.......................................... 13,519 7,247
-------- --------
Total current assets.................................... 315,524 266,623
-------- --------
Property, plant and equipment:
Land...................................................... 15,206 10,805
Buildings................................................. 106,122 73,342
Machinery and equipment................................... 212,542 126,947
Construction in progress.................................. 28,013 14,417
Less accumulated depreciation........................... (85,433) (53,858)
-------- --------
Net property, plant and equipment....................... 276,450 171,653
-------- --------
Other assets:
Intangible assets......................................... 220,956 45,053
Investments and other assets.............................. 11,603 20,473
Net assets held for sale.................................. 52,620 --
-------- --------
Total other assets...................................... 285,179 65,526
-------- --------
Total assets.......................................... 877,153 503,802
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt....... 191,744 120,688
Accounts payable.......................................... 121,505 33,940
Employee compensation and benefits........................ 16,818 13,844
Accrued expenses.......................................... 32,661 7,980
-------- --------
Total current liabilities............................... 362,728 176,452
-------- --------
Long-term debt.............................................. 231,700 42,123
Other long-term and deferred liabilities.................... 16,306 10,147
-------- --------
Total liabilities..................................... 610,734 228,722
-------- --------
Stockholders' equity:
Common stock.............................................. 317 316
Additional paid-in capital................................ 77,470 76,652
Retained earnings......................................... 207,964 201,981
Foreign currency translation adjustments.................. (18,843) (2,927)
Unearned compensation..................................... (489) (942)
-------- --------
Total stockholders' equity.............................. 266,419 275,080
-------- --------
Total liabilities and stockholders' equity............ $877,153 $503,802
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
BREED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C>
Net sales................................. $ 794,880 $ 431,689 $ 400,972
Cost of sales........................... 631,283 277,044 244,551
----------- ----------- -----------
Gross profit.......................... 163,597 154,645 156,421
Operating expenses:
Selling, general and administrative..... 70,583 38,243 33,098
Engineering, research and development... 36,121 23,588 18,506
Amortization of intangibles............. 6,310 2,001 286
----------- ----------- -----------
Total operating expenses.............. 113,014 63,832 51,890
----------- ----------- -----------
Operating income.......................... 50,583 90,813 104,531
Interest income (expense), net............ (24,460) (1,137) 704
Other income (expense), net............... 3,524 8,662 4,898
----------- ----------- -----------
Earnings before income taxes.............. 29,647 98,338 110,133
Income taxes.............................. 14,800 35,300 37,800
----------- ----------- -----------
Net earnings.............................. $ 14,847 $ 63,038 $ 72,333
=========== =========== ===========
Earnings per share (Note 14):
Basic................................... $ 0.47 $ 2.00 $ 2.30
=========== =========== ===========
Diluted ................................ $ 0.47 $ 1.99 $ 2.29
=========== =========== ===========
Shares used for computation:
Basic................................... 31,648 31,550 31,434
=========== =========== ===========
Diluted................................. 31,867 31,644 31,624
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
BREED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1997 1996 1995
--------- -------- -------
IN THOUSANDS
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.................................... $ 14,847 $ 63,038 $72,333
Adjustments:
Depreciation of plant and equipment............ 42,224 18,090 13,609
Amortization of intangible assets.............. 6,310 2,001 286
Deferred income taxes.......................... 1,157 1,665 (1,550)
(Gain) loss from sale of assets................ 634 (1,517) (1,349)
Compensation related to stock plan............. 89 230 296
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable........................... (16,284) (30,667) (5,473)
Inventories................................... 2,234 (1,548) (6,526)
Prepaid expenses.............................. (720) (717) (334)
Accounts payable.............................. 37,047 843 1,915
Accrued expenses.............................. (7,597) (9,215) (3,173)
Other assets and liabilities.................. 9,418 (1,000) (891)
--------- -------- -------
Net cash provided by operating activities.... 89,359 41,203 69,143
--------- -------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment...... (75,851) (45,370) (69,268)
Sale (purchases) of short-term investments,
net............................................ -- 10,601 12,386
Cost of acquisition, net of cash acquired....... (291,922) (48,507) (6,941)
Deposit on Gallino acquisition.................. -- (10,299) --
Investment in and advances to affiliates........ (874) -- (6,376)
Proceeds from sale of assets.................... 1,382 2,742 1,349
--------- -------- -------
Net cash used in investing activities........ (367,265) (90,833) (68,850)
--------- -------- -------
Cash flows from financing activities:
Proceeds from short-term borrowings............. 577,688 86,957 5,486
Repayments of long-term debt and other
borrowings..................................... (412,830) (6,356) (9,333)
Proceeds from long-term debt.................... 45,441 45,000 --
Cash dividends paid............................. (8,861) (6,938) (4,715)
Common stock issued--options and stock plans.... 1,182 2,050 1,741
--------- -------- -------
Net cash provided by (used in) financing
activities.................................. 202,620 120,713 (6,821)
--------- -------- -------
Effect of exchange rate on cash.................. (1,837) (1,608) (587)
Net increase (decrease) in cash and cash
equivalents..................................... (77,123) 69,475 (7,115)
Cash and cash equivalents at beginning of year... 95,830 26,355 33,470
--------- -------- -------
Cash and cash equivalents at end of year......... $ 18,707 $ 95,830 $26,355
========= ======== =======
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest....................................... $ 20,776 $ 2,347 $ 1,794
Income taxes................................... 12,914 32,230 39,520
Cost of acquisitions:
Working capital (deficiency), net of cash
acquired..................................... (23,534) 125 6,824
Property, plant and equipment................. (144,995) (18,021) (4,483)
Patents....................................... (16,000) -- (5,272)
Costs in excess of net assets of businesses
acquired..................................... (158,073) (35,718) (3,634)
Other assets.................................. (2,231) (3,066) (451)
Long-term debt and other long-term
liabilities.................................. 52,911 8,173 75
--------- -------- -------
Net cost of acquisitions..................... $(291,922) $(48,507) $(6,941)
========= ======== =======
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
BREED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------------ PAID-IN RETAINED TRANSLATION UNEARNED
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS COMPENSATION
---------- ------ ---------- -------- ----------- ------------
IN THOUSANDS, EXCEPT FOR DATA
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30,
1994................... 31,342,033 $313 $71,395 $ 80,477 $ (937) $ --
Shares issued under
Stock Option Plans... 52,024 1 686 -- -- --
Shares sold under
Employee Stock
Purchase Plan........ 51,843 -- 1,054 -- -- --
Shares terminated
under Stock Incentive
Plan, net of granted
shares............... 69,490 1 1,927 -- -- (1,927)
Compensation expense.. -- -- -- -- -- 296
Net earnings.......... -- -- -- 72,333 -- --
Translation
adjustments.......... -- -- -- -- (606) --
Cash dividends -- $.20
per share............ -- -- -- (6,292) -- --
---------- ---- ------- -------- -------- -------
BALANCE AT JUNE 30,
1995................... 31,515,390 315 75,062 146,518 (1,543) (1,631)
Shares issued under
Stock Option Plans... 67,561 1 786 -- -- --
Shares sold under
Employee Stock
Purchase Plan........ 60,906 -- 1,038 -- -- --
Shares terminated
under Stock Incentive
Plan, net of granted
shares............... (17,200) -- (459) -- -- 459
Compensation expense.. -- -- -- -- -- 230
Tax benefit from
exercise of stock
options.............. -- -- 225 -- -- --
Net earnings.......... -- -- -- 63,038 -- --
Translation
adjustments.......... -- -- -- -- (1,384) --
Cash dividends -- $.24
per share............ -- -- -- (7,575) -- --
---------- ---- ------- -------- -------- -------
BALANCE AT JUNE 30,
1996................... 31,626,657 316 76,652 201,981 (2,927) (942)
Shares issued under
Stock Option Plans... 38,695 1 537 -- -- --
Shares sold under
Employee Stock
Purchase Plan........ 27,082 -- 529 -- -- --
Compensation expense.. -- -- -- -- -- 89
Shares terminated
under Stock Incentive
Plan, net of granted
shares............... (12,992) -- (364) -- -- 364
Tax benefit from
exercise of stock
options.............. -- -- 116 -- -- --
Net earnings.......... -- -- -- 14,847 -- --
Translation
adjustments.......... -- -- -- -- (15,916) --
Cash dividends -- $.28
per share............ -- -- -- (8,864) -- --
---------- ---- ------- -------- -------- -------
BALANCE AT JUNE 30,
1997................... 31,679,442 $317 $77,470 $207,964 $(18,843) $ (489)
</TABLE>
Preferred stock:
Authorized 5,000,000 shares, par value $.001 per share. To date,
none of these shares has been issued.
Common stock:
Authorized 50,000,000 shares, par value $.01 per share.
See Notes to Consolidated Financial Statements
F-8
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BREED
Technologies, Inc. (the Company) and its wholly- and majority-owned
subsidiaries. All intercompany balances and transactions have been eliminated
in consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
primarily using the first-in, first-out method for inventories in North
America and primarily using the average cost method for inventories in Europe.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method applied to individual items based on estimated
useful lives of the assets which range from 5 to 40 years for buildings and
improvements, and 3 to 10 years for machinery, computer and office equipment.
Replacements and betterments that extend the lives of assets are capitalized,
while maintenance and repairs are expensed as incurred.
INTANGIBLE ASSETS
Cost in excess of net assets of businesses acquired (goodwill) is being
amortized on a straight-line basis over a period of 3 to 40 years and is
stated net of accumulated amortization of $6,247,000 and $895,000 at June 30,
1997 and 1996, respectively. Goodwill is reevaluated when business events and
circumstances indicate that the carrying amount may not be recoverable.
Reevaluation is based on projections of undiscounted future cash flows.
Patents are stated at cost less accumulated amortization of $1,271,000 and
$527,000 at June 30, 1997 and 1996, respectively. These items, which were
acquired in connection with the VTI Hamlin OY (VTI) and USS acquisitions, as
discussed in Note 3, are capitalized and amortized on a straight-line basis
over the average remaining life of the related patents.
TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE CONTRACTS
All assets and liabilities in the balance sheets of foreign subsidiaries
whose functional currency is other than the U.S. dollar are translated at
year-end exchange rates except stockholders' equity which is translated at
historical rates. Translation gains and losses are accumulated as a separate
component of stockholders' equity. Foreign currency transaction gains and
losses are included in determining net earnings.
The Company uses foreign exchange contracts to hedge certain foreign
denominated payables and receivables and also to hedge firm sales and purchase
commitments. Realized and unrealized gains and losses are deferred and
recognized as the related transactions are settled. The Company does not enter
into foreign exchange contracts for trading purposes. At June 30, 1997, the
Company had outstanding Canadian contracts to buy US$43 million, maturing
through January 1999 and to sell US$9 million, maturing through August 1997.
At June 30, 1996, the Company had outstanding contracts to sell 10.5 million
German marks, maturing through June 1997.
F-9
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate restated to conform to the Statement 128
requirements. See Note 14.
RECLASSIFICATIONS
Certain amounts in the prior years' Consolidated Financial Statements have
been reclassified to conform to the current year's presentation.
2. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments consist primarily of cash equivalents, short-term
investments, accounts receivable, accounts payable and bank debt. At June 30,
1997, the fair value of these financial instruments approximates the carrying
amount because of the short-term maturity of these items.
The Company has entered into various agreements with three major customers
to secure certain long-term sales contracts, however these do not commit the
customers to purchase specific quantities of products from the Company. The
agreement with Ford expires at the end of the 1999 model year. The Company is
in the process of negotiating its long-term contract through the model year
2000 with Delco-GM. In addition, a long-term sales agreement with Fiat expires
on December 31, 1999. Sales by the Company to Fiat in 1997 and 1996, accounted
for 32% and 14%, respectively, of the Company's net sales for such years.
Sales by the Company to Ford in fiscal 1997, 1996 and 1995, accounted for 25%,
33% and 37%, respectively, of the Company's net sales for such years. Sales by
the Company to Delco-GM in fiscal 1997, 1996 and 1995, accounted for 13%, 26%
and 40%, respectively, of the Company's net sales for such years.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the strong financial condition of the Company's customer base.
However, as of June 30, 1997, the Company's receivables from Fiat, Ford, and
Delco-GM amounted to 38%, 12% and 8% respectively, of total trade accounts
receivable.
3. ACQUISITIONS
During the three years ended June 30, 1997, the Company made the
acquisitions set forth below. The Hamlin merger was accounted for as a pooling
of interests. All of the other acquisitions were accounted for by the purchase
method of accounting; accordingly, the purchased assets and liabilities have
been recorded at their estimated fair value at the date of acquisition, and
the consolidated financial statements include the operating results of each
business from the date of acquisition.
FISCAL 1995
Hamlin
On August 31, 1994, the Company completed a merger with Hamlin, Incorporated
(Hamlin), a manufacturer of crash sensors and reed switch products, with
operations in the United States, Mexico and Europe. The Company issued 838,324
shares of common stock for all of the outstanding common stock of Hamlin.
There were no adjustments necessary to conform the companies' methods of
accounting. There were no significant transactions between the companies prior
to the merger.
F-10
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
VTI
In June 1995, the Company acquired VTI Hamlin OY (VTI), a Finnish company
that designs and manufactures silicon capacitive micro machined acceleration,
angular rate and differential and absolute pressure sensors, for $1.7 million
in cash. Additionally, the Company issued stock warrants to certain of the
former stockholders of VTI which enable the holders to purchase up to 100,000
shares of common stock between July 1, 1998 and June 30, 2000, at a purchase
price of $25.75 per share ($2 above the market value of the Company's common
stock at the date of acquisition). The purchase price exceeded the fair value
of the net assets acquired by approximately $4.5 million. The resulting
goodwill is being amortized on a straight-line basis over seven years.
Concurrent with the purchase, the Company acquired, for $5.3 million in cash,
technology rights to use awarded and pending patents and related intellectual
property.
FISCAL 1996
MOMO
On April 15, 1996, the Company acquired all of the outstanding shares of
MOMO S.p.A. and G. Holding, S.r.1. (collectively MOMO), an original equipment
manufacturer and aftermarket supplier of luxury steering wheels and alloy
wheels, for $45.2 million in cash. The purchase price exceeded the fair value
of the net assets acquired by $31.1 million. The resulting goodwill is being
amortized over 40 years.
Italtest
On April 22, 1996, the Company acquired all of the outstanding shares of
Italtest S.r.l., an Italian manufacturer of printed circuit boards for the
automotive, computer and telecommunications markets for $1.8 million in cash.
The purchase price exceeded the fair value of the net assets acquired by $1.8
million. The resulting goodwill is being amortized over 10 years.
Force Imaging Technologies, Inc.
On May 31, 1996, the Company acquired all of the outstanding shares of Force
Imaging Technologies, Inc., a manufacturer of thin-profile variable force
sensors for multi-function automotive capabilities for $3 million in cash. The
purchase price exceeded the fair value of the net assets acquired by $2.8
million. The resulting goodwill is being amortized over 5 years.
The pro forma unaudited results of operations for the years ended June 30,
1996 and 1995, assuming the purchase of the acquisitions had been consummated
as of July 1, 1994, are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
IN THOUSANDS, EXCEPT
PER SHARE DATA
<S> <C> <C>
Net sales............................................. $ 493,845 $ 482,885
Net earnings.......................................... $ 59,768 $ 65,377
Net earnings per share................................ $ 1.89 $ 2.08
</TABLE>
FISCAL 1997
Gallino
On July 1, 1996, the Company completed the acquisition of Gallino
Plasturgia, S.r.l. and affiliates (Gallino) from IAO Industrie Riunite S.p.A.
Gallino manufactures steering wheels, instrument panels, bumpers and other
plastic trim components used in automotive original equipment and aftermarket
applications. The aggregate purchase price was $126 million, comprised of cash
of $74 million and liabilities assumed of $52 million. The
F-11
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquisition was financed through borrowings on the Company's revolving credit
agreements. The purchase price exceeded the fair value of net assets acquired
by approximately $40 million. The resulting goodwill is being amortized on a
straight-line basis over 40 years.
United Steering Systems (USS)
On October 25, 1996, the Company completed the acquisition of certain assets
and the assumption of certain liabilities of the "North American Steering
Wheels Operation" of United Technologies and all of the shares of United
Technologies Automotive Clifford Limited (collectively USS). USS produces
steering wheels, airbag covers, horn pads and related molded products in the
U.S., Mexico and England. The purchase price was $154 million, financed
through borrowings under the Company's Revolving Credit Agreements. The
purchase price exceeded the fair value of net assets acquired by approximately
$75 million. The resulting goodwill is being amortized on the straight-line
basis over 40 years.
Custom Trim
On February 25, 1997, the Company completed the acquisition of the stock of
BTI Investments, Inc. ("BTI"), a holding company that owned the Custom Trim
group of companies, for $70 million. Additionally, up to $5 million may be
paid on September 1, 2002, contingent upon BTI attaining certain operating
profit targets for each of the years subsequent to the acquisition date. The
acquired operations produce leather-wrapped steering wheels and other
automotive leather-wrapped products in Canada and Mexico. The funds used by
the Company to acquire BTI were obtained from borrowings under the Company's
Revolving Credit Agreements. The purchase price exceeded the fair market value
of net assets acquired by $48 million. The allocation of the purchase price is
subject to change pending completion of the Company's integration plans. The
resulting goodwill is being amortized on a straight-line basis over 40 years.
The pro forma unaudited results of operations for the years ended June 30,
1997 and 1996, assuming the purchase of the acquisitions had been consummated
as of July 1, 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------
IN THOUSANDS, EXCEPT
PER SHARE DATA
<S> <C> <C>
Net sales............................................. $ 901,058 $ 1,056,588
Net earnings.......................................... $ 20,965 $ 45,897
Net earnings per share................................ $ .66 $ 1.45
</TABLE>
4. NET ASSETS HELD FOR SALE
The Company acquired Gallino in July 1996 primarily for the steering wheel
business. However, in order to acquire the steering wheel business it was
necessary to also acquire Gallino's instrument panel, bumper and other plastic
trim component business (non-steering wheel business). In 1997, the Company
evaluated whether the non-steering wheel business of Gallino could be
integrated into the core business of the Company.
During the fourth quarter of fiscal 1997, the Company committed to a plan to
dispose of Gallino's instrument panel, bumper and other plastic trim component
business (non-steering wheel business). In July 1997, the Company signed a
letter of intent to sell approximately 65% of the net assets of Gallino's non-
steering wheel business.
The Company is negotiating with other prospective buyers for the remaining
portion of Gallino's non-steering wheel business. For financial reporting
purposes, the assets and liabilities attributable to all of Gallino's
F-12
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
non-steering wheel business, which are recorded at amounts approximating their
net realizable value, have been classified in the consolidated balance sheet
as "Net assets held for sale" and consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Current assets.................................................. $42,221
Property, plant and equipment, net.............................. 62,739
Other noncurrent assets......................................... 977
-------
Total assets.................................................. 105,937
-------
Current liabilities............................................. 31,661
Other liabilities............................................... 21,656
-------
Total liabilities............................................. 53,317
-------
Net assets held for sale........................................ $52,620
=======
</TABLE>
5. INCOME TAXES
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
IN THOUSANDS
<S> <C> <C> <C>
Domestic............................................ $23,699 $98,285 $107,521
Foreign............................................. 5,948 53 2,612
------- ------- --------
$29,647 $98,338 $110,133
======= ======= ========
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
IN THOUSANDS
<S> <C> <C> <C>
Current
Federal.......................................... $ 6,442 $30,818 $37,214
Foreign.......................................... 6,434 2,001 750
State............................................ 767 816 1,386
------- ------- -------
Total current.................................. 13,643 33,635 39,350
Deferred
Federal.......................................... 1,501 1,665 (1,550)
Foreign.......................................... (344) -- --
------- ------- -------
Total deferred................................. 1,157 1,665 (1,550)
Income taxes....................................... $14,800 $35,300 $37,800
======= ======= =======
</TABLE>
A provision for income taxes has not been made for the undistributed
earnings of foreign subsidiaries of approximately $10 million at June 30,
1997, which have been or are intended to be permanently reinvested in expanded
foreign business operations.
F-13
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the expected federal tax
provision as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
IN THOUSANDS
<S> <C> <C> <C>
Tax at U.S. statutory rate........................ $10,260 $34,418 $38,547
State taxes, net of Federal tax benefit........... 498 530 900
Change in valuation allowance..................... 1,816 2,161 (2,115)
Amortization of goodwill, without tax benefit..... 1,300 -- --
Foreign rate differential......................... 677 -- --
Reduction of taxes provided in prior years........ -- (1,154) --
Other............................................. 249 (655) 468
------- ------- -------
$14,800 $35,300 $37,800
======= ======= =======
</TABLE>
The temporary differences that give rise to significant portions of the
deferred tax assets and liabilities as of June 30, 1997 and 1996,
respectively, are presented below:
<TABLE>
<CAPTION>
1997 1996
------- ------
IN THOUSANDS
<S> <C> <C>
Deferred tax assets
Accrued expenses......................................... $ 5,132 $1,842
Net operating losses..................................... 3,977 --
Other.................................................... 923 961
Valuation allowance...................................... (3,977) --
------- ------
6,055 2,803
------- ------
Deferred tax liabilities
Depreciation and amortization............................ (7,845) (892)
Acquisition related asset basis differences.............. -- (2,544)
------- ------
(7,845) (3,436)
------- ------
$(1,790) $ (633)
======= ======
</TABLE>
Management has determined, based on the Company's history of domestic
taxable income and its expectation of the future, that domestic operating
income of the Company will likely be sufficient to fully recognize the net
deferred tax assets.
At June 30, 1997, the Company had foreign net operating loss carryforwards
(NOLs) for tax purposes of $11.7 million of which $6.1 million expires in the
year 2006 and $1.7 million expires in the year 2007. The remaining NOLs have
no expiration date. For financial reporting purposes, a valuation allowance of
$4.0 million has been recognized to reduce the deferred tax assets related to
those NOLs.
6. NOTES PAYABLE AND LONG-TERM DEBT
During fiscal 1997, the Company replaced its $200 million unsecured domestic
credit agreement. The Company now maintains two multi-currency credit
agreements totaling $450 million that expire on April 29, 1998 ($250 million)
and April 30, 2002 ($200 million). The amount outstanding under the new
agreements at June 30, 1997, was $358 million of which $200 million is due
April 30, 2002. The interest rate under the agreements is at or below the
prime rate or, at the Company's option, LIBOR plus a margin. The weighted
average interest rate on the outstanding borrowings at June 30, 1997, was
6.7%. A commitment fee of between
F-14
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
.125% and .3% per year is paid on the unused portion of the commitment
dependent upon the Company's level of leverage as set forth in the agreements.
Under the terms of the agreements, the Company must maintain acceptable
ratios, such as leverage ratio, minimum net worth, and interest coverage
ratio. At June 30, 1997, the Company was in compliance with all covenants.
The Company's subsidiaries outside of the United States have short-term
lines of credit aggregating approximately $100 million from various banks
worldwide. Most of these arrangements are reviewed periodically for renewal.
The amounts outstanding under these lines of credit with banks at June 30,
1997 and 1996 were $27.3 million and $34.1 million, respectively. Interest
rates are generally based on the prevailing bank prime rate in the various
countries in which the Company has operations. Additionally, the subsidiaries
have outstanding mortgage and equipment financing loans amounting to $38.1
million.
7. OTHER FINANCIAL DATA
The components of inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
IN THOUSANDS
<S> <C> <C>
Finished goods............................................... $24,832 $19,439
Work in process.............................................. 23,385 14,417
Raw materials................................................ 27,130 19,034
------- -------
$75,347 $52,890
======= =======
</TABLE>
Other income (expense), net consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
IN THOUSANDS
<S> <C> <C> <C>
Foreign exchange gain (loss), net................... $2,161 $2,385 $ (352)
Gain (loss) on disposition of property, plant and
equipment.......................................... (634) 1,517 1,349
Royalty income...................................... 93 3,976 3,483
Government grant.................................... 1,000 -- --
Other, net.......................................... 904 784 418
------ ------ ------
$3,524 $8,662 $4,898
====== ====== ======
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company's Omnibus Stock Plan provides for the granting of 2,500,000
shares of common stock for awards of options under the Company's 1992 Stock
Option Plan, the 1992 Employee Stock Purchase Plan, and the 1994 Stock
Incentive Plan.
Under the 1992 Stock Option Plan, options to purchase up to 1,500,000 shares
of common stock may be granted to officers, employees and consultants to the
Company. The Company may grant options that are either qualified (Incentive
Stock Options) or nonqualified under the Internal Revenue Code of 1986, as
amended. Options under the Plan will generally vest over a three-year period
and the option term may not exceed ten years. Total options granted under this
plan amounted to 48,313 in fiscal 1997 and 45,000 in fiscal 1996.
The Company's 1992 Employee Stock Purchase Plan provides that eligible
employees may contribute up to 10% of their base earnings toward the
semiannual purchase of the Company's common stock, at a price equal to 85% of
the lower of the market value of the common stock on the first and last day of
the applicable period.
F-15
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
There are limitations on the number of shares that can be purchased in any
period. Total shares issued under this plan were 27,082 in fiscal 1997 and
60,906 in fiscal 1996. Since the plan is noncompensatory, no charges to
operations have been recorded.
The 1994 Stock Incentive Plan permits the issuance of options of common
stock in the form of incentive stock options, nonstatutory stock options,
stock appreciation rights, performance shares, restricted stock or
unrestricted stock to selected employees of the Company. Options under the
plan vest over a four-year period. Stock appreciation rights entitle
recipients to receive an amount determined in whole or in part by appreciation
in the fair market value of the stock between the date of the award and the
date of exercise. Performance share awards entitle recipients to acquire
shares of stock upon attainment of specified performance goals. Restricted
stock awards entitle recipients to acquire shares of stock, subject to the
right of the Company to repurchase under certain circumstances all or part of
the shares at their purchase price (or to require forfeiture of such shares if
purchased at no cost) from the recipient. Restricted shares vest over a five-
year period. Unearned compensation, representing the fair market value of the
shares at the date of issuance, is charged to earnings over the vesting
period. Total options granted under this plan amounted to 63,744 in fiscal
1997 and 648,873 in fiscal 1996. No stock appreciation rights or performance
shares were granted in fiscal 1997 or fiscal 1996.
In addition to the above plans, the Company's 1992 Director Stock Option
Plan provides for the grant of nonqualified stock options to the Company's
nonemployee directors. The total number of shares to be issued under this plan
may not exceed 50,000 shares. Options granted under the 1992 Director Stock
Option Plan have an exercise price equal to the fair market value of the
common stock on the date of the grant and a term equal to ten years. Total
options granted under this plan amounted to 5,310 in fiscal 1997 and 14,600 in
fiscal 1996.
Following is a summary of the option and warrant transactions for the fiscal
years 1997 and 1996:
<TABLE>
<CAPTION>
SHARES PRICE
--------- ---------------
<S> <C> <C>
Balance at June 30, 1995.......................... 622,028 $ 3.14 - 32 1/4
Granted......................................... 708,473 16 3/4 - 20 3/8
Exercised....................................... (67,561) 3.14 - 24
Canceled........................................ (113,704) 12 - 28 3/8
Balance at June 30, 1996.......................... 1,149,236 12 - 32 1/4
Granted......................................... 117,367 21 3/8 - 28 1/4
Exercised....................................... (38,695) 19 3/4 - 28
Canceled........................................ (127,547) 16 3/4 - 28 5/8
Balance at June 30, 1997.......................... 1,100,361 12 - 32 1/4
Exercisable at June 30, 1997...................... 318,996 12 - 32 1/4
Shares reserved for future issuance............... 2,175,262
</TABLE>
The Company maintains a 401(k) retirement plan which covers substantially
all full-time U.S. employees. Under the plan, the Company will match employee
contributions at rates which are determined annually by management. Employer
contributions for the years ended June 30, 1997, 1996 and 1995 amounted to
$762,000, $911,000 and $669,000, respectively.
The Company adopted Statement of Financial Accounting Standard No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," in fiscal 1997, but
elected to continue to measure compensation cost using the intrinsic value
method, in accordance with APB Opinion No 25 ("APB 25"), "Accounting for Stock
Issued to Employees." Accordingly, no compensation cost for stock options has
been recognized. If compensation cost had been determined based on the
estimated fair value of options granted in fiscal 1997 and fiscal 1996,
F-16
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consistent with the methodology in SFAS 123, the pro forma effects on the
Company's net earnings and income per share would not have been material.
9. INFORMATION RELATED TO CUSTOMERS AND OPERATIONS IN DIFFERENT GEOGRAPHIC
AREAS
The Company operates in one principal industry segment: the design,
manufacture and sale of automotive occupant safety systems--which represents
more than 90% of consolidated net sales. The following financial information
relates to operations in different geographic areas. Net sales to unaffiliated
customers are based on the location of the Company's operating entity.
Transfers between geographic areas are recorded at amounts above cost and in
accordance with the rules and regulations of the respective governing tax
authorities. Identifiable assets of geographic areas are those assets used in
the Company's operations in each area. Corporate assets include cash and cash
equivalents, intangibles, long-term investments and deferred income taxes.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
IN THOUSANDS
<S> <C> <C> <C>
Net sales to unaffiliated customers:
North America................................. $379,270 $324,565 $345,640
Europe........................................ 415,610 107,124 55,332
-------- -------- --------
Total net sales............................. $794,880 $431,689 $400,972
======== ======== ========
Transfers between geographic areas
(eliminated in consolidation):
North America................................. $ 42,809 $ 51,057 $ 27,018
Europe........................................ 35,043 21,832 22,689
-------- -------- --------
Total transfers............................. $ 77,852 $ 72,889 $ 49,707
======== ======== ========
Earnings before income taxes:
Operating income:
North America................................. $ 46,597 $ 88,371 $100,514
Europe........................................ 3,986 2,442 4,017
Interest and other income (expense), net........ (20,936) 7,525 5,602
-------- -------- --------
Earnings before income taxes................ $ 29,647 $ 98,338 $110,133
======== ======== ========
Identifiable assets:
North America................................. $447,076 $196,776 $185,574
Europe........................................ 410,577 219,340 38,410
Corporate assets.............................. 19,500 87,686 54,714
-------- -------- --------
Total assets................................ $877,153 $503,802 $278,698
======== ======== ========
</TABLE>
The Company also had foreign export sales from the United States amounting
to $34,559,000, $27,354,000 and $24,515,000 for the years ended June 30, 1997,
1996 and 1995, respectively.
The Company operates its Mexican manufacturing facilities under the
"Maquiladora" program. Pursuant to this program, materials and components
owned by the Company are transferred to the Mexican subsidiaries where they
are used to produce finished goods. The finished goods are returned to the
United States and the Company reimburses the Mexican subsidiaries for their
manufacturing costs without any intended significant profit or loss of
consequence. Accordingly, the Mexican sales, transfers, and income amounts are
excluded from the above geographic area information.
F-17
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company is the subject of various lawsuits, claims and environmental
contingencies. 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.
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables set forth selected quarterly financial information.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
--------------- --------------- --------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
FISCAL 1997
Net sales............... $ 158,671 $ 182,567 $ 209,409 $ 244,233 $ 794,880
Gross profit............ 41,648 36,690 37,955 47,304 163,597
Operating income........ 18,210 9,330 7,128 15,915 50,583
Net earnings............ 7,846 3,150 1,501 2,350 14,847
Earnings per share...... .25 .10 .05 .07 .47
Cash dividends per
share.................. .07 .07 .07 .07 .28
Market price range...... 18 1/2 - 27 7/8 22 5/8 - 28 1/2 19 1/4 - 27 1/4 17 3/8 - 23 17 3/8 - 28 1/2
FISCAL 1996
Net sales............... $ 92,601 $ 105,655 $ 103,927 $ 129,506 $ 431,689
Gross profit............ 34,864 42,844 35,841 41,096 154,645
Operating income........ 19,446 26,854 19,671 24,842 90,813
Net earnings............ 12,601 17,842 14,892 17,703 63,038
Earnings per share...... .40 .57 .47 .56 2.00
Cash dividends per
share.................. .05 .05 .07 .07 .24
Market price range...... 19 1/8 - 24 1/4 17 - 20 1/4 16 3/8 - 19 5/8 18 3/4 - 24 1/4 16 3/8 - 24 1/4
FISCAL 1995
Net sales............... $ 87,359 $ 99,001 $ 109,876 $ 104,736 $ 400,972
Gross profit............ 28,999 39,016 44,846 43,560 156,421
Operating income........ 17,538 26,488 31,759 28,746 104,531
Net earnings............ 11,231 18,191 21,984 20,927 72,333
Earnings per share...... .36 .58 .70 .66 2.30
Cash dividends per
share.................. .05 .05 .05 .05 .20
Market price range...... 25 1/4 - 33 3/4 25 1/2 - 36 3/8 20 1/4 - 29 18 3/8 - 24 1/4 18 3/8 - 36 3/8
</TABLE>
The Company recognized a charge during the fourth quarter of fiscal 1997
which decreased net income by $2.2 million. This charge increased income tax
expense to reflect an increase in the effective tax rate for the year due to
loss carryforwards in foreign countries that could not be utilized as
management had originally anticipated. This adjustment reduced fiscal 1997
fourth quarter net income per share by $.07.
12. SUBSEQUENT EVENT
On August 27, 1997, the Company entered into an Asset Purchase Agreement
with AlliedSignal Inc. ("Allied") to acquire substantially all of the assets
and certain liabilities of Allied's worldwide automotive occupant restraint
products and systems (the "Division"). The purchase price is $710 million in
cash and is subject to post-closing adjustments based on the net asset value
of the Division as of the closing date.
F-18
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through
subsidiaries. The Senior Subordinated Notes due 2008 (the "Notes") of the
Company are guaranteed, jointly and severally on a senior subordinated basis,
by the domestic subsidiaries (the "Subsidiary Guarantors") of the Company
other than BTI Capital Trust. The Company's foreign subsidiaries do not
guarantee the Notes (the "Non-Guarantor Subsidiaries"). The Notes will be
effectively subordinated in right of payment to all indebtedness and other
liabilities (including trade payables) of the Non-Guarantor Subsidiaries.
Presented below are condensed consolidating balance sheets as of June 30,
1997 and 1996, condensed consolidating statements of earnings for the years
ended June 30, 1997, 1996 and 1995 and condensed consolidating cash flows for
the year ended June 30, 1997, 1996, 1995, for the Subsidiary Guarantors, the
Non-Guarantor Subsidiaries and the Company consolidated. Separate financial
statements for the Subsidiary Guarantors are not presented based on
management's determination that they do not provide additional information
that is material to investors.
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
JUNE 30, 1997
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ (1.3) $ 20.0 $ -- $ 18.7
Accounts receivable, net.... 85.2 130.9 (8.1) 208.0
Inventories................. 30.4 45.2 (0.3) 75.3
Other current assets........ 177.7 18.7 (182.9) 13.5
------ ------ ------- ------
Total current assets.... 292.0 214.8 (191.3) 315.5
Property, plant and
equipment, net............. 158.7 109.6 8.2 276.5
Intangibles, net............ 97.5 123.5 -- 221.0
Assets held for sale........ -- 52.6 -- 52.6
Other assets................ 290.3 2.1 (280.8) 11.6
------ ------ ------- ------
Total assets............ $838.5 $502.6 $(463.9) $877.2
====== ====== ======= ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-
term debt................ $158.0 $ 33.7 $ -- $191.7
Accounts payable.......... 23.2 98.5 (0.2) 121.5
Accrued expenses.......... 6.0 134.5 (91.0) 49.5
------ ------ ------- ------
Total current
liabilities............ 187.2 266.7 (91.2) 362.7
Long-term debt.............. 200.0 31.7 -- 231.7
Other long-term
liabilities................ 3.4 12.9 -- 16.3
------ ------ ------- ------
Total liabilities....... 390.6 311.3 (91.2) 610.7
Stockholders' equity........ 447.9 191.3 (372.7) 266.5
------ ------ ------- ------
Total liabilities and
stockholders' equity... $838.5 $502.6 $(463.9) $877.2
====== ====== ======= ======
</TABLE>
F-19
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
JUNE 30, 1996
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 53.6 $ 42.2 $ -- $ 95.8
Accounts receivable, net.... 44.1 66.6 -- 110.7
Inventories................. 23.0 29.9 -- 52.9
Other current assets........ 82.3 3.1 (78.2) 7.2
------ ------ ------- -------
Total current assets.... 203.0 141.8 (78.2) 266.6
Property, plant and equip-
ment, net.................. 121.6 50.0 -- 171.6
Intangibles, net............ 2.7 42.4 -- 45.1
Other assets................ 146.8 1.8 (128.1) 20.5
------ ------ ------- -------
Total assets............ $474.1 $236.0 $(206.3) $ 503.8
====== ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-
term debt................ $ 85.0 $ 35.7 $ -- $ 120.7
Accounts payable.......... 12.3 21.6 -- 33.9
Accrued expenses.......... 23.9 76.2 (78.2) 21.9
------ ------ ------- -------
Total current liabili-
ties................... 121.2 133.5 (78.2) 176.5
Long-term debt.............. 40.5 1.6 -- 42.1
Other long-term liabili-
ties....................... 1.7 8.4 -- 10.1
------ ------ ------- -------
Total liabilities....... 163.4 143.5 (78.2) 228.7
Stockholders' equity........ 310.7 92.5 (128.1) 275.1
------ ------ ------- -------
Total liabilities and
stockholders' equity... $474.1 $236.0 $(206.3) $ 503.8
====== ====== ======= =======
</TABLE>
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.................. $386.2 $453.9 $(45.2) $794.9
Cost of goods sold......... 280.6 395.7 (45.0) 631.3
------ ------ ------ ------
Gross profit........... 105.6 58.2 (0.2) 163.6
Selling, general and admin-
istrative expenses........ 32.6 37.9 0.1 70.6
Engineering, research, and
development............... 30.8 5.3 -- 36.1
Amortization of intangi-
bles...................... 1.5 4.9 (0.1) 6.3
------ ------ ------ ------
Operating income....... 40.7 10.1 (0.2) 50.6
Interest income (expense),
net....................... (17.5) (7.0) -- (24.5)
Other income, net.......... 1.1 2.0 0.4 3.5
------ ------ ------ ------
Earnings before income
taxes................. 24.3 5.1 0.2 29.6
Income tax ................ 8.7 6.1 -- 14.8
------ ------ ------ ------
Net earnings (loss).... $ 15.6 $ (1.0) $ 0.2 $ 14.8
====== ====== ====== ======
</TABLE>
F-20
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.................. $363.7 $107.1 $(39.1) $431.7
Cost of goods sold......... 222.4 94.2 (39.5) 277.1
------ ------ ------ ------
Gross profit........... 141.3 12.9 0.4 154.6
Selling, general and admin-
istrative expenses........ 31.1 7.1 -- 38.2
Engineering, research, and
development............... 21.0 2.6 -- 23.6
Amortization of intangi-
bles...................... 0.6 1.4 -- 2.0
------ ------ ------ ------
Operating income....... 88.6 1.8 0.4 90.8
Interest income (expense),
net....................... 0.9 (2.3) 0.3 (1.1)
Other income (expense),
net....................... 8.1 0.8 (0.3) 8.6
------ ------ ------ ------
Earnings before income
taxes................. 97.6 0.3 0.4 98.3
Income tax ................ 33.1 2.2 -- 35.3
------ ------ ------ ------
Net earnings (loss).... $ 64.5 $ (1.9) $ 0.4 $ 63.0
====== ====== ====== ======
</TABLE>
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.................. $372.9 $61.3 $(33.2) $401.0
Cost of goods sold......... 224.4 53.1 (32.9) 244.6
------ ----- ------ ------
Gross profit........... 148.5 8.2 (0.3) 156.4
Selling, general and
administrative expenses... 28.8 4.3 -- 33.1
Engineering, research, and
development............... 18.5 -- -- 18.5
Amortization of
intangibles............... 0.3 -- -- 0.3
------ ----- ------ ------
Operating income....... 100.9 3.9 (0.3) 104.5
Interest income (expense),
net....................... 1.0 (0.3) -- 0.7
Other income (expense),
net....................... 5.8 (0.9) -- 4.9
------ ----- ------ ------
Earnings before income
taxes................. 107.7 2.7 (0.3) 110.1
Income tax................. 37.0 0.8 -- 37.8
------ ----- ------ ------
Net earnings (loss).... $ 70.7 $ 1.9 $ (0.3) $ 72.3
====== ===== ====== ======
</TABLE>
F-21
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings/(loss)...... $ 15.6 $ (1.01) $ 0.3 $ 14.9
Adjustments to reconcile
net cash use in operating
activities:
Depreciation and
amortization............ 28.4 20.1 48.5
Other adjustments........ 1.9 1.9
Changes in operating
assets and liabilities.. (120.3) 144.7 (0.3) 24.1
------ ------- ----- ------
Net cash (used in)
provided by operating
activities.............. (74.4) 163.8 -- 89.4
------ ------- ----- ------
Cash flows from investing
activities:
Capital expenditures..... (40.6) (35.3) (75.9)
Cost of acquisitions, net
of cash acquired........ (151.2) (140.7) (291.9)
Investment in and
advances to affiliates.. (0.9) -- (0.9)
Proceeds from sale of
assets and equipment.... 0.8 0.6 -- 1.4
------ ------- ----- ------
Net cash (used in)
investing activities.... (191.9) (175.4) (367.3)
------ ------- ----- ------
Cash flows from financing
activities:
Net change in debt....... 219.1 (8.8) 210.3
Net change in equity..... (7.7) -- (7.7)
------ ------- ----- ------
Net cash provided by
(used in) financing
activities............ 211.4 (8.8) 202.6
------ ------- ----- ------
Effects of exchange rate
changes on cash........... (1.8) (1.8)
Decrease in cash and cash
equivalents............... (54.9) (22.2) (77.1)
Cash and cash equivalents
at beginning of year...... 53.6 42.2 -- 95.8
------ ------- ----- ------
Cash and cash equivalents
at end of year............ $ (1.3) $ 20.0 $ 18.7
====== ======= ===== ======
</TABLE>
F-22
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings/(loss)...... $ 64.5 $ (1.9) $ 0.4 $ 63.0
Adjustments to reconcile
net cash use in operating
activities:
Depreciation and
amortization............ 18.8 1.3 20.1
Other adjustments........ 0.4 0.4
Changes in operating
assets and liabilities.. (125.3) 83.4 (0.4) (42.3)
------- ------ ----- ------
Net cash (used in)
provided by operating
activities.............. (41.6) 82.8 -- 41.2
------- ------ ----- ------
Cash flows from investing
activities:
Capital expenditures..... (32.3) (13.1) (45.4)
Sale of short-term
investments............. 10.6 -- 10.6
Cost of acquisitions, net
of cash acquired........ (3.0) (45.5) (48.5)
Deposit on Gallino
acquisition............. (10.3) -- (10.3)
Proceeds from sale of
assets and equipment.... 2.7 -- -- 2.7
------- ------ ----- ------
Net cash used in
investing activities.... (32.3) (58.6) (90.9)
------- ------ ----- ------
Cash flows from financing
activities:
Net change in debt....... 108.3 17.3 125.6
Net change in equity..... (4.9) -- (4.9)
------- ------ ----- ------
Net cash provided by
(used in) financing
activities............ 103.4 17.3 120.7
------- ------ ----- ------
Effects of exchange rate
changes on cash........... -- (1.6) (1.6)
Increase in cash and cash
equivalents............... 29.5 39.9 69.4
Cash and cash equivalents
at beginning of year...... 24.1 2.3 -- 26.4
------- ------ ----- ------
Cash and cash equivalents
at end of year............ $ 53.6 $ 42.2 $ 95.8
======= ====== ===== ======
</TABLE>
F-23
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings/(loss)...... $70.7 $ 1.9 $(0.3) $72.3
Adjustments to reconcile
net cash use in operating
activities:
Depreciation and
amortization............ 12.8 1.1 13.9
Other adjustments........ (2.6) (2.6)
Changes in operating
assets and liabilities.. (25.2) 10.4 0.3 (14.5)
----- ----- ----- -----
Net cash (used in)
provided by operating
activities.............. 55.7 13.4 -- 69.1
----- ----- ----- -----
Cash flows from investing
activities:
Capital expenditures..... (66.5) (2.8) (69.3)
Sale of short-term
investments............. 12.4 -- 12.4
Cost of acquisitions, net
of cash acquired........ (2.9) (4.0) (6.9)
Investment in and
advances to affiliates.. (6.4) -- (6.4)
Proceeds from sale of
assets and equipment.... 1.4 -- -- 1.4
----- ----- ----- -----
Net cash used in
investing activities.... (62.0) (6.8) (68.8)
----- ----- ----- -----
Cash flows from financing
activities:
Net change in debt....... -- (3.8) (3.8)
Net change in equity..... (3.0) -- (3.0)
----- ----- ----- -----
Net cash provided by
(used in) financing
activities............ (3.0) (3.8) (6.8)
----- ----- ----- -----
Effects of exchange rate
changes on cash........... -- (0.6) (0.6)
Increase (decrease) in cash
and cash equivalents...... (9.3) 2.2 (7.1)
Cash and cash equivalents
at beginning of year...... 33.4 0.1 -- 33.5
----- ----- ----- -----
Cash and cash equivalents
at end of year............ $24.1 $ 2.3 $26.4
===== ===== ===== =====
</TABLE>
F-24
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
YEAR ENDED JUNE 30, 1995
14. EARNINGS PER SHARE
The following table sets forth the computation of the numerator and
denominator of the basic and diluted per share calculations (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net earnings........................................... $14,847 $63,038 $72,333
Numerator for basic and dilutive earnings per share-
income available to common stockholders.............. $14,847 $63,038 $72,333
------- ------- -------
Denominator:
Denominator for basic earnings per share-weighted-
average shares....................................... 31,648 31,550 31,434
------- ------- -------
Effect of dilutive securities:
Employee stock options................................ 219 94 190
------- ------- -------
Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversions...... 31,867 31,644 31,624
------- ------- -------
</TABLE>
For the years ended June 30, 1997, 1996 and 1995 options of 140,741,
354,761, and 169,749, respectively, are not included in the computation of
diluted earnings per share because the exercise prices were greater than the
average market price of the common shares and therefore, the effect would be
antidilutive.
F-25
<PAGE>
BREED TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
IN MILLIONS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 24.1 $ 18.7
Accounts receivable, principally trade.................. 320.1 208.0
Inventories:
Raw materials......................................... 38.3 24.8
Work in process....................................... 22.6 23.4
Finished goods........................................ 46.2 27.1
-------- ------
Total inventories................................... 107.1 75.3
-------- ------
Prepaid expenses and other current assets............... 82.0 13.5
-------- ------
Total current assets................................ 533.3 315.5
Property, plant and equipment, net........................ 338.2 276.5
Intangibles, net.......................................... 730.3 221.0
Net assets held for sale.................................. 28.4 52.6
Other assets.............................................. 41.6 11.6
-------- ------
Total assets........................................ $1,671.8 $877.2
======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt..... $ 72.2 $191.7
Accounts payable........................................ 270.8 121.5
Accrued expenses........................................ 215.0 49.5
-------- ------
Total current liabilities........................... 558.0 362.7
-------- ------
Long-term debt............................................ 810.9 231.7
Other long-term liabilities............................... 29.5 16.3
-------- ------
Total liabilities................................... 1,398.4 610.7
-------- ------
Company obligated mandatorily redeemable convertible
preferred securities..................................... 250.0 --
Stockholders' equity:
Common stock, par value $0.01, authorized 50,000,000
shares, issued and outstanding 36,656,241 and
31,679,442 shares at March 31, 1998 and June 30, 1997,
respectively........................................... 0.4 0.3
Series A Preference Stock par value $0.001, authorized
5,000,000 shares, issued and outstanding 1 share at
March 31, 1998......................................... -- --
Additional paid-in capital.............................. 193.8 77.5
Warrants................................................ 1.9 --
Retained earnings....................................... (141.7) 208.0
Foreign currency translation adjustments................ (30.7) (18.8)
Unearned compensation................................... (0.3) (0.5)
-------- ------
Total stockholders' equity............................ 23.4 266.5
-------- ------
Total liabilities and stockholders' equity.......... $1,671.8 $877.2
======== ======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
F-26
<PAGE>
BREED TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
IN MILLIONS, EXCEPT EARNINGS PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31,
-----------------
1998 1997
-------- -------
<S> <C> <C>
Net sales................................................... $ 968.0 $ 550.6
Cost of sales (Note 3)...................................... 837.4 433.9
-------- -------
Gross profit................................................ 130.6 116.7
-------- -------
Operating expenses:
Selling, general and administrative expenses.............. 59.7 51.3
Research, development and engineering expenses............ 49.9 27.3
Repositioning charges (Note 3)............................ 244.0 --
In-process research and development expenses (Note 3)..... 77.5 --
Amortization of intangibles............................... 13.0 4.3
-------- -------
Total operating expenses................................ 444.1 82.9
-------- -------
Operating income (loss)..................................... (313.5) 33.8
Interest expense............................................ 63.7 17.8
Other income (expense), net................................. 2.8 4.6
-------- -------
Earnings (loss) before income taxes, distributions on
Company obligation mandatorily redeemable convertible
preferred securities and extraordinary item................ (374.4) 20.6
Income taxes (benefit) (Note 4)............................. (54.3) 8.1
Distributions on Company obligation mandatorily redeemable
convertible preferred securities........................... 5.7 --
-------- -------
Earnings (loss) before extraordinary loss................... (325.8) 12.5
Extraordinary loss, net of tax benefit of $0.4 million...... (0.7) --
-------- -------
Net earnings (loss)......................................... $ (326.5) $ 12.5
======== =======
Basic earning (loss) per common share (Note 5):
Earnings (loss) before extraordinary loss................. $ (9.90) $ 0.39
Extraordinary loss........................................ (0.02) --
-------- -------
Net earnings (loss)..................................... $ (9.92) $ 0.39
======== =======
Diluted earnings (loss) per common share:
Earnings (loss) before extraordinary loss................. $ (9.90) $ 0.39
Extraordinary loss........................................ (0.02) --
-------- -------
Net earnings (loss)--assuming dilution.................. $ (9.92) $ 0.39
======== =======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
F-27
<PAGE>
BREED TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
------------------
1998 1997
-------- --------
IN MILLIONS
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss)....................................... $ (326.5) $ 12.5
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization............................ 44.6 34.1
Non-cash items included in repositioning and other
special charges......................................... 195.9 --
Accrual for repositioning and other special charges...... 76.5 --
Changes in working capital items and other............... (20.4) 1.2
-------- --------
Net cash provided by (used in) operating activities.... (29.9) 47.8
-------- --------
Cash Flows from Investing Activities:
Cost of acquisition, net of cash acquired................. (710.0) (267.0)
Capital expenditures...................................... (50.1) (61.4)
Proceeds from sale of assets.............................. 4.2 0.1
-------- --------
Net cash used in investing activities.................. (755.9) (328.3)
-------- --------
Cash Flows from Financing Activities:
Proceeds from (repayment of) debt, net.................... 459.7 215.9
Proceeds from Series A Preference Stock issuance.......... 115.0 --
Proceeds from Series B Preference Stock issuance.......... 200.0 --
Fees associated with Series B Preference Stock issuance... (10.0) --
Redemption of Series B Preference Stock issuance.......... (200.0) --
Proceeds from Company obligated mandatorily redeemable
convertible preferred securities, less related fees...... 239.0 --
Cash dividends paid....................................... (2.2) (6.6)
Proceeds from common stock issued......................... 1.6 0.5
-------- --------
Net cash provided by financing activities.............. 803.1 209.8
-------- --------
Effect of exchange rate changes............................ (11.9) (7.0)
-------- --------
Net increase/(decrease) in cash and cash equivalents....... 5.4 (77.7)
Cash and cash equivalents at beginning of period........... 18.7 95.8
-------- --------
Cash and cash equivalents at end of period................. $ 24.1 $ 18.1
======== ========
Cost of Acquisition:
Working capital, net of cash acquired...................... $ 39.5 $ (40.7)
Property, plant and equipment.............................. (140.3) (162.9)
Cost in excess of net assets acquired...................... (683.3) (121.1)
Intangibles-write-off of in-process research and
development costs......................................... 77.5 --
Investments and other assets............................... (11.8) (19.1)
Long-term debt............................................. -- 33.9
Other long-term liabilities................................ 8.4 42.9
-------- --------
Net cost of acquisition.................................... $ (710.0) $ (267.0)
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
F-28
<PAGE>
BREED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK SERIES A SERIES B ADDITIONAL CURRENCY
------------------ PREFERENCE PREFERENCE PAID-IN RETAINED TRANSLATION UNEARNED
SHARES AMOUNT STOCK STOCK CAPITAL WARRANTS EARNINGS ADJUSTMENTS COMPENSATION TOTAL
---------- ------ ---------- ---------- ---------- -------- -------- ----------- ------------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June
30, 1997......... 31,679,442 $0.3 -- -- $ 77.5 -- $ 208.0 $(18.8) $(0.5) $266.5
Net loss........ (326.5) (326.5)
Translation
adjustments.... (11.9) (11.9)
Issue Series A
Preference
Stock.......... 115.0 115.0
Issue Series B
Preference
Stock,
(including
fees).......... 200.0 (10.0) 190.0
Redemption of
Series B
Preference
Stock.......... (200.0) (200.0)
Fees associated
with Company
obligated
mandatorily
redeemable
convertible
preferred
securities..... (11.0) (11.0)
Warrants issued
with Credit
Facility....... 1.9 1.9
Shares issued
under Stock
Option Plans... 101,793 1.6 1.6
Shares
terminated
under Stock
Incentive Plan,
net of granted
Shares......... (8,220) (0.2) 0.2 --
Cash dividends.. (2.2) (2.2)
Conversion of
Series A
Preference
Stock.......... 4,883,226 0.1 (115.0) 114.9
---------- ---- ------- ------ ------ ---- ------- ------ ----- ------
Balance at March
31, 1998......... 36,656,241 $0.4 $ -- -- $193.8 $1.9 $(141.7) $(30.7) $(0.3) $ 23.4
========== ==== ======= ====== ====== ==== ======= ====== ===== ======
</TABLE>
F-29
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Breed Technologies, Inc. (the "Company" or "Breed") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine
months ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the year ending June 30, 1998. The consolidated financial
statements include the accounts of Breed and all majority owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
year ended June 30, 1997.
Revenue Recognition--The Company recognizes revenue when title and risk of
loss transfers to its customers, which is generally upon shipment of products.
Cash and Cash Equivalents--Cash and cash equivalents include short-term
interest bearing securities with maturities of three months or less when
purchased.
Grant--The Company earned and recorded as income in 1997 a grant from the
Italian Ministry of Labor and Social Security of $1.0 million for locating a
plant in southern Italy in 1994.
NOTE 2--ACQUISITIONS
On October 30, 1997 the Company completed the acquisition of certain assets
and the assumption of certain liabilities of the "Safety Restraints Systems"
business unit of AlliedSignal, Inc. and 100% of the outstanding shares of
capital stock of ICSRD Rucckhaltesysteme Fahrzeugsicherheit GmbH, a German
company, BSRD Limited, an English company, AlliedSignal India, Inc., a
Delaware company, Sistemas AlliedSignal de Seguridad, S.A. de C.V., a Mexican
company, and AlliedSignal Cinturones de Seguridad, S.A. de C.V., a Mexican
company (collectively, "SRS"). The acquisition was made pursuant to the Asset
Purchase Agreement ("Agreement") dated August 27, 1997 among AlliedSignal,
Inc. (and certain subsidiaries identified in the Agreement) and Breed (and
certain subsidiaries identified in the Agreement).
SRS produces seatbelts and airbags with principal locations in Knoxville,
Tennessee; Maryville, Tennessee; Greenville, Alabama; St. Clair Shores,
Michigan; Sterling Heights, Michigan; Douglas, Arizona; Brownsville, Texas; El
Paso, Texas; Aqua Prieta, Mexico; Juarez, Mexico; Valle Hermoso, Mexico;
Carlisle, England; Colleferro, Italy; Turin, Italy; Siena, Italy; Arzano,
Italy; and Barcelona, Spain.
The purchase price for the SRS acquisition was $710.0 million, which was
financed with borrowings under a revolving and term credit facility, the net
proceeds from the issuance and sale of Series B Preference Securities, and the
net proceeds from the issuance and sale of Series A Preference Shares to
Siemens AG.
The Purchase price is subject to post-closing adjustments based on the net
book value of the acquired business, retained cash balances, if any, and any
amounts paid with respect to certain intercompany obligations. The initial
purchase price will be increased or decreased by the amount by which the net
book value of SRS as of the closing date is greater than or less than,
respectively, $175.3 million. The Company has submitted to AlliedSignal, Inc.
a post closing purchase price adjustment in accordance with the terms of the
agreement. The final adjustment will be determined in accordance with the
terms of the Agreement.
F-30
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
As a part of the purchase price allocation, the Company evaluated the value
of the identifiable intangible assets, including in-process research and
development (In-Process R&D). Under generally accepted accounting principles,
if the technological feasibility of the acquired technology has not been
established and the technology has no future alternative uses, such in-
process research and development must be written off ($77.5 million).
The Company identified approximately 40 In-Process R&D projects at SRS that
do not have future alternative uses, but which have a high likelihood of
obtaining technological feasibility at various times over a six month to five
year period, with a midpoint development date of approximately two years. That
In-Process R&D ($158.1 million) was recorded based on the fair value based on
the present cash value to the going concern as if SRS were sold to an
unrelated party having similar application purposes.
The estimated goodwill and preliminary allocation of purchase price to
identifiable intangible assets acquired in the SRS acquisition are summarized
as follows:
<TABLE>
<S> <C> <C>
Cash purchase price..................................... $710.0
Less:
Estimated fair value of SRS net assets acquired less
assumed liabilities.................................. $122.8
Adjustment for planned closings of facilities......... (45.0) (77.8)
------ ------
632.2
Adjustment for estimated costs of planned employee ter-
mination............................................... 16.7
Estimated costs related to the SRS acquisition.......... 15.0
Other................................................... 19.4
------
Cost in excess of net assets acquired................. 683.3
Less estimated in-process research and development...... (77.5)
------
Excess of purchase price over fair value of net assets
acquired............................................. $605.8
======
<CAPTION>
AMORTIZATION
VALUE PERIOD IN
ALLOCATED YEARS
--------- ------------
<S> <C> <C>
Trained workforce....................................... $ 10.3 10
Developed technology.................................... 158.1 22
Goodwill................................................ 437.4 40
------
$605.8
======
</TABLE>
The pro-forma unaudited results of operations for the nine months ended
March 31, 1998 and 1997, assuming the acquisition of SRS had been consummated
on the first day of the respective periods are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
IN MILLIONS, EXCEPT
PER SHARE DATA
<S> <C> <C>
Net sales................................................. $ 1,245.1 $ 1,292.2
Net income (loss)......................................... $ (349.9) $ 6.6
Net income (loss) per share--basic and diluted............ $ (10.63) $ 0.21
Net Income (loss) per share--diluted...................... $ (10.63) $ 0.18
</TABLE>
F-31
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--REPOSITIONING AND OTHER SPECIAL CHARGES
During the three months ended December 31, 1997, the Company formulated a
repositioning program designed to reduce operating costs and increase
productivity (the "Repositioning Program"). The Repositioning Program consists
primarily of a 25% planned reduction in the Company's global workforce (or
approximately 4,900 employees) through the elimination of redundant and
overlapping positions resulting from recent acquisitions, the consolidation of
the Company's manufacturing, sales and engineering facilities primarily in
North America and Europe through the closing of approximately 50% (or 32) of
its manufacturing facilities and 33% (or 10) of its sales and engineering
facilities and the disposal of certain non-core assets. It is anticipated that
approximately $73.4 million of these costs will result in cash outlays. The
Company expects the Repositioning Program to generate approximately $855
million in aggregate cumulative cost savings (which includes approximately
$780 million of cash savings), which will be realized over the five year
period ending June 30, 2002.
In connection with the Repositioning Program, the Company incurred a $244.0
million repositioning charge during the three months ended December 31, 1997,
which included the following: (i) $30.8 million relating to planned work force
reductions; (ii) $31.4 million relating to proposed facility consolidations
(not including any SRS facilities); (iii) $77.6 million relating to the write-
down of goodwill associated with the disposal of long-lived assets; (iv) $41.3
million relating to the write-down to net realizable value of certain long-
lived assets in connection with Gallino Plastics; S.r.l. ("Gallino") and (v)
$62.9 million relating to the write-down of impaired production and other
equipment and the write-off of assets used to manufacture products being
replaced by new technologies.
During the three months ended December 31, 1997, the Company began
implementing its Repositioning Program. The Company has continued to reduce
its work force, closed seven manufacturing facilities and announced plans to
close an additional facility and relocated a major portion of a Canadian
facility to a Mexican facility. These actions are expected to result in $60
million of annual ongoing cost savings to the Company under the Repositioning
Program.
As discussed above, the Company has closed or plans to close manufacturing
plants and sales and engineering facilities. During the three months ended
March 31, 1998 the property, plant and equipment at those plants and
facilities was written down from the aggregate carrying value of approximately
$139 million to $29.9 million. At March 31, 1998 the Company had closed seven
of those facilities and expects to close the remaining facilities by the end
of the third quarter of fiscal 1999. The Company has not yet reclassified the
value of property, plant and equipment closed as a part of the repositioning
program to assets held for sale because the amounts are not material. The
Company has ceased recording depreciation for any plants and facilities that
have been identified for disposal, including Gallino's non-steering wheel
business.
In addition, during the three months ended December 31, 1997, (i) in
connection with the purchase price allocation for SRS the Company incurred a
$77.5 million charge relating to the write-off of in-process research and
development for acquired technology that has not been established as
technologically feasible and (ii) the Company incurred a $28.4 million charge
against cost of sales for inventory and long-term customer contracts relating
to manufacturing processes that will be exited.
F-32
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
During the nine months ended March 31, 1998, the repositioning reserve was
reduced by $172.0 million as a result of cash and non-cash charges. The
following table sets forth the details and the cumulative activity of the
repositioning charges as of March 31, 1998:
<TABLE>
<CAPTION>
RESERVE
CHARGE TAKEN AT BALANCE AT
DECEMBER 31, CASH NON-CASH MARCH 31,
1997 REDUCTIONS REDUCTIONS 1998
--------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Headcount Reductions......... $ 30.8 $2.9 $ -- $27.9
Facility Consolidations...... 31.4 -- 14.5 16.9
Goodwill Write-down.......... 77.6 -- 77.6 --
Gallino Write-down........... 41.3 -- 41.3 --
Impaired Assets and Equipment
Write-down.................. 62.9 2.9 32.8 27.2
------ ---- ------ -----
Total.................... $244.0 $5.8 $166.2 $72.0
====== ==== ====== =====
</TABLE>
The Repositioning Plan is expected to be substantially complete at the end
of the third quarter of fiscal year 1999 (March 31, 1999) and the Company
believes the provisions recorded are adequate to cover the costs associated
with this plan.
NOTE 4--INCOME TAXES
Foreign income tax expense for fiscal 1997 was greater than the amount of
foreign income generated due to the inability to offset certain foreign losses
against foreign income. Within certain jurisdictions, such as Italy and the
United Kingdom, consolidation of certain legal entities or group relief within
a controlled group is not permitted and, thus, operating losses in one entity
will not be available to offset operating income of another commonly
controlled entity. In this case, operating losses incurred by certain of the
Company's legal entities within one taxing jurisdiction could not be used to
offset operating income of entities in other taxing jurisdictions owned by the
Company. Losses for fiscal 1997 of approximately $4 million and $2 million
were incurred by subsidiaries located in the United Kingdom and Finland,
respectively. Both of these subsidiaries are in a cumulative loss position and
no significant positive evidence exists to support realization of the deferred
tax benefit. Accordingly, a valuation allowance was recorded. As a result of
the inability to record a tax benefit on the aforementioned losses, foreign
income tax expense is greater than the amount of foreign net income generated.
Accordingly the effective tax rate for fiscal 1997 was approximately 50%.
The Company revised its estimated effective tax rate from a 45% benefit in
the first quarter of fiscal 1998 to approximately 13% in the six months ended
December 31, 1997. This change is primarily the result of: (i) the impact of
certain repositioning and other special charges (see Note 3) taken in
jurisdictions where the Company may not be able to recognize the full income
tax benefit and (ii) no tax benefit on write-down of goodwill included in the
repositioning charge. Financial Accounting Standards Statement No. 109 states
that a valuation allowance is recognized if, it is more likely than not, some
portion or all of the deferred tax asset will not be realized. Because of
limitations on the utilization of net operating losses from foreign
jurisdictions, a valuation allowance for a portion of the deferred income tax
benefit related to the repositioning and the other special charges has been
recorded.
The Company revised its effective tax rate to a benefit of approximately 65%
for the third quarter of fiscal 1998. This change is primarily the result of
income in the third quarter in certain European taxing jurisdictions where the
Company had previously recorded a 100% valuation allowance so that the income
had no associated income tax expense. The net effect is a tax benefit
percentage greater than the expected statutory rate. The Company expects this
trend to continue in the fourth quarter of fiscal 1998.
F-33
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--EARNING PER SHARE
The following table sets forth the computation of the numerator and
denominator of the basic and diluted per share calculations:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Numerator:
Net earnings (loss)................................... $ (326.5) $ 12.5
---------- ----------
Numerator for basic earnings per share-income
available to common stockholders..................... (326.5) 12.5
---------- ----------
Effect of dilutive securities:
Company obligated mandatorily redeemable convertible
preferred securities, net of tax benefit............. * --
---------- ----------
Numerator for diluted earnings per share-income
available to common stockholders after assumed
conversions.......................................... $ (326.5) $ 12.5
---------- ----------
Denominator:
Denominator for basic earnings per share- weighted-
average shares....................................... 32,922,510 31,643,055
---------- ----------
Effect of dilutive securities:
Employee stock options................................ * 269,276
Series A Preference Stock............................. * --
Company obligated mandatorily redeemable convertible
preferred securities................................. * --
---------- ----------
Dilutive potential common shares...................... -- 269,276
---------- ----------
Denominator for diluted earnings per share- adjusted
weighted-average shares and assumed conversions...... 32,922,510 31,912,331
========== ==========
</TABLE>
- --------
* Items not assumed in the computation because their effect is anti-dilutive.
Each Company Obligated Mandatory Redeemable Convertible Preferred Security
is convertible, at the option of the holder, into shares of the Company's
common stock, at a conversion rate of 2.1973 shares of common stock for each
Preferred Security, subject to adjustment in certain circumstances.
Options to purchase 1,232,031 shares of common stock at prices between
$20.375 and $32.25 per share were outstanding as of March 31, 1998 but were
not included in the computation of diluted earnings per share because the
exercise prices were greater than the average market price of the common
shares and, therefore, the effect would be anti-dilutive.
As part of the acquisition of VTI in June 1995, the Company issued to
certain of the former stockholders of VTI warrants to purchase up to 100,000
shares of common stock between July 1, 1998 and June 30, 2000, at an exercise
price of $25.75 per share. The 100,000 warrants have not been included in the
computation of diluted earnings per share for the three and nine months ended
March 31, 1998 because the effect would be anti-dilutive.
In connection with the bridge loan credit facility entered into in
connection with the acquisition of SRS, the Company issued to NationsBank,
National Association ("NationsBank"), a warrant to purchase 250,000 shares of
common stock of the Company at an exercise price of $23.125 per share. The
250,000 warrants have not been included in the computation of diluted earnings
per share for the three and nine months ended March 31, 1998 because the
effect would be anti-dilutive.
F-34
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--SUBSEQUENT EVENTS
On April 28, 1998, the Company completed the refinancing of its bridge loan
credit facility with a $675 million long-term senior credit facility ("New
Credit Facility"), and completed an offering of $330 million of its 9.25%
senior subordinated notes ("Notes"). Borrowings under the New Credit Facility
together with the net proceeds of the Notes offering were used to repay all
borrowings outstanding under the bridge loan credit facility the Company
obtained to finance in part the SRS acquisition.
New Credit Facility--The New Credit Facility entered into with NationsBank,
as Agent and as Lender, consists of (1) a revolving credit facility of up to
$150.0 million (the "Revolving Credit Facility") (which was not drawn at
closing, except for approximately $10.0 million of Letters of Credit), (2) a
term loan in the amount of $325.0 million ("Term Loan A") and (3) a term loan
in the amount of $200.0 million ("Term Loan B", and together with Term Loan A,
the "Term Loans"). The Revolving Credit Facility includes (a) a $25.0 million
sublimit for the issuance of standby letters of credit, (b) a $75.0 million
sublimit for foreign currency denominated borrowings and (c) a $20.0 million
sublimit for swing line loans to be provided by NationsBank ("Swing Line
Loans"). All amounts outstanding under the Revolving Credit Facility are
payable on the sixth anniversary of the closing of the New Credit Facility.
Term Loan A is payable in quarterly installments, subject to annual
amortization, based on a principal amount equal to $325.0 million, ranging
from $27.5 million for the fiscal year 1999 to $97.5 million for the fiscal
year 2004. Term Loan B is payable in annual installments, subject to annual
amortization, based on a principal amount equal to $200.0 million, ranging
from $1.3 million for the fiscal year 1999 to $96.3 million for the fiscal
year 2006.
Interest accrues on the loans made under the Revolving Credit Facility
(other than Swing Line Loans) and on Term Loan A at either LIBOR plus a
specified margin ranging from 1.125% to 2.125%, or the base rate, which is the
higher of NationsBank's prime rate and the federal funds rate plus 0.50% (the
"Base Rate"), plus a specified margin ranging from 0.125% to 1.125%, at the
Company's option. Interest accrues on Term Loan B at either LIBOR plus a
specified margin ranging from 1.75% to 2.375%, or the Base Rate plus a
specified margin ranging from 0.75% to 1.375%, at the Company's option. Swing
Line Loans will bear interest at the Base Rate plus a specified margin ranging
from 0.125% to 2.125%. The applicable margins will be determined by reference
to a leverage ratio of the Company and its subsidiaries.
The aggregate amount outstanding under the New Credit Facility will be
prepaid by amounts equal to the net proceeds, or a specified portion thereof,
from certain indebtedness and equity issuances and specified asset sales by
the Company and its subsidiaries, and by a specified percentage of cash flow
in excess of certain expenditures, costs and payments. The Company may at its
option reduce the amount available under the New Credit Facility to the extent
such amounts are unused or prepaid in certain minimum amounts, provided that
any holder of Term Loan B shall have, under certain circumstances, the right
to refuse to permit the Company to optionally prepay all or any portion of
Term Loan B.
The New Credit Facility is secured by a security interest in substantially
all of the real and personal property, tangible and intangible, of the Company
and its domestic subsidiaries as well as a pledge of all of the stock of such
domestic subsidiaries, a pledge of not less than 65% of the voting stock and
all of the non-voting common stock of each direct foreign subsidiary of the
Company and each direct foreign subsidiary of each domestic subsidiary of the
Company, and a pledge of all of the capital stock of any subsidiary of a
subsidiary of the Company that is a borrower under the New Credit Facility.
The security interest, other than the pledge of stock, will be released if the
unsecured long-term indebtedness of the Company has received certain minimum
rating or the leverage ratio of the Company and its subsidiaries has decreased
below a certain threshold. The New Credit Facility is guaranteed by all of the
domestic subsidiaries of the Company.
F-35
<PAGE>
BREED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The New Credit Facility contains a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, prepay other indebtedness, pay dividends,
repurchase or redeem capital stock, enter into certain investments or create
new subsidiaries, enter into sale and lease-back transactions, make certain
acquisitions, engage in mergers or consolidations, create liens, make capital
expenditures, or engage in certain transactions with affiliates, and that
otherwise restrict corporate and business activities. In addition, under the
New Credit Facility, the Company is required to comply with specified
financial ratios and tests, including a minimum net worth test, a fixed charge
coverage ratio, an interest coverage ratio and a leverage ratio.
Senior Subordinated Notes--The Notes bear interest at 9.25% and mature on
April 15, 2008, unless previously redeemed. Interest on the Notes is payable
semiannually on April 15 and October 15 of each year, commencing October 15,
1998. The Notes are redeemable, in whole or in part, at the option of the
Company at any time on or after April 15, 2003, at certain redemption prices,
plus accrued and unpaid interest to the date of redemption. In addition, at
any time on or prior to April 15, 2001, the Company may redeem Notes with the
net proceeds of one or more equity offerings at a redemption price equal to
109.25% of the principal amount thereof, plus accrued and unpaid interest to
the date of redemption, provided that at least 65% of the aggregate principal
amount of Notes issued remains outstanding after each such redemption. Upon a
change of control, the Company will be required to make an offer to repurchase
all outstanding Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of repurchase.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness (as defined in
the related Indenture) of the Company, including indebtedness incurred
pursuant to the New Credit Facility. The Notes rank pari passu in right of
payment with all future senior subordinated indebtedness of the Company, if
any, and rank senior in right of payment to all future subordinated
indebtedness of the Company, if any. The Notes are guaranteed, on a senior
subordinated basis, by the active domestic subsidiaries of the Company (the
"Subsidiary Guarantors") other than BTI Capital Trust and certain domestic
subsidiaries owned by a foreign subsidiary of the Company. The Notes are
effectively subordinated in right of payment to all indebtedness and other
liabilities (including trade payables) of the Company's subsidiaries that are
not Subsidiary Guarantors.
The maturities of long-term debt at March 31, 1998 reflect the terms of the
New Credit Facility and the Notes.
If the refinancing had occurred on the later of the first day of the
respective periods, or on the date the bridge loan credit facility was entered
into, the pro forma net earnings (loss) for the third quarter and nine months
ended March 31, 1998 would have been $1.7 million, $0.05 a share, and $(316.0)
million, $(9.60) a share, respectively, as compared to actual net earnings
(loss) of $(2.4) million, $(0.07) a share and $(326.5) million, $(9.92) a
share. The following is the unaudited pro forma condensed consolidated
statement of operations:
F-36
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Pro-forma
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
In millions, except earnings 31, NINE MONTHS ENDED MARCH 31,
per share ---------------------------- ------------------------------
ACTUAL ADJUSTMENTS PROFORMA ACTUAL ADJUSTMENTS PROFORMA
------ ----------- -------- -------- ----------- --------
1998 1998 1998 1998
------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $431.7 $431.7 $ 968.0 $ 968.0
Cost of sales............... 357.3 357.3 837.4 837.4
------ ----- ------ -------- ------ -------
Gross profit............ 74.4 -- 74.4 130.6 -- 130.6
Total operating expenses.... 51.5 -- 51.5 444.1 -- 441.1
------ ----- ------ -------- ------ -------
Operating income
(loss)................. 22.9 22.9 (313.5) (313.5)
Interest expense............ 28.2 (6.4) 21.8 63.7 (16.4) 47.3
Other income (expense),
net........................ 2.8 2.8 2.8 2.8
------ ----- ------ -------- ------ -------
Earnings (loss before
income taxes,
distribution on Company
obligated mandatorily
redeemable convertible
preferred securities and
extraordinary loss....... (2.5) 6.4 3.9 (374.4) 16.4 (358.0)
Income taxes (benefit)...... (4.4) 2.3 (2.1) (54.3) 5.9 (48.4)
Distributions on Company
obligated mandatorily
redeemable convertible
preferred securities....... 4.3 4.3 5.7 5.7
------ ----- ------ -------- ------ -------
Earnings (loss) before
extraordinary loss....... (2.4) 4.1 1.7 (325.8) 10.5 (315.3)
Extraordinary loss, net of
tax benefit of $0.4
million.................... -- (0.7) (0.7)
------ ----- ------ -------- ------ -------
Net earnings (loss)..... $ (2.4) $ 4.1 $ 1.7 $ (326.5) $ 10.5 $(316.0)
====== ===== ====== ======== ====== =======
Earnings (loss) per common
share:
Earnings (loss) before
extraordinary loss....... $(0.07) $ 0.05 $ (9.90) $ (9.58)
Extraordinary loss........ -- -- (0.02) (0.02)
------ ----- ------ -------- ------ -------
Net earnings (loss) per
common share........... $(0.07) $ 0.05 $ (9.92) $ (9.60)
====== ===== ====== ======== ====== =======
</TABLE>
The pro-forma adjustment is attributable to lower interest costs and bank
fees associated with the new capital structure put in place on April 28, 1998.
NOTE 7--FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through
subsidiaries. The Notes of the Company are guaranteed, jointly and severally
on a senior subordinated basis, by the domestic subsidiaries of the Company
other than BTI Capital Trust and certain domestic subsidiaries owned by a
foreign subsidiary of the Company. BTI Capital Trust, such domestic
subsidiaries owned by a foreign subsidiary and the foreign subsidiaries of the
Company have not guaranteed the Notes (the "Non-Guarantor Subsidiaries"). The
Notes will be effectively subordinated in right of payment to all indebtedness
and other liabilities (including trade payables) of the Non-Guarantor
Subsidiaries.
F-37
<PAGE>
Presented below are a condensed consolidating balance sheet as of March 31,
1998, a condensed consolidating statement of operations for the nine months
ended March 31, 1998 and a condensed consolidating statement of cash flows for
the nine months ended March 31, 1998, for the Subsidiary Guarantors, the Non-
Guarantor Subsidiaries and the Company consolidated.
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
NON-
SUBSIDIARY GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
In millions ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.... $ 5.6 $ 18.5 $ -- $ 24.1
Accounts receivable, net..... 466.8 215.8 (362.5) 320.1
Inventories.................. 61.2 45.9 -- 107.1
Other current assets......... 56.8 25.2 -- 82.0
-------- ------ --------- --------
Total current assets...... 590.4 305.4 (362.5) 533.3
Property, plant and
equipment, net.............. 212.0 126.2 -- 338.2
Intangibles, net............. 614.7 115.6 -- 730.3
Net assets held for sale..... -- 28.4 -- 28.4
Other assets................. 1,038.1 2.6 (999.1) 41.6
-------- ------ --------- --------
Total assets.............. $2,455.2 $578.2 $(1,361.6) $1,671.8
======== ====== ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Notes Payable and current
portion of long-term debt.. $ 20.4 $ 51.8 $ -- $ 72.2
Accounts payable............ 105.4 165.4 -- 270.8
Accrued expenses............ 325.1 214.2 (324.3) 215.0
-------- ------ --------- --------
Total current
liabilities.............. 450.9 431.4 (324.3) 558.0
Long-term debt............... 781.7 29.2 -- 810.9
Other long-term liabilities.. 13.6 15.9 -- 29.5
-------- ------ --------- --------
Total liabilities......... $1,246.2 $476.5 $ (324.3) $1,398.4
Company obligated mandatorily
redeemable convertible
preferred securities........ 250.0 -- -- 250.0
Stockholders' equity 959.0 101.7 (1,037.3) 23.4
-------- ------ --------- --------
Total liabilities and
stockholder's equity..... $2,455.2 $578.2 $(1,361.6) $1,671.8
======== ====== ========= ========
</TABLE>
F-38
<PAGE>
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
In millions ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales................... $ 567.8 $ 488.1 $(87.9) $ 968.0
Cost of sales............... 494.2 431.1 (87.9) 837.4
------- ------- ------ -------
Gross profit............. 73.6 57.0 -- 130.6
------- ------- ------ -------
Selling, general and
administrative expenses.... 29.9 29.8 -- 59.7
Research, development, and
engineering................ 37.3 12.6 -- 49.9
Repositioning Charges....... 78.5 165.5 -- 244.0
In-process research and
development expenses....... 77.5 -- -- 77.5
Amortization of
intangibles................ 10.6 2.4 -- 13.0
------- ------- ------ -------
Operating (loss)......... (160.2) (153.3) -- (313.5)
Interest expense............ 58.0 5.7 -- 63.7
Other income (expense),
net........................ 2.8 0.2 (0.2) 2.8
------- ------- ------ -------
Earnings (loss) before
income taxes,
distributions on Company
obligated mandatorily
redeemable convertible
preferred securities and
extraordinary item........ (215.4) 158.8 (0.2) (374.4)
Income tax (benefit)........ (49.8) (4.5) -- (54.3)
Distributions on Company
obligated mandatorily
redeemable convertible
preferred securities....... 5.7 -- -- 5.7
------- ------- ------ -------
Earnings (loss) before
extraordinary loss....... (171.3) (154.3) (0.2) (325.8)
------- ------- ------ -------
Extraordinary loss, net of
tax benefit of $0.4
million.................... 0.7 -- -- 0.7
------- ------- ------ -------
Net earnings (loss)....... $(172.0) $(154.3) $ (0.2) $(326.5)
======= ======= ====== =======
</TABLE>
F-39
<PAGE>
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
In millions ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings (loss)......... $(172.0) $(154.3) $(0.2) $(326.5)
Adjustments to reconcile net
cash used in operating
activities:
Depreciation and
amortization............... 26.0 18.6 -- 44.6
Non-cash items included in
and accrual for
repositioning and other
special charges............ 137.8 134.6 -- 272.4
Changes in working capital
items and other............ (124.1) 103.5 0.2 (20.4)
------- ------- ----- -------
Net cash provided by (used
in) operating activities... (132.3) 102.4 -- (29.9)
------- ------- ----- -------
Cash flows from investing
activities:
Cost of acquisitions, net of
cash acquired.............. (638.8) (71.2) -- (710.0)
Capital expenditures........ (11.6) (38.5) -- (50.1)
Proceeds from sale of assets
and equipment.............. 1.9 2.3 -- 4.2
------- ------- ----- -------
Net cash provided by (used
in) investing activities... (648.5) (107.4) -- (755.9)
------- ------- ----- -------
Cash flows from financing
activities:
Net change in debt.......... 444.3 15.4 -- 459.7
Net change in equity........ 343.4 -- -- 343.4
------- ------- ----- -------
Net cash provided by (used
in) financing activities.. 787.7 15.4 -- 801.3
------- ------- ----- -------
Effects of exchange rate
changes on cash............. -- (11.9) -- (11.9)
------- ------- ----- -------
Increase (decrease) in cash
and cash equivalents........ 6.9 (1.5) -- 5.4
Cash and cash equivalents at
beginning of year........... (1.3) 20.0 -- 18.7
------- ------- ----- -------
Cash and cash equivalents at
end of year................. $ 5.6 $ 18.5 $ -- $ 24.1
======= ======= ===== =======
</TABLE>
F-40
<PAGE>
NOTE 8--FOREIGN OPERATIONS
The following financial information relates to operations in different
geographic areas:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
1998 1997 1996 1995
In millions --------------- ------ ------ ------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers:
North America........................... $ 594.8 $379.3 $324.6 $345.6
Europe.................................. 373.2 415.6 107.1 55.4
-------- ------ ------ ------
Total net sales......................... $ 968.0 $794.9 $431.7 $401.0
-------- ------ ------ ------
Earnings before income taxes,
distributions on Company obligated
mandatorily convertible preferred
securities and extraordinary item
Operating income:
North America.......................... $ (202.6) $ 46.6 $ 88.4 $100.5
Europe................................. (110.9) 4.0 2.4 4.0
Other income (expense), net............. (60.9) (21.0) 7.5 5.6
-------- ------ ------ ------
Earnings before income taxes............ $ (374.4) $ 29.6 $ 98.3 $110.1
-------- ------ ------ ------
Identifiable assets:
North America.......................... $1,210.3 $466.6 $284.5 $240.3
Europe................................. 461.5 410.6 219.3 38.4
-------- ------ ------ ------
Total assets............................ $1,671.8 $877.2 $503.8 $278.7
======== ====== ====== ======
</TABLE>
Fiscal year 1996 includes only three months of operations of MOMO, S.p.A.
which was acquired in April 1996. Fiscal year 1997 includes the acquisition of
Gallino in July 1996, United Steering Systems in October 1996 and Custom Trim
in February 1997. The nine months ended March 31, 1998 include the acquisition
of SRS in October 1997.
NOTE 9--DIVIDENDS
On October 17, 1997 the Board of Directors decided to suspend future
dividend payments in view of the acquisition of SRS and the related financing
transactions.
Under terms of the New Credit Facility entered into on April 28, 1998, the
Company is obligated not to make restricted payments (as defined in the credit
agreement) including dividends, until the consolidated leverage ratio is equal
to or less than 3.50 to 1.00 as at the end of the four-quarter period most
recently then ended. The Company does not presently meet this standard and it
is unclear when it will be met.
F-41
<PAGE>
NOTE 10--STOCK OPTIONS
The Company adopted Statement of Financial Accounting Standards No. 123
(SFAS 123) "Accounting for Stock-Based Compensation", in fiscal 1997, but
elected to continue to measure compensation cost using the intrinsic value
method, in accordance with APB Option No. 25, "Accounting for Stock issued to
Employees". Accordingly no compensation cost for stock options has been
recognized in fiscal year 1996 or 1997. If the Company had accounted for its
options under the fair value method of SFAS 123 in fiscal year 1997 and 1996,
net income would have been reduced by $0.6 million and $0.3 million for the
years ended June 30, 1997 and 1996, respectively, to the pro-forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
-----------
1997 1996
----- -----
<S> <C> <C>
Net earnings in millions........................................... $14.3 $62.7
Earnings per common share.......................................... $0.45 $1.99
</TABLE>
NOTE 11--LEASES
The Company owns most of its major facilities, but does lease certain
office, factory and warehouse space and data processing and other equipment
under principally noncancelable operating leases. The minimum rental
commitments under these noncancelable operating leases is immaterial.
NOTE 12--REVENUE BY CLASS OF SIMILAR PRODUCT
The following is a summary of revenue by class of similar product for the
last three fiscal years and for the nine months ended March 31, 1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1998 1997 1996 1995
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
Electronics and sensors..................... 16% 34% 70% 85%
Airbag systems.............................. 22 9 23 14
Steering wheels............................. 28 33 5 --
Interior and plastics....................... 13 23 -- --
Seatbelts................................... 20 -- -- --
Other....................................... 1 1 2 1
</TABLE>
F-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners and
Directors of AlliedSignal Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and of cash flows present fairly, in all
material respects, the financial position of Safety Restraint Systems, a
Division of AlliedSignal Inc. (the Company), at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the management of the Company; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
The Company, as disclosed in Note 2 to the accompanying financial
statements, is a member of the AlliedSignal Inc. group of affiliated companies
and has extensive transactions and relationships with AlliedSignal Inc.
Because of these relationships, it is possible that the terms of these
transactions are not the same as those that would result from transactions
among wholly unrelated parties.
As discussed in Note 19, on October 30, 1997, AlliedSignal Inc. sold certain
net assets of the Safety Restraint Systems division to Breed Technologies,
Inc. The accompanying financial statements do not give effect to this purchase
transaction.
Price Waterhouse LLP
Detroit, Michigan
October 31, 1997
F-43
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1997 1996 1995
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................... $ 22,441 $ 30,883 $ 7,955
Accounts and notes receivable, net.......... 129,883 113,377 119,335
Inventories................................. 45,174 50,688 52,973
Other current assets........................ 26,139 22,359 24,489
-------- -------- --------
Total current assets...................... 223,637 217,307 204,752
Property, plant and equipment, net............ 154,423 146,674 131,029
Cost in excess of net assets of acquired
companies, net............................... 48,739 52,262 55,069
Other assets.................................. 17,890 13,495 19,928
-------- -------- --------
Total assets.............................. $444,689 $429,738 $410,778
======== ======== ========
LIABILITIES AND ALLIEDSIGNAL INC. INVESTMENT
Current liabilities
Accounts payable--trade..................... $139,546 $134,912 $130,603
Accounts payable--related party............. -- 4,149 3,736
Accrued liabilities......................... 43,882 48,754 47,673
-------- -------- --------
Total current liabilities................. 183,428 187,815 182,012
Deferred income taxes......................... 14,653 14,660 12,393
Other liabilities............................. 19,784 19,738 22,639
-------- -------- --------
Total liabilities......................... 217,865 222,213 217,044
Commitments and contingencies
Cumulative foreign exchange translation
adjustment................................. (2,284) 1,528 489
AlliedSignal Inc. investment................ 229,108 205,997 193,245
-------- -------- --------
Total liabilities and AlliedSignal Inc.
investment............................... $444,689 $429,738 $410,778
======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-44
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ---------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales
Trade sales................ $673,016 $705,865 $940,152 $872,589 $747,336
Intercompany sales......... 5,300 10,011 11,124 10,249 --
-------- -------- -------- -------- --------
678,316 715,876 951,276 882,838 747,336
-------- -------- -------- -------- --------
Cost of goods sold........... 608,300 630,888 849,778 781,924 671,942
Selling, general and adminis-
trative expense............. 30,620 32,415 42,052 35,817 30,847
-------- -------- -------- -------- --------
Income from operations... 39,396 52,573 59,446 65,097 44,547
-------- -------- -------- -------- --------
Equity in income (loss) of
affiliated companies........ 375 1,721 2,221 (2,527) (191)
Other income (expense), net.. (3,176) (3,284) 4,764 (3,029) (3,858)
-------- -------- -------- -------- --------
Income before taxes on in-
come........................ 36,595 51,010 66,431 59,541 40,498
Taxes on income.............. 15,035 21,006 25,448 21,281 15,589
-------- -------- -------- -------- --------
Net income............... $ 21,560 $ 30,004 $ 40,983 $ 38,260 $ 24,909
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-45
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ -----------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income.................. $ 21,560 $ 30,004 $ 40,983 $ 38,260 $ 24,909
Adjustments to reconcile net
income to net cash provided
by (used for) operating
activities:
Depreciation and
amortization (includes
costs in excess of net
assets of acquired
companies, net)........... 21,015 18,737 26,243 21,530 17,514
Gain on sale of
investment................ (8,947)
Undistributed earnings of
equity affiliates......... (375) (1,721) (2,221) 2,527 191
Deferred income taxes...... (807) 1,740 4,433 7,036 (3,322)
Changes in assets and
liabilities (net of
acquisitions):
Accounts and notes
receivable............... (16,506) (6,665) 5,958 14,091 (2,613)
Inventories............... 5,514 (7,327) 2,285 (3,555) 27,421
Other current assets...... (3,675) (3,363) 235 1,129 (665)
Accounts payable.......... 485 2,766 4,722 3,024 23,051
Accrued liabilities....... (4,872) 5,221 1,081 (3,131) (4,857)
Other..................... (3,382) 3,748 260 (14,483) (10,272)
-------- -------- -------- -------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES... $ 18,957 $ 43,140 $ 75,032 $ 66,428 $ 71,357
======== ======== ======== ======== =========
CASH FLOWS FROM INVESTING
ACTIVITIES
Expenditures for property,
plant and equipment........ $(29,422) $(27,694) $(34,983) $(32,038) $ (26,088)
Proceeds from disposal of
property, plant and
equipment.................. 331 464 838 466 3,188
Proceeds from sale of
investment................. -- -- 11,000 -- --
Capital contribution in
equity investment.......... 141 -- (728) (2,030) (2,133)
Cash paid for acquisitions.. -- -- -- -- (80,936)
-------- -------- -------- -------- ---------
NET CASH USED FOR
INVESTING ACTIVITIES... (28,950) (27,230) (23,873) (33,602) (105,969)
-------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Intercompany activity....... 1,551 6,218 (28,231) (25,492) 34,560
-------- -------- -------- -------- ---------
NET CASH PROVIDED BY
(USED FOR) FINANCING
ACTIVITIES............. 1,551 6,218 (28,231) (25,492) 34,560
-------- -------- -------- -------- ---------
NET (DECREASE) INCREASE IN
CASH....................... (8,442) 22,128 22,928 7,334 (52)
Cash at beginning of the
period..................... 30,883 7,955 7,955 621 673
-------- -------- -------- -------- ---------
Cash at end of the period... $ 22,441 $ 30,083 $ 30,883 $ 7,955 $ 621
======== ======== ======== ======== =========
</TABLE>
See accompanying notes to financial statements
F-46
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
Safety Restraint Systems, a Division of AlliedSignal Inc. (SRS) is an
international supplier of safety restraint systems to automotive and truck
original equipment manufacturers (OEMs) in North America, Europe and Asia.
Major products include seat belt assemblies, pretensioners, seat-integrated
belts, integrated child seats and air bag systems, including air bag modules,
inflators and cushions. Sales to two major customers, approximated 32% and
27%, respectively, of net sales in 1996, 28% and 25%, respectively of net
sales in 1995 and 25% and 37%, respectively, of net sales in 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The combined financial statements of SRS are comprised of the North American
Safety Restraint Systems business of AlliedSignal, Inc., AlliedSignal Sistemi
Di Sicurezza, AlliedSignal Sistemas de Seguridad, S.A., Sistemas AlliedSignal
de Seguridad, S.A. de C.V., AlliedSignal Cinturones de Seguridad, S.A. de
C.V., the Safety Restraint Systems business of BSRD Limited, ICSRD
Rueckhaltesysteme Fahrzeugsicherheit Gmbh, AlliedSignal India, Inc., and their
joint venture interests in Bag, S.p.A., Morton Bendix, Bendix Atlantic
Inflator Company and Jaybharat-AlliedSignal Ltd. The combined financial
statements of SRS have been prepared on a carve-out basis and present the
historical financial position, results of operations and cash flows of SRS
previously included in the AlliedSignal Inc. (AlliedSignal) consolidated
financial statements. SRS financial information included herein is not
necessarily indicative of its financial position, results of operations and
cash flows in the future, or of the results which would have been reported if
SRS had operated as an unaffiliated enterprise.
The preparation of combined financial statements on a carve-out basis in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Transactions between SRS and AlliedSignal (and other AlliedSignal business
units) are herein referred to as "intercompany" or "related party"
transactions.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose SRS to a concentration of
credit risk consist primarily of accounts receivable. SRS does not require
collateral from its customers. To minimize this risk, ongoing credit
evaluations of customers' financial condition are performed.
At December 31, 1996 and 1995, approximately 49% and 42%, respectively, of
trade accounts receivable were from two major OEM customers. SRS may be
impacted significantly by the economic stability of the OEMs as well as the
automotive and truck industries, or by the loss of an OEM customer.
FINANCIAL INSTRUMENTS
The carrying value of SRS's financial instruments, comprising cash, accounts
receivable, accounts payable and accrued liabilities, approximate their fair
values.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and on deposit as well as
highly-liquid debt instruments with maturities generally of three months or
less. Cash payments for foreign income taxes during the years 1996, 1995 and
1994 were $1,301, $1,892 and $2,284, respectively.
F-47
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market using the first in,
first out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and are generally
depreciated using estimated service lives. Depreciation is computed
principally on the straight-line method.
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES, NET
Cost in excess of net assets of acquired companies, net is being amortized
on a straight-line basis over 25 years. The cumulative amount of cost in
excess of net assets of acquired companies, amortized at December 31, 1996 and
1995 is $6,693 and $3,465, respectively.
VALUATION OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be disposed of, SRS periodically evaluates the carrying value of long-lived
assets to be held and used, including costs in excess of net assets of
acquired companies, when events and circumstances warrant such a review. The
carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately identifiable
and is less than its carrying value. In that event, a loss is recognized based
on the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk
involved.
REVENUE RECOGNITION
Sales and related cost of sales are recognized upon the shipment of
products. Sales are recorded net of estimated returns and allowances.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
Research, development and engineering expenses related to design and
development of new products and planning and design for new processes, are
expensed as incurred. Such amounts approximated $45,179, $38,938 and $30,873
in 1996, 1995 and 1994, respectively, and are included in cost of goods sold
in the combined statements of operations.
INCOME TAXES
SRS is included in the consolidated U.S. federal income tax return of
AlliedSignal. In preparing its combined financial statements, SRS has
determined its tax provision on a separate return basis. Deferred tax
liabilities or assets reflect the impact of temporary differences between
amounts of assets and liabilities for financial and tax reporting. Such
amounts are subsequently adjusted, as appropriate, to reflect changes in tax
rates expected to be in effect when the temporary differences reverse.
INTERIM FINANCIAL INFORMATION
The interim financial data as of September 30, 1997 and for the nine months
ended September 30, 1997 and 1996 is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results
for the interim periods.
F-48
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INTERCOMPANY TRANSACTIONS AND ALLOCATIONS
CASH MANAGEMENT
SRS utilizes AlliedSignal centralized cash management services. Under this
arrangement, SRS' accounts receivable are collected and its cash disbursements
are funded by AlliedSignal on a daily basis. Net activity between AlliedSignal
and SRS is reflected in AlliedSignal's investment in SRS.
ALLOCATED CORPORATE SERVICES
AlliedSignal allocates costs associated with certain corporate overhead,
such as risk management, human resources, corporate law, corporate finance and
accounting, treasury and public affairs to its business units through a
corporate assessment charge which is generally allocated based on sales or net
investment. Charges from AlliedSignal for such costs aggregated $16,525,
$10,419 and $8,828 for the years ended December 31, 1996, 1995 and 1994,
respectively, and are included in selling, general and administrative expense
in the accompanying statements of operations.
AlliedSignal also manages employee medical, dental, life insurance, and
workers' compensation benefits on a consolidated basis. AlliedSignal charges
SRS for its share of such employee-related costs based upon SRS' estimated
experience or headcount, depending on the nature of the cost. Charges from
AlliedSignal for such costs aggregated $13,302, $9,908 and $9,260 for the
years ended December 31, 1996, 1995 and 1994, respectively, and are included
in cost of sales in the accompanying statements of operations.
AlliedSignal Business Services provides various information systems
assistance, employee payroll processing, travel and expense processing,
accounts payable, payment processing, general ledger maintenance and project
tracking assistance to SRS and other related units. These costs are allocated
to SRS based on certain criteria, including invoices or checks processed,
headcount, general ledger line items maintained, predetermined rates or on
actual services provided. Charges from AlliedSignal Business Services for such
costs aggregated $4,384, $3,696 and $2,949 for the years ended December 31,
1996, 1995 and 1994, respectively, and are included in selling, general and
administrative expenses in the accompanying statements of operations.
Management believes that the methods utilized to allocate costs to SRS, as
discussed above, are reasonable. However, the terms of transactions between
SRS and AlliedSignal, including allocated costs, may differ from those that
would result from transactions with unrelated parties.
INTERCOMPANY SALES
Gross profit on intercompany sales approximated $2,225 and $2,050 in 1996
and 1995, respectively.
4. OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest (expense)/income, net................... $(1,265) $ (29) $ 1,359
Foreign exchange................................. (45) (165) (259)
Gain on sale of investment....................... 8,947 -- --
Other............................................ (2,873) (2,835) (4,958)
------- ------- -------
$ 4,764 $(3,029) $(3,858)
======= ======= =======
</TABLE>
F-49
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. TAXES ON INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income before taxes on income
United States.................................... $59,782 $56,062 $40,640
Foreign.......................................... 6,649 3,479 (142)
------- ------- -------
$66,431 $59,541 $40,498
======= ======= =======
Taxes on income
United States.................................... $23,376 $20,518 $15,522
Foreign.......................................... 2,072 763 67
------- ------- -------
$25,448 $21,281 $15,589
======= ======= =======
Taxes on income consist of
Current
United States.................................... $19,921 $13,528 $15,604
Foreign.......................................... 1,094 717 3,307
------- ------- -------
$21,015 $14,245 $18,911
======= ======= =======
Deferred
United States.................................... $ 3,455 $ 6,990 $ (82)
Foreign.......................................... 978 46 (3,240)
------- ------- -------
$ 4,433 $ 7,036 $(3,322)
======= ======= =======
</TABLE>
The principal items accounting for the difference in taxes on income computed
at the U.S. statutory rate and as recorded on an overall basis are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate........ 35.0% 35.0% 35.0%
------- ------- -------
Taxes on foreign earnings over (under) U.S.
tax rate..................................... (.4)% (.8)% .3%
Nondeductible amortization.................... .3 .4 .2
State income taxes, net of federal benefit.... 3.5 3.6 3.9
Tax benefits of Foreign Sales Corporation..... (1.5) (1.7) (2.2)
All other items, net.......................... 1.4 (.8) 1.3
------- ------- -------
38.3% 35.7% 38.5%
======= ======= =======
</TABLE>
DEFERRED INCOME TAXES
Included in the following balance sheet accounts:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- --------
<S> <C> <C>
Other current assets...................................... $17,683 $ 19,578
Other assets.............................................. 257 528
Deferred income taxes..................................... (14,660) (12,393)
------- --------
$ 3,280 $ 7,713
======= ========
</TABLE>
F-50
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DEFERRED TAX ASSETS (LIABILITIES)
The temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Property, plant and equipment basis differences......... $(13,729) $(11,990)
Postemployment benefits................................. 3,320 1,960
Inventory reserves...................................... 2,878 2,570
Accrued liabilities..................................... 9,558 12,122
Foreign net operating losses............................ 1,413 2,619
All other items, net.................................... (160) 432
-------- --------
$ 3,280 $ 7,713
======== ========
</TABLE>
6. ACCOUNTS AND NOTES RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Trade.................................................... $ 78,344 $ 88,276
Billed tooling........................................... 5,459 6,578
Related parties.......................................... 3,357 2,474
Unbilled tooling......................................... 14,574 10,216
Other.................................................... 12,890 12,768
-------- --------
114,624 120,312
Less--allowance for doubtful accounts.................... (1,247) (977)
-------- --------
$113,377 $119,335
======== ========
</TABLE>
In North America, SRS participates in certain AlliedSignal arrangements
under which AlliedSignal can sell undivided interests in designated pools of
trade accounts receivable. AlliedSignal acts as an agent for the purchasers in
the collection and administration of the receivables. Accounts and notes
receivable have not been adjusted to reflect participation in these
arrangements. Additionally, in Europe, SRS periodically sells trade accounts
receivable. The combined balance sheets have been reduced by $36,477 and
$17,001 in 1996 and 1995, respectively, reflecting such sales.
7. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1997 1996 1995
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................ $32,147 $37,035 $40,631
Work-in-process.............................. 8,311 7,050 8,458
Finished goods............................... 8,990 12,132 9,796
Supplies and containers...................... 2,413 2,175 1,943
------- ------- -------
51,861 58,392 60,828
Less--Inventory reserve...................... (6,687) (7,704) (7,855)
------- ------- -------
$45,174 $50,688 $52,973
======= ======= =======
</TABLE>
F-51
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Current deferred income taxes............................... $17,683 $19,578
Other....................................................... 4,676 4,911
------- -------
$22,359 $24,489
======= =======
</TABLE>
9. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE -------------------
(YEARS) 1996 1995
----------- --------- --------
<S> <C> <C> <C>
Land and land improve-
ments.................. $ 3,306 $ 3,445
Buildings............... 35 - 40 29,928 29,018
Machinery, office furni-
ture and equipment..... 3 - 15 201,578 174,834
Construction-in-pro-
gress.................. 15,648 10,075
--------- --------
250,460 217,372
Less--Accumulated depre-
ciation................ (103,786) (86,343)
--------- --------
$ 146,674 $131,029
========= ========
</TABLE>
10. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Patents, licenses and other................................. $11,406 $17,698
Equity investments in affiliates............................ 1,832 1,702
Long-term deferred income taxes............................. 257 528
------- -------
$13,495 $19,928
======= =======
</TABLE>
Patents, licenses and other includes patents and licenses of $10,551 and
$14,504 which are being amortized on a straight-line basis over five years.
Additionally, in 1995 SRS had investments of $1,945 at cost, which were
subsequently sold in 1996.
SRS has a 50% partnership interest in Morton Bendix, accounted for under the
equity method. Morton Bendix assembles passenger side modules for automotive
inflatable restraint systems in North America.
11. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Payroll and payroll taxes................................... $ 5,461 $ 4,290
Liability insurance, workers' compensation and healthcare... 15,909 15,699
Vacation.................................................... 5,267 5,197
Postemployment benefits..................................... 8,300 4,900
Other....................................................... 13,817 17,587
------- -------
$48,754 $47,673
======= =======
</TABLE>
F-52
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Accumulated deficit in affiliates........................... $14,935 $17,042
Other....................................................... 4,803 5,597
------- -------
$19,738 $22,639
======= =======
</TABLE>
Accumulated deficit in affiliates includes investments in Bendix-Atlantic
Inflator Company (BAICO) and Bag S.p.A. accounted for under the equity method.
SRS has a 50% partnership interest in BAICO which produces hybrid non azide
inflators for use in inflatable occupant safety restraint systems for motor
vehicles in North America. SRS has a 33% partnership in Bag S.p.A., which
designs, produces and sells airbags in Europe.
Combined selected financial data for these two entities is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Net sales......................................... $133,835 $80,467 $48,731
Income (loss) from operations..................... 6,563 (3,298) (4,082)
Net income (loss)................................. 1,958 (7,897) (7,195)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Current assets............................................ $44,556 $37,576
Total assets.............................................. 84,982 71,988
Current liabilities....................................... 60,262 51,687
Noncurrent liabilities.................................... 54,842 54,463
Accumulated deficit....................................... (30,124) (34,162)
</TABLE>
Noncurrent liabilities at BAICO consist of borrowings under an agreement to
borrow up to $60 million. The borrowings are guaranteed equally by
AlliedSignal and the partner (Atlantic Research Company, a third party).
Additionally, BAICO may borrow up to $5 million under a line of credit
agreement with AlliedSignal.
At December 31, 1996, and 1995, Bag S.p.A. has approximately $29 million and
$20 million of borrowings, under a line of credit. Approximately $19 million
of the line is guaranteed jointly by the shareholders.
13. CUMULATIVE FOREIGN EXCHANGE TRANSLATION ADJUSTMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Balance at beginning of year...................... $ 489 $ (249) $ (1,548)
Translation adjustment............................ 1,039 738 1,299
------- ------ --------
Balance at end of year............................ $ 1,528 $ 489 $ (249)
======= ====== ========
</TABLE>
F-53
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. ALLIEDSIGNAL INVESTMENT
The AlliedSignal investment balance represents the cumulative intercompany
activity from transactions, cost allocations, cash management and other
charges and credits, between SRS and AlliedSignal (and its other business
units). A summary of changes in AlliedSignal investment follows.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------- ----------------------------
1997 1996 1995 1994
------------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning AlliedSignal Inc in-
vestment...................... $205,997 $193,245 $180,477 $121,008
Net income..................... 21,560 40,983 38,260 24,909
Intercompany activity.......... 1,551 (28,231) (25,492) 34,560
-------- -------- -------- --------
Ending AlliedSignal Inc. in-
vestment...................... $229,108 $205,997 $193,245 $180,477
======== ======== ======== ========
</TABLE>
Included in other income (expense), net in the combined statement of
operations is an allocated investment charge. The investment charge is based
on average net investment as a percent of projected AlliedSignal interest
expense. The investment charge for 1996, 1995 and 1994 approximated $2,519,
$2,487 and $4,630, respectively.
15. EMPLOYEE BENEFIT PLANS
PENSIONS
Substantially all employees of SRS participate in defined benefit pension
plans covering AlliedSignal employees. Plan benefits are generally based on
years of service and the employee's compensation. For the purpose of these
financial statements, SRS is considered to have participated in multi-employer
pension plans. SRS recorded net periodic pension cost of $5,325, $6,195 and
$5,121 for the years ended December 31, 1996, 1995 and 1994, respectively,
related to its participation in the AlliedSignal defined benefit pension
plans.
AlliedSignal also sponsors a number of defined contribution pension plans.
Participation in these plans is available to substantially all salaried
employees. AlliedSignal contributions to these plans are generally based on a
percentage of employee contributions. The cost to SRS for providing benefits
under the AlliedSignal defined contribution plans was $1,412, $1,400 and
$1,492 for the years ended December 31, 1996, 1995 and 1994, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
U.S. retiree medical programs cover employees who retire with pension
eligibility for hospital, professional and other medical services (programs)
including SRS' eligible retired employees. Most of the programs require
deductibles and copayments and virtually all are integrated with Medicare.
Retiree contributions are generally required based on coverage type, plan and
Medicare eligibility. AlliedSignal also sponsors retiree life insurance
programs which generally provide a flat benefit of at least two thousand
dollars or a benefit as a percent of pay.
For most non-union employees retiring after July 1, 1992, the Company has
implemented an approach which bases the Company's contribution to retiree
medical premiums on years of service and also establishes a maximum Company
contribution in the future at approximately twice the current level at the
date of implementation.
F-54
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For the purpose of these financial statements, SRS is considered to have
participated in multi-employer postretirement benefit plans. SRS charged to
expense $2,390, $2,057 and $2,299 for the years ended December 31, 1996, 1995
and 1994, respectively, related to its participation in the AlliedSignal
postretirement programs.
16. LEASE COMMITMENTS
SRS leases certain buildings and equipment under operating lease agreements.
Future minimum lease payments under operating leases having initial or
remaining noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------
<S> <C>
1997................................................................. $ 3,964
1998................................................................. 2,957
1999................................................................. 2,691
2000................................................................. 2,528
2001................................................................. 2,352
Thereafter........................................................... 1,580
-------
$16,072
=======
</TABLE>
Rent expense of $4,541, $4,327 and $5,045 was included in costs and expenses
for 1996, 1995 and 1994, respectively.
17. COMMITMENTS AND CONTINGENCIES
SRS is subject to a number of lawsuits, investigations and claims (some of
which involve substantial amounts) arising out of the conduct of its business,
including those relating to commercial transactions, product liability and
environmental safety and health matters. Management does not expect that
settlement amounts or losses, if any, will have a material adverse effect on
the combined results of operations or the financial position of SRS.
SRS has issued or is a party to various direct and indirect guarantees, bank
letters of credit and customer guarantees. Management does not expect these
guarantees will have a material adverse effect on the combined results of
operations or the financial position of SRS.
F-55
<PAGE>
SAFETY RESTRAINT SYSTEMS,
A DIVISION OF ALLIEDSIGNAL INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
18. GEOGRAPHIC AREAS--FINANCIAL DATA
<TABLE>
<CAPTION>
ADJUSTMENTS
NORTH OTHER AND
AMERICA EUROPE INTERNATIONAL ELIMINATIONS TOTAL
-------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Net sales.......... 1996 $689,941 $269,543 $ 6,703 $(14,911) $951,276
1995 677,070 196,319 14,912 (5,463) 882,838
1994 594,352 153,247 -- (263) 747,336
Net income......... 1996 46,085 197 164 (5,463) 40,983
1995 38,635 2,288 647 (3,310) 38,260
1994 27,335 (483) -- (1,943) 24,909
Assets............. 1996 291,527 133,623 4,335 253 429,738
1995 292,058 113,997 4,642 81 410,778
Liabilities........ 1996 129,131 95,782 1,697 (4,397) 222,213
1995 146,743 72,265 2,556 (4,520) 217,044
</TABLE>
Sales between geographic areas approximate market and are not significant.
SRS corporate office income, expenses, assets and liabilities are included in
the North America column. Included in the North America net sales are export
sales of $80,487, $97,361 and $68,864 for each of the respective years.
19. SUBSEQUENT EVENTS
On October 30, 1997, AlliedSignal sold substantially all of the net assets
of SRS to Breed Technologies, Inc. for approximately $710 million, subject to
certain post-closing adjustments. The accompanying financial statements do not
give effect to this transaction.
F-56
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION NOT CONTAINED OR INCORPO-
RATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR ALL OF
THEM TOGETHER CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR ALL OF
THEM TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 17
The Exchange Offer....................................................... 24
Use of Proceeds.......................................................... 32
Capitalization........................................................... 33
Unaudited Pro Forma Financial Data....................................... 34
Selected Consolidated Financial
Data--BREED............................................................. 42
Selected Historical Combined Financial
Data--SRS............................................................... 44
Management's Discussion and Analysis of Financial Condition and Results
of Operations--BREED.................................................... 45
Management's Discussion and Analysis of Financial Condition and Results
of operations--SRS...................................................... 54
Business................................................................. 56
Management............................................................... 65
Principal Stockholders................................................... 67
Recent Transactions...................................................... 68
Description of the Notes................................................. 73
Exchange Offer; Registration Rights...................................... 101
Description of New Credit Facility....................................... 103
Description of Preferred Securities...................................... 104
United States Federal Income Tax Considerations.......................... 105
Plan of Distribution..................................................... 106
Legal Matters............................................................ 106
Experts.................................................................. 106
Available Information.................................................... 107
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOGO
BREED TECHNOLOGIES, INC.
$330,000,000
OFFER TO EXCHANGE
ITS
9 1/4% SENIOR SUBORDINATED NOTES
DUE 2008
FOR
9 1/4% SENIOR SUBORDINATED NOTES
THAT HAVE BEEN REGISTERED
UNDER THE
SECURITIES ACT OF 1933
DUE 2008
---------------
PROSPECTUS
---------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of the Company under certain conditions and subject
to certain limitations. Section 145 of the Delaware General Corporation law
also provides that a corporation has the power to purchase and maintain
insurance on behalf of its officers and directors against any liability
asserted against such person and incurred by him or her in such capacity, or
arising out of his or her status as such, whether or not the corporation would
have the power to indemnify him or her against such liability under the
provisions of Section 145 of the Delaware General Corporation Law.
Pursuant to Article 8 of the of the Company's Second Restated Certificate of
Incorporation (the "Restated Certificate"), the Company will indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that such person is or was, or has
agreed to become, a director or officer of the Company, or is or was serving,
or has agreed to serve, at the Company's request, in a similar capacity with
another enterprise. The Company will indemnify such officers and directors in
an action by or in the right of the Company to procure a judgment in its favor
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
Company. Where an officer or director is successful on the merits or otherwise
in the defense of any action referred to above, the Company must indemnify him
or her against the expenses (including attorneys' fees) which he or she
actually and reasonably incurred in connection therewith.
In the event that the Company does not assume the defense of any action,
suit or proceeding, the Company will, in advance of the final disposition of
any such action, pay the expenses (including attorneys' fees) incurred by any
officer or director in defending such action, provided that the director or
officer undertakes to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Company as authorized
by Article 8 of the Restated Certificate.
The indemnification provided by the Restated Certificate is not deemed to be
exclusive of any other rights to which an officer or director may be entitled
under any law, agreement, vote or otherwise, and inures to the benefit of the
estate, heirs, executors and administrators of the officer or director.
The Company is authorized to enter into agreements with its officers and
directors providing indemnification rights different from those provided in
the Restated Certificate, and may grant indemnification rights to other
employees or agents of, or other persons serving, the Company. The Company is
also permitted to purchase directors' and officers' liability insurance.
Article 8 of the Restated Certificate also provides that if the Delaware
General Corporation Law is amended after the adoption of the Restated
Certificate, the Company will indemnify its officers and directors to the
fullest extent permitted by applicable law in effect from time to time.
The foregoing statements are subject to the detailed provisions of Article 8
of the Restated Certificate.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- -------------------------------------------------------------------
<C> <S>
4.1 --Indenture for the Notes between the Company, the Subsidiary
Guarantors named therein and IBJ Schroder Bank & Trust Company, as
Trustee (incorporated herein by reference to Exhibit 4.10 to the
Company's Registration Statement on Form S-3 (File No. 333-
48231).)
4.2 --Registration Rights Agreement, dated April 28, 1998 among the
Company, NationsBanc Montgomery Securities, LLC and Prudential
Securities Incorporated.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------------------------------------------------------
<C> <S>
4.3 --Amended and Restated Credit Agreement, dated as of April 28, 1998,
by and among the Company, certain subsidiaries of the Company
designated as Borrowers therein, NationsBank, National Association
and certain other financial institutions named therein as Lenders,
and NationsBank, National Association as Agent for the Lenders
(incorporated herein by reference to Exhibit 4.11 to the Company's
Registration Statement on Form S-3 (File No. 333-48231).)
5.1* --Opinion of King & Spalding.
12.1 --Computation of Ratio of Earnings to Fixed Charges.
23.1* --Consent of King & Spalding (included as part of its opinion filed as
Exhibit 5.1).
23.2 --Consent of Ernst & Young LLP.
23.3 --Consent of KPMG Peat Marwick LLP.
23.4 --Consent of Price Waterhouse LLP.
23.5 --Consent of KPMG S.p.A.
25.1 --Statement of Eligibility of Trustee on Form T-1.
99.1* --Form of Letter of Transmittal for 9 1/4% Senior Subordinated Notes
Due 2008.
99.2* --Form of Notice of Guaranteed Delivery for 9 1/4% Senior Subordinated
Notes Due 2008.
99.3* --[Acknowledgment of Ernst & Young LLP]
99.4* --Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
</TABLE>
- --------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrants hereby undertake to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED TECHNOLOGIES, INC.
/s/ Johnnie Cordell Breed
By: _________________________________
Johnnie Cordell Breed
Chairman of the Boardand Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President, Chief
Operating Officer and a Director of the Company, FRANK J. GNISCI, Executive
Vice President and Chief Financial Officer of the Company, and LIZANNE
GUPTILL, Secretary of the Company, or any one of them, and any agent for
service named in this Registration Statement and each of them, his or her true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended and any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them, their, or his or her, substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with Breed Technologies, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Johnnie Cordell Breed Chairman of the June 24, 1998
- ------------------------------------- Board and Chief
JOHNNIE CORDELL BREED Executive Officer
/s/ Charles J. Speranzella, Jr. President, Chief June 24, 1998
- ------------------------------------- Operating Officer
CHARLES J. SPERANZELLA, JR. and Director
/s/ Frank J. Gnisci Executive Vice June 24, 1998
- ------------------------------------- President and Chief
FRANK J. GNISCI Financial Officer
II-3
<PAGE>
SIGNATURE TITLE DATE
/s/ Larry W. McCurdy Director June 24, 1998
- -------------------------------------
LARRY W. MCCURDY
/s/ Robert W. Shower Director June 24, 1998
- -------------------------------------
ROBERT W. SHOWER
/s/ Alberto Negro Director June 24, 1998
- -------------------------------------
ALBERTO NEGRO
/s/ Dr.-Ing. Franz Wressnigg Director June 24, 1998
- -------------------------------------
DR.-ING. FRANZ WRESSNIGG
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
ARTISTIC ANALYTICAL METHODS, INC.
/s/ Charles J. Speranzella, Jr.
By: _________________________________
Charles J. Speranzella, Jr.
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President and a
Director of Artistic Analytical Methods, Inc., and LIZANNE GUPTILL, Secretary
of Artistic Analytical Methods, Inc., or either one of them, and any agent for
service named in this Registration Statement and each of them, his or her true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended and any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them, their, or his or her, substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with Artistic Analytical Methods, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Charles J. Speranzella, Jr. President and June 24, 1998
- ------------------------------------- Director
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Johnnie Cordell Breed Director June 24, 1998
- -------------------------------------
JOHNNIE CORDELL BREED
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
AUTO TRIM, INC.
/s/ Charles J. Speranzella, Jr.
By: _________________________________
Charles J. Speranzella, Jr.
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President and a
Director of Auto Trim, Inc., and LIZANNE GUPTILL, Secretary of Auto Trim,
Inc., or either one of them, and any agent for service named in this
Registration Statement and each of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and any and all amendments (including post-effective amendments) to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents or any of them, or his or
her, substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with Auto Trim, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Charles J. Speranzella, Jr. President and June 24, 1998
- ------------------------------------- Director
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Robert M. Rapone Director June 24, 1998
- -------------------------------------
ROBERT M. RAPONE
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED ALABAMA, INC.
/s/ Charles J. Speranzella, Jr.
By: _________________________________
Charles J. Speranzella, Jr.
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President and a
Director of BREED Alabama, Inc., and LIZANNE GUPTILL, Secretary of BREED
Alabama, Inc., or either one of them, and any agent for service named in this
Registration Statement and each of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and any and all amendments (including post-effective amendments) to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, their, or his or her, substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BREED Alabama, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Charles J. Speranzella, Jr. President and June 24, 1998
- ------------------------------------- Director
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Frank J. Gnisci Director June 24, 1998
- -------------------------------------
FRANK J. GNISCI
/s/ Robert M. Rapone Director June 24, 1998
- -------------------------------------
ROBERT M. RAPONE
/s/ Stuart D. Boyd Director June 24, 1998
- -------------------------------------
STUART D. BOYD
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED ARIZONA, INC.
/s/ Charles J. Speranzella, Jr.
By: _________________________________
Charles J. Speranzella, Jr.
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President and a
Director of BREED Arizona, Inc., and LIZANNE GUPTILL, Secretary of BREED
Arizona, Inc., or either one of them, and any agent for service named in this
Registration Statement and each of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and any and all amendments (including post-effective amendments) to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents or any of them, their, or
his or her, substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with Breed Arizona, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Charles J. Speranzella, Jr. President and June 24, 1998
- ------------------------------------- Director
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Frank J. Gnisci Director June 24, 1998
- -------------------------------------
FRANK J. GNISCI
/s/ Robert M. Rapone Director June 24, 1998
- -------------------------------------
ROBERT M. RAPONE
/s/ Stuart D. Boyd Director June 24, 1998
- -------------------------------------
STUART D. BOYD
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED ASIAN HOLDINGS, INC.
/s/ Charles J. Speranzella, Jr.
By: _________________________________
Charles J. Speranzella, Jr.
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President and a
Director of BREED Asian Holdings, Inc., and LIZANNE GUPTILL, Secretary of
BREED Asian Holdings, Inc., or either one of them, and any agent for service
named in this Registration Statement and each of them, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended and any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agents or any of them, their, or his or her, substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with Breed Asian Holdings, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Charles J. Speranzella, Jr. President and June 24, 1998
- ------------------------------------- Director
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Frank J. Gnisci Director June 24, 1998
- -------------------------------------
FRANK J. GNISCI
/s/ Stuard D. Boyd Director June 24, 1998
- -------------------------------------
STUARD D. BOYD
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED AUTOMOTIVE OF FLORIDA, INC.
/s/ Robert M. Rapone
By: _________________________________
Robert M. Rapone
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., Vice President of
BREED Automotive of Florida, Inc., and LIZANNE GUPTILL, Secretary of BREED
Automotive of Florida, Inc., or either one of them, and any agent for service
named in this Registration Statement and each of them, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended and any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them, their, or his or her, substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BREED Automotive of Florida, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Robert M. Rapone President June 24, 1998
- -------------------------------------
ROBERT M. RAPONE
/s/ Charles J. Speranzella, Jr. Vice President June 24, 1998
- -------------------------------------
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Johnnie Cordell Breed Director June 24, 1998
- -------------------------------------
JOHNNIE CORDELL BREED
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED AUTOMOTIVE TECHNOLOGY, INC.
/s/ Charles J. Speranzella, Jr.
By: _________________________________
Charles J. Speranzella, Jr.
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President and a
Director of BREED Automotive Technology, Inc., and LIZANNE GUPTILL, Secretary
of BREED Automotive Technology, Inc., or either one of them, and any agent for
service named in this Registration Statement and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended and any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agents or any of them, or his or her, substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with Breed Automotive Technology, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Charles J. Speranzella, Jr. President and June 24, 1998
- ------------------------------------- Director
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED AUTOMOTIVE WEST, INC.
/s/ Robert Fincher
By: _________________________________
Robert Fincher
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints JANICE C. GEORGE, Treasurer, Assistant
Secretary and a Director of BREED Automotive West, Inc., and STUART D. BOYD,
Secretary and a Director of BREED Automotive West, Inc., or either one of
them, and any agent for service named in this Registration Statement and each
of them, his or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and any and all amendments (including post-effective amendments) to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, their, or his or her, substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BREED Automotive West, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Robert Fincher President and June 24, 1998
- ------------------------------------- Director
ROBERT FINCHER
/s/ Janice C. George Treasurer, Assistant June 24, 1998
- ------------------------------------- Secretary and
JANICE C. GEORGE Director
/s/ Stuart D. Boyd Secretary and June 24, 1998
- ------------------------------------- Director
STUART D. BOYD
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED INTERNATIONAL MANUFACTURING
DEVELOPMENT CORP.
/s/ Robert M. Rapone
By: _________________________________
Robert M. Rapone
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., Vice President of
BREED International Manufacturing Development Corp., and LIZANNE GUPTILL,
Secretary of BREED International Manufacturing Development Corp., or either
one of them, and any agent for service named in this Registration Statement
and each of them, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and any and all amendments (including post-effective amendments) to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, their, or his or her, substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BREED International Manufacturing Development Corp. and on the
date indicated.
SIGNATURE TITLE DATE
/s/ Robert M. Rapone President June 24, 1998
- -------------------------------------
ROBERT M. RAPONE
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Johnnie Cordell Breed Director June 24, 1998
- -------------------------------------
JOHNNIE CORDELL BREED
/s/ Charles J. Speranzella, Jr. Director June 24, 1998
- -------------------------------------
CHARLES J. SPERANZELLA, JR.
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED MANUFACTURING OF TEXAS, INC.
/s/ Kola Phillips
By: _________________________________
Kola Phillips
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., the Director of
BREED Manufacturing of Texas, Inc., and LIZANNE GUPTILL, Secretary of BREED
Manufacturing of Texas, Inc., or either one of them, and any agent for service
named in this Registration Statement and each of them, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended and any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them, their, or his or her, substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BREED Manufacturing of Texas, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Kola Phillips President June 24, 1998
- -------------------------------------
KOLA PHILLIPS
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Charles J. Speranzella, Jr. Director June 24, 1998
- -------------------------------------
CHARLES J. SPERANZELLA, JR.
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED NEVADA, INC.
/s/ Charles J. Speranzella, Jr.
By: _________________________________
Charles J. Speranzella, Jr.
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President and a
Director of BREED Nevada, Inc., and LIZANNE GUPTILL, Secretary of BREED
Nevada, Inc., or either one of them, and any agent for service named in this
Registration Statement and each of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and any and all amendments (including post-effective amendments) to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents or any of them, their, or
his, substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BREED Nevada, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Charles J. Speranzella, Jr. President and June 24, 1998
- ------------------------------------- Director
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Frank J. Gnisci Director June 24, 1998
- -------------------------------------
FRANK J. GNISCI
/s/ Robert M. Rapone Director June 24, 1998
- -------------------------------------
ROBERT M. RAPONE
/s/ Stuart D. Boyd Director June 24, 1998
- -------------------------------------
STUART D. BOYD
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED STEERING SYSTEMS, INC.
/s/ Kola Phillips
By: _________________________________
Kola Phillips
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., a Director of
BREED Steering Systems, Inc., and LIZANNE GUPTILL, Secretary of BREED Steering
Systems, Inc., or either one of them, and any agent for service named in this
Registration Statement and each of them, his or her true and lawful attorney-
in-fact and agent, with full power of substitution and resubstitution, for him
or her and in his or her name, place and stead, in any and all capacities, to
sign any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, their, or his or her, substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BREED Steering Systems, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Kola Phillips President June 24, 1998
- -------------------------------------
KOLA PHILLIPS
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Johnnie Cordell Breed Director June 24, 1998
- -------------------------------------
JOHNNIE CORDELL BREED
/s/ Charles J. Speranzella, Jr. Director June 24, 1998
- -------------------------------------
CHARLES J. SPERANZELLA, JR.
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BTI MICHIGAN, INC.
/s/ Charles J. Speranzella, Jr.
By: _________________________________
Charles J. Speranzella, Jr.
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President and a
Director of BTI Michigan Inc., and LIZANNE GUPTILL, Secretary of BTI Michigan,
Inc., or either one of them, and any agent for service named in this
Registration Statement and each of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and any and all amendments (including post-effective amendments) to
this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, their, or his or her, substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BTI Michigan, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Charles J. Speranzella, Jr. President and June 24, 1998
- ------------------------------------- Director
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Frank J. Gnisci Director June 24, 1998
- -------------------------------------
FRANK J. GNISCI
/s/ Robert M. Rapone Director June 24, 1998
- -------------------------------------
ROBERT M. RAPONE
/s/ Stuart D. Boyd Director June 24, 1998
- -------------------------------------
STUART D. BOYD
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BTI TENNESSEE, INC.
/s/ Charles J. Speranzella, Jr.
By: _________________________________
Charles J. Speranzella, Jr.
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President and a
Director of BTI Tennessee, Inc., and LIZANNE GUPTILL, Secretary of BTI
Tennessee, Inc., or either one of them, and any agent for service named in
this Registration Statement and each of them, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended and any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, their, or his or her, substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BTI Tennessee, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Charles J. Speranzella, Jr. President and June 24, 1998
- ------------------------------------- Director
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Frank J. Gnisci Director June 24, 1998
- -------------------------------------
FRANK J. GNISCI
/s/ Robert M. Rapone Director June 24, 1998
- -------------------------------------
ROBERT M. RAPONE
/s/ Stuart D. Boyd Director June 24, 1998
- -------------------------------------
STUART D. BOYD
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
FORCE IMAGING TECHNOLOGIES, INC.
/s/ Johnnie Cordell Breed
By: _________________________________
Johnnie Cordell Breed
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., a Director of
Force Imaging Technologies, Inc., and LIZANNE GUPTILL, Secretary of Force
Imaging Technology, Inc., or either one of them, and any agent for service
named in this Registration Statement and each of them, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended and any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them, their, or his or her, substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with Force Imaging Technologies, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Johnnie Cordell Breed President and June 24, 1998
- ------------------------------------- Director
JOHNNIE CORDELL BREED
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Charles J. Speranzella, Jr. Director June 24, 1998
- -------------------------------------
CHARLES J. SPERANZELLA, JR.
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
HAMLIN, INCORPORATED
/s/ Bud Links
By: _________________________________
Bud Links
Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., a Director of
Hamlin Incorporated, and LIZANNE GUPTILL, Secretary of Hamlin, Incorporated,
or either one of them, and any agent for service named in this Registration
Statement and each of them, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended and any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, their, or his or her, substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with Hamlin, Incorporated and on the date indicated.
SIGNATURE TITLE DATE
/s/ Bud Links Treasurer and June 24, 1998
- ------------------------------------- Assistant Secretary
BUD LINKS
/s/ Gerald W. Oesterreich General Manager June 24, 1998
- -------------------------------------
GERALD W. OESTERREICH
/s/ Johnnie Cordell Breed Director June 24, 1998
- -------------------------------------
JOHNNIE CORDELL BREED
/s/ Charles J. Speranzella, Jr. Director June 24, 1998
- -------------------------------------
CHARLES J. SPERANZELLA, JR.
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
INNOVATIVE MIM TECHNOLOGIES, INC.
/s/ Kola Phillips
By: _________________________________
Kola Phillips
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., a Director of
Innovative Mim Technologies, Inc., and LIZANNE GUPTILL, Secretary of
Innovative Mim Technologies, Inc., or either one of them, and any agent for
service named in this Registration Statement and each of them, his or her true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended and any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them, their, or his or her, substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with Innovative Mim Technologies, Inc. and on the date indicated.
SIGNATURE TITLE DATE
/s/ Kola Phillips President and June 24, 1998
- ------------------------------------- Director
KOLA PHILLIPS
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Johnnie Cordell Breed Director June 24, 1998
- -------------------------------------
JOHNNIE CORDELL BREED
/s/ Charles J. Speranzella, Jr. Director June 24, 1998
- -------------------------------------
CHARLES J. SPERANZELLA, JR.
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED AUTOMOTIVE, L.P.
BY: BREED MANUFACTURING OF TEXAS, INC.
its General Partner
/s/ Kola Phillips
By: ___________________________________
Kola Phillips
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., a Director of
BREED Manufacturing of Texas, Inc., (the General Partner of BREED Automotive,
L.P.) and LIZANNE GUPTILL, Secretary of BREED Manufacturing of Texas, Inc.,
(the General Partner of BREED Automotive, L.P.) or either one of them, and any
agent for service named in this Registration Statement and each of them, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended and any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, their, or his or her, substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BREED Manufacturing of Texas, Inc. (the General Partner of
BREED Automotive, L.P.) and on the date indicated.
SIGNATURE TITLE DATE
/s/ Kola Phillips President June 24, 1998
- -------------------------------------
KOLA PHILLIPS
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Charles J. Speranzella, Jr. Director June 24, 1998
- -------------------------------------
CHARLES J. SPERANZELLA, JR.
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lakeland, State of
Florida, on June 24, 1998.
BREED TENNESSEE HOLDINGS, L.P.
BY: BTI TENNESSEE, INC.
its General Partner
/s/ Charles J. Speranzella, Jr.
By: _________________________________
Charles J. Speranzella, Jr.
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints CHARLES J. SPERANZELLA, JR., President and a
Director of BTI Tennessee, Inc. (the General Partner of BREED Tennessee
Holdings, L.P.), and LIZANNE GUPTILL, Secretary of BTI Tennessee Inc. (the
General Partner of BREED Tennessee Holdings, L.P.), or either one of them, and
any agent for service named in this Registration Statement and each of them,
his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, their, or his or her, substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with BTI Tennessee, Inc. (the General Partner of BREED Tennessee
Holdings, L.P.) and on the date indicated.
SIGNATURE TITLE DATE
/s/ Charles J. Speranzella, Jr. President and June 24, 1998
- ------------------------------------- Director
CHARLES J. SPERANZELLA, JR.
/s/ Robert J. Saltarelli Treasurer June 24, 1998
- -------------------------------------
ROBERT J. SALTARELLI
/s/ Frank J. Gnisci Director June 24, 1998
- -------------------------------------
FRANK J. GNISCI
/s/ Robert M. Rapone Director June 24, 1998
- -------------------------------------
ROBERT M. RAPONE
/s/ Stuart D. Boyd Director June 24, 1998
- -------------------------------------
STUART D. BOYD
II-23
<PAGE>
Exhibit 4.2
BREED TECHNOLOGIES, INC.
$330,000,000
9 1/4% SENIOR SUBORDINATED NOTES DUE 2008
REGISTRATION RIGHTS AGREEMENT
New York, New York
April 28, 1998
NationsBanc Montgomery Securities, LLC
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255-0001
Prudential Securities Incorporated
One New York Plaza, 18/th/ Floor
New York, New York 10292
Ladies and Gentlemen:
Breed Technologies, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell (the "Initial Placement") to NationsBanc Montgomery
Securities, Inc. and Prudential Securities Incorporated (the "Initial
Purchasers"), upon the terms set forth in a purchase agreement dated April 20,
1998 (the "Purchase Agreement"), its 9 1/4% Senior Subordinated Notes due 2008
(the "Notes"). The Notes are to be unconditionally guaranteed on an unsecured
senior subordinated basis by the Subsidiary Guarantors (as defined in the
Indenture). As an inducement to the Initial Purchasers to enter into the
Purchase Agreement and purchase the Notes and in satisfaction of a condition to
your obligations under the Purchase Agreement, the Company agrees with you for
the benefit of the holders from time to time of the Notes (including the Initial
Purchasers) (each of the foregoing a "Holder" and together the "Holders"), as
follows:
1. Definitions. Capitalized terms used herein without definition
-----------
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Affiliate" of any specified person means any other person that,
---------
directly or indirectly, is in control of, is controlled by, or is under
common control with, such specified person. For purposes of this
definition, control of a person means the power,
<PAGE>
2
direct or indirect, to direct or cause the direction of the management and
policies of such person whether by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Closing Date" means April 28, 1998.
------------
"Commission" means the Securities and Exchange Commission.
----------
"Company" has the meaning set forth in the preamble hereto.
-------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Notes" means debt securities issued by the Company and
--------------
guaranteed by the Subsidiary Guarantors, identical in all material respects
to the Notes (except that (i) interest thereon shall accrue from the last
date on which interest was paid on the Notes or, if no such interest has
been paid, from April 28, 1998 and (ii) the interest rate step-up
provisions and the transfer restrictions pertaining to the Notes will be
eliminated in the Exchange Notes), to be issued under the Indenture.
"Exchange Offer" means the proposed offer to the Holders to issue and
--------------
deliver to such Holders, in exchange for the Notes, a like principal amount
of Exchange Notes.
"Exchange Offer Registration Period" means the earlier of (A) the
----------------------------------
period until the expiration of the 90/th/ day after the consummation of the
Exchange Offer and (B) such time as all resales of Exchange Notes
(including, subject to the time periods set forth herein, any resales by
Exchanging Dealers) covered by such Exchange Offer Registration Statement
have been made.
"Exchange Offer Registration Statement" means a registration statement
-------------------------------------
of the Company on an appropriate form under the Securities Act with respect
to the Exchange Offer, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the Initial
-----------------
Purchasers) that is a broker-dealer, electing to exchange Notes acquired
for its own account as a result of market-making activities or other
trading activities for Exchange Notes.
"Holder" has the meaning set forth in the preamble hereto.
------
<PAGE>
3
"Indenture" means the indenture relating to the Notes and the Exchange
---------
Notes, to be dated as of the Closing Date, among the Company, the
Subsidiary Guarantors and the Trustee, as the same may be amended,
supplemented, waived or otherwise modified from time to time in accordance
with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
-----------------
"Initial Purchasers" has the meaning set forth in the Purchase
------------------
Agreement.
"Losses" has the meaning set forth in Section 6(d) hereto.
------
"Majority Holders" means the Holders of a majority of the aggregate
----------------
principal amount of Notes registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
---------------------
bankers and manager or managers that shall administer an underwritten
offering under a Shelf Registration Statement.
"Notes" has the meaning set forth in the preamble hereto.
-----
"Offering Memorandum" has the meaning set forth in the Purchase
-------------------
Agreement.
"Prospectus" means the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the
Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Notes or
the Exchange Notes covered by such Registration Statement, and all
amendments and supplements to the Prospectus, including post-effective
amendments.
"Purchase Agreement" has the meaning set forth in the preamble hereto.
------------------
"Registration Statement" means any Exchange Offer Registration
----------------------
Statement or Shelf Registration Statement that covers any of the Notes or
the Exchange Notes pursuant to the provisions of this Agreement, amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto, and all material incorporated by reference therein.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
<PAGE>
4
"Shelf Registration" means a registration effected pursuant to Section
------------------
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
-------------------------
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
----------------------------
of the Company pursuant to the provisions of Section 3 hereof, which covers
some or all of the Notes or Exchange Notes, as applicable, on an
appropriate form under Rule 415 under the Securities Act, or any similar
rule that may be adopted by the Commission, amendments and supplements to
such registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and
all material incorporated by reference therein.
"Subsidiary Guarantees" has the meaning set forth in the Purchase
---------------------
Agreement.
"Subsidiary Guarantors" has the meaning set forth in the preamble
---------------------
hereto.
"Trustee" means the trustee with respect to the Notes or Exchange
-------
Notes, as applicable, under the Indenture.
"underwriter" means any underwriter of Notes in connection with an
-----------
offering thereof under a Shelf Registration Statement.
2. Exchange Offer; Resales of Exchange Notes by Exchanging Dealers;
----------------------------------------------------------------
Private Exchange.
- ----------------
(a) The Company shall prepare and, on or prior to the 60th calendar
day following the Closing Date, shall file with the Commission the Exchange
Offer Registration Statement with respect to the Exchange Offer. The Company
shall use its best efforts (i) to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act on or prior to the
150th calendar day following the Closing Date and remain effective until the
closing of the Exchange Offer and (ii) to consummate the Exchange Offer on or
prior to the 180th calendar day following the Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Exchange Offer, it being the
objective of such Exchange Offer to enable each Holder electing to exchange
Notes for Exchange Notes to resell such Exchange Notes from and after their
receipt without any limitations or restrictions under the Securities Act and
without material restrictions under the securities laws of a substantial portion
of the several states of the United States (provided that such Holder represents
to the Company and its counsel in writing that at the time of the consummation
of the Exchange Offer, (i) the Exchange Notes acquired pursuant to the Exchange
Offer are being acquired in
<PAGE>
5
the ordinary course of business of the person receiving such Exchange Notes,
whether or not such person is the Holder, (ii) neither the Holder of Notes nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (iii) neither the Holder
nor any such other person is an "affiliate" of the Company as defined in Rule
405 under the Securities Act or, if such Holder is an "affiliate," that such
Holder will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable, (iv) if the Holder is not a broker-
dealer, that neither the Holder nor any such other person is engaged in or
intends to engage in the distribution of such Exchange Notes, or (v) if such
Holder is a broker-dealer, that it will receive Exchange Notes for its own
account in exchange for Notes that were acquired as a result of market-making
activities or other trading activities and that it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes).
(c) In connection with the Exchange Offer, the Company shall mail to
each Holder a copy of the Prospectus forming part of the Exchange Offer
Registration Statement, together with an appropriate letter of transmittal and
related documents, stating, in addition to such other disclosures as are
required by applicable law:
(i) that the Exchange Offer is being made pursuant to this Agreement
and that all Notes validly tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange;
(iii) that any Note not tendered will remain outstanding and continue
to accrue interest, but will not retain any rights under this Agreement;
(iv) that Holders electing to have a Note exchanged pursuant to the
Exchange Offer will be required to surrender such Note, together with the
enclosed letters of transmittal, to the exchange agent at the address
(located in the Borough of Manhattan, The City of New York) specified in
the notice prior to the close of business on the last day of acceptance for
exchange; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last day of acceptance for
exchange, by sending to the exchange agent at the address (located in the
Borough of Manhattan, The City of New York) specified in the notice a
telegram, telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Notes delivered for exchange and a
statement that such Holder is withdrawing his election to have such Notes
exchanged; and shall keep the Exchange Offer open for acceptance for not
less than 20 business days (or longer if required by applicable law) after
the date notice thereof is mailed to the Holders; utilize the services of a
depositary for the Exchange Offer with
<PAGE>
6
an address in the Borough of Manhattan, The City of New York; and comply in
all material respects with all applicable laws relating to the Exchange
Offer.
(d) As soon as reasonably practicable after the close of the
Exchange Offer, the Company shall:
(i) accept for exchange all Notes duly tendered and not validly
withdrawn pursuant to the Exchange Offer;
(ii) deliver to the Trustee for cancellation all Notes so accepted
for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to each
Holder Exchange Notes equal in principal amount to the Notes of such Holder
so accepted for exchange.
(e) The Initial Purchasers and the Company acknowledge that,
pursuant to interpretations by the staff of the Commission of Section 5 of the
Securities Act, and in the absence of an applicable exemption therefrom, each
Exchanging Dealer is required to deliver a Prospectus in connection with a sale
of any Exchange Notes received by such Exchanging Dealer pursuant to the
Exchange Offer in exchange for Notes acquired for its own account as a result of
market-making activities or other trading activities. Accordingly, the Company
shall:
(i) include the information set forth in Annex A hereto on the cover
of the Exchange Offer Registration Statement, in Annex B hereto in the
forepart of the Exchange Offer Registration Statement in a section setting
forth details of the Exchange Offer, in Annex C hereto in the underwriting
or plan of distribution section of the Prospectus forming a part of the
Exchange Offer Registration Statement, and in Annex D hereto in the letter
of transmittal delivered pursuant to the Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Securities Act during the
Exchange Offer Registration Period for delivery of the prospectus included
therein by Exchanging Dealers in connection with sales of Exchange Notes
received pursuant to the Exchange Offer, as contemplated by Section 4(h)
below.
(f) The Company shall use its best efforts to complete the Exchange
Offer as provided above and shall comply with the applicable requirements of the
Securities Act, the Exchange Act and other applicable laws and regulations in
connection with the Exchange Offer. The Exchange Offer shall not be subject to
any conditions, other than that the Exchange Offer does not violate applicable
law or any applicable interpretation of the staff of
<PAGE>
7
the Commission. The Company shall inform the Initial Purchasers of the names and
addresses of the Holders to whom the Exchange Offer is made, and the Initial
Purchasers shall have the right, subject to applicable law, to contact such
Holders and otherwise facilitate the tender of Notes in the Exchange Offer.
3. Shelf Registration. If (i) because of any change in law or
------------------
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Exchange Offer as contemplated by Section 2 hereof, or (ii) for any reason
other than those specified in clause (i) above, the Exchange Offer is not
consummated within 180 days of the Closing Date unless the Exchange Offer has
commenced, in which case, the Exchange Offer is not consummated within 30 days
after the date on which the Exchange Offer was commenced (or longer period
required by applicable law), or (iii) any Initial Purchaser so requests, with
respect to Notes not eligible to be exchanged for Exchange Notes in the Exchange
Offer and held by it following consummation of the Exchange Offer within 120
days following consummation of the Exchange Offer, or (iv) any Holder (other
than the Initial Purchasers) is not eligible to participate in the Exchange
Offer, the following provisions shall apply:
(a) The Company shall, as promptly as practicable (but in any event
on or prior to 60 days after such filing obligation arises), file with the
Commission a Shelf Registration Statement relating to the offer and sale of
the Notes, as applicable, not eligible to be exchanged for Exchange Notes,
as applicable, by the Holders from time to time in accordance with the
methods of distribution elected by such Holders and set forth in such Shelf
Registration Statement and Rule 415 under the Securities Act; provided
--------
that, with respect to Exchange Notes received by the Initial Purchasers in
exchange for Notes constituting any portion of an unsold allotment, the
Company may, if permitted by current interpretations by the Commission's
staff, file a post-effective amendment to the Exchange Offer Registration
Statement containing the information required by Regulation S-K Items 507
and/or 508, as applicable, in satisfaction of its obligations under this
paragraph (a) with respect thereto, and any such Exchange Offer
Registration Statement, as so amended, shall be referred to herein as, and
governed by the provisions herein applicable to, a Shelf Registration
Statement.
(b) The Company shall use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act on
or prior to 60 calendar days after filing such Shelf Registration Statement
pursuant to this Section 3 and to keep such Shelf Registration Statement
continuously effective in order to permit the Prospectus contained therein
to be usable by Holders for a period of two years from the date the Shelf
Registration Statement is declared effective by the Commission or such
shorter period that will terminate when all the Notes or Exchange Notes, as
applicable, covered by the Shelf Registration Statement have been sold
pursuant to the Shelf
<PAGE>
8
Registration Statement (in any such case, such period being called the
"Shelf Registration Period"). The Company shall be deemed not to have used
its best efforts to keep the Shelf Registration Statement effective during
the requisite period if it voluntarily takes any action that would result
in Holders of Notes covered thereby not being able to offer and sell such
Notes during that period, unless (i) such action is required by applicable
law or (ii) such action is taken by the Company in good faith and for valid
business reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of assets, so long as
the Company promptly thereafter complies with the requirements of Section
4(k) hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
-----------------------
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company shall, within a reasonable time prior to the filing
of any Registration Statement, any Prospectus, any amendment to a
Registration Statement or amendment or supplement to a Prospectus or any
document which is to be incorporated by reference into a Registration
Statement or a Prospectus after initial filing of a Registration Statement,
provide copies of such document to the Initial Purchasers and their counsel
(and, in the case of a Shelf Registration Statement, the Holders and their
counsel) and make such representatives of the Company as shall be
reasonably requested by the Initial Purchasers or their counsel (and, in
the case of a Shelf Registration Statement, the Holders or their counsel)
available for discussion of such document, and shall use its reasonable
efforts to reflect in each such document, when so filled with the
Commission, such comments as the Initial Purchasers and, in the case of a
Shelf Registration Statement, counsel for the Holders, as they may
reasonably propose; each of the Initial Purchasers agrees that, if it
receives timely notice and drafts under this clause (a), it will not take
actions or make objections pursuant to this clause (a) such that the
Company are unable to comply with their obligations under Section 2.
(b) The Company shall use its reasonable best efforts to ensure that:
(i) any Registration Statement and any amendment thereto and
any Prospectus contained therein and any amendment or supplement
thereto complies in all material respects with the Securities Act and
the rules and regulations thereunder;
(ii) any Registration Statement and any amendment thereto does
not, when it becomes effective, contain an untrue statement of a
material fact or omit
<PAGE>
9
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and
(iii) any Prospectus forming part of any Registration Statement,
including any amendment or supplement to such Prospectus, does not
include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) (1) The Company shall advise the Initial Purchasers and, in the
case of a Shelf Registration Statement, the Holders of Notes covered
thereby, and, if requested by the Initial Purchasers or any such Holder,
confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto
has been filed with the Commission and when the Registration Statement
or any post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) During the Shelf Registration Period or the Exchange Offer
Registration Period, as applicable, the Company shall advise the Initial
Purchasers and, in the case of a Shelf Registration Statement, the Holders
of Notes covered thereby, and, in the case of an Exchange Offer
Registration Statement, any Exchanging Dealer that has provided in writing
to the Company a telephone or facsimile number and address for notices,
and, if requested by the Initial Purchasers or any such Holder or
Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Notes included
therein for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making of
any changes in the Registration Statement or the Prospectus so that,
as of such date, the Registration Statement or the Prospectus does not
include an untrue
<PAGE>
10
statement of a material fact or omit to state a material fact
necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made)
not misleading (which advice shall be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes have
been made).
(d) The Company shall use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest possible time.
(e) The Company shall furnish to each Holder of Notes covered by any
Shelf Registration Statement, without charge, at least one copy of such
Shelf Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so
requests in writing, all exhibits thereto (including those incorporated by
reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of Notes covered by any Shelf Registration Statement,
without charge, as many copies of the Prospectus (including each
preliminary Prospectus) included in such Shelf Registration Statement and
any amendment or supplement thereto as such Holder may reasonably request;
and the Company consents to the use of the Prospectus or any amendment or
supplement thereto by each of the selling Holders of Notes in connection
with the offering and sale of the Notes covered by the Prospectus or any
amendment or supplement thereto unless such Holders have received notice
from the Company that is has suspended the use of the Prospectus pursuant
to Section 3(b)(i) or (ii).
(g) The Company shall furnish to each Exchanging Dealer that so
requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto.
(h) The Company shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies
of the Prospectus included in such Exchange Offer Registration Statement
and any amendment or supplement thereto as such Exchanging Dealer may
reasonably request for delivery by such Exchanging Dealer in connection
with a sale of Exchange Notes received by it pursuant to the Exchange
Offer; and the Company consents to the use of the Prospectus or any
amendment or supplement thereto by any such Exchanging Dealer in connection
with the offering and sale of the Exchange Notes as provided in Section
2(e) above.
(i) Prior to the Exchange Offer or any other offering of Notes
pursuant to any Registration Statement, the Company shall register or
qualify or cooperate with the
<PAGE>
11
Holders of Notes included therein and their respective counsel in
connection with the registration or qualification of such Notes for offer
and sale under the securities or blue sky laws of such states as any such
Holders reasonably request in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such states
of the Notes covered by such Registration Statement; provided, however,
-------- -------
that the Company will not be required to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not then so
qualified, to file any general consent to service of process or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject.
(j) The Company shall cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Notes to be
sold pursuant to any Registration Statement free of any restrictive legends
and in denominations of $1,000 or an integral multiple thereof and
registered in such names as Holders may request prior to sales of Notes
pursuant to such Registration Statement.
(k) Subject to the Company's right to suspend the use of any
Prospectus under the Shelf Registration Statement pursuant to Section
3(b)(i) or (ii), upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) of this Section 4, the Company shall promptly prepare and file
a post-effective amendment to any Registration Statement or an amendment or
supplement to the related Prospectus or any other required document so
that, as thereafter delivered to purchasers of the Notes included therein,
the Prospectus will not include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading
and, in the case of a Shelf Registration Statement, notify the Holders to
suspend use of the Prospectus as promptly as practicable after the
occurrence of such an event.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the Notes
or Exchange Notes, as the case may be, registered under such Registration
Statement, and provide the Trustee with printed certificates for such Notes
or Exchange Notes, in a form eligible for deposit with The Depository Trust
Company.
(m) The Company shall use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission and shall make
generally available to its security holders as soon as practicable after
the effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act.
<PAGE>
12
(n) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), in a
timely manner.
(o) The Company may require each Holder of Notes to be sold pursuant
to any Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of such Notes as the
Company may from time to time reasonably require for inclusion in such
Registration Statement.
(p) Intentionally Omitted.
(q) In the case of any Shelf Registration Statement, the Company
shall enter into such customary agreements (including underwriting
agreements) and take all other appropriate actions in order to expedite or
to facilitate the registration or the disposition of any Notes included
therein, and in connection therewith, if an underwriting agreement is
entered into, cause the same to contain indemnification provisions and
procedures no less favorable than those set forth in Section 6 (or such
other provisions and procedures acceptable to the Majority Holders and the
Managing Underwriters, if any) with respect to all parties to be
indemnified pursuant to Section 6.
(r) In the case of any Shelf Registration Statement, the Company
shall:
(i) make reasonably available for inspection by the Holders of
Notes to be registered thereunder, any underwriter participating in
any disposition pursuant to such Shelf Registration Statement, and any
attorney, accountant or other agent retained by the Holders or any
such underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and any of its
subsidiaries;
(ii) cause the Company's officers, directors and employees to
supply all relevant information reasonably requested by the Holders or
any such underwriter, attorney, accountant or agent in connection with
any such Registration Statement as is customary for similar due
diligence examinations and make such representatives of the Company as
shall be reasonably requested by the Initial Purchasers or Managing
Underwriters, if any, available for discussion of any such
Registration Statement; provided, however, that any information that
-------- -------
is designated in writing by the Company, in good faith, as
confidential at the time of delivery of such information shall be kept
confidential by the Holders or any such underwriter, attorney,
accountant or agent, unless such disclosure is made in connection with
a court proceeding or required by law, or such information becomes
available to the public generally or through a third party without an
accompanying obligation of confidentiality other than as a
<PAGE>
13
result of a disclosure of such information by any such Holder,
underwriter, attorney, accountant or agent;
(iii) in connection with any underwritten offering under a Shelf
Registration Statement, make such representations and warranties to
the Holders of Notes registered thereunder and the underwriters, if
any, in form, substance and scope as are customarily made by issuers
to underwriters in similar underwritten offerings as may be reasonably
requested by them;
(iv) in connection with any underwritten offering under a Shelf
Registration Statement, obtain opinions of counsel to the Company and
the Subsidiary Guarantors and updates thereof (which opinions (in
form, scope and substance) shall be reasonably satisfactory to the
Managing Underwriters, if any) addressed to each selling Holder and
the underwriters, if any, covering such matters as are customarily
covered in opinions requested in similar underwritten offerings;
(v) in connection with any underwritten offering under a Shelf
Registration Statement, obtain "cold comfort" letters and updates
thereof from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial
data are, or are required to be, included in the Registration
Statement), addressed to the underwriters, if any, and use reasonable
efforts to have such letter addressed to the selling Holders of Notes
registered thereunder (to the extent consistent with Statement on
Auditing Standards No. 72 of the American Institute of Certified
Public Accountants (AICPA) ("SAS 72")), in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with similar underwritten offerings, or if the provision of
such "cold comfort" letters is not permitted by SAS No. 72 or if
requested by the Initial Purchasers or their counsel in lieu of a
"cold comfort" letter, an agreed-upon procedures letter under
Statement on Auditing Standards No. 35 of the AICPA, covering matters
requested by the Initial Purchasers or their counsel; and
(vi) in connection with any underwritten offering under a Shelf
Registration Statement, deliver such documents and certificates as may
be reasonably requested by the Majority Holders and the Managing
Underwriters, if any, and customarily delivered in similar offerings,
including those to evidence compliance with Section 4(k) and with any
conditions contained in the underwriting agreement or other agreement
entered into by the Company.
<PAGE>
14
The foregoing actions set forth in clauses (iii), (v) and (vi) of this
Section 4(r) shall be performed at the effectiveness of such Shelf
Registration Statement and each post-effective amendment thereto. The
foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of this
Section 4(r) shall be performed at each closing under any underwriting or
similar agreement as and to the extent required thereunder.
(s) The Company shall, in the case of a Shelf Registration, use its
best efforts to cause all Notes to be listed on any securities exchange or
any automated quotation system on which similar securities issued by the
Company are then listed if requested by the Majority Holders, to the extent
such Notes satisfy applicable listing requirements.
5. Registration Expenses; Remedies. (a) The Company shall bear all
-------------------------------
expenses incurred in connection with the performance of its obligations under
Sections 2, 3 and 4 hereof, including without limitation: (i) all Commission,
stock exchange or National Association of Securities Dealers, Inc. registration
and filing fees, (ii) all fees and expenses incurred in connection with
compliance with state securities or blue sky laws (including reasonable fees and
disbursements of counsel for any underwriters or Holders in connection with blue
sky qualification of any of the Exchange Notes or Notes), (iii) all expenses of
any persons in preparing or assisting in preparing, word processing, printing
and distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements
and other documents relating to the performance of and compliance with this
Agreement, (iv) all rating agency fees, if any, (v) all fees and disbursements
relating to the qualification of the Indenture under applicable securities laws,
(vi) the fees and disbursements of the Trustee and its counsel, (vii) the fees
and disbursements of counsel for the Company and the Subsidiary Guarantors and,
in the case of a Shelf Registration Statement, the fees and disbursements of one
counsel for the Holders (which counsel shall be selected by the Majority Holders
and which counsel may also be counsel for the Initial Purchasers) and (viii) the
fees and disbursements of the independent public accountants of the Company,
including the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, but excluding fees and
expenses of counsel to the underwriters (other than fees and expenses set forth
in clause (ii) above) or the Holders and underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of Notes by a
Holder.
(b) The Notes provide that in the event that either (i) the Exchange
Offer Registration Statement is not filed with the Commission on or prior to the
60th calendar day following the Closing Date or (ii) the Exchange Offer is not
consummated or a Shelf Registration Statement is not declared effective on or
prior to the 180th calendar day following the Closing Date, the interest rate
borne by the Notes will be increased by .25% per annum for the first 90 days
following the 60-day period referred to in clause (i) above or the first 90
<PAGE>
15
days following the 180-day period referred to in clause (ii) above. Such
interest will be increased by an additional .25% per annum at the beginning of
each subsequent 90-day period in the case of clause (i) or (ii) above; provided,
--------
however, that in no event will the interest rate borne by the Notes be increased
- -------
by more than 1.5% per annum. Upon the filing of the Exchange Offer Registration
Statement, the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, as the case may be, the interest rate borne by the
Notes from the date of such filing, consummation or effectiveness, as the case
may be, will be reduced to the original interest rate; provided, however, that,
-------- -------
if after such reduction in interest rate, a different event specified in clause
(i) or (ii) above occurs, the interest rate may again be increased pursuant to
the foregoing provisions.
(c) Without limiting the remedies available to the Initial Purchasers
and the Holders, the Company acknowledges that any failure by the Company to
comply with its obligations under Sections 2 and 3 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's obligations under Sections 2 and 3 hereof.
6. Indemnification and Contribution. (a) In connection with any
--------------------------------
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of Notes covered thereby (including the Initial Purchasers and, with
respect to any Prospectus delivery as contemplated by Sections 2(e) and 4(h)
hereof, each Exchanging Dealer) and each person who controls such Holder within
the meaning of either the Securities Act or the Exchange Act, against any and
all losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Securities Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement as
originally filed or in any amendment thereof, or in any preliminary Prospectus
or Prospectus, or in any amendment thereof or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the circumstances under
which they were made) not misleading, and agrees to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage or liability or action; provided, however, that the Company will
-------- -------
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any such indemnified party specifically for inclusion therein or (ii)
made in
<PAGE>
16
the Preliminary Prospectus or Prospectus, or in any amendment or supplement
thereto, if a copy of the Prospectus, as amended or supplemented, was not
delivered by or on behalf of the indemnified party to the person asserting any
claim against such indemnified party, and the untrue statement contained in or
omission from such Preliminary Prospectus or Prospectus, or in any amendment or
supplement thereto, was corrected in the Prospectus, as amended or supplemented,
if applicable. This indemnity agreement will be in addition to any liability
that the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses of, as
provided in Section 6(d) hereof, any underwriters of Notes registered under a
Shelf Registration Statement and each person who controls such underwriters on
the same basis as that of the indemnification of the Initial Purchasers and the
selling Holders provided in this Section 6(a) and shall, if requested by any
Holder, enter into an underwriting agreement reflecting such agreement, as
provided in Section 4(q) hereof.
(b) Each Holder of Notes covered by a Registration Statement
(including each Initial Purchaser and, with respect to any Prospectus delivery
as contemplated by Sections 2(e) and 4(h) hereof, each Exchanging Dealer)
severally agrees to indemnify and hold harmless the Company and each Person who
controls the Company within the meaning of either the Securities Act or the
Exchange Act to the same extent as the foregoing indemnity from the Company to
each such Holder, but only with respect to written information furnished to the
Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability that any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve the
indemnifying party from liability under paragraph (a) or (b) above unless and to
the extent such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses or otherwise materially prejudices the
indemnifying party and (ii) will not, in any event, relieve the indemnifying
party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
<PAGE>
17
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of investigation
and actual out-of-pocket expenses incurred by the indemnified party in
connection with appearing as a witness or a party defendant in any such action
and except as set forth below. Notwithstanding the foregoing, the indemnified
party shall have the right to employ separate counsel (including local counsel),
and the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with an actual
conflict of interest, (ii) the actual or potential defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties that are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not, pursuant to the immediately preceding sentence,
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice from the
indemnified party to the indemnifying party of the institution of such action or
(iv) the indemnifying party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party. It is understood that
the indemnifying party shall not, in connection with any proceeding or related
proceedings, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified parties and that all
such fees and expenses shall be reimbursed as they are incurred. Such firm shall
be designated in writing by the Holders in the case of parties indemnified
pursuant to paragraph (a) above and by the Company in the case of parties
indemnified pursuant to paragraph (b) above. The indemnifying party shall not be
liable for any settlement of any proceeding effectuated without its written
consent (not to be unreasonably withheld), but if settled with such consent or
if there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment to the extent required by paragraph (a) or (b)
above, as applicable. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the third
and fourth sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 20 business
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least five business days prior to such settlement being entered
into and (iii) such indemnifying party shall not have reimbursed the indemnified
party in accordance with such request prior to the date of such settlement. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution
<PAGE>
18
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending the same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement that resulted in such Losses; provided, however, that in
-------- -------
no case shall any Initial Purchaser or any subsequent Holder of any Note or
Exchange Note be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Note, or in the case of an
Exchange Note, applicable to the Note that was exchangeable into such Exchange
Note, as set forth on the cover page of the Offering Memorandum, nor shall any
underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the Notes purchased by such underwriter under the
Registration Statement that resulted in such Losses. If the allocation provided
by the immediately preceding sentence is unavailable for any reason, the
indemnifying party and the indemnified party shall contribute in such proportion
as is appropriate to reflect not only such relative benefits but also the
relative fault of such indemnifying party, on the one hand, and such indemnified
party, on the other hand, in connection with the statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the sum of (x)
the total net proceeds from the Initial Placement (before deducting expenses) as
set forth on the cover page of the Offering Memorandum and (y) the total amount
of additional interest that the Company was not required to pay as a result of
registering the Notes covered by the Registration Statement that resulted in
such losses. Benefits received by the Initial Purchasers shall be deemed to be
equal to the total purchase discounts and commissions as set forth on the cover
page of the Offering Memorandum, and benefits received by any other Holders
shall be deemed to be equal to the value of receiving Notes or Exchange Notes,
as applicable, registered under the Securities Act. Benefits received by any
underwriter shall be deemed to be equal to the total underwriting discounts and
commissions, as set forth on the cover page of the Prospectus forming a part of
the Registration Statement that resulted in such Losses. Relative fault shall be
determined by reference to, among other things, whether any alleged untrue
statement or omission relates to information provided by the indemnifying party,
on the one hand, or by the indemnified party, on the other hand. The parties
agree that it would not be just and equitable if contribution were determined by
pro rata
<PAGE>
19
allocation or any other method of allocation that did not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 6, each person who controls a
Holder within the meaning of either the Securities Act or the Exchange Act shall
have the same rights to contribution as such Holder, and each person who
controls the Company within the meaning of either the Securities Act or the
Exchange Act shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder or
the Company or any of the officers, directors or controlling persons referred to
in Section 6 hereof, and will survive the sale by a Holder of Notes covered by a
Registration Statement.
7. Miscellaneous.
-------------
(a) No Inconsistent Agreement. The Company has not, as of the date
-------------------------
hereof, entered into, nor shall any of them, on or after the date hereof, enter
into, any agreement that conflicts with the rights granted to the Holders herein
or otherwise conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Holders of at least a majority of the then outstanding aggregate
principal amount of Notes (or, after the consummation of any Exchange Offer in
accordance with Section 2 hereof, of Exchange Notes); provided that, with
--------
respect to any matter that directly or indirectly affects the rights of the
Initial Purchasers hereunder, the Company shall obtain the written consent of
the Initial Purchasers. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to departure from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders whose
Notes are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other Holders may be given by the
Majority Holders, determined on the basis of Notes being sold rather than
registered under such Registration Statement.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
<PAGE>
20
(i) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 7(c),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy in
like manner to NationsBanc Montgomery Securities, Inc.;
(ii) if to the Initial Purchasers, at NationsBank Corporate Center,
100 North Tryon Street, Charlotte, North Carolina 28255-0001; and
(iii) if to the Company, at 5300 Old Tampa Highway, P.O. Box 33050,
Lakeland, Florida 33807, Attention: Stuart Boyd, Esq., Associate General
Counsel.
All such notices and communications shall be deemed to have been duly
given when received. The Initial Purchasers, on the one hand, or the Company,
on the other, by notice to the other party or parties may designate additional
or different addresses for subsequent notices or communications.
(d) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent by
the Company, subsequent Holders of Notes and/or Exchange Notes. The Company
hereby agrees to extend the benefits of this Agreement to any Holder of Notes
and/or Exchange Notes and any such Holder may specifically enforce the
provisions of this Agreement as if an original party hereto.
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(h) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in
<PAGE>
21
any way impaired or affected thereby, it being intended that all of the rights
and privileges of the parties shall be enforceable to the fullest extent
permitted by law.
(i) Notes Held by the Company, etc. Whenever the consent or approval
------------------------------
of Holders of a specified percentage of principal amount of Notes or Exchange
Notes is required hereunder, Notes or Exchange Notes, as applicable, held by the
Company or its Affiliates (other than subsequent Holders of Notes or Exchange
Notes if such subsequent Holders are deemed to be Affiliates solely by reason of
their holdings of such Notes or Exchange Notes) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Guarantors and you.
Very truly yours,
BREED TECHNOLOGIES, INC.
By: /s/ Frank J. Gnisci
-------------------------------------
Name: Frank J. Gnisci
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
The foregoing Agreement is hereby
accepted as of the date first above written.
NATIONSBANC MONTGOMERY
SECURITIES LLC
By: /s/ James G. Rose, Jr.
---------------------------------
Name: James G. Rose, Jr.
Title: Managing Director
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Christopher J. Barber
---------------------------------
Name: Christopher J. Barber
Title: Managing Director
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
Expiration Date (as defined herein) and ending on the close of business 180 days
after the Expiration Date, it will make this Prospectus available to any broker-
dealer for use in connection with any such resale. See "Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
<PAGE>
ANNEX C
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, starting on
the Expiration Date and ending on the close of business one year after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until such date all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
<PAGE>
ANNEX D
If the undersigned is a broker-dealer that will receive Exchange Notes for
its own account in exchange for Notes, it represents that the Notes to be
exchanged for the Exchange Notes were acquired by it as a result of market-
making activities or other trading activities and acknowledges that it will
deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
<PAGE>
EXHIBIT 12.1
BREED Technologies, Inc.
Ratio of Earnings to Fixed Charges to S-4 Filing
(in thousands, except per ratios)
<TABLE>
<CAPTION>
Pro forma Pro forma
Year Nine Month
Fiscal Years ended June 30, Nine months Nine months Ended Period Ended
-------------------------------------- ended ended June 30, March 31,
1993 1994 1995 1996 1997 March 31, 1998 March 31, 1997 1997 1998
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings Computation
Pre-tax earnings (losses) from
continuing operations 27,638 73,009 110,133 98,338 29,647 (374,400) 20,600 24,700 (383,700)
Add: Fixed charges 2,218 1,423 1,156 2,979 29,451 65,144 19,244 91,682 62,244
Subtract: Capitalized interest 0 0 0 0 (90) (68) (68) (90) (68)
-------------------------------------------------------------------------------------------------
Total Earnings as Adjusted 29,858 74,432 111,289 101,317 59,008 (309,324) 39,776 116,292 (321,524)
Fixed Charges Computation
Interest expensed 2,112 1,062 829 2,664 26,800 47,800 17,800 84,600 58,400
Capitalized interest 90 68 68 90 68
Amortization of deferred
financing costs 726 15,900 0 3,400 2,400
Estimated interest factor on
operating leases 106 361 327 315 1,835 1,376 1,376 3,592 1,376
-------------------------------------------------------------------------------------------------
Total Fixed Charges 2,218 1,423 1,156 2,979 29,451 65,144 19,244 91,882 62,244
=================================================================================================
Ratio of earnings to fixed
charges 13.46 52.31 96.27 34.01 2.01 (4.75) 2.07 1.27 (5.17)
=================================================================================================
Insufficiency of earnings to
cover fixed charges 374,468 383,768
=================================================================================================
</TABLE>
<PAGE>
EXHIBIT 23.2
We consent to the reference to our firm under the captions "Experts" and
"Summary Historical Consolidated Financial Information" and to the use of our
report dated July 31, 1997, except for Note 12, as to which the date is August
27, 1997, in the Registration Statement (Form S-4) and related Prospectus of
BREED Technologies, Inc. for the Registration of its $330,000,000 9 1/4% Senior
Subordinated Notes.
/s/ Ernst & Young LLP
Tampa, Florida
June 24, 1998
<PAGE>
EXHIBIT 23.3
The Board of Directors
Breed Technologies, Inc.
We consent to the use of our report dated July 21, 1995 included herein and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Tampa, Florida
June 24, 1998
<PAGE>
EXHIBIT 23.4
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Breed Technologies, Inc. of our report
dated October 31, 1997 (which contains an explanatory paragraph relating to
Safety Restraint Systems' transactions and relationships with AlliedSignal,
Inc.) relating to the combined financial statements of Safety Restraint
Systems, a Division of AlliedSignal, Inc., which appears in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Bloomfield Hills, Michigan
June 22, 1998
<PAGE>
Exhibit 23.5
[LETTERHEAD OF KPMG, MILANO LOCATION]
CONSENT
Mr. Roger Ross
Breed Technologies, Inc.
We consent to the inclusion of our audit report dated 25 July 1997 on the
combined and consolidated financial statements of the Momo group as of and for
the year ended 30 June 1997 in the Registration Statement on Form S-4 and
related prospectus of Breed Technologies, Inc. (the 'Company') for the
registration of the Company's 9 1/4% Senior Subordinated Notes due 2008, and the
reference to our firm under the heading 'Experts' in the prospectus.
Milan, Italy
23 June 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
----------
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-6022258
(Jurisdiction of incorporation (I.R.S. employer
or organization if not a U.S. national bank) identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
LUIS PEREZ, ASSISTANT VICE PRESIDENT
IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
BREED TECHNOLOGIES, INC.
(Exact names of obligor as specified in its charter)
Delaware 22-2767118
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
5300 Old Tampa Highway
P.O. Box 33050
Lakeland, Fl 33807
(Address of principal executive offices) (Zip code)
$330,000,000 9.25%Senior Subordinated Notes Due 2008
----------
(Title of indenture securities)
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York
Second District,
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate
trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
None
2
<PAGE>
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or participation in any
other securities, of the obligors are outstanding, or is trustee for more
than one outstanding series of securities under the indenture, state
whether there has been a default under any such indenture or series,
identify the indenture or series affected, and explain the nature of any
such default.
None
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as
amended to date. (See Exhibit 1A to Form T-1, Securities and
Exchange Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise corporate
trust powers, as amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended to date
(See Exhibit 4 to Form T-1, Securities and Exchange Commission
File No. 22-19146).
5. Not Applicable.
6. The consent of United States institutional trustee required by
Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
3
<PAGE>
NOTE
----
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor and its directors or
officers, the trustee has relied upon information furnished to it by the
obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2, the
answer to said Item is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2
and 16 of this form since to the best knowledge of the trustee as indicated
in Item 13, the obligor is not in default under any indenture under which
the applicant is trustee.
4
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility & qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 12th day of June, 1998.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Luis Perez
-----------------------------
Luis Perez
Assistant Vice President
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility & qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 12th day of June, 1998.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Luis Perez
-----------------------------
Luis Perez
Assistant Vice President
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the issuance by Breed Technologies,
Inc., of its $330,000,000 9.25% Senior Subordinated Notes Due 2008, we hereby
consent that reports of examinations by Federal, State, Territorial, or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Luis Perez
-----------------------------
Luis Perez
Assistant Vice President
Dated: June 12, 1998
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the issuance by Breed Technologies,
Inc., of its $330,000,000 9.25% Senior Subordinated Notes Due 2008, we hereby
consent that reports of examinations by Federal, State, Territorial, or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Luis Perez
-----------------------------
Luis Perez
Assistant Vice President
Dated: June 12, 1998
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
ASSETS
------
<S> <C> <C>
1. Cash and balance due from depository institutions:
a. Noninterest-bearing balances and currency and coin.................... $ 29,353
b. Interest-bearing balances............................................. $ 15,329
2. Securities:
a. Held-to-maturity securities........................................... $ 186,942
b. Available-for-sale securities......................................... $ 102,403
3. Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold and Securities purchased under
agreements to resell...................................................... $ 176,231
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income.............................. $1,673,749
b. LESS: Allowance for loan and lease losses............................. $ 63,611
c. LESS: Allocated transfer risk reserve................................. $ -0-
d. Loans and leases, net of unearned income, allowance, and reserve...... $1,610,138
5. Trading assets held in trading accounts................................... $ 584
6. Premises and fixed assets (including capitalized leases).................. $ 2,575
7. Other real estate owned................................................... $ 819
8. Investments in unconsolidated subsidiaries and associated companies....... $ -0-
9. Customers' liability to this bank on acceptances outstanding.............. $ 503
10. Intangible assets......................................................... $ -0-
11. Other assets.............................................................. $ 61,923
12. TOTAL ASSETS.............................................................. $2,186,800
</TABLE>
<PAGE>
LIABILITIES
-----------
<TABLE>
<S> <C> <C>
13. Deposits:
a. In domestic offices................................................... $ 659,051
(1) Noninterest-bearing....................................... $ 288,134
(2) Interest-bearing.......................................... $ 370,917
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs........ $1,141,113
(1) Noninterest-bearing....................................... $ 19,428
(2) Interest-bearing.......................................... $1,121,685
14. Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its
Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased and Securities sold under agreements
to repurchase............................................................. $ -0-
15. a. Demand notes issued to the U.S. Treasury.............................. $ 5,000
b. Trading Liabilities................................................... $ 344
16. Other borrowed money:
a. With a remaining maturity of one year or less............................. $ 61,953
b. With a remaining maturity of more than one year........................... $ 1,763
c. With a remaining maturity of more than three
years..................................................................... $ 2,242
17. Not applicable.
18. Bank's liability on acceptances executed and
outstanding............................................................... $ 503
19. Subordinated notes and debentures......................................... $ -0-
20. Other liabilities......................................................... $ 70,344
21. TOTAL LIABILITIES......................................................... $1,942,313
22. Limited-life preferred stock and related surplus.......................... $ N/A
<CAPTION>
EQUITY CAPITAL
<S> <C> <C>
23. Perpetual preferred stock and related surplus............................. $ -0-
24. Common stock.............................................................. $ 29,649
25. Surplus (exclude all surplus related to preferred stock).................. $ 217,008
26. a. Undivided profits and capital reserves................................. $ (2,291)
b. Net unrealized gains (losses) on available-for-sale securities......... $ 121
27. Cumulative foreign currency translation adjustments....................... $ -0-
28. TOTAL EQUITY CAPITAL...................................................... $ 244,487
29. TOTAL LIABILITIES AND EQUITY CAPITAL...................................... $2,186,800
</TABLE>
