UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1999
Commission File Number 0-23938
SAFETY COMPONENTS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0596831
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2160 North Central Road Fort Lee, New Jersey, 07024
(Address and zip code of principal executive offices)
(201) 592-0008
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No __
The number of shares outstanding of the issuer's common stock, $.01 par value
per share, as of November 9, 1999, was 5,136,316.
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
PART I
FINANCIAL INFORMATION
The unaudited consolidated financial information at September 25, 1999 and for
the thirteen week and twenty-six week period ended September 25, 1999 and the
unaudited restated consolidated financial information at March 27, 1999 relate
to Safety Components International, Inc. and its subsidiaries. See Note 1 of the
Notes to the Consolidated Financial Statements for information on these
financial statements.
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of September 25, 1999 and
restated March 27, 1999 3
Consolidated Statements of Operations for the
thirteen weeks ended September 25, 1999 and
restated September 26, 1998 4
Consolidated Statements of Operations for the
twenty-six weeks ended September 25, 1999 and
restated September 26, 1998 5
Consolidated Statements of Cash Flows for the
twenty-six weeks ended September 25, 1999 and
restated September 26, 1998 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 18
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 19
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
2
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Restated
September 25, March 27,
1999 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 9,475 $ 10,607
Accounts receivable, net ........................................... 38,306 42,663
Receivable from affiliate, net ..................................... 599 4,583
Inventories ........................................................ 18,568 21,445
Prepaid and other .................................................. 8,778 8,413
--------- ---------
Total current assets .......................................... 75,726 87,711
Property, plant and equipment, net ..................................... 71,290 68,747
Intangible assets, net ................................................. 56,243 57,796
Other assets ........................................................... 9,828 6,094
--------- ---------
Total assets .................................................. $ 213,087 $ 220,348
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 20,422 $ 28,093
Earnout payable .................................................... -- 2,111
Accrued liabilities ................................................ 17,463 15,993
Current portion of long-term obligations ........................... 3,711 3,988
--------- ---------
Total current liabilities ..................................... 41,596 50,185
Long-term debt obligations ............................................. 55,877 53,700
Senior subordinated debt ............................................... 90,000 90,000
Other long-term liabilities ............................................ 4,126 3,776
--------- ---------
Total liabilities ............................................. 191,599 197,661
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.10 par value per share - 2,000,000 shares
authorized and unissued
Common stock: $.01 par value per share - 10,000,000 shares
authorized; 6,629,008 shares issued and
5,136,316 outstanding ....................................... 66 66
Common stock warrants .............................................. 51 1
Additional paid-in-capital ......................................... 45,168 45,168
Treasury stock, 1,492,692 shares at cost ........................... (15,439) (15,439)
Retained earnings .................................................. (1,729) (903)
Accumulated other comprehensive income:
Cumulative translation adjustment .................................. (6,629) (6,206)
--------- ---------
Accumulated other comprehensive income ........................ (6,629) (6,206)
Total stockholders' equity ................................. 21,488 22,687
--------- ---------
Total liabilities and stockholders' equity ................. $ 213,087 $ 220,348
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Restated
Thirteen Thirteen
Weeks Ended Weeks Ended
September 25, 1999 September 26, 1998
------------------ ------------------
<S> <C> <C>
Net sales .................................... $ 53,391 $ 52,651
Cost of sales, excluding depreciation ........ 44,657 43,793
Depreciation ................................. 2,118 1,811
-------- --------
Gross profit .............................. 6,616 7,047
Selling and marketing expenses ............... 675 629
General and administrative expenses .......... 3,522 2,519
Research and development expenses ............ 424 195
Amortization of goodwill ..................... 574 575
-------- --------
Income from operations .................... 1,421 3,129
Other expense ................................ 120 30
Interest expense ............................. 3,738 2,993
-------- --------
(Loss) Income before income taxes ......... (2,437) 106
(Benefit) provision for income taxes ......... (1,013) 199
-------- --------
Net (loss) income ............................ $ (1,424) $ (93)
======== ========
Net (loss) income per share, basic ........... $ (0.28) $ (0.02)
======== ========
Net (loss) income per share, assuming
dilution .................................... $ (0.28) $ (0.02)
======== ========
Weighted average number of shares
outstanding, basic ...................... 5,136 5,119
======== ========
Weighted average number of shares
outstanding, assuming dilution .......... 5,136 5,119
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Restated
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
September 25, 1999 September 26, 1998
------------------ ------------------
<S> <C> <C>
Net sales ......................................... $ 117,236 $ 104,016
Cost of sales, excluding depreciation ............. 97,521 84,111
Depreciation ...................................... 4,245 3,677
--------- ---------
Gross profit .................................. 15,470 16,228
Selling and marketing expenses .................... 1,434 1,276
General and administrative expenses ............... 6,311 5,090
Research and development expenses ................. 647 195
Amortization of goodwill .......................... 1,149 1,135
--------- ---------
Income from operations ........................ 5,929 8,532
Other expense ..................................... 128 74
Interest expense .................................. 7,197 5,796
--------- ---------
(Loss) Income before income taxes ............. (1,396) 2,662
(Benefit) provision for income taxes .............. (621) 1,260
--------- ---------
Net (loss) income ................................. $ (775) $ 1,402
========= =========
Net (loss) income per share, basic ................ $ (0.15) $ 0.28
========= =========
Net (loss) income per share,
assuming dilution ............................ $ (0.15) $ 0.27
========= =========
Weighted average number of shares
outstanding, basic .......................... 5,136 5,093
========= =========
Weighted average number of shares outstanding,
assuming dilution ........................... 5,136 5,200
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Restated
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
September 25, 1999 September 26, 1998
------------------ ------------------
<S> <C> <C>
Net cash provided by (used in) operating
activities .................................... $ 7,774 $ (7,655)
-------- --------
Cash Flows From Investing Activities:
Additions to property, plant and equipment .. (7,036) (9,873)
Additional consideration and costs for
Phoenix Airbag .......................... (2,061) (1,958)
Acquisition costs and advances to Valentec .. -- (502)
Acquisition costs of SCFTI .................. -- (242)
-------- --------
Net cash used in investing
activities ........................... (9,097) (12,575)
-------- --------
Cash Flows From Financing Activities:
Proceeds from Deutsche Bank mortgage ........ 2,907 --
Net proceeds from sale of common stock ...... -- 951
Repayments of debt and long-term
obligations ............................. (3,018) (1,327)
Net borrowing on revolving credit facility .. 700 7,824
Proceeds from KeyBank equipment note ........ -- 10,000
-------- --------
Net cash provided by financing
activities ........................... 589 17,448
-------- --------
Effect of exchange rate changes on cash ............ (398) (172)
-------- --------
Change in cash and cash equivalents ................ (1,132) (2,954)
Cash and cash equivalents, beginning of period ..... 10,607 6,049
-------- --------
Cash and cash equivalents, end of period ........... $ 9,475 $ 3,095
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................ $ 6,789 $ 5,710
Income taxes ............................ 3 361
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization and Basis of Presentation
The thirteen week and twenty-six week financial statements contained in
this report have been adjusted to reflect the restatement of financial
statements for the periods ended at and for March 27, 1999, March 28, 1998, as
well as the thirteen weeks ended June 26, 1999. Management has discovered
certain matters relating to the Company's financial statements for fiscal years
1999 and 1998 which will require further investigation and restatement of the
financial statements for those periods, as well as the financial statements for
the thirteen weeks ended June 26, 1999. The principal components of the
adjustments consist of the reversal of a duplicate booking of a sale and the
related receivable in the Company's defense operations and the reversal of
certain items incorrectly recorded in income in connection with a loan
transaction. Although management believes, after an internal review, that it has
found and reported all the adjustments necessary to fairly report the financial
condition and results of operations for the fiscal periods affected, there can
be no assurance that further adjustments will not be required until the
investigation is completed. Upon completion of this investigation, the Company
expects to file amended annual reports on Form 10-K covering fiscal 1998 and
1999 and the applicable quarterly reports on Form 10-Q covering fiscal 1998,
1999 and the first quarter of fiscal 2000. Accordingly, the Company's previously
issued fiscal 1998 and 1999 annual financial statements and the independent
auditor's reports thereon, as well as the interim financial statements for
fiscal 1998, 1999 and the first quarter of fiscal 2000, should not be relied
upon.
Based upon information currently available to management and subject to
completion of the investigation, the restatement for the fiscal year ended March
28, 1998 reduces previously reported net sales by $3,881,000 to net sales of
$166,429,000 and reduces previously reported net income by $2,328,000 to a net
income of $3,680,000, $0.71 per duluted share. The restatement for the fiscal
year ended March 27, 1999 reduces previously reported net sales by $1,048,000 to
net sales of $220,231,000 and increases previously reported net loss by $900,000
to a loss of $13,763,000, $2.69 loss per diluted share. The restatement for the
second quarter of fiscal year 1999 reduces previously reported net sales by
$408,000 to net sales of $52,651,000 and previously reported net income by
$251,000 to net loss of $93,000. The restatement for the twenty-six weeks ending
September 26, 1998 reduces previously reported net sales by $492,000 to net
sales of $104,016,000 and previously reported net income by $303,000 to net
income of $1,402,000. The cumulative effect on retained earnings was $2,328,000,
$3,228,000 and $2,631,000 as of March 28, 1998, March 27, 1999, and September
26, 1998.
The consolidated financial statements included herein have been prepared by
Safety Components International, Inc. ("SCI" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from this report, as is permitted by such rules
and regulations; however, SCI believes that the disclosures are adequate to make
the information presented not misleading. The Company has experienced, and
expects to continue to experience, variability in net sales and net income from
quarter to quarter. Therefore, the results of the interim periods presented
herein are not necessarily indicative of the results to be expected for any
other interim period or the full year. Subject to the comments contained in the
previous paragraph, in the opinion of management, the information furnished
reflects all adjustments necessary for a fair presentation of the results for
the reported interim periods.
7
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Composition Of Certain Consolidated Balance Sheet Components (in
thousands)
<TABLE>
<CAPTION>
Restated
September 25, 1999 March 27, 1999
------------------ --------------
<S> <C> <C>
Accounts receivable:
Billed receivables $ 34,141 $ 38,899
Unbilled receivables (net of unliquidated progress
Payments of $1,101 and $472 at September 25, 1999
And March 27, 1999, respectively) 2,180 2,690
Other 1,985 1,074
-------- --------
$ 38,306 $ 42,663
======== ========
Inventories:
Raw materials $ 6,841 $ 6,805
Work-in-process 6,843 6,973
Finished goods 4,884 7,667
-------- --------
$ 18,568 $ 21,445
======== ========
Property, plant and equipment:
Land and building $ 14,237 $ 10,583
Machinery and equipment 69,353 66,557
Furniture and fixtures 3,008 2,608
Construction in progress 4,867 4,994
-------- --------
91,465 84,742
Less - accumulated depreciation and amortization (20,175) (15,995)
-------- --------
$ 71,290 $ 68,747
======== ========
</TABLE>
A receivable from affiliate has a gross balance of $1,199 and a reserve of $600
has been recorded in the current period.
8
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Long-Term Obligations (in thousands)
<TABLE>
<CAPTION>
Restated
September 25, 1999 March 27, 1999
------------------ --------------
<S> <C> <C>
Senior Subordinated Notes due July 15, 2007, bearing
interest at 10.125% $ 90,000 $ 90,000
KeyBank revolving credit facility due May 05, 2002, bearing
interest at 3.0% over LIBOR 37,900 37,200
KeyCorp equipment note due July 10, 2005, bearing interest
at 7.09% 8,618 9,210
Bank Austria mortgage note, due March 31, 2007, bearing
interest at 1.0% over LIBOR 6,000 6,375
Deutsche Bank mortgage note, $801 due June 30, 2009 and
$1,335 due June 30, 2019, bearing interest at 4.05%
and 3.75%, respectively 2,136 0
Note payable, principal due in annual installments of $205
beginning January 12, 1999 to January 12, 2002,
with interest at 7.22% in semiannual installments,
secured by assets of the Company's United
Kingdom subsidiary 616 608
Capital equipment notes payable, due in monthly installments
with interest at 5.99% to 16.0% maturing at various rates
through November 2004, secured by machinery 3,698 3,571
and equipment
A. I. Credit Corp. note, due in monthly
installments of $29 beginning January 3, 1999
to November 3, 2001, bearing interest at 7.57% 620 724
--------- ---------
149,588 147,688
Less - current portion (3,711) (3,988)
--------- ---------
$ 145,877 $ 143,700
========= =========
</TABLE>
On July 24, 1997, the Company issued $90.0 million aggregate principal
amount of its 10.125% Senior Subordinated Notes due 2007, Series A (the "Old
Notes") to BT Securities Corporation, Alex.
9
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Brown & Sons Incorporated and BancAmerica Securities, Inc. in a transaction not
registered under the Securities Act of 1933, as amended, in reliance upon an
exemption thereunder (the "Debt Offering"). On September 2, 1997, the Company
commenced an offer to exchange (the "Exchange Offer", together with the Debt
Offering, the "Offering") the Old Notes for $90.0 million aggregate principal
amount of its 10.125% Senior Subordinated Notes due 2007, Series B (the
"Exchange Notes", together with the Old Notes, the "Notes"). All of the Old
Notes were exchanged for the Exchange Notes pursuant to the terms of the
Exchange Offer, which expired on October 1, 1997. Interest on the Notes accrues
from July 24, 1997 and is payable semi-annually in arrears on each of January 15
and July 15 of each year. The Company made its semi-annual interest payment
during fiscal year 2000 to the holders for $4.6 million. The Company had also
accrued as of September 25, 1999, as part of accrued liabilities, approximately
$1.9 million of interest, which is due to be paid January 15, 2000 as part of
the second semi-annual payment. The Company incurred approximately $3.9 million
of fees and expenses related to the Offering. Such fees have been deferred and
will be charged to operations over the expected term of the Notes, not to exceed
10 years. The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture pursuant to which the Notes were issued) and to all
existing and future indebtedness of the Company's subsidiaries that are not
Guarantors. All of the Company's direct and indirect wholly-owned domestic
subsidiaries are Guarantors. Subject to exceptions for specified Permitted
Indebtedness, the Company may not incur additional Indebtedness under the terms
of such Indenture unless certain conditions are met. The Company intends to meet
its working capital needs and capital expenditures through a combination of
internally generated cash flows from operations, Permitted Indebtedness and/or
public or private equity offerings.
The Company, ASCI GmbH and Automotive Safety Components International
Limited entered into an agreement with KeyBank National Association, as
administrative agent ("KeyBank"), dated as of May 21, 1997 and as amended to
date (the "Credit Agreement"). The Credit Agreement consists of a $40.0 million
revolving credit facility for a five year term, bearing interest at LIBOR (5.67%
as of September 25, 1999) plus 3.0% with a commitment fee of .375% per annum for
any unused portion. The indebtedness under the Credit Agreement is secured by
substantially all the assets of the Company. As of September 25, 1999 letters of
credit outstanding were $2.0 million and there was no availability under the
Credit Agreement. The Company incurred approximately $470,000 of financing fees
and related costs. These costs have been deferred and are being charged to
operations over the expected term of the Credit Agreement not to exceed 5 years.
The Credit Agreement contains certain restrictive covenants that impose
limitations upon, among other things, the Company's ability to change its
business; merge; consolidate or dispose of assets; incur liens; make loans and
investments; incur indebtedness; pay dividends and other distributions; engage
in certain transactions with affiliates; engage in sale and lease-back
transactions; enter into lease agreements; and make capital expenditures.
On October 9, 1998, the Company entered into Amendment No. 4 to the Credit
Agreement, which increased the revolving credit facility from $27.0 million to
$40.0 million, and added Fleet Bank as a member of the bank syndicate. KeyBank
and Fleet Bank each provide fifty percent of the financing available under the
Credit Agreement and KeyBank remains as acting agent.
On June 24, 1999, the Company entered into Amendment No. 6 to the Credit
Agreement, which among other covenants requires the Company to earn $30.0
million of EBITDA (as such term is defined in the Credit Agreement) in fiscal
year 2000. Such covenant is tested monthly based upon cumulative targets for the
year. Covenants for Fixed Charge Coverage, Interest Coverage and Minimum Net
Income are also based on the $30.0 million EBITDA target. In addition, the
interest rate was increased to LIBOR plus 3.0% and the commitment fee was
increased to .375%. The Company issued to the Lenders ten-year
10
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
warrants to acquire 20,000 shares of the Company's common stock at current
market value per share. The Company, using the Black-Sholes pricing model,
calculated the fair market value of the warrants at approximately $50,000.
Additionally, the Company will be subject, as of June 24, 2000, to a Senior
Funded Debt to EBITDA ratio covenant of 1.5 to 1.0 and a Minimum Consolidated
Net Worth covenant. In addition, under Amendment No. 6 to the Credit Agreement
the Lenders waived certain financial covenants for periods through the date of
such amendment. The interest rate will increase 1.0% on July 1, 2000 and an
additional 1.0% for each quarter thereafter if the Company does not refinance
the Credit Agreement by such dates. In addition, if the Company refinances the
Credit Agreement by December 31, 1999, the 20,000 warrants will be returned to
the Company. However, if the Company does not refinance the Credit Agreement by
July 1, 2000, the Company is required to issue an additional 30,000 ten-year
warrants to the Lenders at the then current market value per share.
On July 10, 1998, the Company entered into a $10.0 million financing
arrangement with KeyCorp Leasing, a division of Key Corporate Capital Inc.
("KeyCorp"). The Company applied the entire proceeds to satisfy outstanding
indebtedness under the KeyBank revolving credit facility, thereby increasing the
availability under the revolving credit facility. The KeyCorp financing
agreement has a seven-year term, bears interest at a fixed rate of 7.09% via an
interest swap agreement, requires monthly payments of $150,469, and is secured
by certain equipment located at SCFTI. The rate swap is considered immaterial to
the Company's financial position at September 25, 1999.
On June 4, 1997, the Company secured a $7.5 million mortgage note facility
with Bank of Austria. The note is payable in semi-annual installments of
$375,000 through March 31, 2007 and bears interest at 1.0% over LIBOR. The
assets of the Company's Czech Republic facility secure the note. The Company
incurred approximately $437,000 of financing fees and related costs. These costs
have been deferred and will be charged to operations over the expected term of
the note not to exceed 5 years.
On April 1, 1999, the Company secured a $2.9 million mortgage note facility
with Deutsche Bank to purchase a facility in Bavendstedt, Germany. The note is
secured by the real estate in Germany acquired through the mortgage and is
further secured by a guarantee issued by Safety Components. In July, 1999 the
Company refinanced the note and reduced the outstanding indebtedness to $2.1
million.
On November 3, 1998, the Company obtained a $750,000 unsecured note
facility with A. I. Credit Corp, which requires monthly payments of $29,000 and
bears interest of 7.57%.
11
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Reconciliation to Diluted Earnings Per Share (in thousands)
The following data show the amounts used in computing earnings per share and the
effect on income and the weighted average number of shares of dilutive potential
common stock.
<TABLE>
<CAPTION>
Restated Restated
Thirteen Thirteen Weeks Twenty-Six Twenty-Six
Weeks Ended Ended Weeks Ended Weeks Ended
September 25, 1999 September 26, 1998 September 25, 1999 September 26, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net Income $(1,424) $ (93) $ (775) $ 1,402
======= ======= ======= =======
Weighted average number of
common shares used in
basic earnings per share 5,136 5,119 5,136 5,093
Effect of dilutive securities:
Stock options -- -- -- 98
Warrants -- -- -- 9
------- ------- ------- -------
Weighted average number of
common shares and
dilutive potential common
stock used in
diluted earnings per share 5,136 5,119 5,136 5,200
======= ======= ======= =======
</TABLE>
Options on approximately 1,284,000 and 823,000 shares of common stock were not
included in computing diluted earnings per share as of September 25, 1999 and
September 26, 1998, respectively, because their effects were antidilutive.
Warrants to purchase 124,400 and 100,000 shares of Common Stock were not
included in computing diluted earnings per share as of September 25, 1999 and
September 26, 1998, respectively, because their effects were antidilutive.
Note 5 - Comprehensive Income (in thousands)
During the first quarter of fiscal year 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income", which became effective for fiscal years
beginning after December 15, 1997. This Statement requires disclosure of
comprehensive income, defined as the total of net income and all other non-owner
changes in equity, which under generally accepted accounting principles, are
recorded directly to the stockholders' equity section of the consolidated
balance sheet and, therefore bypass net income. In SCI's case, the non-owner
changes in equity relate to foreign currency translation adjustments.
Comprehensive income is calculated as follows:
12
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Restated Restated
Thirteen Thirteen Weeks Twenty-Six Twenty-Six
Weeks Ended Ended Weeks Ended Weeks Ended
September 25, 1999 September 26, 1998 September 25, 1999 September 26, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net Income $(1,424) $ (93) $ (775) $ 1,402
Foreign currency translation
adjustment 584 2,691 (423) 2,759
------- ------- ------- -------
Comprehensive income $ ( 840) $ 2,598 $(1,198) $ 4,161
======= ======= ======= =======
</TABLE>
Note 6 - Supplemental Guarantor Condensed Consolidating Financial Statements (in
thousands)
The Notes are guaranteed on a senior unsecured basis, jointly and severally, by
each of the Company's principal wholly-owned domestic operating subsidiaries and
certain of its indirect domestic wholly-owned subsidiaries (the "Guarantors").
Certain condensed consolidating information of the Guarantors are presented
below as of September 25, 1999.
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
------------ ------------ ----------- ------- -----
<S> <C> <C> <C> <C> <C>
Current assets ................... $ 44,612 $ 23,045 $ 8,069 $ 0 $ 75,726
========= ========= ========= ========= =========
Total assets ..................... $ 132,675 $ 68,565 $ 20,471 $ (8,624) $ 213,087
========= ========= ========= ========= =========
Current liabilities .............. $ 29,851 $ 26,528 $ (14,786) $ 3 $ 41,596
========= ========= ========= ========= =========
Total liabilities ................ $ 126,170 $ 59,412 $ 6,014 $ 3 $ 191,599
========= ========= ========= ========= =========
Revenues ......................... $ 77,233 $ 44,041 $ 0 $ (4,038) $ 117,236
========= ========= ========= ========= =========
Gross profit ..................... $ 9,718 $ 5,625 $ (115) $ 242 $ 15,470
========= ========= ========= ========= =========
Income from operations ........... $ 5,038 $ 3,317 $ (3,004) $ 578 $ 5,929
========= ========= ========= ========= =========
Income before taxes .............. $ 5,616 $ 1,766 $ (9,418) $ 640 $ (1,396)
========= ========= ========= ========= =========
Net income ....................... $ 3,523 $ 672 $ (5,743) $ 773 $ (775)
========= ========= ========= ========= =========
</TABLE>
13
<PAGE>
SAFETY COMPONENTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 Business Segment Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in fiscal year 1999. The Company's
operations have been classified into two operating segments: (i) Automotive and
Fabric - The Company manufactures fabrics and automotive airbags for several
domestic and foreign automobile manufacturers under contracts with major airbag
systems integrators. Included in Automotive and Fabric are technical fabric
products, which are produced using similar production processes as for airbag
fabric; and (ii) Metal and Defense - The Company acts as a systems integrator
for the U.S. Army, coordinating the manufacture and assembly of components
supplied by various subcontractors. Included in the Metal and Defense are metal
components manufactured for commercial purposes, which are produced using
similar production processes as other metal components. The Company's Defense
Operations also manufactures projectiles and other metal components for small to
medium caliber training and tactical ammunition for the U.S. Armed Forces and
contractors within the defense business.
In the second quarter of fiscal year 2000, management determined that the
Company's reportable operating segments, disclosed in previous filings, were no
longer consistent with the manner in which management reviews the Company's
business operations and assessed the performance of its various product lines.
Accordingly, the Company has realigned its reportable operating segments to more
appropriately reflect management's current practice. The Company evaluates
performance and allocates resources based on earnings (operating income) before
interest, taxes, depreciation, and amortization ("EBITDA"). The Company's
reportable segments are differentiated by product and production process. The
reportable segments are each managed separately because they manufacture
distinct products with different production processes. Summarized financial
information by business segment follows (in thousands). Amounts for fiscal year
1999 have been restated to conform with management's revised approach to
managing the business.
<TABLE>
<CAPTION>
Restated Restated
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
September 25, 1999 September 26, 1998 September 25, 1999 September 26, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues from external
customers:
Airbag cushions $ 29,020 $ 23,978 $ 62,207 $ 44,781
Airbag fabric 10,285 11,582 23,027 24,033
Technical fabric 6,735 6,200 13,351 12,203
-------- -------- -------- --------
Automotive & Fabrics $ 46,040 $ 41,760 $ 98,585 $ 81,017
======== ======== ======== ========
Systems integrator $ 3,383 $ 5,996 $ 9,694 $ 11,728
Metal components 3,968 4,895 8,957 11,271
-------- -------- -------- --------
Metal & Defense $ 7,351 $ 10,891 $ 18,651 $ 22,999
======== ======== ======== ========
EBITDA:
Automotive & Fabrics $ 5,767 $ 5,162 $ 13,193 $ 12,301
Metal & Defense (20) 1,254 984 2,991
Corporate (1,634) (901) (2,854) (1,948)
-------- -------- -------- --------
$ 4,113 $ 5,515 $ 11,323 $ 13,344
======== ======== ======== ========
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Overview
As discussed in Note 1 to the Financial Statements based upon information
currently available to management and subject to completion of the
investigation, the restatement for the fiscal year ended March 28, 1998 reduces
previously reported net sales by $3,881,000 to net sales of $166,429,000 and
reduces previously reported net income by $2,328,000 to a net income of
$3,680,000, $0.71 per diluted share. The restatement for the fiscal year ended
March 27, 1999 reduces previously reported net sales by $1,048,000 to net sales
of $220,231,000 and increases previously reported net loss by $900,000 to a loss
of $13,763,000, $2.69 loss per diluted shares. The restatement for the second
quarter of fiscal year 1999 reduces previously reported net sales by $408,000 to
net sales of $52,651,000 and previously reported net income by $251,000 to net
loss of $93,000, $0.02 loss per diluted share. The restatement for the
twenty-six weeks ending September 26, 1998 reduces previously reported net sales
by $492,000 to net sales of $104,016,000 and previously reported net income by
$303,000 to net income of $1,402,000. The cumulative effect on retained earnings
was $2,328,000, $3,228,000 and $2,631,000 as of March 28, 1998, March 27, 1999,
and September 26, 1998.
The principal components of the adjustments consist of the reversal of a
duplicate booking of a sale and the related receivable in the Company's defense
operations and the reversal of certain items incorrectly recorded in income in
connection with a loan transaction. Although management believes, after an
internal review, that it has found and reported all the adjustments necessary to
fairly report the financial condition and results of operations for the fiscal
periods affected, there can be no assurance that further adjustments will not be
required until the investigation is completed. Upon completion of this
investigation, the Company expects to file amended annual reports on Form 10-K
covering fiscal 1998 and 1999 and the applicable quarterly reports on Form 10-Q
covering fiscal 1998, 1999 and the first quarter of fiscal 2000. Accordingly,
the Company's previously issued fiscal 1998 and 1999 annual financial statements
and the independent auditor's reports thereon, as well as the interim financial
statements for fiscal 1998, 1999 and the first quarter of fiscal 2000, should
not be relied upon. The Company is exploring the implications of the restatement
on covenant compliance under its outstanding indebtedness and has initiated
discussions with its senior lenders with respect thereto. The Company intends to
seek any waivers which it deems necessary or appropriate.
Second Quarter Ended September 25, 1999 Compared to Restated Second Quarter
Ended September 26, 1998
Net Sales. Net sales for the quarter ended September 25, 1999 increased $.7
million or 1.4% to $53.4 million compared to $52.7 million for the quarter ended
September 26, 1998. The increase was attributable primarily to increased sales
volumes in the automotive and fabrics operations, hereafter referred to as "core
operations." The North American core operations had increased sales of 9.6% for
air bag cushions and related fabric products over the second quarter of fiscal
year 1999. The European core operations had increased sales of 11.2% over the
second quarter of fiscal year 1999, although such sales were impacted adversely
by approximately 3.8% from foreign currency translation rates. Within the core
operations, airbag fabric sales have shifted approximately 11.2% from external
sales to its Ensenada, Mexico plant to support the demand for Company air bag
cushions. The core operations increases are offset significantly by the metal
and defense operations, hereafter referred to as "non-core operations." The
non-core operations had decreased sales of 32.5% over the second quarter of
fiscal year 1999; such decreases are attributable primarily to lower volume at
the Valentec and Systems Integrator operations. Specifically, current quarter
sales for the M16 links and 120 MM mortar system were significantly below the
same period in the prior year due to the phase out of those contracts. The
company is continuing to explore strategic alternatives for its non-core
operations and expects to conclude its evaluation of these alternatives by the
end of the current fiscal year."
15
<PAGE>
Gross Profit. Gross profit for the quarter ended September 25, 1999
decreased $0.4 million or 6.1% to $6.6 million compared to $7.0 million for the
quarter ended September 26, 1998. The decrease was attributable primarily to the
non-core operations. Significantly lower sales at Valentec and increased
materials cost at Galion related to the 30mm HEDP program, combined with lower
margins in these non-core operations have contributed to the decrease.
Additionally, the core operations were affected slightly by unfavorable product
mix from prior year. Gross profit as a percentage of sales was 12.4% for the
second quarter of fiscal year 2000 compared to 13.4 % for the second quarter of
fiscal year 1999. The decrease in gross profit as a percentage of sales was due
to the items discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended September 25, 1999 increased $1.0
million or 33.5% to $4.2 million compared to $3.1 million for the quarter ended
September 26, 1998. The Company established a reserve against its receivable
from affiliate, in the amount of $0.6 million, as a result of uncertainty as to
the affiliate's ability to generate sufficient revenues from a foreign
government customer to repay such amount. In addition, several corporate
positions were filled that were open during the second quarter of fiscal year
1999. Such positions included the Chief Operating Officer and Corporate
Directors of Lean Manufacturing and Quality Assurance. Increased legal fees were
incurred as the Company evaluated various strategic financing alternatives. With
the implementation of the Quality Assurance and Lean Manufacturing concepts, the
Company expects to continue to experience benefits in its operating performance
in its core operations in the near-term future. Selling, general and
administrative expenses as a percentage of sales increased to 7.9% for the
second quarter of fiscal year 2000 compared to 6.0% for the second quarter of
fiscal year 1999. Such increases were attributable to the items discussed above.
Research and Development Expenses. Research and development expenses for
the quarter ended September 25, 1999 increased $0.2 million to $.4 million
compared to $0.2 million for the quarter ended September 26, 1998. Research and
development costs at Valentec during the second quarter of fiscal year 2000 of
approximately $0.1 million were incurred in connection with the development of
proprietary products for the automotive industry. Valentec has developed a high
performance exhaust system, under its Zummo Performance Products product line,
anticipated to be sold through retail and wholesale channels. The majority of
the remaining research and development costs were incurred at SCFTI in its
technical fabrics division.
Operating Income. Operating income for the quarter ended September 25, 1999
decreased $1.7 million or 54.6% to $1.4 million compared to $3.1 million for the
quarter ended September 26, 1998. The decrease was attributable primarily to the
items discussed above.
Interest Expense. Interest expense for the quarter ended September 25, 1999
increased $0.7 million or 24.9% to $3.7 million compared to $3.0 million for the
quarter ended September 25, 1999. This increase was attributable primarily to
increases in debt under the Company's revolving credit facility, additional
capitalized lease financing and the addition of the Deutsche Bank mortgage note.
Income Taxes. The income tax rate applied against pre-tax loss was a 41.6%
benefit for the second quarter of fiscal year 2000 compared to 187.7% against
pre-tax income for the second quarter of fiscal year 1999. The tax rate was
lower during the second quarter of fiscal year 2000 due to the operating loss
and the foreign tax benefits recognized during that period. The effective tax
rate related to pre-tax earnings was higher during the second quarter of fiscal
year 1999 due to non-deductible goodwill at Valentec, coupled by a greater
proportion of income from foreign sources, which have higher tax rates.
Net Loss. Net loss for the quarter ended September 25, 1999 was $1.4
million compared to net loss of $0.1 million for the quarter ended September 26,
1998. This decrease was a result of the items discussed above.
16
<PAGE>
Twenty-Six Weeks Ended September 25, 1999 Compared to Restated Twenty-Six Weeks
Ended September 26, 1998
Net Sales. Net sales for the twenty-six weeks ended September 25, 1999
increased $13.2 million or 12.7% to $117.2 million compared to $104.0 million
for the twenty-six weeks ended September 26, 1998. The increase was attributable
primarily to increased sales volumes in the automotive and fabrics operations -
the Company's core operations. North American core operations had increased
sales of 16.0% for air bag cushions and related fabric products over the second
quarter of fiscal year 1999. European core operations had increased sales of
31.1% over the second quarter of fiscal year 1999, although such sales were
impacted adversely approximately 3.0% by foreign currency translation rates.
Within the core operations, airbag fabric sales have shifted approximately 4.2%
from external sales to its Ensenada, Mexico plant to support the demand for
Company air bag cushions. These increases are offset significantly by the metal
and defense operations - the Company's non-core operations. The non-core
operations had decreased sales of 18.9% over the second quarter of fiscal year
1999; such decreases are attributable primarily to lower volume at the Valentec
and Systems Integrator operations. Specifically, current year sales for the M16
links and 120 MM mortar system were significantly below the prior year due to
the phase out of those contracts.
Gross Profit. Gross profit for the twenty-six weeks ended September 25,
1999 decreased $.8 million or 4.7% to $15.5 million compared to $16.2 million
for the twenty-six weeks ended September 26, 1998. The decrease was attributable
primarily to the non-core operations. Significantly lower sales at Valentec and
increased materials cost at Galion related to the 30mm HEDP program, combined
with lower margins in these non-core operations have contributed to the
decrease. Additionally, the core operations were affected slightly by product
mix, which differentiated adversely from the prior year. Gross profit as a
percentage of sales was 13.2% for the twenty-six weeks ended September 25, 1999
compared to 15.6% for the twenty-six weeks ended September 26, 1998. The
decrease in gross profit as a percentage of sales was due to the items discussed
above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the twenty-six weeks ended September 25, 1999
increased $1.4 million or 21.7% to $7.7 million compared to $6.4 million for the
twenty-six weeks end September 26, 1998. The Company established a reserve
against its receivable from affiliate, in the amount of $0.6 million, as a
result of uncertainty as to the affiliate's ability to generate sufficient
revenues from a foreign government customer to repay such amount. In addition,
several corporate positions were filled that were open during the second quarter
of fiscal year 1999. Such positions included the Chief Operating Officer and
Corporate Directors of Lean Manufacturing and Quality Assurance. Increased legal
fees were incurred as the Company evaluated various strategic financing
alternatives, along with increased sales commissions from North America core
operations. With the implementation of the Quality Assurance and Lean
Manufacturing concepts, the Company expects to continue to experience
significant benefits in its operating performance in the near-term future.
Selling, general and administrative expenses as a percentage of sales increased
to 6.6% for the twenty-six weeks ended September 25, 1999 compared to 6.1% for
the twenty-six weeks ended September 26, 1998. Such increases were attributable
to the items discussed above.
Research and Development Expenses. Research and development expenses for
the twenty-six weeks ended September 25, 1999 increased $0.4 million to $.6
million compared to $0.2 million for the twenty-six weeks ended September 26,
1998. Research and development costs at Valentec during the twenty-six weeks
ended September 25, 1999 of approximately $0.3 million were incurred in
connection with the development of proprietary products for the automotive
industry. Valentec has developed a high performance exhaust system, under its
Zummo Performance Products product line, anticipated to be sold through retail
and wholesale channels. The majority of the remaining research and development
costs were incurred at SCFTI in its technical fabrics division.
17
<PAGE>
Operating Income. Operating income for the twenty-six weeks ended September
25, 1999 decreased $2.6 million or 30.5% to $5.9 million compared to $8.5
million for the twenty-six weeks ended September 26, 1998. The decrease was
attributable primarily to the items discussed above.
Interest Expense. Interest expense for the twenty-six weeks ended September
25, 1999 increased $1.4 million to $7.2 million compared to $5.8 million for the
twenty-six weeks ended September 26, 1998. This increase was attributable
primarily to increases in debt under the Company's revolving credit facility,
additional capitalized lease financing and the addition of the Deutsche Bank
mortgage note.
Income Taxes. The income tax rate applied against pre-tax loss was 44.5%
benefit for the twenty-six weeks ended September 25, 1999 compared to 47.3%
against pre-tax income for the twenty-six weeks ended September 26, 1998. The
tax rate was higher during the twenty-six weeks ended September 25, 1999 due to
the operating loss and the foreign tax benefits recognized during that period.
Net Loss. Net loss was $.8 million for the twenty-six weeks ended September
25, 1999 compared to net income of $1.4 million for the twenty-six weeks ended
September 26, 1998. This decrease was a result of the items discussed above.
Liquidity and Capital Resources
During the first half of fiscal 2000, net cash provided by operations was
$7.8 million and cash used by investing activities was $9.1 million, of which
cash used for capital expenditures was $7.0 million. The Company also paid
approximately $2.1 million for additional consideration in connection with the
acquisition of ASCI GmbH, representing all of the $2.1 million earn-out accrual
at the end of fiscal year 1999. Net cash provided by financing activities in the
second quarter of fiscal year 2000 was $0.6 million, obtained primarily from the
revolving credit facility. The proceeds of a mortgage agreement with Deutsche
Bank to finance the purchase of the Company's new facility located in
Bavendstedt, Germany were offset by principal payments for various debt
instruments and capital lease obligations. All of the activities noted above
resulted in a net decrease in cash of $1.1 million in the first half of fiscal
year 2000.
The Company's capital budget for the remaining two quarters of fiscal year
2000 is approximately $3.9 million. These capital expenditures, if and where
required, will be used primarily to purchase additional machinery and equipment
worldwide in order to support new business awards.
The Company's principal credit facilities consist of senior subordinated
notes due 2007, a revolving credit facility to meet short-term liquidity needs,
two mortgage notes collateralized by the Company's assets in the Czech Republic
facility and the facility in Germany, and certain capital equipment notes
secured by the Company's machinery and equipment and other assets. Collectively,
the credit facilities contain certain financial and non-financial covenants with
which the Company was in compliance at September 25, 1999. A summary of our
credit facilities follows. Please refer to Note 3 of the unaudited financial
statements contained within this Form 10-Q for a more complete description of
the credit facilities.
The Company's equipment and working capital requirements, although impacted
favorably by the ongoing implementation of Lean Manufacturing programs, could
continue to increase as a result of the anticipated growth of the automotive and
fabrics operations. This growth is expected to be funded through a combination
of cash flows from operations, equipment financing, and the proceeds from
potential future public or private equity-related offerings.
The Company, ASCI GmbH and Automotive Safety Components International
Limited entered into an agreement with KeyBank National Association, as
administrative agent ("KeyBank"), dated as of May 21, 1997 as amended to date
(the "Credit Agreement"). The Credit Agreement consists of a $40.0 million
revolving credit facility for a five year term, bearing interest at LIBOR (5.67%
as of September 25, 1999) plus 3.0% with a commitment fee of .375% per annum for
any unused portion. On October 9, 1998,
18
<PAGE>
the Company entered into Amendment No. 4 to the Credit Agreement, which
increased the revolving credit facility from $27.0 million to $40.0 million, and
added Fleet Bank as a member of the bank syndicate. KeyBank and Fleet Bank
(collectively, the "Lenders") each provide fifty percent of the financing
available under the Credit Agreement and KeyBank remains as acting agent. On
June 24, 1999, the Company entered into Amendment No. 6 to the Credit Agreement,
which among other covenants requires the Company to earn $30.0 million of EBITDA
(as such term is defined in the Credit Agreement) in fiscal year 2000. Such
covenant is tested monthly based upon cumulative targets for the year. Covenants
for Fixed Charge Coverage, Interest Coverage and Minimum Net Income are also
based on the $30.0 million EBITDA target. During the current fiscal year to
date, the Company has been subject to four financial covenant tests under the
Credit Agreement. Under the covenants, the minimum required cumulative EBITDA
for the twenty-weeks ended September 25, 1999 was $11.2 million; as calculated,
the Company recorded $12.1 million of EBITDA during the period. The minimum
required net income under the covenants for the twenty-weeks ended September 25,
1999 was a net loss of $1.6 million; as calculated, the Company recorded a net
loss of $630,000 for the period. The minimum adjusted fixed charge coverage
ratio under the covenant for the twenty-weeks ended September 25, 1999 was 0.9
to 1.0; the Company's actual result, as calculated under the covenant, was 1.3
to 1.0 for the period. The minimum interest coverage ratio under the covenants
for the twenty-six weeks ended September 25, 1999 was 0.7 to 1.0; the Company's
actual result, as calculated was 0.9 to 1.0 for the period. Continued compliance
under the covenants is dependent upon a number of factors including, but not
limited to, future operating performance, timeliness of customer payments, etc.
In addition, the interest rate was increased to LIBOR plus 3.0% and the
commitment fee was increased to .375%. The Company issued to the Lenders
ten-year warrants to acquire 20,000 shares of the Company's common stock at
current market value per share. The Company using the Black-Scholes pricing
model, calculated the fair market value of the warrants at approximately
$50,000. Additionally, the Company will be subject, as of June 24, 2000, to a
Senior Funded Debt to EBITDA ratio covenant of 1.5 to 1.0 and a Minimum
Consolidated Net Worth covenant. In addition, under Amendment No. 6 to the
Credit Agreement the Lenders waived certain financial covenants for periods
through the date of such amendment. The interest rate will increase 1.0% on July
1, 2000 and an additional 1.0% for each quarter thereafter if the Company does
not refinance the Credit Agreement by such dates. In addition, if the Company
refinances the Credit Agreement by December 31, 1999, the 20,000 warrants will
be returned to the Company. However, if the Company does not refinance the
Credit Agreement by July 1, 2000, the Company is required to issue an additional
30,000 ten-year warrants to the Lenders at the then current market value per
share. Letters of credit outstanding were $2.0 million at September 25, 1999. As
of September 25, 1999 there was no availability under the Credit Agreement. The
indebtedness under the Credit Agreement is secured by substantially all the
assets of the Company. The Credit Agreement contains certain restrictive
covenants that impose limitations upon, among other things, the Company's
ability to change its business; merge; consolidate or dispose of assets; incur
liens; make loans and investments; incur indebtedness; pay dividends and other
distributions; engage in certain transactions with affiliates; engage in sale
and lease-back transactions; enter into lease agreements; and make capital
expenditures.
On July 10, 1998, the Company entered into a $10.0 million financing
arrangement with KeyCorp Leasing, a division of Key Corporate Capital Inc.
("KeyCorp"). The Company applied the entire proceeds to satisfy outstanding
indebtedness under the KeyBank revolving credit facility, thereby increasing the
availability under the revolving credit facility. The KeyCorp financing
agreement has a seven-year term, bears interest at a fixed rate of 7.09% via an
interest swap agreement, requires monthly payments of $150,469 and is secured by
certain equipment located at SCFTI. The rate swap is considered immaterial to
the Company's financial position at September 25, 1999.
On July 24, 1997, the Company issued $90.0 million aggregate principal
amount of its 10.125% Senior Subordinated Notes due 2007, Series A (the "Old
Notes") to BT Securities Corporation, Alex. Brown & Sons Incorporated and
BancAmerica Securities, Inc. in a transaction not registered under the
Securities Act of 1933, as amended, in reliance upon an exemption thereunder
(the "Debt Offering"). On September 2, 1997, the Company commenced an offer to
exchange (the "Exchange Offer", together with the Debt Offering, the "Offering")
the Old Notes for $90.0 million aggregate principal amount of its
19
<PAGE>
10.125% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes",
together with the Old Notes, the "Notes"). All of the Old Notes were exchanged
for Exchange Notes pursuant to the terms of the Exchange Offer, which expired on
October 1, 1997. Interest on the Notes accrues from July 24, 1997 and is payable
semi-annually in arrears on each of January 15 and July 15 of each year. The
Company made its semi-annual interest payment during fiscal year 2000 to the
holders for an aggregate of $4.6 million. The Company has accrued as of
September 25, 1999, as part of accrued liabilities, approximately $1.9 million
of interest, which is due to be paid January 15, 2000 as part of the semi-annual
payment. The Company incurred approximately $3.9 million of fees and expenses
related to the Offering. Such fees have been deferred and will be charged to
operations over the expected term of the Notes, not to exceed 10 years. The
Notes are general unsecured obligations of the Company and are subordinated in
right of payment to all existing and future Senior Indebtedness (as defined in
the Indenture pursuant to which the Notes were issued) and to all existing and
future indebtedness of the Company's subsidiaries that are not Guarantors. All
of the Company's direct and indirect wholly-owned domestic subsidiaries are
Guarantors. The Indenture pursuant to which the notes were issued contains
certain restrictive covenants, including a limitation upon the Company's ability
to incur additional Indebtedness. Subject to exceptions for specified Permitted
Indebtedness, the Company may not incur additional Indebtedness under the terms
of such Indenture unless certain conditions are met, including without
limitation, that the Consolidated Fixed Charge Coverage Ratio (as such terms are
defined in the Indenture) of the Company be greater than 2.25 to 1.0. At
September 25, 1999, such ratio was 0.6 to 1.0. Funds available to the Company
under Permitted Indebtedness includes (i) Capitalized Lease Obligations and
Purchase Money Indebtedness (as such terms are defined in the Indenture), not to
exceed $10.0 million at any one time outstanding and (ii) additional
Indebtedness (as defined in the Indenture), in an aggregate principal amount not
to exceed $5.0 million at any one time. The Company has used $.7 million of such
$10.0 million allowance as of September 25, 1999. The Company intends to meet
its working capital needs and capital expenditures through a combination of
internally generated cash flows from operations, Permitted Indebtedness and/or
public or private equity offerings. The inability of the Company to generate
sufficient cash from operations or to obtain such funds from debt or equity
financing could have a material adverse effect on the Company's operations
financial condition.
On June 4, 1997, the Company secured a $7.5 million mortgage note facility
with Bank of Austria. The note is payable in semi-annual installments of
$375,000 through March 31, 2007 and bears interest at 1.0% over LIBOR. The note
is secured by the assets of the Company's Czech Republic facility. The Company
incurred approximately $437,000 of financing fees and related costs. These costs
have been deferred and will be charged to operations over the expected term of
the note not to exceed 5 years.
On April 1, 1999, the Company secured a $2.9 million mortgage note facility
with Deutsche Bank to purchase a facility in Bavendstedt, Germany. The note is
secured by the real estate in Germany acquired through the mortgage and is
further secured by a guarantee issued by Safety Components. In July, 1999 the
Company refinanced the note and reduced the outstanding indebtedness to $2.1.
On November 3, 1998, the Company obtained a $750,000 unsecured note
facility with A. I. Credit Corp and bears interest of 7.57%. The note requires
monthly payments of $29,000.
Year 2000 Compliance
The year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
20
<PAGE>
State of Readiness and Cost
The Company relies on systems developed by other parties in regard to its
business, accounting and operational software. Based on its evaluation, the
Company believes that its significant business, accounting and operations
hardware and software are year 2000 compliant.
Risk
The Company relies on third party suppliers for raw materials, utilities,
and other critical services. The Company's operations could be affected by the
interruption of significant suppliers. The Company has completed the process of
evaluating the status of suppliers' compliance with year 2000 issues, has
determined the appropriate requirements and alternatives and developed a
contingency plan to address the relevant issues. In the event that certain
current vendors do not certify that they will be year 2000 compliant by the end
of calendar 1999 or if such suppliers do not certify that their failure to be
year 2000 will not adversely affect the Company, the Company has determined its
alternatives with respect to other vendors. However, such non-compliant vendors
are expected to be minor in number. There can be no assurance that the Company
will be able to find suppliers who are acceptable to the Company and its
customers.
The Company also is dependent on customers for sales and for cash flow.
Interruptions in customers' operations due to year 2000 problems could result in
decreased revenue, increased inventory and cash flow reductions. The Company has
completed its evaluation of its customers' year 2000 risks, and has developed
alternative sales strategies and a contingency plan to address the relevant
issues. However, there can be no assurance that such strategies would be
effective.
Based on information known to date, the Company believes that the most
reasonably likely worst-case year 2000 scenario would entail a significant
interruption in its business, including disruption in the manufacturing and
delivery of its products due to the inability to obtain critical raw materials
and supplies, and loss of revenue due to disruptions in its customers'
operations. The Company could also be significantly affected by the failure of
infrastructure services such as electricity and telephone service. Despite the
Company's efforts in regard to the year 2000 issue, the Company is unable to
quantify the effect of any such failure or the year 2000 scenario referenced
above and no assurance can be given that the Company's business, financial
condition or results of operations will not be materially adversely affected by
the failure of its systems and applications or those operated by other parties
to properly manage dates beyond 1999.
Contingency Plans
Given that the upgrade of the Company's accounting and manufacturing
software systems has been substantially completed for all significant systems
and all known issues have been addressed, the Company has not prepared a
contingency plan pertaining to its information systems and does not currently
believe that a contingency plan is necessary. The Company has developed
contingency plans pertaining to its significant suppliers and customers on a
plant by plant basis, based on its evaluation of significant suppliers and
customers in regard to year 2000 compliance. The contingency plan includes the
identification of backup suppliers, broadening the customer base and stockpiling
raw materials in the months before year 2000.
21
<PAGE>
Private Securities Litigation Reform Act of 1995
The above discussion may contain forward-looking statements that involve
risks and uncertainties, including, but not limited to, further adverse findings
in the investigation and that such additional findings could delay the
completion of the investigation; the effect of the investigation on lenders,
customers and suppliers; dependence of revenues on several major module
suppliers; worldwide economic conditions; the results of cost-savings programs
being implemented; the ability to raise additional capital; the ability to
continue to obtain new awards; qualification of awarded programs; domestic and
international automotive industry trends; pricing pressures; the ability to
identify strategic alternatives for the Company's non-core operations or
otherwise return such operations to profitability; and the ability to satisfy
the Company's customers on timeliness and quality. Additional information on
these and other factors that could potentially affect the Company's financial
results may be found in the Company's filings with the Securities and Exchange
Commission.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
To the extent that amounts borrowed under the Credit Agreement are
outstanding, the Company has market risk relating to such amounts because the
interest rates under the Credit Agreement are variable.
The Company's operations in Germany, the UK and the Czech Republic expose
the Company to currency exchange rates risks. Currently, the Company does not
enter into any hedging arrangements to reduce this exposure. The Company is not
aware of any facts or circumstances that would significantly impact such
exposures in the near-term. If, however, there was a sustained decline of these
currencies versus the U.S. dollar, then the consolidated financial statements
could be materially adversely effected.
23
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Exhibits
10.60 Credit Agreement, dated as of April 1, 1999,
by and among Automotive Safety Components
International GmbH & Co. KG and Deutsche
Bank.
10.61 Severance Agreement, dated as of August 31,
1999, between Safety Components
International, Inc. and Jeffrey J. Kaplan.
10.62 Consulting Agreement, dated as of August 12,
1999, between Safety Components
International, Inc. and Francis X. Suozzi.
10.63 Stock Option Agreement, dated as of July 23,
1999, between Safety Components
International, Inc. and Francis X. Suozzi.
10.64 Letter Agreement, dated as of July 12,
1999, between Safety Components
International, Inc. and Francis X. Suozzi.
27 Financial Data Schedule, which is submitted
electronically to the Securities and
Exchange Commission for information only and
not filed.
(b) Reports on Form 8-K.
Not applicable.
24
<PAGE>
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SAFETY COMPONENTS INTERNATIONAL, INC.
(Registrant)
DATED: November 9, 1999 BY: /S/ Brian P. Menezes
------------------------
Brian P. Menezes
Vice President and
Chief Financial Officer
(Principal Financial Officer)
25
CREDIT AGREEMENT
between
Automotive Safety Components International GmbH & Co. KG
Maybachstr. 7
31135 Hildesheim-Bavenstedt
- hereafter called "Debtor" -
and
Deutsche Bank Aktiengesellschaft
Hildesheim Branch
Angoulemeplatz 1
31134 Hildesheim
- hereafter called "Bank" -
The Bank makes available to the Debtor the following credit in accordance with
its General Business Terms and Conditions (AGB):
I. Purpose-tied loan from the "Kreditanstalt fur Wiederaufbau" (KfW = Credit
Institute for Regeneration), Frankfurt/Main, from the "KfW
Mittelstandprogramm" (KfW Programme for Small & Medium Sized Businesses),
under primary liability of the Bank amounting to
DM 2,500,000.-- (German Marks two million five hundred thousand).
The enclosed "General Provisions for Investment Credit" (Version 7/96) of
the Credit Institute for Regeneration (KfW) apply to this credit for the
above mentioned programme, these provisions also being legally binding
mutatis mutandis for the credit relationship between the Debtor and the
Bank, as well as the following agreements:
1. Interest
3.75% p.a. for the whole duration. The interest becomes due quarterly
and retrospectively on 31st March, 30th June, 30th September and 30th
December. The Bank will invoice the
Debtor with the interest on these dates.
2. Payment
of 96% of the nominal amount after written demand by the Debtor - in
partial amounts if appropriate - to be debited to a credit account to
be newly established for the Debtor. The Debtor will inform the Bank
of the call-off demand no later than five bank working days before the
desired availability date.
<PAGE>
The deduction from the nominal amount is split into 2% of handling fee
and 2% of risk premium for the right of non-planned settlement of the
credit. Therefore, included in the deductions are fees that are
independent of credit duration and will not be proportionally
reimbursed in the event of early settlement. The Credit Institute for
Regeneration (KfW)assumes that the credit availability will be called
upon by the 26th May 2000, observing all terms imposed, and initially
considers itself tied to its credit affirmation only until the
aforementioned date. If the Debtor does not fulfil all preconditions
for the paying-out of the credit by the named date, he should apply
giving reasons - in good time for an extension of the call-off period.
Beginning with the 26th June 1999, the Credit Institute for
Regeneration (KfW) will charge for the credit availability that has
not yet been called-off an availability commission of 0.25% per month
that the Bank will charge retrospectively and quarterly to the Debtor
and pay to the Credit Institute for Regeneration (KfW).
If the Debtor does not explicitly give different instructions, the
Bank will send the credit call-offs by fax to the Credit Institute for
Regeneration (KfW). The Debtor will indemnify the Bank against any
liability for damages caused by false transmissions, especially
transmission errors, misuse, misunderstandings and errors, unless due
to gross negligence by the Credit Institute for Regeneration (KfW) or
the Bank.
3. Repayment
in 16 equal subsequent half-yearly instalments of DM 156,250.--. The
first payment is due on 30th December 2001, the final payment on 30th
June 2009.
If the due interest or repayment rates have not been made, then -
irrespective of the provisions of paragraph 9 of the "General
Provisions for Investment Credit" - an interest rate of 3% p.a. above
the discount rate ("Diskontsatz") of the German Federal Bank
("Bundesbank") has to be paid on the due date for the outstanding
amounts and the duration of the default, instead of the contractually
agreed interest rate. If the delay is longer than one month, the whole
credit amount can be cancelled and it becomes due for immediate
repayment.
II. Purpose-tied loan from the Credit Institute for Regeneration (KfW),
Frankfurt/Main, from the KfW Programme for Small & Medium Sized Businesses,
under primary liability of the Bank amounting to
DM 1,500,00.-- (German Marks one million five hundred thousand).
The enclosed "General Provisions for Investment Credit" (Version 7/96) of
the Credit Institute for Regeneration (KfW) apply to this credit for the
above mentioned programme, these provisions also being legally binding
mutatis mutandis for the credit relationship between the Debtor and the
Bank, as well as the following agreements:
1. Interest
Fixed rate of 4.05% until 30th June 2009. The interest becomes due
quarterly and retrospectively on 31st March, 30th June, 30th September
and 30th December. The Bank will invoice the
<PAGE>
Debtor with the interest on these dates. The outstanding loan amounts
become due for repayment by the end of the fixed rate interest term if
no new agreements have been reached between the Debtor and the Bank by
this time.
2. Payment
of 96% of the nominal amount after written demand by the Debtor - in
partial amounts if appropriate - to be debited to a credit account to
be newly established for the Debtor. The Debtor will inform the Bank
of the call-off demand no later than five bank working days before the
desired availability date.
The deduction from the nominal amount is split into 2% of handling fee and
2% of risk premium for the right of non-planned settlement of the credit.
Therefore, included in the deductions are fees that are independent of
credit duration and will not be proportionally reimbursed in the event of
early settlement. The Credit Institute for Regeneration (KfW) assumes that
the credit availability will be called upon by the 26th May 2000, observing
all terms imposed, and initially considers itself tied to its credit
affirmation only until the aforementioned date. If the Debtor does not
fulfil all preconditions for the paying-out of the credit by the named
date, he should apply giving reasons - in good time for an extension of the
call-off period. Beginning with the 26th June 1999, the Credit Institute
for Regeneration (KfW) will charge for the credit availability that has not
yet been called-off an availability commission of 0.25% per month that the
Bank will charge retrospectively and quarterly to the Debtor and pay to the
Credit Institute for Regeneration (KfW).
If the Debtor does not explicitly give different instructions, the Bank
will send the credit call-offs by fax to the Credit Institute for
Regeneration (KfW). The Debtor will indemnify the Bank against any
liability for damages caused by false transmissions, especially
transmission errors, misuse, misunderstandings and errors, unless due to
gross negligence by the Credit Institute for Regeneration (KfW) or the
Bank.
<PAGE>
3. Repayment
In 35 equal instalments every six months of DM 41,667.-- and a final
payment of DM 41,655.--. The first repayment is due on 30th December
2001, the final on 30th June 2019.
If the due interest or repayment rates have not been paid, then -
irrespective of the provisions of paragraph 9 of the "General
Provisions for Investment Credit" - an interest rate of 3% p.a. above
the discount rate ("Diskontsatz") of the German Federal Bank
("Bundesbank") has to be paid on the due date for the outstanding
amounts and the duration of the default, instead of the contractually
agreed interest rate. If the delay is longer than one month, the whole
credit amount can be cancelled and it becomes due for immediate
repayment.
Purpose of use
Partial financing of the costs of purchasing a new operational property at 31135
Hildesheim-Bavenstedt.
The sponsorable total investments (without pre-tax amounts as per para. 15 of
the VAT Law, where they can be deducted from VAT) amount to DM 6,000,000.-- and
must be proven by the Debtor to the Bank.
Security
- - primary land charge/mortgage amounting to DM 6,000,000.-- on the object at
31135 Hildesheim-Bavenstedt that is to be financed,
- - a guarantee by the parent company Safety Components International Inc., Fort
Lee/USA, amounting to DM 6,160,000.--.
The joint liability of securities based on the General Terms and Conditions of
the Bank and/or separate agreements is not affected herewith.
Hildesheim, dated 22.06.1999 Hildesheim, dated 21.06.1999
rubber stamp and signatures of signature
Deutsche Bank Automotive Safety Components
International GmbH & Co.KG
<PAGE>
KfW Kreditanstalt fur Wiederaufbau
General Terms for
Investment Credit
- End Debtor -
Clauses in italics, i.e. no. 2, no. 3 para, 3, no. 7 para. 2 and no. 10 as well
as the last half sentence of no. 1 para. 2 apply only to credits from public
funds (ERP credits and credits that have been re-financed from or supported by
budget resources). They do not apply to credits that have been granted from the
KfW's own resources.
1. Use of the Funds
(1) The funds may only be used for partial financing of the project for
which the credit has been granted. The financial establishment (house
bank) handing over the credit must be informed without undue delay if
the investment project or its financing changes.
(2) The end debtor must prove to the house bank without prompting and
immediately after conclusion of the investment the use of the credit
made available and the fulfilment of any provisions and give the
declaration provided on the form of the Credit Institute for
Regeneration (KfW) for evidence of use.
2. Calling off the funds
(1) The credits must only be claimed as a proportion of the remaining
finances provided for in the financing plan. Only if the latter are
not yet available, the credits may exceptionally be used earlier.
(2) As the credits are tied to a purpose, the end debtor may only call off
the available credit - and in partial amounts if appropriate - when
the demanded amounts can immediately be directed to the defined
purpose.
(3) If it should emerge against all expectations that this is not possible
in its full scope, the relevant amounts must be paid back immediately
to the house bank and only call them off again when the preconditions
for an immediate use are given.
3. Reservation of Curtailment
(1) The house bank is entitled to curtail the credit amount proportionally
if the scope of the total expenditure estimated in the investment plan
is reduced or if the proportion of the public funding is increased. If
the curtailment affects amounts that have already been paid out, the
end debtor must repay the curtailed amounts immediately to the house
bank.
(2) The curtailed amounts are categorically set off against the
outstanding repayment instalments (proportionally on the remaining
credit duration) if it has not expressly been requested that they
should be set against the final due rate according to the repayment
plan.
(3) If the costs of some main items of the investment plan are reduced
considerably, then the amounts saved can only be used to cover
increased costs of other items with prior agreement of the house bank.
<PAGE>
4. Invoicing of Costs and Expenditure
The costs of the directly refinancing credit institution and of the house
bank for handling and administering the credit are covered by the interest
rate, this includes also the costs in connection with a change of end
debtor or bank. The house bank is entitled to charge the end debtor for the
following costs separately if they are directly connected to granting the
credit, can be proven and specified to the end debtor: travelling costs
arising from site visits and visits to companies before granting the
credit, as well as in connection with the provision of appraisals and the
transfer of ownership by way of security, costs for photo copying, postage
costs and expenditures that the house bank incurs on account of the end
debtor. Waiver fees, prepayment indemnity or similar costs may not be
charged for this credit.
5. Early Repayment
(1) The end debtor is entitled to repay the credit in parts or wholly to
the house bank at any time whilst observing the announcement period of
20 bank working days. If there is any deduction from the nominal
amount of the credit during payment, this serves - as per credit
contract - to cover the bank`s expense when organising the credit. The
expense is a result of an appropriate deduction when KfW paid out the
re-financing credit which (expense) serves to cover KfW's expense
arising from handling the credit and procuring the money as well as to
cover the right granted to the debtor and house bank of unscheduled
repayment of the credit (risk premium). The deducted amounts include
fees that are independent of the run-time and will not be reimbursed
upon early repayment of the credit.
(2) Non-scheduled partial repayments are categorically set off against the
last rates due according to the repayment schedule, unless something
different has been agreed with the end debtor.
6. Providing Security for a Loan
(1) The house bank is entitled to transfer to KfW its debt due arising
from granting the credit, including subsidiary rights and the
securities ordered. After the transfer, the end debtor cannot set any
claims he has against the house bank, against any of his obligations
towards KfW arising from the credit. All securities that have been or
will (even in future) be provided to the house bank for credits
refinanced by KfW and destined for the end debtor, serve the KfW
equally as security for all credit claims of the house bank against
the end debtor that have been or will be assigned to KfW.
<PAGE>
(2) Where the securities serve also to secure the house bank's own claims
against the end debtor, they are preferentially destined for securing
the claims arising from the credit that KfW refinanced and that are to
be assigned to KfW, as well as any other (including future) claims of
KfW against the end debtor, secured in accordance with paragraph 1.
Contrary to any different regulations it is therefore valid that the
proceeds arising from the utilisation of these securities should first
of all satisfy the KfW claims. The utilisation of these securities is
permitted only if the end debtor is in delay concerning the
performance [i.e. repayment] he owes with regard to the preferentially
secured claims as per sentence 1 above.
7. Checking Rights
(1) KfW is entitled to check the utilisation of the purpose-tied credits
at the end debtor, to exercise its inspection rights with regard to
business documentation and books and to gain information about the
debtor's financial position. KfW can carry out these checks through an
auditor at the expense of the end debtor.
(2) The Federal Audit Office's right to audit is established in paragraph
91 of BHO (Federal Audit Office Regulations).
8. Presentation of Annual Accounts
The end debtor is obliged to present his annual accounts including all
necessary explanations to the house bank as soon as possible; if the
production of his annual accounts is delayed, the end debtor must provide
preliminary figures.
9. Cancellation for Important Reasons
The house bank is entitled to cancel the credit at any time for important
reasons and with immediate repayment, especially if
a) the credit has been obtained illegally or has not been used according
to its purpose,
b) the preconditions for granting it have changed or subsequently become
inapplicable (e.g. sale of the co-financed operation or part of
operation, change of ownership or participating relationships),
c) the end debtor has given incorrect information about his financial
situation or if this has considerably worsened or if a considerable
threat to his financial situation has arisen,
d) the end debtor breaches an obligation that he has taken on in
conjunction with the credit contract,
e) the value of the securities provided has worsened considerably and
sufficient replacement securities have not been provided.
10. Interest Rate Surcharge
(1) The interest rate to be paid by the end debtor increases in the case
of no. 9 a) from the moment of paying out the credit, in the case of
no. 9 b) from the day of the event occurring which
<PAGE>
caused the cancellation, by 3 % p.a., with a minimum of 2% p.a. above
the discount rate ("Diskontsatz") of the German Federal Bank
("Bundesbank") valid at the time.
(2) The above interest rate surcharge will also be charged if the end
debtor does not utilise without undue delay the financial resources
made available to him for their destined purpose, does not repay them
without undue delay to the house bank in the case of inapplicable
utilisation possibility, or if a necessary curtailment due to lacking
information (see no. 1 para. 1) is not forthcoming.
11. Providing Information
The house bank is entitled to provide KfW with unlimited information and to
grant KfW viewing access to their documentation.
12. Limitations of Validity
If the General Business Terms and Conditions of the house bank or any other
agreements between the house bank and the end debtor are incompatible with
these General Provisions for Investment Credit, then the latter take
precedence.
<PAGE>
Certified Copy
without conveyance
Section 69 of the Document Scroll for 1999
Negotiated at Hildesheim on 26.02.1999
Before the undersigned
Peter Pfeiffer
notary at Hildesheim, Bahnhofsallee 33,
have appeared:
1. for
GLAMOX-ENERBA GmbH
Maybachstra(beta)e 7, 31137 Hildesheim
(Magistrates Court Hildesheim HR B 1017)
its sole authorised representative Managing Director
Manfred Halverscheid, D.O.B. 30.11.1939,
resident at Im Klingelpoth 32, 59494 Soest
- - hereafter called "the Seller"
2. for
Automotive Safety Components International GmbH & Co. KG
(Magistrates Court Hildesheim HR A 2415)
represented by Automotive Safety Components International Verwaltungs GmbH
(Magistrates Court Hildesheim HR B 2549)
its solely authorised representative Managing Director Manfred
Preu(beta)ler, business residence Bergmuhlenstra(beta)e 10, 31137
Hildesheim, resident at Karl Lullig Stra(beta)e 73, 73527 Schwabisch
Gmund
- - known personally and hereafter called "the Buyer" - simultaneously acting on
behalf of Automotive Safety Components International Verwaltungs GmbH
The notary questioned those present about a referral for a preliminary hearing
mutatis mutandis of Para. 3 section 1 sentence 1 no. 7 of BeurkG (notary
Recording Act) and recorded that according to their reply such a referral is not
given.
-2-
<PAGE>
Those present were seeking the notary recording of a
Property Purchasing Contract
including conveyance of land
and declared:
I.
Object of Purchase
1.
The seller is owner of the property
Local subdistrict ("Gemarkung") Bavenstedt Cadastral district ("Flur") 4
Cadastral unit ("Flurstuck") 545/3,
Building and open area, Maybachstra(beta)e 7, size: 21,747 square metres
- - registered in the Land Registry Office of Bavenstedt Folio 617 -.
2.
Entered in the Land Registry Office are:
Section II: no entries
Section III:
Land charges/mortgage of twice 3,000,000.00 DM, for the benefit of Deutsche
Bank AG
3.
The notary has established the contents of the Land Registry Office.
4.
The object of purchase is built-upon with a commercial object.
II.
Sale
1.
The seller sells to the accepting buyer the property described in section I.1.,
hereafter called the "Purchase object", with all
-3-
<PAGE>
rights and constituent parts, and that is as exclusive ownership.
2.
The lien on real property entered in section III during today's notary
recording are taken over by the Buyer. The redemption of the liabilities that
form the basis of the Land charges shall be effected through the purchase price.
III.
Purchase Price
1.
The purchase price amounts to
DM 5,450,000.00
(in words: Deutsche Mark five million four hundred and fifty thousand) plus
Value Added Tax amounting to DM 887,260.00, in total DM 6,337,260.00.
The basis of assessment for property transfer tax, however, amounts to purchase
price (net payment)+ 16% VAT, total sum: 6,322,000.00 DM.
The parties to the contract agree the payment and assignment of the appropriate
and valid amount of VAT or pre-tax [=previously paid VAT] respectively.
The purchaser has waived in accordance with para. 9 of UstG (VAT Act) tax relief
according to para. 4 no. 9 a of UStG (VAT Act) and thus assures that the
property is currently used exclusively for trading that does not exclude the
deduction of pre-tax.
In accordance with section V.5. of this purchase contract, the purchaser alone
has to bear the property transfer tax.
In accordance with the letter for the Federal Minister for Finances IV A 2-S
7200-67/80 dated 16.12.1980 (BStBl 1981 I page 24), for the given factual
situation, only half of the property transfer tax is regarded as redemption for
the property sale. Thus the VAT of 16% is calculated as follows:
Purchase price (net redemption) DM 5,450,000.00
+ 1/2 of property transfer tax
(3.5% of DM 5,450,000.00) DM 95,375.00
DM 5,545,375.00
-4-
<PAGE>
= Assessment basis for VAT,
16% VAT on DM 5,545,375.00 DM 887,260.00
2.
The whole purchase price is due on 1.4.1999, if after information of the notary
the preconditions described below are given:
a)
to secure the claim of the buyer for transfer of ownership, a priority notice is
entered in the Land Registry Office, or respectively this entry is secured
according to the dutiful discretion of the notary, and that is with ranking only
according to the charges and the lien on property listed in section I. of this
contract which have been ordered where appropriate according to section IX. of
this contract,
b)
The notary is in possession of the unconditional declaration by the creditors
regarding the lien on property according to section X. of this contract, named
in section I. of this contract, or mutatis mutandis a declaration that they will
make use of it only after release by the rightful parties against payment of an
amount which in total shall not exceed the net purchase price;
c)
the relevant community has confirmed with regard to the object of purchase of
this contract that there is no legal preferential right to purchase or
respectively none will be exercised.
Excepted is the Property Transfer Tax Certificate of Non-Objection by the Tax
Office.
The notary will notify the parties to the contract in writing when the
preconditions regarding 2. a) to c) are fulfilled. He is also empowered to
inform financing creditors of the buyer of this. If this notification cannot be
provided by 19.3.1999, the purchase price falls due and payable within 10
banking days after the notary posted the relevant notification to the buyer.
3.
The net purchase price amounting to a total of DM 5,450,000.00 must be paid on
the date due directly to the seller, or to the creditors respectively who are
secured through lien on real property in the Land Register during today's notary
Recording.
4.
The obligation to pay the statutory VAT of the net purchase price is fulfilled
by the buyer by assigning his claim against the Tax Office for reimbursement of
pre-tax which he is entitled to. The buyer is obliged to declare the assignation
on the form prescribed by the Tax Office in accordance with para. 46 AO and to
hand over to the notary this declaration during the notary Recording. The notary
will hand this form to the tax consultant of the buyer for forwarding to the
relevant tax office in consideration of the due date of the purchase price.
-5-
<PAGE>
The buyer declares that he is taking the option of VAT in accordance with para.
9 of UStG.
The proportion of the purchase price that corresponds with the VAT amount
calculated above is due for payment when the VAT becomes due, but no earlier
than the due date of the net purchase price in accordance with the provisions of
the showing of a purchase price.
The buyer herewith assigns to the seller for the purpose of fulfilment a claim
against the Treasury for reimbursement of VAT, to which he would be entitled for
that tax period during which he can deduct pre-tax. The parties to the contract
are obliged to notify the relevant tax offices of this assignment whilst
observing the form regulations of para. 46 section 3 of AO.
Subject to a suspensory condition of this assignment becoming effective, with
this VAT reimbursement claim against the Treasury, the seller herewith sets off
against his VAT liability for the named tax period that amount which has to be
notified to the tax office, together with the notification in the sense of para.
46 section 3 of AO. Insofar as the tax reimbursement claim of the buyer is
smaller than the VAT shown above, the buyer must pay directly to the treasury
the difference on account of the seller. The notary pointed out the increased
property transfer tax linked to the VAT through this option.
The buyer confirmed that he has no outstanding tax liabilities.
5.
If the buyer is in delay for part or the whole of the payment, then he has to
pay interest at a rate of 8% p.a. from the first day of delay, this has to be
paid to the seller together with the purchase price.
6.
With respect to payment of the purchase price plus interest in relation to the
seller, the buyer subjects himself to immediate execution of the Document. The
seller can be issued with an enforceable version of this document at any time
without having to furnish proof of the facts that are the reasons for the
maturity of the liability.
7.
In the event of delayed payment, the seller is entitled to the statutory rights
to withdraw from the contract which are not excluded if additional time for
payment of the purchase price has been granted. If the statutory preconditions
for withdrawing from the contract are given, then the seller can demand
compensation due to non-fulfilment of the contract instead of withdrawal.
-6-
<PAGE>
8.
The notary is instructed to arrange the entry of the change of ownership only
after payment of the purchase price - without any delay interest - , as is
provided in section III of this contract, e.g. when the seller confirms in
writing or when the buyer has proven to the notary's satisfaction, for which
a certificate from the tax office would suffice, that the purchase price has
been paid. Prior to that he shall not issue any original or certified copy of
this document which would contain the conveyance.
IV.
Transfer of Title
1.
The property, the utilisation, the danger and the liabilities including all
commitments arising from the securities affecting the purchased object as well
as the general duties of care towards third parties are transferred to the
buyer, provided that the purchase price is due for payment and is paid in
accordance with section III.3. of this contract.
2.
The buyer knows that part of the purchased object is still rented out. The
seller declares in this respect that the tenancies are under notice of
termination and that the tenants will clear the purchased object by 30.6.1999.
The buyer tolerates the current tenancies. The parties to the contract are
obliged to adopt towards each other the approach that the tenancies will be
transferred to the seller when the title is transferred. In this respect the
seller assigns his claims arising from the tenancies to the buyer when the
purchase price is paid; the buyer accepts this assignment. The buyer is
empowered to notify the tenants of the assignment and to assert in his own name
all rights from the tenancy, including the right to termination, from the moment
of transfer of title.
V.
Further Agreements
1.
The seller is liable towards the buyer for the purchased object being
transferred into possession and ownership of the buyer, free of liabilities
entered into the Land Register that the buyer has not expressly taken over in
this document and free of other commitments pursuant to private law that have
not been taken over.
The seller does not give any guarantee for all legal imperfections in title that
are unknown to him, the accuracy of the area entered in the Land Registry
Office, the borders of the property in nature as well as for all material
imperfections existing today or about to come into existence. However, he
-7-
<PAGE>
declares that he does not know of any material imperfections which cannot be
seen during a visit. After receiving advice from the notary he knows that in
this respect he has a duty to disclose to the buyer any hidden defects he knows
of in order not to be liable for malicious non-disclosure of a defect. The buyer
had received sufficient opportunities for a detailed viewing of the purchased
object.
The seller, however, guarantees that the purchased object will not deteriorate
from its current condition until the transfer of title. The notary has pointed
out to the buyer that his warranty regulation has been agreed in derogation of
the statutory warranty regulations and that he must tolerate or remedy at his
expense any defects that come under the agreed warranty exclusion, without being
able to claim from the seller for this reason. According to the statutory
warranty regulations the seller would have been liable in full for a period of
one year from the transfer for any disadvantageous deviation of the purchased
object from the contractually agreed condition.
The seller is obliged to surrender the purchased object during transfer of title
in a vacated and clean condition, section IV. subsection 2 of this contract
remaining inviolate. This does not include the dismantling of existing older
technical machinery, e.g. the lacquering plant. The costs for this are for the
account of the buyer. The parties to the contract are aware of the scope of
these works. If the removal of the disassembled items should constitute special
waste, the seller bears the costs of orderly waste disposal. Special waste
constitutes stuff and materials that cannot be disposed of via the scrap trade
and waste tips.
2.
Building burden, servitudes that are not entered in the Land Register and
restrictions due to neighbour law [neighbour law concerns neighbours and
interests of adjoining owners] are taken over by the buyer. The notary has given
advice concerning this. The seller assures that he has not occasioned any
entries in the building burdens register nor does he know of any such entries.
The seller furthermore declares that he does not know of any servitudes that
have not been entered in the Land Register nor of any restrictions due to
neighbour law.
3.
The seller guarantees that the purchased object will be transferred to (into the
ownership of) the buyer free of any burdens that were entered today into section
III. of the Land Register, and also free of interest, taxes and charges which
arise up until the day of transfer of title. 4. Development charges and other
municipal development charges for development installations that have finally
been established or for which the obligatory charge has arisen, are borne by the
seller, independent of whether these have already been established by the
delivery of a charge notice [official notice of contributions]. Otherwise such
charges are for the account of the buyer.
5.
All costs arising out of this contract and its implementation as well as the
property transfer tax are borne by the buyer.
-8-
<PAGE>
The costs of a declaration of approval that might become necessary, or a
confirmation of empowerment are borne by that party that requires it. Both
parties were instructed about their statutory co-liability.
6.
Should the purchase contract become subject to a reversed transaction for
reasons that are within the person of the buyer, then the buyer bears the costs
of the reversed transaction and of the contract. In this case of a reversed
transaction the seller is entitled to extinguish the priority notice of security
for the benefit of the buyer (see section VI.3. of this contract). In case of an
agreed reversed transaction, the parties to the contract empower the notarial
employees
- - Ursula Schulz nee Korner,
- - Heidi Bogel,
- - Heinz-Joachim Beuke,
all with duty address of Bahnhofsallee 33, 31134 Hildesheim, to approve and to
apply for the deletion of the priority notice of security in case of the
reversed transaction, on behalf of the parties of the contract. In the case of
reversed transaction due to delayed payment by the buyer, the parties of the
contract also empower the notarial employees
- - Ursula Schulz nee Korner,
- - Heidi Bogel,
- - Heinz-Joachim Beuke,
all with duty address of Bahnhofsallee 33, 31134 Hildesheim, to approve and to
apply for the deletion of the priority notice of security in cases of
- non-provision of proof of timely payment of the purchase price and
- proof of delivery of correspondence with regard to setting a period of
notice with a threat to reject the acceptance of the buyer's
performance [i.e. payment] after expiry of the period of notice. This
letter is to be sent from the seller to the buyer;
- a declaration of the seller to the notary that even after expiry of
the period of notice the total purchase price is outstanding.
No proof is required for the presence of the above mentioned preconditions, for
a third party, particularly not for the Land Registry Office, for the sitting
notary to lodge an application.
-9-
<PAGE>
VI.
Conveyance of Land and Land Register Applications
1.
Conveyance of Land pp.
However, the participants dispense with their own right of application. Only the
notary shall apply for the entry of transfer of title.
2.
The participants agree with the deletion of all rights not transferred in
section III of the Land Register and they
herewith apply for it.
3.
The notary has informed the participants that the title will only be transferred
after the change of registration in the Land Register and prior to that all
necessary approvals and the certificate of non-objection from the tax office
must be present.
To secure the claim of the buyer for transfer of title, a priority notice shall
be entered in the Land Registry Office.
The parties to the contract approve and the buyer applies for
the entry of an appropriate priority notice
in the Land Register of the purchased object.
The buyer approves now the deletion of this priority notice simultaneously with
the change of registration, provided that no intermediate entries are carried
out without his approval.
The parties to the contract reserve the right to enter, with a higher priority
than the priority notice to be entered for the benefit of the buyer, mortgages
and/or land charges as per section IX. of this contract up to DM 6,000,000.00
[unclear original] plus annual interest up to 20% from today and up to 10% of
singular supplementary services. The parties approve and apply for
the entry of an appropriate ranking proviso
in the Land Register.
-10-
<PAGE>
4.
The notary is entitled to lodge applications from this document separately and
restricted and to retract them in the same manner.
The participants empower the notary, as far as is necessary, to amend and
supplement approvals and applications with regard to the Land Registry Office
and anyway to carry out anything which could be necessary with regard to
administrative procedure to carry out this contract , as well as to represent
the participants in matters of Land Registry Office procedures.
VII.
Approvals, Remarks
1.
The notary has informed the participants of the necessary approvals and of any
communal pre-purchase right that may exist.
2.
The participants were informed that all contractual agreements must be
documented by statute. Any agreements outside of this document can make this
whole legal transaction null and void.
3.
The sitting notary is charged with carrying out and completing this contract. He
must especially obtain any necessary approvals and certificates. If a statutory
pre-purchase right is exercised or any official approval denied or granted with
terms or conditions, then this notification must be delivered to the
participants themselves; a copy to the notary will be requested.
4.
The notary is entitled to lodge applications from this document separately and
restricted and to retract them in the same manner. The participants empower the
notary, as far as is necessary, to amend and supplement approvals and
applications with regard to the Land Registry Office and anyway to carry out
anything which could be necessary with regard to administrative procedure to
carry out this contract , as well as to represent the participants in matters of
Land Registry Office procedures.
VIII.
Issues and Copies
This document will be distributed as follows:
an abridged version:
-11-
<PAGE>
to the Land Registry Office for entry of the priority notice for the benefit of
the buyer and the proof of the empowerment, single or certified - also abridged
- - copies:
to the buyer,
the appropriate Tax Office for the property transfer tax,
the appropriate commune with regard to the statutory pre-purchase rights,
the experts committee at the appropriate Cadastral Office,
The financing creditors of the buyer,
the seller,
entitled parties that are to be released.
IX.
Financing the Purchase Price and Burden Empowerment
The seller is obliged to co-operate as the current owner in the provision of
enforceable and non-enforceable lien on property. This duty to co-operate exists
only when the following regulations that have already now been agreed by the
participants, are contained in the provisions document:
a) Security agreement
The mortgagee may utilise or retain the lien on property as a security insofar
only that he has actually made effective repayments for the purchase price debt
of the buyer. Any further declarations of purpose, agreements regarding security
and utilisation within or without this document become valid only after the
purchase price has been paid in full, in any case after the transfer of title
has been the registered. From that moment on they apply for and against the
buyer as the new provider of security.
b) Payment advice
Insofar as the purchase price is not to be utilised differently for the release
of the purchased object from any registered burdens, payments must be made as
per section III. of this contract.
c) Personal obligations of payment, costs
In connection with the granting of a mortgage, the seller does not accept any
personal payment obligations whatsoever. The buyer is obliged to release the
seller from all costs and other consequences of granting the mortgage.
d) Continuation of the mortgage
The mortgage granted may continue after the transfer of title. All ownership
rights and reverse warranty claims that are linked to them, are transferred
herewith to the buyer with effect from payment of the purchase price, in any
case from change of register of title. Appropriate correction of the Land
Register is herewith approved.
-12-
<PAGE>
The buyer is already now assigning to the seller his claims for payment of the
loans (for building society savings contracts also the savings) up to the amount
of the purchase price and irrevocably instructs his lender to pay the loan
amounts up to the purchase price exclusively as provided in section III. of this
contract.
The seller grants power of attorney to the buyer to represent him in all legal
transactions. This power applies only when the granting of the mortgage is
documented at the sitting notary, his official deputy or any notary who is
linked to him within an association and if the terms agreed above under a), b)
and c) are reflected in the granting document. The power can be exercised before
approvals are given that are necessary for this document.
The power of attorney is granted with the following instructions:
The buyer can already apply for and approve, before change of registration of
the title, mortgages and/or land charges up to DM 6,000,000.00 plus annual
interest up to 20% from today and up to 10% of singular supplementary services,
for entry into Land Register, and with regard to the mortgage he can materially
subject the respective owner to immediate execution of judgement. The buyer
tolerates and takes over such lien on property upon transfer of title.
The power of attorney is limited insofar as
a)
the seller does not take on any personal liability with regard to the creditors;
b)
the lien on property serves only to secure the financed and actual purchase
price paid to the seller until the full purchase price has been paid.
The sitting notary is advised to instigate the entry of the mortgage in the Land
Register only when the mortgage creditor has confirmed to him that the mortgage
serves only to secure payments of the purchase price paid to the seller until
the full purchase price has been paid and the change of registration of the
purchased object to the buyer has been carried out, and that in the event of
reversed transaction the mortgage creditors will issue the necessary deletion
documents step by step against repayment of the loan.
Restrictions or conditions of the power of attorney have no effect with regard
to the Land Registry Office.
The buyer is also empowered to apply for and approve amendments of rankings in
the Land Register.
-13-
<PAGE>
X.
Transfer of Land Charge
In deviation of the above, the buyer takes on the land charges entered in
section III. of the Land Register under the current numbers 1 and 2, each one
amounting to DM 3,000,000.00 for further toleration. However, he does not take
over the loan obligations that form the basis of this land charge. These shall
be covered by the purchase price. The buyer particularly does not take over the
security contracts (missing) these land charges. The seller is obliged to take
care that the land charges no longer secure any of his obligations towards the
creditor after payment of the purchase price. After payment of the purchase
price these rights shall cover only obligations of the buyer.
The notary is instructed only to provide the change of registration in the Land
Register from this document if he is in possession of a binding declaration of
the creditor (illegible) rights section III nos. 1 and 2, that it (the creditor)
will proceed accordingly. Such a declaration is also a precondition for the due
date of the purchase price according to the regulations in this document. The
notary is instructed to request an appropriate declaration from the creditor.
The buyer and Automotive Safety Components International Verwaltungs GmbH, being
jointly and severally liable, herewith accept the personal liability for the
payment of appropriate money amounting to the entered mortgage amounts of twice
DM 3,000,000.00 plus 15 percent annual interest thereof plus one single
supplementary payment each of 5 percent of the mortgage amount according to
detailed conditions of the grant documentation dated 10.5.1990. Due to these
payment obligations they subject their total assets to immediate execution of
judgement from this document. The sitting notary is entitled to issue an
enforceable copy of this document at any time without having to furnish proof of
facts that are the basis for the maturity of the claims.
XI.
Escape Clause
Should any clause of this contract be or become ineffective or null and void or
should there be a loophole in this contract, then this will not affect the
remaining clauses. The parties to the contract are obliged to replace the
ineffective or void clause with another one that is effective and which comes
closest to the commercial purpose of the ineffective or void clause. A loop hole
shall be closed considering the commercial objectives of this contract.
-14-
<PAGE>
This protocol was read to the persons present, they approved it and was signed
by them and the notary as follows:
3 signatures,
notary seal
Peter Pfeiffer
Notary in Hildesheim
<PAGE>
I herewith confirm that the present, abridged copy of the purchase contract
(without conveyance) agrees with the original. I also confirm that the original
does not contain any further clauses that would affect the purchase contract
itself.
Hildesheim, dated 01.03.1999
notary's signature
SAFETY COMPONENTS INTERNATIONAL, INC.
Effective as of August 31, 1999
Mr. Jeffrey J. Kaplan
319 River Road
Grandview, New York 10960
Dear Mr. Kaplan:
You have indicated to us and confirm by your signature below that you are
resigning all positions as officer and/or director which you hold with Safety
Components International, Inc. (the "Company") and any all subsidiaries of the
Company effective August 31, 1999. Notwithstanding such resignation, we have
agreed to provide you with certain severance benefits to which you would not
otherwise be entitled, as set forth in this letter agreement. This letter
agreement sets forth such benefits in connection with your resignation and in
settlement of our respective rights and obligations relating to your employment.
You understand that you will be receiving the termination payments
discussed in this Letter Agreement as consideration for signing and returning
the acknowledgment copy enclosed herewith, by which you also agree to abide by
the other obligations described herein. You also understand and agree, by
signing the acknowledgment copy of this Letter Agreement, that there are no
other commitments, express or implied, by the Company to you (including any
commitments contained in the Employment Agreement by and between the Company and
you, dated as of February 15, 1997, and as amended on March 24, 1999 (the
"Employment Agreement")) other than those set forth in this Letter Agreement.
1. Termination Payments
For the period from September 1, 1999 to August 31, 2000, the Company shall
continue to pay to you your current salary payments (based on your current
annual salary of $300,000 per year). Such payments shall be made on the same
dates which you would have received salary payments in accordance with the
Company's customary payroll practice had you remained employed by the Company.
Such payments shall be subject to all applicable federal, state and local
withholding taxes.
2. Other Benefits
(a) The Company will maintain in effect and pay the premiums for the short
and long term disability benefits, the medical benefits, the dental benefits and
the Exec-U-Care benefits currently being provided to you for a period of twelve
(12) months, commencing September 1, 1999.
<PAGE>
(b) The Company will pay the premiums for a life insurance policy currently
being paid by the Company on your behalf providing death benefits in an amount
equal to two million four hundred thousand dollars ($2,400,000), the beneficiary
of which shall be designated by you, for a period of twelve months, commencing
September 1, 1999.
(c) The Company shall continue to pay the lease payments and associated
automobile expenses consistent with the Employment Agreement through February
2000 with respect to the automobile currently leased by the Company on your
behalf.
(d) You will have three (3) years from the termination of your employment
(i.e., until August 31, 2002) to exercise the stock options ("Options") granted
to you pursuant to the Company's 1994 Stock Option Plan, to purchase an
aggregate of 325,000 shares of the Company's common stock, par value $.01 per
share. The Options were granted on the dates, in the amounts, at the exercise
prices and are exercisable for the terms contained in the applicable stock
option agreement (collectively, the "Stock Option Agreements") and set forth on
Schedule I attached hereto.
(e) You shall continue to participate in each of the Company's 1998, 1999
and 2000 Stock Appreciation Rights Programs (the "SAR Programs") for the
remainder of the term of each such SAR Program with respect to the 100,000 Stock
Appreciation Rights (the "SARS") granted to you pursuant to the Company's Stock
Appreciation Rights Award Plan. The SARS were granted on the dates, in the
amounts, at the base prices and are exercisable based upon the terms contained
in the stock appreciation rights agreements (the "SAR Agreements") previously
entered into between the Company and you and set forth on Schedule II attached
hereto, notwithstanding your resignation.
2
<PAGE>
3. Restrictive Covenants
(a) Non-Disclosure
You acknowledge and agree that you had access to Confidential Information
(as defined below) concerning the business of the Company and that all
information pertaining to the prior, current or contemplated business of the
Company (excluding (i) publicly available information (in substantially the form
in which it is publicly available) unless such information is publicly available
by reason of your unauthorized disclosure and (ii) information disclosed to you
by a third party not under any confidentiality obligations to the Company),
constitutes valuable and confidential assets of the Company. "Confidential
Information" shall mean non-public information concerning the Company's
financial data, statistical data, strategic business plans, product development
(or other proprietary product data), customer and supplier lists, customer and
supplier information, information relating to governmental relations,
discoveries, practices, processes, methods, trade secrets, marketing plans and
other non-public, proprietary and confidential information concerning the
Company and its subsidiaries, customers and suppliers. You will hold all such
information in trust and confidence for the Company and shall not use or
disclose any such information to any entity or person; provided, however, that
you may disclose such information if you are compelled to do so by legal
process, after giving prompt notice to the Company so that it may seek
protection of its confidential information. You agree that the covenant
regarding confidential information contained in this Section 3(a) is a
reasonable covenant under the circumstances, and further agree that if, in the
opinion of any court of competent jurisdiction, such covenant is not reasonable
in any respect, such court shall have the right, power and authority to excise
or modify such provision or provisions of this covenant as to the court shall
appear not reasonable and to enforce the remainder of the covenant as so
amended. You agree that any breach of the covenant contained in this Section
3(a) would irreparably injure the Company. In addition to pursuing any other
remedies it may have in law or in equity, the Company may obtain an injunction
against you from any court having jurisdiction over the matter, restraining any
further violation of Section 3(a).
(b) Non-Competition; Non-Solicitation
(i) You hereby agree that, during the Non-Competition Period (as
defined in Section 3.2(b)(iv) below), without the prior written consent of
the Company, as the case may be: (i) you shall not, directly or indirectly,
either as principal manager, agent, consultant, officer, director, greater
than two (2 %) percent holder of any class or series of equity securities,
partner, investor, lender or employee or in any other capacity, carry on,
be engaged in or have any financial interest in or otherwise be connected
with, any entity which is now or at the time, has material operations which
are engaged in any business activity competitive (directly or indirectly)
with the business of the Company (currently the manufacture and sale of (x)
automotive airbag fabric and cushions and metal airbag components; (y)
synthetic fabrics; and (z) military ordnance products) including, for these
purposes, any business in which, at the termination of his employment,
there was a bona fide intention on the part of the Company to
3
<PAGE>
engage in the future; and (ii) you shall not, on behalf of any competing
entity, directly or indirectly, have any dealings or contact with any
suppliers or customers of the Company.
(ii) During the Non-Competition Period, Employee agrees that, without
the prior written consent of the Company, as the case may be, (and other
than on behalf of the Company), Employee shall not, on his own behalf or on
behalf of any person or entity, directly or indirectly hire or solicit the
employment of any employee who has been employed by the Company at any time
during the one (1) year period immediately preceding such date of hiring or
solicitation.
(iii) The Employee and the Company agree that the covenants of
non-competition and non-solicitation contained in this Section 3.2(b) are
reasonable covenants under the circumstances, and further agree that if, in
the opinion of any court of competent jurisdiction such covenants are not
reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of these
covenants as to the court shall appear not reasonable and to enforce the
remainder of these covenants as so amended. The Employee agrees that any
breach of the covenants contained in this Section 3.2(b) would irreparably
injure the Company, as the case may be. Accordingly, the Employee agrees
that the Company, as the case may be, in addition to pursuing any other
remedies it may have in law or in equity, may obtain an injunction against
the Employee from any court having jurisdiction over the matter,
restraining any further violation of this Section 3.2(b).
(iv) The provisions of this Section 3.2(b) shall extend until August
31, 2000 (the "Non-Competition Period").
(c) Acknowledgments Respecting Confidentiality, Non-Disparagement,
Non-Competition and Non-Solicitation Covenants
With respect to the covenants made by you and set forth in this
Section (individually a "Covenant" or collectively the "Covenants"), you
acknowledge and agree that:
(i) the Covenants are in addition to any rights the Company may have
at law or at equity; and
(ii) it is impossible to measure in money the damages that will accrue
to the Company. Therefore, in the event that you materially breach any
Covenant hereunder, in addition to any other relief to which the Company
may be entitled at law or at equity, you will forfeit your rights hereunder
and the Company will be entitled to an injunction restraining you from
violating any such Covenant. If the Company shall institute any action or
proceeding to enforce any Covenant, you hereby waive the claim or defense
that the Company has an adequate remedy at law and you agree not to assert
in any such action or proceeding the claim or defense that the Company has
an adequate remedy at law.
4
<PAGE>
4. General Release and Waiver
(a) You agree to release, remise, acquit and discharge the Company and its
subsidiaries, partners, agents, employees, consultants, independent contractors,
attorneys, advisers, successors and assigns, jointly and severally, from any and
all claims, known or unknown, which you, your heirs, successors, or assigns have
or may have against any of such parties and any and all liability which any of
such parties may have to you whether denominated claims, demands, causes of
action, obligations, damages or liabilities arising from any and all bases,
however denominated, including but not limited to claims under the Employment
Agreement, claims of discrimination under the Civil Rights Act of 1866, as
amended, the Civil Rights Act of 1991, as amended, Title VII of the United
States Civil Rights Act of 1964, as amended, 42 U.S.C. Section 1981, or any
other federal, New Jersey or other state or local law concerning wages,
employment and discharge, any other law, rule, or regulation or workers'
compensation or disability claim under any such laws. Notwithstanding any other
provision of this Letter Agreement, this release is not intended to interfere
with your right to file a charge with the U.S. Equal Employment Opportunity
Commission in connection with any claim you believe you may have against the
Company. However, by signing and returning the acknowledgment copy of this
Letter Agreement, you agree to waive the right to recover damages in any
proceeding you may bring before the U.S. Equal Employment Opportunity Commission
or in any proceeding brought by the U.S. Equal Employment Opportunity Commission
on your behalf. This release relates to claims arising from and during your
employment relationship with the Company or as a result of the termination of
such relationship. This release is for any relief, no matter how denominated,
including but not limited to wages, back pay, front pay, tort claims,
compensatory damages or punitive damages, in any such case whether or not such
claims have been previously asserted by you. You further agree that you will not
file or permit to be filed on your behalf any such released claim. This release
shall not apply to the obligations set forth in this Letter Agreement or any
other claims that may arise after the date on which you sign the acknowledgment
copy of this Letter Agreement.
(b) You expressly acknowledge that the termination payments being offered
to you hereby constitute consideration for the foregoing release.
(c) The Company agrees to release, remise, acquit and discharge you from
any and all claims known to it, which it may have against you, whether
denominated claims, demands, causes of action, obligations, damages or
liabilities arising from and during your employment relationship with the
Company or as a result of the termination of such relationship. The Company
agrees not to file or permit to be filed on its behalf any such released claim.
This release shall not apply to the obligations set forth in this Letter
Agreement, claims not known to the Company or any other claims that may arise
after the date on which you sign the acknowledgment copy of this Letter
Agreement.
(d) The Company expressly acknowledges that your releases hereunder
constitute consideration for the foregoing release.
5
<PAGE>
5. Return of Company Property
You represent that you have returned to the Company, and the Company
represents that it has received, any of the Company's documents held by you as
well as keys and company credit cards.
6. Heirs and Assigns
(a) This Letter Agreement is personal to you and, without the prior written
consent of the Company, shall not be assignable by you otherwise than by will or
the laws of descent and distribution.
(b) The terms of this Letter Agreement shall inure to the benefit of and
shall be binding on the Company and shall be binding upon and inure to the
benefit of its respective successors and assigns.
7. General Provisions
(a) This Letter Agreement constitutes the entire understanding of the
Company and you with respect to the subject matter hereof, and supersedes all
prior understandings, written or oral, including the Employment Agreement and
the proposed employment agreement by and between the Company and you, dated as
of April 19, 1999, other than under the Stock Option Agreements and the SAR
Agreements. The terms of this Letter Agreement may be changed, modified or
discharged only by an instrument in writing signed by the parties hereto. A
failure of a party to insist on strict compliance with any provision of this
Letter Agreement shall not be deemed a waiver of such provision or any other
provision hereof. The invalidity of unenforceability of any provision of this
Letter Agreement shall in no way affect the validity or enforceability of any
other provision. In the event that any provision of this Letter Agreement is
determined to be so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
(b) This Letter Agreement shall be construed, enforced and interpreted in
accordance with and governed by the laws of the State of Delaware without
reference to the principles of conflicts of law.
(c) The payments hereunder will not constitute compensation for any purpose
under any retirement plan maintained by the Company.
(d) In the event of any material breach of this Agreement (including a
payment obligation), the nonbreaching party shall be relieved of its obligations
hereunder. The prevailing party shall be entitled to reimbursement of its
reasonable attorneys fees and court costs incurred in connection with any
dispute under this Agreement.
(e) The Company represents that this Agreement has been duly authorized and
executed by an officer authorized to sign this Agreement on behalf of the
Company.
(f) This Agreement shall be binding upon the parties hereto and their
respective heirs, successors and assigns.
6
<PAGE>
Upon your signature and return of this Letter Agreement, this Letter
Agreement will be effective, enforceable and irrevocable.
Sincerely,
By:
----------------------------
Name: Robert Zummo
Title: President
Agreed to and Accepted as of the date first above-written:
- ------------------
Jeffrey J. Kaplan
7
<PAGE>
Schedule I
Number of Options Grant Date Exercise Price Exercise Period
----------------- ---------- -------------- ---------------
125,000 February 17, 1997 $11.50 10 years
50,000 April 1, 1997 $10.00 10 years
50,000 August 13, 1997 $12.125 10 years
50,000 March 26, 1998 $14.125 10 years
50,000 May 5, 1999 $5.125 10 years
<PAGE>
Schedule II
Number of SARS Grant Date Base Price Term
-------------- ---------- ---------- ----
20,000 April 1, 1997 $10.00 3 years
40,000 March 30, 1998 $14.125 3 years
40,000 March 29, 1999 $8.50 3 years
CONSULTING AGREEMENT
Consulting Agreement (this "Agreement"), dated as of the 12th day of
August, 1999, by and between Safety Components International, Inc. (the
"Company"), a Delaware corporation and Francis X. Suozzi (the "Consultant").
W I T N E S S E T H
WHEREAS, the Consultant served as a member of the Board of Directors of
the Company (the "Board"), since the Company's inception and until July 12,
1999;
WHEREAS, the Company desires to retain the Consultant, and the Consultant
desires to be retained, as a consultant to the Company as provided in this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Company and the Consultant hereby
agree as follows:
1. Term. This Agreement shall commence as of the date hereof and shall terminate
on one year from the date hereof (the "Term").
2.
3. Services.
4.
(a) The Consultant agrees that during the Term, he will serve as a consultant to
the Company and in such capacity, perform such services as the Chief Executive
Officer or the Board of Directors of the Company may, from time to time,
reasonably request. Consultant's responsibilities shall generally include
assistance with financial matters related to the Company, including without
limitation, advice regarding the capital structure of the Company and its
divisions or subsidiaries, advice regarding the securing of additional financing
by the Company and in structuring transactions and assistance with the Company's
financial public relations. The Consultant shall report to the Chief Executive
Officer of the Company. The Consultant shall be available at such times and
places as are reasonably requested by the Company; it being understood, however,
that the Consultant has full-time employment and that his services hereunder may
be performed at flexible times so as not to interfere with such full-time
employment or the other responsibilities of Consultant.
(b)
5. Compensation.
6.
(a) Stock Options. In consideration for the consulting services to be provided
hereunder, the Consultant has been granted as of July 23, 1999, an option (the
"Option") to purchase up to 75,000 shares of the common stock of the Company
(the "Option Shares") at an exercise price per share equal to $5.6875 per share
of the common stock of the Company, par value $.01. The Option is exercisable
immediately and has a term of ten (10) years. The Option has not been issued
pursuant to the Company's 1994 Stock Option Plan, and the terms of the Option
shall be as set forth in the Stock Option Agreement annexed hereto as Exhibit A
(the "Stock Option Agreement").
(b)
7. Confidential Information.
8.
<PAGE>
(a) The Consultant agrees not to use, disclose or make accessible to any other
person, firm, partnership, corporation or any other entity any Confidential
Information (as defined below) pertaining to the business of the Company or its
subsidiaries except (i) while providing consulting services as provided herein
to the Company in the business of and for the benefit of the Company or (ii)
when required to do so by a court of competent jurisdiction, by any governmental
agency having supervisory authority over the business of the Company, or by any
administrative body or legislative body (including a committee thereof) with
jurisdiction to order the Company to divulge, disclose or make accessible such
information. For purposes of the Agreement, "Confidential Information" shall
mean non-public information concerning the Company or its subsidiaries
constituting financial data, statistical data, strategic business plans, product
development (or other proprietary product data), customer and supplier lists,
customer and supplier information, information relating to governmental
relations, discoveries, practices, processes, methods, trade secrets, marketing
plans and other non-public, proprietary and confidential information of the
Company or its subsidiaries, that, in any case, is not otherwise generally
available to the public and has not been disclosed by the Company to others not
subject to confidentiality agreements. In the event Consultant's engagement
hereunder is terminated for any reason, he immediately shall return to the
Company all Confidential Information in his possession.
(b)
(c) The Consultant and the Company agree that the covenant regarding
confidential information contained in this Section 4 is a reasonable covenant
under the circumstances, and further agree that if, in the opinion of any court
of competent jurisdiction, such covenant is not reasonable in any respect, such
court shall have the right, power and authority to excise or modify such
provision or provisions of this covenant as to the court shall appear not
reasonable and to enforce the remainder of the covenant as so amended. The
Consultant agrees that any breach of the covenant contained in this Section 4
would irreparably injure the Company. Accordingly, the Consultant agrees that
the Company, in addition to pursuing any other remedies it may have in law or in
equity, may obtain an injunction against the Consultant from any court having
jurisdiction over the matter, restraining any further violation of this Section
4.
(d)
(e) The provisions of this Section 4 shall extend for the Term and shall survive
the termination of the Agreement for two (2) years from the date the Agreement
is terminated.
(f)
9. Non-Competition; Non-Solicitation; Non-Disparagement.
10.
(a) The Consultant agrees that, during the Non-Competition Period (as defined in
Section 5(d) below), without the prior written consent of the Company: (i) he
shall not, directly or indirectly, either as principal manager, agent,
consultant, officer, director, greater than two (2 %) percent holder of any
class or series of equity securities, partner, investor, lender or employee or
in any other capacity, carry on, be engaged in or have any financial interest in
or otherwise be connected with, any entity which is now or at the time, has
material operations which are engaged in any business activity competitive
(directly or indirectly) with the business of the Company or its subsidiaries
(currently the manufacture and sale of (x) automotive airbag fabric and cushions
and metal airbag components; (y) synthetic fabrics; and (z) military ordnance
2
<PAGE>
products) including, for these purposes, any business in which, at the
termination of his engagement hereunder, there was a bona fide intention on the
part of the Company to engage in the future; and (ii) he shall not, on behalf of
any competing entity, directly or indirectly, have any dealings or contact with
any suppliers or customers of the Company.
(b)
(c) During the Non-Competition Period, Consultant agrees that, without the prior
written consent of the Company, (and other than on behalf of the Company),
Consultant shall not, on his own behalf or on behalf of any person or entity,
directly or indirectly hire or solicit the employment of any employee who has
been employed by the Company at any time during the one (1) year period
immediately preceding such date of hiring or solicitation.
(d)
(e) The Consultant and the Company agree that the covenants of non-competition
and non-solicitation contained in this Section 5 are reasonable covenants under
the circumstances, and further agree that if, in the opinion of any court of
competent jurisdiction such covenants are not reasonable in any respect, such
court shall have the right, power and authority to excise or modify such
provision or provisions of these covenants as to the court shall appear not
reasonable and to enforce the remainder of these covenants as so amended. The
Consultant agrees that any breach of the covenants contained in this Section 5
would irreparably injure the Company. Accordingly, the Consultant agrees that
the Company, in addition to pursuing any other remedies it may have in law or in
equity, may obtain an injunction against the Consultant from any court having
jurisdiction over the matter, restraining any further violation of this Section
5.
(f)
(g) The Consultant hereby agrees not to comment adversely or make disparaging
remarks concerning the Company or its officers, and the Company agrees not to
comment adversely or make disparaging remarks concerning you.
(h)
(i) The provisions of this Section 5 shall extend for the Term (herein referred
to as the "Non-Competition Period").
(j)
11. Independent Contractor. The relationship of the Consultant to the Company
established by this Agreement is that of an independent contractor, and nothing
contained in this Agreement shall be construed to: (a) give the Consultant the
power to (i) direct or control any activities of the Company, or (ii) create or
assume any obligation on behalf of the Company for any purpose whatsoever; (b)
constitute the Consultant as an employee of the Company or, except as provided
herein, entitle the Consultant to participate in any employee benefit plans or
fringe benefit plans made available to the Company's employees; or (c)
constitute the Consultant as an agent of the Company.
12.
13. Return of Documents. Promptly following termination of this Agreement for
any reason, the Consultant shall immediately deliver to the Company all plans,
designs, drawings, specifications, listings, manuals, memoranda, projections,
minutes, records, notebooks, computer programs and similar repositories of or
containing Confidential Information, including all copies, then in the
Consultant's possession or control or available from persons outside the Company
3
<PAGE>
receiving such documents from the Consultant, whether prepared by the Consultant
or others. At such time, the Consultant shall not retain any copies or abstracts
of any such documents.
14.
15. Notices. For the purposes of this Agreement, notices and other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by overnight
courier or sent by certified mail, return receipt requested, postage prepaid,
addressed to the Company at its principal executive office and to Consultant at
the address reflected in the Company's records as the Consultant's principal
residence, or such other respective address as is last given by either party to
the other, provided that all notices to the Company shall be directed to the
attention of the Chief Executive Officer of the Company. All notices and
communications shall be deemed to have been received on the date of delivery
thereof, one day after deposit with an overnight courier, or on the third
business day after the mailing thereof, except that notice of change of address
shall be effective only upon receipt.
16.
17. Successors and Assigns.
18. (a) This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns, and the term the "Company" as used
herein shall include its successors and assigns. The terms "successors and
assigns" as used herein shall mean a corporation or other entity acquiring all
or substantially all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
(b)
(c) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Consultant, his heirs, beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall be binding upon and inure to the benefit of the Consultant, his
heirs, beneficiaries and legal personal representatives.
(d)
19. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by the Consultant and the Company. No waiver by any party hereto at
any time of any breach by any other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party,
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreement or representation,
oral or otherwise, express or implied, with respect to the subject matter hereof
has been made by any party which is not expressly set forth in this Agreement.
20.
21. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of New York without giving
effect to the conflict of law principles thereof. 2
22. Severability. The provision of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
23.
4
<PAGE>
24. Entire Agreement and Effect on Other Agreements. This Agreement constitutes
the entirety of the agreement between the parties, and supersedes all prior
agreements, understandings and arrangements, oral or written, between the
parties on the subject matter hereof. The payments and benefits provided to the
Consultant under this Agreement are in lieu of all other salary or benefit
continuation benefits to which the Consultant may otherwise be entitled under
all other agreements, plans, policies, practices and arrangements, except for
the Stock Option Agreement, the Letter Agreement, effective as of July 12, 1999,
by and between the Company and the Consultant and the stock option agreements
referred to therein.
1. Taxes. The parties acknowledge and agree that the Company will not be
obligated to make, and that it is the sole responsibility of the Consultant to
make, all periodic filings and payments required to be made in connection with
withholding taxes (other then withholding which the Company shall be required to
make upon exercise of the Option), estimated taxes or any other federal, state
or local taxes, payments or filings required to be made or paid in connection
with the stock options granted to the Consultant hereunder.
2.
3. Counterparts. This Agreement may be executed in one or more counterparts,
which together shall constitute one agreement. It shall not be necessary for
each party to sign each counterpart so long as each party has signed at least
one counterpart.
4.
5.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Consultant has executed this
Agreement as of the date set forth above.
1.
2. SAFETY COMPONENTS INTERNATIONAL, INC.
3.
4.
5. By:______________________________________
Name:
6. Title:
7.
8.
9.
10.
11. _________________________________________
12. Francis X. Suozzi
6
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 23, 1999 (this "Agreement"), by
and between Safety Components International, Inc., a Delaware corporation (the
"Company"), and Francis X. Suozzi (the "Optionee"), residing at 62 West 62nd
Street, Apartment 15D, New York, NY 10023.
R E C I T A L S:
WHEREAS, the Company desires to grant to the Optionee a stock option (the
"Option") in consideration for the provision of certain consulting services,
said Option to be on the terms and conditions set forth herein and Optionee
desires to accept such Option.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Company and the Optionee hereby
agree as follows:
Section 1. Grant of Option. The Company hereby grants to the Optionee the Option
exercisable for the period and upon the terms hereinafter set forth, to purchase
75,000 shares (each a "Share" and collectively the "Shares") of the Company's
common stock, $.01 par value per share (the "Common Stock"), at an exercise
price equal to $ 5.6875 per share (the "Per Share Exercise Price"), subject to
adjustment as provided in Section 5 below. The Option is not intended to satisfy
the requirement for an incentive stock option under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and this Agreement shall be
construed and interpreted in accordance with such intention.
Section 2. Vesting. Subject to the provisions of Section 3 relating to
termination of the Option, the Option shall be fully vested and exercisable as
of the date hereof. Each exercise of the Option may be effected either in whole
or in part up to (but not more than) the maximum number of Shares as to which
the Option is exercisable on each respective date of exercise.
Section 3. Term of the Option. The Option granted hereunder shall terminate ten
years from the date hereof (the "Expiration Date").
<PAGE>
Section 4. Non-Transferability. The Optionee may not transfer the Option except
by will or the laws of descent and distribution. Subject to the terms of this
Agreement, the Option may not be otherwise transferred, assigned, pledged,
hypothecated or disposed of in any way, whether by operation of law or
otherwise, and may be exercised during the Optionee's lifetime only by the
Optionee; provided, that upon the Optionee's death or disability prior to the
Expiration Date, such Option may be exercised by the Optionee's duly appointed
legal guardian or conservator in accordance with the terms of this Agreement.
Section 5. Protection Against Dilution; Significant Transactions.
(a) If the outstanding shares of Common Stock are affected by any (i)
subdivision or consolidation of shares, (ii) dividend or other distribution
(whether in the form of cash, shares of Common Stock, other securities, or other
property), (iii) recapitalization or other capital adjustment of the Company or
(iv) merger, consolidation or other reorganization of the Company or other
rights to purchase shares of Common Stock or other securities of the Company, or
other similar corporate transaction or event, such that an adjustment is
determined by the Compensation Committee of the Board of Directors of the
Corporation (the "Committee") to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made hereunder,
then the Committee shall, in such manner as it may deem necessary to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made hereunder, adjust any or all of (x) the number and type of shares of Common
Stock subject to the unexercised portion of the Option, and (y) the exercise
price with respect to the unexercised portion of the Option, or if deemed
appropriate, make provision for a cash payment with respect to the unexercised
portion of the Option. Any determination made by the Committee under this
Section shall be final, binding and conclusive. In computing any adjustment
under this Section, any fractional share shall be eliminated. Nothing contained
in this Agreement shall be construed to affect in any way the right or power of
the Company to
<PAGE>
make any adjustment, reclassification, reorganization or changes to its capital
or business structure or to merge or to consolidate or to dissolve, liquidate or
transfer all or any part of its business or assets.
(b) In the event of (i) a merger or consolidation to which the Company is a
party or
(ii) a sale by the Company of all or substantially all of its assets, the Option
shall, after such merger, consolidation or sale, be exercisable into the kind
and number of shares of stock and/or securities, cash or other property which
Optionee would have been entitled to receive if Optionee had held the Common
Stock issuable upon the exercise of the Option immediately prior to such merger,
consolidation or sale.
Section 6. Exercise. The Option shall be exercised when written notice of such
exercise, signed by the person entitled to exercise the Option, has been
delivered or transmitted by registered or certified mail, to the Secretary of
the Company at its principal office. Said written notice shall specify the
number of Shares purchasable under the Option which such person then wishes to
purchase and shall be accompanied by such documentation, if any, as may be
required by the Company as provided in Section 8 below and be accompanied by
payment of the aggregate Option price equal to the product of the Per Share
Exercise Price and the number of Shares being purchased (the "Aggregate Exercise
Price"). Such payment shall be, without limitation, in the form of (i) cash or
shares of Common Stock, or any combination thereof, having a Fair Market Value
on the exercise date equal to the Aggregate Exercise Price or (ii) a
broker-assisted cashless exercise program established by the Company's Stock
Option Plan Committee. For purposes of this Agreement, "Fair Market Value" shall
mean, with respect to the Common Stock (i) the closing price per share of the
Common Stock on the principal exchange on which the Common Stock is then
trading, if any, on such date, or, if the Common Stock was not traded on such
date, then on the next preceding trading day during which a sale occurred; or
(ii) if the Common Stock is not traded on an exchange but is quoted on NASDAQ
<PAGE>
or a successor quotation system, (1) the last sales price (if the Common Stock
is then listed as a National Market Issue under the NASDAQ National Market
System) or (2) the mean between the closing representative bid and asked prices
(in all other cases) for the Common Stock on such date as reported by NASDAQ or
such successor quotation system; or (iii) if the Common Stock is not publicly
traded on an exchange and not quoted on NASDAQ or a successor quotation system,
the mean between the closing bid and asked prices for the Common Stock on such
date as determined in good faith by the Committee; or (iv) if the Common Stock
is not publicly traded, the fair market value established by the Committee
acting in good faith. Delivery of said notice and such documentation shall
constitute an irrevocable election to purchase the Shares specified in said
notice and the date on which the Company receives said notice and documentation
shall, subject to the provisions of Sections 7 and 8, be the date as of which
the Shares so purchased shall be deemed to have been issued. The person entitled
to exercise the Option shall not have the right or status as a holder of the
Shares to which such exercise relates prior to receipt by the Company of such
payment, notice and documentation.
Section 7. Limit on Exercise. Anything in this Agreement to the contrary
notwithstanding, in no event may the Option be exercisable if the Company shall,
at any time and in its sole discretion, determine that (i) the listing,
registration or qualification of any Shares otherwise deliverable upon such
exercise, upon any securities exchange or under any state or federal law, or
(ii) the consent or approval of any regulatory body or the satisfaction of
withholding tax or other withholding liabilities is necessary or desirable in
connection with such exercise. In such event, such exercise shall be held in
abeyance and shall not be effective unless and until such listing, registration,
qualification, consent, approval or withholding shall have been affected or
obtained free of any conditions not acceptable to the Company.
Section 8. Additional Assurances. The Committee may require as a condition to
the right to exercise the Option hereunder that the Company receive from the
person exercising the
<PAGE>
Option, representations, warranties and agreements, at the time of any such
exercise, to the effect that the Shares are being purchased for investment only
and without any present intention to sell or otherwise distribute such Shares
and that the Shares will not be disposed of in transactions which, in the
opinion of counsel to the Company, would violate the registration provisions of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations thereunder (the "Act"). The certificate issued to evidence such
Shares shall bear appropriate legends summarizing such restrictions on the
disposition thereof.
Section 9. Legend. All certificates representing any Shares shall have endorsed
thereon the following legend, unless such Shares have been previously registered
under the Act (in addition to any other legend required under any other
agreement):
<PAGE>
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT COVERING THESE SECURITIES, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT THE SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT."
Section 1. Representations and Warranties.
(a) In connection with the granting of the Option and upon each exercise of the
Option, the Optionee agrees, represents and warrants for himself and for all
other persons that may be permitted to exercise the Option hereunder as follows:
(i) The Optionee is acquiring the Option and upon exercise of the Option, the
Shares (together, the Option and Shares being referred to herein as the
"Securities"), solely for his own account for investment without a view to, or
for resale in connection with, any distribution thereof within the meaning of
the Act. The Optionee further represents that he does not have any present
intention of selling, offering to sell or otherwise disposing of or distributing
the Securities or any portion thereof; and that he is purchasing the entire
legal and beneficial interest in the Securities for his own account and neither
in whole nor in part for the account of any other person.
(ii) The Company has disclosed to the Optionee that the Shares have not been
registered under the Act and must be held indefinitely unless the Shares are
subsequently registered under the Act or an exemption from the registration
requirements is available. The Company hereby agrees that upon the receipt of a
written notice from the Optionee requesting
<PAGE>
that the Shares be registered under the Act, the Company shall effect the
registration of such Shares under the Act by filing a Form S-8 with the
Securities and Exchange Commission within 120 days of the receipt of such
written notice.
(iii)
(iv) The Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities.
(v) The Optionee understands that his acquisition of the Securities will be a
highly speculative investment and, without impairing his financial condition, he
is able to hold the Securities for an indefinite period of time and to suffer a
complete loss of his investment.
(vi) The Company represents and warrants that this Agreement has been duly
authorized, executed and delivered on behalf of the Company, that all corporate
action required in connection with such authorization, execution and delivery
has been duly taken, that all corporate action required to reserve the Shares as
provided herein has been duly taken, that no consent of any third party is
required in connection with the authorization, execution and delivery of this
Agreement and that this Agreement when executed will be a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms.
(vii) The Company further represents and warrants that all shares of Common
Stock which may be issued upon the exercise of the Option, upon issuance and
assuming payment in full by the Optionee of the Aggregate Exercise Price, will
be validly issued, fully paid and nonassessable, and free of all taxes, liens
and charges with respect to the issuance thereof.
(viii) The Company makes no representations or warranties as to the income,
estate or other tax consequences to the Optionee of the grant or exercise of the
Option or the sale or other disposition of the Shares of Common Stock acquired
pursuant to the exercise thereof.
<PAGE>
Section 2. Withholding of Tax. To the extent that the exercise of this Option or
the disposition of the Shares of Common Stock acquired by exercise of this
Option results in compensation income to the Optionee for federal or state
income tax purposes, the Optionee shall deliver to the Company at the time of
such exercise or disposition such amount of money or shares of Company Common
Stock as the Company may require to meet its obligation under applicable tax
laws or regulations, and, if the Optionee fails to do so, the Company is
authorized to withhold from any cash or Company Common Stock remuneration then
or thereafter payable to the Optionee an amount of cash or Common Stock equal to
the tax required to be withheld by reason of such resulting compensation income.
Upon an exercise of this Option, the Company is further authorized in its
discretion to satisfy any such withholding requirement out of any cash or Shares
of Common Stock distributable to the Optionee upon such exercise.
Section 3. Rights in Shares Before Issuance and Delivery. The Optionee shall not
be deemed for any purpose to be the owner of any Shares of Common Stock unless
and until (a) the Option shall be exercised pursuant to the terms hereof, (b)
the Company shall have issued and delivered Shares of Common Stock to the
Optionee and (c) the Optionee's name shall have been entered as a stockholder of
record on the books of the Company. Thereupon, the Optionee shall have full
voting, dividend and other ownership rights with respect to such Shares of
Common Stock.
Section 4. Transfers in Violation of Agreement. The Company shall not be
required to transfer on its books any Shares which have been sold or transferred
in violation of any of the provisions set forth in this Agreement or to treat as
the owner of any Shares, accord the right to vote any Common Stock as the owner
thereof or pay dividends to any transferee to whom any Shares shall have been so
transferred.
<PAGE>
Section 5. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
Section 6. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered personally or sent
by facsimile transmission, overnight courier, or certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally or sent by facsimile transmission (provided that a
confirmation copy is sent by overnight courier), one day after deposit with an
overnight courier, or if mailed, five (5) days after the date of deposit in the
United States mails, as follows:
If to the Company, to: Safety Components International, Inc.
2160 North Central Road
Fort Lee, NJ 07024
Attention: Robert A. Zummo
Facsimile: (201) 592-7501
If to the Optionee, to: Francis X. Suozzi
62 West 62nd Street
Apartment 15D
New York, NY 10023
Facsimile: (212) 586-7105
Section 1. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the matters contemplated herein and
supersedes all prior agreements or understandings among the parties related to
such matters.
Section 2. Binding Effect. Subject to the restrictions on transfer herein set
forth, this Agreement shall be binding upon and inure to the benefit of the
Company and its successors and assigns and upon the Optionee and his assigns,
heirs, executors, administrators and legal representatives. "Successors and
assigns" shall mean, in the case of the Company, any
<PAGE>
successor pursuant to a merger, consolidation, or sale, or other transfer of all
or substantially all of the assets of the Company.
Section 3. Amendment or Modification; Waiver. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms or covenants
hereof may be waived, only by a written instrument executed by all of the
parties hereto or, in the case of a waiver, by the party waiving compliance.
Except as otherwise specifically provided in this Agreement, no waiver by either
party hereto of any breach by the other party hereto of any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of a similar or dissimilar provision or condition at the same or at any
prior or subsequent time.
Section 4. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Delaware, without giving effect to the principles of conflicts of
law thereof, and applicable federal law.
Section 5. Headings. Headings to the Sections in this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the heading of any Section.
Section 6. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same agreement.
Section 7. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms and
provisions of this Agreement in any other jurisdiction. Section 8.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
SAFETY COMPONENTS INTERNATIONAL, INC.
By:
--------------------------------
Name:
Title:
OPTIONEE:
--------------------------------
Francis X. Suozzi
<PAGE>
EXHIBIT I
Notice of Exercise
(to be signed only upon exercise of the Option)
TO: Safety Components International, Inc. (the "Company")
I hereby irrevocably elect to exercise the purchase right represented by
the Option Agreement, dated as of ________, 1999, between the Company and me
(the "Option"), for, and to purchase thereunder, shares of the common stock, par
value $.01 per share, of the Company on_______________, at the Company's
principal executive offices.
Further, I certify that the representation and the warranties of the
Optionee (as defined in the Option) set forth in the Option are true and correct
on and as of the date hereof.
Dated: __________________
---------------------
Francis X. Souzzi
----------------------
Address
SAFETY COMPONENTS INTERNATIONAL, INC.
Effective as of July 12, 1999
Francis X. Suozzi
112 Brown Avenue
Spring Lake, New Jersey 07762
Re: Safety Components International, Inc.
Dear Mr. Suozzi:
You have submitted your resignation as a member of the Board of Directors
of Safety Components International, Inc. (the "Company"), effective as of July
12, 1999, and the Company has agreed to extend the exercise period, as set forth
below, of the stock options (the "Options") previously granted to you pursuant
to the Safety Components International, Inc. 1994 Stock Option Plan to purchase
an aggregate of 35,000 shares of the Company's common stock, par value $.01 per
share. The Options were granted on the dates, in the amounts, at the exercise
prices and are exercisable for the terms set forth on Schedule I attached
hereto. Notwithstanding the provisions contained in each of the stock option
agreements entered into between the Company and you in connection with the
issuance of the Options, each Option shall hereby be exercisable for the
remainder of the term of such Option as set forth on Schedule I attached hereto.
SAFETY COMPONENTS INTERNATIONAL, INC.
By:_______________________________________
Name:
Title:
Accepted and Agreed to:
- -----------------------
Francis X. Suozzi
<PAGE>
Schedule I
Number of
Options Grant Date Exercise Price Exercise Period
------- ---------- -------------- ---------------
1,500 May 6, 1994 $10.00 10 years
1,500 January 2, 1995 $21.00 10 years
1,500 January 2, 1996 $14.88 10 years
2,500 January 2, 1997 $10.25 10 years
2,500 January 2, 1998 $12.75 10 years
1,500 January 13, 1998 $13.75 10 years
10,000 March 26, 1998 $14.125 10 years
4,000 January 1, 1999 $15.875 10 years
10,000 May 5, 1999 $5.125 10 years
------
Total: 35,000
======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations files as
part of the quarterly report on Form 10-Q and is qualified in its entirety by
reference to such consolidated balance sheet and consolidated statement of
operations.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-27-1999
<PERIOD-END> SEP-25-1999
<CASH> 9,475
<SECURITIES> 0
<RECEIVABLES> 38,905
<ALLOWANCES> 914
<INVENTORY> 18,568
<CURRENT-ASSETS> 75,726
<PP&E> 91,465
<DEPRECIATION> 20,175
<TOTAL-ASSETS> 213,087
<CURRENT-LIABILITIES> 41,596
<BONDS> 90,000
0
0
<COMMON> 66
<OTHER-SE> 45,168
<TOTAL-LIABILITY-AND-EQUITY> 213,087
<SALES> 53,391
<TOTAL-REVENUES> 53,391
<CGS> 46,775
<TOTAL-COSTS> 46,775
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,738
<INCOME-PRETAX> (2,437)
<INCOME-TAX> (1,013)
<INCOME-CONTINUING> (1,424)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,424)
<EPS-BASIC> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>