-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mJjod0LAqOmnS/8kd72czvUos3B1EAQundJNa924fPWEjOM0I2pI8SlcbbSb/gY8 xin5RvPT06hTkquxsTrooA== 0000950124-94-000674.txt : 19940404 0000950124-94-000674.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950124-94-000674 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEAR SEATING CORP CENTRAL INDEX KEY: 0000842162 STANDARD INDUSTRIAL CLASSIFICATION: 2531 IRS NUMBER: 133386776 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 033-25256-01 FILM NUMBER: 94519721 BUSINESS ADDRESS: STREET 1: 21557 TELEGRAPH RD CITY: SOUTHFIELD STATE: MI ZIP: 48034 BUSINESS PHONE: 3137461500 FORMER COMPANY: FORMER CONFORMED NAME: LEAR SIEGLER SEATING CORP DATE OF NAME CHANGE: 19900723 10-K 1 FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) / / Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended or /X/ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from July 1, 1993 to December 31, 1993. COMMISSION FILE NUMBER: 33-52565 LEAR SEATING CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3479398 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 21557 TELEGRAPH ROAD, SOUTHFIELD, MI 48034 (Address of principal executive offices) (zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 810-746-1500 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ As of February 15, 1994, the aggregate market value of all shares of common stock held by non-affiliates of the registrant was $0. As of February 15, 1994, the number of shares outstanding of the registrant's Common Stock, par value $.01 per share, was 1,176,448 shares. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CROSS REFERENCE SHEET AND TABLE OF CONTENTS
PAGE NUMBER OR REFERENCE ----------- PART I ITEM 1. Business............................................................. 1 ITEM 2. Properties........................................................... 14 ITEM 3. Legal proceedings.................................................... 16 ITEM 4. Submission of matters to a vote of security holders.................. 16 PART II ITEM 5. Market for registrant's common equity and related stockholder matters.............................................................. 17 ITEM 6. Selected financial data.............................................. 18 ITEM 7. Management's discussion and analysis of financial condition and results of operations................................................ 19 ITEM 8. Financial statements and supplementary data.......................... 27 ITEM 9. Changes in and disagreements with accountants on accounting and financial disclosure................................................. 61 PART III ITEM 10. Directors and executive officers of the registrant................... 61 ITEM 11. Executive compensation............................................... 64 ITEM 12. Security ownership of certain beneficial owners and management....... 73 ITEM 13. Certain relationships and related transactions....................... 74 PART IV ITEM 14. Exhibits, financial statement schedules, and reports on Form 8-K..... 77
i 3 EXPLANATORY NOTES On March 8, 1994, the Company filed a Registration Statement on Form S-1 (the "Registration Statement") with the Securities and Exchange Commission relating to the public offering of 9,375,000 shares of the Company's Common Stock, $.01 par value per share ("Common Stock"), in the United States and internationally (the "Offerings"). Prior to the commencement of the Offerings, it is contemplated that a 33-for-1 split of the Company's outstanding Common Stock will be effected (the "Stock Split"), and the Registration Statement, which as of the filing date of this Form 10-K has not yet been declared effective, assumes the consummation of the Stock Split. However, the information contained in this Form 10-K has not been adjusted to reflect the Stock Split. As used in this Form 10-K, unless the context otherwise requires, the "Company" or "Lear" refers to Lear Seating Corporation and its consolidated subsidiaries after giving effect to the Merger (as defined herein). ii 4 PART I ITEM 1 -- BUSINESS GENERAL The Company is the largest independent supplier of automobile and light truck seat systems in North America and is one of the largest independent suppliers of such systems and components worldwide. The Company's principal products include finished automobile and light truck seat systems, automobile and light truck seat frames, seat covers and other seat components. The Company's seat systems, which are designed, manufactured and assembled at the Company's manufacturing facilities, are shipped to customer assembly plants on a just-in-time ("JIT") basis for installation in vehicles near the end of the assembly process. This JIT process enables the Company to optimize inventory turnover and deliver products to its customers on as little as 90 minutes notice. In the twelve months ended December 31, 1993, approximately 70% of Lear's net sales were generated from sales in the United States and Canada, with the balance of sales being primarily in Europe and Mexico. The Company's present customers include 16 original equipment manufacturers ("OEMs"), the most significant of which are Ford, General Motors, Chrysler, Volvo, Volkswagen, Saab and Mazda. The Company's net sales have grown rapidly from approximately $159.8 million in the fiscal year ended June 30, 1983 to approximately $1.8 billion in the fiscal year ended June 30, 1993, a ten-year average compound annual growth rate of approximately 27.1%. The Company has expanded its operations to facilitate such growth primarily through capital expenditures necessary to construct or acquire new facilities and to enhance existing facilities. This growth in sales is attributable primarily to the trend in the automotive industry to "outsource" more of its requirements for automotive components, particularly high cost components such as seat systems. Outsourcing has been increased in response to competitive pressures on OEMs to improve quality and reduce capital needs and the costs of labor, overhead and inventory. The outsourced market for automobile and light truck seat systems in North America is approximately 65% of the total North American seat systems market (approximately 83% taking into account future seating programs that have been awarded). In addition to outsourcing the production of seat systems, OEMs increasingly are transferring the primary responsibility for design, engineering and quality control of these products to suppliers, such as Lear, with proven design, engineering and JIT program management and manufacturing capabilities. Suppliers that design, engineer, manufacture and conduct quality control testing are generally referred to as "Tier I" suppliers. The Company believes that early involvement in the design and engineering of new seating products as a Tier I supplier affords the Company a competitive advantage in securing new business and provides its customers with significant cost reduction opportunities through the coordination of the design, development and manufacturing processes. The Company has enhanced its design and engineering capabilities by building two technical centers and making other investments to upgrade its capabilities. The Company is continuing this process of investing to substantially improve all aspects of its safety and functional testing and comfort assessment capabilities. An example of the Company's design and engineering capabilities is the development of the Company's patented SureBond process, which bonds seat covers to foam pads, minimizing the need for sewing. "See Business -- Manufacturing." The Company believes its enhanced design and engineering capabilities have contributed to the increase in the Company's North American Content per Vehicle (as defined herein) from $12 to $98 between the fiscal years ended June 30, 1983 and 1993. As a result of the Company's demonstrated capabilities as a full-service Tier I supplier, it has captured more than one-third of the outsourced market for automobile and light truck seat systems and seat components in North America and has become a leading supplier to this market in Europe. The Company's reputation with OEMs for timely delivery, customer service and quality products at competitive prices has resulted in many of the Company's facilities winning recognition awards from its customers. 1 5 The Company's continued expansion as a Tier I supplier has resulted in new business which recently has begun or will begin production over the next eighteen months. Such business includes new passenger car and light truck programs for the Dodge Ram Pick-up Truck, the Ford Mustang, the Ford Windstar Minivan, the BMW 3 Series and all Jaguar models, as well as the GM Opel Omega, the Chevrolet Cavalier and the Oldsmobile Aurora. In addition, in December 1993, the Company was awarded the seat system assembly responsibility for the Ford Taurus/Mercury Sable vehicle lines for seat systems scheduled to begin production in 1995. Ford Taurus has been the best selling car line in the United States for the past two years. As a result of this new business, the Company expects to construct several new seat facilities, which typically involve an upfront cost of between $6.0 million and $9.0 million per facility for owned facilities and between $1.0 million and $6.0 million per facility for leased facilities. On November 1, 1993, the Company significantly expanded its operations in North America by purchasing certain portions of Ford's North American seat cover and seat systems business (the "NAB") for $173.4 million in cash (after giving effect to an adjustment in the purchase price for changes in NAB working capital) and approximately $10.5 million in notes payable to Ford or its affiliates (the "NAB Acquisition"). The NAB consists of an integrated United States and Mexican operation which produces seat covers for approximately 80% of Ford's North American vehicle production and manufactures seat systems for Ford's Crown Victoria and Grand Marquis vehicles. For the twelve months ended December 31, 1993, and after giving effect to the pro forma adjustments related to the NAB Acquisition, gross sales, EBITDA (as defined herein) and operating income of the NAB were approximately $572.7 million, $49.0 million and $37.9 million, respectively. In connection with the NAB Acquisition, the Company entered into a five-year supply agreement with Ford covering models for which the NAB produces seat covers and seat systems, establishing the Company as Ford's leading seat systems supplier. In addition, the Company believes that, as a result of the NAB Acquisition, its relationship with Ford will be enhanced, enabling Lear to be more involved in the planning and design of seat systems and related products for future vehicle models. Lear believes that the same competitive pressures that contributed to the rapid expansion of its business in North America will require auto makers in Europe to outsource more of their seating requirements. The outsourced market for automobile and light truck seat systems in Europe is approximately 41% of the total European seat systems market. Over the past four years, the Company has aggressively pursued expansion in Europe both with its existing and new customers. As a result of its efforts, the Company has been awarded significant business in Sweden, Germany, Austria and England from General Motors-Adam Opel, Saab, Volvo, Chrysler, Volkswagen and Jaguar. Consequently, the Company's net sales in Europe have grown from approximately $145.5 million in the fiscal year ended June 30, 1991 to approximately $432.5 million in the fiscal year ended June 30, 1993. The Company also has positioned itself as the leading supplier of seat systems and seat components in Mexico through its ownership of Central de Industrias S.A. de C.V. ("CISA"), the largest independent automotive seat systems manufacturer in Mexico serving Mexican domestic producers. As a result of its presence in Mexico, the Company believes that it will benefit from the growing activity of United States-based and German-based OEMs in Mexico. The Company also believes that it will benefit from the additional business opportunities resulting from the passage of the North American Free Trade Agreement ("NAFTA"). On December 31, 1993, Lear Holdings Corporation ("Holdings"), the parent of the Company, merged with and into the Company (the "Merger"), and the separate corporate existence of Holdings ceased on that date. Unless the context otherwise indicates, all information contained herein is presented as if the Merger had occurred as of the date or as of the beginning of the period indicated. In February 1994, the Company also changed its fiscal year end from June 30 to December 31, effective December 31, 1993. The Company is the successor to a seat frame manufacturing business founded in 1917 that served as a supplier to General Motors and Ford from its inception. Holdings was organized in August 1988 to effect the 2 6 leveraged acquisition (the "1988 Acquisition") of all of the outstanding common stock of Lear Seating Corporation (formerly known as Lear Siegler Seating Corp.) and certain other subsidiaries of Lear Siegler Holdings Corp. comprising its seating group (the companies acquired being collectively referred to herein as the "Seating Group"). The Company's principal executive offices are located at 21557 Telegraph Road, Southfield, Michigan 48034. Its telephone number at that location is (810) 746-1500. The Company was incorporated in Delaware on January 13, 1987. BUSINESS STRATEGY To take advantage of additional business opportunities, the Company has positioned itself as a global Tier I supplier of entire seat systems to OEMs. Tier I status typically means that the supplier is awarded the seat program for a particular vehicle in the early stages of the vehicle's design. The Tier I supplier becomes responsible for total seat program management, including design, development, component sourcing, quality assurance procedures, manufacture and delivery to the OEM's assembly plant. The OEM benefits from lower costs, improved quality, timely delivery and the administrative convenience of being able to treat seating as a single component instead of as numerous individual components. The Company believes that its early involvement in the design and engineering of new seat products as a Tier I supplier affords the Company a competitive advantage in securing new business. The Company has become a significant Tier I supplier by implementing a strategy based upon the following elements: - Strong Relationships with the OEMs. The Company's management has developed strong relationships with its OEM customers which allow Lear to identify business opportunities and react to customer needs in the early stages of vehicle design. The Company works closely with OEMs in designing and engineering seat systems and maintains an excellent reputation with the OEMs for timely delivery and customer service and for providing world class quality at a competitive price. Many of the Company's facilities have won awards from OEMs and others, including the General Motors Mark of Excellence Award, the General Motors Supplier of the Year Award, the General Motors Top Supplier Award in Mexico, the Ford Q-1 Award at 15 plants, the General Motors of Europe 1991 and 1992 Supplier of the Year Award, the Chrysler Quality Excellence Award, the Saab 100% Supplier Performance Award and the Mazda Most Valuable Supplier Award. - Product Technology and Product Design Capability. Lear has made substantial investments in product technology and product design capability to support its products, including the building of two technical centers (one in the United States in 1988 and one in Europe in 1991) and upgrading the Company's computer aided design/computer aided manufacturing ("CAD/CAM") systems. In addition, the Company is in the process of investing approximately $6.0 million to substantially broaden its engineering capabilities, including all aspects of safety and functional testing and comfort assessment. The Company's strong product focus and global business base provide it access to worldwide seat technology. The Company's participation with customers in the early phases of product design, including participation at its ten remote engineering sites located near customers, enables it to improve the quality of the product and to meet target costs. Furthermore, the Company has established formal programs which provide for an ongoing review of product design and production in order to establish the means of obtaining additional cost improvement. An example of the Company's product technology and product design capability is the development of its SureBond process, which was patented in 1987. Sales of seat systems using the SureBond process accounted for approximately 35% of the Company's net sales for the twelve months ended December 31, 1993. See "Business -- Manufacturing." - Lean Manufacturing Philosophy. Lear has adopted a "lean manufacturing" philosophy that seeks to eliminate waste and inefficiency in its own operations and in those of its customers. The Company believes that it provides superior quality seating products at lower costs than the OEMs. The Company, whose facilities are linked by computer directly to those of its suppliers and customers, receives components from its suppliers, and delivers seat systems and components to its customers on a JIT basis, which minimizes inventories and fixed costs and enables the Company to deliver products on as little as 90 minutes notice. In the twelve months ended December 31, 1993, the Company's overall annual inventory turnover rate was 36 times (excluding the 3 7 effects of the NAB Acquisition) and up to 150 times in the case of certain of the Company's JIT plants. The Company also minimizes fixed costs by using the existing suppliers to the OEMs and the OEMs themselves for certain components instead of attempting to produce such components itself. In cases where one of the Company's manufacturing facilities is underutilized, the Company is able to redistribute products to increase facility utilization. Typically, the upfront cost of constructing a new seat systems facility is between $6.0 and $9.0 million per facility for owned facilities and between $1.0 million and $6.0 million per facility for leased facilities. The principal costs in starting a new seat systems facility arise from the acquisition of the land, construction of the building and installation of conveyor systems. Because most seat assembly work is manual and does not require complex equipment, capital costs are relatively low. Another example of the Company's "lean manufacturing" philosophy is the establishment of a "Champion Program" in the fiscal year ended June 30, 1993 whereby individual members of management are responsible for working with a specific vendor to aggressively reduce costs. The success of the program has allowed the Company to negotiate on-going cost reduction agreements with many of its customers. The Champion Program has been expanded since June 30, 1993 to European suppliers as well as to product and manufacturing design. NAB ACQUISITION On November 1, 1993, Lear significantly strengthened its position in the North American automotive seating market by purchasing the NAB from Ford for $173.4 million in cash (after giving effect to an adjustment in the purchase price for changes in NAB working capital) and approximately $10.5 million in notes payable to Ford or its affiliates. The NAB Acquisition included the machinery, equipment, real property and other assets used in the operations of the NAB as well as the stock of Favesa S.A. de C.V. ("Favesa"), an operation located in Juarez, Mexico. The NAB consists of an integrated United States and Mexican operation which produces seat covers for approximately 80% of Ford's North American vehicle production and manufactures seat systems for Ford's Crown Victoria and Grand Marquis vehicles. The Company's United States and Canadian revenues as a percentage of total net sales would have been approximately 68% had the NAB Acquisition not occurred versus 75% had the NAB Acquisition occurred on the first day of calendar year 1993. The cost structure of the NAB is very similar to the Company's current business in that costs are largely variable and, therefore, responsive to demand. Prior to the NAB Acquisition, the Company outsourced a significant portion of its seat cover requirements. The expansion of the Company's seat cover business allows the Company better control over the costs and quality of one of the critical components of a seat system. Because of the Company's belief in its ability to produce seat covers and seat systems at attractive margins, the NAB Acquisition is expected to improve the Company's operating performance. For the twelve months ended December 31, 1993, after giving pro forma effect to the NAB Acquisition, gross sales, EBITDA and operating income of the NAB were approximately $572.7 million, $49.0 million and $37.9 million, respectively. In connection with the NAB Acquisition, the Company entered into a five-year supply agreement with Ford covering models for which the NAB currently produces seat covers and seat systems at agreed upon prices. The Company also assumed during the term of the supply agreement primary engineering responsibility for a substantial portion of Ford's car models. As a result, the NAB Acquisition establishes the Company as Ford's leading seat systems supplier and strengthens the Company's relationship with one of its two largest customers and the world's second largest automobile manufacturer. In addition, the Company believes that because of the NAB Acquisition it will be further integrated by Ford into the planning and design of seat systems and related products for future vehicle models. On a pro forma basis, after giving effect to the NAB Acquisition, the Company's net sales in the twelve months ended December 31, 1993 to Ford and General Motors were approximately equal. The NAB Acquisition also provides the Company with a prototype for enhancing its relationships with OEMs in a manner that allows OEMs to take better advantage of the 4 8 Company's engineering, design and manufacturing expertise than is currently afforded under conventional supply agreements. The sale of the NAB was conducted on an auction basis in which Ford determined that the Company was one of only two qualified final bidders based upon technical resources, capabilities and expertise in automotive and light truck seat systems. The selection of the Company as the successful bidder highlights the Company's position as a leading supplier of quality seat systems. The NAB incorporates both U.S. and Mexican operations. The manufacture of seat covers and seat systems takes place in Juarez, Mexico at the NAB's maquiladora subsidiary, Favesa. Favesa's maquiladora status allows the NAB to produce seat systems and seat covers in Mexico for sale in the United States without paying import or export duties as raw materials and finished goods cross the United States/Mexican border. To maintain its maquiladora status, Favesa must return its production to the United States, where it is sold by the NAB. This maquiladora arrangement is in direct contrast to the Company's other Mexican subsidiary, CISA, a non-maquiladora operation, whose sales are almost entirely to Mexican plants. The Company believes that the passage of NAFTA will present additional business opportunities as current maquiladora operations are allowed to produce product for use in Mexico. PRODUCTS Lear's products have evolved from the Company's many years of experience in the seat frame market where it has been a major supplier to General Motors and Ford since its inception in 1917. The seat frame has structural and safety requirements which make it the basis for overall seat design and was the logical first step to the Company's emergence as a dominant supplier of entire seat systems. All of the Company's products are manufactured using JIT manufacturing techniques, and most of the Company's products, including all seat systems, are delivered to the OEMs on a JIT basis. The JIT concept, first broadly utilized by Japanese automobile manufacturers, is the cornerstone of the Company's manufacturing and supply strategy. This strategy involves many of the principles of the Japanese system, but was redeveloped for compatibility with the greater volume requirements and geographic distances of the North American market. The Company first developed JIT operations in the early 1980s at its seat frame manufacturing plants in Morristown, Tennessee and Kitchener, Ontario. These plants previously operated under traditional manufacturing practices, resulting in relatively low inventory turnover rates, significant scrap and rework, a high level of indirect labor costs and long production set-up times. As a result of JIT manufacturing techniques, the Company has been able to consolidate plants, increase capacity and significantly increase inventory turnover, quality and productivity. The JIT principles first developed at Lear's seat frame plants in 1983 were next applied to the Company's growing seat systems business. The Company's seating plants are typically no more than 30 minutes from its customers' assembly plants and manufacture seats for delivery to the customer's facility in as little as 90 minutes. Orders for the Company's seats are received on a weekly basis, pursuant to blanket purchase orders for annual requirements. These orders detail the customer's needs for the ensuing week. In addition, on each work day, constant computer and other communication is maintained between personnel at the Company's plants and personnel at the customer's plants to keep production current with the customer's demand. The following is the approximate composition by product category of the Company's net sales in the twelve months ended December 31, 1993, after giving pro forma effect to the NAB Acquisition: seat systems, 73%; seat covers, 14%; seat frames, 8%; and seat components, 5%. - Seat Systems. The seat systems business consists of the manufacture, assembly and supply of entire seating requirements for a vehicle or assembly plant. The Company produces seat systems for automobiles and light trucks that are fully finished and ready to be installed in a vehicle. Included within the Company's seat systems production are high performance seats for luxury versions of the OEMs' specialty cars, such as the Chevrolet Corvette, the Ford Taurus SHO, the Mercury Cougar XR7, the Ford Thunderbird Super Coupe, the Ford Mustang GT and the Dodge Viper. High performance seats are fully assembled seats, ergonomically 5 9 designed by the Company to achieve maximum passenger comfort. They have a wide range of manual and power comfort features such as lumbar supports, cushion and back bolsters and leg and thigh supports that are typically used to provide product differentiation for specialty vehicles. As OEMs continue to view seat systems as a distinguishing marketing feature, the advanced features incorporated initially in high performance seats are more frequently becoming standard features in a wider variety of later production vehicles. The market for seat systems developed as a result of North American automobile manufacturers' need to restructure assembly plant methods in response to vigorous foreign competition in the early 1980's. The Company was positioned to take advantage of this growing market through its long standing relationships with customers. These relationships have been fostered through the Company's performance in seat frame manufacturing over the years and its demonstrated ability to supply and manage total seat systems. The Company believes that its position in the seat systems market will improve as seats with advanced features become an increasingly important criterion for distinguishing between competing vehicle models. Seat systems are shipped to customers in the order in which they are installed in vehicles. The Company's major seat systems customers include Ford, General Motors, Chrysler, Volvo, Volkswagen, Saab and Mazda. In addition, through its joint ventures with NHK Spring Co., Ltd., the Company supplies seat systems to SIA (a joint venture between Fuji Heavy Industries (Subaru) and Isuzu) and to CAMI (a joint venture between Suzuki and General Motors). The Company and its affiliates serve assembly plants for these customers through 22 different dedicated JIT facilities. The Company's seat systems sales for the twelve months ended December 31, 1993 broke down into the following vehicle categories: 47% light truck, 22% mid-size, 13% full size, 8% luxury, 6% compact and 4% sport vehicles. These vehicles included the Chevrolet/GMC Suburban, the Chevrolet/GMC Pick-up Truck, the Ford Explorer, the Oldsmobile Delta 88, the Buick LeSabre, the Chevrolet Lumina, the Buick Regal, the Mercury Cougar XR7, the Saab 9000 and the Chevrolet Corvette. As part of the NAB Acquisition, the Company has also assumed seat systems responsibility for the Ford Crown Victoria and the Mercury Grand Marquis and has assumed Tier I engineering responsibilities for the Ford Escort, the Lincoln Town Car, the Mercury Tracer and the Mercury Grand Marquis. As a result of its product technology and product design strengths, the Company can provide ergonomic designs which offer styling flexibility at low cost. In addition, the Company is able to incorporate many convenience features and safety improvements into its seat designs, such as storage armrests, rear seat fold down panels, integrated restraint systems and child restraint seats. Lear's position as a market leader in seat systems is largely attributable to seating programs on new vehicle models launched in the past five years. The Company believes that supplying seating for these new vehicle models will provide it with a long-term revenue stream throughout the lives of these models. The Company is currently working with customers in the development of a number of seat systems products to be introduced by automobile manufacturers in the late 1990's, which it expects will lead to an increase in outsourcing opportunities in the future. The Company has been awarded several new programs which have recently begun or are scheduled to begin production in the fiscal years ending December 31, 1994 through 1996. Such business includes new passenger car and light truck programs for the Dodge Ram Pick-up Truck, the Ford Mustang, the Ford Windstar Minivan, the BMW 3 Series, all Jaguar models, as well as the GM Opel Omega, the Chevrolet Cavalier and the Oldsmobile Aurora. In addition, in December 1993, the Company was awarded the seat system assembly responsibility for the Ford Taurus/Mercury Sable vehicle lines for seat systems scheduled to begin production in early 1995. Ford Taurus has been the best selling car line in the United States for the past two years. See "Business -- General" for additional information on new business scheduled to begin production in the next eighteen months. - Seat Covers. Lear produces seat covers at its Fairhaven, Michigan and Saltillo, Mexico facilities, which deliver seat covers primarily to other Company plants. In addition, pursuant to the NAB Acquisition, the Company acquired a portion of Ford's North American seat cover and seat systems business and is producing approximately 80% of the seat covers for Ford's North American vehicles. After the NAB Acquisition, the Company's major external customers for seat covers are Ford and other independent suppliers. The expansion of the Company's seat cover business allows the Company better control over the 6 10 costs and quality of one of the critical components of a seat system. Typically, seat covers comprise approximately 30% of the aggregate cost of a seat system. - Seat Frames. Lear produces steel and aluminum seat frames for passenger cars and light and medium trucks. Seat frames are primarily manufactured using precision stamped, tubular steel and aluminum components joined together by highly automated, state-of-the-art welding and assembly techniques. The manufacture of seat frames must meet strict customer specified safety standards. The Company's seat frames are either delivered to its own plants where they become part of a completed seat that is sold to the OEM customer, to customer-operated assembly plants or to other independent seating suppliers where they are used in the manufacture of assembled seating systems. The Company's product development engineers continue to advance its technological position with such innovative material applications as aluminum and plastic frames and new seat designs which dramatically reduce seat weight while increasing usable automotive vehicle interior space or increasing safety. - Seat Components. The Company designs and manufactures plastic storage armrests for inclusion in seat systems at its plant in Mendon, Michigan. Vehicles in which these components are found are the Dodge Ram Pick-up Truck, the Ford F-Series Pick-up Truck, the Buick LeSabre and the Oldsmobile Delta 88. The Company also manufactures decorative, painted and assembled injection molded components at the Mendon facility that are used in automotive vehicle interiors. MANUFACTURING Lear has developed a comprehensive manufacturing philosophy for seat systems that allows it to make optimal use of its manufacturing facilities in a high volume market. This concept, based on JIT manufacturing techniques, was developed in the early 1980's to meet the requirements of its customers seeking to reduce costs and improve quality. The Company has over ten years of experience in JIT management and manufacturing. See "Business -- Products." Seat and component assembly techniques fall into two major categories, traditional assembly methods (in which fabric is affixed to a frame using velcro, wire or other material) and more advanced bonding processes. There are two bonding techniques employed by the Company, the Company's patented SureBond process, a technique in which fabric is affixed to the underlying foam padding using adhesives, and the Company's licensed foam-in-place process, in which foam is injected into a fabric cover. The SureBond process has several major advantages when compared to traditional methods, including design flexibility, increased quality and lower cost. The SureBond process, unlike alternative bonding processes, results in a more comfortable seat in which air can circulate freely. The SureBond process, moreover, is reversible, so that seat covers that are improperly installed can be removed and repositioned properly with minimal materials cost. In addition, the SureBond process is not capital intensive when compared to competing technologies. The seat assembly process begins with pulling the requisite components from inventory. Inventory at each plant is kept at a minimum, with each component's requirement monitored on a daily basis. This allows the plant to devote the maximum space to production, but also requires precise forecasts of the day's output. Seats are assembled by three or four person teams, then tested and packaged for shipment. The Company operates its own specially designed trailer fleet that accommodates the off-loading of vehicle seats at the assembly plant. Lear obtains steel, aluminum and foam chemicals used in its seat systems from various producers under various supply arrangements. Leather, fabric and purchased components generally are purchased from various suppliers under contractual arrangements typically lasting no longer than one year. All such materials are readily available. Some of the purchased components are obtained through the Company's own customers. CUSTOMERS Lear serves the worldwide automobile and light truck market, which produces over 30 million vehicles annually. The outsourced market for automobile and light truck seat systems in North America is 7 11 approximately 65% of the total North American seat systems market, which total market is estimated to have annual revenues of approximately $6.0 billion. The outsourced market for seat systems in Europe is approximately 41% of the total European seat systems market, which total market is estimated to have annual revenues of approximately $3.6 billion. The Company believes that the same competitive pressures that contributed to the rapid expansion of its business in North America since 1983 will continue to encourage auto makers in the North American and the European markets to outsource more of their seating requirements. Over the past three years, the Company has aggressively pursued expansion in Europe, both with its existing and new customers. Approximately 65%, 70% and 75% of Lear's net revenues were from sales in the United States and Canada in the fiscal years ended June 30, 1993, 1992 and 1991, respectively, with the balance of sales in Europe and Mexico. On a pro forma basis, as if the NAB Acquisition had occurred at the beginning of the twelve months ended December 31, 1993, net revenues in the United States and Canada would have amounted to approximately 75% of the Company's total net revenues in the twelve months ended December 31, 1993. The Company's OEM customers currently include Ford, General Motors, Chrysler, Volvo, Volkswagen, Saab, Mazda, BMW, Jaguar, Audi, Subaru, Isuzu, Suzuki, Daimler-Benz, Renault and Peugeot. For additional information regarding customers and foreign and domestic operations and sales, see Note 15, "Geographic Segment Data," to the consolidated financial statements of the Company included in this report on Form 10-K. In the past six years, in the course of retooling and reconfiguring plants for new models and model changeovers, OEMs have eliminated seating production from certain of their facilities, thereby committing themselves to purchasing seat systems and components from outside suppliers. During this period, the Company became a supplier of these products for a significant number of new models, many on a JIT basis. The purchase of seat systems on a JIT basis has allowed the Company's customers to realize a competitive advantage as a result of (i) a reduction in labor costs since suppliers like the Company generally enjoy lower direct labor rates, (ii) the elimination of working capital and personnel costs associated with the production of seat systems by the OEM, (iii) a reduction in net overhead expenses and capital investment due to the availability of approximately 60,000 to 80,000 square feet of plant space for expansion of other manufacturing operations which was previously associated with seat production at the OEM facilities and (iv) a reduction in transaction costs because of the customer's ability to deal with a limited number of sophisticated system suppliers as opposed to numerous individual component suppliers. In addition, the Company offers improved quality and on-going cost reductions to its customers through design improvements and its Champion Program. The Company receives blanket purchase orders from its customers that normally cover annual requirements for seats to be supplied for a particular vehicle model. Such supply relationships typically extend over the life of the model, which is generally four to seven years, and do not require the purchase by the customer of any minimum number of seats. In order to reduce its reliance on any one model, the Company produces 8 12 complete seat systems and components for a broad cross-section of both new and more established models. Vehicles with seat systems sold by the Company and its affiliates in the indicated locations include: UNITED STATES AND CANADA: OEM/MODELS OEM/MODELS FORD: GENERAL MOTORS: Ford Crown Victoria Buick LeSabre Ford Explorer Sports Bucket, Buick Park Avenue Eddie Bauer & Limited Edition Buick Regal Ford F-Series Pick-up Truck Chevrolet Corvette Ford Lightning Pick-up Truck Chevrolet Lumina Ford Mustang GT & LX Chevrolet Blazer/GMC Yukon Ford Probe Chevrolet C/K Pick-up Truck Ford Ranger Supercab/STX Chevrolet Kodiak Ford Taurus SHO Chevrolet Sport Van Ford Thunderbird SC Chevrolet/GMC G-Van Ford Windstar Minivan Chevrolet/GMC Pick-up Truck Mercury Cougar XR7 Chevrolet/GMC Suburban Mercury Grand Marquis GMC Rally/Vandura Van CHRYSLER: GMC Sierra Crew Cab Dodge Dakota Pick-up Truck GMC Sierra Pick-up Truck Dodge Ram Charger GMC Top Kick Dodge Ram Pick-up Truck Oldsmobile Delta 88 Dodge Viper FUJI/ISUZU: CAMI -- GENERAL MOTORS/SUZUKI: Isuzu Trucks Geo Metro Subaru Legacy Geo Tracker HYUNDAI: Suzuki Sidekick Sonata Suzuki Swift EUROPE: OEM/MODELS OEM/MODELS GENERAL MOTORS: SAAB: Opel Astra Saab 900 Opel Calibra Saab 9000 Opel Corsa VOLVO: Opel Omega 800 Series Opel Senator 900 Series Opel Vectra JAGUAR: CHRYSLER: XJS Eurostar Minivan XJ6 MEXICO: OEM/MODELS OEM/MODELS FORD: GENERAL MOTORS: Ford Escort Chevrolet S-10 Blazer Ford F-Series Chevrolet Cavalier Ford Thunderbird VOLKSWAGEN: Mercury Cougar Beetle Mercury Grand Marquis Golf Mercury Tracer Jetta CHRYSLER: Vanagon Minivan Club Cab Pick-up Truck Dodge Ram Pick-up Truck
Because of the economic benefits inherent in the JIT manufacturing process and the costs associated with reversing a decision to purchase seat systems from an outside supplier, the Company believes that automobile manufacturers' level of commitment to purchasing seating from outside suppliers, particularly on a JIT basis, will increase. However, under the contracts currently in effect in the United States between each of General Motors, Ford and Chrysler with the United Automobile, Aerospace and Agricultural Implement Workers of America (the "UAW"), in order for any of such manufacturers to obtain components that it currently 9 13 produces itself from external sources, it must first notify the UAW of such intention. If the UAW objects to the proposed outsourcing, some agreement will have to be reached between the UAW and the OEM. Factors that will normally be taken into account by the UAW and the OEM include whether the proposed new supplier is technologically more advanced than the OEM, cost and whether the OEM will be able to reassign union members whose jobs are being displaced to other jobs within the same factories. As part of its long-term agreement with General Motors, the Company operates its Grand Rapids, Michigan facility with General Motors employees and reimburses General Motors for the wages of such employees on the basis of the Company's employee wage structure. The Company is negotiating with General Motors to expand this program to other facilities. The Company enters into these arrangements to enhance its relationship with its customers. The Company's contracts with its major customers generally provide for an annual productivity price reduction and, in some cases, provide for the recovery of increases in material and labor costs. Cost reduction through design changes, increased productivity and similar programs with the Company's suppliers have generally offset changes in selling prices. The Company's cost structure is comprised of a high percentage of variable costs. The Company believes that this structure provides it with additional flexibility during economic cycles. General Motors and Ford, the two largest automobile and light truck manufacturers in the world, are also the Company's two largest customers, accounting for 45% and 28%, respectively, of the Company's net sales during the twelve months ended December 31, 1993. After giving pro forma effect to the NAB Acquisition, the Company's net sales to General Motors and Ford for the twelve months ended December 31, 1993 were approximately equal. MARKETING AND SALES Lear markets its products by maintaining strong relationships with its customers fostered during its 76-year history through strong technical and product development capabilities, reliable delivery of high quality products, strong customer service, innovative new products and a competitive cost structure. Close personal communication with automobile manufacturers from the corporate to the plant level is an integral part of the Company's marketing strategy. Automobile manufacturers have increasingly reduced their number of suppliers as part of their move to purchase systems rather than discrete components. This process favors suppliers, like the Company, with established ties to automobile manufacturers and the demonstrated ability to adapt to the new competitive environment in the automotive industry. The Company's sales are originated almost entirely by its sales staff. This marketing effort is augmented by design and manufacturing engineers who work closely with automobile manufacturers from the preliminary design to the manufacture and supply of a seating system. Manufacturers have increasingly looked to suppliers like the Company to assume responsibility for the introduction of product innovation, shorten the development cycle of new models, decrease tooling investment and labor costs, reduce the number of costly design changes in the early phases of production and improve seat comfort and functionality. Once the Company is engaged to develop the design for the seating of a specific vehicle model, it is also generally engaged to supply the vehicle with seating when it goes into production. The Company has responded to this trend by improving its engineering and technical capabilities and building technical centers in the United States in 1988 and in Europe in 1991 at a cost of approximately $8.0 million in the aggregate. The Company is also currently in the process of investing approximately $6.0 million in developing full-scope engineering capabilities, including all aspects of safety and functional testing and comfort assessment. In addition, the Company has established ten remote engineering sites in close proximity to several of its OEM customers to enhance customer relationships and design activity. As part of the NAB Acquisition, the Company is assuming, during the five-year term of the supply agreement entered into in connection with the NAB Acquisition, responsibility for a substantial portion of Ford's seat systems design capability and, accordingly, is building a 75,000 square foot dedicated engineering facility in Dearborn, Michigan to service Ford products. 10 14 TECHNOLOGY Lear conducts advanced product design and development at its technical centers in Southfield, Michigan and Rietberg, Germany. At the technical centers, the Company tests its products to determine compliance with applicable safety standards, the products' quality and durability, response to environmental conditions and user wear and tear. In the past, the Company has developed a number of designs for innovative seat features which it has patented, including ergonomic features such as adjustable lumbar supports and bolster systems and adjustable thigh supports. In addition, the Company incorporates many convenience, comfort and safety features into its seat designs, including storage armrests, rear seat fold down panels, integrated restraint systems and child restraint seats. The Company has recently invested to further upgrade its CAD/CAM systems including three-dimensional color graphics, customer telecommunications and direct interface with customer CAD systems. Research and development costs incurred in connection with the development of new products and manufacturing methods (not including additional research and development costs paid for by the customer) amounted to approximately $16.2 million, $18.2 million, $11.4 million, $7.9 million for the twelve months ended December 31, 1993 and the fiscal years ended June 30, 1993, 1992 and 1991, respectively. Lear uses its patented SureBond process (the patent for which has approximately 10 years remaining) in bonding seat cover materials to the foam pads used in certain of its seats. The SureBond process is used to bond a pre-shaped cover to the underlying foam to minimize the need for sewing and achieve new seating shapes, such as concave shapes, which were previously difficult to manufacture. The Company, through its wholly-owned subsidiary, Progress Pattern Corp. ("Progress Pattern"), produces patterns and tooling for use in the automotive casting industry. Its capabilities include foundry and vacuum form tooling, porous mold design and lost foam tooling production. The pattern operation is also integral to the Company's seating design programs, including independent product design and development, contract design, engineering services, manufacturing feasibility and engineering cost studies. Progress Pattern also manufactures production tooling for the Company's plastic and foam molding operations. In addition to providing support for the Company's continuing seat design, Progress Pattern provides services to its own customers, including Ford and General Motors. It produced the casting tooling for the General Motors Saturn engine. The Company holds a number of mechanical and design patents covering its automotive seating products and has numerous applications for patents currently pending. In addition, the Company holds several trademarks relating to various manufacturing processes. The Company also licenses its technology to a number of seating manufacturers. The Company has and will continue to dedicate resources to research and development to maintain its position as a leading developer of technology in the automotive seating industry. JOINT VENTURES AND MINORITY INTERESTS Lear conducts a portion of its business through joint ventures in order to facilitate the exchange of technical information and the establishment of business relationships with foreign automakers. The joint ventures in which the Company participates include: (i) General Seating of America, a joint venture with NHK Spring Co., Ltd. of Japan in which the Company has a 35% interest, which supplies trimmed seating to SIA (a joint venture between Fuji Heavy Industries (Subaru) and Isuzu) and (ii) General Seating of Canada Limited, a joint venture with NHK Spring Co., Ltd. of Japan in which the Company has a 35% interest, which supplies trimmed seating from a plant in Woodstock, Ontario to CAMI (a joint venture between Suzuki and General Motors). In addition, the Company has a 31% interest in Probel, S.A., a Brazilian automotive seat component and furniture manufacturer, and a 20% interest in Pacific Trim Corp. Ltd., a Thai manufacturer of automotive vehicle seat systems and seat covers. See Note 7, "Investments in Affiliates," to the consolidated financial statements of the Company included in this report on Form 10-K. 11 15 COMPETITION Lear is one of the two primary suppliers in the outsourced North American seat systems market. The Company's main independent competitor is Johnson Controls, Inc., and it competes, to a lesser extent, with Douglas & Lomason Company and Magna International, Inc. The Company's major independent competitors in Europe, besides Johnson Controls, Inc., are Bertrand Faure (headquartered in France) and Keiper Recaro (headquartered in Germany). The Company also competes with the OEMs' in-house seating suppliers. The Company competes on the basis of technical expertise, reliability, quality and price. The Company believes its technical resources, product design capabilities and customer responsiveness are the key factors that allow it to compete successfully in the seat system market. SEASONALITY Lear's principal operations are directly related to the automotive industry. Consequently the Company may experience seasonal fluctuation to the extent automotive vehicle production slows, including times such as the summer months when plants close for model year changeovers and vacation and around Christmas when plants close for approximately 1.5 weeks. Historically, the Company's sales have been the strongest in the second calendar quarter. However, in the twelve months ended December 31, 1993, net sales in the fourth calendar quarter exceeded the second calendar quarter due to the NAB Acquisition and new programs which the Company began during 1993. Net sales for the twelve months ended December 31, 1993 by calendar quarter broke down as follows: first quarter, 23.4%; second quarter, 25.0%; third quarter, 20.5%; and fourth quarter, 31.1%. Operating profit of the Company has historically been strongest in the second calendar quarter and the weakest in the third calendar quarter. See Note 16, "Quarterly Financial Data," in the consolidated financial statements included elsewhere in this report on Form 10-K. EMPLOYEES After giving effect to the NAB Acquisition, the Company employs approximately 4,600 persons in the United States, 10,000 in Mexico, 1,500 in Canada, 1,400 in Germany, 800 in Sweden, 90 in Austria and 80 in France. Of these, about 2,700 are salaried employees and the balance are paid on an hourly basis. Approximately 9,600 of the Company's employees are members of unions. The Company has collective bargaining agreements with several unions including the UAW; National Automobile, Aerospace and Agricultural Implement Workers Union of Canada; the Textile Workers of Canada; the Confederation of Mexican Workers; the International Brotherhood of Teamsters, Chauffeurs, Warehousemen, and Helpers of America; and the International Association of Machinists and Aerospace Workers, AFL-CIO, and its Local Lodge PM 2811 of Detroit and vicinity. Each of the Company's facilities has a separate contract with the union which represents the workers employed there, with each such contract having an expiration date independent of the Company's other labor contracts. The Company has experienced some labor disputes at its plants, none of which has significantly disrupted production or had a materially adverse effect on its operations. The Company has been able to resolve all such labor disputes and believes its relations with its employees are good. ENVIRONMENTAL The Company is subject to various laws, regulations and ordinances which govern activities such as discharges to the air and water, as well as handling and disposal practices for solid and hazardous wastes and which impose costs and damages associated with spills, disposal or other releases of hazardous substances. The Company believes that it is in substantial compliance with such requirements. Management does not believe that it will incur compliance costs pursuant to such requirements that would have a material adverse effect on the Company's consolidated financial position or future results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company -- Environmental Matters." RECENT DEVELOPMENTS On March 8, 1994, the Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission relating to the offering of 9,375,000 shares of the Company's Common Stock, $.01 par 12 16 value per share ("Common Stock"), in the United States and internationally (the "Offerings"). Of the 9,375,000 shares being offered, 6,250,000 shares are being offered by the Company and 3,125,000 shares are being offered by a stockholder of the Company (the "Selling Stockholder"). The Company will not receive any of the proceeds from the sale of Common Stock by the Selling Stockholder. In connection with the Offerings, the Company's Certificate of Incorporation will be amended and restated (as so amended and restated, the "Restated Certificate of Incorporation") to, among other things, increase the authorized capital of the Company. Immediately prior to the commencement of the Offerings, it is contemplated that a 33-for-1 split of the Company's Common Stock will be effected. 13 17 ITEM 2 -- PROPERTIES The Company's operations are conducted through 60 facilities, including four facilities acquired as part of the NAB Acquisition and six facilities operated by the Company's less than majority-owned affiliates. The Company's management is headquartered in Southfield, Michigan. The headquarters building, which accommodates both the main office and the technical center, was completed in June 1988. Twenty-two of the plants are dedicated to providing seat systems to nearby assembly plants. The others focus on the production for a combination of seat systems and other seating products. Substantially all owned facilities secure borrowings under the Company's various debt agreements. The Company's facilities are located in appropriately designed buildings which are kept in good repair with sufficient capacity to handle present volumes. The Company has designed its facilities to provide for efficient JIT manufacturing of its products. No facility is materially underutilized. Management believes substantially all of the Company's property and equipment is in good condition and that it has sufficient capacity to meet its current and expected manufacturing and distribution needs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company -- Capital Expenditures." The following table provides certain information regarding the Company's 60 operating facilities, including five facilities currently under construction:
BUILDING OWNED/ SQUARE LEASE FACILITY LEASED FEET FUNCTION EXPIRATION - ----------------------------------- ------ -------- ------------------------------- --------------- UNITED STATES: Southfield, MI..................... O 70,000 administrative offices and -- technical center Detroit, MI........................ O 156,800 manufacture of seat systems -- Romulus I, MI...................... O 89,600 manufacture of seat systems -- Romulus II, MI..................... O 88,200 manufacture of seat systems -- Fenton, MI......................... O 75,800 manufacture of seat systems -- Morristown, TN..................... O 235,900 manufacture of seat components -- Lorain, OH......................... L 42,100 manufacture of seat systems July 1998 Mendon, MI......................... O 168,500 manufacture of seat components -- and other plastic products Southfield, MI..................... O 65,000 manufacture of seat tooling -- Grand Rapids, MI................... (1) 66,560 manufacture of seat frames -- Southfield, MI..................... O 19,000 technical center -- Louisville, KY..................... L 72,000 manufacture of seat systems January 1995 Janesville, WI..................... O 120,000 manufacture of seat systems -- Fairhaven, MI...................... L 68,603 manufacture of seat covers July 1995 Dearborn, MI....................... L 22,250 engineering offices July 1997 Flint, MI.......................... L 10,083 engineering offices August 1996 Warren, MI......................... L 17,500 engineering offices March 1997 Dearborn, MI....................... L(2) 23,483 engineering offices March 1995 Duncan, SC......................... L(3) 38,926 manufacture of seat systems 10 years from completion Lordstown, OH...................... O(3) 96,000 manufacture of seat systems -- Pontiac, MI........................ L(3) 101,600 manufacture of seat systems August 1997 CANADA: Kitchener, Ontario................. O 343,044 manufacture of seat frames -- Ajax, Ontario...................... O 120,000 manufacture of seat systems -- Whitby, Ontario.................... O 187,400 manufacture of seat systems -- Cowansville, Quebec................ L 50,750 manufacture of seat systems (4) Oakville, Ontario.................. O 90,000 manufacture of seat systems -- St. Thomas, Ontario................ L(3) 100,000 manufacture of seat systems January 2005
14 18
BUILDING OWNED/ SQUARE LEASE FACILITY LEASED FEET FUNCTION EXPIRATION - ----------------------------------- ------ -------- ------------------------------- --------------- EUROPE: Meaux, France...................... O 48,300 manufacture of seat components -- Paris, France...................... L 2,500 administrative offices January 1995 Blere, France...................... O 14,300 manufacture of wire components -- Rietberg, Germany.................. O 193,143 manufacture of seat components -- Rietberg, Germany.................. O 17,635 technical center -- Quakenbruck, Germany............... O 139,500 manufacture of seat components -- Gustavsburg, Germany............... L 177,000 manufacture of seat systems June 2002 Eisenach, Germany.................. O 77,500 manufacture of seat systems -- Schwalbach, Germany................ L 10,500 administrative offices October 1996 Koflach, Austria................... L 63,307 manufacture of seat systems January 1995 Trollhattan, Sweden................ L 135,102 manufacture of seat systems December 1996 Bengtsfors, Sweden................. L 246,726 manufacture of seat systems September 2007 Coventry, England.................. L(5) 22,000 manufacture of seat systems May 1994 MEXICO: Saltillo I......................... L 91,025 manufacture of seat covers January 1998 Saltillo II........................ L(3) 43,000 manufacture of seat systems July 1994 Mexico City........................ L 6,880 administrative offices June 1997 Tlahuac............................ O 339,000 manufacture of seat components -- L 8,900 warehouse June 1997 Naucalpan.......................... L 66,000 manufacture of seat systems August 1994 Cuautitlan......................... L 75,000 manufacture of seat systems (4) Puebla............................. L 81,000 manufacture of seat systems (4) Hermosillo......................... O 121,000 manufacture of seat systems -- Atoto.............................. L 18,275 manufacture of seat systems June 1996 Rio Bravo.......................... O(6) 202,700 manufacture of seat covers -- San Lorenzo........................ O(6) 287,000 manufacture of seat covers -- La Cuesta.......................... O(6) 392,500 manufacture of seat covers -- Omega.............................. L(7) 270,000 manufacture of seat systems November 1994 AFFILIATES OR MINORITY INTERESTS: Woodstock, Ontario; Canada......... O(8) 120,000 manufacture of seat systems -- Frankfort, Indiana................. O(8) 82,000 manufacture of seat systems -- Khorat; Thailand................... L(8) 30,000 manufacture of seat covers and -- seat systems Suzano, Sao Paulo; Brazil.......... O(8) 344,448 manufacture of seat components -- Ipiranga, Sao Paulo; Brazil........ L(8) 355,212 manufacture of seat components -- Jaguare, Sao Paulo; Brazil......... L(8) 96,876 manufacture of seat components --
- ------------------------- (1) This facility is operated for General Motors. (2) A new 75,000 square foot engineering facility is currently under construction. (3) Facility currently under construction. (4) Currently leased on a month-to-month basis pending agreement on a longer lease term. (5) A new 42,000 square foot manufacturing facility is currently under construction, which will be dedicated to the manufacture of seat systems. (6) Acquired as part of the NAB Acquisition. (7) On March 15, 1994, the Company exercised an option to cause Ford to purchase this facility along with a facility in El Jarudo, Mexico in consideration of Ford cancelling $19.9 million of indebtedness owed by Favesa to Ford. At that time, the Company vacated the El Jarudo facility and entered into a lease of the Omega facility which expires on the earlier of November 30, 1994 or the date the Company vacates the Omega facility. (8) Owned or leased by affiliates or minority interests of the Company. 15 19 ITEM 3 -- LEGAL PROCEEDINGS Management of the Company does not believe that any of the litigation in which the Company is currently engaged, either individually or in the aggregate, will have a material effect on the Company's consolidated financial position or future results of operations. The Company has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of contamination from hazardous substances at three Superfund sites where liability has not been determined. The Company also may incur indemnification obligations for cleanup at two sites which are the subject of Superfund proceedings. Management believes that the Company is, or may be, responsible for less than one percent, if any, of the total costs at each site. The Company has set aside reserves which management believes are adequate to cover any such potential liabilities. Management believes that such matters will not result in liabilities that will have a material adverse effect on the Company's consolidated financial position or future results of operations. ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On December 20, 1993, the holders of a majority of the outstanding Common Stock of Lear Holdings Corporation ("Holdings") approved, by written consent, the merger (the "Merger") of Holdings with and into the Company, effective as of December 31, 1993. Pursuant to the Merger, each share of capital stock of Holdings was exchanged for a like share of capital stock of the Company, and the Company assumed all of Holdings' contractual and other rights and obligations. In addition, the directors of Holdings became the directors of the Company upon consummation of the Merger. 16 20 PART II ITEM 5 -- MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is subject to restrictions on sale and transfer and there is no established public trading market for the Company's Common Stock. However, on March 8, 1994, the Company filed a Registration Statement on Form S-1 relating to an initial public offering of its Common Stock. See "Business -- Recent Developments." To date, the Company has never paid a cash dividend on its Common Stock. Any payment of dividends in the future is dependent upon the financial condition, capital requirements, earnings of the Company and other factors. However, the Company currently intends to retain all future earnings, if any, to fund the development and growth of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. Also the Company is subject to certain contractual restrictions on the payment of dividends. See Note 9 to the consolidated financial statements included in Item 8 herein for information concerning such restrictions. On February 15, 1994, there were 38 holders of record of the Company's Common Stock. 17 21 ITEM 6 -- SELECTED FINANCIAL DATA The following income statement and balance sheet data were derived from the consolidated financial statements of the Company. The consolidated financial statements of the Company for the nine months ended June 30, 1989, for each of the fiscal years ended June 30, 1990, 1991, 1992 and 1993 and for the twelve and six months ended December 31, 1993 have been audited by Arthur Andersen & Co. The consolidated financial statements of the Company for the six months ended January 2, 1993 are unaudited; however, in the Company's opinion, reflect all adjustments, consisting only of normal recurring items, necessary for a fair presentation of the financial position and results of operations of the Company for such period. In February 1994 the Company changed its fiscal year end from June 30 to December 31 effective December 31, 1993. The results of operations for any interim period are not necessarily indicative of results of operations for a full year. The selected financial data below should be read in conjunction with the consolidated financial statements of the Company and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company."
NINE TWELVE SIX SIX MONTHS YEAR YEAR YEAR YEAR MONTHS MONTHS MONTHS ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, JANUARY 2, DECEMBER 31, 1989 1990 1991 1992 1993 1993(1) 1993 1993(1) -------- ---------- ---------- ---------- ---------- ------------ ----------- ------------ (DOLLARS IN THOUSANDS(2)) OPERATING DATA: Net sales........... $807,365 $1,067,878 $1,085,319 $1,422,740 $1,756,510 $1,950,288 $ 811,440 $1,005,218 Gross profit........ 81,632 104,707 101,429 115,641 152,499 170,215 54,519 72,235 Selling, general and administrative expenses.......... 18,477 28,247 41,596 50,074 61,898 62,717 26,847 27,666 Incentive stock and other compensation expense(3)........ 1,107 1,353 1,353 (12) -- 18,016 -- 18,016 Amortization........ 10,174 13,838 13,810 8,746 9,548 9,929 4,374 4,755 -------- ---------- ---------- ---------- ---------- ------------ ----------- ------------ Operating income.... 51,874 61,269 44,670 56,833 81,053 79,553 23,298 21,798 Interest expense, net............... 50,982 61,184 61,676 55,158 47,832 45,656 26,943 24,767 Other expense, net(4)............ 2,141 4,044 2,144 5,837 5,260 9,180 2,676 6,596 -------- ---------- ---------- ---------- ---------- ------------ ----------- ------------ Income (loss) before taxes on income and extraordinary items............. (1,249) (3,959) (19,150) (4,162) 27,961 24,717 (6,321) (9,565) Income taxes........ 7,409 16,630 14,019 12,968 17,847 26,864 4,450 13,467 -------- ---------- ---------- ---------- ---------- ------------ ----------- ------------ Net income (loss) before extraordinary items............. (8,658) (20,589) (33,169) (17,130) 10,114 (2,147) (10,771) (23,032) -------- ---------- ---------- ---------- ---------- ------------ ----------- ------------ Extraordinary items(5).......... -- -- -- (5,100) -- (11,684) -- (11,684) -------- ---------- ---------- ---------- ---------- ------------ ----------- ------------ Net income (loss)... $ (8,658) $ (20,589) $ (33,169) $ (22,230) $ 10,114 $ (13,831) $ (10,771) $ (34,716) -------- ---------- ---------- ---------- ---------- ------------ ----------- ------------ -------- ---------- ---------- ---------- ---------- ------------ ----------- ------------ Net income (loss) per share before extraordinary items............. $ (16.35) $ (41.18) $ (66.36) $ (20.36) $ 8.33 $ (2.00) $ (10.20) $ (21.41) Net income (loss) per share......... $ (16.35) $ (41.18) $ (66.36) $ (26.42) $ 8.33 $ (12.86) $ (10.20) $ (32.27) Weighted average shares outstanding....... 529,640 500,000 499,803 841,464 1,213,608 1,075,758 1,055,660 1,075,758 BALANCE SHEET DATA: Current assets...... $200,002 $ 223,212 $ 213,806 $ 282,864 $ 325,199 $ 433,584 $ 308,464 Total assets........ 734,582 747,583 729,670 799,884 820,209 1,114,291 809,859 Current liabilities....... 201,117 254,514 287,111 344,169 374,950 505,717 367,782 Long-term debt...... 433,336 402,800 386,655 348,331 321,116 498,324 331,930 Common stock subject to limited redemption rights, net............... 1,770 1,795 1,770 3,465 3,885 12,435 3,885 Stockholders' equity............ 48,876 35,292 4,335 49,317 75,101 43,210 53,506 OTHER DATA: EBITDA(6)........... $ 74,826 $ 94,252 $ 81,428 $ 91,807 $ 121,707 $ 122,112 $ 43,259 $ 43,664 Capital expenditures...... $ 11,353 $ 14,906 $ 20,892 $ 27,926 $ 31,595 $ 45,915 $ 14,669 $ 28,989 Number of facilities(7)..... 30 33 40 45 48 61 45 61 North American Content per Vehicle(8)........ $ 67 $ 77 $ 84 $ 94 $ 98 $ 112 $ 100 $ 133 North American vehicle production (in millions)(9)...... 10.8 12.4 11.2 12.2 13.6 13.7 5.9 6.1 Inventory Turnover Ratio(10)......... 27.4 25.6 30.3 36.7 36.0
- ------------------------- (1) On July 1, 1993, the Company adopted SFAS 106 (as defined herein). As a result, the twelve months and six months ended December 31, 1993 represent the first periods during which the Company began to incur additional expense associated with the adoption of SFAS 106. The additional expense for each of these periods was $3,273. (2) Except per share data and North American Content per Vehicle. (3) Includes a one-time charge of $18,016, of which $14,474 is non-cash, for the twelve and six months ended December 31, 1993 for incentive stock and other compensation expense (see Note 14 "Warrants, Stock Options and Common Stock Subject to Redemption" in the consolidated financial statements included elsewhere in this report on Form 10-K). (4) Consists of foreign currency exchange gain or loss, minority interest in net income of subsidiaries, equity (income) loss of affiliates, state and local taxes and other expense. (5) The extraordinary items result from the prepayment of debt. (6) "EBITDA" is operating income plus depreciation and amortization. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations as determined by generally accepted accounting principles. (7) Includes facilities operated by the Company's less than majority-owned affiliates and facilities under construction. (8) "North American Content per Vehicle" is the Company's net sales in North America divided by total North American vehicle production. (9) "North American vehicle production" includes car and light truck production in the United States, Canada and Mexico estimated from industry sources. (10) "Inventory Turnover Ratio" is cost of goods sold divided by average inventory. The Inventory Turnover Ratio for the twelve months ended December 31, 1993 excludes the NAB, which was acquired by the Company on November 1, 1993. 18 22 ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY RESULTS OF OPERATIONS Lear has expanded its net revenues at an annual compound growth rate of approximately 27.1% during the period from July 1, 1983 to June 30, 1993. Since the fiscal year ended June 30, 1990, the Company has increased its net sales by 64.5% by building upon its existing business in the United States and Canada and significantly expanding its operations in Europe and Mexico. As a result of significant new business added since the fiscal year ended June 30, 1990, the Company has experienced substantial upfront costs for new programs and new facilities. Such costs consist of administrative expenses in Europe, engineering and design expenses for new seating programs and new facility costs, including pre-production expenses and inefficiencies incurred until the customer reaches normal operating levels. New business which has been added since the fiscal year ended June 30, 1990 includes seat systems for the GM-Suburban, Saab, Volvo, GM-Opel (2 facilities), Chrysler-Europe, Hyundai and Volkswagen-Mexico, as well as a seat cover manufacturing facility in Mexico. The Company expenses such non-recurring pre-production expenses as they are incurred. The Company's financial results in the fiscal year ended June 30, 1993 improved over prior fiscal years as a result of improved operating efficiencies obtained at new facilities which impacted prior fiscal year results unfavorably and strong performance at established facilities. Together these facilities offset new program costs associated with the Dodge Ram Pick-up Truck, the Ford Mustang, the Ford Windstar Minivan and the GM Opel Omega and facility costs relating to new programs for BMW and Jaguar, which have begun production since the end of the fiscal year ended June 30, 1993 or will begin production in calendar year 1994. The Company's financial results for the fiscal year ended June 30, 1993 do not include the NAB Acquisition. After giving effect to the NAB Acquisition, the Company's net sales, EBITDA and operating income for the fiscal year ended June 30, 1993 were approximately $2.2 billion, $171.7 million and $119.8 million, respectively. See "Business -- NAB Acquisition." Results for the six months ended December 31, 1993 do not include the NAB for periods prior to November 1, 1993 and do include additional expense due to the adoption by the Company of the prospective method of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Post-retirement Benefits Other than Pensions" ("SFAS 106"). The implementation of SFAS 106 had an unfavorable impact in the six months ended December 31, 1993 on gross profit of $2.9 million, operating income of $3.3 million and net income of $3.3 million. See the consolidated financial statements of the Company included elsewhere in this report on Form 10-K. The Company's financial results for the twelve and six months ended December 31, 1993 include a one-time charge of $18.0 million for compensation expense for past services of certain key management employees, of which $14.5 million was non-cash. Accelerated vesting of incentive management stock options under the 1992 Stock Option Plan and the issuance of the remaining options under the 1992 Stock Option Plan to 66 individuals resulted in the one-time non-cash charge of $14.5 million. Also included in the one-time charge was $3.5 million of cash compensation expense. The $3.5 million payment was made to 28 of the Management Investors (as defined herein) in order to assist such individuals in achieving some liquidity, which in certain instances will enable such individuals to repay debt incurred in connection with the 1988 Acquisition without necessitating the sale of any Common Stock. The Company's performance is dependent on automotive vehicle production, which is seasonal in nature. The third calendar quarter is historically the Company's weakest quarter due to the impact of customer plant shutdowns for vacation and model changeover which affect automotive production in both North America and Europe. See Note 16 to the consolidated financial statements of the Company included elsewhere in this report on Form 10-K. In February 1994, the Company changed its fiscal year end from June 30 to December 31, effective December 31, 1993. 19 23 The following chart shows operating results of the Company by principal geographic area: GEOGRAPHIC OPERATING RESULTS
SIX MONTHS SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, JANUARY 2, DECEMBER 31, 1991 1992 1993 1993 1993 ---------- ---------- ---------- ----------- ------------ (DOLLARS IN THOUSANDS) NET SALES: United States...................... $ 468,808 $ 597,160 $ 765,652 $ 335,669 $ 551,211 Canada............................. 349,931 403,351 372,045 164,861 168,613 Europe............................. 145,540 268,175 432,546 218,055 189,337 Mexico............................. 121,040 154,054 186,267 92,855 96,057 ---------- ---------- ---------- ----------- ------------ Net sales..................... $1,085,319 $1,422,740 $1,756,510 $ 811,440 $1,005,218 ---------- ---------- ---------- ----------- ------------ ---------- ---------- ---------- ----------- ------------ OPERATING INCOME (LOSS): United States...................... $ 6,181 $ 32,002 $ 51,752 $ 17,550 $ 27,081 Canada............................. 35,303 14,695 15,308 1,808 12,128 Europe............................. (3,667) 2,952 (3,907) (1,847) (7,608) Mexico............................. 8,206 7,172 17,900 5,787 8,213 Unallocated corporate expense(1)... (1,353) 12 -- -- (18,016) ---------- ---------- ---------- ----------- ------------ Operating income.............. $ 44,670 $ 56,833 $ 81,053 $ 23,298 $ 21,798 ---------- ---------- ---------- ----------- ------------ ---------- ---------- ---------- ----------- ------------
- --------------- (1) Unallocated corporate expense consists of incentive stock option expense and other one-time compensation expense. Six Months Ended December 31, 1993 Compared With Six Months Ended January 2, 1993. Net sales of $1,005.2 million in the six months ended December 31, 1993 surpassed the six months ended January 2, 1993 by $193.8 million or 23.9% despite the effect of depressed automotive vehicle sales on existing seating programs in Europe. Net sales benefitted from the purchase of the NAB on November 1, 1993, new business in the United States and Europe and incremental volume on established domestic seating programs. Net sales in the United States of $551.2 million in the six months ended December 31, 1993 increased by $215.5 million or 64.2% from the comparable period in the prior year, reflecting $86.0 million in sales from the NAB Acquisition, improved domestic car and truck production on established seating programs, incremental sales from new seat programs, including the Dodge Ram Pick-up Truck and the Ford Mustang, and sales generated by a new lead vendor program under which the Company assumed management of components for a seat program with Ford. Net sales in Canada for the six months ended December 31, 1993 of $168.6 million exceeded sales during the comparable period in the prior year by $3.8 million or 2.3%, reflecting modest vehicle production increases on established General Motors seat programs. Net sales were adversely impacted by downtime associated with a General Motors plant conversion necessary for a replacement mid-size passenger car model introduction. Production for that replacement program is scheduled to begin in the first quarter of 1994. Net sales in Europe of $189.3 million in the six months ended December 31, 1993 declined in relation to the six months ended January 2, 1993 by $28.7 million or 13.2% due to reduced vehicle production requirements for carryover seating programs in Sweden and Finland and unfavorable exchange rate fluctuations. Partially offsetting the decrease in sales was additional volume on established seating programs in Germany and Austria. 20 24 Net sales in Mexico of $96.1 million increased in the six month period ended December 31, 1993 compared to the six month period ended January 2, 1993 due to increased production activity on existing Volkswagen and Chrysler programs. Gross profit (net sales less cost of sales) and gross margin (gross profit as a percentage of net sales) were $72.2 million and 7.2% for the six month period ended December 31, 1993 as compared to $54.5 million and 6.7% for the prior comparable period. Gross profit and gross margin in the six month period ended December 31, 1993 benefitted from the overall increase in North American automotive production, productivity improvement programs, favorable Canadian exchange rate fluctuations and the NAB Acquisition. Partially offsetting the increase in gross profit were reduced capacity utilization in Europe, facility pre-production costs for seating programs in Canada, England and Germany, the devaluation of the Swedish krona and severance costs associated with the downsizing of German component operations. The adoption of SFAS 106 had an unfavorable impact on gross profit in the six month period ended December 31, 1993 of $2.9 million. Selling, general and administrative expenses decreased to 2.8% of net sales for the six months ended December 31, 1993 as compared to 3.3% for the comparable period in the prior year. While expenditures for the more recent period increased 3.1%, or $0.8 million, over the earlier period, an increase in sales led to an overall decrease in these expenses as a percentage of sales. Primarily contributing to the increase in selling, general and administrative expenses in the six month period ended December 31, 1993 were design, development and pre-production costs relating to a new BMW seating program scheduled to be launched in mid-1994. Operating income and operating margin (operating income as a percentage of net sales), before the one-time charge of $18.0 million for incentive stock and other compensation expense, were $39.1 million and 3.9% for the six months ended December 31, 1993 compared to $23.3 million and 2.9% during the comparable period in the prior year. The increase in operating income was due largely to an overall increase in net sales in North America, including an increase in net sales as a result of the NAB Acquisition and productivity improvements, which offset lower margin contribution in Europe and the adoption of SFAS 106. Non-cash depreciation and amortization charges were $21.9 million and $19.9 million for the six months ended December 31, 1993 and January 2, 1993, respectively. Interest expense for the six month period ended December 31, 1993 decreased by $2.2 million from the comparable period in the prior year primarily due to the refinancing of certain subordinated and senior debt at lower interest rates, lower European interest rates, reduced borrowings in Canada and Europe and reduced amortization of financing fees due to the early extinguishment of debt. See Note 3, "1994 Refinancing -- Subsequent Event," to the Company's consolidated financial statements included elsewhere in this report on Form 10-K. Other expense for the six months ended December 31, 1993, including state and local taxes, foreign exchange loss, minority interest in income of subsidiaries and equity in income of affiliates, increased in comparison to the comparable period in the prior year due to the $4.0 million write-off of equipment associated with a discontinued Volkswagen program in Germany and non-seating related assets in the United States. A loss of $5.0 million, before extraordinary items and the one-time charge of $18.0 million for incentive stock and other compensation expense, was recognized for the six months ended December 31, 1993 as compared to a net loss of $10.8 million in the prior comparable period. The net loss in the six months ended December 31, 1993 reflects a $13.5 million provision for national income taxes of which approximately $8.7 million relates to foreign operations. For the six month period ended December 31, 1993, the Company recognized a net loss of $34.7 million after giving effect to an extraordinary item for the early extinguishment of debt of $11.7 million and the one-time charge of $18.0 million for incentive stock and other compensation expense. The extraordinary item was comprised of unamortized deferred financing fees expense and a call premium resulting from the redemption of the 14% Subordinated Debentures, net of related tax effects. 21 25 Fiscal Year Ended June 30, 1993 Compared With Fiscal Years Ended June 30, 1992 And 1991 Net sales of $1.8 billion in the fiscal year ended June 30, 1993 represents the Company's twelfth consecutive year of increased sales. Net sales increased $333.8 million or 23.5% over the fiscal year ended June 30, 1992 and $671.2 million or 61.8% as compared to the fiscal year ended June 30, 1991. Net sales in the fiscal year ended June 30, 1993 as compared to the fiscal year ended year ended June 30, 1992 benefitted from new business in the United States and Europe, full year production of a second facility in Sweden for Volvo, of which the Company assumed control in November 1991, and incremental volume on domestic and Mexican programs. In comparison to the fiscal year ended June 30, 1991, net sales increased in the fiscal year ended June 30, 1992 by $337.4 million or 31.1% due to the contribution of new business in North America and Europe, volume increases in domestic and foreign carryover programs, including production of replacement programs, and the acquisition of existing operations from Saab and Volvo to handle new programs. Gross profit and gross margin were $152.5 million and 8.7% in the fiscal year ended June 30, 1993, $115.6 million and 8.1% in the fiscal year ended June 30, 1992 and $101.4 million and 9.3% in the fiscal year ended June 30, 1991. Gross profit and gross margin in the fiscal year ended June 30, 1993 surpassed that of the prior fiscal year due to the benefit of incremental volume, including production of new business programs, productivity improvement programs and improved operating performance at new facilities in North America, Europe and Mexico. Partially offsetting the increase in gross profit were participation in customer cost reduction programs, plant shutdown costs at a dedicated facility in Finland, nonrecurring favorable foreign exchange effect on sales and a retroactive price increase recognized in the first and second quarters of the fiscal year ended June 30, 1992. Gross profit in the fiscal year ended June 30, 1992 increased as compared to the fiscal year ended June 30, 1991 as the overall growth in sales activity coupled with productivity improvements more than offset customer cost reduction programs. Comparing the same periods, gross margin declined as a result of the incurrence of start-up costs at several new facilities. Selling, general and administrative expenses as a percentage of net sales remained unchanged at 3.5% in the fiscal year ended June 30, 1993 as compared to the prior fiscal year. The increase in actual expenses was largely the result of increased research and development costs for future seating programs in the United States, Canada and Europe. Further contributing to the increase in expenses were administrative support expenses for Mexican operations and costs associated with the establishment of customer business units in North America. In comparison to the fiscal year ended June 30, 1991, selling, general and administrative expenses in the fiscal year ended June 30, 1992 increased due to design and development costs for future seat systems and technical and administrative support for new and existing European and Mexican operations. Operating income and operating margin were $81.1 million and 4.6% in the fiscal year ended June 30, 1993, $56.8 million and 4.0% in the fiscal year ended June 30, 1992 and $44.7 million and 4.1% in the fiscal year ended June 30, 1991. The growth in operating income in the fiscal year ended June 30, 1993 as compared to the prior fiscal year was due to incremental volume on established seating programs and improved performance at new seat and seat cover facilities. Partially offsetting the increase in operating income were pre-production and facility costs for programs to be introduced after June 30, 1993, plant shutdown costs and nonrecurring prior fiscal year adjustments noted above. As compared to the fiscal year ended June 30, 1991, operating income in the fiscal year ended June 30, 1992 increased due to the benefit of vehicle production increases by automotive manufacturers on established programs in North America and Europe which offset customer cost reduction programs and start-up costs associated with the introduction of new seat systems within established business programs. Non-cash depreciation and amortization charges were $40.7 million in the fiscal year ended June 30, 1993, $35.0 million in the fiscal year ended June 30, 1992 and $36.8 million in the fiscal year ended June 30, 1991. Interest expense in the fiscal year ended June 30, 1993 declined in relation to the fiscal year ended June 30, 1992 and the fiscal year ended June 30, 1991 due to lower interest rates on bank debt, refinancing of certain subordinated debt at a lower interest rate and the application of funds received from the capital infusions initiated on September 27, 1991 and July 30, 1992. See Notes 4 and 5 of the consolidated financial statements of the Company included in this report on Form 10-K for additional information regarding these transactions. 22 26 Other expense, including state and local taxes, foreign exchange gain or loss, minority interests and equity in income of affiliates, decreased in the fiscal year ended June 30, 1993 in comparison to the fiscal year ended June 30, 1992 as reduced income derived from joint ventures accounted for under the equity method coupled with the Company's write-off of its $1.7 million investment in Probel S.A., a Brazilian company, were more than offset by the expense portion of nonrecurring capitalization and related costs of $3.2 million associated with the 1991 Transactions (as defined under "Certain Relationships and Related Transactions") which were incurred in the fiscal year ended June 30, 1992. Other expense in the fiscal year ended June 30, 1992 increased in comparison to the fiscal year ended June 30, 1991 due to costs related to the 1991 Transactions. Net income of $10.1 million was realized in the fiscal year ended June 30, 1993 as compared to a net loss of $22.2 million in the fiscal year ended June 30, 1992. The net income of $10.1 million in the fiscal year ended June 30, 1993 reflects an $11.9 million provision for foreign national income taxes as compared to an $8.2 million provision in the fiscal year ended June 30, 1992. In comparison to a net loss of $33.2 million in the fiscal year ended June 30, 1991, the net loss of $22.2 million in the fiscal year ended June 30, 1992 reflects a $13.0 million provision for national income taxes as compared to a provision of $14.0 million in the previous fiscal year and to a $5.1 million extraordinary loss on the early retirement of debt. United States Operations Net sales in the United States were $765.7 million, $597.2 million and $468.8 million in the fiscal years ended June 30, 1993, 1992 and 1991, respectively. Net sales in the fiscal year ended June 30, 1993 surpassed the fiscal year ended June 30, 1992 due to improved domestic car and truck production on established seating programs in the second half of the fiscal year ended June 30, 1993 coupled with a new Ford passenger car program and the attainment of targeted production levels for a General Motors truck program introduced in the fall of 1991. Net sales in the fiscal year ended June 30, 1992 reflect vehicle production increases from the prior fiscal year's depressed operating levels by OEMs on certain established seating programs and the launch of a new General Motors truck program. Operating income and operating margin were $51.8 million and 6.8% in the fiscal year ended June 30, 1993, $32.0 million and 5.4% in the fiscal year ended June 30, 1992 and $6.2 million and 1.3% in the fiscal year ended June 30, 1991. The growth in operating income and operating margin was due to the benefits derived from incremental volume on established and new seating programs, productivity improvements and improved operating performance at new seat systems and seat cover facilities. Partially offsetting the increase in operating income were participation in customer cost reduction programs and preproduction costs associated with a new seating program scheduled to begin production in mid-1994. Operating income and operating margin in the fiscal year ended June 30, 1992 increased as compared to the fiscal year ended June 30, 1991 due to the transfer of component production from Canada in order to benefit from lower operating costs and incremental volume on established seating programs. Canadian Operations Net sales from Canadian operations were $372.0 million in the fiscal year ended June 30, 1993, $403.4 million in the fiscal year ended June 30, 1992 and $349.9 million in the fiscal year ended June 30, 1991. Net sales in the fiscal year ended June 30, 1993 were adversely impacted by market demand and vehicle inventories as General Motors announced temporary plant shutdowns and production adjustments on existing passenger car and light truck programs. In comparison to the fiscal year ended June 30, 1991, net sales in the fiscal year ended June 30, 1992 benefitted from incremental volume on carryover General Motors car and truck programs and to the launch of a new Hyundai passenger car program, which was partially offset by the transfer of component production from Canada to the United States. Operating income and operating margin were $15.3 million and 4.1% in the fiscal year ended June 30, 1993, $14.7 million and 3.6% in the fiscal year ended June 30, 1992 and $35.3 million and 10.1% in the fiscal year ended June 30, 1991. Operating income in the fiscal year ended June 30, 1993 as compared to the prior fiscal year benefitted from productivity improvement programs, favorable exchange rate fluctuations and improved operating performance at a new seat facility. Partially offsetting the increase in operating income were reduced vehicle production schedules on existing programs and engineering costs associated with a future Ford seating program. Operating income in the fiscal year ended June 30, 1992 declined in relation to the 23 27 fiscal year ended June 30, 1991 due to a shift in component production to the Company's United States facilities in order to take advantage of lower operating costs, participation in customer cost reduction programs, incremental costs associated with the start-up of a new seat facility and to design and development costs related to a future Ford seat system. European Operations Net sales in Europe were $432.5 million in the fiscal year ended June 30, 1993, $268.2 million in the fiscal year ended June 30, 1992 and $145.5 million in the fiscal year ended June 30, 1991. Net sales in the fiscal year ended June 30, 1993 exceeded the prior fiscal year due to the addition of new operations in Germany and Austria, the full year impact resulting from the acquisition of facilities in Sweden and Finland and incremental volume on carryover programs in Germany. Partially offsetting the increase in net sales were reduced vehicle production schedules for established seating programs in Sweden and unfavorable exchange rate fluctuations. Net sales in the fiscal year ended June 30, 1992 surpassed net sales in the prior fiscal year due to additional volume on an existing program in Sweden and the acquisition of facilities in Sweden and Finland in November 1991 and January 1992, respectively, while demand for existing programs in Germany remained essentially unchanged. The Company's European operations sustained an operating loss of $3.9 million in the fiscal year ended June 30, 1993 as compared to operating income of $3.0 million in the fiscal year ended June 30, 1992 and an operating loss of $3.7 million in the fiscal year ended June 30, 1991. The $6.9 million unfavorable variance in the fiscal year ended June 30, 1993 was the result of lower margin products introduced at an established facility in Germany, technical and administration costs required to support European manufacturing facilities, a retroactive price increase recognized in the first half of the fiscal year ended June 30, 1992 and the devaluation of the Swedish krona, which was partially offset by the favorable impact of foreign exchange rates. Also contributing to the decrease in operating income were reserves established by the Company for the anticipated plant shutdown costs at a dedicated facility in Finland due to the customer transfer of production to alternative locations in Europe. Partially offsetting the decrease in operating income was the overall growth in sales activity, including production from new programs in Germany and Austria and to the full year contribution of facilities in Sweden and Finland of which the Company assumed control in the fiscal year ended June 30, 1992. Operating income of $3.0 million in the fiscal year ended June 30, 1992 increased by $6.6 million as compared to the fiscal year ended June 30, 1991 due to improved pricing on an existing program, incremental volume on carryover programs and improved operating performance at an established facility in Sweden which combined to more than offset pre-production, technical and administrative costs necessary to support new facilities opened as a result of seating programs awarded. Mexican Operations Net sales in Mexico were $186.3 million in the fiscal year ended June 30, 1993, $154.1 million in the fiscal year ended June 30, 1992 and $121.0 million in the fiscal year ended June 30, 1991. Net sales in the fiscal year ended June 30, 1993 surpassed the fiscal year ended June 30, 1992 and the fiscal year ended June 30, 1991 due to increased production activity on established General Motors, Ford, Volkswagen and Chrysler programs. Operating income and operating margin in Mexico were $17.9 million and 9.6% in the fiscal year ended June 30, 1993, $7.2 million and 4.7% in the fiscal year ended June 30, 1992 and $8.2 million and 6.8% in the fiscal year ended June 30, 1991. The increase in operating income and operating margin in the fiscal year ended June 30, 1993 as compared to the prior fiscal year was due to the benefit of additional sales, productivity improvement programs and improved manufacturing performance at a seat cover facility. Operating income and operating margin in the fiscal year ended June 30, 1992 declined in relation to the fiscal year ended June 30, 1991 as a result of the Company's participation in a customer cost reduction program and incremental start-up costs associated with a new seat cover facility. LIQUIDITY AND FINANCIAL CONDITION On October 25, 1993, the Company amended and restated the Original Credit Agreement (as amended and restated, the "Credit Agreement"), increasing the Company's total availability to $425.0 million from 24 28 $150.0 million, reducing the Company's average bank borrowing costs by approximately 150 basis points and enabling the Company to refinance all of its then outstanding indebtedness under the Company's Original Credit Agreement, to retire the GECC Mortgage Loan and to finance a portion of the NAB Acquisition. As of December 31, 1993, and after giving effect to the 1994 Note Offering, the Offerings and the application of the net proceeds therefrom, the Company would have had $178.4 million outstanding under the Credit Agreement ($36.8 million of which would have been outstanding under letters of credit), resulting in $246.6 million unused and available. The Company also had term loans outstanding in Germany of approximately $7.6 million. Of the $230.7 million of borrowings actually outstanding under the Credit Agreement as of December 31, 1993, $173.4 million related to the NAB Acquisition. The remaining $57.3 million outstanding related to the early retirement of term debt during the calendar year 1993. Amounts available under the Credit Agreement will be reduced by $40.0 million every six months beginning October 31, 1996, and the Credit Agreement will expire on October 31, 1998. Excluding amounts outstanding under the Credit Agreement which will be due upon the expiration of the Credit Agreement, the Company's scheduled principal payments are $1.2 million in calendar year 1994, $2.4 million in calendar year 1995 and $1.2 million in each of the next three calendar years. Net cash provided by operating activities increased to $94.5 million in the fiscal year ended June 30, 1993, compared to $48.0 million and $33.5 million in the fiscal years ended June 30, 1992 and 1991, respectively. The increase in cash flow in the fiscal year ended June 30, 1993 reflected higher operating earnings and reduced working capital requirements. The reduced working capital requirements were primarily the result of improved management of inventories, customer tooling and accounts payable. Inventories declined by 12.0% in the fiscal year ended June 30, 1993 despite record net sales in that year. Net cash provided by operating activities increased to $17.1 million during the six months ended December 31, 1993. Cash flow increases resulted from improved operating earnings and management of accounts receivable, inventories and accounts payable, offset by the use of proceeds necessary to finance the working capital requirement of the NAB. During the fiscal year ended June 30, 1993 and the six months ended December 31, 1993, cash generated from operations and funds available under the Original Credit Agreement were sufficient to meet the Company's debt service and capital expenditure requirements. The Company believes that cash flows from operations and funds available from existing credit facilities (principally the Credit Agreement) will be sufficient to meet its future debt service obligations, projected capital expenditures and working capital requirements. Since July 1992, the Company has taken advantage of the favorable interest rate environment by refinancing a substantial portion of its long-term debt to reduce its ongoing interest expense. In February 1994, the Company refinanced $135.0 million in aggregate principal amount of its 14% Subordinated Debentures by issuing $145.0 million aggregate principal amount of 8 1/4% Subordinated Notes due 2002. The additional proceeds were used to pay a 5.4% call premium and a portion of the accrued interest due on the redemption of the 14% Subordinated Debentures. In July 1992, the Company refinanced $85.0 million in aggregate principal amount of its 14 1/4% Senior Subordinated Discount Notes by issuing $125.0 million aggregate principal amount of the Senior Subordinated Notes. The additional proceeds were used to prepay $15.0 million of term loans and temporarily reduce outstanding revolving loans under the Original Credit Agreement and for general corporate purposes. In the fiscal years ended June 30, 1993 and 1992, gross proceeds of $20.4 and $75.0 million, respectively, were received from the issuance of Common Stock. The Common Stock proceeds were used to reduce borrowings under the Original Credit Agreement in each year, as well as fund the Company's expansion. CAPITAL EXPENDITURES For the fiscal year ended June 30, 1993, capital expenditures of the Company were $31.6 million. For the fiscal years ended June 30, 1992 and June 30, 1991, capital expenditures of the Company were $27.9 million 25 29 and $20.9 million, respectively. The Company estimates that it spent, in the aggregate, between $10.0 million and $15.0 million in the fiscal years ended June 30, 1992 and 1993, respectively, for equipment replacement and refurbishment. For the six months ended December 31, 1993, capital expenditures of the Company were $29.0 million. The Company anticipates that during the fiscal year ending December 31, 1994, capital expenditures will aggregate approximately $60.0 million, of which approximately $35.0 million will relate to the addition of new facilities and the completion of previously started facilities required to support new seat systems programs. The remainder will be used to establish new programs in existing facilities and for ongoing maintenance requirements. The Company anticipates that cash generated from operations and borrowings under the Credit Agreement will provide sufficient funds for planned capital expenditures. ENVIRONMENTAL MATTERS The Company is subject to local, state, federal and foreign laws, regulations and ordinances (i) which govern activities or operations that may have adverse environmental effects and (ii) that impose liability for the costs of cleaning up and certain damages resulting from sites of past spills, disposal or other releases of hazardous substances. The Company currently is engaged in the cleanup of hazardous substances at certain sites owned, leased or operated by the Company, including soil and groundwater cleanup at its facility in Mendon, Michigan. Management believes that the Company will not incur compliance costs or cleanup costs at its facilities with known contamination that would have a material adverse effect on the Company's consolidated financial position or future results of operations. The Company has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of contamination from hazardous substances at three Superfund sites where liability has not been determined. The Company also may incur indemnification obligations for cleanup at two sites which are the subject of Superfund proceedings. Management believes that the Company is, or may be, responsible for less than one percent, if any, of the total costs at each site. The Company has set aside reserves which management believes are adequate to cover any such potential liabilities. Management believes that such matters will not result in liabilities that will have a material adverse effect on the Company's consolidated financial position or future results of operations. INFLATION AND ACCOUNTING POLICIES Lear's contracts with its major customers generally provide for an annual productivity price reduction and provide for the recovery of increases in material and labor costs in some contracts. Cost reduction through design changes, increased productivity and similar programs with the Company's suppliers generally have offset changes in selling prices. The Company's cost structure is comprised of a high percentage of variable costs. The Company believes that this structure provides it with additional flexibility during economic cycles. In December 1990, the Financial Accounting Standards Board issued SFAS 106, which sets forth new standards on accounting for post-retirement benefits other than pensions. This standard requires that the expected cost of these benefits must be charged to expense during the years in which the employees render service. The Company prospectively has adopted the new standard for its domestic plans effective July 1, 1993 and will adopt the standard no later than required for its foreign plans. The Company's actuaries have determined the domestic transition obligation at July 1, 1993 to be approximately $25.6 million (net of a previously recorded liability of $6.3 million) before income taxes, which will be amortized over 20 years. The Company's results for the six months ended December 31, 1993 reflect an increase of approximately $3.3 million for post-retirement benefits as computed under this new standard than would have been recorded under the Company's previous method, which recognized these costs on a cash basis. The additional expense of $3.3 million includes approximately $641,000 of amortization of the Company's transition obligation. In November 1992, the Financial Accounting Standards Board issued SFAS 112, "Employers Accounting for Post-Employment Benefits." This statement requires that employers accrue the cost of post-employment benefits during the employees' active service. The Company will adopt this statement effective January 1, 1994 and believes that the adoption of this statement will not have a material effect on its financial position or results of operations. 26 30 ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS LEAR SEATING CORPORATION AND SUBSIDIARIES
PAGE ---- Report of Independent Public Accountants.............................................. 28 Consolidated Balance Sheets as of June 30, 1992, 1993 and December 31, 1993........... 29 Consolidated Statements of Operations for the years ended June 30, 1991, 1992 and 1993 and for the twelve months and six months ended December 31, 1993.................... 30 Consolidated Statements of Stockholders' Equity for the years ended June 30, 1991, 1992 and 1993 and for the twelve months and six months ended December 31, 1993........... 31 Consolidated Statements of Cash Flows for the years ended June 30, 1991, 1992 and 1993 and for the twelve months and six months ended December 31, 1993.................... 32 Notes to Consolidated Financial Statements............................................ 33 Report of Independent Public Accountants.............................................. 54 Schedule II -- Amounts Receivable from Employees...................................... 55 Schedule V -- Property, Plant and Equipment........................................... 56 Schedule VI -- Accumulated Depreciation of Property, Plant and Equipment.............. 57 Schedule VII -- Guarantees of Securities of Other Issuers............................. 58 Schedule VIII -- Valuation and Qualifying Accounts.................................... 59 Schedule X -- Supplementary Income Statement Information.............................. 60
27 31 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Lear Seating Corporation: We have audited the accompanying consolidated balance sheets of LEAR SEATING CORPORATION AND SUBSIDIARIES ("the Company") as of June 30, 1992, June 30, 1993 and December 31, 1993 and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended June 30, 1991, 1992 and 1993 and for the twelve months and six months ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 1992, June 30, 1993 and December 31, 1993 and the results of its operations and its cash flows for the years ended June 30, 1991, 1992 and 1993 and for the twelve months and six months ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note 12 to the consolidated financial statements, as of July 1, 1993, the Company changed its method of accounting for post-retirement benefits other than pensions. /s/ ARTHUR ANDERSEN & CO. Detroit, Michigan, February 10, 1994 (Except with respect to the matters discussed in Note 18, as to which the date is March 2, 1994). 28 32 LEAR SEATING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993 ------------- ------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents........................................... $ 33,217 $ 53,787 $ 55,034 Accounts receivable, less allowance for doubtful accounts of $239 at June 30, 1992, $516 at June 30, 1993 and $644 at December 31, 1993.............................................................. 178,070 215,745 272,421 Inventories......................................................... 46,427 40,877 71,731 Unbilled customer tooling........................................... 10,741 8,565 19,441 Other............................................................... 14,409 6,225 14,957 ------------- ------------- ----------------- 282,864 325,199 433,584 ------------- ------------- ----------------- PROPERTY, PLANT AND EQUIPMENT: Land................................................................ 13,718 13,405 31,289 Buildings and improvements.......................................... 79,252 73,015 114,514 Machinery and equipment............................................. 160,123 180,208 210,654 Construction in progress............................................ 3,144 2,094 5,030 ------------- ------------- ----------------- 256,237 268,722 361,487 Less -- Accumulated depreciation................................ (76,732) (103,527) (110,530) ------------- ------------- ----------------- 179,505 165,195 250,957 ------------- ------------- ----------------- OTHER ASSETS: Goodwill, less accumulated amortization of $36,568 at June 30, 1992, $46,116 at June 30, 1993 and $50,871 at December 31, 1993......... 317,913 309,165 403,694 Deferred financing fees, net........................................ 7,765 9,825 14,377 Investments in affiliates and other................................. 11,837 10,825 11,679 ------------- ------------- ----------------- 337,515 329,815 429,750 ------------- ------------- ----------------- $ 799,884 $ 820,209 $ 1,114,291 ------------- ------------- ----------------- ------------- ------------- ----------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings............................................... $ 11,982 $ 1,211 $ 48,155 Cash overdrafts..................................................... 8,324 17,317 19,769 Accounts payable.................................................... 204,865 248,454 298,326 Accrued liabilities................................................. 81,716 106,707 138,299 Financing lease obligation.......................................... 10,296 -- -- Current portion of long-term debt................................... 26,986 1,261 1,168 ------------- ------------- ----------------- 344,169 374,950 505,717 ------------- ------------- ----------------- LONG-TERM LIABILITIES: Deferred national income taxes...................................... 26,392 15,536 15,889 Long-term debt...................................................... 348,331 321,116 498,324 Other............................................................... 28,210 29,621 38,716 ------------- ------------- ----------------- 402,933 366,273 552,929 ------------- ------------- ----------------- COMMITMENTS AND CONTINGENCIES COMMON STOCK SUBJECT TO REDEMPTION: Common stock subject to limited rights of redemption, $.01 par value, 27,450 shares at June 30, 1992, 30,001 shares at June 30, 1993 and December 31, 1993, at estimated maximum redemption price of $165 per share at June 30, 1992 and 1993 and $450 per share at December 31, 1993................................................. 4,530 4,950 13,500 Notes receivable from sale of common stock.......................... (1,065) (1,065) (1,065) ------------- ------------- ----------------- 3,465 3,885 12,435 ------------- ------------- ----------------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 250,000 shares authorized, no shares issued..................................................... -- -- -- Common stock, $.01 par value, 1,500,000 shares authorized at June 30, 1992 and 1993 and 2,000,000 shares authorized at December 31, 1993, 1,027,096 shares issued at June 30, 1992, 1,145,757 shares issued at June 30, 1993 and December 31, 1993, net of shares subject to redemption............................................. 10 12 12 Additional paid-in capital.......................................... 131,650 150,993 156,917 Warrants exercisable for common stock............................... 10,000 10,000 10,000 Less -- Common stock held in treasury, 102,551 shares at June 30, 1992, 100,000 shares at June 30, 1993 and December 31, 1993, at cost.............................................................. (10,255) (10,000) (10,000) Retained deficit.................................................... (84,646) (74,532) (109,248) Minimum pension liability adjustment................................ (2,858) (3,240) (4,164) Cumulative translation adjustment................................... 5,416 1,868 (307) ------------- ------------- ----------------- 49,317 75,101 43,210 ------------- ------------- ----------------- $ 799,884 $ 820,209 $ 1,114,291 ------------- ------------- ----------------- ------------- ------------- -----------------
The accompanying notes are an integral part of these balance sheets. 29 33 LEAR SEATING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TWELVE MONTHS SIX MONTHS YEAR ENDED JUNE 30, ENDED ENDED ------------------------------------ DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 ---------- ---------- ---------- ------------- ------------ Net sales........................... $1,085,319 $1,422,740 $1,756,510 $ 1,950,288 $1,005,218 Cost of sales....................... 983,890 1,307,099 1,604,011 1,780,073 932,983 Selling, general and administrative expenses.......................... 41,596 50,074 61,898 62,717 27,666 Incentive stock and other compensation expense (Note 14).... 1,353 (12) -- 18,016 18,016 Amortization of goodwill and other intangible assets................. 13,810 8,746 9,548 9,929 4,755 ---------- ---------- ---------- ------------- ------------ Operating income.................. 44,670 56,833 81,053 79,553 21,798 Interest expense.................... 61,676 55,158 47,832 45,656 24,767 Foreign currency exchange (gain) loss.............................. 1,717 300 470 49 (193) Other expense, net.................. 1,574 7,859 4,331 7,750 6,520 ---------- ---------- ---------- ------------- ------------ Income (loss) before provision for national income taxes, minority interests in net income of subsidiaries, equity income of affiliates and extraordinary item........................... (20,297) (6,484) 28,420 26,098 (9,296) Provision for national income taxes............................. 14,019 12,968 17,847 26,864 13,467 Minority interests in net income of subsidiaries...................... 1,770 691 470 349 88 Equity (income) loss of affiliates........................ (2,917) (3,013) (11) 1,032 181 ---------- ---------- ---------- ------------- ------------ Income (loss) before extraordinary item........................... (33,169) (17,130) 10,114 (2,147) (23,032) Extraordinary loss on early extinguishment of debt............ -- 5,100 -- 11,684 11,684 ---------- ---------- ---------- ------------- ------------ Net income (loss)................... $ (33,169) $ (22,230) $ 10,114 $ (13,831) $ (34,716) ---------- ---------- ---------- ------------- ------------ ---------- ---------- ---------- ------------- ------------ Net income (loss) per common share (Note 18): Income (loss) before extraordinary item........................... $ (66.36) $ (20.36) $ 8.33 $ (2.00) $ (21.41) Extraordinary loss................ -- (6.06) -- (10.86) (10.86) ---------- ---------- ---------- ------------- ------------ $ (66.36) $ (26.42) $ 8.33 $ (12.86) $ (32.27) ---------- ---------- ---------- ------------- ------------ ---------- ---------- ---------- ------------- ------------
The accompanying notes are an integral part of these statements. 30 34 LEAR SEATING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
WARRANTS MINIMUM ADDITIONAL EXERCISABLE PENSION CUMULATIVE COMMON PAID-IN INTO TREASURY RETAINED LIABILITY TRANSLATION STOCK CAPITAL COMMON STOCK STOCK DEFICIT ADJUSTMENT ADJUSTMENT TOTAL ------ ---------- ------------ -------- --------- ---------- ---------- -------- BALANCE, JUNE 30, 1990............ $ 6 $ 59,454 $ 10,000 $(10,000) $ (29,247) $ -- $ 5,079 $ 35,292 Net loss........................ -- -- -- -- (33,169) -- -- (33,169) Stock option compensation....... -- 1,353 -- -- -- -- -- 1,353 Re-acquisition of 650 shares of common stock subject to redemption from management investors, at cost............ -- 65 -- (65) -- -- -- -- Foreign currency translation.... -- -- -- -- -- -- 859 859 ------ ---------- ------------ -------- --------- ---------- ---------- -------- BALANCE, JUNE 30, 1991............ 6 60,872 10,000 (10,065) (62,416) -- 5,938 4,335 Net loss........................ -- -- -- -- (22,230) -- -- (22,230) Stock option compensation....... -- (12) -- -- -- -- -- (12) Re-acquisition of 1,900 shares of common stock subject to redemption from management investors, at cost............ -- 190 -- (190) -- -- -- -- Sale of additional 454,545 shares of common stock, net of transaction expenses.......... 4 72,384 -- -- -- -- -- 72,388 Recognize minimum pension liability adjustment.......... -- -- -- -- -- (2,858) -- (2,858) Foreign currency translation.... -- -- -- -- -- -- (522) (522) Restate common stock subject to redemption to estimated maximum redemption value...... -- (1,784) -- -- -- -- -- (1,784) ------ ---------- ------------ -------- --------- ---------- ---------- -------- BALANCE, JUNE 30, 1992............ 10 131,650 10,000 (10,255) (84,646) (2,858) 5,416 49,317 Net loss........................ -- -- -- -- (10,771) -- -- (10,771) Sale of additional 121,212 shares of common stock, net of transaction expenses.......... 2 19,598 -- -- -- -- -- 19,600 Sale of 2,551 shares of treasury stock to management investors..................... -- (255) -- 255 -- -- -- -- Foreign currency translation.... -- -- -- -- -- -- (4,640) (4,640) ------ ---------- ------------ -------- --------- ---------- ---------- -------- BALANCE, JANUARY 2, 1993.......... 12 150,993 10,000 (10,000) (95,417) (2,858) 776 53,506 Net income...................... -- -- -- -- 20,885 -- -- 20,885 Minimum pension liability adjustment.................... -- -- -- -- -- (382) -- (382) Foreign currency translation.... -- -- -- -- -- -- 1,092 1,092 ------ ---------- ------------ -------- --------- ---------- ---------- -------- BALANCE, JUNE 30, 1993............ 12 150,993 10,000 (10,000) (74,532) (3,240) 1,868 75,101 Net loss........................ -- -- -- -- (34,716) -- -- (34,716) Incentive stock option compensation.................. -- 14,474 -- -- -- -- -- 14,474 Minimum pension liability adjustment.................... -- -- -- -- -- (924) -- (924) Foreign currency translation.... -- -- -- -- -- -- (2,175) (2,175) Restate common stock subject to redemption to estimated maximum redemption value...... -- (8,550) -- -- -- -- -- (8,550) ------ ---------- ------------ -------- --------- ---------- ---------- -------- BALANCE, DECEMBER 31, 1993........ $ 12 $156,917 $ 10,000 $(10,000) $(109,248) $ (4,164) $ (307) $ 43,210 ------ ---------- ------------ -------- --------- ---------- ---------- -------- ------ ---------- ------------ -------- --------- ---------- ---------- --------
The accompanying notes are an integral part of these statements. 31 35 LEAR SEATING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
TWELVE SIX MONTHS MONTHS YEAR ENDED JUNE 30, ENDED ENDED ------------------------------- DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 -------- -------- --------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).......................................... $(33,169) $(22,230) $ 10,114 $ (13,831) $ (34,716) Adjustments to reconcile net income (loss) to net cash provided by operating activities -- Depreciation and amortization of goodwill and other intangible assets...................................... 36,758 34,974 40,654 42,559 21,866 Incentive stock option compensation...................... 1,353 (12) -- 14,474 14,474 Accreted interest on Senior Subordinated Discount Notes.................................................. 10,322 4,738 -- -- -- Amortization of deferred financing fees.................. 4,096 3,198 2,972 2,594 1,065 Deferred national income taxes........................... (6,987) (1,672) (10,856) (12,342) (90) Post-retirement benefits accrued......................... -- -- -- 3,273 3,273 Loss on retirement of property, plant and equipment...... 316 82 374 6,752 6,373 Extraordinary loss....................................... -- 5,100 -- 11,684 11,684 Other, net............................................... (3,103) (2,932) 482 (294) 583 Net change in working capital items...................... 23,921 26,801 50,760 58,388 (7,368) -------- -------- --------- ------------ ------------ Net cash provided by operating activities.............. 33,507 48,047 94,500 113,257 17,144 -------- -------- --------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment................. (20,892) (27,926) (31,595) (45,915) (28,989) Acquisitions (Note 6)...................................... (7,527) (650) -- (172,065) (172,065) Proceeds from sale of property, plant and equipment........ 2,860 996 1,044 968 133 Other, net................................................. (1,862) 1,593 (170) 2,226 2,207 -------- -------- --------- ------------ ------------ Net cash used by investing activities.................. (27,421) (25,987) (30,721) (214,786) (198,714) -------- -------- --------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Long-term revolving credit borrowings, net (Note 9)........ 8,952 (10,284) (24,130) 225,512 230,700 Additions to other long-term debt.......................... -- 20,000 125,000 -- -- Reductions in other long-term debt......................... (26,699) (69,209) (154,055) (103,618) (54,150) Short-term borrowings, net................................. 21,653 (15,270) (10,771) 12,828 17,729 Proceeds from sale of common stock, net.................... -- 72,388 20,020 -- -- Deferred financing fees.................................... -- (1,839) (5,032) (10,508) (10,508) Increase (decrease) in cash overdrafts..................... (2,205) (10,867) 8,993 3,321 2,452 Other, net................................................. (25) (190) -- -- -- -------- -------- --------- ------------ ------------ Net cash provided (used) by financing activities....... 1,676 (15,271) (39,975) 127,535 186,223 -------- -------- --------- ------------ ------------ Effect of foreign currency translation..................... 2,423 540 (3,234) (2,507) (3,406) -------- -------- --------- ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS...................... 10,185 7,329 20,570 23,499 1,247 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............. 15,703 25,888 33,217 31,535 53,787 -------- -------- --------- ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 25,888 $ 33,217 $ 53,787 $ 55,034 $ 55,034 -------- -------- --------- ------------ ------------ -------- -------- --------- ------------ ------------ CHANGES IN WORKING CAPITAL, NET OF EFFECTS OF ACQUISITIONS: Accounts receivable, net................................... $ 21,061 $(42,334) $ (42,564) $ (83,475) $ (60,319) Inventories................................................ (2,682) (6,081) 4,219 2,947 (4,225) Accounts payable........................................... 4,346 62,128 49,605 93,950 56,465 Accrued liabilities and other.............................. 1,196 13,088 39,500 44,966 711 -------- -------- --------- ------------ ------------ $ 23,921 $ 26,801 $ 50,760 $ 58,388 $ (7,368) -------- -------- --------- ------------ ------------ -------- -------- --------- ------------ ------------ SUPPLEMENTARY DISCLOSURE: Cash paid for interest..................................... $ 47,304 $ 47,584 $ 41,130 $ 42,088 $ 20,235 -------- -------- --------- ------------ ------------ -------- -------- --------- ------------ ------------ Cash paid for income taxes................................. $ 22,900 $ 12,135 $ 21,843 $ 15,685 $ 4,255 -------- -------- --------- ------------ ------------ -------- -------- --------- ------------ ------------
The accompanying notes are an integral part of these statements. 32 36 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The consolidated financial statements include the accounts of Lear Seating Corporation ("the Company"), a Delaware corporation, and its wholly-owned and majority-owned subsidiaries. Investments in less than majority-owned businesses are generally accounted for under the equity method (Note 7). Prior to December 31, 1993, the Company was a wholly-owned subsidiary of Lear Holdings Corporation ("Holdings"). On December 31, 1993, Holdings was merged with and into the Company and the separate corporate existence of Holdings ceased (the "Merger"). Prior to the Merger, Holdings had several other wholly-owned subsidiaries, including LS Acquisition No. 14 ("LS No. 14"), Lear Seating Holdings Corp. No. 50 ("LS No. 50") and Lear Seating Sweden, AB ("LS-Sweden"). In conjunction with the Merger, these companies became subsidiaries of the Company. The Merger has been accounted for and reflected in the accompanying financial statements as a merger of companies under common control. As such, the financial statements of the Company have been restated as if the current structure (post-Merger) had existed for all periods presented. In February 1994, the Company changed its fiscal year end from June 30 to December 31, effective December 31, 1993. Accordingly, the twelve months ended December 31, 1993 does not constitute a fiscal year. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation Transactions and balances among the Company and its subsidiaries have been eliminated in the consolidated financial statements. Inventories Inventories are stated at the lower of cost or market. Cost is determined principally using the first-in, first-out method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs. Inventories are comprised of the following (in thousands):
JUNE 30, JUNE 30, DECEMBER 31, 1992 1993 1993 -------- -------- ------------ Raw materials................................... $ 29,931 $ 29,005 $ 42,470 Work-in-process................................. 9,849 8,331 23,394 Finished goods.................................. 6,647 3,541 5,867 -------- -------- ------------ $ 46,427 $ 40,877 $ 71,731 -------- -------- ------------ -------- -------- ------------
Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciable property is depreciated over the estimated useful lives of the assets, using principally the straight-line method as follows: Buildings and improvements..................................... 20 to 25 years Machinery and equipment........................................ 5 to 15 years
Goodwill and Other Intangible Assets Goodwill consists of purchase price and related acquisition costs in excess of the fair value of identifiable assets acquired. Goodwill is amortized on a straight-line basis over 40 years. The Company evaluates the 33 37 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) carrying value of goodwill for potential impairment on an ongoing basis. Such evaluations compare operating income before amortization of goodwill of the operations to which goodwill relates to the amortization recorded. The Company also considers future anticipated operating results, trends and other circumstances in making such evaluations. Other intangible assets, consisting of a license agreement, were amortized over the two-year term of the agreement, which expired in September 1990. Deferred Financing Fees Costs incurred in connection with the issuance of debt are amortized over the term of the related indebtedness using the effective interest method. Research and Development Costs incurred in connection with the development of new products and manufacturing methods are charged to operations as incurred. Such costs amounted to $7,923,000, $11,387,000, $18,229,000, $16,177,000 and $7,062,000 for the years ended June 30, 1991, 1992 and 1993 and for the twelve and six months ended December 31, 1993, respectively. Foreign Currency Translation Assets and liabilities of foreign subsidiaries are generally translated into U.S. dollars at the exchange rates in effect at the end of the period. Revenue and expense accounts are translated using a weighted average of exchange rates in effect during the period. Translation adjustments that arise from translating a foreign subsidiary's financial statements from functional currency to U.S. dollars are reflected as cumulative translation adjustment in the consolidated balance sheets. Until December 31, 1992, non-monetary assets and liabilities of a foreign subsidiary operating in Mexico were translated using historical rates, while monetary assets and liabilities were translated at the exchange rates in effect at the end of the period, with the U.S. dollar effects of exchange rate changes included in the results of operations. As of January 1, 1993, Mexico's economy was no longer deemed to be highly inflationary, and since then, the accounts of the subsidiary operating in Mexico have been translated consistent with other foreign subsidiaries. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except those transactions which operate as a hedge of a foreign currency investment position, are included in the results of operations as incurred. Income Taxes The consolidated financial statements reflect the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", for all periods presented. Since the twelve months ended December 31, 1993 does not constitute a fiscal year, the consolidated national income tax provision for this period was determined based upon the provisions of APB Opinion No. 28, "Interim Financial Reporting." Deferred national income taxes represent the effect of cumulative temporary differences between income and expense items reported for financial statement and tax purposes, and between the bases of various assets and liabilities for financial statement and tax purposes. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence, it is deemed more likely than not that the asset will not be realized. 34 38 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net Income (Loss) Per Common Share The weighted average number of common shares outstanding for the years ended June 30, 1991, 1992 and 1993 and for the twelve and six months ended December 31, 1993 were 499,803; 841,464; 1,213,608; 1,075,758, and 1,075,758, respectively. Shares exercisable under the 1988 Stock Option Plan, 1992 Stock Option Plan, and the warrants (Note 14) are included in the weighted average share calculation for the year ended June 30, 1993. These shares are not included in the calculation of weighted average common shares outstanding in other periods as their impact would be anti-dilutive. Weighted averages do not reflect the stock split (Note 18). Industry Segment Reporting The Company is principally engaged in the design and manufacture of automotive seating and, therefore, separate industry segment reporting is not applicable. Reclassifications Certain items in prior years' financial statements have been reclassified to conform with the presentation used in the periods ended December 31, 1993. (3) 1994 REFINANCING -- SUBSEQUENT EVENT On February 3, 1994, the Company completed a public offering of $145,000,000 of 8 1/4% Subordinated Notes, due 2002 (the "8 1/4% Notes"). The 8 1/4% Notes require interest payments semi-annually on February 1 and August 1. Fees and expenses related to the issuance of the 8 1/4% Notes are expected to be approximately $5,000,000, including underwriting fees of $2,400,000 paid to Lehman Brothers Inc. The net proceeds from the sale of the 8 1/4% Notes were used to finance the redemption of the 14% Subordinated Debentures. Simultaneous with the sale of 8 1/4% Notes, the Company called the 14% Subordinated Debentures for redemption on March 4, 1994, at a redemption price equal to 105.4% of the outstanding principal amount of $135,000,000, plus accrued interest to the redemption date. The premium for early extinguishment of the 14% Subordinated Debentures and the accelerated amortization of deferred financing fees totaled approximately $10,718,000. This amount has been reflected as an extraordinary loss in the periods ending December 31, 1993. The deferred tax benefit related to this extraordinary loss was offset by a valuation allowance. (4) 1992 REFINANCING AND SALE OF COMMON STOCK On July 30, 1992, the Company sold $125,000,000 of 11 1/4% Senior Subordinated Notes (the "11 1/4% Notes") (Note 9). Fees and expenses related to issuance of the 11 1/4% Notes were approximately $5,032,000, including consulting and underwriting fees of $2,200,000 paid to Lehman Brothers Inc. and $50,000 paid to FIMA Finance Management, Inc., an affiliate of IFINT-USA Inc. ("FIMA"), for consulting fees. Simultaneous with the sale of the 11 1/4% Notes, the Company issued 121,212 shares of common stock to the four merchant banking partnerships affiliated with Lehman Brothers Inc. ("Lehman Funds") and FIMA, for total proceeds of approximately $20,000,000. Fees and expenses related to the sale were $400,000, paid to the Lehman Funds and FIMA. Certain management investors also purchased 2,551 shares of common stock previously held in treasury for approximately $421,000. On August 14, 1992, the Company redeemed the 14 1/4% Senior Subordinated Discount Notes (the "Discount Notes") at a redemption price equal to 103% of the outstanding principal amount of $85,000,000 plus accrued interest. The prepayment premium for early extinguishment of these notes and the accelerated 35 39 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) amortization of deferred financing fees totaled approximately $4,686,000 and have been reflected as an extraordinary loss in the year ended June 30, 1992. The deferred tax benefit related to this extraordinary loss was offset by a valuation allowance. A portion of the net proceeds from the sale of the 11 1/4% Notes and common stock described above were used to finance the redemption of the Discount Notes and to prepay $15,000,000 of the Domestic Term Loan. The balance of the proceeds was designated for temporary reduction of outstanding borrowings on the Domestic Revolving Credit Loan, expansion of the Company's operations and for general corporate purposes. (5) 1991 CAPITALIZATION AND RELATED TRANSACTIONS Capitalization Pursuant to a Stock Purchase Agreement dated September 27, 1991 (the "1991 Agreement"), the Company issued 454,545 shares of common stock to the Lehman Funds and FIMA, for total proceeds of approximately $75,000,000. Fees and expenses related to the sale and the transactions described below approximated $7,700,000, of which approximately $3,200,000 was charged to other expense and approximately $1,800,000 was capitalized as deferred financing fees. Such fees and expenses included $4,500,000 paid to Lehman Brothers. The Lehman Funds and FIMA also purchased all of the outstanding common stock and warrants owned by the Company's former majority owner, General Electric Capital Corporation ("GECC"), and certain other stockholders. Simultaneous with the sale of common stock, the Company obtained a $20,000,000 real estate mortgage from GECC. The net proceeds from the sale of common stock and the real estate mortgage were used to reduce outstanding borrowings on the Domestic Revolving Credit Loan by $32,000,000, to prepay the Domestic Term Loan by $48,500,000, and to purchase LS-Sweden (see discussion below). A write-off of deferred financing fees of $414,000 related to the prepayment of the Domestic Term Loan was recognized as an extraordinary loss in the consolidated statement of operations for the year ended June 30, 1992. The deferred tax benefit related to this extraordinary loss was offset by a valuation allowance. Assuming the sale of common stock and the retirement of debt had taken place on July 1, 1990, the Company's unaudited pro forma net loss per common share, which does not reflect the stock split (Note 18), for the year ended June 30, 1991 would have been $32.65. The pro forma results and the weighted average shares outstanding used to calculate the pro forma net loss per common share give effect to the reduced interest expense, net of related income taxes, and the increased number of shares that would have been outstanding from July 1, 1990 through June 30, 1991, respectively. The 1991 Agreement required the Company to make certain representations and warranties prior to the sale with respect to its tax position and title to the new shares. The Company is required to indemnify the parties to the Agreement for any aggregate losses, liabilities, claims or expenses arising from a breach of the aforementioned representations and warranties. Management is not currently aware of any information or condition which will require indemnification under the terms of the Agreement. Lear Seating Sweden, AB In October 1990, the Company entered into an agreement with Saab Automobile AB ("Saab") in which, effective January 1991, Saab agreed to purchase, and the Company agreed to supply, completely assembled seat modules on a just-in-time basis to Saab's production facilities located in Trollhattan, Sweden. The Company then established a Swedish subsidiary, Lear Seating Sweden, AB ("LS-Sweden"). 36 40 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In February 1991, the Company sold its investment in the common stock of LS-Sweden to GECC, then a major shareholder of the Company, for $100,000. The Company entered into an agreement with GECC to continue to manage the operations of LS-Sweden. GECC agreed to provide sufficient funds to LS-Sweden to finance the purchase of inventory and equipment from Saab at estimated book value of approximately $3,900,000 and to fund working capital requirements. In addition, GECC agreed to provide the Company with the right of first refusal in the event of sale, assignment, or transfer of substantially all of the assets or common stock of LS-Sweden. On September 27, 1991, and as part of the capitalization, the Company reacquired all common stock of LS-Sweden from GECC for $100,000. In addition, the Company repaid cumulative advances from GECC to LS-Sweden and related expenses in the aggregate amount of approximately $7,300,000. The sale and purchase transactions described above related to LS-Sweden's common stock are accounted for as transactions between entities under common control. Accordingly, the Company's consolidated financial statements include the balance sheet accounts and results of operations of LS-Sweden as if it were a subsidiary of the Company since its inception in January 1991. (6) ACQUISITIONS Acquisition of Certain Assets of the North American Seating Business of Ford Motor Company ("NAB") On November 1, 1993, the Company purchased certain assets of the Plastics and Trim Products Division of Ford Motor Company ("Ford") consisting of (i) the U.S. operations that supply seat trim and trimmed seat assemblies to Ford which are manufactured by Favesa, S.A. de C.V. ("Favesa"); (ii) all of the shares of Favesa, a maquiladora company located in Juarez, Mexico; and (iii) certain inventories and assets employed in the operation of Favesa (collectively referred as the "NAB"). In connection with this transaction, the Company and Ford entered into a long-term supply agreement for certain products produced by these operations at agreed upon prices. This acquisition was accounted for as a purchase, and accordingly, the operating results of the NAB have been included in the accompanying financial statements since the date of acquisition. The purchase price, after giving effect to an adjustment related to changes in NAB working capital, was financed and allocated to the purchased assets as follows (in thousands): Cash consideration paid to seller, net of cash acquired of $2,671........................................................... $170,727 Execution of promissory notes (Notes 8 and 9)...................... 10,500 Fees and expenses (including $500 paid to Lehman Brothers Inc.).... 1,338 -------- Total purchase price.......................................... $182,565 -------- -------- Property, Plant and Equipment...................................... $ 85,565 Net non-cash working capital....................................... 773 Other assets purchased and liabilities assumed, net................ (3,057) Goodwill........................................................... 99,284 -------- Total purchase price allocation............................... $182,565 -------- --------
The cash portion of the purchase price was financed with borrowings under the Company's domestic credit agreement (Note 9). The purchase price and related allocation may be revised in the next year based on revisions of preliminary estimates of fair values made at the date of purchase. Such changes are not expected to be significant. As part of the NAB Acquisition, the Company has exercised an option to cause Ford to purchase two facilities in consideration of Ford cancelling a $19,915,000 note payable (Note 8). The Company has 37 41 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) exercised this option, and the sale of these facilities is scheduled to occur on March 15, 1994. The Company will lease one of these facilities until the earlier of March 15, 1996 or the date it vacates this facility. Assuming the acquisition had taken place as of the beginning of each period presented, the consolidated pro forma results of operations of the Company would have been as follows, after giving effect to certain adjustments, including certain operations adjustments consisting principally of managements' estimates of the effects of product pricing adjustments negotiated in connection with the acquisition and incremental ongoing NAB engineering, overhead and administrative expenses, increased interest expense and goodwill amortization and the related income tax effects (Unaudited; in thousands, except per share data):
TWELVE MONTHS SIX MONTHS YEAR ENDED ENDED ENDED JUNE 30, 1993 DECEMBER 31, 1993 DECEMBER 31, 1993 ------------- ----------------- ----------------- Net sales........................................ $ 2,235,150 $ 2,361,422 $ 1,159,482 Income (loss) before extraordinary item.......... 26,580 5,058 (19,582) Net income (loss)................................ 26,580 (6,626) (31,266) Income per common share before extraordinary item........................................... 21.90 3.96 (18.20) Net income (loss) per common share............... 21.90 (5.28) (29.06)
The pro forma information above does not reflect the stock split (Note 18) and does not purport to be indicative of the results that actually would have been obtained if the operations were combined during the periods presented, and is not intended to be a projection of future results or trends. Acquisition of Central de Industrias, S.A. de C.V. ("CISA") From April 1991 through October 1991, the Company, through LS No. 50, acquired approximately 4,514,600 shares of the common stock of CISA for an aggregate purchase price of approximately $8,177,000, including related expenses. These shares represented approximately 38% of CISA's outstanding common stock. Prior to this purchase, the Company had owned approximately 61% of CISA's common stock, resulting in a total ownership interest of over 99%. These acquisitions were accounted for as purchases and the aggregate purchase price approximated the fair value of net assets acquired. Acquisition of Fair Haven Industries, Inc. In July 1990, the Company, through a subsidiary, acquired 9,600 newly issued shares of the common stock of Fair Haven Industries, Inc. ("FHI") for approximately $750,000, plus related expenses. The shares acquired represented approximately 49% of FHI's outstanding common stock. The Company also received an option to acquire an additional 2% of FHI common stock for nominal additional consideration and an irrevocable proxy to vote those shares, resulting in a controlling interest. The 2% option was exercised in December 1991. The acquisition was accounted for as a purchase. The excess of the purchase price over the fair value of net assets acquired was approximately $3,801,000 with the minority interest valued at zero. Subsequently, the Company determined that the excess purchase price of $3,801,000 was not realizable and recorded the amount as a charge against operating income in the year ended June 30, 1991. FHI has been included in the Company's consolidated financial statements for all periods presented. In August 1993, the Company reached a settlement with the former owners of FHI in which the Company agreed to purchase the remaining 49% of FHI's common stock and release all claims against the former owners arising from the July 1990 purchase. The settlement amount, plus related legal costs, was not significant and was charged to operating income in the year ended June 30, 1993. 38 42 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (7) INVESTMENTS IN AFFILIATES The investments in affiliates are as follows:
PERCENT BENEFICIAL OWNERSHIP ----------------------------------- JUNE 30, DECEMBER -------------------- 31, 1991 1992 1993 1993 ---- ---- ---- ----------- General Seating of America, Inc.................. 35% 35% 35% 35% General Seating of Canada, Ltd................... 35 35 35 35 Pacific Trim Corporation Ltd. (Thailand)......... 20 20 20 20 Probel, S.A. (Brazil)............................ 31 31 31 31 Moldeados Interiores, S.A. de C.V................ 38 -- -- --
The above businesses are generally involved in the manufacture of automotive seating and seating components. Investments in General Seating of America, Inc., General Seating of Canada, Ltd., and Pacific Trim Corporation Ltd. are accounted for using the equity method. In June 1993, the Company revalued its investment in Probel, which was previously accounted for using the cost method, to zero due to continued operating losses and other factors impacting its potential recoverability. A charge of approximately $1,700,000 was recorded and is reflected in equity income of affiliates in the consolidated statement of operations in the year ended June 30, 1993 and the twelve months ended December 31, 1993. The investment in Moldeados Interiores, S.A. de C.V. was accounted for using the equity method until its sale in July 1991. The gain recognized on this sale was not material. The aggregate investment in affiliates was $6,379,000, $4,756,000 and $4,593,000 as of June 30, 1992, June 30, 1993 and December 31, 1993, respectively. Dividends of approximately $930,000 and $985,000 were received by the Company in the years ended June 30, 1992 and 1993, respectively, from General Seating of Canada, Ltd. No other dividends were received by the Company from affiliates during 1991, 1992 or 1993. 39 43 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Summarized group financial information for affiliates accounted for under the equity method is as follows (unaudited, in thousands):
JUNE JUNE DECEMBER 30, 30, 31, 1992 1993 1993 ------- ------- ----------- Balance sheet data: Current assets................................ $19,032 $17,004 $18,277 Non-current assets............................ 15,154 13,717 14,081 Current liabilities........................... 18,847 16,757 14,478 Non-current liabilities....................... 5,700 5,700 5,700
TWELVE MONTHS SIX MONTHS YEAR ENDED JUNE 30, ENDED ENDED -------------------------------- DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 -------- -------- -------- ------------- ------------ Income statement data: Net sales.......................... $114,705 $129,220 $119,837 $ 122,448 $ 58,399 Gross profit....................... 17,541 19,335 13,001 12,593 4,915 Income before provision for income taxes........................... 8,491 11,643 10,833 7,317 2,347 Net income......................... 7,926 8,246 6,566 5,031 1,409
The Company had sales to affiliates of approximately $10,393,000, $11,787,000, $10,711,000, $11,123,000 and $5,315,000 for the years ended June 30, 1991, 1992 and 1993, and for the twelve and six months ended December 31, 1993, respectively. Included in the Company's accounts receivable are trade receivables from affiliates of approximately $1,056,000, $878,000 and $936,000 at June 30, 1992, June 30, 1993 and December 31, 1993, respectively. The Company has guaranteed certain obligations of its affiliates. The Company's share of amounts outstanding under guaranteed obligations as of June 30, 1992, June 30, 1993 and December 31, 1993 amounted to $3,484,000, $3,224,000 and $6,253,000, respectively. (8) SHORT-TERM BORROWINGS Short-term borrowings are comprised of the following (in thousands):
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993 ------------- ------------- ----------------- Lines of credit..................................... $11,982 $ 1,211 $18,152 Unsecured notes payable -- Ford Motor Company, non-interest bearing.......... -- -- 9,300 Ford Motor Company, 11 1/2% (Note 6).............. -- -- 19,915 Trade acceptance payable, 7 1/4%.................... -- -- 788 ------------- ------------- ----------------- $11,982 $ 1,211 $48,155 ------------- ------------- ----------------- ------------- ------------- -----------------
At December 31, 1993, the Company has lines of credit available with banks of approximately $69,190,000, subject to certain restrictions imposed by the credit agreement (Note 9). Short-term bank 40 44 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) borrowings, in U.S. dollar equivalents, based on the amounts outstanding at the end of each month were as follows for the indicated period (in thousands):
YEAR ENDED JUNE 30, TWELVE MONTHS SIX MONTHS ----------------------------- ENDED ENDED 1991 1992 1993 DECEMBER 31, 1993 DECEMBER 31, 1993 ------- ------- ------- ----------------- ----------------- Maximum amount outstanding at any month-end....................... $21,119 $18,092 $16,260 $18,152 $18,152 Average amount outstanding........ 12,540 15,394 8,198 6,908 7,362 Weighted average interest rate at end of period................... 16.9% 8.7% 8.6% 6.3% 6.3% Weighted average interest rate during the period............... 16.3% 13.2% 9.9% 6.0% 6.9%
(9) LONG-TERM DEBT Long-term debt is comprised of the following (in thousands):
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993 ------------- ------------- ----------------- Senior Debt: Term loans -- Domestic....................................... $ 51,300 $ 33,550 $ -- Canadian....................................... 50,000 -- -- German......................................... 9,887 8,827 7,592 ------------- ------------- ----------------- 111,187 42,377 7,592 ------------- ------------- ----------------- Revolving credit loans -- Domestic....................................... 16,662 -- 230,700 Canadian....................................... 7,468 -- -- ------------- ------------- ----------------- 24,130 -- 230,700 ------------- ------------- ----------------- Mortgage payable.................................. 20,000 20,000 -- ------------- ------------- ----------------- 155,317 62,377 238,292 Less -- Current portion................... (26,986) (1,261) (1,168) ------------- ------------- ----------------- 128,331 61,116 237,124 ------------- ------------- ----------------- Subordinated Debt: 14 1/4% Senior Subordinated Discount Notes (Note 4)............................................. 85,000 -- -- 11 1/4% Senior Subordinated Notes (Note 4)........ -- 125,000 125,000 14% Subordinated Debentures (Note 3).............. 135,000 135,000 135,000 ------------- ------------- ----------------- 220,000 260,000 260,000 ------------- ------------- ----------------- Note Payable........................................ -- -- 1,200 ------------- ------------- ----------------- $ 348,331 $ 321,116 $ 498,324 ------------- ------------- ----------------- ------------- ------------- -----------------
In October 1993, the Company amended and restated its existing credit agreement with a syndicate of banks. The new $425 million revolving credit facility (the "Credit Agreement") enabled the Company to replace the existing Domestic Term Loan and Domestic Revolving Credit Facility, finance the cash portion of the NAB Acquisition (Note 6) and retire an existing $20 million mortgage payable. The accelerated amortization of deferred financing fees related to the previous Domestic Term Loan and Domestic Revolving Credit Facility and the mortgage payable totaled approximately $1,464,000. This amount, net of the related tax benefit of $498,000, has been reflected as an extraordinary loss in the periods ending December 31, 1993. 41 45 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In connection with this transaction, the Company paid $500,000 to Lehman Brothers for consulting fees. In addition, Lehman Commercial Paper, Inc., an affiliate of the Lehman Funds, is a managing agent of the Credit Agreement and received fees of $666,000. Loans under the Credit Agreement bear interest at the Eurodollar rate plus 3/4% to 1 1/2% or prime rate plus 0% to 1/2%, depending on the satisfaction of certain financial ratios. The Company pays a commitment fee on the unused balance of the facility of 3/8% to 1/2%, depending on certain ratios. At December 31, 1993, interest was being charged at the Eurodollar rate plus 1 1/2% and the commitment fee is 1/2%. Amounts available to be drawn under the Credit Agreement will decrease by $40 million on each of October 31, 1996, April 29, 1997, October 31, 1997 and April 29, 1998. The facility expires on October 31, 1998. The German Term Loan bears interest at a stated rate of 9.125%, is payable in Deutschemarks in quarterly installments of approximately $292,000 through March 2000, and is collateralized by certain assets of a German subsidiary. The Canadian Revolving Credit Loan bears interest at the prime rate plus 1/2%, is payable in September 1994, with an option to extend through September 1995 with the consent of the lending banks, and is guaranteed by letters of credit issued under the Credit Agreement. The Company had available unused long-term revolving credit commitments of $157,454,000 at December 31, 1993, net of $36,846,000 of outstanding letters of credit. Borrowings on revolving credit loans were $665,594,000, $737,839,000, $549,208,000, $986,308,000 and $820,519,000 for the years ended June 30, 1991, 1992 and 1993 and the twelve and six months ended December 31, 1993, respectively. Repayments on revolving credit loans were $656,642,000, $748,123,000, $573,338,000, $760,796,000 and $589,819,000 for the years ended June 30, 1991, 1992 and 1993 and the twelve and six months ended December 31, 1993, respectively. The weighted average interest rates on the Senior Debt as of June 30, 1992, June 30, 1993 and December 31, 1993 were 7.3%, 7.5% and 5.1%, respectively. The 11 1/4% Senior Subordinated Notes, due in 2000, require payments of interest semi-annually. The 14% Subordinated Debentures were redeemed subsequent to December 31, 1993 in connection with the refinancing (Note 3). The Credit Agreement and Subordinated Debt Agreements contain numerous restrictive covenants. The most restrictive of these covenants are financial covenants related to maintenance of certain levels of net worth, operating profit and interest coverage. The financial covenants generally become more restrictive with the passage of time. These agreements also, among other things, significantly restrict the Company's ability to incur additional indebtedness, declare dividends, make investments and advances, sell assets and limit capital expenditures to specified amounts. The German Term Loan agreement also contains certain restrictive covenants. As of December 31, 1993, the Company is unable to declare dividends. Loans under the Credit Agreement and the German Term Loan are collectively collateralized by substantially all assets of the Company. The scheduled maturities of long-term debt at December 31 for the five succeeding years before consideration of the refinancing described in Note 3 are as follows (in thousands): 1994............................................................... $ 1,168 1995............................................................... 2,368 1996............................................................... 1,168 1997............................................................... 1,168 1998............................................................... 265,618
42 46 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (10) NATIONAL INCOME TAXES A summary of income (loss) before provision for national income taxes and components of the provision for national income taxes for the indicated periods is as follows (in thousands):
TWELVE SIX MONTHS MONTHS YEAR ENDED JUNE 30, ENDED ENDED ------------------------------- DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 -------- -------- ------- ------------ ------------ Income (loss) before provision for national income taxes, minority interests in net income of subsidiaries, equity income of affiliates and extraordinary item: Domestic............ $(47,302) $(19,964) $ 6,759 $ (3,433) $(15,105) Foreign............. 27,005 13,480 21,661 29,531 5,809 -------- -------- ------- ------------ ------------ $(20,297) $ (6,484) $28,420 $ 26,098 $ (9,296) -------- -------- ------- ------------ ------------ -------- -------- ------- ------------ ------------ Domestic provision for national income taxes: Current provision... $ -- $ 2,146 $ 6,873 $ 7,442 $ 5,404 -------- -------- ------- ------------ ------------ Deferred -- Deferred provision...... 958 2,603 1,481 904 943 Tax benefit of net operating losses carried back........... (6,119) -- -- -- -- Benefit of previously unbenefitted net operating loss carryforwards... -- -- (2,446) (2,953) (1,613) -------- -------- ------- ------------ ------------ (5,161) 2,603 (965) (2,049) (670) -------- -------- ------- ------------ ------------ Foreign provision for national income taxes: Current provision... 21,006 12,494 17,449 22,477 9,739 -------- -------- ------- ------------ ------------ Deferred -- Deferred provision...... 242 (2,123) (1,725) (1,006) (1,006) Adjustment due to changes in enacted tax rates.......... -- -- (993) -- -- Tax benefit of operating losses......... (2,068) (2,152) (2,792) -- -- -------- -------- ------- ------------ ------------ (1,826) (4,275) (5,510) (1,006) (1,006) -------- -------- ------- ------------ ------------ Provision for national income taxes........... $ 14,019 $ 12,968 $17,847 $ 26,864 $ 13,467 -------- -------- ------- ------------ ------------ -------- -------- ------- ------------ ------------
43 47 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The differences between the United States Federal statutory income tax rate of 35% for the periods ended December 31, 1993 and 34% for the years ended June 30, 1991, 1992 and 1993 and the consolidated effective national income tax rate for the periods indicated are summarized as follows (in thousands):
TWELVE MONTHS SIX MONTHS YEAR ENDED JUNE 30, ENDED ENDED ----------------------------- DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 ------- ------- ------- ------------- ------------ Income (loss) before provision for national income taxes, minority interests in net income of subsidiaries, equity income of affiliates and extraordinary item multiplied by the United States Federal statutory rate......................... $(6,901) $(2,205) $ 9,663 $ 9,135 $ (3,254) Utilization of domestic net operating loss carryforwards..................... -- -- (2,446) (2,953) (1,613) Differences between domestic and effective foreign tax rates............ 9,999 3,636 901 3,664 2,420 Operating losses not tax benefitted...... 6,663 8,562 3,674 4,850 4,280 Increase in valuation allowance.......... -- -- 426 8,775 10,850 Domestic income taxes provided on foreign earnings............................... -- -- 1,564 875 70 Amortization of goodwill................. 4,259 2,974 3,246 3,344 1,531 Other, net............................... (1) 1 819 (826) (817) ------- ------- ------- ------------- ------------ $14,019 $12,968 $17,847 $26,864 $ 13,467 ------- ------- ------- ------------- ------------ ------- ------- ------- ------------- ------------
Deferred national income taxes represent temporary differences in the recognition of certain items for income tax and financial reporting purposes. The components of the net deferred national income tax liability are summarized as follows (in thousands):
JUNE 30, JUNE 30, DECEMBER 31, 1992 1993 1993 -------- -------- ------------ Deferred national income tax liabilities: Depreciation and basis difference.......... $ 28,165 $ 18,837 $ 13,788 Financing and intercompany transactions.... 9,348 9,855 9,663 Taxes provided on unremitted foreign earnings................................ 2,346 1,930 6,054 Benefit plans.............................. -- 1,234 1,264 Other...................................... 1,440 1,740 2,646 -------- -------- ------------ $ 41,299 $ 33,596 $ 33,415 -------- -------- ------------ -------- -------- ------------
44 48 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, JUNE 30, DECEMBER 31, 1992 1993 1993 -------- -------- ------------ Deferred national income tax assets: Tax credit carryforwards................... $(18,105) $(18,105) $(23,671) Tax loss carryforwards..................... (7,187) (13,203) (17,082) Benefit plans.............................. (3,676) (4,645) (6,153) Accruals................................... (3,306) (3,654) (5,435) Deferred financing fees.................... (2,922) (1,640) (4,742) Minimum pension liability adjustment....... (1,563) (1,962) (1,784) Alternative minimum tax carryforward....... (1,242) (1,053) (432) Deferred compensation...................... (1,324) (1,324) (7,640) Other...................................... (413) (1,398) (1,290) -------- -------- ------------ (39,738) (46,984) (68,229) Valuation allowance.......................... 24,209 30,108 51,454 -------- -------- ------------ (15,529) (16,876) (16,775) -------- -------- ------------ Net deferred national income tax liability... $ 25,770 $ 16,720 $ 16,640 -------- -------- ------------ -------- -------- ------------
The net deferred national income tax liability includes deferred tax assets of $2,173,000, $81,000 and $58,000 as of June 30, 1992, June 30, 1993 and December 31, 1993, respectively, and a deferred tax liability of $1,551,000, $1,265,000 and $1,561,000 as of June 30, 1992, June 30, 1993 and December 31, 1993, respectively, which have been classified as current in the consolidated balance sheets and a deferred tax asset of $752,000 as of December 31, 1993, which has been classified as long-term in the consolidated balance sheet. Deferred national income taxes and withholding taxes have been provided on earnings of the Company's Canadian subsidiary to the extent it is anticipated that the earnings will be remitted in the form of future dividends. Deferred national income taxes and withholding taxes have not been provided on the undistributed earnings of the Company's European and Mexican subsidiaries as such amounts are deemed to be permanently reinvested. The cumulative undistributed earnings at December 31, 1993 on which the Company had not provided additional national income taxes and withholding taxes were approximately $19,942,000. In June 1993, the Company settled with the Canadian taxing authorities on the open issues relating to its Canadian tax returns through 1989. In addition, a settlement was reached with Revenue Canada regarding treatment of certain items relating to the Company's financing subsidiaries. The expense related to these settlements was provided by the Company prior to the year ended June 30, 1993, and did not have a material effect on the Company's results of operations or financial position. As of December 31, 1993 the Company had a net operating loss carryforward for United States income tax return purposes of approximately $1,039,000, subject to certain limitations, expiring in the year 2006. In addition, two European subsidiaries had net operating loss carryforwards for tax return purposes totalling approximately $31,500,000, which have no expiration date, and FHI had a net operating loss carryforward of approximately $7,200,000, expiring in 2007. The foreign tax credit carryforwards expire in 1994 through 1996. (11) RETIREMENT PLANS The Company has noncontributory defined benefit pension plans covering substantially all domestic employees and certain employees in foreign countries. The Company's salaried plans provide benefits based on a career average earnings formula. Hourly pension plans provide benefits under flat benefit formulas. The Company also has a contractual arrangement with a key employee which provides for supplemental retirement benefits. In general, the Company's policy is to fund these plans based on legal requirements, tax considerations, and local practices. 45 49 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Components of the Company's pension expense include the following for the periods indicated (in thousands):
TWELVE MONTHS SIX MONTHS YEAR ENDED JUNE 30, ENDED ENDED ----------------------------- DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 ------- ------- ------- ------------- ------------ Service cost...................................... $ 2,229 $ 2,921 $ 3,096 $ 3,466 $ 1,918 Interest cost on projected benefit obligation..... 5,309 6,211 5,908 6,142 3,188 Actual return on assets........................... (2,942) (4,894) (6,618) (7,847) (4,538) Net amortization and deferral..................... (1,886) 471 1,785 3,131 2,238 ------- ------- ------- ------------- ------------ Net pension expense............................... $ 2,710 $ 4,709 $ 4,171 $ 4,892 $ 2,806 ------- ------- ------- ------------- ------------ ------- ------- ------- ------------- ------------
The following table sets forth a reconciliation of the funded status of the Company's defined benefit pension plans to the related amounts recorded in the consolidated balance sheets (in thousands):
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993 ---------------------------- ---------------------------- ---------------------------- PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE ASSETS EXCEED ABO EXCEEDS ASSETS EXCEED ABO EXCEEDS ASSETS EXCEED ABO EXCEEDS ABO ASSETS ABO ASSETS ABO ASSETS ------------- ----------- ------------- ----------- ------------- ----------- Actuarial present value of: Vested benefit obligation.... $11,393 $47,570 $13,946 $48,001 $11,938 $ 58,076 Non-vested benefit obligation................. 42 2,171 809 1,908 77 3,139 ------------- ----------- ------------- ----------- ------------- ----------- Accumulated benefit obligation (ABO)........................ 11,435 49,741 14,755 49,909 12,015 61,215 Effects of anticipated future compensation increases....... 983 8,366 9,135 883 1,075 10,097 ------------- ----------- ------------- ----------- ------------- ----------- Projected benefit obligation... 12,418 58,107 23,890 50,792 13,090 71,312 Plan assets at fair value...... 16,952 36,674 21,942 36,034 18,317 42,833 ------------- ----------- ------------- ----------- ------------- ----------- Projected benefit obligation in excess of (less than) plan assets....................... (4,534) 21,433 1,948 14,758 (5,227) 28,479 Unamortized net loss........... (3,027) (6,838) (2,946) (4,943) (1,270) (12,461) Unrecognized prior service cost......................... -- 165 641 (2,041) (20) (1,065) Unamortized net asset (obligation) at transition... 5,047 (1,922) 4,039 (1,413) 4,001 (1,580) Adjustment required to recognize minimum liability.................... -- 6,545 -- 7,601 -- 11,105 ------------- ----------- ------------- ----------- ------------- ----------- Accrued pension (asset) liability recorded in the consolidated balance sheets....................... $(2,514) $19,383 $ 3,682 $13,962 $(2,516) $ 24,478 ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------- ------------- -----------
46 50 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The actuarial assumptions used in determining pension expense and the funded status information shown above were as follows:
TWELVE MONTHS SIX MONTHS YEAR ENDED JUNE 30, ENDED ENDED --------------------- DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 ---- ---- ---- ------------- ------------ Discount rate: Domestic plans.............................. 8% 8% 8% 7.5-8% 7.5-8% Foreign plans............................... 10% 9% 7-9% 7-9% 7-8% Rate of salary progression: Domestic plans.............................. 6% 6% 6% 6% 6% Foreign plans............................... 4% 1-5% 3-5% 3-5% 3-5% Long-term rate of return on assets: Domestic plans.............................. 9% 9% 9% 9% 9% Foreign plans............................... 10% 9% 9% 8-9% 8%
Plan assets include cash equivalents, common and preferred stock, and government and corporate debt securities. Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," required the Company to record a minimum liability as of June 30, 1992, June 30, 1993 and December 31, 1993. As of December 31, 1993, the Company recorded a long-term liability of $11,105,000, an intangible asset of $5,157,000, which is included with other assets, and a reduction in stockholders' equity of $4,164,000, net of income taxes of $1,784,000. The Company also sponsors defined contribution plans and participates in Government sponsored programs in certain foreign countries. Contributions are determined as a percentage of each covered employee's salary. The Company also participates in multi-employer pension plans for certain of its hourly employees and contributes to those plans based on collective bargaining agreements. The aggregate cost of the defined contribution and multi-employer pension plans charged to operations was $1,001,000, $1,093,000, $1,335,000, $1,712,000 and $1,002,000 for the years ended June 30, 1991, 1992 and 1993 and the twelve and six months ended December 31, 1993, respectively. (12) POST-RETIREMENT BENEFITS On July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers Accounting for Post-retirement Benefits Other Than Pensions" for its domestic plans. This standard, which must be adopted for foreign plans no later than 1995, requires that the expected cost of post- retirement benefits be charged to expense during the years in which the employees render service to the Company. The Company's domestic post-retirement plans generally provide for the continuation of medical benefits for all employees who complete 10 years of service after age 45 and retire from the Company at age 55 or older. The Company does not fund its post-retirement benefit obligation. Rather, payments are made as costs are incurred by covered retirees. As of July 1, 1993, the Company's accumulated post-retirement benefit obligation was approximately $31,925,000. Because the Company had previously recorded a liability of $6,277,000 related to these benefits, the net transition obligation, which will be amortized over 20 years, was $25,648,000. The following table sets forth a reconciliation of the funded status of the accrued post-retirement benefits liability to the related 47 51 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) amounts recorded in the financial statements as of December 31, 1993, excluding the amounts related to the acquisition of the NAB as discussed below (in thousands): Accumulated Post-retirement Benefit Obligation ("APBO"): Retirees......................................................... $ 10,776 Fully eligible active plan participants.......................... 4,051 Other active participants........................................ 19,783 Unamortized Transition Obligation.................................. (25,007) -------- Liability Recorded in the Balance Sheet (includes current liability of $675)......................................................... $ 9,603 -------- --------
Components of the Company's post-retirement benefit expense based upon an adoption date of July 1, 1993 for the indicated periods were as follows (in thousands):
YEAR SIX MONTHS ENDED ENDED DECEMBER 31, DECEMBER 31, 1993 1993 ------------ ------------ Service cost......................................... $1,719 $1,719 Interest cost on APBO................................ 1,313 1,313 Amortization of transition obligation................ 641 641 ------------ ------------ Net post-retirement benefit expense.................. $3,673 $3,673 ------------ ------------ ------------ ------------
The APBO as of December 31, 1993 was calculated using an assumed discount rate of 7.5%. Health care costs were assumed to rise 13.8% in 1994, with the assumed rate increase decreasing by 1% per year to a minimum of 6.4% in 2008. To illustrate the significance of these assumptions, a rise in the assumed rate of health care cost increases of 1% each year would increase the APBO as of December 31, 1993 by $4,702,000 and increase the net post-retirement benefit expense by $577,000 for the six months ended December 31, 1993. In connection with the acquisition of the NAB (Note 6) the Company assumed certain post-retirement obligations. Accordingly, a liability for the estimated APBO of $965,000 was recorded in purchase accounting. Prior to July 1, 1993, post-retirement benefit costs were expensed as incurred. Benefit payments were approximately $1,076,000, $883,000, $826,000, $758,000 and $400,000 for the years ended June 30, 1991, 1992 and 1993 and for the twelve and six months ended December 31, 1993. In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers Accounting for Post-Employment Benefits." This statement requires that employers accrue the cost of post-employment benefits during the employees' active service. The Company will adopt this statement effective January 1, 1994. The Company believes that the adoption of this statement will not have a material effect on its financial position of results of operations. (13) COMMITMENTS AND CONTINGENCIES The Company is the subject of various lawsuits, claims and environmental contingencies. In addition, the Company has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("Superfund"), for the cleanup of contamination from hazardous substances at three Superfund sites, and may incur indemnification obligations for cleanup at two additional sites. In the opinion of management, the expected liability resulting from these matters is adequately covered by amounts accrued, and will not have a material adverse effect on the Company's consolidated financial position or future results of operations. Two of the Company's European subsidiaries factor their accounts receivable with a bank subject to limited recourse provisions and are charged a discount fee equal to the current LIBOR rate plus 1%. The 48 52 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) amount of such factored receivables, which was not included in accounts receivable in the consolidated balance sheet at December 31, 1993, was approximately $38,485,000. Lease commitments at December 31, 1993 under noncancelable operating leases with terms exceeding one year are as follows (in thousands):
1994................................................................ $15,802 1995................................................................ 13,300 1996................................................................ 8,987 1997................................................................ 7,666 1998................................................................ 6,905 1999 and thereafter................................................. 41,233 ------- Total............................................................. $93,893 ------- -------
The Company's operating leases cover principally buildings and transportation equipment. Rent expense incurred under all operating leases and charged to operations was $4,760,000, $8,598,000, $11,573,000, $12,599,000 and $6,529,000 for the years ended June 30, 1991, 1992 and 1993 and the twelve and six months ended December 31, 1993, respectively. In January 1992, the Company entered into an agreement with Volvo Personvagnar AB ("Volvo") to either purchase or cause a third party to purchase certain real property from Volvo. From January 1, 1992 until September 1992, the Company accounted for the transaction as a financing lease. In September 1992, the City of Bengtsfors, Sweden purchased this property from Volvo and subsequently leased it to LS-Sweden for a term of 15 years. The lease with the City of Bengtsfors requires quarterly lease payments of approximately $500,000, and is accounted for as an operating lease. These payments are included in the table above. (14) WARRANTS, STOCK OPTIONS AND COMMON STOCK SUBJECT TO REDEMPTION Warrants In 1988, the Company sold warrants exercisable into 100,000 shares of common stock. The warrants, which entitle the holder to receive one share of common stock for no additional consideration, became exercisable on December 1, 1993. None of the warrants have been exercised as of December 31, 1993. 1988 Stock Option Plan At December 31, 1993, 64,584 options granted under a stock option plan dated September 29, 1988 were issued and outstanding. The options vested over a three-year period and are currently exercisable at $42.50 per share. The difference between the exercise price and the market value at the date of grant was amortized to expense over the vesting period. 1992 Stock Option Plan Under the 1992 stock option plan, the Company may grant up to 58,000 stock options to the management investors and certain other management personnel. During fiscal 1993, the Company granted 41,700 of these options. On December 31, 1993, the remaining 16,300 options under this plan were granted. Pursuant to a plan amendment effective December 31, 1993, all of the options became immediately vested and will generally become exercisable at $165 per share on September 28, 1996, or sooner in the case of certain triggering events. Stock option expense for the six months and twelve months ended December 31, 1993 was approximately $14,474,000, and is included in incentive stock and other compensation expense in the accompanying statements of operations. The expense recognized reflects the immediate vesting of the previously unvested 49 53 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) options on December 31, 1993, based on the estimated market value of the common stock of the Company of $450 per share. In addition to the stock option expense, incentive stock and other compensation expense in the accompanying statements of operations includes $3,542,000 in special management bonuses approved by the Board of Directors as of December, 1993. The changes in the number of options outstanding for the periods indicated are as follows:
TWELVE MONTHS SIX MONTHS YEAR ENDED JUNE 30, ENDED ENDED ------------------------- DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 ------ ------ ------- ------------- ------------ Options outstanding at beginning of period..................... 67,642 69,996 64,584 106,284 106,284 Options Granted............... 2,942 -- 41,700 16,300 16,300 Options Revoked............... 588 5,412 -- -- -- ------ ------ ------- ------------- ------------ Options outstanding at end of period........................ 69,996 64,584 106,284 122,584 122,584 ------ ------ ------- ------------- ------------ ------ ------ ------- ------------- ------------
Under the terms of the Stockholders' and Registration Rights Agreement, shares of common stock held by certain management investors are subject to redemption at the option of the holder in the event of death, disability and certain events of termination, as defined in the agreement. In such event, the redemption price is the higher of cost or fair market value, as defined, as of the date of the exercise of the option. Shares subject to such a redemption option at December 31, 1993 total 30,001, distributed among 33 investors (Note 18). Because no public market exists for the common stock of the Company and no fair market value appraisal of the common stock had been performed, shares subject to limited rights of redemption were stated at cost of $100 per share as of June 30, 1991. At June 30, 1992 and June 30, 1993, these shares were stated at $165 per share, representing the maximum estimated fair market value of the stock based on the price per share in the September 1991 capitalization transaction (Note 5) and the sale of common stock in July 1992 (Note 4). At December 31, 1993, the shares are stated at $450 per share, representing an estimated market value of the common stock of the Company. In the accompanying consolidated balance sheets, common stock subject to redemption is stated net of the related notes receivable from sale of common stock. 50 54 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (15) GEOGRAPHIC SEGMENT DATA Worldwide operations are divided into four geographic segments -- United States, Canada, Europe and Mexico. The European geographic segment includes operations in Austria, Finland, France, Germany, Sweden and the United Kingdom. Geographic segment information is as follows (in thousands):
TWELVE SIX MONTHS MONTHS YEAR ENDED JUNE 30, ENDED ENDED ------------------------------------ DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 ---------- ---------- ---------- ------------ ------------ Net sales: United States....... $ 490,611 $ 684,979 $ 847,133 $1,060,555 $ 587,064 Canada.............. 360,705 427,457 389,924 397,488 179,695 Europe.............. 145,540 268,175 434,146 407,488 191,844 Mexico.............. 128,880 173,383 203,218 208,647 106,410 Intersegment sales............ (40,417) (131,254) (117,911) (123,890) (59,795) ---------- ---------- ---------- ------------ ------------ $1,085,319 $1,422,740 $1,756,510 $1,950,288 $1,005,218 ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ------------ ------------ Operating Income: United States....... $ 6,181 $ 32,002 $ 51,752 $ 61,283 $ 27,081 Canada.............. 35,303 14,695 15,308 25,628 12,128 Europe.............. (3,667) 2,952 (3,907) (9,668) (7,608) Mexico.............. 8,206 7,172 17,900 20,326 8,213 Unallocated(a)...... (1,353) 12 -- (18,016) (18,016) ---------- ---------- ---------- ------------ ------------ $ 44,670 $ 56,833 $ 81,053 $ 79,553 $ 21,798 ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ------------ ------------ Identifiable Assets: United States....... $ 341,676 $ 350,694 $ 369,982 $ 679,686 $ 679,686 Canada.............. 209,813 197,371 200,195 180,144 180,144 Europe.............. 112,982 179,482 181,077 170,838 170,838 Mexico.............. 53,525 64,572 59,130 68,249 68,249 Unallocated(b)...... 11,674 7,765 9,825 14,377 14,377 ---------- ---------- ---------- ------------ ------------ $ 729,670 $ 799,884 $ 820,209 $1,113,294 $1,113,294 ---------- ---------- ---------- ------------ ------------ ---------- ---------- ---------- ------------ ------------
- ------------------------- (a) Unallocated Operating Income consists of incentive stock option and other compensation (Note 14). (b) Unallocated Identifiable Assets consist of deferred financing fees. The net assets of foreign subsidiaries were $169,461,000, $236,019,000, $215,255,000 and $231,691,000 at June 30, 1991, 1992 and 1993 and December 31, 1993, respectively. The Company's share of foreign net income (loss) was $8,438,000, $7,544,000, $8,508,000, $6,034,000 and $(2,412,000) for the years ended June 30, 1991, 1992 and 1993 and for the twelve and six months ended December 31, 1993, respectively. A majority of the Company's sales are to automobile manufacturing companies. The following is a summary of the percentage of net sales to major customers:
TWELVE MONTHS SIX MONTHS YEAR ENDED JUNE 30, ENDED ENDED -------------------- DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 ---- ---- ---- ------------- ------------ General Motors Corporation.......... 51% 52% 48% 45% 42% Ford Motor Company.................. 26 22 22 28 33
51 55 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition, a significant portion of remaining sales are to the above automobile manufacturing companies through various other automotive suppliers or to affiliates of these automobile manufacturing companies. The majority of the Company's accounts receivable are due from the customers listed above. (16) QUARTERLY FINANCIAL DATA (UNAUDITED)(A)
THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS ENDED ENDED ENDED ENDED SEPTEMBER 28, DECEMBER 28, MARCH 28, JUNE 30, 1991 1991 1992 1992 ------------- -------------- -------------- -------------- Net sales................ $ 284,431 $359,725 $339,233 $439,351 Gross profit............. 17,761 27,164 25,244 45,472 Income (loss) before extraordinary item..... (14,689) 926 (4,667) 1,300 Net income (loss)........ (15,103) 926 (4,667) (3,386) Income (loss) before extraordinary item per common share........... $(28.94) $.84 $(4.90) $1.37 Net income (loss) per common share........... $(29.76) $.84 $(4.90) $(3.56)
FOURTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS ENDED ENDED ENDED ENDED OCTOBER 3, JANUARY 2, APRIL 3, JUNE 30, 1992(B) 1993(B) 1993 1993 -------------- -------------- -------------- -------------- Net sales............... $359,136 $452,304 $458,022 $487,048 Gross profit............ 21,415 33,104 40,224 57,756 Income (loss) before extraordinary item.... (12,291) 1,520 6,120 14,765 Net income (loss)....... (12,291) 1,520 6,120 14,765 Income (loss) before extraordinary item per common share.......... $(11.86) $1.24 $5.00 $12.06 Net income (loss) per common share.......... $(11.86) $1.24 $5.00 $12.06
THIRTEEN WEEKS THIRTEEN WEEKS ENDED ENDED OCTOBER 2, DECEMBER 31, 1993 1993 -------------- -------------- Net sales.......................................... $399,066 $606,152 Gross profit....................................... 21,827 50,408 Income (loss) before extraordinary item............ (10,829) (12,203) Net income (loss).................................. (11,364) (23,352) Income (loss) before extraordinary item per common share............................................ $(10.08) $(11.34) Net income (loss) per common share................. $(10.56) $(21.71)
- ------------------------- (a) Dollar amounts are in thousands, except per share data. (b) The provision for national income taxes for the fourteen weeks ended October 3, 1992 and the thirteen weeks ended January 2, 1993 were approximately $1,687,000 and $2,763,000, respectively. 52 56 LEAR SEATING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (17) FINANCIAL INSTRUMENTS The Company hedges certain foreign currency risks through the use of forward foreign exchange contracts and options. Such contracts are deemed as and are effective as hedges of the related transactions. As such, gains and losses from these contracts are deferred and are recognized on the settlement date, consistent with the related transactions. As of December 31, 1993, the Company and its subsidiaries have contracted to exchange up to $107,000,000 U.S. for fixed amounts of Canadian dollars. In addition, the Company and its subsidiaries have contracted to purchase 4,000,000 British Pounds for fixed amounts of German Marks. The contracts mature during 1994. The historical cost of certain of the Company's financial instruments varies from the fair values of these instruments. The instruments listed below have fair values which differ significantly from their carrying values. The carrying values of all other financial instruments approximate the fair values of such instruments.
ITEM CARRYING VALUE FAIR VALUE -------------------------------------------------- -------------- ------------ German Term Loan.................................. $ 7,592,000 $ 8,869,000 Senior Subordinated Notes......................... 125,000,000 136,250,000 Subordinated Debentures........................... 135,000,000 143,100,000
Fair values of financial instruments were determined as follows: Cash, Accounts Receivable, Accounts Payable and Notes Payable -- Fair values were estimated to be equal to carrying values because of the short-term, highly liquid nature of these instruments. Senior Indebtedness -- Fair values were determined based on rates currently available to the Company for similar borrowings of the same maturities. Subordinated Debt -- Fair values were determined by reference to market prices of the securities in recent public transactions. (18) STOCK SPLIT, INITIAL PUBLIC OFFERING AND AMENDMENT TO STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT -- SUBSEQUENT EVENTS On March 2, 1994, the Company's Board of Directors approved a 33 to 1 split of the common stock of the Company to be effective immediately prior to a planned public offering of the Company's common stock. References to the numbers of shares of common stock, stock options and income (loss) per share in the accompanying financial statements and notes thereto have not been adjusted to give effect to the stock split. After giving pro forma effect to the stock split, income (loss) per common share would have been as follows for the periods indicated.
TWELVE SIX MONTHS MONTHS YEAR ENDED JUNE 30, ENDED ENDED ----------------------- DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 ------ ----- ---- ------------ ------------ Income (loss) before extraordinary item........ $(2.01) $(.62) $.25 $ (.06) $ (.65) Extraordinary loss............................. -- (.18) -- (.33) (.33) ------ ----- ---- ------ ------ Net Income (loss).............................. $(2.01) $(.80) $.25 $ (.39) $ (.98) ------ ----- ---- ------ ------ ------ ----- ---- ------ ------
The Board of Directors also approved an initial public offering of the Company's common stock. Upon consummation of the offering, the Stockholders and Registration Rights Agreement will be amended in order to, among other things, relax certain restrictions on transfers of common stock owned by the parties to the agreement and remove the rights of certain management investors to require the Company to redeem their stock upon death, disability and certain events of termination. 53 57 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Lear Seating Corporation: We have audited in accordance with generally accepted auditing standards the consolidated financial statements of LEAR SEATING CORPORATION AND SUBSIDIARIES ("the Company") included in this Form 10-K and have issued our report thereon dated February 10, 1994 (except with respect to the matters discussed in Note 18, as to which the date is March 2, 1994). Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to Financial Statements and Supplementary Data are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN & CO. Detroit, Michigan February 10, 1994 54 58 LEAR SEATING CORPORATION AND SUBSIDIARIES SCHEDULE II -- AMOUNTS RECEIVABLE FROM EMPLOYEES(A) (IN THOUSANDS)
BALANCE AT BALANCE AT BEGINNING END NAME OF PERSON OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD - ---------------------------------------------------------- ---------- --------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1991: K. Way, Chairman and Chief Executive Officer............ $ 368 $ 42 $ -- $ 410 R. Rossiter, President and Chief Operating Officer...... 368 42 -- 410 J. Vandenberghe, Executive Vice President, Chief Financial Officer and Secretary....................... 123 14 -- 137 J. Hollars, Senior Vice President -- International Operations............................................ 123 14 -- 137 T. Melson, Senior Vice President -- Manufacturing Planning.............................................. 123 14 -- 137 R. Murphy, Vice President and General Manager -- Chrysler/BMW Operations............................... 123 14 -- 137 R. Williams, Vice President -- European JIT Operations............................................ 123 14 -- 137 ---------- --------- ---------- ---------- $1,351 $ 154 $ -- $1,505 ---------- --------- ---------- ---------- ---------- --------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1992: K. Way, Chairman and Chief Executive Officer............ $ 410 $ 36 $ -- $ 446 R. Rossiter, President and Chief Operating Officer...... 410 36 -- 446 J. Vandenberghe, Executive Vice President, Chief Financial Officer and Secretary....................... 137 12 -- 149 J. Hollars, Senior Vice President -- International Operations............................................ 137 12 -- 149 T. Melson, Senior Vice President -- Manufacturing Planning.............................................. 137 12 -- 149 R. Murphy, Vice President and General Manager -- Chrysler/BMW Operations............................... 137 12 -- 149 R. Williams, Vice President -- European JIT Operations............................................ 137 -- (137) -- ---------- --------- ---------- ---------- $1,505 $ 120 $ (137) $1,488 ---------- --------- ---------- ---------- ---------- --------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1993: K. Way, Chairman and Chief Executive Officer............ $ 446 $ 34 $ -- $ 480 R. Rossiter, President and Chief Operating Officer...... 446 34 -- 480 J. Vandenberghe, Executive Vice President, Chief Financial Officer and Secretary....................... 149 11 -- 160 J. Hollars, Senior Vice President -- International Operations............................................ 149 11 -- 160 T. Melson, Senior Vice President -- Manufacturing Planning.............................................. 149 11 -- 160 R. Murphy, Vice President and General Manager -- Chrysler/BMW Operations............................... 149 11 -- 160 ---------- --------- ---------- ---------- $1,488 $ 112 $ -- $1,600 ---------- --------- ---------- ---------- ---------- --------- ---------- ---------- FOR THE SIX MONTHS ENDED DECEMBER 31, 1993: K. Way, Chairman and Chief Executive Officer............ $ 480 $ 18 $ -- $ 498 R. Rossiter, President and Chief Operating Officer...... 480 18 -- 498 J. Vandenberghe, Executive Vice President, Chief Financial Officer and Secretary....................... 160 6 -- 166 J. Hollars, Senior Vice President -- International Operations............................................ 160 6 -- 166 T. Melson, Senior Vice President -- Manufacturing Planning.............................................. 160 6 -- 166 R. Murphy, Vice President and General Manager -- Chrysler/BMW Operations............................... 160 6 -- 166 ---------- --------- ---------- ---------- $1,600 $ 60 $ -- $1,660 ---------- --------- ---------- ---------- ---------- --------- ---------- ----------
- ------------------------- (A) Long-term notes were issued in connection with the sale of stock to certain management investors. These notes, including accrued interest, mature on January 31, 1997 and bear interest at a rate of prime plus 1 1/2% through December 31, 1993. 55 59 LEAR SEATING CORPORATION AND SUBSIDIARIES SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT (IN THOUSANDS)
BALANCE AT BALANCE AT BEGINNING ADDITIONS OTHER END DESCRIPTION OF PERIOD AT COST RETIREMENTS CHANGES(B) OF PERIOD - ---------------------------------- ---------- --------- ----------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1991: Land............................ $ 12,697 $ -- $ (900) $ 499 $ 12,296 Buildings and improvements...... 58,490 5,487 (1,532) 2,989 65,434 Machinery and equipment......... 126,579 15,376 (4,194) 2,546 140,307 Construction in progress........ 2,334 29(a) (440) 1 1,924 ---------- --------- ----------- ---------- ---------- $ 200,100 $ 20,892 $ (7,066) $ 6,035(c) $ 219,961 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1992: Land............................ $ 12,296 $ 1,626 $ (205) $ 1 $ 13,718 Buildings and improvements...... 65,434 14,608 (244) (546) 79,252 Machinery and equipment......... 140,307 22,014 (1,746) (452) 160,123 Construction in progress........ 1,924 478(a) (197) 939 3,144 ---------- --------- ----------- ---------- ---------- $ 219,961 $ 38,726(e) $ (2,392) $ (58)(d) $ 256,237 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1993: Land............................ $ 13,718 $ 1,474 $ (1,608) $ (179) $ 13,405 Buildings and improvements...... 79,252 3,722 (9,004) (955) 73,015 Machinery and equipment......... 160,123 27,353 (3,303) (3,965) 180,208 Construction in progress........ 3,144 (954)(a) (47) (49) 2,094 ---------- --------- ----------- ---------- ---------- $ 256,237 $ 31,595 $ (13,962)(f) $ (5,148) $ 268,722 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ---------- FOR THE SIX MONTHS ENDED DECEMBER 31, 1993: Land............................ $ 13,405 $ 18,417 $ (7) $ (526) $ 31,289 Buildings and improvements...... 73,015 43,523 -- (2,024) 114,514 Machinery and equipment......... 180,208 49,650 (13,988) (5,216) 210,654 Construction in progress........ 2,094 2,964(a) -- (28) 5,030 ---------- --------- ----------- ---------- ---------- $ 268,722 $ 114,554(g) $ (13,995) $ (7,794) $ 361,487 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ----------
- ------------------------- (a) Net of transfers to various property, plant and equipment categories. (b) Includes changes due to fluctuations in foreign currency exchange rates. (c) Amount includes $5,977,000 of additions to property, plant and equipment through acquisitions (Note 6 to the financial statements). (d) Amount includes $234,000 of additions to property, plant and equipment through acquisitions (Note 6 to the financial statements). (e) Amount includes $10,800,000 of additions to property, plant and equipment through a financing lease obligation (Note 13 to the financial statements). (f) Amount includes $10,800,000 of retirement of property, plant and equipment through release from a financing lease obligation (Note 13 to the financial statements). (g) Amount includes $85,565,000 of additions to property, plant and equipment through acquisitions (Note 6 to the financial statements). 56 60 LEAR SEATING CORPORATION AND SUBSIDIARIES SCHEDULE VI -- ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT (IN THOUSANDS)
BALANCE AT BALANCE AT BEGINNING ADDITIONS OTHER END DESCRIPTION OF PERIOD AT COST RETIREMENTS CHANGES(A) OF PERIOD - ------------------------------------------ ---------- --------- ----------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1991: Buildings and improvements.............. $ 3,985 $ 2,429 $ (180) $ (1) $ 6,233 Machinery and equipment................. 27,246 20,519 (2,086) (133) 45,546 ---------- --------- ----------- ---------- ---------- $ 31,231 $22,948 $(2,266) $ (134) $ 51,779 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1992: Buildings and improvements.............. $ 6,233 $ 2,892 $ (219) $ (69) $ 8,837 Machinery and equipment................. 45,546 23,336 (1,177) 190 67,895 ---------- --------- ----------- ---------- ---------- $ 51,779 $26,228 $(1,396) $ 121 $ 76,732 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1993: Buildings and improvements.............. $ 8,837 $ 3,202 $ (294) $ (149) $ 11,596 Machinery and equipment................. 67,895 27,904 (2,328) (1,540) 91,931 ---------- --------- ----------- ---------- ---------- $ 76,732 $31,106 $(2,622) $ (1,689) $ 103,527 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ---------- FOR THE SIX MONTHS ENDED DECEMBER 31, 1993: Building and improvements............... $ 11,596 $ 1,655 $ (331) $ (269) $ 12,651 Machinery and equipment................. 91,931 15,456 (7,157) (2,351) 97,879 ---------- --------- ----------- ---------- ---------- $ 103,527 $17,111 $(7,488) $ (2,620) $ 110,530 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ----------
- ------------------------- (a) Includes changes due to fluctuations in foreign currency exchange rates. 57 61 LEAR SEATING CORPORATION AND SUBSIDIARIES SCHEDULE VII -- GUARANTEES OF SECURITIES OF OTHER ISSUERS
TOTAL AMOUNT TITLE OF ISSUE OF GUARANTEED AND NAME OF ISSUER SECURITIES GUARANTEED OUTSTANDING NATURE OF GUARANTEE - ------------------------ ------------------------ -------------- ------------------------ General Seating of Letter of credit $1,995,000 Guarantee of payment of America, Inc. securing an Economic amounts outstanding on Development Revenue guaranteed obligations Bond, Series 1988 General Seating of Banker's Acceptance $4,258,000 Guarantee of payment of Canada, Ltd. unsecured bank loan -------------- $6,253,000 -------------- --------------
58 62 LEAR SEATING CORPORATION AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT BALANCE AT BEGINNING OTHER END DESCRIPTION OF PERIOD ADDITIONS RETIREMENTS CHANGES(A) OF PERIOD - ------------------------------------------ ---------- --------- ----------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1991: Valuation of accounts deducted from related assets: Allowance for doubtful accounts...... $ 32 $ 170 $ (103) $ -- $ 99 Reserve for unmerchantable inventories........................ 681 2,321 (1,663) (24) 1,315 Deferred tax asset valuation allowance.......................... 18,105 -- -- -- 18,105 ---------- --------- ----------- ---------- ---------- $ 18,818 $ 2,491 $(1,766) $ (24) $ 19,519 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1992: Valuation of accounts deducted from related assets: Allowance for doubtful accounts...... $ 99 $ 206 $ (68) $ 2 $ 239 Reserve for unmerchantable inventories........................ 1,315 2,840 (1,740) (34) 2,381 Deferred tax asset valuation allowance.......................... 18,105 6,104 -- -- 24,209 ---------- --------- ----------- ---------- ---------- $ 19,519 $ 9,150 $(1,808) $ (32) $ 26,829 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ---------- FOR THE YEAR ENDED JUNE 30, 1993: Valuation of accounts deducted from related assets: Allowance for doubtful accounts...... $ 239 $ 473 $ (187) $ (9) $ 516 Reserve for unmerchantable inventories........................ 2,381 1,390 (1,976) (56) 1,739 Deferred tax asset valuation allowance.......................... 24,209 8,345 (2,446) -- 30,108 ---------- --------- ----------- ---------- ---------- $ 26,829 $10,208 $(4,609) $ (65) $ 32,363 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ---------- FOR THE SIX MONTHS ENDED DECEMBER 31, 1993: Valuation of accounts deducted from related assets: Allowance for doubtful accounts...... $ 516 $ 318 $ (144) $ (46) $ 644 Reserve for unmerchantable inventories........................ 1,739 617 (243) (180) 1,933 Deferred tax asset valuation allowance.......................... 30,108 22,959 (1,613) -- 51,454 ---------- --------- ----------- ---------- ---------- $ 32,363 $23,894 $(2,000) $ (226) $ 54,031 ---------- --------- ----------- ---------- ---------- ---------- --------- ----------- ---------- ----------
- ------------------------- (a) Includes changes due to fluctuations in foreign currency exchange rates. 59 63 LEAR SEATING CORPORATION AND SUBSIDIARIES SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION (IN THOUSANDS)
FOR THE FOR THE FOR THE FOR THE FOR THE SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1991 1992 1993 1993 1993 ----------- ----------- ----------- ------------- ------------ Charged to costs and expenses -- Maintenance and repairs............... $15,294 $20,545 $24,883 $26,181 $ 13,739
Amounts charged to costs and expenses for (1) taxes, other than payroll and income taxes, (2) royalties, and (3) advertising costs have been omitted since each is less than 1% of net sales. 60 64 ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no disagreement between the management of the Company and the Company's accountants on any matter of accounting principles or practices or financial statement disclosure. PART III ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS Set forth below is certain information concerning the individuals who are directors and executive officers of the Company.
YEARS WITH THE NAME AGE POSITION COMPANY - ------------------------------ --- ------------------------------------------- -------------- Kenneth L. Way................ 54 Chairman of the Board and Chief Executive 28(1) Officer Robert E. Rossiter............ 48 President, Chief Operating Officer and 22(1) Director James H. Vandenberghe......... 44 Executive Vice President and Chief 21 Financial Officer James A. Hollars.............. 49 Senior Vice President -- International 20 Operations Barthold H. Hoemann........... 54 Senior Vice President -- North American JIT 13 Operations Theodore E. Melson............ 50 Senior Vice President -- Manufacturing 6 Planning Donald J. Stebbins............ 36 Vice President, Treasurer and Assistant 2 Secretary Joseph F. McCarthy............ 50 Vice President, Secretary and General -- Counsel Larry W. McCurdy.............. 58 Director (1) Jeffrey P. Hughes............. 53 Director (2) David P. Spalding............. 39 Director (2) James A. Stern................ 43 Director (3) Eliot Fried................... 61 Director (3) Robert W. Shower.............. 56 Director (4) Gian Andrea Botta............. 40 Director (5) Gordon C. Davidson............ 67 Director (6) N. Peter Ruys................. 45 Director (7)
- ------------------------- (1) Member of the Board of Directors of the Company since 1988. (2) Member of the Board of Directors of the Company since September 1991. (3) Member of the Board of Directors of the Company since the Merger and Director of Holdings from September 1991 until the Merger. (4) Member of the Board of Directors of the Company since the Merger and Director of Holdings from November 1991 until the Merger. (5) Member of the Board of Directors of the Company since the Merger and Director of Holdings from July 1993 until the Merger. (6) Member of the Board of Directors of the Company since the Merger and Director of Holdings from August 1992 until the Merger. (7) Member of the Board of Directors of the Company since February 1993. Set forth below is a description of the business experience of each director and executive officer of the Company. Kenneth L. Way. Mr. Way was elected to and has held the position of Chairman of the Board and Chief Executive Officer of the Company since 1988. Prior to this he served as Corporate Vice President, Automotive Group of Lear Siegler, Inc. ("LSI") since October 1984. During the previous six years, Mr. Way was President of LSI's General Seating Division. Prior to this, he was President of LSI's Metal Products Division in Detroit for three years. Other positions held by Mr. Way during his 28 years with LSI include Manufacturing Manager of the Metal Products Division and Manager of Production Control for the 61 65 Automotive Division in Detroit. Mr. Way also serves as a director of Hayes Wheels International Incorporated. Robert E. Rossiter. Mr. Rossiter became President of the Company in 1984 and a Director and the Chief Operating Officer of the Company in 1988. He joined LSI in 1971 in the Material Control Department at the Automotive Division, then joined the Metal Products Division of LSI as Production Control Manager, and subsequently moved into sales and sales management. In 1979, he joined the General Seating Division as Vice President of Sales and worked in that position, as well as Vice President of Operations, until 1984. James H. Vandenberghe. Mr. Vandenberghe was appointed Senior Vice President - -- Finance, Secretary and Chief Financial Officer of the Company in 1988. He was appointed Executive Vice President of the Company in 1993. He joined LSI's Automotive Division in 1973 as a financial analyst and was promoted to positions at the Metal Products Division and the Automotive Group office, and in 1978 was named the Vice President -- Finance for the Plastics Division. In 1983, Mr. Vandenberghe was appointed Vice President -- Finance for the General Seating Division. Prior to 1988, Mr. Vandenberghe had been responsible for project management, United States operations, and international operations of the Company. James A. Hollars. Mr. Hollars is currently Senior Vice President -- International Operations of the Company. He was promoted to Vice President -- International upon the sale of LSI's Power Equipment Division to Lucas Industries in 1988. Mr. Hollars joined LSI's Metal Products Division in 1973 as the Manufacturing Manager and later served as Vice President -- Manufacturing for No-Sag Spring Division. In 1979, he was named President of the Foam Products Division and was subsequently promoted to President at the Anchorlok Division in 1985 and the Power Equipment Division in 1986. Barthold H. Hoemann. Mr. Hoemann is Senior Vice President -- North American JIT Operations of the Company. He was promoted to this position in 1993. Previously he served as Vice President -- Component Operations for Seating in 1992 and 1993 and as Vice President and General Manager of Lear's subsidiary, Lear Plastics Corporation, in 1991 and 1992. From 1988 until 1991, Mr. Hoemann was the Chief Executive Officer of Peerless Corporation. Mr. Hoemann has over 30 years experience as a senior manager and officer in manufacturing companies such as the AC Spark Plug Division of General Motors and the Plastics and Peerless Divisions of LSI. Theodore E. Melson. Mr. Melson is Senior Vice President -- Manufacturing Planning of the Company. Mr. Melson was promoted to Senior Vice President in 1992, before which he was responsible for all North American JIT Operations of the Company. Mr. Melson joined the Seating Group in 1987 after 25 years with General Motors. His latest assignment at General Motors was as Director of Materials Management at the Willow Run assembly plant. During his General Motors career, he worked for Fisher Body Division, Chevrolet Division, General Motors Assembly Division and Buick-Olds-Cadillac Division. He held positions in many areas of Materials, Manufacturing Systems Development, Forward Planning and Industrial Engineering. Donald J. Stebbins. Mr. Stebbins is currently Vice President and Treasurer of the Company. He joined the Company in June 1992 from Bankers Trust Company, New York, where he was Vice President for four years. Prior to his tenure at Bankers Trust Company, Mr. Stebbins held positions at Citibank, N.A. and The First National Bank of Chicago. Joseph F. McCarthy. Mr. McCarthy will join Lear as Vice President, Secretary and General Counsel effective April 1, 1994. Mr. McCarthy currently serves as Vice President -- Legal and Secretary for both Hayes Wheels International, Inc. and Kelsey-Hayes Company. Prior to joining Hayes Wheels International, Inc. and Kelsey-Hayes Company, Mr. McCarthy was a partner in the law firm of Kreckman & McCarthy from 1973 to 1983. Larry W. McCurdy. Mr. McCurdy became a Director of the Company in 1988. Mr. McCurdy has been the President and Chief Executive Officer of Moog Automotive, Inc. since November 1985, and prior thereto President and Chief Operating Officer of Echlin, Inc. ("Echlin"), since August 1983, after serving as Vice President of Finance from February 1983. Prior to joining Echlin, he served in various material positions with Tenneco, Inc. He was formerly Chairman of the Board of Directors of the Motor and Equipment 62 66 Manufacturing Association (MEMA). At the present time he serves as a director of Mohawk Industries, Inc., Breed Technologies, Inc. and as a trustee of Millikin University. Jeffrey P. Hughes. Mr. Hughes became a Director of the Company in September 1991. He has been a Managing Director of Lehman Brothers Inc. for more than five years, and is a Director of Sun Distributors, L.P. and Parisian, Inc. David P. Spalding. Mr. Spalding became a Director of the Company in September 1991. He has been a Managing Director of Lehman Brothers Inc. since February 1991. Previously, he held the position of Senior Vice President of Lehman Brothers Inc. from September 1988 to February 1991. From April 1987 to September 1988, he was Senior Vice President of General Electric Capital Corporation Corporate Finance Group, Inc. Prior to 1987 he was Vice President of The First National Bank of Chicago. Mr. Spalding is a Director of Parisian, Inc., American Marketing Industries Holdings Inc. and SLB/GP Inc. James A. Stern. Mr. Stern became a Director of the Company on December 31, 1993 upon consummation of the Merger. From September 1991 until the Merger, Mr. Stern was a Director of Holdings. He has been a Managing Director of Lehman Brothers Inc. for more than five years. He is also a director of K&F Industries Inc., American Marketing Industries Holdings Inc., Infinity Broadcasting Corporation, R.P. Scherer Corporation and Noel Group, Inc. Eliot Fried. Mr. Fried became a Director of the Company on December 31, 1993 upon consummation of the Merger. From September 1991 until the Merger, Mr. Fried was a Director of Holdings. He has been a Managing Director of Lehman Brothers Inc. for more than five years. Mr. Fried is a director of Bridgeport Machines, Inc., Energy Ventures Corporation and American Marketing Industries Holdings Inc. Robert W. Shower. Mr. Shower became a Director of the Company on December 31, 1993 upon consummation of the Merger. From November 1991 until the Merger, Mr. Shower was a Director of Holdings. Mr. Shower was appointed Senior Vice President and Chief Financial Officer of Seagull Energy Corporation in March 1992, elected a director in May 1992, and recently named Executive Vice President. Prior thereto, he served as Senior Vice President of Corporate Development at Albert Fisher, Inc. in 1991 and 1992, Vice President of Finance and CFO at AmeriServ in 1990 and 1991 and as a Managing Director of Corporate Finance with Lehman Brothers Inc. from 1986 to 1990. From 1964 to 1986, Mr. Shower served in a variety of financial executive positions with The Williams Companies where he was a member of the Board of Directors and Executive Vice President of Finance and Administration from 1977 to 1986. Gian Andrea Botta. Mr. Botta became a Director of the Company on December 31, 1993 upon consummation of the Merger. Prior to the Merger, Mr. Botta was a Director of Holdings. Mr. Botta has been President of IFINT-USA Inc., an affiliate of FIMA, since 1993 and was Vice President of Acquisitions of IFINT-USA Inc. for more than five years prior thereto. Mr. Botta is a member of the Board of Directors of Kendall International, ICF International, and Chartwell Re Corporation. Gordon C. Davidson. Mr. Davidson became a Director of the Company on December 31, 1993 upon consummation of the Merger. From August 1992 until the Merger, Mr. Davidson was a Director of Holdings. Mr. Davidson is currently a partner with Lubar & Co. Incorporated. Prior to that, Mr. Davidson was President and Director of NML Corp., a subsidiary of Northwestern Mutual Life Insurance Company and is a former director of Mortgage Guaranty Insurance Corp., Capital Court Corp., First Mortgage Company of Texas, Inc. and Futura Gear Works, Inc. N. Peter Ruys. Mr. Ruys became a Director of the Company in 1993. Since 1993, Mr. Ruys has been Chief Financial Officer of IFINT S.A., the international investment company of IFI S.p.A., the parent company of the Agnelli Group. Since 1981, Mr. Ruys has been Secretary and Treasurer of IFINT-USA Inc., a subsidiary of IFINT S.A. Mr. Ruys is a Trustee of Corporate Property Investors. All directors hold office until the annual meeting of stockholders next following their election, or until their successors are elected and qualified. Pursuant to the Stockholders Agreement, Messrs. Hughes, Spalding, Stern, Fried, Davidson and Shower serve on the Board of Directors of the Company as 63 67 representatives of the Lehman Funds, Messrs. Botta, Ruys and McCurdy serve as representatives of FIMA and Messrs. Way and Rossiter serve as representatives of the Management Investors. It is anticipated that prior to the Offerings, the composition of the Company's Board of Directors will change. Pursuant to the Company's Restated Certificate of Incorporation, which will be in effect upon the closing of the Offerings, the Board of Directors will be divided into three classes of directors serving staggered three-year terms. The Board of Directors has established permanent executive, audit and compensation committees. The membership of each of these committees is determined from time to time by the Board of Directors. The current members of the Executive Committee of the Board of Directors are Messrs. Hughes, Spalding, Stern, Way and Rossiter. The current members of the Audit Committee of the Board of Directors are Messrs. Shower and McCurdy. The current members of the Compensation Committee of the Board of Directors are Messrs. Hughes, Spalding and McCurdy. Directors of the Company who are not currently receiving compensation as officers or employees of the Company or Lehman Brothers Inc. receive an annual fee of $20,000 and a fee of $1,000 for each meeting of the Board of Directors or any committee thereof that they attend, provided that directors are not paid a fee for any additional meetings which are held on the same day. Directors are also reimbursed for their expenses incurred in attending meetings. In addition, directors of the Company will be eligible to receive grants of stock options under the 1994 Stock Option Plan. See "Executive Compensation -- 1994 Stock Option Plan." Prior to the commencement of the Offerings, Messrs. Shower, Davidson and McCurdy will each receive options to purchase 10,000 shares of Common Stock under the 1994 Stock Option Plan. Officers of the Company are elected by the Board of Directors and serve at the discretion of the Board. Messrs. Way, Rossiter, Vandenberghe, Hollars, Hoemann, Melson, Stebbins and McCarthy have employment agreements with the Company. See "Executive Compensation -- Employment Agreements." ITEM 11 -- EXECUTIVE COMPENSATION The following table summarizes information concerning annual and long-term cash and non-cash compensation paid to or accrued for the benefit of the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company (collectively, the "named executive officers") for all services rendered in all capacities to the Company for the six months ended December 31, 1993 and for each of the Company's fiscal years ending June 30, 1993, 1992 and 1991. In February 1994, the Company changed its fiscal year end from June 30 to December 31, effective December 31, 1993. 64 68 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION(4) ------------------------------- ANNUAL COMPENSATION AWARDS ---------------------------------- --------------------- PAYOUTS OTHER RESTRICTED ------- ANNUAL STOCK OPTIONS/ LTIP ALL OTHER SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION NAME AND PRINCIPAL POSITIONS PERIOD(1) ($) ($)(2) ($)(3) (#) (#) ($) ($)(5) - ---------------------------- ---------- -------- -------- ------------ ---------- -------- ------- ------------ Kenneth L. Way.............. 6 months $237,000 $237,500 $830,000 $5,000 Chairman of the Board and FY1993 462,000 450,000 5,500 9,000 Chief Executive Officer FY1992 452,000 315,000 FY1991 415,000 205,000 Robert E. Rossiter.......... 6 months 173,000 172,500 830,000 3,000 President, Chief Operating FY1993 335,000 325,000 3,500 5,000 Officer and Director FY1992 325,000 220,000 FY1991 300,000 145,000 James H. Vandenberghe....... 6 months 123,000 127,500 277,000 3,000 Executive Vice President FY1993 223,000 175,000 2,600 5,000 and Chief Financial Officer FY1992 218,000 120,000 FY1991 200,000 82,000 James A. Hollars............ 6 months 127,000 68,000 277,000 3,000 Senior Vice President -- FY1993 230,000 125,000 2,000 3,000 International Operations FY1992 208,000 100,000 FY1991 198,000 60,000 Theodore E. Melson.......... 6 months 109,000 54,000 277,000 3,000 Senior Vice President -- FY1993 212,000 102,000 2,000 5,000 Manufacturing Planning FY1992 211,000 90,000 FY1991 200,000 60,000
- ------------------------- (1) The six month period listed is the six months ended December 31, 1993 and the fiscal years are the fiscal years ended June 30, 1993, 1992 and 1991. (2) Pursuant to the Company's Senior Executive Incentive Compensation Plan, the Company awards annual bonuses to its executive officers based on the attainment of financial and nonfinancial objectives. All bonuses set forth in this column were awarded pursuant to the Senior Executive Incentive Compensation Plan. For a description of the Senior Executive Incentive Compensation Plan and the criteria used for the determination of awards thereunder, see "Executive Compensation -- Senior Executive Incentive Compensation Plan." (3) Consists of one-time payments to the named executive officers. (4) The Company does not have restricted stock award plans or long-term incentive plans and has not granted stock appreciation rights ("SARs"). (5) Includes 401(k) contributions made and life insurance premiums paid by the Company on behalf of the named executive officers. 65 69 The following table provides information, with respect to the named executive officers of the Company, concerning the grants of stock options during the fiscal year ended June 30, 1993 and the potential value of unexercised options on an aggregated basis. No stock options were granted to any such officers during the six months ended December 31, 1993. OPTION GRANTS IN THE FISCAL YEAR ENDED JUNE 30, 1993
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT SECURITIES OPTIONS ASSUMED ANNUAL RATES OF UNDERLYING GRANTED TO STOCK PRICE APPRECIATION FOR OPTIONS EMPLOYEES EXERCISE OR OPTION TERM GRANTED IN FISCAL BASE PRICE EXPIRATION ------------------------------- NAME (#)(1) YEAR ($/SHARE) DATE 5%($) 10%($) - ------------------------------- --------- ---------- ----------- ---------- ----------- ---------------- Kenneth L. Way................. 5,500 13.2% $165.00 6-1-2002 $ 501,000 $1,232,000 Robert E. Rossiter............. 3,500 8.4% 165.00 6-1-2002 319,000 784,000 James H. Vandenberghe.......... 2,600 6.2% 165.00 6-1-2002 237,000 582,000 James A. Hollars............... 2,000 4.8% 165.00 6-1-2002 182,000 448,000 Theodore E. Melson............. 2,000 4.8% 165.00 6-1-2002 182,000 448,000
- ------------------------- (1) For a discussion of the options granted, see "Executive Compensation -- 1992 Stock Option Plan" below. The following table provides information, with respect to the named executive officers, concerning the exercise or settlement of stock options during the fiscal year ended June 30, 1993 and the six months ended December 31, 1993 and unexercised stock options held as of December 31, 1993. AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED JUNE 30, 1993 AND THE SIX MONTHS ENDED DECEMBER 31, 1993 AND OPTION VALUES AT DECEMBER 31, 1993
VALUE OF NUMBER OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT DECEMBER 31, DECEMBER 31, 1993 1993(1) SHARES ------------ --------------------- ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE - -------------------------------------------- ----------- ----------- ------------ --------------------- Kenneth L. Way.............................. -- -- 11,765/5,500 $4,794,826/$1,568,160 Robert E. Rossiter.......................... -- -- 7,059/3,500 2,876,895/ 997,920 James H. Vandenberghe....................... -- -- 4,471/2,600 1,822,156/ 741,312 James A. Hollars............................ -- -- 4,471/2,000 1,822,156/ 570,240 Theodore E. Melson.......................... -- -- 4,471/2,000 1,822,156/ 570,240
- ------------------------- (1) Based on a Common Stock valuation of $450 per share as of December 31, 1993. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to the Merger, the Company's compensation policies were determined and executive officer compensation decisions were made by Holdings' Board of Directors and its Compensation Committee (the "Holdings Compensation Committee"). The Holdings Compensation Committee was comprised of three non-employee directors: Messrs. Hughes, McCurdy and Spalding. Messrs. Hughes and Spalding are both Managing Directors of Lehman Brothers Inc., an affiliate of the Lehman Funds. The Lehman Funds beneficially own approximately 66.9% of the Common Stock of the Company (assuming all outstanding Warrants are exercised and no outstanding Options are exercised). For periods after the Merger, the Board of Directors of the Company has appointed a compensation committee (the "Compensation Committee") comprised of the same individuals who served on the Holdings Compensation Committee prior to the Merger. 66 70 During the six months ended December 31, 1993 and the fiscal year ended June 30, 1993, the Holdings Compensation Committee and the Compensation Committee authorized the remuneration plans for senior management. In addition, the Holdings Compensation Committee and the Compensation Committee exercised administrative power with respect to the Company's remuneration plans. Neither the Board of Directors of Holdings or the Company rejected nor modified any action taken by the Holdings Compensation Committee or the Compensation Committee, respectively. No member of the Holdings Compensation Committee or the Compensation Committee was, during the fiscal year ended June 30, 1993 or the six months ended December 31, 1993, an officer, former officer or employee of Holdings, the Company or any of their subsidiaries. No executive officer of Holdings or the Company served as a member of (i) the compensation committee of another entity in which one of the executive officers of such entity served on the Holdings Compensation Committee, (ii) the Board of Directors of another entity in which one of the executive officers of such entity served on the Holdings Compensation Committee or (iii) the compensation committee of another entity in which one of the executive officers of such entity served as a member of Holdings' or the Company's Board of Directors. Lehman Brothers Inc., an affiliate of the Lehman Funds, acted as an underwriter in connection with the Company's public offering of the Senior Subordinated Notes and the 8 1/4% Subordinated Notes and is acting as an underwriter in the Offerings. Lehman Brothers Inc. also provided advisory services to the Company in connection with the Equity Investment (as defined herein) and the consummation of the Credit Agreement, for which it received fees. In addition, Lehman Commercial Paper Inc., an affiliate of the Lehman Funds, is a managing agent and a lender under the Credit Agreement. See "Certain Relationships and Related Transactions." SENIOR EXECUTIVE INCENTIVE COMPENSATION PLAN Lear has established a Senior Executive Incentive Compensation Plan effective July 1, 1989 (the "Senior Executive Incentive Plan"). The Senior Executive Incentive Plan provides for the assignment of target annual awards expressed as a percentage of a participant's annual salary, and the actual award, unless modified by the Board of Directors, will vary from 0% to 167% of the target award opportunity based on attainment of financial and nonfinancial objectives. The financial criteria, representing 60% of the bonus potential, are based on achievement of a targeted level of pre-tax operating income and cash flow for the overall Company based on the approved operating budget. An overall average threshold is calculated, based on the ratio that the actual pre-tax operating income and actual cash flow bear to the budget pre-tax operating income and the budget cash flow. No payments are made unless 85% of that threshold is attained, and a maximum attainment is set at 120% of that threshold. The nonfinancial criteria, representing 40% of the bonus potential, are based on the achievement of specific individual objectives that are determined by the Chief Executive Officer and approved by the Board of Directors of Lear. Participants in the Senior Executive Incentive Plan were selected from executives who were in positions to materially influence the annual financial results of Lear in the targeted areas. In the twelve month period ending December 31, 1994, the target award opportunities under the Senior Executive Incentive Plan for each of Messrs. Way, Rossiter, Vandenberghe, Hollars and Melson are $285,000, $207,000, $153,000, $115,000 and $112,500, respectively. MANAGEMENT INCENTIVE COMPENSATION PLAN Lear has established a Management Incentive Compensation Plan effective July 1, 1989 (the "Management Incentive Plan") for certain individuals who are not participants in the Senior Executive Incentive Plan. The Management Incentive Plan provides for the assignment of target annual awards expressed as a percentage of a participant's annual salary, and the actual award will vary from 0% to 140% of the target award opportunity based on attainment of financial and nonfinancial objectives. The financial criteria, representing 50% of the bonus potential, are based on achievement of a targeted level of pre-tax operating income and cash flow for the overall Company based on the approved operating budget. An overall average threshold is calculated, based on the ratio that the actual pre-tax operating income and actual cash flow bear to the budget pre-tax operating income and the budget cash flow. No payments are made unless 85% of that threshold is attained, and a maximum attainment is set at 120% of that threshold. The nonfinancial criteria, representing 67 71 50% of the bonus potential, are based on the achievement of specific individual objectives that are determined by the senior management and approved by the Chief Executive Officer of Lear. Participants in the Management Incentive Plan were selected from managers who were in positions to materially influence the annual financial results of Lear in the targeted areas. PENSION PLAN AND BENEFITS The executive officers (as well as other employees of Lear) participate in the Lear Seating Corporation (LSC) Pension Plan (the "Pension Plan"). The Pension Plan is a qualified pension plan under the Internal Revenue Code, which is integrated with Social Security benefits. Any active employee of Lear who was a participant in the Lear Siegler Diversified Holding Corp. Pension Plan on September 29, 1988, is eligible to participate, and each other eligible employee (non-union employees not covered by another pension plan and certain union employees) becomes a participant on the July 1st or January 1st following completion of one year of service. The benefits are funded by employer contributions that are determined under accepted actuarial principles and applicable Federal tax law. The Pension Plan contains three sets of benefit provisions: the Lear provisions, the Fabricated Products Operations ("FPO") provisions, and the Progress Pattern provisions. The Lear provisions are the principal provisions of the Pension Plan (see below). The FPO and Progress Pattern provisions are grandfathering provisions carried forward from the Lear Siegler Diversified Holdings Corp. Pension Plan, and apply to those participants who were covered by such provisions of that plan. Under the Lear formula, pension benefits are based on a participant's "final average earnings," which is the average compensation for the highest five consecutive calendar year earnings of the last 15 years of employment. Compensation includes all cash compensation reported for federal income tax purposes excluding sales incentive bonuses. Assuming retirement at age 65, the annual retirement benefit (based on a life annuity) is equal to the greater of: a. 1.10% times final average earnings times years of credited service (to a maximum of 25 years) plus 0.65% times final average earnings in excess of covered compensation times credited service (to a maximum of 25 years), or b. $177.00 times years of credited service. Covered compensation is a 35 year average of the Social Security Taxable Wage Base as defined in I.R.S. Notice 89-70. Participants who are former FPO employees (as of December 31, 1985), or are former employees of Progress Pattern Corporation (as of November 30, 1984), are eligible to have their pension determined through the application of a floor provision, which guarantees a minimum pension benefit. Pension benefits will be calculated in two ways, using first the new Pension Plan formula, and then using the floor provision. If the pension benefits are greater by applying the floor provision, then the participants will receive benefits under the floor provision. Assuming retirement at age 65, by applying the floor provision the benefit will be: a. 0.8% times final average earnings times years of credited service plus b. 0.65% times final average earnings in excess of $10,000 times years of credited service (to a maximum of 35 years). Participants formerly covered by the Progress Pattern provisions were covered by the FPO provisions on and after October 1, 1989. The benefits under the Pension Plan become vested if a participant was fully vested in the Lear Siegler Diversified Holdings Corp. Pension Plan, or upon the attainment of five years of combined vesting service under the Lear Siegler Diversified Holdings Corp. Pension Plan, and the Pension Plan, or upon completion of five years of service. 68 72 The following table indicates estimated annual benefits payable upon normal retirement at age 65, based on a life annuity for various compensation levels and years of service classification, under the Lear provisions:
ANNUAL BENEFIT FOR YEARS OF SERVICE INDICATED* ANNUAL COVERED ------------------------------------------- COMPENSATION COMPENSATION 10 15 20 25 - ------------ ------------ ------- ------- ------- ------- $200,000 $ 55,500 $31,393 $47,089 $62,785 $78,481 250,000 55,500 36,443 54,665 72,886 91,108 300,000 55,500 36,443 54,665 72,886 91,108 350,000 55,500 36,443 54,665 72,886 91,108 400,000 55,500 36,443 54,665 72,886 91,108 450,000 55,500 36,443 54,665 72,886 91,108 500,000 55,500 36,443 54,665 72,886 91,108 and over
- ------------------------- * The maximum annual retirement benefit under the Pension Plan for 1993 is $91,108 and the maximum average compensation which can be considered in the determination of annual compensation for 1993 is $228,860. The following table indicates estimated annual benefits payable upon normal retirement at age 65, based on a life annuity for various compensation levels and years of service classifications under FPO provisions:
ANNUAL BENEFIT FOR YEARS OF SERVICE INDICATED* ------------------------------------------- ANNUAL SALARY 10 15 20 25 - ------------- ------- ------- ------- ------- $ 200,000 $28,350 $42,525 $56,700 $70,875 250,000 32,535 48,802 65,069 81,337 300,000 32,535 48,802 65,069 81,337 350,000 32,535 48,802 65,069 81,337 400,000 32,535 48,802 65,069 81,337 450,000 32,535 48,802 65,069 81,337 500,000 32,535 48,802 65,069 81,337 and over
- ------------------------- * The maximum annual retirement benefit under the Pension Plan for 1993 is $81,337 and the maximum average compensation which can be considered in the determination of annual compensation for 1993 is $228,860. Kenneth L. Way, Theodore E. Melson, and James A. Hollars are covered by the Lear provisions, and Robert E. Rossiter and James H. Vandenberghe are covered by the FPO provisions. At age 65, it is estimated that Kenneth L. Way will have 15 years of service with Lear; Robert E. Rossiter will have 21 years; Theodore E. Melson will have 19 years; James H. Vandenberghe will have 25 years; and James A. Hollars will have 20 years. The average annual compensation for participants covered by the Lear provisions is substantially similar to the compensation reported in the Summary Compensation Table. The compensation covered under the Pension Plan for the fiscal year ending June 30, 1993 was $228,860 for Robert E. Rossiter and James H. Vandenberghe, both of whom are covered under the FPO provisions. The Pension Plan grants credit for all years of pension service with Lear Siegler Diversified Holdings Corp. and with Lear, and offsets the retirement benefit payable by the Lear Siegler Diversified Holdings Corp. Pension Plan against the benefit payable by the Pension Plan. As an option to normal retirement, a participant who is age 55 or older with 10 years of service may elect to receive an early retirement benefit commencing at age 55 or older. 69 73 401(K) SAVINGS PLAN Lear adopted a plan effective February 1, 1989 pursuant to Section 401(k) of the Internal Revenue Code (the "401(k) Plan") for non-union employees who have completed a three month period of service and attained the age of twenty-one. Under the 401(k) Plan, each eligible employee may elect to defer a portion of his or her salary each year. The portion deferred will be paid by the Company to the trustee under the 401(k) Plan. Lear makes a matching contribution to the plan each month on behalf of each participant in an amount equal to 50% of such participant's salary deferral contributions which are not in excess of 4% of such participant's compensation, provided however, that the matching contribution for a participant in any year may not exceed $1,150. Matching contributions become vested under the 401(k) Plan at a rate of 20% for each full year of service. For the period ending June 30, 1993, each of the Chief Executive Officer and the named executive officers of the Company received the maximum matching contribution under the plan of $1,150. 1988 STOCK OPTION PLAN Under a stock option plan dated September 29, 1988 (the "1988 Stock Option Plan"), the Company has outstanding options to purchase 63,055 shares of Common Stock, which are held by the Management Investors. All of these outstanding options are fully vested and are exercisable at $42.50 per share. SUPPLEMENTAL PENSION PLAN Lear has maintained a supplemental pension plan (the "Supplemental Pension Plan") originally established for officers of Lear Siegler, Inc. The Supplemental Pension Plan provides supplemental retirement benefits in excess of those provided by the Lear and FPO plans previously discussed pursuant to a formula based on final average compensation and credited years of service. Employees of Lear who were participants in the Supplemental Pension Plan for officers of Lear Siegler, Inc. at September 30, 1988 are eligible to participate in the Supplemental Pension Plan. Mr. Way is the only officer of Lear who is a participant in the Supplemental Pension Plan. At age 65, Mr. Way will have 25 credited years of service under the Supplemental Pension Plan. The following table indicates estimated supplemental annual benefits payable upon normal retirement at age 65 based on a life annuity for various compensation levels and years of service classifications under the Supplemental Pension Plan provisions:
ANNUAL BENEFIT FOR YEARS OF SERVICE INDICATED ----------------------------------------------- ANNUAL SALARY 10 15 20 25 - ------------- -------- -------- -------- -------- $ 300,000 $ 12,450 $ 18,674 $ 24,899 $ 31,124 400,000 29,950 44,924 59,899 74,874 500,000 47,450 71,174 94,899 118,624 600,000 64,950 94,424 129,899 162,374 700,000 82,450 123,674 164,899 206,124 800,000 99,950 149,924 199,899 219,874 900,000 117,450 176,174 234,899 293,624 1,000,000 134,950 202,424 269,899 337,374
1992 STOCK OPTION PLAN The Company has adopted the 1992 Stock Option Plan (the "1992 Stock Option Plan"), pursuant to which management employees are eligible to receive awards of stock options. The 1992 Stock Option Plan is administered by the Compensation Committee of the Company's Board of Directors. Subject to the terms of the 1992 Stock Option Plan, the Committee selects the management employees eligible to receive awards under the 1992 Stock Option Plan, determines the size of the awards granted thereunder, and administers and interprets the plan. Under the 1992 Stock Option Plan, the Company has outstanding options to purchase 58,000 shares of Common Stock, which are held by certain management personnel. All of these outstanding options are fully 70 74 vested and generally become exercisable at $165.00 per share as of September 28, 1996. However, if an option holder's employment with the Company terminates prior to September 28, 1996, other than by reason of retirement, death or disability, such holder's options will not become exercisable until September 1, 2001. Options held by a holder retiring prior to September 28, 1996 will become exercisable on the earlier of two years from the date of retirement or September 28, 1996. If an option holder's employment terminates due to death or disability prior to September 28, 1996, his options will become exercisable on September 28, 1996 and remain so for 90 days thereafter. 1994 STOCK OPTION PLAN Prior to the consummation of the Offerings, the Company will adopt the 1994 Stock Option Plan (the "1994 Stock Option Plan"), pursuant to which directors, officers and employees of the Company and other individuals who are primarily responsible for the management and success of the Company will be entitled to receive awards of options. Each option granted pursuant to the 1994 Stock Option Plan shall be designated at the time of grant as either an "incentive stock option" or as a "non-qualified stock option." The 1994 Stock Option Plan will be administered by the Compensation Committee of the Company's Board of Directors. Subject to the terms of the 1994 Stock Option Plan, the Committee will determine who among those eligible will be granted options, the time or times at which options will be granted, the number of shares to be subject to options, the duration of options, any conditions to the exercise of options, and the manner in and price at which options may be exercised. Under the 1994 Stock Option Plan, the Company may grant options with respect to a total of 625,000 (after giving effect to the Stock Split) shares of Common Stock. The Compensation Committee will award options to purchase 498,750 (after giving effect to the Stock Split) shares of Common Stock (of which 173,500 (after giving effect to the Stock Split) will be granted to senior officers and directors of the Company) prior to the consummation of the Offerings, each having an exercise price equal to the per share public offering price in the Offerings. Any key employee shall be eligible to receive incentive stock options or non-qualified stock options granted under the 1994 Stock Option Plan. Any employee, any director of the Company, whether or not an employee, and any other individual who in the judgment of the Compensation Committee performs valuable and important services for the Company shall be eligible to receive non-qualified stock options. The exercise price of each option issued under the 1994 Stock Option Plan will be determined by the Compensation Committee of the Company's Board of Directors, provided that in the case of incentive stock options, the exercise price may not be less than 100% of the grant date fair market value of the shares of Common Stock covered by such options. If an incentive stock option is granted to an employee who owns more than 10% of the total combined voting power of all classes of the Company's outstanding capital stock, then the exercise price thereof may not be less than 110% of the grant date fair market value of the Common Stock covered by such option. Options granted under the 1994 Stock Option Plan may not be transferred other than by will or the laws of descent and distribution and, during the lifetime of the option holder, may be exercised solely by him. The aggregate fair market value (determined at the time the option is granted) of the shares as to which an employee may first exercise incentive stock options in any one calendar year may not exceed $100,000. The Compensation Committee may impose any other conditions to exercise it deems appropriate. EMPLOYMENT AGREEMENTS Lear has entered into employment agreements with the individuals named in the Summary Compensation Table. The employment agreements, as amended, expire on October 1, 1995, and provide for, among other things, rates of compensation and bonuses. Each of Messrs. Way's, Rossiter's and Vandenberghe's employment agreement provides for an annual base salary of $475,000, $345,000, and $255,000, respectively. Messrs. Hollars' and Melson's employment agreements provide for an annual base salary of $265,000 and 71 75 $225,000, respectively. Increases in these salaries, as well as bonuses, are at the sole discretion of the Board of Directors of the Company. Each employment agreement provides that (i) upon the death of the employee, Lear will pay to his estate or designated beneficiary his full base salary for an additional 12 months; (ii) upon termination for disability, the employee will receive all compensation payable under Lear's disability and medical plans and programs plus an additional payment from Lear so that the aggregate amount of salary continuation from all sources equals his base salary through the remaining term of the agreement; and (iii) upon termination for good reason, the employee will receive his full base salary to the end of the term of agreement. If the employment agreement is terminated for cause, the employee is only entitled to receive unpaid salary and benefits, if any, accrued through the effective date of the employee's termination. 72 76 ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table and accompanying footnotes set forth certain information regarding beneficial ownership of the Company's Common Stock as of February 15, 1994, (i) by each person who is known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock, (ii) by each director of the Company, (iii) by each named executive officer of the Company and (iv) by all directors and executive officers of the Company as a group:
NUMBER OF SHARES OF COMMON STOCK PERCENTAGE OWNED OF BENEFICIALLY(1) COMMON STOCK --------------- ------------ Lehman Funds(2)................................................. 786,628 72.9% FIMA Finance Management Inc.(3)................................. 261,668 24.3 Management Investors as a group(4).............................. 94,967(5) 8.3 Kenneth L. Way(6)(7)............................................ 17,393(8) 1.6 Robert E. Rossiter(6)(7)........................................ 10,269(9) * James H. Vandenberghe(7)........................................ 6,684(10) * Thomas E. Melson(7)............................................. 6,371(11) * James A. Hollars(7)............................................. 6,371(11) * Total Executive Officers and Directors as a group (8 individuals).................................................. 48,093(12) 4.3
- ------------------------- * Less than 1% (1) As of January 31, 1994 notices of exercise had been delivered to the warrant agent with respect to Warrants exercisable for 41,227 shares of Common Stock but no shares had been issued in exchange for such Warrants. (2) The number of shares beneficially owned by the Lehman Funds includes 281,635 shares of Common Stock and 912 Warrants owned by Lehman Brothers Merchant Banking Portfolio Partnership L.P. and 191,428 shares of Common Stock and 620 Warrants owned by Lehman Brothers Capital Partners II, L.P. (each located at Three World Financial Center, New York, New York 10285); 77,429 shares of Common Stock and 251 Warrants owned by Lehman Brothers Offshore Investment Partnership L.P. and 233,597 shares of Common Stock and 756 Warrants owned by Lehman Brothers Offshore Investment Partnership-Japan L.P. (each located at Clarendon House, Church Street, Hamilton HMCX, Bermuda). Lehman Brothers Merchant Banking Partners Inc. and Lehman Brothers II Investment Inc. are the general partners of Lehman Brothers Merchant Banking Portfolio Partnership L.P and Lehman Brothers Capital Partners II, L.P., respectively, and Lehman Brothers Offshore Partners Ltd. is the general partner of Lehman Brothers Offshore Investment Partnership-Japan L.P. and Lehman Brothers Offshore Investment Partnership L.P. Each such general partner may be deemed to own beneficially the shares directly owned by the entity of which it is the general partner. Each such general partner is an indirect wholly-owned subsidiary of Lehman Brothers Group Inc., which is a wholly owned subsidiary of Lehman Brothers Holdings Inc. Each of the partnerships may be deemed to share with Lehman Brothers Merchant Banking Partners Inc. the power to vote and the power to dispose of the shares owned by such partnership. The address of Lehman Brothers Merchant Banking Partners Inc. is Three World Financial Center, New York, New York 10285. (3) FIMA is a wholly-owned subsidiary of IFINT. IFINT, a Luxembourg corporation, is the international investment holding company of IFI, the parent company of the Agnelli Group. The address of FIMA is Wickam's Cay, Road Town, Tortola, British Virgin Islands. (4) The Management Investors include thirty-four individuals who are directors, officers or managers or employees of former employees of the Company. None of the Management Investors beneficially owns more than 5% of the Company's Common Stock. (5) The number of shares of Common Stock beneficially owned by the Management Investors includes 63,055 shares issuable under currently exercisable options and 1,221 Warrants. Excludes 36,200 shares of Common Stock issuable upon exercise of options that will generally become exercisable on September 28, 1996. (6) The individual is a director of the Company. (7) The individual is a named executive officer of the Company. (8) Includes 11,765 shares of Common Stock issuable under currently exercisable options and 118 Warrants. (9) Includes 7,059 shares of Common Stock issuable under currently exercisable options. (10) Includes 4,471 shares of Common Stock issuable under currently exercisable options and 102 Warrants. (11) Includes 4,471 shares of Common Stock issuable under currently exercisable options. (12) Excludes 22,000 shares of Common Stock issuable upon exercise of options that will generally become exercisable on September 28, 1996. 73 77 ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS THE 1988 ACQUISITION At the closing of the 1988 Acquisition on September 30, 1988, Kidder, Peabody Group Inc. ("KPG"), certain Management Investors, and certain other investors purchased an aggregate of 598,750 shares of Common Stock. On October 6, 1988, FIMA first acquired an ownership interest in the Company by purchasing 195,000 shares of Common Stock of the Company from KPG. THE 1991 TRANSACTIONS On September 27, 1991, the Company engaged in a series of related transactions (the "1991 Transactions") for the purpose of raising additional capital to repay a portion of the Company's outstanding indebtedness under its credit agreement (the "Original Credit Agreement") and to fund the acquisition of Lear Seating Sweden, AB ("LS Sweden"). A portion of the payments made under the Company's Original Credit Agreement increased availability thereunder, which was used to finance expansion of the Company's operations. As part of the 1991 Transactions, (i) the Company sold an aggregate of 454,545 additional shares of the Company's Common Stock to the Lehman Funds and FIMA at a price of $165.00 per share for an aggregate amount of approximately $75.0 million (the "Stock Sale"); (ii) the Lehman Funds purchased all of the Company's outstanding Common Stock and Warrants owned by GECC and all of the Company's outstanding Common Stock owned by INVEST; (iii) the Lehman Funds and FIMA purchased the Company's outstanding Common Stock held by MH Capital Partners, Inc.; (iv) the Company entered into certain amendments to the Original Credit Agreement; and (v) the Company borrowed $20.0 million from GECC, which was secured by a First Mortgage and Security Agreement covering certain of Lear's domestic facilities, machinery and equipment (the "GECC Mortgage Loan"), the entire proceeds of which were used to repay permanently a portion of the term loans outstanding under the Original Credit Agreement. After giving effect to the 1991 Transactions (i) the Lehman Funds owned a total of 693,180 shares of the Company's Common Stock and Warrants exercisable for an additional 2,539 shares of the Company's Common Stock, or approximately 62.3% of the Company's outstanding Common Stock (assuming the exercise of all outstanding Warrants and Options) for an aggregate consideration of approximately $114.8 million and (ii) FIMA acquired an additional 36,365 shares of the Company's Common Stock at an aggregate consideration of approximately $6.0 million, for a total of 231,365 shares of the Company's Common Stock, or approximately 20.7% of the Company's outstanding Common Stock (assuming the exercise of all outstanding Warrants and Options). For additional information regarding the 1991 Transactions, see the consolidated financial statements of the Company included elsewhere in this Prospectus. Proceeds from the Stock Sale and the GECC Mortgage Loan were utilized to purchase the stock of LS Sweden from GECC for $100,000, to repay GECC's financing to LS Sweden of approximately $7.3 million, to pay down term loans under the Original Credit Agreement by $48.5 million, to pay down borrowings under the Original Credit Agreement by $32.0 million, and to pay fees and expenses of approximately $7.7 million related to the 1991 Transactions. Included in the $7.7 million in fees and expenses is $4.5 million paid to Lehman Brothers Inc. for fees related to the above transactions. The remainder of the fees related to legal and administrative expenses incurred by the Company, Lehman Brothers Inc., FIMA and GECC related to the Stock Sale and the GECC Mortgage Loan which were paid by the Company. Subsequent to the 1991 Transactions, on June 1, 1992 a new Bank Act (the "Bank Act") was enacted in Canada requiring an order of the Minister of Finance (Canada) to permit the Lehman Funds to continue to hold their existing indirect investment in Lear's Canadian operations. An application for an order has been made and, based upon advice of their Canadian counsel, the Lehman Funds anticipate receipt of such order. Should the application for the order be denied, Lear could, among other things, move its operations out of Canada or divest such operations or the Lehman Funds could, among other things, reduce their indirect ownership of the voting shares of Lear's Canadian companies below 10% to comply with the Bank Act. 74 78 SENIOR SUBORDINATED NOTE OFFERING AND EQUITY INVESTMENT In order to support the Company's future expansion in North America and Europe, in July 1992, the Company entered into an agreement to sell $20.0 million of Common Stock to its major stockholders, the Lehman Funds and FIMA (the "Equity Investment"). Simultaneous with the Equity Investment, the Company effected a public offering of $125.0 million of the Senior Subordinated Notes. Lehman Brothers Inc., an affiliate of the Lehman Funds, acted as an underwriter in connection with the offering and received underwriting fees of approximately $2.2 million. Lehman Brothers Inc. and IFINT received fees of approximately $450,000 and $150,000, respectively, for advisory services rendered to the Company in connection with the Equity Investment and the public offering of the Senior Subordinated Notes. Mr. Botta is an officer of an affiliate of FIMA and serves as a director of the Company. Messrs. Hughes, Spalding, Stern and Fried, each a Managing Director of Lehman Brothers Inc., serve as directors of the Company. Shortly after the Equity Investment, the Company sold 2,551 shares of Common Stock to eighteen employees of the Company for approximately $421,000 in cash. THE NAB ACQUISITION AND THE CREDIT AGREEMENT In connection with the NAB Acquisition and the consummation of the Credit Agreement, Lehman Brothers Inc., an affiliate of the Lehman Funds, provided certain advisory and valuation services to the Company for which it received aggregate fees of approximately $1.0 million. In addition, Lehman Commercial Paper Inc., an affiliate of the Lehman Funds, is a managing agent and a lender under the Credit Agreement for which it received and will continue to receive its proportionate share of payments made by the Company under the Credit Agreement. 8 1/4% SUBORDINATED NOTE OFFERING On February 3, 1993 the Company effected a public offering of $145.0 million of its 8 1/4% Subordinated Notes and applied the net proceeds therefrom to redeem $135.0 million of its 14% Subordinated Debentures, together with premiums and accrued interest thereon. Lehman Brothers Inc., an affiliate of the Lehman Funds, acted as an underwriter in connection with the offering and received underwriting fees of approximately $2.4 million. THE OFFERINGS Lehman Brothers Inc. is an Underwriter for the Offerings and will receive compensation in such capacity. STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT The Amended and Restated Stockholders and Registration Rights Agreement, dated as of September 27, 1991 (the "Stockholders and Registration Rights Agreement"), among the Company, the Lehman Funds, FIMA and the Management Investors was entered into in connection with the 1991 Transactions. Upon consummation of the Offerings, the Stockholders and Registration Rights Agreement will be amended in order, among other things, to relax certain restrictions on transfers of Common Stock owned by the parties thereto and to remove the rights of each Management Investor to require the Company to purchase his or her shares upon death, disability and certain events of termination. Upon consummation of the Offerings, the Stockholders and Registration Rights Agreement will provide, among other things, that (i) if FIMA desires to sell more than 5% of the fully diluted shares of Common Stock of the Company in a transaction or series of related transactions to a single third party (a "Substantial Sale") prior to September 27, 1995 or such later date prior to September 27, 2001 to which the right of the Lehman Funds to compel the transfer of the Company (described in clause (iii) below) is extended, FIMA must offer such shares to the Lehman Funds prior to offering them to such third party; (ii) the Lehman Funds, FIMA and, to a limited extent after September 27, 1996, the Management Investors will have the right to include their shares of Common Stock in Substantial Sales by the Lehman Funds and FIMA until September 27, 2001; and (iii) the Lehman Funds may compel all stockholders party to the Stockholders and Registration Rights Agreement to sell their shares 75 79 of Common Stock, or otherwise cause the transfer thereof, in a sale of the Company prior to September 27, 1995 or such later date prior to September 27, 2001 selected by the Lehman Funds. The Stockholders and Registration Rights Agreement will continue (i) to place significant restrictions on the Management Investors' rights to transfer their shares to a third party prior to September 27, 1996 and (ii) to include certain registration rights. See "Description of Capital Stock -- Stockholders and Registration Rights Agreement." MANAGEMENT EQUITY PARTICIPATION The Management Investors entered into Management Subscription Agreements with the Company dated as of September 29, 1988 (collectively, the "Management Equity Agreement") pursuant to which each of the Management Investors purchased Common Stock at $100.00 per share for consideration consisting of cash and/or recourse or non-recourse promissory notes (the "Management Notes"). As of December 31, 1993, the outstanding balance of the Management Notes of each of Messrs. Way and Rossiter was approximately $498,000 and the outstanding balance of the Management Notes of each of Messrs. Vandenberghe, Hollars and Melson was approximately $166,000. Each of the Management Notes, including accrued interest, matures on January 25, 1997 and bears interest at a rate of LIBOR plus 1.50%. In addition, pursuant to the 1988 Stock Option Plan, as of January 31, 1993, the Company granted to the Management Investors options to acquire an aggregate of up to 63,055 authorized but unissued shares of the Company's Common Stock. These options of the Management Investors vested over the course of three years and are exercisable for $42.50 per share, in cash, which is lower than the $100.00 per share paid in connection with the 1988 Acquisition. These options must be exercised within ten years of the date of grant. See "Executive Compensation -- 1988 Stock Option Plan." Under the 1992 Stock Option Plan, the Company may grant up to 58,000 options to certain management personnel. As of December 31, 1993, all of these options have been granted and are vested. All options under the 1992 Stock Option Plan become exercisable at $165 per share as of September 28, 1996 or sooner in the case of certain triggering events. In addition, under the 1994 Stock Option Plan, directors, officers and employees of the Company may receive awards of stock options. See "Executive Compensation -- 1994 Stock Option Plan." 76 80 PART IV ITEM 14 -- EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this Form 10-K. 1. Consolidated Financial Statements: Report of Independent Public Accountants Consolidated Balance Sheets as of June 30, 1992, 1993 and December 31, 1993. Consolidated Statements of Operations for the years ended June 30, 1991, 1992 and 1993 and for the twelve months and six months ended December 31, 1993. Consolidated Statements of Stockholders' Equity for the years ended June 30, 1991, 1992 and 1993 and for the twelve months and six months ended December 31, 1993. Consolidated Statements of Cash Flows for the years ended June 30, 1991, 1992 and 1993 and for the twelve months and six months ended December 31, 1993. Notes to Consolidated Financial Statements 2. Financial Statement Schedules: Report of Independent Public Accountants Schedule II -- Amounts Receivable from Employees Schedule V -- Property, Plant and Equipment Schedule VI -- Accumulated Depreciation of Property, Plant and Equipment Schedule VII -- Guarantees of Securities of Other Issuers Schedule VIII -- Valuation and Qualifying Accounts Schedule X -- Supplementary Income Statement Information 3. The exhibits listed on the "Index to Exhibits" on page 78 are filed with this Form 10-K or incorporated by reference as set forth below. (b) No reports on Form 8-K were filed during the quarter ended December 31, 1993. 77 81 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - --------- --------------------------------------------------------------------- 3.1 -- Certificate of Incorporation of Lear Seating Corporation ("Lear" or the "Company"), as currently in effect on September 30, 1988 (incorporated by reference to Exhibit 3.1 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-25256)). 3.2 -- Certificate of Amendment as filed on May 15, 1990 to the Certificate of Incorporation of Lear (incorporated by reference to Exhibit 3.2 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-47867)). 3.3 -- Form of Restated Certificate of Incorporation of Lear to be filed prior to the consummation of the Offerings. 3.4 -- Amended and Restated By-laws of Lear (incorporated by reference to Exhibit 3.4 to Lear's Registration Statement on Form S-1 (No. 33-52565). 3.5 -- Merger Agreement dated December 31, 1993, by and between Lear and Holdings (incorporated by reference to Exhibit 3.4 to Lear's Registration Statement on Form S-1 (No. 33-51317)). 4.1 -- Indenture by and between Lear and The First National Bank of Boston, as Trustee, relating to the 8 1/4% Subordinated Notes. 4.2 -- Form of 11 1/4% Senior Subordinated Note Indenture dated as of July 15, 1992 between Lear and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-47867)). 10.1 -- Amended and Restated Credit Agreement dated as of October 25, 1993 (the "Credit Agreement") among Holdings, Lear, Chemical Bank, as agent for the bank parties thereto, and Bankers Trust Company, The Bank of Nova Scotia, Citicorp USA, Inc. and Lehman Commercial Paper Inc., as managing agents (incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1993). 10.2 -- Amendment No. 1 to the Credit Agreement dated as of January 27, 1994 (incorporated by reference to Exhibit 10 to Lear's Current Report on Form 8-K dated February 11, 1994). 10.3 -- Credit Agreement dated as of March 8, 1989, as amended June 21, 1989 (the "Canadian Credit Agreement"), between Lear Seating Canada, Ltd. and The Bank of Nova Scotia with respect to the establishment of credit facilities (incorporated by reference to Exhibit 10.28 to Lear's Annual Report on Form 10-K for the year ended June 30, 1989). 10.4 -- Amendment dated September 13, 1989 to the Canadian Credit Agreement (incorporated by reference to Exhibit 10.30 to Lear's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989). 10.5 -- Amendment dated March 28, 1990 to the Canadian Credit Agreement (incorporated by reference to Exhibit 10.11 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-47867)). 10.6 -- Amendment dated October 11, 1990 to the Canadian Credit Agreement (incorporated by reference to Exhibit 10.12 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-47867)). 10.7 -- Amendment dated January 23, 1992 to the Canadian Credit Agreement (incorporated by reference to Exhibit 10.13 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-47867)).
78 82
EXHIBIT NUMBER EXHIBIT - --------- --------------------------------------------------------------------- 10.8 -- Senior Executive Incentive Compensation Plan of Lear (incorporated by reference to Exhibit 10.14 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-47867)). 10.9 -- Management Incentive Compensation Plan of Lear (incorporated by reference to Exhibit 10.15 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-47867)). 10.10 -- Form of Warrant Agreement dated as of December 15, 1988 between Holdings and Norwest Bank, N.A., as Warrant Agent (incorporated by reference to Exhibit 4.3 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-25256)). 10.11 -- Stock Option Agreement dated as of September 29, 1988 between Holdings and certain management investors (the "Management Investors") (incorporated by reference to Exhibit 10.6 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-25256)). 10.12 -- Employment Agreement dated September 29, 1998 between Lear and Kenneth L. Way (incorporated by reference to Exhibit 10.7 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-25256)). 10.13 -- Employment Agreement dated September 29, 1988 between Lear and Robert E. Rossiter (incorporated by reference to Exhibit 10.8 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-25256)). 10.14 -- Employment Agreement dated September 29, 1988 between Lear and James H. Vandenberghe (incorporated by reference to Exhibit 10.9 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-25256)). 10.15 -- Employment Agreement dated September 29, 1988 between Lear and James A. Hollars (incorporated by reference to Exhibit 10.10 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-25256)). 10.16 -- Employment Agreement dated September 29, 1988 between Lear and Randal T. Murphy (incorporated by reference to Exhibit 10.12 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-25256)). 10.17 -- Employment Agreement dated as of September 29, 1988 between Lear and Ted E. Melson (incorporated by reference to Exhibit 10.13 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-25256)). 10.18 -- Employment Agreement dated June 1, 1992 between Lear and Donald J. Stebbins (incorporated by reference to Exhibit 10.17 to Lear's Registration Statement on Form S-1 (No. 33-51317)). 10.19 -- Amendments to Employment Agreements dated as of September 21, 1991 by and between Lear and each of Messrs. Way, Vandenberghe, Rossiter, Hollars, Melson and Murphy (incorporated by reference to Exhibit 28.7 to Holdings' Current Report on Form 8-K dated September 24, 1991). 10.20 -- Stock Purchase Agreement dated July 25, 1990 by and between Fair Haven Industries, Inc., Bradley D. Osgood, Robert Michelin and LS Acquisition Corporation No. 24. (incorporated by reference to Exhibit 10.34 to Holdings' Annual Report on Form 10-K for the year ended June 30, 1991). 10.21 -- Purchase Agreement dated July, 1990 by and between Fairfax Industries, Inc. and LS Acquisition Corporation No. 24 (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended June 30, 1991).
79 83
EXHIBIT NUMBER EXHIBIT - --------- --------------------------------------------------------------------- 10.22 -- Amended and Restated Stockholders and Registration Rights Agreement dated as of September 27, 1991 by and among Holdings, the Lehman Funds, Lehman Merchant Banking Partners Inc., as representative of the Lehman Partnerships, FIMA Finance Management Inc., a British Virgin Islands corporation, and the Management Investors (incorporated by reference to Exhibit 2.2 to Holdings' Current Report on Form 8-K dated September 24, 1991). 10.23 -- Waiver and Agreement dated September 27, 1991, by and among Holdings, Kidder Peabody Group Inc., KP/Hanover Partners 1988, L.P., General Electric Capital Corporation, FIMA Finance Management Inc., a Panamanian corporation, FIMA Finance Management Inc., a British Virgin Islands corporation, MH Capital Partners Inc., successor by merger and name change to MH Equity Corp., SO.PA.F. Societa Partecipazioni Finanziarie S.p.A., INVEST Societa Italiana Investimenti S.p.A., the Lehman Partnerships and the Management Investors (incorporated by reference to Exhibit 2.3 to Holdings' Current Report on Form 8-K dated September 24, 1991). 10.24 -- Form of Amendment to Amended and Restated Stockholders and Registration Rights Agreement. 10.25 -- 1992 Stock Option Plan (incorporated by reference to Exhibit 10.7 to Lear's Annual Report on Form 10-K for the year ended June 30, 1993). 10.26 -- Form of Amendment to 1992 Stock Option Plan. 10.27 -- Form of 1994 Stock Option Plan. 10.28 -- Stock Purchase Agreement dated as of July 21, 1992 among the Company, the Lehman Funds and FIMA Finance Management Inc., a British Virgin Islands corporation (incorporated by reference to Exhibit 10.33 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-47867)). 10.29 -- Asset Purchase & Supply Agreement dated as of November 18, 1991 between Lear Seating Sweden, AB and Volvo Car Corporation (incorporated by reference to Exhibit 10.34 to Holdings' and Lear's Registration Statement on Form S-1 (No. 33-47867)). 10.30 -- Purchase Agreement dated as of November 1, 1993 between the Company and Ford Motor Company (incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1993). 11.1 -- Computation of income (loss) per share. 21.1 -- List of subsidiaries of the Company.
80 84 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 28, 1994. Lear Seating Corporation By: /s/ KENNETH L. WAY ------------------------ Kenneth L. Way Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Lear Seating Corporation and in the capacities indicated March 28, 1994. /s/ KENNETH L. WAY /s/ LARRY MCCURDY ------------------------ --------------------- Kenneth L. Way Larry McCurdy Chairman of the Board and a Director Chief Executive Officer /s/ JAMES H. VANDENBERGHE /s/ JEFFREY P. HUGHES ------------------------------- ------------------------- James H. Vandenberghe Jeffrey P. Hughes Executive Vice President and Secretary a Director (Principal Financial Officer) /s/ GIAN ANDREA BOTTA ------------------------------- ----------------------- Robert E. Rossiter Gian Andrea Botta a Director a Director /s/ DAVID P. SPALDING /s/ ROBERT SHOWER -------------------------- --------------------- David P. Spalding Robert Shower a Director a Director /s/ ELIOT FRIED /s/JAMES A. STERN ------------------- --------------------- ELIOT FRIED JAMES A. STERN A DIRECTOR A DIRECTOR /S/ GORDON C. DAVIDSON /s/ N. PETER RUYS ---------------------------- ---------------------- Gordon C. Davidson N. Peter Ruys a Director a Director
81 EX-3.3 2 EXHIBIT 3.3 1 EXHIBIT 3.3 RESTATED CERTIFICATE OF INCORPORATION OF LEAR SEATING CORPORATION Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware The undersigned, being the Executive Vice President and Secretary and the Vice President, Treasurer and Assistant Secretary of Lear Seating Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), do hereby certify as follows: FIRST: The name of the Corporation is Lear Seating Corporation. The date of filing of the Corporation's original Certificate of Incorporation was January 13, 1987. The name under which the Corporation was originally incorporated was LS Acquisition Corp. No. 30. SECOND: This Restated Certificate of Incorporation, which amends and restates the Corporation's original Certificate of Incorporation, as heretofore amended, was duly adopted in accordance with the provisions of sections 242 and 245 of the General Corporation Law of the State of Delaware (the "Delaware General Corporation Law"). THIRD: The Restated Certificate of Incorporation of the Corporation shall read in its entirety as follows: ARTICLE 1 The name of the Corporation is: LEAR SEATING CORPORATION ARTICLE 2 The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at that address is The Corporation Trust Company. ARTICLE 3 The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law. 2 ARTICLE 4 4.1 The total number of shares of stock which the Corporation shall have authority to issue is 150,000,000 shares of Common Stock, each having a par value of $.01 (the "Common Stock"), and 15,000,000 shares of Preferred Stock, each having a par value of $.01 (the "Preferred Stock"). 4.2 Each holder of record of shares of Common Stock shall be entitled to vote at all meetings of the stockholders and shall have one vote for each share held by him of record. 4.3 Subject to all of the rights of the holders of all classes or series of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive dividends at such times and in such amounts as may be determined by the Board of Directors of the Corporation. 4.4 The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series and as may be permitted by the Delaware General Corporation Law, including without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions. ARTICLE 5 The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: (a) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. -2- 3 (b) The directors shall have concurrent power with the stockholders to make, alter, amend, change, add to or repeal the By-Laws of the Corporation. (c) The number of directors of the Corporation shall be as from time to time fixed by, or in the manner provided in, the By-Laws of the Corporation. Election of directors need not be by written ballot unless the By-Laws so provide. (d) The directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At each annual meeting of the stockholders, successors to the class of directors whose term expires at the annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly as equal as possible, but in no case shall a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement or removal from office. (e) Subject to the rights, if any, of holders of any series of Preferred Stock then outstanding, any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring in the Board of Directors may be filled by a majority of the directors then in office, even if less than a quorum. Any director elected to fill a vacancy resulting from an increase in the size of a class of directors shall hold office for a term that shall coincide with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. (f) No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. -3- 4 (g) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the Delaware General Corporation Law, this Restated Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted. ARTICLE 6 The Corporation shall indemnify, in accordance with and to the full extent now or hereafter permitted by law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, an action by or in the right of the Corporation), by reason of his acting as a director of the Corporation (and the Corporation, in the discretion of the Board of Directors, may so indemnify a person by reason of the fact that he is or was an officer or employee of the Corporation or is or was serving at the request of the Corporation in any other capacity for or on behalf of the Corporation) against any liability or expense actually or reasonably incurred by such person in respect thereof; provided, however, that the Corporation shall not be obligated to indemnify any such person: (1) with respect to proceedings, claims or actions initiated or brought voluntarily without the authorization or consent of the Corporation by such person and not by way of defense; or (ii) for any amounts paid in settlement of an action effected without the prior written consent of the Corporation to such settlement. Such indemnification is not exclusive of any other right of indemnification provided by law, agreement or otherwise. ARTICLE 7 No amendment to or repeal of Articles 5(f) or 6 of this Restated Certificate of Incorporation shall apply to or have any effect on the rights of any individual referred to in Articles 5(f) or 6 for or with respect to acts or omissions of such individual occurring prior to such amendment or repeal. ARTICLE 8 Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the Delaware General Corporation Law) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. -4- 5 ARTICLE 9 No stockholder of the Corporation shall by reason of holding shares of any class of stock have any pre-emptive or preferential right to purchase or subscribe to any shares of any class of stock of the Corporation, now or hereafter to be authorized, or any notes, debentures, bonds, or other securities convertible into or carrying options or warrants to purchase shares of any class of such stock, now or hereafter to be authorized, whether or not the issuance of any such shares, or such notes, debentures, bonds or other securities would adversely affect the dividend or voting rights of such stockholder, other than such rights, if any, as the Board of Directors, in its discretion from time to time, may grant and at such price as the Board of Directors in its discretion may fix; and the Board of Directors may issue shares of any class of stock of the Corporation, or any notes, debentures, bonds or other securities convertible into or carrying options or warrants to purchase shares of any class of such stock, without offering any such shares of any class, either in whole or in part, to the existing stockholders of any class of such stock. ARTICLE 10 Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of the Delaware General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of the Delaware General Corporation Law, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. ARTICLE 11 The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated -5- 6 Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned have executed this Certificate this day of , 1994. ______________________________ James H. Vandenberghe Executive Vice President ATTEST: ______________________________ Donald J. Stebbins Vice President, Treasurer and Assistant Secretary -6- EX-4.1 3 EXHIBIT 4.1 1 EXHIBIT 4.1 INDENTURE dated as of February 1, 1994, among LEAR SEATING CORPORATION, a Delaware corporation (the "Company"), as issuer, and THE FIRST NATIONAL BANK OF BOSTON, as trustee (the "Trustee"). Each Party hereto agrees as follows for the equal and ratable benefit of the Holders of the Company's 8 1/4% Subordinated Notes Due 2002 (the "Securities"): ARTICLE I Definitions and Incorporation by Reference SECTION 1.01. Definitions. "Acquired Indebtedness" means, with respect to the Company, Indebtedness of a person existing at the time such person becomes a subsidiary of the Company or assumed in connection with the acquisition by the Company or a subsidiary of the Company of assets from such person, which assets constitute all of an operating unit of such person, and not incurred in connection with, or in contemplation of, such person becoming a subsidiary of the Company or such acquisition. "Affiliate" means, when used with reference to the Company or another person, any person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company or such other person, as the case may be. For the purposes of this definition, "control" when used with respect to any specified person means the power to direct or cause the direction of management or policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. Notwithstanding the foregoing, the term Affiliate shall not include any wholly owned subsidiary of the Company. "Agent" means any Registrar, Paying Agent or agent for service of notices and demands. "Agent Bank" means Chemical Bank and/or its Affiliates together with any bank which is or becomes a party to the Credit Agreement or any successor to Chemical 2 2 Bank and/or its Affiliates, and any other Agent Bank under the Credit Agreement. "Asset Sale" means any sale exceeding $2,000,000 or any series of sales in related transactions exceeding $2,000,000 in the aggregate, by the Company or any subsidiary of the Company, directly or indirectly, of properties or assets other than in the ordinary course of business, including capital stock of a subsidiary of the Company, except for (i) the sale of receivables by the Company or any subsidiary of the Company in the ordinary course of business consistent with past practices of the Company or any of its subsidiaries, or the transfer of receivables to a special-purpose subsidiary of the Company and the issuance by such special-purpose subsidiary, on a basis that is nonrecourse (except for representations as to the status or eligibility of such receivables or to the limited extent described in clause (vii)(B) of the definition of "Permitted Indebtedness") to the Company or any other subsidiary of the Company, of securities secured by such receivables, and (ii) any sale- and- lease-back transaction involving a Capitalized Lease Obligation permitted under Section 4.03. "average weighted life" means, as of the date of determination, with reference to any debt security, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payment of such debt security multiplied by the amount of such principal payment by (ii) the sum of all such principal payments. "Board of Directors" means, with respect to any person, the Board of Directors of such person or any duly authorized committee of such Board of Directors. "Board Resolution" means a copy of a resolution certified by the secretary or an assistant secretary of such person to have been duly adopted by the Board of Directors of such person or any duly authorized committee thereof and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means a day that is not a Legal Holiday as defined in Section 12.07. "capital stock" means any and all shares, interests, participations, rights or other equivalents (however 3 3 designated) of corporate stock and any and all forms of partnership interests or other equity interests in a person. "Capitalized Lease Obligation" means any lease obligation of a person incurred with respect to any property (whether real, personal or mixed) acquired or leased by such person and used in its business that is accounted for as a capital lease on the balance sheet of such person in accordance with GAAP. "Cash Equivalents" means (A) any evidence of Indebtedness maturing, or otherwise payable without penalty, not more than 365 days after the date of acquisition issued by the United States of America or an instrumentality or agency thereof and guaranteed fully as to principal, premium, if any and interest by the United States of America, (B) any certificate of deposit maturing, or otherwise payable without penalty, not more than 365 days after the date of acquisition issued by, or time deposit of, a commercial banking institution that has combined capital and surplus of not less than $300,000,000, whose debt is rated, at the time as of which any Investment therein is made, "A2" (or higher) according to Moody's or "A" (or higher) according to S & P, (C) commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate or subsidiary of the Company) organized and existing under the laws of the United States of America or any jurisdiction thereof, with a rating, at the time as of which any Investment therein is made, of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P and (D) any money market deposit accounts issued or offered by any domestic institution in the business of accepting money market accounts or any commercial bank having capital and surplus in excess of $300,000,000. "Cash Proceeds" means, with respect to any Asset Sale, cash payments (including any cash received by way of deferred payment pursuant to a note receivable or otherwise, but only as and when so received) received from such Asset Sale. "Change of Control" means an event or series of events by which (i) a party other than a Permitted Investor or any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) directly or indirectly controlling, controlled by, or under common control with the Permitted Investors (1) is or becomes the "beneficial owner" 4 4 (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire without condition, other than the passage of time, whether such right is exercisable immediately or only after the passage of time) of 50% or more of the Voting Stock of the Company, (2) is or becomes a shareholder of the Company with the right to appoint or remove directors of the Company holding 50% or more of the voting rights at meetings of the Board of Directors on all, or substantially all, matters or (3) is or becomes able to exercise the right to give directions with respect to the operating and financial policies of the Company with which the relevant directors are obliged to comply by reason of: (A) provisions contained in the organizational documents of the Company or (B) the existence of any contract permitting such person to exercise control over the Company; provided, that the Permitted Investors, and any person directly or indirectly controlling, controlled by, or under common control with the Permitted Investors, together, are the "beneficial owners" of a lesser percentage of the Voting Stock of the Company than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Company; (ii) the Company consolidates with, or merges or amalgamates with or into another person or conveys, transfers, or leases all or substantially all of its assets to any person, or any person consolidates with, or merges or amalgamates with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where (A) the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving corporation which is not redeemable capital stock or (x) such Voting Stock and (y) cash, securities and other property in an amount which could be paid by the Company as a Restricted Payment pursuant to Section 4.03 (and such amount shall be treated as a Restricted Payment subject to the provisions of Section 4.03) and (B) the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of the surviving corporation immediately after such transaction; (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by 5 5 the shareholders of the Company was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (iv) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the Indenture). "Change of Control Triggering Event" means the occurrence of both a Change of Control and a Rating Decline. "Commercial Letter of Credit" means any letter of credit or similar instrument issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by the Company or any of its subsidiaries in the ordinary course of business of the Company or such subsidiary. "Common Stock" means the common stock, par value $.01 per share, of the Company. "Company" means the party named as such in this Indenture, or any other obligor under this Indenture, until a successor replaces it pursuant to this Indenture and thereafter means the successor. "Consolidated" or "consolidated" means, when used with reference to any amount, such amount determined on a consolidated basis in accordance with GAAP, after the elimination of intercompany items. "Consolidated Adjusted Net Worth" means, with respect to any person, as of any date of determination, the total amount of stockholders' equity of such person and its subsidiaries which would appear on the consolidated balance sheet of such person as of the date of determination, less (to the extent otherwise included therein) the following (the amount of such stockholders' equity and deductions therefrom to be computed, except as noted below, in accordance with GAAP): (i) an amount attributable to interests in subsidiaries of such person held by persons other than such person or its subsidiaries; (ii) any reevaluation or other write-up in book value of assets subsequent to December 31, 1993, other than upon the acquisition of assets acquired in a transaction to be accounted for by purchase 6 6 accounting under GAAP made within twelve months after the acquisition of such assets; (iii) treasury stock; (iv) an amount equal to the excess, if any, of the amount reflected for the securities of any person which is not a subsidiary over the lesser of cost or market value (as determined in good faith by the Board of Directors) of such securities; and (v) Disqualified Stock of the Company or any subsidiary of the Company. "Consolidated Amortization Expense" means for any person, for any period, the amortization of goodwill and other intangible items of such person and its subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Cash Flow Available for Interest Expense" means, for any person and the Company, the sum of the aggregate amount, for the four fiscal quarters for which financial information in respect thereof is available immediately prior to the date of the transaction giving rise to the need to calculate the Consolidated Cash Flow Available for Interest Expense (the "Transaction Date"), of (i) Consolidated Net Income (Loss) of such person, (ii) Consolidated Income Tax Expense, (iii) Consolidated Depreciation Expense, (iv) Consolidated Amortization Expense, (v) Consolidated Interest Expense and (vi) other noncash items reducing Consolidated Net Income (Loss), minus noncash items increasing Consolidated Net Income (Loss). Consolidated Cash Flow Available for Interest Expense for any period shall be adjusted to give pro forma effect (to the extent applicable) to (i) each acquisition by the Company or a subsidiary of the Company during such period up to and including the Transaction Date (the "Reference Period") in any person which, as a result of such acquisition, becomes a subsidiary of the Company, or the acquisition of assets from any person which constitutes substantially all of an operating unit or business of such person and (ii) the sale or other disposition of any assets (including capital stock) of the Company or a subsidiary of the Company, other than in the ordinary course of business, during the Reference Period, as if such acquisition or sale or disposition of assets by the Company or any subsidiary of the Company occurred on the first day of the Reference Period. "Consolidated Depreciation Expense" means for any person, for any period, the depreciation expense of such 7 7 person and its subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Income Tax Expense" means, for any person, for any period, the aggregate of the income tax expense of such person and its subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, for any person, for any period, the sum of (a) the Interest Expense of such person and its subsidiaries for such period, determined on a consolidated basis, (b) dividends in respect of preferred or preference stock of a subsidiary of the Company held by persons other than the Company or a wholly owned subsidiary of the Company and (c) interest incurred during the period and capitalized by the Company and its subsidiaries on a consolidated basis in accordance with GAAP. For purposes of clause (b) of the preceding sentence, dividends shall be deemed to be an amount equal to the actual dividends paid divided by one minus the applicable actual combined Federal, state, local and foreign income tax rate of the Company (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Consolidated Interest Expense. "Consolidated Interest Expense Coverage Ratio" means, with respect to any person, the ratio of (i) the aggregate amount of the applicable Consolidated Cash Flow Available for Interest Expense of such person to (ii) the aggregate Consolidated Interest Expense which such person shall accrue during the first full fiscal quarter following the Transaction Date and the three fiscal quarters immediately subsequent to such fiscal quarter, such Consolidated Interest Expense to be calculated on the basis of the amount of such person's Indebtedness (on a consolidated basis) outstanding on the Transaction Date and reasonably anticipated by such person in good faith to be outstanding from time to time during such period. "Consolidated Net Income (Loss)" means, with respect to any person, for any period, the aggregate of the net income (loss) of such person and its subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein) (i) the net income (loss) of any person which is not a subsidiary of such person and which is accounted for by the 8 8 equity method of accounting, except to the extent of the amount of cash dividends or distributions paid by such other person to such person or to a subsidiary of such person, (ii) the net income (loss) of any person accrued prior to the date on which it is acquired by such person or a subsidiary of such person in a pooling of interests transaction, (iii) except for NS Beiteiligungs GmbH (a German Foreign Subsidiary) or any successor entity, the net income (loss) of any subsidiary of such person to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by that subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such subsidiary, in each case determined in accordance with GAAP, (iv) any gain or loss, together with any related provision for taxes in respect of such gain or loss, realized upon the sale or other disposition (including, without limitation, dispositions pursuant to sale-and-lease-back transactions) of any asset or property outside of the ordinary course of business and any gain or loss realized upon the sale or other disposition by such person of any capital stock or marketable securities and (v) any noncash charges incurred by the Company at any time in connection with the adoption of SFAS 106. "Corporate Trust Office" means the office of the Trustee located in New York, New York, at which at any particular time its corporate services business shall be principally administered, which office at the date of execution of this Indenture is located at The First National Bank of Boston, c/o BancBoston Trust Company of New York, 55 Broadway - 3rd Floor, New York, NY 10006. "Credit Agreement" means the Amended and Restated Credit Agreement dated as of October 25, 1993 among the Company, Lear Holdings Corporation, the several financial institutions parties thereto from time to time (the "Banks") and the Agent Bank, as the same has been heretofore amended and may be amended hereafter from time to time, and any subsequent credit agreement constituting a refinancing, extension or modification thereof. "Default" means any event which is, or after notice or lapse of time or both would be, an Event of Default. "Defaulted Interest" means the interest provided for in Section 2.13. 9 9 "Disinterested Director" means, with respect to an Affiliate Transaction or series of related Affiliate Transactions, a member of a Board of Directors who has no financial interest, and whose employer has no financial interest, in such Affiliate Transaction or series of related Affiliate Transactions. "Disqualified Stock" means any capital stock of the Company or any subsidiary of the Company which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Securities or which is exchangeable or convertible into debt securities of the Company or any subsidiary of the Company except to the extent that such exchange or conversion rights cannot be exercised prior to the maturity of the Securities. "Event of Default" shall have the meaning provided in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Foreign Subsidiary" means any subsidiary of the Company organized and conducting its principal operations outside the United States. "GAAP" means generally accepted accounting principles on a basis consistently applied. "guarantee" means, as applied to any Obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such Obligation or (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of nonperformance) of any part or all of such Obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. Notwithstanding anything herein to the contrary, a guarantee shall not include any agreement solely because such agreement creates a Lien on the assets of any person. The amount of a guarantee shall be deemed to be the maximum amount of 10 10 the Obligation guaranteed for which the guarantor could be held liable under such guarantee. "Holder" or "Securityholder" means the person in whose name a Security is registered on the Registrar's books. "Indebtedness" means (without duplication), with respect to any person, any indebtedness, contingent or otherwise, in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (except any such balance that constitutes a trade payable in the ordinary course of business that is not overdue by more than 120 days or is being contested in good faith), if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such person prepared on a consolidated basis in accordance with GAAP, and shall also include letters of credit, Obligations with respect to Interest Swap Obligations, any Capitalized Lease Obligation, the maximum fixed repurchase price of any Disqualified Stock, Obligations secured by a Lien to which any property or asset, including leasehold interests under Capitalized Lease Obligations and any other tangible or intangible property rights, owned by such person is subject, whether or not the Obligations secured thereby shall have been assumed (provided that, if the Obligations have not been assumed such Obligations shall be deemed to be in an amount not to exceed the fair market value of the property or properties to which the Lien relates, as determined in good faith by the Board of Directors of such person and as evidenced by a Board Resolution), and guarantees of items which would be included within this definition (regardless of whether such items would appear upon such balance sheet; provided that for the purpose of computing the amount of Indebtedness outstanding at any time, such items shall be excluded to the extent that they would be eliminated as intercompany items in consolidation). For purposes of the preceding sentence, the maximum fixed repurchase price of any Disqualified Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were repurchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock (or any equity security for 11 11 which it may be exchanged or converted), such fair market value shall be determined in good faith by the Board of Directors of such person. "Indenture" means this Indenture, as amended, supplemented or modified from time to time. "Independent Financial Advisor" means a reputable accounting, appraisal or investment banking firm that is, in the reasonable judgment of the Board of Directors of the Company or a subsidiary of the Company, qualified to perform the task for which such firm has been engaged hereunder and disinterested and independent with respect to the Company and its Affiliates. "Initial Public Offering" means the sale of capital stock of the Company pursuant to (a) a registration statement under the Securities Act that has been declared effective by the SEC or (b) a public offering outside the United States and which results, in either case, in an active trading market for such shares. An active trading market shall be deemed to exist if such shares are listed or quoted on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System or any major international trading market or exchange. "Interest Expense" means for any person, for any period, the aggregate amount of interest in respect of Indebtedness (including all fees and charges owed with respect to letters of credit and bankers' acceptance financing and the net costs associated with Interest Swap Obligations and all but the principal component of rentals in respect of Capitalized Lease Obligations) incurred or scheduled to be incurred by such person during such period, all as determined in accordance with GAAP, except that non-cash amortization or write-off of deferred financing fees and expenses shall not be included in the calculation of Interest Expense. For purposes of this definition, (a) interest on Indebtedness determined on a fluctuating basis for periods succeeding the date of determination shall be deemed to accrue at a rate equal to the rate of interest on such Indebtedness in effect on the last day of the fiscal quarter immediately preceding the date of determination and (b) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined in good faith by the chief financial officer and the chief accounting officer of such person to be the rate of interest implicit in such Capitalized Lease Obligation in accordance 12 12 with GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board). "Interest Swap Obligation" means, with respect to any person, the Obligations of such person pursuant to any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or a floating rate of interest on the same notional amount. "Investment" of any person means (i) all investments by such person in any other person in the form of loans, advances or capital contributions, (ii) all guarantees of Indebtedness or other obligations of any other person by such person, (iii) all purchases (or other acquisitions for consideration) by such person of Indebtedness, capital stock or other securities of any other person and (iv) all other items that would be classified as investments (including, without limitation, purchases of assets outside the ordinary course of business) on a balance sheet of such person prepared in accordance with GAAP. "Investment Grade" is defined as BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's. "Letters of Credit" means the Letters of Credit as defined in the Credit Agreement as in effect on October 25, 1993. "Lien" means any lien, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement or any lease creating a Capitalized Lease Obligation). "Management Investors" means the persons who are designated as Management Investors in the Stockholders Agreement. "Moody's" means Moody's Investor Services, Inc. or if Moody's ceases to make a rating of the Securities publicly available, a nationally recognized securities rating agency selected by the Company. 13 13 "Net Cash Proceeds" means, with respect to any Asset Sale, the Cash Proceeds of such Asset Sale net of fees, commissions, expenses and other costs of sale (including payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness which is either secured by a Lien on the stock or other assets sold or can be or is accelerated by such sale), taxes paid or payable as a result thereof, and any amount required to be paid to any person (other than the Company or any of its subsidiaries) owning a beneficial interest in the stock or other assets sold, provided that when any non-cash consideration for an Asset Sale is converted into cash, such cash shall then constitute Net Cash Proceeds. "Obligation" means any principal, interest, premium, penalties, fees and any other liabilities payable under the documentation governing any Indebtedness. "Officer" of any person means the Chairman of the Board, the President, any Vice President, the Treasurer, the Secretary or the Controller of such person. "Officers' Certificate" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer, Assistant Secretary or Assistant Controller of any person. "Opinion of Counsel" means a written opinion from legal counsel prepared in accordance with Sections 12.04 and 12.05. The counsel may be an employee of or counsel to the Company. "Permitted Indebtedness" means: (i) Indebtedness of the Company pursuant to its Obligations under, or Indebtedness of any subsidiary of the Company under, the Credit Agreement; provided that in no event shall the aggregate amount of Indebtedness permitted to be outstanding at any one time pursuant to this clause (i) exceed $425,000,000 (less (x) any amounts outstanding in respect of the United States, Canada and Mexico under the program described in clause (xi) below (the "North American clause (xi) amounts") and (y) any amounts permanently repaid under the Credit Agreement but without deducting payments under the revolving credit facility and the swingline facility of the Credit Agreement unless the commitments thereunder have been permanently reduced and without deducting under this subclause (y) any such permanent repayments or permanent reductions made in respect of the North American clause (xi) amounts); (ii) Indebtedness represented by guarantees of 14 14 Indebtedness which is permitted by Section 4.03; (iii) Indebtedness evidenced by the Securities; (iv) Indebtedness of the Company to any subsidiary of the Company and Indebtedness of any subsidiary of the Company to the Company or another subsidiary of the Company, provided that the obligations of the Company to any of its subsidiaries with respect to such Indebtedness shall be subject to a subordination agreement between the Company and its subsidiaries providing for the subordination of such obligations in right of payment from and after such time as all Securities issued and outstanding shall become due and payable (whether at stated maturity, by acceleration or otherwise) to the payment and performance of the Company's obligations under this Indenture and the Securities and provided further that the Company or such subsidiary shall not become liable to any person other than the Company or a subsidiary of the Company with respect thereto; (v) Indebtedness of the Company or any subsidiary of the Company represented by Interest Swap Obligations, provided that such Interest Swap Obligations are related to payment Obligations on Indebtedness otherwise permitted by Section 4.03 and shall not result in an increase in the principal amount of the relevant underlying outstanding Indebtedness; (vi) Indebtedness of the Company and its subsidiaries, and any undrawn amounts under the Specified Lines of Credit or legally binding revolving credit or standby credit facilities existing on the date of this Indenture and Refinancing Indebtedness in respect of such Indebtedness or amounts; (vii) Indebtedness of the Company or any of its subsidiaries in respect of guarantees of receivables originated by the Company or any of its subsidiaries and sold to other persons to the extent that (A) the sale of such receivables does not constitute an Asset Sale and (B) such guarantees are in respect of warranties granted by the Company on the products giving rise to such receivables and such guarantees are not in respect of any other aspect of such receivables including, without limitation, the capacity of any customer to meet its obligations under such receivables; (viii) Indebtedness incurred for working capital purposes by Foreign Subsidiaries in aggregate principal amount at any one time outstanding not to exceed (in each case calculated based on currency exchange rates in effect at the time of any proposed incurrence of Indebtedness) (A) for Foreign Subsidiaries organized under the laws of countries located in Europe, $45,000,000 in the aggregate, (B) for Foreign Subsidiaries organized under the laws of Mexico, $30,000,000 in the aggregate, and (C) for Foreign Subsidiaries organized 15 15 under the laws of Canada, $25,000,000 in the aggregate; (ix) Indebtedness of the Company and its subsidiaries in respect of guarantees of Indebtedness of less than majority owned persons, provided that in no event shall Indebtedness permitted pursuant to this clause (ix) exceed $5,000,000; (x) other Indebtedness of the Company and of any subsidiary of the Company, provided that in no event shall the aggregate amount of Indebtedness of the Company and of subsidiaries of the Company permitted to be outstanding pursuant to this clause (x) at any one time exceed $50,000,000; and (xi) Indebtedness of special-purpose subsidiaries of the Company in respect of securities secured by receivables transferred to such special-purpose subsidiaries by the Company or a subsidiary of the Company, provided that (A) the transfer of such receivables does not constitute an Asset Sale, (B) such special-purpose subsidiaries engage in no activities other than the purchase of such receivables and the issuance of such securities, and (C) such securities are non-recourse to the Company or any subsidiary of the Company (except for representations as to the status or eligibility of such receivables or to the limited extent described in clause (vii)(B) above in this definition). "Permitted Investors" means the parties to the Stockholders Agreement (other than the Company) and their respective Affiliates. "Permitted Liens" means: (i) Liens for taxes, assessments, governmental charges or claims which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor; (ii) statutory Liens of landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other like Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate process of law, if a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return-of-money bonds and other Obligations of like nature incurred 16 16 in the ordinary course of business (exclusive of Obligations for the payment of borrowed money); (v) easements, rights-of-way, restrictions, zoning provisions and other governmental restrictions and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any of its subsidiaries; (vi) judgment Liens not giving rise to a Default or Event of Default; (vii) leases or subleases granted to others not interfering in any material respect with the business of the Company or any of its subsidiaries; (viii) Liens encumbering customary initial deposits and margin deposits, and other Liens incurred in the ordinary course of business and which are within the general parameters customary in the industry, in each case securing Indebtedness under Interest Swap Obligations; (ix) any interest or title of a lessor in the property subject to any Capitalized Lease Obligation or operating lease or any Lien granted by a lessor on such property which does not interfere in any material respect with the business of the Company and its subsidiaries; (x) Liens arising from filing UCC financing statements regarding leases; (xi) Liens securing reimbursement Obligations with respect to Commercial Letters of Credit which encumber documents and other property relating to such Commercial Letters of Credit and the products and proceeds thereof; (xii) other liens existing on the date of this Indenture; and (xiii) other Liens to secure Obligations not in excess of $1,000,000 in the aggregate at any time outstanding, except to secure Indebtedness; and (xiv) Liens securing Indebtedness permitted pursuant to clauses (i), (v), (vi), (viii), (x) and (xi) of the definition of Permitted Indebtedness. "person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "principal" of a debt security means the principal of the security plus, if such security has been called for redemption, the premium, if any, payable on such security upon redemption of such security. "Rating Decline" means the occurrence of the following on, or within 90 days after, the date of public notice of the occurrence of a Change of Control or of the intention of the Company to effect a Change of Control (which period shall be extended so long as the rating of the Securities is under publicly announced consideration for 17 17 possible downgrading by either Moody's or S&P): (i) in the event that the Securities are rated by either Moody's or S&P prior to the date of such public notice as Investment Grade, the rating of the Securities by both such rating agencies shall be decreased to below Investment Grade or (ii) in the event the Securities are rated below Investment Grade by both such rating agencies prior to the date of such public notice, the rating of the Securities by either rating agency shall be decreased by one or more gradations (including gradations within rating categories as well as between rating categories). "Redemption Date" means, with respect to any Security to be redeemed, the date fixed for such redemption pursuant to this Indenture. "Redemption Price" means, with respect to any Security to be redeemed, the price fixed for such redemption pursuant to this Indenture as set forth in paragraph 5 of the form of Security annexed hereto as Exhibit A. "refinance" has the meaning specified in the definition of "Refinancing Indebtedness", and "refinances", "refinancing" and "refinancings" have correlative meanings. "Refinancing Indebtedness" means Indebtedness of the Company and its subsidiaries, all of the net proceeds of which (after customary fees, expenses and costs related to the incurrence of such Indebtedness) are applied to repay, refund, prepay, repurchase, redeem, defease, retire or refinance (collectively, "refinance") outstanding Indebtedness permitted to be incurred under the terms of this Indenture; provided that Refinancing Indebtedness that refinances any Permitted Indebtedness shall be deemed to be incurred and to be outstanding under the relevant clause in the definition of "Permitted Indebtedness"; and provided further that (A) the original issue amount of the Refinancing Indebtedness shall not exceed the maximum principal amount and accrued interest of the Indebtedness to be repaid or, if greater in the case of clause (i) of the definition of Permitted Indebtedness, permitted to be outstanding under the agreements governing the Indebtedness being refinanced (or if such Indebtedness was issued at an original issue discount, the original issue price plus amortization of the original issue discount at the time of the incurrence of the Refinancing Indebtedness) plus the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness, (B) Refinancing 18 18 Indebtedness incurred by any subsidiary shall not be used to refinance outstanding Indebtedness of the Company and (C) with respect to any Refinancing Indebtedness which refinances Indebtedness which ranks pari passu or junior in right of payment to the Securities, (1) the Refinancing Indebtedness has an average weighted life which is equal to or greater than the average weighted life of the Indebtedness being refinanced, (2) if such Indebtedness being refinanced is pari passu in right of payment to the Securities, such Refinancing Indebtedness does not rank senior in right of payment to the payment of principal of and interest on the Securities, and (3) if such Indebtedness being refinanced is subordinated to the Securities, such Refinancing Indebtedness is subordinated to the Securities to the same extent and on substantially the same terms. "Representative" means the trustee, agent or representative for an issue of Senior Indebtedness. "Restricted Debt Prepayment" means any purchase, redemption, defeasance (including, but not limited to, in substance or legal defeasance) or other acquisition or retirement for value (collectively a "prepayment"), directly or indirectly, by the Company or a subsidiary of the Company (other than to the Company or a subsidiary of the Company), prior to the scheduled maturity or prior to any scheduled repayment of principal or sinking fund payment in respect of Indebtedness of the Company or such subsidiary which would be subordinate in right of payment to the Securities ("Prepaid Debt"); provided, however, that (i) any such prepayment of any Prepaid Debt (including without limitation the Subordinated Debentures) shall not be deemed to be a Restricted Debt Prepayment to the extent such prepayment is made (x) with the proceeds of the substantially concurrent sale (other than to a subsidiary of the Company) of shares of the capital stock (other than Disqualified Stock) of the Company or rights, warrants or options to purchase such capital stock of the Company or (y) in exchange for or with the proceeds from the substantially concurrent issuance of Refinancing Indebtedness and (ii) no Default or Event of Default shall have occurred and be continuing at the time or shall occur as a result of such sale of capital stock or issuance of such Indebtedness. "Restricted Investment" means, with respect to any person, any Investments by such person in (i) any of its Affiliates (other than its subsidiaries) or in any person that becomes an Affiliate (unless it becomes a subsidiary) 19 19 as a result of such Investment to the extent that the aggregate amount of all such Investments made after the date of this Indenture, whether or not outstanding, less the amount of cash received by such person upon the disposition of any such Investment, exceeds $25,000,000; (ii) any executive officer or director of such person or (iii) any executive officer or director of any Affiliate or any wholly owned subsidiary of such person; provided, that in the case of clauses (ii) and (iii), (x) loans to any individual executive officer or director of such person in an amount less than $100,000 in the aggregate outstanding at any time which have been approved by the chief executive officer of such person and (y) such loans in excess of that amount which have been approved by a majority of the Disinterested Directors of such person shall not be considered Restricted Investments. "Restricted Payment" means (i) any Restricted Stock Payment, (ii) any Restricted Debt Prepayment or (iii) any Restricted Investment. "Restricted Stock Payment" means (i) with respect to the Company, any dividend, either in cash or in property (except dividends payable in Common Stock), on, or the making by the Company of any other distribution in respect of, its capital stock, now or hereafter outstanding, or the redemption, repurchase, retirement or other acquisition for value by the Company or any subsidiary of the Company, directly or indirectly, of capital stock of the Company or any warrants, rights (other than exchangeable or convertible Indebtedness of the Company) or options to purchase or acquire shares of any class of the Company's capital stock, now or hereafter outstanding, and (ii) with respect to any subsidiary of the Company, any redemption, repurchase, retirement or other acquisition for value by the Company or a subsidiary of the Company of capital stock of such subsidiary or any warrants, rights (other than exchangeable or convertible Indebtedness of any subsidiary of the Company), or options to purchase or acquire shares of any class of capital stock of such subsidiary, now or hereafter outstanding, except with respect to capital stock of such subsidiary or such warrants, rights or options owned by (x) the Company or a subsidiary of the Company or (y) any person which is not an Affiliate of the Company. "S&P" means Standard & Poor's Corporation, or if it ceases to make a rating of the Securities publicly 20 20 available, a nationally recognized securities rating agency selected by the Company. "Seating Business" means the production, design, development, manufacture, marketing or sale of seat frames, seat systems, seat components, or vehicle interiors or any related businesses. "SEC" means the Securities and Exchange Commission and any government agency succeeding to its functions. "Securities" means the 8 1/4% Subordinated Notes due 2002 of the Company issued pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Senior Indebtedness" means the Obligations of the Company with respect to (i) any and all amounts payable by the Company under or in respect of its Obligations (including reimbursement obligations in respect of letters of credit) incurred and outstanding from time to time under the Credit Agreement, or any refinancings thereof (including interest accruing on or after filing of any petition in bankruptcy or reorganization relating to the Company, at the rate specified in such Senior Indebtedness whether or not a claim for post-filing interest is allowed in such proceeding), (ii) Interest Swap Obligations related to its Obligations on Senior Indebtedness, (iii) any and all amounts payable by the Company under or in respect of its Obligations incurred and outstanding under the Senior Subordinated Notes or any refinancings thereof, and (iv) any other Indebtedness of the Company, whether outstanding on the date of this Indenture or hereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness is not senior in right of payment to the Securities; provided that, notwithstanding the foregoing, Senior Indebtedness shall not include (A) Indebtedness which is represented by the Securities, (B) Indebtedness incurred in violation of this Indenture, (C) Indebtedness which is represented by Disqualified Stock, (D) amounts payable or any other Indebtedness to trade creditors created, incurred, assumed or guaranteed by the Company or any subsidiary of the Company in the ordinary course of business in connection with obtaining goods or services, (E) amounts payable or any other Indebtedness to employees of the Company or any 21 21 subsidiary of the Company as compensation for services, (F) Indebtedness of the Company to a subsidiary of the Company, (G) any liability for Federal, state, local or other taxes owed or owing by the Company, and (H) Indebtedness represented by the Subordinated Debentures. "Senior Subordinated Indebtedness" means, with respect to any person, any Indebtedness of a person that specifically provides that such Indebtedness is to rank pari passu with other Senior Subordinated Indebtedness of such person and is not subordinated by its terms to any Indebtedness of such person which is not Senior Indebtedness. "Senior Subordinated Notes" means the Company's 11-1/4% Senior Subordinated Notes due 2000, issued pursuant to an Indenture dated as of July 15, 1992, among Lear Holdings Corporation, the Company, and The Bank of New York, as trustee. "Senior Subordinated Notes Trustee" means The Bank of New York, or any duly appointed successor thereto, as trustee under an Indenture dated as of July 15, 1992, among Lear Holdings Corporation, the Company, and The Bank of New York, as trustee. "Significant Subsidiary" means one or more subsidiaries of the Company which, in the aggregate, have (i) assets, or in which the Company and its other subsidiaries have Investments, equal to or greater than 5% or more of the total assets of the Company and its subsidiaries consolidated at the end of the most recently completed fiscal year of the Company or (ii) consolidated gross revenue equal to or exceeding 5% of the consolidated gross revenue of the Company for its most recently completed fiscal year. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.13. "Specified Lines of Credit" means the following informal lines of credit existing on the date of this Indenture: (a) Indebtedness incurred by an Austrian Foreign Subsidiary to Sparkasse Bank under a working capital credit line in a principal amount not to exceed 20,000,000 Austrian schillings; (b) Indebtedness incurred by a Mexican Foreign Subsidiary to Banco Internacional under a note payable facility for working capital in principal amount not 22 22 to exceed $15,000,000; (c) Indebtedness incurred by a Mexican Foreign Subsidiary to Bancomer, Banco Mexicano and Banamex under a note payable facility for working capital in principal amount not to exceed 45,000,000 Mexican pesos; (d) Indebtedness incurred by a Swedish Foreign Subsidiary to SE Banken under a working capital credit facility in principal amount not to exceed 6,500,000 Swedish Krona; and (e) Indebtedness consisting only of trade acceptances of NS Beteiligungs GmbH and Lear Seating Sweden, AB in principal amount not to exceed $1,000,000. "Specified Senior Indebtedness" means (i) Indebtedness under the Credit Agreement (or any refunding or refinancing thereof), (ii) any other single issue of Senior Indebtedness (other than the Senior Subordinated Notes) having an initial principal amount of $30,000,000 or more. For purposes of this definition, a refinancing of any Specified Senior Indebtedness shall be treated as such only if it ranks or would rank on a pari passu basis with the Indebtedness refinanced. "Stockholders Agreement" means the Amended and Restated Stockholders and Registration Rights Agreement, dated as of September 27, 1991, among Lear Holdings Corporation, Shearson Lehman Hutton Merchant Banking Portfolio Partnership L.P., Shearson Lehman Hutton Offshore Investment Partnership- Japan L.P., Shearson Lehman Hutton Offshore Investment Partnership L.P., Shearson Lehman Hutton Capital Partners II, L.P., Shearson Lehman Hutton Merchant Banking Partners, Inc., FIMA Finance Management Inc. and Management Investors. "Subordinated Debentures" means the Company's Subordinated Debentures due December 1, 2000, issued on December 22, 1988, pursuant to the Subordinated Debenture Indenture. "Subordinated Debenture Indenture" means the indenture between the Company and Norwest Bank Minnesota, National Association, as Trustee governing the Subordinated Debentures. "subsidiary" of any person means (i) a corporation a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such person or by such person and a subsidiary or subsidiaries of such person or by a subsidiary or subsidiaries of such person or (ii) any other person (other than a corporation) in which such person 23 23 or such person and a subsidiary or subsidiaries of such person or a subsidiary or subsidiaries of such persons, at the time, directly or indirectly, owned at least a majority ownership interest. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Section 77aaa-77bbbb), as in effect on the date of this Indenture (except as otherwise provided in Section 9.03). "Trustee" means the party named as such above until a successor replaces it pursuant to this Indenture and thereafter means the successor. "Trust Officer" means any officer in the Corporate Trust Division of the Trustee or any other officer of the Trustee assigned by the Trustee to administer this Indenture. "UCC" means the Uniform Commercial Code in effect from time to time in the State of New York. "U.S. Government Obligations" means direct obligations of the United States of America for the payment of which the full faith and credit of the United States of America is pledged and which are non-callable at the option of the issuer thereof. "Voting Stock" means all classes of capital stock then outstanding of a person normally entitled to vote in elections of directors. SECTION 1.02. Other Definitions.
Defined in Term Section ---- ------- "Bankruptcy Law" .................. 6.01 "Custodian" ....................... 6.01 "Interest Payment Date" ........... Section 1 of Exh. A hereto "Legal Holiday" ................... 12.07 "Paying Agent" .................... 2.03 "Payment Blockage Period" ......... 10.02 "Purchase Date" ................... 11.01
24 24 "Purchase Price" .................. 11.01 "Registrar" ....................... 2.03 "Repurchase Date" ................. 4.08 "Repurchase Offer" ................ 4.08 "Repurchase Offer Amount" ......... 4.08 "Repurchase Price" ................ 4.08
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities: "indenture security holder" means a Securityholder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles; (iii) references to GAAP shall mean generally accepted accounting principles in effect in the United States as of the time and for the period as to which such accounting principles are to be applied; (iv) notwithstanding the provisions of Section 1.04(iii), all ratios and calculations contained in this Indenture shall be calculated in accordance with generally accepted accounting principles in effect as of the date hereof; (v) "or" is not exclusive; (vi) words in the singular include the plural, and in the plural include the 25 25 singular; and (vii) provisions apply to successive events and transactions. ARTICLE II The Securities SECTION 2.01. Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which such Securities may then be listed, all as determined by the Officers executing such Securities, as evidenced by their execution of such Securities. SECTION 2.02. Execution and Authentication. Two Officers shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall be valid nevertheless. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate and deliver Securities for original issue in the aggregate principal amount of not more than $145,000,000 pursuant to a written order of 26 26 the Company signed by two Officers. The order shall specify the amount of Securities to be authenticated and the date upon which the original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $145,000,000 except as provided in Sections 2.07 and 2.08. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and integral multiples thereof. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain in the Borough of Manhattan, New York, New York, an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"), and the Company shall maintain in the Borough of Manhattan, New York, New York, an office or agency where notices or demands to or upon the Company in respect of the Securities and the Indenture may be served. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent and the term "Registrar" includes any additional registrar. The Company may change any Paying Agent or Registrar without prior notice to any Securityholder. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any Agent who is not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any 27 27 Affiliate of the Company may act as Paying Agent or Registrar. The Company initially appoints the Trustee at the address specified in Section 12.02 as Registrar and Paying Agent, and the Company initially appoints the Trustee as agent for service of notices and demands. SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to the due date of principal of and interest on any Security, the Company shall deposit with the Paying Agent money sufficient to pay such principal and interest so becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of and interest on the Securities (whether such money has been paid to it by the Company or any other obligor on the Securities) and shall notify the Trustee of any failure by the Company (or any other obligor on the Securities) in making any such payment. While any such failure continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money so paid over to the Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Securityholders all money held by it as Paying Agent. SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each interest payment date for the Securities and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.06. Registration of Transfer and Exchange. The Securities shall be issued in registered form and shall be transferable only upon the surrender of a Security for registration of transfer. When Securities are presented to the Registrar or a coregistrar with a request 28 28 to register their transfer or to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transaction are met; provided that a Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall issue Securities, and the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with registration, transfer or exchange of Securities other than exchanges pursuant to Section 2.10, 3.06, 9.05 or 11.01(d) not involving any transfer. The Registrar shall not be required to register the transfer or exchange of (i) any Security selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part or (ii) any Security for a period of 15 days before a selection of Securities to be redeemed. SECTION 2.07. Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee, at the Company's request, shall authenticate a replacement Security if the requirements of the Trustee and the Company are met; provided that, if any such Security has been called for redemption in accordance with the terms thereof, the Trustee may pay the Redemption Price thereof on the Redemption Date without authenticating or replacing such Security. The Trustee or the Company may, in either case, require the Holder to provide an indemnity bond sufficient in the judgment of each of the Trustee and the Company to protect the Company, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Security is replaced or if the Redemption Price therefor is paid pursuant to this Section. The Company may charge the Securityholder who has lost a Security for its expenses in replacing a Security. 29 29 Every replacement Security is an additional obligation of the Company and shall be entitled to the benefits of this Indenture. SECTION 2.08. Outstanding Securities. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding and interest ceases to accrue unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If all principal of and interest on any of the Securities are considered paid under Section 4.01, such Securities shall cease to be outstanding and interest on them shall cease to accrue. Except as provided in Section 2.09, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds such Security. SECTION 2.09. Treasury Securities. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or any other obligor, or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or such other obligor shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which such Trustee knows are so owned shall be so disregarded. SECTION 2.10. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and execute and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without 30 30 unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the Corporate Trust Office of the Trustee, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like aggregate principal amount of definitive Securities having the same date as such temporary Securities. Until so exchanged such temporary securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 2.11. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange, payment or repurchase. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, repurchase, redemption, replacement or cancellation and shall destroy canceled Securities unless the Company directs them to be returned to it. The Company may not issue new Securities to replace Securities that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and the Trustee shall use CUSIP numbers in notice given pursuant to Section 3.03, 4.08 or 11.01 as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any such notice and that reliance may be placed only on the other identification numbers printed on the Securities. SECTION 2.13. Defaulted Interest. If the Company fails to make a payment of interest on the Securities, it shall pay such interest, plus interest payable on the defaulted interest (to the extent permitted by law), to the persons who are Securityholders on a subsequent special record date, which shall be fixed in the following manner: the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment (which shall be at least 40 days from the date of such notice), and at the same time the Company shall deposit with the Trustee an 31 31 amount of cash equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such cash when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 or less than 10 days prior to the date of the proposed payment and not less than 15 days after the receipt of the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names the Securities are registered as of the close of business on such Special Record Date. Notwithstanding the foregoing, no such payment of Defaulted Interest shall affect the status of the failure to pay interest when due as an Event of Default under Section 6.01. SECTION 2.14. Person Deemed Owners. Prior to due presentment for transfer, the Company, the Trustee, the authenticating agent, if any, and any Agent may treat the Holder as the owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee, the authenticating agent, if any, nor any Agent (including the Paying Agent, if any) shall be affected by notice to the contrary. ARTICLE III Redemption SECTION 3.01. Notices to Trustee. If the Company elects to redeem Securities pursuant to paragraph 5 of the 32 32 Securities, it shall notify the Trustee of the redemption date and the principal amount of Securities to be redeemed. The Company shall give each notice provided for in this Section and an Officers' Certificate at least 15 days before the Redemption Date (unless a shorter period shall be satisfactory to the Trustee). SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed from the outstanding Securities not previously called for redemption pro rata or by lot in accordance with a method the Trustee considers fair and appropriate. The Trustee may select for redemption portions of the principal amount of Securities that have denominations larger than $1,000. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities and portions of them selected shall be in amounts of $1,000 or whole multiples of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03. Notice of Redemption. At least 15 days but not more than 60 days before the Redemption Date, the Company shall mail a notice of redemption by first-class mail to each Holder whose Securities are to be redeemed at the address of such Holder appearing in the register. The notice shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion shall be issued; (4) the name and address of the Paying Agent; (5) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest (if any) to the Redemption Date; (6) that, unless the Company defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date and the 33 33 only remaining right of the Holders is to receive payment of the Redemption Price plus accrued interest (if any) to the Redemption Date upon surrender of the Securities to the Paying Agent; (7) the Security's CUSIP number (subject to the proviso in Section 2.12 hereof) and (8) the aggregate principal amount of Securities being redeemed. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense. Concurrently with the giving of any such notice by the Company to the Securityholders, the Company shall deliver to the Trustee an Officers' Certificate stating that such notice has been given. The notice mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any Security shall not affect the validity of the proceeding for the redemption of any other Security. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the Redemption Date at the Redemption Price plus accrued interest to the Redemption Date. Upon surrender to the Paying Agent, such Securities shall be paid at the Redemption Price plus accrued interest (if any) to the Redemption Date. SECTION 3.05. Deposit of Redemption Price. Prior to the Redemption Date, the Company shall deposit with the Trustee or with the Paying Agent (or if the Company is acting as its own Paying Agent, the Company shall segregate and hold in trust) money sufficient to pay the Redemption Price of and accrued interest to the Redemption Date on all Securities to be redeemed on that date other than Securities or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company, a new Security equal in principal amount to the unredeemed portion of the Security surrendered. 34 34 ARTICLE IV Covenants SECTION 4.01. Payment of Securities. The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company or an Affiliate of the Company) holds on that date money designated for and sufficient to pay all principal and interest then due if payment thereof is not prohibited by Article X. The Company shall pay interest on overdue principal at the rate then borne by the Securities; it shall pay interest on overdue installments of interest at the same rate to the extent legally permitted. SECTION 4.02. Limitation on Restricted Payments. The Company shall not, and shall not permit any subsidiary of the Company to, directly or indirectly, make any Restricted Payment unless (a) no Default or Event of Default shall have occurred and be continuing at the time or shall occur as a consequence of such Restricted Payment and (b) after giving effect to such Restricted Payment, the aggregate amount expended for all Restricted Payments subsequent to December 31, 1993, (the amount so expended, if other than in cash, to be determined by the Board of Directors, whose reasonable determination shall be conclusive and evidenced by a Board Resolution), shall not exceed the sum of (x) 50% of Consolidated Net Income of the Company (or in the case such Consolidated Net Income shall be a deficit, minus 100% of such deficit) during the period (treated as one accounting period) subsequent to December 31, 1993 and ending on the last day of the fiscal quarter immediately preceding such Restricted Payment and (y) the aggregate net proceeds, including cash and the fair market value of property other than cash (as determined in good faith by the Board of Directors of the Company and evidenced by a Board Resolution), received by the Company during such period from any person other than a subsidiary of the Company, as a result of the issuance of capital stock of the Company (other than any Disqualified Stock) or warrants, rights or options to purchase or acquire such capital stock including such capital stock issued upon conversion or exchange of Indebtedness or upon exercise of warrants or options and any contributions to the capital of 35 35 the Company received by the Company from any such person less the amount of such net proceeds actually applied as permitted by clause (ii) of the next paragraph or by the proviso to the definition of "Restricted Debt Prepayment" in Article I of this Indenture; provided, that at the time of such Restricted Payment and after giving effect thereto, the Company or any subsidiary of the Company shall be able to incur an additional $1.00 of Indebtedness pursuant to clauses (a) and (b) of Section 4.03 of this Indenture. For purposes of any calculation pursuant to the preceding sentence which is required to be made within 60 days after the declaration of a dividend by the Company, such dividend shall be deemed to be paid at the date of declaration. The provisions of this Section 4.02 shall not be violated by reason of (i) the payment of any dividend within 60 days after the date of declaration thereof if, at such date of declaration such payment complied with the provisions hereof (ii) the purchase, redemption, acquisition or retirement of any shares of the Company's capital stock in exchange for, or out of the proceeds of the substantially concurrent sale (other than to a subsidiary of the Company) of, other shares of capital stock (other than Disqualified Stock) of the Company or rights, warrants or options to purchase or acquire such capital stock of the Company or (iii) payments by the Company (A) for the mandatory repurchase of shares of Common Stock of the Company (or scheduled payments of principal of or interest on notes issued to finance the repurchase of such shares) from Management Investors under the Stockholders Agreement or (B) to satisfy any other Obligations under the terms of the Stockholders Agreement; provided, that no Default or Event of Default shall have occurred and be continuing at the time, or shall occur as a result, of such Restricted Payment. For purposes of determining the aggregate amount of Restricted Payments in accordance with clause (b) of the first paragraph of this Section 4.02, all amounts expended pursuant to clause (i) or (iii) (except to the extent deemed to have been paid pursuant to the last sentence of the immediately preceding paragraph) of this paragraph shall be included. For the purpose of this Section 4.02 and the proviso to the definition of "Restricted Debt Prepayment" in Article I of this Indenture, the net proceeds from the issuance of shares of capital stock of the Company upon the conversion of debt securities shall be deemed to be an amount equal to the net book value of such debt securities 36 36 (plus the additional amount required to be paid upon such conversion, if any), less any cash payment on account of fractional shares; the "net book value" of a security shall be the amount received by the Company on the issuance of such security, as adjusted on the books of the Company to the date of conversion. The foregoing shall not be interpreted to limit the authority of the Board of Directors to determine the value of other securities of the Company or of any subsidiary of the Company or other property received as net proceeds; provided that the value of the other property shall not exceed the net book value of such property. Prior to making any Restricted Payment under this Section 4.02, the Company shall deliver to the Trustee an Officers' Certificate setting forth the computation by which the amount available for Restricted Payments was determined. SECTION 4.03. Limitation on Indebtedness. Except for Permitted Indebtedness and Refinancing Indebtedness, the Company shall not, and shall not permit any subsidiary of the Company to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become liable for, contingently or otherwise, extend the maturity or become responsible for the payment of (collectively, an "incurrence"), any Obligations in respect of any Indebtedness including Acquired Indebtedness unless (a) no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness and (b) after giving effect to the incurrence of such Indebtedness and the receipt and application of the proceeds thereof on a pro forma basis, the Consolidated Interest Expense Coverage Ratio of the Company is greater than 2 to 1. For purposes of all covenants contained in this Section 4.03, an incurrence shall be deemed to occur when any person becomes a subsidiary of the Company by merger or consolidation, acquisition or otherwise. Prior to any incurrence of Indebtedness pursuant to this Section, the Company shall deliver to the Trustee and the Securityholders an Officers' Certificate setting forth the calculations by which such incurrence was determined to be permitted and stating that such Indebtedness does not violate the provisions of Section 4.03. SECTION 4.04. Limitation on Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall 37 37 not permit any subsidiary of the Company to, create or otherwise cause or suffer to exist or become effective any consensual restriction which by its terms expressly restricts any such subsidiary from (i) paying dividends or making any other distributions on such subsidiary's capital stock or paying any Indebtedness owed to the Company or any subsidiary of the Company, (ii) making any loans or advances to the Company or any subsidiary of the Company or (iii) transferring any of its property or assets to the Company or any subsidiary of the Company, except (a) any restrictions existing under agreements in effect at the issuance of the Securities including Section 4.02, (b) any restrictions under any agreement evidencing any Acquired Indebtedness of a subsidiary of the Company incurred pursuant to Section 4.03; provided that such restrictions shall not restrict or encumber any assets of the Company or its subsidiaries other than such subsidiary or (c) any restrictions existing under any agreement which refinances any Indebtedness in accordance with paragraph (xiv) of the definition of Permitted Indebtedness; provided that the terms and conditions of any such agreement are not materially less favorable to such subsidiary than those under the agreement creating or evidencing the Indebtedness being refinanced. SECTION 4.05. Limitation on Creation of Liens. The Company shall not, and shall not permit any subsidiary of the Company to, create, incur, assume or suffer to exist any Liens upon any of their respective assets unless the Securities are secured by such assets on an equal and ratable basis with the obligation so secured until such time as such obligation is no longer secured by a Lien, provided that if the obligation secured by such Lien is subordinated to the Securities, the Lien securing such obligation shall be subordinate and junior to the Lien securing the Securities with the same relative priority as such subordinated obligation shall have with respect to the Securities, except for (i) Liens securing Senior Indebtedness that would be permitted to be incurred in compliance with clauses (a) and (b) of Section 4.03 if such Indebtedness were incurred on the date such Lien is granted; (ii) Liens with respect to Acquired Indebtedness, provided that such Liens do not extend to or cover any property or assets of the Company or any subsidiary of the Company other than the property or assets acquired, and provided further that such Liens were not incurred in connection with, or in contemplation of, the transaction or transactions giving rise to such Acquired Indebtedness; (iii) Liens securing 38 38 Indebtedness which is incurred to refinance secured Indebtedness and which is permitted to be incurred pursuant to Section 4.03, provided that such Liens do not extend to or cover any property or assets of the Company or any subsidiary of the Company other than the property or assets securing the Indebtedness being refinanced; and (iv) Permitted Liens. SECTION 4.06. No Senior Subordinated Indebtedness. The Company shall not issue, incur, create, assume, guarantee or otherwise become liable for any Indebtedness which is subordinate or junior in right of payment to any Indebtedness of the Company, including, without limitation, Indebtedness that refinances the Senior Subordinated Notes, unless such Indebtedness is pari passu with or subordinate in right of payment to the Securities. SECTION 4.07. Transactions with Shareholders and Affiliates. The Company shall not, and shall not permit any subsidiary of the Company to, directly or indirectly, enter into or suffer to exist any transaction (an "Affiliate Transaction") (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of more than 10% of any class of equity securities of the Company or with any Affiliate of the Company or of any such holder (other than a wholly owned subsidiary of the Company), on terms that are less favorable to the Company or such subsidiary, as the case may be, than would be available in a comparable transaction with an unrelated person. In addition, neither the Company nor any subsidiary of the Company shall enter into any Affiliate Transaction or series of related Affiliate Transactions involving or having a value of (a) more than $2,500,000, unless a majority of Disinterested Directors (or, if there are no Disinterested Directors, a majority of the Board of Directors) of the Company or such subsidiary, as the case may be, determines in good faith pursuant to a Board Resolution that such Affiliate Transaction or series of related Affiliate Transactions is fair to the Company or such subsidiary, as the case may be, or (b) more than $10,000,000, unless (i) a majority of Disinterested Directors (or, if there are no Disinterested Directors, a majority of the Board of Directors) of the Company or such subsidiary, as the case may be, make the determination referred to in clause (a) above and (ii) the Company or such subsidiary, as the case may be, has received an opinion from an Independent Financial Advisor to the effect that such Affiliate Transaction or series of related Affiliate 39 39 Transactions are fair to the Company or such subsidiary, as the case may be, from a financial point of view. The foregoing provisions shall not apply to payments of investment banking and financial advisory or consulting fees and other fees to Lehman Brothers Inc. or any of their subsidiaries or Affiliates in connection with the sale of the Securities (or any refunding, refinancing or conversion thereof) and other customary investment banking and financial advisory or consulting fees. SECTION 4.08. Sales of Assets. Subject to the provisions of Section 5.01, the Company shall not, and shall not permit any subsidiary to, make any Asset Sale unless (i) the Company (or such subsidiary, as the case may be) receives consideration at the time of such sale at least equal to the fair market value of the shares or assets included in such Asset Sale (as determined in good faith by the Board of Directors, including valuation of all noncash consideration) or (ii)(x) either (A) the Net Cash Proceeds are reinvested within 12 months (or, pursuant to a determination of the Board of Directors, held pending reinvestment) in replacement assets or assets used in the Seating Business or used to purchase all of the issued and outstanding capital stock of a person engaged in such business or used to fund research and development costs or (B) if the Net Cash Proceeds are not applied or are not required to be applied as set forth in clause (ii)(x)(A) or if after applying such Net Cash Proceeds as set forth in clause (ii)(x)(A) there remain Net Cash Proceeds, such Net Cash Proceeds are applied within 12 months of the original receipt thereof to the permanent prepayment, repayment, retirement or purchase of Senior Indebtedness or Indebtedness of a subsidiary, (y) if and to the extent that the gross proceeds from such Asset Sale (after giving effect to the application of clause (ii)(x)(A) and (B), when added to the gross proceeds from all prior Asset Sales (not applied as set forth in clause (ii)(x)(A) or (B)) exceeds $15,000,000, such proceeds are applied pursuant to a Repurchase Offer (defined below) to repurchase the Securities (on a pro rata basis if the amount available for such purchase is less than the outstanding principal amount of the Securities) at a purchase price equal to 100% of the principal amount thereof plus accrued interest to the date of prepayment and (z) if the aggregate principal amount of all Securities tendered pursuant to a Repurchase Offer is less than the Repurchase Offer Amount (defined below), such excess amount is applied for general corporate purposes; 40 40 provided that when any non-cash consideration is converted into cash, such cash shall then constitute Net Cash Proceeds and shall be subject to clause (ii) of this sentence. To repurchase the Securities, the Company shall offer to purchase the Securities (the "Repurchase Offer"), on a specified date (the "Repurchase Date"), pursuant to the provisions hereof at a price equal to 100% of their principal amount, plus interest accrued to the Repurchase Date (the "Repurchase Price"). If the Repurchase Date is on or after a record date and on or before the related interest payment date, then any accrued interest shall be paid to the person in whose name the Security is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Securities pursuant to the Repurchase Offer. Net Cash Proceeds allocable to the purchase of Securities will be accumulated and the Company shall be required to make a Repurchase Offer to the holders of Securities only if an aggregate amount (the "Repurchase Offer Amount") of at least $15,000,000 of such Net Cash Proceeds has been accumulated as of the first day of any fiscal quarter which amount has neither been paid nor set aside for the purchase of the Securities tendered in a prior Repurchase Offer or reallocated for general corporate purposes as herein provided. If the Company elects to commence a Repurchase Offer, or within 10 Business Days after the first day of each fiscal quarter in which the Company is obligated to make a Repurchase Offer, the Company shall deliver to the Trustee and send, by first class mail to each Holder at his last address as it appears upon the list of Securityholders maintained by the Registrar pursuant to Section 2.03 hereof, a written notice stating that the Holder may elect to have such Holder's Securities purchased by the Company either in whole or in part in integral multiples of $1,000 of principal amount, plus accrued interest thereon to the Repurchase Date. The notice shall specify a Repurchase Date which is at least 20 Business Days after the date of such notice and shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Repurchase Offer, together with the information contained in the second following paragraph of this Section 4.08. Not later than the date upon which written notice of a Repurchase Offer is delivered to the Trustee, the Company shall deliver to the Trustee an Officers' Certificate as to (x) the Repurchase Offer Amount and the amount of accrued interest to the Repurchase Date, (y) the allocation of the 41 41 Net Cash Proceeds from the Asset Sale or Asset Sales pursuant to which such Repurchase Offer is being made and (z) the compliance of such allocation with the provisions of this Section 4.08. If the Company designates a depositary or a Paying Agent to receive tendered Securities on its behalf in the Repurchase Offer, the Company shall deposit with such depositary or Paying Agent, no later than the Repurchase Date, funds sufficient to pay for the Securities to be purchased in the Repurchase Offer. The depositary, the Paying Agent or the Company, as the case may be, shall, within five Business Days following the Repurchase Date, mail or deliver payment to each tendering Securityholder by check or draft in an amount equal to the principal amount, plus accrued interest thereon to the Repurchase Date, of the Securities tendered by such Securityholder and accepted by the Company for purchase. Upon the expiration of the period for which the Repurchase Offer remains open, the depositary, the Paying Agent or the Company, as the case may be, shall deliver to the Trustee the Securities or portions thereof which have been properly tendered to and accepted for purchase by the Company. In addition, the Company shall deliver to the Trustee an Officers' Certificate stating that such Securities were accepted by the Company pursuant to and in accordance with the terms of this Section 4.08. The Trustee shall deliver to Holders whose Securities have been purchased only in part new Securities equal in principal amount to the portion not purchased of the Securities surrendered. Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate letter of transmittal duly completed, which shall include the "Option of Holder to Elect Purchase" on the reverse of the Security, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the expiration of the period for which the Repurchase Offer remains open. Holders shall be entitled to withdraw their election to have their Securities purchased if the Company, the depositary or Paying Agent, as the case may be, receives, not later than two Business Days prior to the Repurchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. If the aggregate principal 42 42 amount of Securities tendered by Holders pursuant to the Repurchase Offer exceeds the Repurchase Offer Amount, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000 or integral multiples thereof shall be purchased). Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. Whenever Net Cash Proceeds received by the Company and allocated for the repayment of the Securities exceeds $15,000,000, such Net Cash Proceeds shall be set aside by the Company in a separate account pending disbursement or reallocation pursuant to this Section 4.08. Such Net Cash Proceeds may be invested in Cash Equivalents; provided that the maturity date of such Cash Equivalents shall not be later than the Repurchase Date. The Company shall be entitled to any interest or dividends accrued, earned or paid on such Cash Equivalents. SECTION 4.09. Limitation on Issuance of Preferred Stock. The Company will not permit any of its subsidiaries to issue any preferred or preference stock (except to the Company or a wholly owned subsidiary of the Company) or permit any person (other than the Company or any wholly owned subsidiary of the Company) to hold any such preferred or preference stock unless the Company would be entitled to create, incur or assume Indebtedness pursuant to Section 4.03 in the aggregate principal amount equal to the aggregate liquidation value of the preferred or preference stock to be issued. SECTION 4.10. Corporate Existence. Subject to Article V, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and that of each subsidiary of the Company and the rights (charter and statutory), licenses and corporate franchises of the Company and its subsidiaries; provided that the Company shall not be required to preserve any such existence (except of the Company), right, license or franchise if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or such subsidiary and that the loss thereof is not disadvantageous in any material respect to the Holders. 43 43 SECTION 4.11. SEC Reports; Reports to Securityholders. (a) The Company shall supply without cost to each Holder and shall file with the Trustee within 15 days after the Company files them with the SEC, copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe), if any, which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. The Company also shall comply with the other provisions of TIA Section 314(a). (b) So long as any of the Securities remain outstanding, if the Company is not required to file reports with the SEC, the Company shall prepare, for the first three quarters of each fiscal year, quarterly reports containing: (i) unaudited consolidated financial statements of the Company and its subsidiaries including, but not limited to, a balance sheet, a statement of operations, a statement of changes in financial position and all appropriate notes and (ii) management's discussion and analysis of the quarterly results. The Company shall also prepare, on an annual basis, complete audited consolidated financial statements including, but not limited to, the terms referred to in (i) above and a consolidated statement of changes in stockholders' equity. Such annual reports will also include, to the extent such information would be required to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, (1) management's discussion and analysis of the annual results, (2) a description of the business and properties of the Company and its subsidiaries focusing on material trends, events and changes during the year, (3) a description of all transactions with the Company and its subsidiaries by executive officers, directors, or holders of more than 10% of any class of equity securities of the Company or any of its subsidiaries, (4) a description of material litigation or claims against the Company or its subsidiaries, and (5) a description of any material loss or interference with the business of the Company and its subsidiaries from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree. All financial statements herein described shall be prepared in accordance with GAAP consistently applied (except as otherwise noted therein) and except for changes with which the Company's independent public accountants concur and except that quarterly statements may be subject to year-end adjustments and the absence or incompleteness of footnotes thereto. The Company shall cause a copy of such reports to 44 44 be mailed to the Trustee within 60 days after the close of each of the first three quarters of each fiscal year and within 120 days after the close of each fiscal year, and promptly following receipt thereof the Trustee shall cause such reports to be mailed to each of the Holders of the Securities at such Holder's last address appearing on the register of the Securities. SECTION 4.12. Compliance Certificates. (a) The Company shall deliver to the Trustee, within 60 days after the end of each of its first three fiscal quarters, an Officers' Certificate stating whether or not the signers know of any Default or Event of Default that occurred during such fiscal quarter. If they do know of such a Default or Event of Default, the certificate shall describe any such Default or Event of Default and its status. The first certificate to be delivered pursuant to this Section 4.12 shall be for the first fiscal quarter beginning after the execution of this Indenture. (b) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, an Officers' Certificate (one signatory to which shall be its principal executive officer, principal financial officer or principal accounting officer) stating that a review of the activities of the Company and its subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed, fulfilled and complied with its obligations, covenants and conditions under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of such Officer's knowledge the Company has kept, observed, performed, fulfilled and complied with each and every covenant and condition contained in this Indenture and is not in default in performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he may have knowledge) and that to the best of such Officer's knowledge no event has occurred and is continuing which is, or after notice or lapse of time or both would become, an Event of Default, or if such an event has occurred and is continuing, specifying each such event known to such Officers and the nature and status thereof. (c) The Company shall deliver to the Trustee within 120 days after the end of each fiscal year written 45 45 statements by the Company's independent certified public accountants stating as to the Company (A) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any Default or Event of Default has come to their attention and, if such a Default or Event of Default has come to their attention, specifying the nature and period of existence thereof; provided that, without any restriction as to the scope of such audit examinations, such independent certified public accountants shall not be liable by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of any audit examination conducted in accordance with generally accepted auditing standards. SECTION 4.13. Notice of Defaults. Upon the occurrence of any Default or Event of Default under this Indenture, the Company, promptly after it becomes aware thereof, shall deliver to the Trustee an Officers' Certificate specifying such Default or Event of Default and what action the Company or the relevant subsidiary of the Company is taking or proposes to take with respect thereto. SECTION 4.14. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before any penalty accrues thereon, (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any subsidiary of the Company or upon the income, profits or property of the Company or any subsidiary of the Company and (ii) all material lawful claims for labor, materials and supplies which, if unpaid, would by law become a Lien upon the property of the Company or any subsidiary of the Company; provided that none of the Company or any subsidiary of the Company shall be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claims the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate provision has been made or where the failure to affect such payment or discharge is not adverse in any material respect to the Holders. SECTION 4.15. Maintenance of Properties and Insurance. The Company shall cause all material properties owned by or leased to it or any subsidiary of the Company and used or useful in the conduct of its business or the business of such subsidiary to be maintained and kept in 46 46 normal condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided that nothing in this Section 4.15 shall prevent the Company or any subsidiary of the Company from discontinuing the use, operation or maintenance of any such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Board of Directors of the Company or the subsidiary concerned, or of any officer (or other agent employed by the Company or any subsidiary of the Company) of the Company or such subsidiary having managerial responsibility for any such property, desirable in the conduct of the business of the Company or any subsidiary of the Company and if such discontinuance or disposal is not adverse in any material respect to the Securityholders. The Company shall provide or cause to be provided, for itself and any subsidiaries of the Company, insurance (including appropriate self insurance) against loss or damage of the kinds customary for the corporations similarly situated and owning like properties, including, but not limited to, public liability insurance, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts with such deductibles and by such methods as shall be customary for corporations similarly situated in the industry. ARTICLE V Merger, etc. SECTION 5.01. When Company May Merge, etc. The Company shall not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person unless: (1) the person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease conveyance or disposition shall have been made, is a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia; (2) the corporation formed by or surviving any such consolidation or 47 47 merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or disposition shall have been made, assumes by supplemental indenture in form satisfactory to the Trustee all the obligations of the Company under the Securities and this Indenture; (3) immediately after such transaction, and giving effect thereto, no Default or Event of Default shall have occurred and be continuing; (4) the Company or any corporation formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or disposition shall have been made, shall have Consolidated Adjusted Net Worth (immediately after the transaction and giving effect thereto, excluding any write-ups of assets resulting from such consolidation or merger) at least equal to the Consolidated Adjusted Net Worth of the Company immediately preceding the transaction; (5) immediately after such transaction and giving effect thereto, the Company or any corporation formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or disposition shall have been made, shall be able to incur an additional $1.00 of Indebtedness pursuant to clause (b) of Section 4.03 of this Indenture; and (6) the Company has delivered to the Trustee (A) an Officers' Certificate (attaching the calculation to demonstrate compliance with clause (4) and (5)) and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture comply with this Section 5.01 and that all conditions precedent herein provided for relating to such transaction have been complied with, and (B) a certificate from the Company's independent certified public accountants, stating that the Company has made the calculations required by clauses (4) and (5) above in accordance with the terms of the Indenture. SECTION 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all the assets of the Company in accordance with Section 5.01, the successor corporation formed by such consolidation or into which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein. In the event of any such sale or conveyance, but not any such lease, the Company or any successor corporation which thereafter shall have become such in the manner described in 48 48 this Article V shall be discharged from all obligations and covenants under this Indenture and the Securities and may be dissolved and liquidated. ARTICLE VI Defaults and Remedies SECTION 6.01. Events of Default. An "Event of Default" occurs if: (i) the Company defaults in the payment of interest on any Security when it becomes due and payable and such default continues for a period of 30 days, whether or not such payment shall be prohibited by the provisions of Article X hereof; (ii) the Company defaults in the payment of the principal of any Security when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise, whether or not such payment shall be prohibited by the provisions of Article X hereof; (iii) the Company fails to comply with any of its other agreements or covenants in, or provisions of, the Securities or this Indenture and the Default continues for the period and after the notice specified below; (iv) any Indebtedness of the Company or any Significant Subsidiary of the Company for borrowed money (or the payment of which is guaranteed by the Company or one of its subsidiaries) having an outstanding principal amount of $10,000,000 or more in the aggregate, whether such Indebtedness now exists or shall hereafter be created, is declared to be due and payable prior to its stated maturity or the Company or any Significant Subsidiary fails to pay the final scheduled principal installment in an amount of at least $10,000,000 in respect of any such Indebtedness on the stated maturity date thereof (after giving effect to any extension of such maturity date by the holder of such Indebtedness and after the expiration of any grace period in respect of such final scheduled principal installment contained in the instrument under which such Indebtedness is outstanding); provided that it shall not be an Event of Default under this clause (iv) if such Indebtedness which has been declared due and payable prior to its 49 49 stated maturity is Indebtedness of a Foreign Subsidiary the payment of which is guaranteed by the Letters of Credit; (v) a final judgment or final judgments for the payment of money are entered by a court of competent jurisdiction against the Company or any subsidiary of the Company and such judgment remains undischarged and unbonded for a period (during which execution shall not be effectively stayed) of 60 days after judgment is entered; provided that the aggregate of all such judgments exceeds (to the extent not paid or covered by insurance or by self insurance to the extent that reserves have been established therefore in accordance with GAAP) $10,000,000; (vi) the Company or any Significant Subsidiary of the Company, pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case or proceeding, (B) consents to the entry of an order for relief against it in an involuntary case or proceeding, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; or (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary of the Company in an involuntary case or proceeding (B) appoints a Custodian of the Company or any Significant Subsidiary of the Company or for all or substantially all of its property, or (C) orders the liquidation of the Company or any Significant Subsidiary of the Company; and in case of (vii) the order or decree remains unstayed and in effect for 60 days. The term "Bankruptcy Law" means Title 11 of the U.S. Code or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. A Default under clause (iii) of this Section 6.01 is not an Event of Default until the Trustee notifies the Company in writing, or the Holders of at least 25% in 50 50 principal amount of the Securities then outstanding notify the Company and the Trustee, in writing, of the Default, and the Company does not cure the Default within 30 days after receipt of the notice; provided that a Default by the Company with respect to the provisions of either Article V or XI under this Indenture shall constitute an Event of Default immediately upon such notification and without passage of time. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default". Such notice to the Company shall be given by the Trustee if so requested in writing by the Holders of at least 25% of the principal amount of the Securities then outstanding. Except for a Default under Section 6.01(i) or (ii) of this Indenture, the Trustee shall not be deemed to know of a Default unless a Trust Officer has actual knowledge of such Default or receives written notice of such Default with specific reference to such Default. SECTION 6.02. Acceleration. Subject to Article X, if an Event of Default (other than an Event of Default specified in clause (vi) or (vii) of Section 6.01 with respect to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% of the principal amount of the Securities then outstanding, by written notice to the Company (and to the Trustee, if given by the Holders) (and the Agent Bank, so long as the Indebtedness under the Credit Agreement is outstanding) (and to the Senior Subordinated Notes Trustee, so long as the Indebtedness under the Senior Subordinated Notes is outstanding), may declare due and payable 100% of the principal amount of the Securities plus any accrued interest to the date of payment. Upon a declaration of acceleration, such principal and accrued interest to the date of such acceleration, shall be due and payable upon the first to occur of (i) an acceleration under the Credit Agreement), or (ii) five Business Days after notice of such declaration is given to the Company (and to the Trustee, if given by the Holders) (and the Agent Bank, so long as the Indebtedness under the Credit Agreement is outstanding) (and to the Senior Subordinated Notes Trustee, so long as the Indebtedness under the Senior Subordinated Notes is outstanding); provided, however, that, if the Event of Default giving rise to such acceleration is cured before the earlier to occur of (i) or (ii), such notice of acceleration and its consequences shall be deemed rescinded and annulled. In the event of a declaration of acceleration under this Indenture 51 51 because an Event of Default set forth in Section 6.01(iv) has occurred and is continuing, such declaration of acceleration shall be automatically annulled if the holders of the Indebtedness which is the subject of such Event of Default have rescinded their declaration of acceleration in respect of such Indebtedness within 90 days thereof or all amounts payable in respect of such Indebtedness have been paid and such Indebtedness has been discharged during such 90-day period and if (i) the annulment of such acceleration would not conflict with any judgment or decree of a court of competent jurisdiction, (ii) all existing Events of Default, except nonpayment of principal or interest that has been due solely because of the acceleration, have been cured or waived, and (iii) the Company has delivered an Officers' Certificate to the Trustee to the effect of clauses (i) and (ii) of this sentence. If an Event of Default specified in clause (vi) or (vii) of Section 6.01 with respect to the Company occurs, 100% of the principal amount of the Securities plus any accrued interest shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority of the outstanding principal amount of the Securities by written notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of principal of or interest on the Securities which have become due solely because of the acceleration, have been cured or waived and (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon the Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All remedies are cumulative to the extent permitted by law. 52 52 SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07 and 9.02, the Holders of at least a majority in principal amount of the Securities then outstanding by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the nonpayment of the principal of or interest on any Security as specified in clauses (i) or (ii) of Section 6.01. When a Default or Event of Default is waived, it is cured and ceases. SECTION 6.05. Control by Majority. The Holders of at least a majority in principal amount of the Securities then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Securityholders or that may involve the Trustee in personal liability. SECTION 6.06. Limitation on Suits. A Securityholder may not pursue a remedy with respect to this Indenture, the Securities unless: (i) the Holder gives to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in principal amount of the Securities then outstanding make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability, cost or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (v) during such 60-day period the Holders of at least a majority in principal amount of the Securities then outstanding do not give the Trustee a direction inconsistent with the request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.07. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal of or interest on the Security on or after the respective due dates expressed or provided for in the Security, subject to the provisions of Article X, or to bring suit for the enforcement of any such payment on or 53 53 after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(i) or (ii) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid on the Securities. The Company or any other obligor on the Securities shall pay interest on overdue principal (including interest accruing on or after filing of any petition in bankruptcy or reorganization relating to the Company or any other obligor on the Securities, whether or not a claim for post-filing interest is allowed in such proceeding), and the Company or any other obligor on the Securities shall pay interest on overdue installments of interest, to the extent permitted by law (including interest accruing on or after the filing of any petition in bankruptcy or reorganization relating to the Company or any other obligor on the Securities, whether or not a claim for post-filing interest is allowed in such proceeding), in each case at the rate then borne by the Securities, and such further amount as shall be sufficient to cover the costs and expense of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceeding relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same, and any custodian in any such judicial proceedings is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment 54 54 or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. Any term or provision of this Section 6.09 to the contrary notwithstanding, if any judicial proceeding referred to above is commenced by or against the Company, and if the Trustee does not file a proper claim or proof of claim in the form required in such judicial proceedings prior to 30 days before the expiration of time to file such claims or proofs, unless such claim is either deemed filed or need not be filed in order for such claim to be allowed under applicable law, rules or regulations, then so long as any Senior Indebtedness remains outstanding, (i) the Agent Bank or a Representative, on behalf of the holders and owners of the Senior Indebtedness, as their interests may appear, is hereby authorized and empowered (in its own name or in the name of the Trustee or any Securityholder or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution received in respect of any such proceeding and give acquittance therefor and to file claims and proofs of claim, as their interests may appear, and (ii) to the extent permitted by applicable laws, rules or regulations, the Trustee shall duly and promptly take, on behalf of holders of the Senior Indebtedness, as their interests may appear, such action as the Agent Bank or such Representative may request (a) to collect all amounts payable by the Company in respect of the Securities and to file appropriate claims or proofs of claim in respect of such Securities, (b) to execute and deliver to the Agent Bank or such Representative such assignments or other instruments as it may request (other than an instrument allowing the Agent Bank or such Representative to vote the Securities) in order to enable it to enforce any and all claims with respect to all amounts payable in respect of the Securities to which they are entitled under the Indenture, and (c) to collect and receive any and all payments with respect to all amounts payable in respect of the Securities to which they are entitled under the Indenture. SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article VI, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 7.07; 55 55 SECOND: to holders of Senior Indebtedness in accordance with Article X hereof; THIRD: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and FOURTH: to the Company or any other obligors on the Securities, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities then outstanding. SECTION 6.12. Parties May Be Restored to Former Position and Rights in Certain Circumstances. In the event the Trustee shall have proceeded to enforce any right under this Indenture by suit, foreclosure or otherwise and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then in every such case, the Company and the Trustee shall be restored without further act to their respective former positions and rights hereunder, and all rights, remedies and powers of the Trustee shall continue as though no such proceedings had been taken, except to the extent determined in litigation adversely to the Trustee. 56 56 ARTICLE VII Trustee SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee, and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not, on their face, they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01, (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer or other officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts, and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 7.01. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability, cost or 57 57 expense (including, without limitation, reasonable fees of counsel). (f) The Trustee shall not be obligated to pay interest on any money received by it unless otherwise agreed in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) The Trustee may consult with counsel and the advice of such counsel as to matters of law shall be full and complete authorization and protection in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent 58 58 may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture, the Securities; it shall not be accountable for the Company's use of the proceeds from the Securities, or any money paid to the Company upon the Company's direction under any provision hereof; it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee; and it shall not be responsible for the recitals herein and in the Securities or any other statement of the Company in this Indenture or any statement in the Securities other than its certificate of authentication. SECTION 7.05. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Securityholders a notice of the Default or Event of Default within 90 days after the occurrence thereof. Except in the case of a Default or Event of Default in payment of any Security (including any failure to make any mandatory redemption payment required hereunder), the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the interests of the Securityholders. SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May 15 beginning with May 15, 1994, the Trustee shall mail to Securityholders a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). Commencing at such time, the Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit reports required by TIA Section 313 by mail as required by TIA Section 313(c). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC, if required, and each stock exchange, if any, on which the Securities are listed. The Company shall notify the Trustee when the Securities are listed on any stock exchange. SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services hereunder. If the 59 59 Trustee acts as Paying Agent pursuant to Section 4.09 hereof, the Company shall pay the Trustee additional compensation for so acting as paying agent. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, advances and expenses incurred by it, including in particular, but without limitation, those incurred in connection with the enforcement of any remedies hereunder. Such expenses may include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. Except as set forth in the next paragraph, the Company shall indemnify and hold harmless the Trustee, its directors, officers, employees and agents against any loss, liability, cost or expense (including, without limitation, fees and expenses of counsel) incurred by it arising out of or in connection with the acceptance or administration of the trust under this Indenture, including without limitation the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of, or failure to exercise or perform, any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. The Company shall defend such claim and the Trustee shall cooperate in such defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not reimburse any expense or indemnify against any loss, liability, cost or expense incurred by the Trustee through negligence, wilful misconduct or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay the principal of and interest on particular Securities. Such obligations shall survive the satisfaction and discharge of the Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in clause (vi) or (vii) of Section 6.01 occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. 60 60 SECTION 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee if: (i) the Trustee fails to comply with Section 7.10 or TIA Section 310; (ii) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (iii) a Custodian or public officer takes charge of the Trustee or its property; or (iv) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of the Trustee for any reason, the Company shall promptly appoint a successor Trustee. The Trustee shall be entitled to payment of its fees and reimbursement of its expenses while acting as Trustee. Within one year after the successor Trustee takes office, the Holders of at least a majority in principal amount of then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with clauses (i) through (iv) of the second paragraph of this Section, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The Company shall mail a 61 61 notice of the successor Trustee's succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit or the retiring Trustee with respect to expenses, losses and liabilities incurred by it prior to such replacement. SECTION 7.09. Successor Trustee by Merger, Etc. Subject to Section 7.10, if the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the successor entity without any further act shall be the successor Trustee. In case any Securities have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation of such authenticating trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any state thereof or the District of Columbia authorized under such laws to exercise corporate trust powers, shall be subject to supervision or examination by Federal or state authority or a District of Columbia authority and shall have combined capital and surplus of at least $150,000,000 as set forth in its most recent published annual report of condition. Subject to the preceding paragraph, this Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. Preferential Collection of Claims Against the Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. 62 62 ARTICLE VIII Discharge of Indenture SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07, it being understood that such Securities are no longer outstanding) for cancellation or (ii) all outstanding Securities have become due and payable and the Company irrevocably deposits with the Trustee funds or U.S. Government Obligations sufficient (without reinvestment thereof) to pay at maturity all outstanding Securities, including all interest thereon to the date of such deposit (in the case of Securities which have become due and payable) or to the stated maturity or Redemption Date, as the case may be (other than Securities replaced pursuant to Section 2.07, it being understood that such Securities are no longer outstanding), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Sections 8.01(c) and 8.06, cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article VIII have been complied with, and at the cost and expense of the Company. (b) Subject to Sections 8.01(c), 8.02 and 8.06, the Company at any time may terminate (i) all its obligations under the Securities and this Indenture ("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10 and 4.11 (to the extent failure to comply with such Section shall not violate the TIA) and 11.01 (the "covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Section 6.01(iii) arising from a violation of any of Sections 4.02 through 4.10, 4.11 or 11.01. 63 63 Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clause (a) or the exercise of the legal defeasance option as set forth above, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.13, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive. SECTION 8.02 Conditions to Defeasance. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Securities to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be; (3) 123 days pass after the deposit is made and during the 123-day period no Default specified in Section 6.01(vi) or (vii) with respect to the Company occurs which is continuing at the end of the period; (4) no Default has occurred and is continuing on the date of such deposit and after giving effect thereto; (5) the deposit does not constitute a default under any other agreement binding on the Company and is not prohibited by Article X; (6) in the case of the exercise of its legal defeasance option, the Company shall have delivered to 64 64 the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; and (7) the Company delivers to the Trustee promptly after the end of the period referred to in clause (3) above an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and, in the case of the legal defeasance option, the discharge of the Securities as contemplated by this Article VIII have been complied with. SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust the money or U.S. Government Obligations deposited with it pursuant to this Article VIII. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. Money and U.S. Government Obligations held in trust are not subject to Article X. SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent shall promptly pay to the Company upon written request any excess money or securities held by them at any time, provided that such request need not be honored if to do so would require the liquidation of any U.S. Government Obligations held pursuant to this Article. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon written request of the Company any money held by it for the payment of principal of or interest on the Securities that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. SECTION 8.05. Indemnity for Government Obligations. The Company shall pay and shall indemnify the 65 65 Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money in accordance with this Article VIII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article VIII; provided, however, that, if the Company has made any payment of principal of, or interest on, any Security because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE IX Amendments SECTION 9.01. Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without the consent of any Securityholder: (i) to cure any ambiguity, defect or inconsistency or make any change required to qualify the Indenture under the TIA; provided that such change does not adversely affect the rights hereunder of any Securityholder; (ii) to comply with Section 5.01; (iii) to provide for uncertificated Securities in addition to certificated Securities; or (iv) to make any change that does not adversely affect the rights hereunder of any Securityholder. SECTION 9.02. With Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities with the written consent of the Holders of at least a majority in principal amount of the then outstanding Securities. Upon the request of the Company, accompanied by a Board Resolution of the Company authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of the 66 66 Securityholders as aforesaid, the Trustee, subject to Section 9.06, shall join with the Company in the execution of such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment or waiver under this Section becomes effective, the Company shall mail to the Holder of each Security affected thereby and to the Agent Bank a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment or waiver. The Holders of at least a majority in principal amount of the Securities then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities. However, without the consent of each Securityholder affected, an amendment or waiver under this Section may not: (i) reduce the amount of Securities whose Holders must consent to an amendment or waiver; (ii) reduce the rate of or change the time for payment of interest, including default interest, on any Security; (iii) reduce the principal of or change the fixed maturity of any Security or alter the redemption provisions with respect thereto; (iv) make any Security payable in money other than that stated in the Security; (v) make any change in Section 6.04, 6.07 or this fourth sentence of the third paragraph of Section 9.02; (vi) make any change in Article X that affects the rights of any Holder; or (vii) release the Company from any of its Obligations hereunder. SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security if the Trustee receives written notice 67 67 of revocation before the date the amendment or waiver becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Securityholder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment or waiver. If a record date is fixed, then notwithstanding the provisions of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such amendment or waiver or to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. The consent shall expire 90 days after such record date. SECTION 9.05. Notation on or Exchange of Securities. The Trustee may place an appropriate notation about an amendment or waiver on any Security thereafter authenticated. The Company in exchange for all Securities may issue, and the Trustee shall authenticate, new Securities that reflect the amendment or waiver. SECTION 9.06. Trustee To Sign Amendments, etc. The Trustee shall sign any amendment authorized pursuant to this Article IX if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not sign it. In signing or refusing to sign such amendment, the Trustee shall be entitled to receive and shall be fully protected in relying upon an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment is authorized or permitted by this Indenture. ARTICLE X Subordination SECTION 10.01. Securities Subordinated to Senior Indebtedness. Notwithstanding the provisions of Sections 6.02 and 6.03 hereof, the Company covenants and agrees, and the Trustee and each Holder of the Securities by his acceptance thereof likewise covenants and agrees, that all payments of the principal of and interest on the Securities by the Company shall be subordinated in accordance with the provisions of this Article X to the prior and 68 68 indefeasible payment in full, in cash or cash equivalents, of all Obligations with respect to Senior Indebtedness. SECTION 10.02. Priority and Payment Over of Proceeds in Certain Events. (a) Upon any payment or distribution of assets or securities of the Company, as the case may be, of any kind or character, whether in cash, property or securities, upon any dissolution or winding up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all Obligations with respect to Senior Indebtedness shall first be indefeasibly paid in full in cash, or payment provided for in cash or cash equivalents, before the Holders or the Trustee on behalf of the Holders shall be entitled to receive any payment of principal of or interest on the Securities or distribution of any assets or securities. Before any payment may be made by the Company of the principal of or interest on the Securities pursuant to the provisions of the previous sentence, and upon any such dissolution or winding up or liquidation or reorganization, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee on their behalf would be entitled, except for the provisions of this Article X, shall be made by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, directly to the holders of the Senior Indebtedness or their Representatives to the extent necessary to pay all such Senior Indebtedness in full after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. (b) No direct or indirect payment by or on behalf of the Company of principal of or interest on the Securities whether pursuant to the terms of the Securities or upon acceleration or otherwise shall be made if, at the time of such payment, (i) there exists a default in the payment of any Obligations with respect to Senior Indebtedness or the maturity of such Senior Indebtedness has been accelerated or (ii) any judicial proceeding shall be pending with respect to a default on Senior Indebtedness (and the Trustee has received written notice thereof), and such default shall not have been cured or waived or the benefits of this sentence waived by or on behalf of the holders of such Senior Indebtedness. In addition, during the continuance of any other event of default with respect to (i) the Credit Agreement pursuant to which the maturity thereof may be accelerated, 69 69 upon (a) receipt by the Trustee of written notice from the Agent Bank (or any Representative of any Senior Indebtedness which refinances or refunds the Credit Agreement so long as amounts outstanding under such agreement are in excess of $50,000,000), or (b) if such event of default results from the acceleration of the Securities, on the date of such acceleration, no such payment may be made by the Company upon or in respect of the Securities for a period ("Payment Blockage Period") commencing on the earlier of the date of receipt of such notice or the date of such acceleration and ending 119 days thereafter (unless such Payment Blockage Period shall be terminated by written notice to the Trustee from the Agent Bank (or any Representative of any Senior Indebtedness under any agreement which refinances or refunds the Credit Agreement so long as amounts outstanding under such agreement are in excess of $50,000,000) or (ii) any other Specified Senior Indebtedness upon receipt by the Company of written notice from the Representative for the holders of such Specified Senior Indebtedness, no such payment may be made by the Company upon or with respect to the Securities for a Payment Blockage Period commencing on the date of the receipt of such notice and ending 119 days thereafter (unless such Payment Blockage Period shall be terminated by written notice to the Company from such Representative commencing such Payment Blockage Period). Notwithstanding anything herein to the contrary, in no event will any one Payment Blockage Period extend beyond 179 days from the date the payment on the Securities was due. No more than one Payment Blockage Period may be commenced with respect to the Securities during any period of 360 consecutive days; provided that as long as amounts outstanding under the Credit Agreement or any agreement which refinances or refunds the Credit Agreement are in excess of $50,000,000, the commencement of a Payment Blockage Period by the holders of the Specified Senior Indebtedness other than the Credit Agreement shall not bar the commencement of a Payment Blockage Period by the Agent Bank within such period of 360 days. For all purposes of this Section 10.02(b), no event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Specified Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis for the commencement of a second Payment Blockage Period by the Representative of such Specified Senior Indebtedness whether or not within a period of 360 consecutive days unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. 70 70 If payments with respect to both the Securities and Senior Indebtedness become due on the same day, then all Obligations with respect to such Senior Indebtedness due on that date shall first be paid in full before any payment is made with respect to the Securities. (c) In the event that, notwithstanding the foregoing provision prohibiting such payment or distribution, the Trustee or any Holder shall have received any payment on account of the principal of or interest on the Securities at a time when such payment is prohibited by this Section 10.02 and before all Obligations with respect to Senior Indebtedness are paid in full, then and in such event (subject to the provisions of Section 10.08) such payment or distribution shall be received and held in trust for the holders of Senior Indebtedness and, upon notice to the Trustee from the Representative of the holders of the Senior Indebtedness and pursuant to the directions of such Representative, shall be paid over or delivered to the holders of the Senior Indebtedness remaining unpaid to the extent necessary to pay in full in cash or cash equivalents all Obligations with respect to such Senior Indebtedness in accordance with its terms after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. If there occurs an event referred to in Section 10.02(a) or (b), the Company shall promptly give the Trustee an Officers' Certificate (on which the Trustee may conclusively rely) identifying all holders of Senior Indebtedness and the principal amount of Senior Indebtedness then outstanding held by each such holder and stating the reasons why such Officers' Certificate is being delivered to the Trustee. Nothing contained in this Article X shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided that all Obligations with respect to Senior Indebtedness then or thereafter due or declared to be due shall first be paid in full before the Holders or the Trustee are entitled to receive any payment from the Company of principal of or interest on the Securities. Upon any payment or distribution of assets or securities referred to in this Article X, the Trustee and the Holders shall be entitled to rely upon any order or 71 71 decree of a court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending and upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making any such payment or distribution, delivered to the Trustee for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article X. SECTION 10.03. Payments May Be Paid Prior to Dissolution. Nothing contained in this Article X or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Section 10.02, from making payments at any time for the purpose of making such payments of principal of and interest on the Securities, or from depositing with the Trustee any moneys for such payments, or (ii) without limiting the last sentence of Section 8.03, the application by the Trustee of any moneys deposited with it for the purpose of making such payments of principal of and interest on the Securities, to the Holders entitled thereto unless at least two Business Days prior to the date upon which such payment would otherwise become due and payable, the Trustee shall have received the written notice provided for in Section 10.02(b) or in Section 10.09. The Company shall give prompt written notice to the Trustee of any dissolution, winding up, liquidation or reorganization of the Company. SECTION 10.04. Rights of Holders of Senior Indebtedness Not To Be Impaired. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act in good faith by any such holder, or by any noncompliance by the Company, with the terms and provisions and covenants herein regardless of any knowledge thereof any such holder may have or otherwise be charged with. The provisions of this Article X are intended to be for the benefit of, and shall be enforceable directly by, the holders of the Senior Indebtedness. SECTION 10.05. Authorization to Trustee To Take Action To Effectuate Subordination. Each Holder of Securities by his acceptance thereof authorizes and directs the 72 72 Trustee on his behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of Senior Indebtedness and the Holders, the subordination as provided in this Article X and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 10.06. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders or owners of Senior Indebtedness, the distribution may be made and the notice given to their Representative. SECTION 10.07. Subrogation. Upon the payment in full of all Obligations in respect of Senior Indebtedness, the Holders shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of assets of the Company to the holders of Senior Indebtedness until the principal of and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders would be entitled except for the provisions of this Article X, and no payment over pursuant to the provisions of this Article X to the holders of Senior Indebtedness by the Holders, shall, as among the Company, its creditors other than the holders of Senior Indebtedness and the Holders, be deemed to be a payment or distribution by the Company to or on account of Senior Indebtedness. The provisions of this Article X are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article X shall have been applied, pursuant to the provisions of this Article X, to the payment of all amounts payable under Senior Indebtedness, then and in such case, the Holders shall be entitled to receive from the holders of such Senior Indebtedness at the time outstanding any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all Obligations in respect of Senior Indebtedness in full. 73 73 SECTION 10.08. Obligations of Company Unconditional. Nothing contained in this Article X or elsewhere in this Indenture or in any Security is intended to or shall impair, as between the Company and the Holders, the obligations of the Company, which are absolute and unconditional, to pay to the Holders the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon Default under this Indenture, subject to the rights, if any, under this Article X of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. The failure to make a payment on account of principal of or interest on the Securities by reason of any provision of this Article X shall not be construed as preventing the occurrence of an Event of Default under Section 6.01. SECTION 10.09. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice. Neither the Trustee nor the Paying Agent shall at any time be charged with the knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee or the Paying Agent, unless and until the Trustee or Paying Agent shall have received written notice thereof from the Company or one or more holders of Senior Indebtedness or from any Representative therefor; and, prior to the receipt of any such written notice, the Trustee or Paying Agent shall be entitled to assume conclusively that no such facts exist. Unless at least two Business Days prior to the date on which by the terms of this Indenture any moneys are to be deposited by the Company with the Trustee or any Paying Agent (whether or not in trust) for any purpose (including, without limitation, the payment of the principal of or the interest on any Security), the Trustee or Paying Agent shall have received with respect to such moneys the notice provided for in the preceding sentence, the Trustee or Paying Agent shall have full power and authority to receive such moneys and to apply the same to the purpose for which they were received and shall not be affected by any notice to the contrary which may be received by it on or after such date. Without limiting the last sentence of Section 8.03, nothing 74 74 contained in this Section 10.09 or Section 10.03(ii) shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by Section 10.02. The Trustee shall be entitled to rely on the delivery to it of a written notice by a person representing himself or itself to be a holder of such Senior Indebtedness (or a trustee on behalf of, or Representative of, such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee or Representative on behalf of any such holder. The Trustee shall not be deemed to owe any duty to the holders of Senior Indebtedness. SECTION 10.10. Right of Trustee To Hold Senior Indebtedness. The Trustee and any Agent shall be entitled to all of the rights set forth in this Article X in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of such Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee or any Agent of any of its rights as such holder. ARTICLE XI Right To Require Repurchase SECTION 11.01. Repurchase of Securities at Option of the Holder upon Change of Control Triggering Event. (a) Upon the occurrence of a Change of Control Triggering Event, each Holder of Securities shall have the right to require that the Company repurchase such Holder's Securities in whole or in part in integral multiples of $1,000, at a purchase price (the "Purchase Price") in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the procedures set forth in Subsections (b) and (c) of this Section. (b) Within 30 days following any Change of Control Triggering Event, the Company shall send by first-class mail, postage prepaid, to the Trustee and to each Holder of the Securities at his or her address appearing in the Securities register, a notice stating: (1) that a Change of Control Triggering Event has occurred and that such Holder has the right to require 75 75 the Company to repurchase such Holder's Securities at the Purchase Price; (2) the circumstances and relevant facts regarding such Change of Control Triggering Event (including but not limited to information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control Triggering Event); (3) a purchase date (the "Purchase Date") which shall be no fewer than 30 days nor more than 60 days from the date such notice is mailed or if not a Business Day, the next following Business Day; (4) the Purchase Price; (5) the place at which Securities are to be presented and surrendered; (6) that interest accrued to the Purchase Date will be paid as specified in such notice and that, unless the Company shall default in payment of the Purchase Price, after said Purchase Date interest thereon will cease to accrue with respect to any Securities presented and surrendered for purchase; (7) that any Security not tendered will continue to accrue interest; (8) that Holders of Securities electing to have any Securities purchased pursuant to a Change of Control Triggering Event will be required to surrender the Securities to the Paying Agent on the 15th day prior to the Purchase Date; and (9) that Holders of Securities whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided that each Security purchased and each such new Security issued by the Company shall be, in a principal amount of $1,000 or integral multiples thereof. (c) Prior to the mailing by the Company of the notice described in subsection (b) above and if any Senior Indebtedness under the Credit Agreement is outstanding, the Company shall either (i) repay in full all such Senior 76 76 Indebtedness under the Credit Agreement or offer to repay in full all such Senior Indebtedness under the Credit Agreement and repay the Senior Indebtedness of each Bank that has accepted such offer or (ii) if any such Senior Indebtedness under the Credit Agreement is not repaid, obtain the requisite consent of the applicable Bank or Banks under the Credit Agreement, in both cases so as to permit the repurchase of the Securities pursuant to this Section. The Company shall first comply with the covenant in the preceding sentence before it shall be required to repurchase Securities pursuant to a Change of Control Triggering Event; provided, however, that the failure to comply with such covenant shall not thereby be excused and such failure shall constitute a Default pursuant to Section 6.01. (d) Holders of Securities electing to have such Securities purchased will be required to give notice thereof no fewer than 15 days before the Purchase Date and to surrender such Securities to the Company at the address specified in the Company's notice by the close of business on the fifteenth day prior to the Purchase Date. Any such notice and surrender of Securities for purchase by the Company shall be irrevocable. No such Securities shall be deemed to have been presented and surrendered until such Securities are actually received by the Company or its designated agent. Holders of the Securities whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (e) Notwithstanding anything to the contrary herein or in the Securities, the Company shall not be obligated to give notice to Holders of Securities or to purchase Securities with respect to more than one Change of Control Triggering Event. (f) Notwithstanding any other provisions of this Section, there shall be no repurchase of any Securities pursuant to this Section if there has occurred (prior to, on or after the giving, by the Holders of such Securities, of the required notice) and is continuing an Event of Default or if such repurchase is prohibited by Article X of this Indenture. The foregoing shall in no way limit the occurrence of an Event of Default or the right to demand payment of the Securities upon acceleration thereafter. SECTION 11.02. Covenant To Comply with Securities Laws upon Purchase of Securities. In connection with any 77 77 purchase of Securities under Section 11.01, the Company shall, to the extent then applicable and required by law, (i) comply with Rule 13e-4 and Rule 14e-1 (which term, as used herein, includes any successor provision thereto) under the Exchange Act and (ii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Section 11.01 to be exercised in the time and in the manner specified in Section 11.01. ARTICLE XII Miscellaneous SECTION 12.01. Trust Indenture Act Controls. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of, Sections 310 to 318, inclusive, of the TIA, such imposed duties or incorporated provision shall control. SECTION 12.02. Notices. Any notice or communication to the Company or the Trustee is duly given if in writing and delivered in person or mailed by first-class mail to the address set forth below: If to the Company: Lear Seating Corporation 21557 Telegraph Road Southfield, Michigan 48034 Attention of Chief Financial Officer or Treasurer with a copy to: Winston & Strawn 35 West Wacker Drive Chicago, Illinois 60601 Attention of Bruce Toth, Esq. 78 78 If to the Trustee for purposes of Article II hereof: The First National Bank of Boston c/o Banc Boston Trust Company of New York 55 Broadway - 3rd Floor New York, NY 10006 If to the Trustee for all other notices and communications hereunder: The First National Bank of Boston 150 Royall Street Mail Stop 45-02-15 Canton, MA 02021 The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication to a Securityholder shall be mailed by first-class mail to his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Securityholder or any defect in such notice or communication shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed or sent in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it, except that notice to the Trustee shall only be effective upon receipt thereof by the Trustee. If the Company mails a notice or communication to Securityholders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 12.03. Communication by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 12.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (i) an Officers' Certificate (which shall include the statements set forth in Section 12.05) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 14.05) stating 79 79 that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. SECTION 12.05. Statements Required in Certificate or Opinion. Each certificate (other than certificates provided pursuant to Section 4.12(b) or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that the person making such certificate or opinion has read and understands such covenant or condition; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. SECTION 12.06. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or for a meeting of Securityholders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 12.07. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions in the City of New York are not required or authorized to be open. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 12.08. Duplicate Originals. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. SECTION 12.09. Governing Law. The internal laws of the State of New York shall govern this Indenture and the Securities, without regard to the conflicts of law rules thereof. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. SECTION 12.10. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret 80 80 another indenture, loan or debt agreement of the Company or any subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 12.11. Successors. All agreements of the Company in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. 81 81 SECTION 12.12. Severability. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 12.13. Counterpart Originals. This Indenture may be signed in one or more counterparts. Each signed copy shall be an original, but all of them together represent the same agreement. LEAR SEATING CORPORATION, by /s/ Donald J. Stebbins -------------------------- Dated: February 1, 1994 THE FIRST NATIONAL BANK OF BOSTON, as Trustee, by /s/ James Schultz -------------------------- Authorized Signatory Dated: February 3, 1994 [Seal] 82 EXHIBIT A - [Form of Face of Security] $ LEAR SEATING CORPORATION 8-1/4% SUBORDINATED NOTE DUE 2002 LEAR SEATING CORPORATION, a Delaware corporation (the "Issuer", which term includes any successor corporation), promises to pay to or registered assigns, the principal sum of Dollars on February 1, 2002. Interest Payment Dates: February 1 and August 1. Record Dates: January 15 and July 15 Reference is hereby made to the further provisions of this Note set forth on the reverse hereof which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Issuer has caused this Note to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. Dated: LEAR SEATING CORPORATION by ----------------------------- by ----------------------------- 83 2 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities described in the within mentioned Indenture. [CORPORATE SEAL] THE FIRST NATIONAL BANK OF BOSTON, as Trustee, by ---------------------------------- Authorized Signatory 84 [FORM OF REVERSE OF SECURITY] LEAR SEATING CORPORATION 8-1/4% SUBORDINATED NOTE DUE 2002 (1) INTEREST. LEAR SEATING CORPORATION, a Delaware corporation (the "Issuer"), promises to pay interest on the principal amount of this Security at an interest rate per annum of 8-1/4%. The Issuer shall pay interest semiannually, on February 1 and August 1 of each year (each an "Interest Payment Date") commencing August 1, 1994. Interest on the Securities (as defined in the Indenture) shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 3, 1994. The Issuer shall pay interest on overdue principal (including interest accruing on or after filing of any petition in bankruptcy or reorganization relating to the Issuer, whether or not a claim for post-filing interest is allowed in such proceeding) at the rate then borne by the Securities; it shall pay interest, to the extent permitted by law (including interest accruing on or after filing of any petition in bankruptcy or reorganization relating to the Issuer, whether or not a claim for post filing interest is allowed in such proceeding), on overdue installments of interest at the rate then borne by the Securities. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. (2) METHOD OF PAYMENT. The Issuer shall pay interest on this Security (except defaulted interest) to the person who is the registered holder of this Security at the close of business on the record date next preceding the Interest Payment Date. The holder must surrender this Security to a Paying Agent to collect payments of principal and premium. Payments of interest may be mailed to the holder's registered address. The Issuer shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Issuer, however, may pay principal and interest by its check payable in such money. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal 85 2 Holiday, and no interest on the amount payable on such payment date shall accrue for the intervening period. (3) PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as Paying Agent and Registrar. The Issuer may change any Paying Agent, Registrar and coregistrar without notice to any Securityholder. The Issuer or any of its Affiliates may act in any such capacity. (4) INDENTURE. This Security is one of the Securities that may be issued from time to time by the Issuer under an Indenture dated as of February 1, 1994 (the "Indenture"), between the Issuer and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and such Act for a statement of such terms. The Securities are general obligations of the Issuer and limited to $145,000,000 in aggregate principal amount. (5) OPTIONAL REDEMPTION. On or after February 1, 1998 the Issuer may redeem all the Securities at any time or some of them from time to time at the following redemption prices (expressed in percentages of the principal amount thereof), in each case together with accrued interest, if any, to the date of redemption. If redeemed during the 12-month period commencing February 1: 1988 ........................................... 101.65% 1999 and thereafter ............................ 100% (6) CHANGE OF CONTROL. In the event there shall occur any Change of Control Triggering Event (as defined in the Indenture) with respect to the Company, each Holder of Securities shall have the right, at such Holder's option but subject to the conditions set forth in the Indenture, to require the Issuer to purchase on the Purchase Date (as defined in the Indenture) all or any part of such Holder's Securities at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest (subject to the right of Holders of record on each record date to receive interest due on the related Interest Payment Date) to the Purchase Date and in the manner specified in the Indenture. 86 3 Notwithstanding anything to the contrary herein or in the Indenture, the Issuer shall not be obligated to give notice to Holders of Securities or to purchase Securities with respect to more than one Change of Control Triggering Event. (7) OFFER TO PURCHASE IN CONNECTION WITH SALES OF ASSETS. If there are certain Net Cash Proceeds from Asset Sales, Section 4.08 of the Indenture contains provisions under which the Issuer is required to commence an offer to purchase Securities at a purchase price equal to 100% of their principal amount plus accrued interest, if any. (8) NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 15 days but not more than 60 days before the Redemption Date to each holder of Securities to be redeemed at his registered address. Securities in demoninations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. On and after the Redemption Date interest ceases to accrue on Securities or defaults in making the redemption payment. If the Redemption Date is subsequent to a record date with respect to any Interest Payment Date and on or prior to such Interest Payment Date, then such accrued interest, if any, shall be paid to the person in whose name this Security is registered at the close of business on such record date and no other interest shall be payable thereon. (9) DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Security or portion of a Security selected for redemption. Also it need not exchange or register the transfer of any Securities for a period of 15 days before a selection of Securities to be redeemed. (10) PERSONS DEEMED OWNERS. The registered holder of a Security may be treated as its owner for all purposes. 87 (11) UNCLAIMED MONEY. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent shall pay the money back to the Issuer at its request. After that, Securityholders entitled to the money must look to the Issuer for payments unless an abandoned property law designates another person and all liability of the Trustee and such Paying Agent with respect to such money shall cease. (12) DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Issuer deposits with the Trustee money or U.S. Government Obligations sufficient to pay principal of, premium, if any, and accrued interest on the Securities to redemption or maturity, and any other amounts payable under the Indenture, the Issuer shall be discharged from the Indenture and the Securities, except for certain sections thereof. (13) AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or the Securities may be amended, and any existing default may be waived, with the consent of the holders of at least a majority in principal amount of the then outstanding Securities. Without the consent of any Securityholdler, the Indenture or the Securities may be amended to cure any ambiguity, defect or inconsistency, to provide for the assumption of the obligations of the Issuer under the Indenture by a successor corporation, to provide for uncertificated Securities in addition to certificated Securities or to make any change that does not adversely affect the rights of any Securityholdler. (14) SUBORDINATION. The Securities are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of all Senior Indebtedness (as defined in the Indenture) of the Issuer whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. To the extent and in the manner provided in the Indenture, Senior Indebtedness must be paid before any payment may be made to any Holder of this Security. Each Securityholder by his acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on his behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee his attorney-in-fact for such purpose. 88 (15) DEFAULTS AND REMEDIES. An Event of Default is: default for 30 days in payment of interest on the Securities; default in payment of principal of the Securities at maturity, upon acceleration, redemption or otherwise; failure by the Issuer for 30 days after notice to it to comply with any of its other agreements in the Indenture or the Securities; certain events of accelration prior to maturity of other Indebtedness; certain final judgments which remain undischarged; certain events of bankruptcy or insolvency of the Issuer or any of its Significant Subsidiaries; and certain other events. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding Securities may declare to be due and payable immediately 100% of the principal amount of the Securities, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency of the Issuer, 100% of the principal amount of the Securities becomes due and payable immediately without further action or notice. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing default (except a default payment of principal or interest) if its determines that withholding notice is in their interests. The Issuer must provide an annual compliance certificate to the Trustee. (16) TRUSTEE DEALINGS WITH ISSUER. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Issuer or its Affiliates, as if it were not Trustee. (17) NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Issuer shall not have any liability for any obligations of the Issuer under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuer of the Securities. 89 (18) AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (19) ABBREVIATIONS. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Cutodian), and U/G/M/A (= Uniform Gifts to Minors Act). (20) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuer has caused CUSIP numbers to be printed on the Securities as a convenience to the holders of such Securities. No representation is made as to the accuracy of such numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. 90 ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to ___________________________________________________________________________ _________________________ (INSERT ASSIGNEE'S SOCIAL SECURITY OR TAX ID NUMBER) _______________________ | | | | |_______________________| ___________________________________________________________________________ _________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint agent to ___________________________________________________________________________ _________________________ transfer this Security on the books of the Issuer. The agent may substitute another to act for him. Date:______________________ Your Signature:______________________________________________ (Sign exactly as your name appears on the other side of this Security.) Signature Guarantee:___________________________________________________ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial Bank or trust company.) 91 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Issuer pursuant to Section 4.08 of the Indenture, check the box: / / If you want to elect to have only a part of this Security purchased by the Issuer pursuant to Section 4.08 of the Indenture, state the amount: $:_____________ If you want to elect to have this Security purchased by the Issuer pursuant to Section 11.01 of the Indenture, check the box: / / If you want to elect to have only a part of this Security purchased by the Issuer pursuant to Section 11.01 of the Indenture, state the amount: $______________ Date:______________________ Your Signature:____________________________________________________ (Sign exactly as your name appears on the other side of this Security.) Signature Guarantee:_______________________________________________ EX-10.24 4 EXHIBIT 10.24 1 Exhibit 10.24 FIRST AMENDMENT, WAIVER AND CONSENT dated as of March 31, 1994 (this "Amendment") to the Amended and Restated Stockholders and Registration Rights Agreement dated as of September 27, 1991 (the "Agreement"), among Lear Seating Corporation (formerly LSS Holdings Corporation), a Delaware corporation (the "Company"), Lehman Brothers Merchant Banking Portfolio Partnership L.P. (formerly Shearson Lehman Hutton Merchant Banking Portfolio Partnership L.P.), a Delaware limited partnership, Lehman Brothers Offshore Investment Partnership--Japan L.P. (formerly Shearson Lehman Hutton Offshore Investment Partnership--Japan L.P.), a Bermuda limited partnership, Lehman Brothers Offshore Investment Partnership L.P. (formerly Shearson Lehman Hutton Offshore Investment Partnership L.P.), a Bermuda limited partnership, and Lehman Brothers Capital Partners II, L.P. (formerly Shearson Lehman Hutton Capital Partners II, L.P.), a Delaware limited partnership (each a "Lehman Partnership" and, collectively, the "Lehman Group"), Lehman Brothers Merchant Banking Partners Inc. (formerly Shearson Lehman Hutton Merchant Banking Partners, Inc.), a Delaware corporation, as the Lehman Group Representative (the "Lehman Group Representative"), FIMA Finance Management Inc., a British Virgin Islands corporation ("FIMA"), and the parties listed on Schedule A to the Agreement or who become Management Investors pursuant to Section 6.10 thereof (the "Management Investors" and, together with the Lehman Group and FIMA, the "Investors"). The parties hereto agree as follows: SECTION 1. Amendment to Section 1.1. The following definition shall be added to Section 1.1 of the Agreement: "Substantial Sale" shall mean a sale or other disposition of outstanding Shares beneficially held by a Holder in a single transaction or series of related transactions that would result in the acquisition from such Holder by a single Third Party of beneficial ownership of more than 5% of the aggregate then outstanding Shares and Shares issuable in respect of then outstanding Share Equivalents. 2 SECTION 2. Amendment to Section 2.4. The first sentence of Section 2.4(a) of the Agreement shall be deleted and replaced with the following: "If any Lehman Partnership or FIMA or any of its respective Permitted Transferees (the "Section 2.4 Transferor") desires (i) to offer any of the Shares then owned by it in a Substantial Sale other than to any of such Permitted Transferees or (ii) to consummate an Exit Event (including, without limitation, one pursuant to Section 2.6), the Lehman Group Representative (if the Section 2.4 Transferor shall be a Lehman Partnership or any of its Permitted Transferees) or FIMA (if the Section 2.4 Transferor shall be FIMA or any of its Permitted Transferees) shall provide a written notice (a "Transfer Notice") to FIMA or the Lehman Group Representative, as the case may be, with a copy to Holdings, which notice shall state the number of Shares proposed to be offered (or transferred, sold or disposed of in connection with an Exit Event) by the Section 2.4 Transferor (the "Transfer Stock"), the percentage of the total number of Shares beneficially owned by the Section 2.4 Transferor represented by the Transfer Stock, the price (which shall be a cash price, unless the Section 2.4 Transferor shall have received a bona fide offer for the Shares subject to such Substantial Sale or Exit Event which is not an all cash offer, in which case the Transfer Notice shall include a good faith, reasonable calculation of the present value of any consideration other than cash) at which the Transfer Stock is proposed to be offered (or transferred, sold or disposed of) and any other terms or conditions of the proposed transaction and shall also contain an offer (a "Pre-emptive Offer") to sell the Transfer Stock to FIMA (if the Section 2.4 Transferor shall be a Lehman Partnership or any of its Permitted Transferees) or to the Lehman Group (if the Section 2.4 Transferor shall be FIMA or any of its Permitted Transferees) (the offeree of a Pre-emptive Offer, the "Section 2.4 Offeree") for all cash at a price equal to the price (including the present value of such consideration other than cash so calculated) and upon substantially the same terms as the terms contained in such Transfer Notice." 3 3 SECTION 3. Amendment to Section 2.5. The first two sentences of Section 2.5(a) of the Agreement shall be deleted and replaced with the following: "None of the Lehman Partnerships or FIMA or any of their respective Permitted Transferees shall, directly or indirectly, sell any of its Shares in a Substantial Sale unless the terms and conditions of such Substantial Sale shall include an offer to each of the other Holders and their respective Permitted Transferees (including, in the case of a Substantial Sale by any Lehman Partnership or any of its Permitted Transferees, an offer to FIMA and its Permitted Transferees and in the case of a Substantial Sale by FIMA or any of its Permitted Transferees, an offer to the Lehman Partnerships and their respective Permitted Transferees) (the "Section 2.5 Offerees"), to include, at the option of the Section 2.5 Offeree, in such Substantial Sale such number of Shares owned by each such Section 2.5 Offeree as determined in accordance with Section 2.5(b). If any Lehman Partnership or FIMA or any of their respective Permitted Transferees (as applicable, the "Section 2.5 Transferor") receives a bona fide offer or offers to purchase or otherwise acquire (a "Section 2.5 Transfer Offer") its Shares in a Substantial Sale (the "Section 2.5 Transfer Stock") that the Section 2.5 Transferor decides to accept, the Section 2.5 Transferor shall cause the Section 2.5 Transfer Offer to be reduced to writing and shall provide written notice (the "Section 2.5 Transfer Notice") of such Section 2.5 Transfer Offer to each of the Section 2.5 Offerees in the manner set forth in this Section 2.5." SECTION 4. Amendment to Section 2.7. Section 2.7(a) of the Agreement shall be deleted and replaced in its entirety with the following: "Section 2.7. Required Transfers of Management Shares. (a) Upon the effective date of the termination (the "Termination") of the employment with Holdings and its subsidiaries of any Management Investor (whether or not such Management Investor then beneficially owns any Shares) (the "Terminated Holder") prior to the earlier of (x) the fifth anniversary of the Closing Date and (y) the existence of a Public 4 4 Market for the Shares at any time after the third anniversary of the Closing Date for Cause (as defined below) or upon the resignation of the Terminated Holder without Good Reason (as defined below), all Shares beneficially owned by such Holder or the personal representative of such Holder and the Permitted Transferees of such Holder, including all Shares then issuable in respect of the Share Equivalents owned by such Holder or the personal representative of such Holder and such Permitted Transferees which are then vested and exercisable and not terminated (collectively, the "Terminated Shares"), shall be subject to a purchase option exercisable immediately by Holdings at the lower of Cost (as defined below) or Fair Market Value (as defined below) as of the date of Termination; provided that with respect to the Management Investors who are denoted on Schedule A hereto as having employment contracts, upon Termination (i) for Cause or upon the resignation of the Terminated Holder without Good Reason, the Terminated Shares shall be subject to a purchase option exercisable immediately by Holdings at the lower of Cost or Fair Market Value as of the date of Termination and (ii) without cause (but at the employer's initiative), the Terminated Shares shall be subject to a purchase option exercisable immediately by Holdings at the higher of Cost or Fair Market Value, as of the date of Termination. All such options shall be exercisable for all but not less than all the Terminated Shares." SECTION 5. Amendment to Section 4.3. References to "the 120-day period" in Section 4.3(a) and Section 4.3(b) of the Agreement shall each be replaced with "(i) in the case of the initial public offering of Registrable Securities after the date hereof, the 180-day period, and (ii) in all other cases, the 120-day period". SECTION 6. Waiver. The Holders hereby waive their rights under Section 4.2 of the Agreement with respect to the initial public offering of Shares by the Company and FIMA (the "Offering") pursuant to a registration statement filed with the Commission on March 8, 1994 (the "Registration Statement") including, without limitation, the notice provisions thereof. SECTION 7. Consent. For the purposes of Section 3.3 of the Agreement, FIMA agrees that it has approved the Offering, subject only to the right of 5 5 Mr. Botta to approve, as a member of the Pricing Committee appointed by the Board of Directors of the Company, any sale price below $15 per share. SECTION 8. Notice. The Company expects the Registration Statement relating to the Offering to become effective at any time after the date hereof and prior to June 1, 1994. The preceding sentence shall satisfy in full the notice requirements of Section 4.3(a) of the Agreement. SECTION 9. Effectiveness; Miscellaneous. (a) This Amendment shall become effective as of the date first set forth above. (b) This Amendment constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. (c) Section headings used herein are for convenience of reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Amendment. (d) The laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Amendment, regardless of the law that might be applied under applicable principles of conflicts of laws. (e) Each reference to a party hereto shall be deemed to include its successors and assigns, all of whom shall be bound by this Amendment and to whose benefit the provisions of this Amendment shall inure. (f) This Amendment may be executed in any number of counterparts, each of which shall be an original but all of which, when taken together, shall constitute but one instrument. (g) Except as specifically amended or modified hereby, the Agreement shall continue in full force and effect in accordance with the provisions thereof. As used therein, the terms "Agreement", "herein", "hereunder", "hereinafter", "hereto", "hereof" and words of similar 6 6 import shall, unless the context otherwise requires, refer to the Agreement as amended hereby. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first set forth above. Lear Seating Corporation by ------------------------------- Name: Title: As Holders of a majority of the Shares held by the Lehman Partnerships and their respective Permitted Transferees: Lehman Brothers Merchant Banking Portfolio Partnership L.P. by ------------------------------- Name: Title: Lehman Brothers Capital Partners II, L.P. by ------------------------------- Name: Title: Lehman Brothers Offshore Investment Partnership L.P. by ------------------------------- Name: Title: 7 7 Lehman Brothers Offshore Investment Partnership-Japan L.P. by ------------------------------- Name: Title: Lehman Brothers Merchant Banking Partners, Inc. by ------------------------------- Name: Title: As Holders of a majority of the Shares held by FIMA and its Permitted Transferees: FIMA Finance Management Inc. by ------------------------------- Name: Title: As Holders of a majority of the Shares held by Management Investors and their respective Permitted Transferees: ----------------------------------- John Boerger ----------------------------------- James Comer ----------------------------------- R. C. Donovan ----------------------------------- W. E. Douglas ----------------------------------- G. H. Dunze 8 8 ----------------------------------- M. R. Edwards ----------------------------------- C. E. Fisher ----------------------------------- A. J. Goscinski ----------------------------------- J. A. Hollars ----------------------------------- L. R. Haskell ----------------------------------- L. K. Hensley ----------------------------------- T. B. Henstock ----------------------------------- R. G. Hodgson ----------------------------------- R. B. Hopkins, Jr. ----------------------------------- J. G. Harris ----------------------------------- W. G. Jamieson ----------------------------------- E. Koslowski 9 9 ----------------------------------- T. E. Melson ----------------------------------- R. T. Murphy ----------------------------------- J. D. Nevins ----------------------------------- R. E. Rossiter ----------------------------------- R. J. Rault ----------------------------------- D. J. Simpkins ----------------------------------- R. B. Smith, Jr. ----------------------------------- R. G. Tancredi ----------------------------------- J. E. Thompson ----------------------------------- M. Tepfenhart ----------------------------------- J. H. Vandenberghe ----------------------------------- A. H. Vartanian 10 10 ----------------------------------- J. Wainwright ----------------------------------- K. L. Way EX-10.26 5 EXHIBIT 10.26 1 EXHIBIT 10.26 FIRST AMENDMENT TO THE LEAR SEATING CORPORATION 1992 STOCK OPTION PLAN The Lear Holdings Corporation 1992 Stock Option Plan (the "Plan") is amended as follows: 1. The title of the Plan is amended by deleting the name "Lear Holdings Corporation" and replacing it with "Lear Seating Corporation". 2. Section 1 of the Plan is amended by deleting in the third line the name "Lear Holdings Corporation" and replacing it with the name "Lear Seating Corporation". 3. Section 8 of the Plan is amended by adding new Section 8(d) and (e) as follows: (d) Notwithstanding any other provision contained in this Section 8, all Annual Options issued and not otherwise vested under the Plan shall vest as of December 31, 1993 provided that the option holder is employed with the Company or a subsidiary as of the effective date of the First Amendment to the Plan. (e) All Annual Options vested as of December 31, 1993 shall become exercisable on the earlier of: (i) the second anniversary of the option holder's date of normal retirement (as such term is defined or otherwise provided) from the Company or a subsidiary under a tax-qualified pension benefit plan as sponsored by the Company or a subsidiary; or (ii) September 28, 1996, provided the option holder is employed with the Company or a subsidiary as of said date. 4. Section 9 of the Plan is amended by adding new paragraphs "(c)" and "(d)" as follows: (c) Notwithstanding any other provision contained in this Section 9, all Cumulative Options issued and not otherwise vested under the Plan shall vest as of December 31, 1993 provided that the option holder is employed with the Company or a subsidiary as of the effective date of the First Amendment to the Plan. (d) All Cumulative Options vested as of December 31, 1993 shall become exercisable on the earlier of: 2 (i) the second anniversary of the option holder's date of normal retirement (as such term is defined or otherwise provided) from the Company or a subsidiary under a tax-qualified pension benefit plan as sponsored by the Company or a subsidiary; or (ii) September 28, 1996, provided the option holder is employed with the Company or a subsidiary as of said date. 5. Section 10 of the Plan is hereby deleted and under the heading for Section 10 the words "intentionally deleted" are hereby inserted. 6. Section 11 of the Plan is amended by adding new paragraphs "(c)" and "(d)" as follows: (c) Notwithstanding any other provision contained in this Section 11, all Time Based Options issued and not otherwise vested under the Plan shall vest as of December 31, 1993 provided that the option holder is employed with the Company or a subsidiary as of the effective date of the First Amendment to the Plan. (d) All Time Based Options vested as of December 31, 1993 shall become exercisable on the earlier of: (i) the second anniversary of the option holder's date of normal retirement (as such term is defined or otherwise provided) from the Company or a subsidiary under a tax-qualified pension benefit plan as sponsored by the Company or a subsidiary; or (ii) September 28, 1996, provided the option holder is employed with the Company or a subsidiary as of said date. 7. Section 12 of the Plan is hereby deleted and under the heading for Section 12 the words "intentionally deleted" are hereby inserted. 8. Section 13 of the Plan is amended by adding a new paragraph "(e)" as follows: (e) As of the effective date of the First Amendment of the Plan: (i) Notwithstanding the provisions of Sections 13(b) and 13(c), if, prior to September 28, 1996, an option holder's employment with the Company or a subsidiary is terminated, other than by reason of normal retirement (as such term is defined or otherwise provided), death or permanent and total disability, all options held as of December 31, 1993 by such person shall become exercisable on September 1, 2001; -2- 3 (ii) Notwithstanding the provisions of Section 13(c), if, prior to September 28, 1996, an option holder's employment with the Company or a subsidiary is terminated for "permanent and total disability" as defined by Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, all options held as of December 31, 1993 by such person shall become exercisable on September 28, 1996 and for a period of 90 days thereafter. Options held by the option holder that are not exercised within said period terminate; (iii) Notwithstanding the provisions of Section 13(d), if an option holder's employment with the Company or a subsidiary is terminated because of the option holder's death prior to September 28, 1996, all options held by said option holder shall become exercisable by the option holder's personal representative or devisee on September 28, 1996 and for a period of 90 days thereafter. Options held by the deceased option holder that are not exercised within said period terminate; and (iv) Notwithstanding any provision of the Plan to the contrary, any option may be exercised under this Plan at any time with the express written consent of the Board of Directors of the Company, as approved by the stockholders. This First Amendment to the Plan shall become effective as of December 31, 1993. LEAR SEATING CORPORATION By_________________________________ Date_______________________________ -3- EX-10.27 6 EXHIBIT 10.27 1 EXHIBIT 10.27 LEAR SEATING CORPORATION 1994 STOCK OPTION PLAN --------------------------- 1. Purpose. The purposes of the Lear Seating Corporation 1994 Stock Option Plan (the "Plan") are, in general, to give Lear Seating Corporation (the "Company") a significant advantage in retaining employees, officers and directors, and to provide an incentive to selected key employees, officers and directors of the Company and its subsidiaries, within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended ("Code"), who have substantial responsibility in the direction of the Company and its subsidiaries, and others who the Company determines provide substantial and important services to the Company, to acquire a proprietary interest in the Company, to continue as employees, officers and directors or in their other capacities, and to increase their efforts on behalf of the Company. 2. The Plan. Two types of stock options may be granted under the Plan: incentive stock options as defined in Code Section 422 and the regulations promulgated thereunder ("ISOs"), and options that do not qualify as incentive stock options ("NQSOs"). All options shall be exercisable to purchase shares of common stock, $.01 par value (the "Common Stock") of the Company. Collectively, ISOs and NQSOs are referred to herein as "Options". Subject to Sections 3 and 6(a), ISOs may be awarded to employees of the Company and its subsidiaries, within the meaning of Code Section 424(f), including employees who are officers and directors, but shall not be issued to directors or others who are not employees. 2 Subject to Sections 3 and 6(a), NQSOs may be awarded to employees and directors, including directors who are not employees of the Company and its subsidiaries, within the meaning of Code Section 424(f), and anyone whom the Committee administering the Plan pursuant to Section 3 determines provides substantial and important services to the Company. To the extent that any Option is not designated as an ISO, or even if so designated it does not qualify as an ISO, it shall be treated as a NQSO. 3. Administration. The Plan shall be administered by the Compensation Committee (the "Committee") which shall be solely comprised of two or more "outside directors" as defined by Proposed Treasury Regulation Section 1.162-27(e)(3) or such other regulations as may be issued in proposed, temporary or final form under Code Section 162(m). The Committee shall act by a majority of its members at the time in office and eligible to vote on any particular matter, and such action may be taken either by a vote at a meeting or in writing without a meeting. Subject to the provisions of the Plan, the Committee shall from time to time and at its discretion (i) grant Options, (ii) determine which employees, officers and directors and other individuals performing substantial and important services ("Grantees") may be granted such Options under the Plan; (iii) determine whether any Option shall be an ISO or NQSO; (iv) determine the number of shares subject to each Option; (v) determine the term of each Option granted under the Plan; (vi) determine the date or dates on which the Option shall be exercisable; (vii) determine the exercise price of any Option; (viii) determine the fair market value of the Common Stock subject to the Options; (ix) determine the terms of any agreement pursuant to which Options are granted; -2- 3 (x) amend any such agreement with the consent of the Grantee; (xi) establish such procedures as it deems appropriate for a recipient of an award hereunder to designate a beneficiary to whom any benefits payable in the event of his or her death are to be made; and (xii) determine any other matters specifically delegated to it under the Plan or necessary for the proper administration of the Plan. The Committee shall also have the final authority to interpret and construe the terms of the Plan and of any Option and such interpretation and construction by the Committee shall be final, binding and conclusive upon all persons including, without limitation, the Company, stockholders of the Company, the Plan, and all persons claiming an interest in the Plan. Notwithstanding anything contained in this Section to the contrary, no term of the Plan relating to ISOs shall be interpreted, nor shall any discretion or authority of the Committee be exercised, so as to disqualify the Plan under Code Section 422 or, without the consent of the Grantee, to disqualify any ISO under Code Section 422. No member of the Committee or Director shall be liable for any action, interpretation or construction made in good faith with respect to the Plan or any Option granted hereunder. 4. Effectiveness and Termination of Plan. This Plan shall terminate on the earliest of: (a) The tenth anniversary of the effective date as determined under this Section 4; -3- 4 (b) The date when all shares of the Common Stock reserved for issuance under the Plan, shall have been acquired through exercise of Options granted under the Plan; or (c) Such earlier date as the Board of Directors may determine. This Plan shall become effective as of the date of adoption thereof by the Board of Directors of the Company, or the date this Plan is approved by the stockholders, whichever is earlier. Any Option outstanding under the Plan at the time of its termination shall remain in effect in accordance with its terms and conditions and those of the Plan. 5. The Stock. The aggregate number of shares of Common Stock which may be issued under the Plan shall be 625,000 shares; provided, however, that the maximum number of shares of Common Stock available with respect to the Options granted by the Committee to any one Grantee under the Plan shall not exceed 60,000. Such number of shares may be set aside out of the authorized but unissued shares of Common Stock not reserved for any other purpose or out of shares of Common Stock held in or acquired for the treasury of the Company. All or any shares of Common Stock subjected under this Plan to an Option which, for any reason, terminates unexercised as to such shares, may again be subjected to an Option under the Plan. 6. Grant, Terms and Conditions of Options. Options may be granted by the Committee at any time and from time to time prior to the termination of the Plan. Each Option granted under the Plan shall be evidenced by an agreement in a form approved by the Committee. The terms and conditions of such Option agreement need not be identical with respect to each Grantee, but each Option agreement will evidence on its face whether it is an -4- 5 ISO or a NQSO. For purposes of this Section, an Option shall be deemed granted on the date the Committee selects an individual to be a Grantee, determines the number of shares to be issued pursuant to such Option and specifies the terms and conditions of the Option. Except as hereinafter provided, Options granted pursuant to the Plan shall be subject to the following terms and conditions: (a) Grantee. Subject to Section 2 hereof, the Grantees of any Options hereunder shall be such key employees, officers and directors of the Company and its subsidiaries, within the meaning of Code Section 424(f), as determined by the Committee, who have substantial responsibility in the direction of the Company and its subsidiaries, and anyone else whom the Committee determines provides substantial and important services to the Company. (b) Price and Exercise. The purchase price of the shares of Common Stock upon exercise of an ISO shall be no less than the fair market value of the shares at the time of grant of an ISO; provided, however, if an ISO is granted to a person owning shares of the Company possessing more than 10% of the total combined voting power of all classes of shares of the Company as defined in Code Section 422 ("10% Stockholder"), the purchase price shall be equal to 110% of the fair market value of the shares. The fair market value of the Common Stock shall be the closing price of publicly traded Common Stock on the national securities exchange on which the Common Stock is listed (if the Common Stock is so listed) or on the NASDAQ National Market System (if the Common Stock is regularly quoted on the NASDAQ National Market System), or, if not so listed or regularly quoted, the mean between the closing bid and asked prices of publicly traded Common Stock in the -5- 6 over-the-counter market, or, if such bid and asked prices shall not be available, as reported by any nationally recognized quotation service selected by the Company, or as determined by the Committee in a manner consistent with the provisions of the Code. The purchase price of the shares of Common Stock upon exercise of a NQSO may be any price set by the Committee. The notice of the exercise of any Option shall be accompanied by payment in full of the Option price. The purchase price shall be paid in United States dollars in cash or by certified or cashier's check payable to the order of the Company at the time of purchase. At the discretion of the Committee, the purchase price may be paid with: (i) stock of the Company (Common Stock already owned by, and in the possession of, the Grantee); or (ii) any combination of United States dollars or stock of the Company. Anything contained herein to the contrary notwithstanding, any required withholding tax shall be paid by the Grantee in full in United States dollars in cash or by certified or cashier's check at the time of exercise of the Option. Shares of stock of the Company used to satisfy the exercise price of an Option shall be valued at their fair market value as determined by the Committee, as of the close of business on the day immediately preceding the date of exercise. If required by the Company, such notice of exercise of an Option shall be accompanied by the Grantee's written representation that the stock being acquired are purchased for investment and not for distribution; acknowledging that such stock has not been registered under the Securities Act of 1933, as amended (the "1933 Act"); and agreeing that such stock may not be sold or transferred or unless there is an effective Registration -6- 7 Statement for it under the 1933 Act, or, in the opinion of counsel, such sale or transfer is not in violation of the 1933 Act. The purchase price shall be subject to adjustment, but only as provided in Section 7 hereof. (c) Vesting. Options shall vest in accordance with the schedule established for each Grantee; provided, however, that all Options awarded to a Grantee shall vest immediately upon said Grantee's death or disability as defined herein. (d) Forfeiture. Notwithstanding anything contained herein to the contrary, the right (whether or not vested) of a Grantee to exercise his or her outstanding Options, if any, shall be forfeited if (i) the Grantee shall enter into a business or employment which the Board of Directors determines to be detrimentally competitive with the Company or substantially injurious to the Company's financial interests; or (ii) the Grantee is discharged from employment with the Company for cause; or (iii) the Grantee performs acts of willful malfeasance or gross negligence in a matter of material importance to the Company. (e) Additional Restrictions on Exercise of an ISO. The aggregate fair market value of Common Stock (determined at the time an ISO is granted) for which an ISO is exercisable for the first time by a Grantee during any calendar year (under all plans of the Company and its subsidiaries or parent) shall not exceed $100,000. (f) Duration of Options. Options may be granted for terms of up to but not exceeding ten (10) years from the effective date the particular Option is granted; -7- 8 provided, however, that ISOs granted to a 10% Stockholder may be for a term of up to but not exceeding five (5) years from the effective date the particular ISO is granted. If the stockholders of the Company have not approved the adoption of the Plan prior to the end of one (1) year from the date the Plan is approved by the Board of Directors of the Company, any ISOs granted under the Plan prior to such date shall be null and void and the Company shall rescind the issuance of any shares of Common Stock issued upon the exercise of such ISOs by a Grantee prior to such date. In the event of such rescission, the Company shall refund the price paid per share of Common Stock by the Grantee upon exercise of the ISO upon receipt of the certificate representing such shares. (g) Termination of Employment. Upon the termination of a Grantee's employment with the Company, his or her rights to exercise an Option then held by such Grantee shall be only as follows: (i) Retirement. If the Grantee's employment is terminated because he or she has attained the age which the Company may from time to time establish as the retirement age for any class of its employees, or in accordance with the age specified in an employment agreement with a Grantee, he or she shall have the right to exercise the Option within three (3) months following such retirement if and to the extent the Option was exercisable on such date of retirement; in addition, he or she may exercise the Option notwithstanding that it is not exercisable at the time of retirement, with the consent of the Company within three months following such retirement. However, in the event of his or her death prior to the end of the three-month period after the aforesaid termination of his or her employment, his or her estate shall have -8- 9 the right to exercise the Option within one (1) year following such termination with respect to all or any part of the stock subject thereto, regardless of whether the Grantee had the right to purchase such stock at the time of termination of employment. (ii) Death. In the case of a Grantee who dies while employed by the Company, his or her estate shall have the right for a period of one (1) year following the date of such death to exercise the Option. (iii) Disability. In the case of a Grantee whose employment with the Company is terminated by disability, as defined in Code Section 22(e)(3), he or she shall have the right for a period of one (1) year from the date of determination the disability exercise the Option. (iv) Other Reasons. Except as provided under Section 6(d) hereof, in the case of a Grantee whose employment is terminated for any reason other than those provided above under "Retirement", "Death", or "Disability", the Grantee or his or her estate (in the event of his or her death after such termination) may, within the 30-day period following such termination, exercise the Option to the extent the right to exercise had occurred prior to such termination. (v) Non-Employee Directors. An Option received by a Grantee who is a member of the Board of Directors of the Company but who is not an employee of the Company shall vest and become exercisable in accordance with its terms regardless of such Grantee's continued service as a member of the Board of Directors of the Company. For purposes of this Section 6(g), "termination of employment" shall mean the termination of a Grantee's employment with the Company or a subsidiary or a parent. A Grantee employed by a subsidiary shall also be deemed to have a termination of employment if the subsidiary ceases to be a subsidiary of the Company, and the Grantee does not immediately thereafter become an employee of the Company or of a subsidiary or the parent. -9- 10 A Grantee who is not an employee of the Company shall be considered to have terminated his or her employment when substantial services, as determined by the Committee, are no longer provided to the Company by the Grantee. Also for purposes of this Section 6(g), a Grantee's "estate" shall mean his or her legal representatives upon his or her death or any person who acquires the right to exercise an Option by reason of the Grantee's death. The Committee may in its discretion require the transferee of a Grantee to supply it with written notice of the Grantee's death or disability and to supply it with a copy of the will (in the case of the Grantee's death) or such other evidence as the Committee deems necessary to establish the validity of the transfer of an Option. (h) Transferability of Option and Stock Acquired Upon Exercise of Option. Options shall be transferable only by will or the laws of descent and distribution and shall be exercisable during the Grantee's lifetime only by the Grantee or by the guardian or legal representative of the Grantee. Except as limited by applicable securities laws and the provisions of Sections 6(b), 6(j), 8 and 14 hereof, shares of Common Stock acquired upon exercise of Options hereunder shall be freely tradeable. (i) Modifications, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify, extend or renew outstanding Options granted under the Plan, or accept the surrender of outstanding -10- 11 Options (up to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor (to the extent not theretofore exercised). The Committee shall not, however, with respect to ISOs, modify any outstanding Options so as to specify a lower Option price or accept the surrender of outstanding Options and authorize the granting of new Options in substitution therefor specifying a lower price. Notwithstanding the foregoing, no modification of an Option shall, without the consent of the Grantee, alter or impair any rights or obligations under any Option theretofore granted under the Plan nor shall any modification be made which shall adversely affect the status of an Option as an ISO under Code Section 422. (j) Stock Held for Investment. Each Option agreement may contain an undertaking that, upon demand by the Committee for such a representation, the Grantee, or any person acting under Section 6(g), shall deliver to the Committee at the time of any exercise of an Option a written representation that the stock to be acquired upon such exercise is to be acquired for investment and not for resale or with a view to the distribution thereof. Upon such demand, delivery of such representation prior to the delivery of any stock issued upon exercise of an Option shall be a condition precedent to the right of the Grantee or such other person to purchase any shares of Common Stock. (k) Other Terms and Conditions. Options may contain such other provisions, which shall not be inconsistent with any of the foregoing terms, as the Committee shall deem appropriate. (l) Independent Directors Grants. Independent Directors who have served on the Company's or Lear Holdings Corporation's Board of Directors for at least eighteen -11- 12 consecutive months shall be entitled to receive Options under the Plan with respect to 10,000 shares of Common Stock, each having an exercise price equal to the fair market value of a share of Common Stock on the date of grant. Any Options granted to an Independent Director pursuant to this Section 6(I) shall vest and become exercisable upon the earlier of (i) such Independent Director's death or disability, as defined herein or (ii) three years from the date of grant. For purposes hereof, "Independent Directors" shall mean any member of the Company's Board of Directors who during his entire term as a director was not employed by Lehman Brothers Inc., FIMA Finance Management Inc. or the Company or any of their respective affiliates. 7. Adjustment of the Changes in the Stock. (a) In the event the shares of Common Stock, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, split, reverse split, combination of shares, or otherwise) or if the number of such shares of Common Stock shall be increased through the payment of a stock dividend, then there shall be substituted for or added to each share of Common Stock theretofore appropriated or thereafter subject or which may become subject to an Option under this Plan, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed, or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be. Outstanding Options shall also be appropriately amended as to price and other terms as may be necessary to reflect the foregoing events. In the event there shall be any other change in the number or kind of the outstanding shares of the Common Stock, or of any stock or other securities into which such Common Stock shall have been changed, or for which it shall have been exchanged, then, if the Board of Directors shall, in its sole discretion, determine that -12- 13 such change equitably requires an adjustment in any Option theretofore granted or which may be granted under the Plan, such adjustments shall be made in accordance with such determination. (b) Fractional shares resulting from any adjustment in Options pursuant to Section 7 may be settled in cash or otherwise as the Committee shall determine. Notice of any adjustment shall be given by the Company to each holder of an Option which shall have been so adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of the Plan. 8. Securities Law Requirements. No Option granted pursuant to this Plan shall be exercisable in whole or in part, nor shall the Company be obligated to sell any shares of Common Stock subject to any such Option, if such exercise and sale would, in the opinion of counsel for the Company, violate the 1933 Act (or other Federal or State statutes having similar requirements), as it may be in effect at that time. In this regard, the Committee may demand the representations described in Section 6(b) and Section 6(j). Each Option shall be subject to the further requirement that, if at any time the Committee shall determine in its discretion that the listing or qualification of the shares of Common Stock subject to such Option under any securities exchange requirements or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the granting of such Option or the issue of shares thereunder, such Option may not be exercised in whole or in part, unless such listing, qualification, consent or approval shall have been affected or obtained free of any conditions not acceptable to the Board of Directors. -13- 14 No person who acquires shares of Common Stock under the Plan may, during any period of time that such person is an affiliate of the Company within the meaning of the rules and regulations of the Securities and Exchange Commission under the 1933 Act, sell such shares of Common Stock, unless such offer and sale is made (i) pursuant to an effective registration statement under the 1933 Act, which is current and includes the shares to be sold, or (ii) pursuant to an appropriate exemption from the registration requirement of the 1933 Act, such as that set forth in Rule 144 promulgated under the 1933 Act. 9. Amendment of the Plan. The Board of Directors may amend the Plan at any time, except that approval of the holders of a majority of the outstanding voting stock of the Company is requiredor amendments which: (i) decrease the minimum Option price for ISOs; (ii) extend the term of the Plan beyond ten years; (iii) extend the maximum terms of the Options granted hereunder beyond ten years; (iv) withdraw the administration of the Plan from the Committee appointed pursuant to Section 3; (v) change the class of eligible employees, officers, directors and other Grantees; or (vi) increase the aggregate number of shares of Common Stock which may be issued pursuant to the provisions of the Plan. Notwithstanding the foregoing, the Board of Directors may, without the need for stockholders' approval, amend the Plan in any respect to qualify ISOs as incentive stock options under Code Section 422. -14- 15 10. No Obligation to Exercise Option. The granting of an Option shall impose no obligation upon the Grantee (or upon a transferee of a Grantee) to exercise such Option. 11. No Limitation on Rights of the Company. The grant of any Option shall not in any way affect the right or power of the Company to make adjustments, reclassification, or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 12. Plan Not a Contract of Employment. The Plan is not a contract of employment, and the terms of employment of any recipient of any award hereunder shall not be affected in any way by the Plan or related instruments except as specifically provided therein. The establishment of the Plan shall not be construed as conferring any legal rights upon any recipient of any award hereunder for a continuation of employment, nor shall it interfere with the right of the Company or any subsidiary to discharge any recipient of any award hereunder and to treat him or her without regard to the effect which such treatment might have upon him or her as the recipient of any award hereunder. 13. Expenses of the Plan. All of the expenses of the Plan shall be paid by the Company. 14. Compliance with Applicable Law. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates for shares of Common Stock pursuant to the exercise of an Option, unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any exchange upon which shares of Common Stock are traded. The -15- 16 Company shall in no event be obligated to register any securities pursuant to the 1933 Act (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law, regulation or requirement. The Committee may require, as a condition of the issuance and delivery of such certificates and in order to ensure compliance with such laws, regulations and requirements, that the recipient of any award hereunder make such covenants, agreements and representations as the Committee, in its sole discretion, deems necessary or desirable, including, without limitation, a written representation from a stockholder that the stock is being purchased for investment and not for distribution, acknowledging that such shares have not been registered under the 1933 Act, as amended and agreeing that such shares may not be sold or transferred unless there is an effective Registration Statement for them under the 1933 Act, or, in the opinion of counsel to the Company, that such sale or transfer is not in violation of the 1933 Act. 15. Effect Upon Other Compensation. Nothing contained herein shall prevent the Company or any subsidiary from adopting other or additional compensation arrangements for its employees or directors. 16. Grantee to Have No Rights as a Stockholder. No Grantee of any Option shall have any rights as a stockholder with respect to any shares subject to his or her Option prior to the date on which he or she is recorded as the holder of such shares on the records of the Company. No Grantee of any Option shall have the rights of a stockholder until he or she has paid in full the Option price. -16- 17 17. Notice. Notice to the Committee shall be deemed given if in writing and mailed to the Secretary of the Company at its principal executive offices by first class, certified mail at the then principal office of the Company. 18. Governing Law. Except to the extent preempted by Federal law, this Plan and all Option agreements entered into pursuant thereto shall be construed and enforced in accordance with, and governed by, the laws of the State of Delaware, determined without regard to its conflict of interest rules. -17- EX-11.1 7 EXHIBIT 11.1 1 EXHIBIT 11.1 COMPUTATION OF INCOME (LOSS) PER SHARE
FOR THE NINE MONTHS FOR THE YEAR ENDED JUNE 30, 1989 ENDED JUNE 30, 1990 --------------------------- ---------------------------- PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED LOSS LOSS PER LOSS LOSS PER PER SHARE SHARE(3) PER SHARE SHARE(3) ----------- ------------- ------------ ------------- Net income (loss) before extraordinary item.................................... $(8,658,000) $(8,658,000) $(20,589,000) $ (20,589,000) Extraordinary loss........................ 0 0 0 0 ----------- ------------- ------------ ------------- Net income (loss):........................ $(8,658,000) $(8,658,000) $(20,589,000) $ (20,589,000) Weighted Average Shares: Common shares outstanding............... 529,640 529,640 500,000 500,000 Exercise of stock options(1)............ 40,588 40,588 Exercise of warrants(2)................. 100,000 100,000 ----------- ------------- ------------ ------------- Common and equivalent shares outstanding........................... 529,640 670,228 500,000 640,588 ----------- ------------- ------------ ------------- ----------- ------------- ------------ ------------- Per Common and Equivalent Share: Net income (loss) before extraordinary item.................................. $ (16.35) $ (12.92) $ (41.18) $ (32.14) Extraordinary loss...................... 0 0 0 0 ----------- ------------- ------------ ------------- Net income (loss)....................... $ (16.35) $ (12.92) $ (41.18) $ (32.14) ----------- ------------- ------------ ------------- ----------- ------------- ------------ ------------- FOR THE YEAR FOR THE YEAR ENDED JUNE 30, 1991 ENDED JUNE 30, 1992 --------------------------- --------------------------- FULLY PRIMARY FULLY DILUTED PRIMARY DILUTED LOSS LOSS PER LOSS LOSS PER PER SHARE SHARE(3) PER SHARE SHARE(3) ------------ ------------- ------------ ------------ Net income (loss) before extraordinary item.................................... $(33,169,000) $ (33,169,000) $(17,130,000) $(17,130,000) Extraordinary loss........................ 0 0 (5,100,000) (5,100,000) ------------ ------------- ------------ ------------ Net income (loss):........................ $(33,169,000) $ (33,169,000) $(22,230,000) $(22,230,000) Weighted Average Shares: Common shares outstanding............... 499,803 499,803 841,464 841,464 Exercise of stock options(1)............ 40,588 47,949 Exercise of warrants(2)................. 100,000 100,000 ------------ ------------- ------------ ------------ Common and equivalent shares outstanding........................... 499,803 640,391 841,464 989,413 ------------ ------------- ------------ ------------ ------------ ------------- ------------ ------------ Per Common and Equivalent Share: Net income (loss) before extraordinary item.................................. $ (66.36) $ (51.80) $ (20.36) $ (17.31) Extraordinary loss...................... 0 0 (6.06) (5.15) ------------ ------------- ------------ ------------ Net income (loss)....................... $ (66.36) $ (51.80) $ (26.42) $ (22.46) ------------ ------------- ------------ ------------ ------------ ------------- ------------ ------------
FOR THE YEAR FOR THE TWELVE MONTHS ENDED JUNE 30, 1993 ENDED DECEMBER 31, 1993 --------------------------- ---------------------------- PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED INCOME INCOME PER LOSS LOSS PER PER SHARE SHARE PER SHARE SHARE(3) ----------- ------------- ------------ ------------- Net income (loss) before extraordinary item.................................... $10,114,000 $10,114,000 $ (2,147,000) $ (2,147,000) Extraordinary loss........................ 0 0 (11,684,000) (11,684,000) ----------- ------------- ------------ ------------- Net income (loss)......................... $10,114,000 $10,114,000 $(13,831,000) $ (13,831,000) Weighted Average Shares: Common shares outstanding............... 1,065,659 1,065,659 1,075,758 1,075,758 Exercise of stock options(1)............ 47,949 47,949 84,890 Exercise of warrants(2)................. 100,000 100,000 100,000 ----------- ------------- ------------ ------------- Common and equivalent shares outstanding........................... 1,213,608 1,213,608 1,075,758 1,260,648 ----------- ------------- ------------ ------------- ----------- ------------- ------------ ------------- Per Common and Equivalent Share: Net income (loss) before extraordinary item.................................. $ 8.33 $ 8.33 $ (2.00) $ (1.70) Extraordinary loss...................... 0 0 (10.86) (9.27) ----------- ------------- ------------ ------------- Net income (loss)....................... $ 8.33 $ 8.33 $ (12.86) $ (10.97) ----------- ------------- ------------ ------------- ----------- ------------- ------------ ------------- FOR THE SIX MONTHS FOR THE SIX MONTHS ENDED JANUARY 2, 1993 ENDED DECEMBER 31, 1993 ----------------------------- --------------------------- FULLY PRIMARY FULLY DILUTED PRIMARY DILUTED LOSS LOSS PER LOSS LOSS PER PER SHARE SHARE(3) PER SHARE SHARE(3) ------------ ------------- ------------ ------------ Net income (loss) before extraordinary item.................................... $(10,771,000) $ (10,771,000) $(23,032,000) $(23,032,000) Extraordinary loss........................ 0 0 (11,684,000) (11,684,000) ------------ ------------- ------------ ------------ Net income (loss)......................... $(10,771,000) $ (10,771,000) $(34,716,000) $(34,716,000) Weighted Average Shares: Common shares outstanding............... 1,055,660 1,055,660 1,075,758 1,075,758 Exercise of stock options(1)............ 47,921 84,890 Exercise of warrants(2)................. 100,000 100,000 ------------ ------------- ------------ ------------ Common and equivalent shares outstanding........................... 1,055,660 1,203,581 1,075,758 1,260,648 ------------ ------------- ------------ ------------ ------------ ------------- ------------ ------------ Per Common and Equivalent Share: Net income (loss) before extraordinary item.................................. $ (10.20) $ (8.95) $ (21.41) $ (18.27) Extraordinary loss...................... 0 0 (10.86) (9.27) ------------ ------------- ------------ ------------ Net income (loss)....................... $ (10.20) $ (8.95) $ (32.27) $ (27.54) ------------ ------------- ------------ ------------ ------------ ------------- ------------ ------------
- ------------------------- (1) Amount represents the number of shares issued assuming exercise of stock options, reduced by the number of shares which could have been purchased with the proceeds from the exercise of such options. (2) Amount represents the number of common shares issued assuming exercise of warrants outstanding. (3) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of the APB Opinion No. 15 because of the antidilutive effect on net loss per share. EX-21.1 8 EXHIBIT 21.1 1 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY Progress Pattern Corporation (Delaware) Lear Plastics Corporation (Delaware) LS Acquisition Corporation No. 24 (Delaware) -- Fair Haven Industries, Inc. (Michigan) Lear Seating Canada Ltd. (Canada) -- Lear International Ltd. (Barbados) -- Lear Industries Holdings B.V. (Netherlands) -- General Seating of Canada (35%) (Canada) -- Probel S.A. (30.86%) (Brazil) Lear Seating (U.K.) Ltd. (United Kingdom) Intertrim S.A. de C.V. (99.5%) (Mexico) Lear France E.V.R.I. (France) -- Societe No Sag Francaise (56%) (France) -- Souby S.A. (France) General Seating of America (35%) (Delaware) Pacific Trim Corporation Ltd. (20%) (Thailand) Central de Industrias S.A. de C.V. (40%) (Mexico) Favesa C.V. de S.A. (.01%) (Mexico) LS Acquisition Corp. No. 14 (Delaware) -- NS Beteilgungs GmbH (Germany) -- Lear Seating Autositze GmbH (Austria) -- Lear No Sag Drahtfedern GmbH (99.98%) (Germany) -- Lear Seating GmbH (Germany) -- Spitzer GmbH (62.5%) (Austria) -- Lear Seating Austria Autositze GmbH & Co. KG (100%) (Austria) -- No Sag Drahtfedern Spitzer & Co. KG (100%) (Austria) Lear Seating Sweden, AB (Sweden) Lear Seating Holdings Corp. No. 50 (Delaware) -- Equipos Automotrices Totales S.A. de C.V. (Mexico) -- Central de Industrias S.A. de C.V. (59.6%) (Mexico) -- Favesa S.A. de C.V. (99.9%) (Mexico) All Subsidiaries are wholly-owned unless otherwise indicated. -----END PRIVACY-ENHANCED MESSAGE-----