-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K/TA8OYyvhrpLZsWrrHjRvo9eCIHfhS1B4F4iCCm1svX7RnOvrZe+PXKIqdYXwu0 5ioSm0cW6CWOFtBrgqMNWw== 0000940180-98-000630.txt : 19980605 0000940180-98-000630.hdr.sgml : 19980605 ACCESSION NUMBER: 0000940180-98-000630 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19980604 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BTI CAPITAL TRUST CENTRAL INDEX KEY: 0001058025 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-48231 FILM NUMBER: 98642543 BUSINESS ADDRESS: STREET 1: 5300 OLD TAMPA HWY CITY: LAKELAND STATE: FL ZIP: 33811 BUSINESS PHONE: 9416686000 MAIL ADDRESS: STREET 1: PO BOX 33050 CITY: LAKELAND STATE: FL ZIP: 33811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BREED TECHNOLOGIES INC CENTRAL INDEX KEY: 0000891531 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 222767118 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-48231-01 FILM NUMBER: 98642544 BUSINESS ADDRESS: STREET 1: 5300 OLD TAMPA HWY CITY: LAKELAND STATE: FL ZIP: 33811 BUSINESS PHONE: 9416686000 MAIL ADDRESS: STREET 1: PO BOX 33050 CITY: LAKELAND STATE: FL ZIP: 33811 S-3/A 1 AMENDMENT NO. 1 TO FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1998 REGISTRATION NO. 333-48231 333-48231-01 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- BTI CAPITAL TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS TRUST AGREEMENT) DELAWARE TO BE APPLIED FOR (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) BREED TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-2767118 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5300 OLD TAMPA HIGHWAY LAKELAND, FLORIDA 33807 (941) 668-6000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- CHARLES J. SPERANZELLA, JR. VICE CHAIRMAN BREED TECHNOLOGIES, INC. 5300 OLD TAMPA HIGHWAY LAKELAND, FLORIDA 33807 (941) 668-6473 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: MARY A. BERNARD KING & SPALDING 1185 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10036 (212) 556-2100 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement, as determined in light of market conditions. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JUNE 4, 1998 PROSPECTUS BREED TECHNOLOGIES, INC. 6.50% CONVERTIBLE SUBORDINATED DEBENTURES ----------- BTI CAPITAL TRUST 6.50% CONVERTIBLE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $50 PER CONVERTIBLE TRUST PREFERRED SECURITY) GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO COMMON STOCK OF, BREED TECHNOLOGIES, INC. This Prospectus relates to the resale from time to time of the 6.50% Convertible Trust Preferred Securities (the "Preferred Securities"), which represent preferred undivided beneficial interests in the assets of BTI Capital Trust, a statutory business trust created under the laws of the State of Delaware (the "Trust") and the shares of common stock, par value $.01 per share ("Common Stock"), of Breed Technologies, Inc., a Delaware corporation (the "Company"), issuable upon conversion of the Preferred Securities. The Preferred Securities were originally issued and sold (the "Original Offering") by the trust in a private placement to the Initial Purchasers (as defined herein) on November 25, 1997 (the "Original Offering Date") and were simultaneously resold by the Initial Purchasers in transactions exempt from the Securities Act of 1933, as amended (the "Securities Act"), in the United States to persons reasonably believed by the Initial Purchasers to be qualified institutional buyers as defined in Rule 144A under the Securities Act, and outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act. The Company owns all of the common securities, which represent undivided beneficial interests in the assets of the Trust (the "Common Securities" and, together with the Preferred Securities, the "Trust Securities"). The Trust exists for the sole purpose of issuing the Preferred Securities and the Common Securities, investing the proceeds thereof in an equivalent amount of 6.50% Convertible Subordinated Debentures due 2027 (the "Convertible Debentures") of the Company in an aggregate principal amount equal to the aggregate liquidation amount of Trust Securities. The Convertible Debentures are unsecured, subordinated obligations of the Company as described herein. Upon an event of default under the Declaration (as defined herein), the holders of Preferred Securities will have a preference over the holders of the Common Securities with respect to payments in respect of distributions and payments upon redemption, liquidation and otherwise. Each Preferred Security is convertible in the manner described herein, at the option of the holder thereof, into shares of the Company's Common Stock, at a conversion rate of 2.1973 shares of Common Stock for each Preferred Security (equivalent to $22.755 per share of Common Stock), subject to adjustment in certain circumstances. The Common Stock is listed on The New York Stock Exchange (the "NYSE") under the symbol "BDT." See "Description of the Preferred Securities--Conversion Rights." On June 2, 1998, the last reported sales price of the Common Stock on the NYSE was $18 3/16 per share. Holders of the Preferred Securities are entitled to receive cumulative cash distributions at an annual rate of 6.50% of the liquidation amount of $50 per Preferred Security, accruing from, and including, November 25, 1997 and payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing February 15, 1998 (the "Distributions"). The distribution rate and the distribution and other payment dates for the Preferred Securities correspond to the interest rate and interest and other payment dates on the Convertible Debentures, which are the sole asset of the Trust. As a result, if principal and interest are not paid on the Convertible Debentures, no amounts will be paid on the Preferred Securities. The Preferred Securities, the Convertible Debentures, the Common Stock issuable upon conversion thereof and the associated Guarantee (as defined below) (collectively, the "Offered Securities") may be offered and sold from time to time by the holders named herein or in an accompanying supplement to this Prospectus (a "Prospectus Supplement") or by their transferees, pledgees, donees or their successors (collectively, the "Selling Holders") pursuant to this Prospectus. The Offered Securities may be sold by the Selling Holders from time to time directly to purchasers or through agents, underwriters or dealers. See "Plan of Distribution" and "Selling Holders." If required, the names of any such agents or underwriters involved in the sale of the Offered Securities and the applicable agent's commission, dealer's purchase price or underwriter's discount, if any, will be set forth in a Prospectus Supplement. The Selling Holders will receive all of the net proceeds from the sale of the Offered Securities and will pay all underwriting discounts and selling commissions, if any, applicable to any such sale. No portion of the net proceeds from the sale of Offered Securities will be received by the Company or the Trust. The Company is responsible for payment of certain other expenses incident to the offer and sale of the Offered Securities. The Selling Holders and any broker/dealers, agents or underwriters that participate in the distribution of the Offered Securities may be deemed to be "underwriters" within the meaning of the Securities Act, and any commission received by them and any profit on the resale of the Offered Securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. See "Plan of Distribution" for a description of indemnification arrangements. (continued on next page) SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE PREFERRED SECURITIES OFFERED HEREBY. APPLICATION WILL BE MADE TO LIST THE COMMON STOCK REGISTERED PURSUANT HERETO ON THE NEW YORK STOCK EXCHANGE THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- The Date of this Prospectus is June , 1998 (continued from cover page) The payment of Distributions out of moneys held by the Trust and payments on liquidation of the Trust or the redemption of Preferred Securities, as set forth below, are guaranteed by the Company (the "Guarantee") to the extent described under "Description of the Guarantee." The Guarantee covers payments of Distributions and other payments on the Preferred Securities only if and to the extent that the Trust has funds available therefor, which will not be the case unless the Company has made corresponding payments of interest or principal or other payments on the Convertible Debentures held by the Trust. The Guarantee, when taken together with the Company's obligations under the Convertible Debentures, the Indenture (as defined herein) pursuant to which the Convertible Debentures are issued and its obligations under the Declaration, including its obligations to pay costs, expenses, debts and liabilities of the Trust (other than with respect to the Trust Securities), provides a full and unconditional guarantee of amounts due on the Preferred Securities. See "Effect of Obligations Under the Convertible Debentures and the Guarantee" and "Description of the Guarantee." The Convertible Debentures are redeemable by the Company, in whole or in part, from time to time, on or after November 25, 2000 at the redemption prices specified herein, or at any time, in whole or in part, in certain circumstances upon the occurrence of a Tax Event (as defined herein). If the Company redeems Convertible Debentures, the Trust must redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Convertible Debentures so redeemed at the redemption prices specified herein per Trust Security, plus accrued and unpaid Distributions thereon to the date fixed for redemption. The outstanding Preferred Securities will be redeemed upon maturity of the Convertible Debentures on November 15, 2027. In addition, upon the occurrence of a Special Event (as defined herein) arising from a change in laws or a change in legal interpretation regarding tax or investment company matters, unless the Convertible Debentures are redeemed in the limited circumstances described herein, the Trust shall be dissolved, with the result that the Convertible Debentures will be distributed to the holders of the Trust Securities, on a pro rata basis, in lieu of any cash distribution. See "Description of the Preferred Securities--Mandatory Redemption," "Description of the Preferred Securities--Special Event Redemption or Distribution" and "Description of the Convertible Debentures." In the event of the voluntary or involuntary dissolution, winding up or termination of the Trust, after satisfaction of liabilities to creditors of the Trust as required by applicable law, the holders of the Preferred Securities will be entitled to receive for each Preferred Security a liquidation amount of $50 plus accrued and unpaid Distributions thereon to the date of payment, unless, in connection with such dissolution, winding-up or termination of the Trust, the Convertible Debentures are distributed to the holders of the Preferred Securities. See "Description of the Preferred Securities--Liquidation Distribution Upon Dissolution." The obligations of the Company under the Guarantee rank (i) subordinate and junior in right of payment to all other liabilities of the Company except any liabilities that may be pari passu expressly by their terms, (ii) pari passu with the most senior preferred or preference stock, if any, issued from time to time by the Company, and with any guarantee now or hereafter entered into by the Company in respect of any preferred or preference stock or preferred securities of any affiliate of the Company and (iii) senior to the Common Stock. If the Company does not make principal or interest payments on the Convertible Debentures, the Trust will not have sufficient funds to redeem or make distributions on the Preferred Securities, in which event holders of the Preferred Securities would not be able to rely on the Guarantee for payment of such redemption or distributions until the Trust has sufficient funds available therefor. The obligations of the Company under the Convertible Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined herein) of the Company. As of April 30, 1998, the aggregate Senior Indebtedness of the Company was approximately $924 million. The obligations of the Company under the Convertible Debentures are also effectively subordinated to all existing and future indebtedness and other liabilities, including trade payables, of the Company's subsidiaries. As of April 30, 1998, the aggregate of such indebtedness and other liabilities, including trade payables, of the Company's subsidiaries was approximately $433 million. The Company has the right to defer payments of interest on the Convertible Debentures by extending the interest payment period on the Convertible Debentures at any time (so long as no Indenture Event of Default (as defined herein) has occurred and is continuing) for up to 20 consecutive quarters (each, an "Extension Period"); provided that no such Extension Period may extend beyond the maturity date of the Convertible Debentures. If interest payments are so deferred, Distributions on the Preferred Securities will also be deferred. During any Extension Period, Distributions on the Preferred Securities will continue to accrue with interest thereon (to the extent permitted by applicable law) at an annual rate of 6.50% per annum, compounded quarterly. Additionally, during any Extension Period, holders of Preferred Securities will continue to recognize interest income in the form of original issue discount ("OID") for United States federal income tax purposes in advance of receipt of cash distributions with respect to such deferred interest payments. There could be multiple Extension Periods of varying lengths throughout the term of the Convertible Debentures. The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Convertible Debentures. See "Description of the Convertible Debentures--Interest Income and Option to Extend Interest Payment Periods," "Risk Factors--Company Option to Extend Interest Payment Periods; OID Risk" and "United States Federal Income Taxation--Interest Income and Original Issue Discount." 2 AVAILABLE INFORMATION The Company is subject to the information requirements of the Exchange Act and in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information concerning the Company can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the following regional offices of the Commission: Seven World Trade Center, Suite 1300, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained by writing to the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission also maintains a web site that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission. The address of such site is http://www.sec.gov. Such material can also be inspected and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a Registration Statement on Form S-3 (herein together with all amendments and exhibits thereto, called the "Registration Statement") under the Securities Act with respect to the Offered Securities. This Prospectus does not contain all of the information set forth or incorporated by reference in the Registration Statement and the exhibits and schedules relating thereto, certain portions of which have been omitted as permitted by the Rules and Regulations of the Commission. For further information with respect to the Company and the securities offered by this Prospectus, reference is made to the Registration Statement and the exhibits filed or incorporated as a part thereof, which are on file at the offices of the Commission and may be obtained upon payment of the fee prescribed by the Commission, or may be examined without charge at the offices of the Commission or on the Commission's web site. Statements contained in this Prospectus as to the contents of any documents referred to are not necessarily complete; with respect to any such document filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. No separate financial statements of the Trust have been included herein. The Company does not believe that such financial statements would be material to holders of Preferred Securities because (i) all of the voting securities of the Trust are, and will continue to be, owned, directly or indirectly, by the Company, a reporting company under the Securities Exchange Act of 1934 (the "Exchange Act"), (ii) the Trust has no independent operations and exists for the sole purpose of issuing securities representing undivided beneficial interests in the assets of the Trust, investing the proceeds thereof in the Convertible Debentures issued by the Company and engaging in only those other activities that are necessary or incidental thereto and (iii) the obligations of the Trust under the Trust Securities are fully and unconditionally guaranteed by the Company if and to the extent that the Trust has funds available to meet such obligations. See "The Trust," "Description of the Preferred Securities," "Description of the Convertible Debentures" and "Description of the Guarantee." The summaries of various agreements referred to in this Prospectus do not purport to be complete descriptions of such agreements and are subject to the detailed provisions contained in the various documents. Copies of forms of such agreements are available upon request from the Secretary of the Company. 3 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents have been filed with the Commission and are incorporated herein by reference: (a) the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997; (b) the Company's Quarterly Reports on Form 10-Q for the quarters ended September 30, 1997, December 31, 1997 and March 31, 1998; (c) the Company's Current Report on Form 8-K filed on May 12, 1998; (d) the Company's Current Report on Form 8-K filed on November 14, 1997, as amended by the Company's Current Report on Form 8-K/A filed on January 13, 1998; (e) the Company's Current Report on Form 8-K filed on May 12, 1998; (f) the Company's Current Report on Form 8-K filed on June , 1998; and (g) the description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A as filed with the Commission on October 19, 1992. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Offered Securities shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, upon the request of such person, a copy of any or all of the foregoing documents incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be submitted in writing to Stuart Boyd, Esq., Associate General Counsel, Breed Technologies, Inc., 5300 Old Tampa Highway, P.O. Box 33050, Lakeland, Florida 33807, or by telephone at 941-668-6000. 4 RISK FACTORS An investment in the Offered Securities involves a high degree of risk. Prospective investors should carefully consider the following risk factors, in addition to the other information set forth in this Prospectus or incorporated by reference herein, in connection with an investment in the Offered Securities. RISKS RELATING TO THE COMPANY Substantial Leverage. The Company has been and will continue to be highly leveraged. The Company has indebtedness that is substantial in relation to its stockholders' equity. As of April 30, 1998, the Company had outstanding approximately $924 million of total debt (excluding the Convertible Debentures) and approximately $16 million of stockholders' equity. All of this debt is senior to the Convertible Debentures, the interest payments on which will provide the funds required for Distributions on the Preferred Securities. See "Risk Factors--Ranking of Subordinate Obligations Under the Guarantee and Convertible Debentures." The degree to which the Company is leveraged could have important consequences for the holders of the Preferred Securities (or Common Stock which may be acquired upon conversion), including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness and will not be available for other purposes; (ii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other purposes may be impaired; (iii) the Company's leverage may increase its vulnerability to economic downturns and limit its ability to withstand competitive pressures; and (iv) the Company's ability to capitalize on significant business opportunities may be limited. The ability of the Company to meet its debt service obligations and its obligations under the Convertible Debentures will depend on the future operating performance and financial results of the Company, which will be subject in part to factors beyond the Company's control. Although management believes that the Company's cash flow will be adequate to meet its interest and principal payments, there can be no assurance that the Company will continue to generate earnings in the future sufficient to cover its fixed charges. If the Company is unable to generate earnings in the future sufficient to cover its fixed charges (including its obligations under the Convertible Debentures) and is unable to borrow sufficient funds under its existing credit facilities or from other sources, it may be required to refinance all or a portion of its existing debt (including the Convertible Debentures) or to sell all or a portion of its assets. There can be no assurance that a refinancing would be possible, nor can there be any assurance as to the timing of any asset sales or the proceeds the Company could realize therefrom. Integration and Management of Acquired Businesses. Since August 1994, the Company has completed ten acquisitions, including the acquisition of the safety restraint systems business ("SRS") of AlliedSignal Inc. ("AlliedSignal") on October 30, 1997 (the "SRS Acquisition"). The SRS Acquisition was significantly larger than any acquisition previously completed by the Company and represents a substantial increase in the scope of the Company's business. Pro forma for the SRS Acquisition and three acquisitions completed during fiscal 1997 (the "1997 Acquisitions"), the Company's fiscal 1997 net sales would have been $1.8 billion compared to $795 million on an actual basis. The Company has limited experience in the design, development, manufacture and sale of seat belt systems, which represent a significant portion of the SRS business. Pro forma for the SRS Acquisition and the 1997 Acquisitions, seat belt system sales would have accounted for 27.1% of the Company's fiscal 1997 net sales. There can be no assurance that the Company will be able to successfully integrate the operations of SRS or the other recently acquired businesses into the Company's operations. In particular, the Company may experience (i) difficulty in assimilating the operations and personnel of the acquired companies, (ii) disruption of the Company's ongoing business, (iii) the inability of management to maximize the financial and strategic position of the Company by the successful incorporation of acquired products or technologies into the Company's offerings, (iv) difficulty in the maintenance of uniform standards, controls, procedures and policies and (v) the impairment of relationships with employees and customers. In addition, the Company has committed to a plan to reposition and combine certain of the Company's manufacturing and sales and 5 engineering facilities and, in connection with such plan, incurred a repositioning charge of $244 million during the three months ended December 31, 1997 (the "Repositioning Charge"). Any failure on the part of the Company to successfully integrate and manage the operations of SRS or the other recently acquired businesses, or to successfully consolidate its facilities and sales and marketing offices in accordance with the plan, could have a material adverse effect on the Company's financial condition and results of operations. The Company has little or no history of operations on a combined basis with SRS or the other most recently acquired businesses. Dependence on the Development of New Products. In recent years, automotive occupant protection systems have changed significantly, based on changes in government regulations, the demand by OEMs and consumers for improved systems and rapid advances in the technology underlying these systems. The Company believes that occupant protection systems will continue to change rapidly, with industry participants seeking to develop and introduce intelligent occupant protection systems that will be able to react differently to individual crash situations and to make improvements in other components of occupant protection systems. The Company believes that its future success will depend in part on its ability to enhance its existing products and to develop new products that meet changing government regulatory requirements and satisfy OEM and consumer requirements, particularly requirements for intelligent occupant protection systems. There can be no assurance that the Company will meet these objectives and any failure to do so could have a material adverse effect on the Company's financial condition and results of operations. Reliance on Major Customers. Pro forma for the SRS Acquisition and the 1997 Acquisitions, sales to GM, Fiat, Ford and Chrysler represented approximately 21%, 18%, 17% and 16%, respectively, of the Company's net sales during fiscal 1997 and 23%, 18%, 14% and 21%, respectively, of the Company's net sales for the first nine months of fiscal 1998. These customers are not committed to purchase any specified quantities of products from the Company and there can be no assurance that these customers will continue to purchase products from the Company at levels consistent with previous purchases. A significant decline in sales of the Company's products to these customers would have a material adverse effect on the Company's financial condition and results of operations. Effects of Likely Price Decreases. The Company anticipates that the prices of automotive occupant protection systems and components such as those sold by the Company will continue to decline over the next several years as a result of competitive pressures and OEM requirements. The Company's future profitability, therefore, will depend, among other things, on its ability to continue to reduce its per-unit costs and maintain a cost structure, internally and with its suppliers, that will enable it to offer competitive prices. There can be no assurance that the Company will be successful in doing so. Dependence on the Automotive Industry. Sales of products to the automotive industry have accounted for substantially all of the net sales of the Company. The automobile market is cyclical and dependent on general economic conditions. Future declines in car production in the United States or in markets outside the United States could have an adverse effect on the Company's financial condition and results of operations. In addition, most of the Company's customers are unionized and may, from time to time, experience labor disruptions. Any disruption in production by the Company's customers could have an adverse effect on the Company's financial condition and results of operations. Government Regulation. The North American market for automotive occupant protection systems has been significantly affected by federal safety regulations and the Company believes that such regulations will continue to have a significant effect on this market. Specifically, the rapid installation of driver-side and passenger-side airbags was initially caused in the United States by federal safety regulations. Recently, there has been negative publicity concerning airbag performance, particularly the performance of passenger-side airbags, and it is possible that federal safety regulations will be revised in response to the concerns raised. It is difficult to predict the nature of any such regulatory changes or the impact of such changes on the Company's financial condition and results of operations. 6 Product Liability. The sale of airbag and seat belt systems and components entails an inherent risk of product liability claims. Although the Company maintains product liability insurance covering certain types of claims, the Company's policies are subject to substantial deductibles and there can be no assurance that the coverage limits of the Company's insurance policies will be adequate or that any particular loss will be covered. Such insurance can be expensive and in the future may not be available on acceptable terms, if at all. A successful claim brought against the Company not covered by the Company's insurance or resulting in a recovery in excess of its insurance coverage could have a material adverse effect on the Company's financial condition and results of operations. Warranty and Recall Exposure. The Company warrants to its OEM customers that its products are free from defects and that they meet certain OEM designated specifications. The OEMs in turn offer product warranties to the purchasers of vehicles. In some instances of common complaint, the automobile manufacturer will institute a vehicle recall or will be required by a governmental agency to conduct a recall. As a result, from time to time, the Company has received claims against it and requests for payment from its OEM customers to remedy complaints made by the purchasers of vehicles. There can be no assurance that the Company will not incur substantial warranty or recall expense in the future. Such complaints and the related expenses could have a material adverse effect on the Company's relationship with its OEM customers and its financial condition and results of operations. Potential Fluctuations in Quarterly Results. The Company's quarterly operating results may vary significantly depending on factors such as the timing of significant orders, the level of sales by automobile manufacturers, disruptions caused by labor disputes and the seasonal patterns of its customers, especially those located in Europe. A large portion of the Company's expenses are fixed and cannot be adjusted in response to a shortfall in quarterly revenues. There can be no assurance that the Company will operate profitably in any quarter. Long Lead Times for Sales. The Company typically competes for new business at the beginning of the development of new vehicle models and upon the redesign of existing models by its customers. New model development generally begins three to five years prior to the marketing of such models to the public. As a result of the relatively long lead times required for sales of automotive occupant protection systems and components, it may be difficult for the Company to obtain new sales to replace any unexpected decline in sales to existing customers. The failure of the Company to obtain new business for new models or to retain or increase business on redesigned existing models could adversely affect the Company's financial condition and results of operations. Competition. The markets for automotive occupant protection systems and components are highly competitive. Increased competition could result in price reductions and loss of market share, which would adversely affect the Company's financial condition and results of operations. Many of the Company's current and potential competitors have greater financial and other resources than the Company. There can be no assurance that the Company will be able to continue to compete successfully with its existing competitors or will be able to compete successfully with new competitors. Risks Associated with International Sales. Pro forma for the SRS Acquisition and the 1997 Acquisitions, international sales accounted for approximately 42% and 47% of the Company's net sales in fiscal 1997 and the first nine months of 1998, respectively. The Company expects that international business will continue to account for a significant portion of its business in the future. The Company's ability to compete effectively outside the United States will depend on its ability to develop the relationships and, if demand requires, additional facilities necessary to service international customers. In addition, the Company's financial results from international sales may be affected by fluctuations in currency exchange rates, increases in duty rates, difficulties in obtaining export licenses, trade and tariff regulations, political instability, difficulties or delays in collecting accounts receivable and difficulties in staffing and managing international operations. Pro forma for the SRS Acquisition and the 1997 Acquisitions, sales in Asia accounted for approximately 6% and 5% of the Company's net sales for fiscal 1997 and the first nine months of fiscal 1998, respectively. In recent months, certain Asian currencies have 7 devalued significantly in relation to the United States dollar and financial markets in Asia have experienced significant turmoil. There can be no assurance that the Company's sales in Asia will not be materially adversely affected by such developments. Dependence on Key Personnel. The Company's success depends to a significant degree upon the continued contributions of its key personnel, and the loss of the services of such key personnel could have a material adverse effect on the Company. Dependence on Suppliers. Certain key components used in the Company's products, such as restraints control modules and certain hybrid inflators, are currently purchased from single sources. In addition, the Company subcontracts the manufacture of certain of its subassemblies to third parties. The inability to obtain sufficient sources of components or subassemblies as required, or to obtain or develop alternative sources at competitive prices and quality if and as required in the future, could result in delays in product shipments or increase the Company's supply costs, either of which would adversely affect the Company's financial condition and results of operations. Patents and Proprietary Technology. The Company relies on a number of patents, trade secrets and non-disclosure agreements to protect its technology. There can be no assurance that any patents now or hereafter owned by the Company will afford protection against competitors that develop similar technology. In addition, upon expiration of such patents, competitors may develop and sell products based on technologies similar or equivalent to those currently covered by the Company's patents. In addition, the laws of some foreign countries do not protect the Company's patents and other proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent imitation of its products or technology, that the Company's proprietary information will not become known to competitors, that the Company can effectively protect its rights to unpatented proprietary information or that the Company's competitors will not independently develop products or technologies that are superior to the Company's products or technologies without infringing on the Company's intellectual property rights. Although the Company believes that its products and technology do not infringe on the proprietary rights of others, there can be no assurance that third parties will not assert infringement claims in the future. Safety and Environmental Considerations. Sodium azide, which is used in the propellant for certain of the Company's inflators, is flammable and has exhibited toxicity in laboratory animal tests. In addition, the manufacture of propellant containing sodium azide, as well as primers used in certain of the Company's products, entails certain hazards. The Company's method of production limits the quantity of these energetic materials in process at any one time and utilizes certain safety measures. Notwithstanding these precautions, the Company has on occasion experienced fires and explosions at its manufacturing facilities. Although the Company's facilities and processes are designed in a manner intended to minimize risks associated with the use of energetic materials such as sodium azide and primers, there can be no assurance that the Company will not encounter additional incidents or safety issues relating to the use and manufacture of these energetic materials. The Company uses various hazardous and toxic substances in its manufacturing processes, including certain solvents, lubricants, sodium azide and other pyrotechnic materials. The inadvertent release of any of these materials into the environment could subject the Company to significant liability for clean- up costs or fines, which could have a material adverse effect on the Company's financial condition and results of operations. Additionally, the Company may be required to make significant expenditures to ensure that the Company's facilities and operations continue to satisfy environmental regulations and these regulations may change significantly in the future. Year 2000. Based on a recent assessment, the Company determined that it will be required to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company presently believes that with modifications to existing software and conversions to new software, the year 2000 issue will not pose significant operational problems for its computer systems. The Company cannot currently quantify the cost of these modifications and conversions. However, if such modifications and conversions are not made, or are not timely completed, the year 2000 issue could have a material impact on the operations of the Company. 8 Control of the Company by Principal Stockholders. As of May 31, 1998, Allen K. Breed and Johnnie Cordell Breed beneficially owned approximately 47% of the outstanding Common Stock of the Company. As of result, Mr. and Mrs. Breed are able to exercise control over the Company's affairs through their ability to elect all of the directors of the Company and control the vote on all matters requiring stockholder approval. RISKS RELATING TO THE OFFERED SECURITIES Ranking of Subordinate Obligations Under the Guarantee and Convertible Debentures. The Company's obligations under the Guarantee are subordinate and junior in right of payment to all liabilities of the Company and pari passu with the most senior preferred or preference stock issued, from time to time, if any, by the Company. The obligations of the Company under the Convertible Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness of the Company. No payment of principal (including redemption payments, if any), or premium, if any, on the Convertible Debentures may be made if (i) any Senior Indebtedness of the Company is not paid when due and any applicable grace period with respect to such default has ended with such default not having been cured or waived or ceasing to exist, or (ii) the maturity of any Senior Indebtedness has been accelerated because of a default. At April 30, 1998, Senior Indebtedness, aggregated approximately $924 million. In addition, because a significant portion of the Company's operations are conducted through its subsidiaries and the subsidiaries have not guaranteed the payment of principal of and interest on the Convertible Debentures, all liabilities of such subsidiaries, including trade payables (which aggregated approximately $433 million at April 30, 1998), are effectively senior to the Convertible Debentures and the Guarantee. There are no terms in the Preferred Securities, the Convertible Debentures or the Guarantee that limit the Company's or any subsidiary's ability to incur additional indebtedness, including indebtedness that ranks senior to the Convertible Debentures and the Guarantee. See "Description of the Convertible Debentures" and "Description of the Guarantee--Status of the Guarantee." The Guarantee guarantees to the holders of the Preferred Securities the payment of (i) any accrued and unpaid Distributions that are required to be paid on the Preferred Securities, to the extent the Trust has funds available therefor, (ii) the Redemption Price, including all accrued and unpaid Distributions with respect to the Preferred Securities called for redemption by the Trust, to the extent the Trust has funds available therefor, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of Convertible Debentures to the holders of Preferred Securities or a redemption of all the Preferred Securities), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Preferred Securities to the date of the payment, to the extent the Trust has funds available therefor, or (b) the amount of assets of the Trust remaining available for distribution to holders of the Preferred Securities in liquidation of the Trust. The holders of a majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee (as defined herein) or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. Notwithstanding the foregoing, if the Company fails to make a payment under the Guarantee, any holder of Preferred Securities may directly institute a legal proceeding against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person or entity. If the Company were to default on its obligation to pay amounts payable on the Convertible Debentures, the Trust would lack available funds for the payment of Distributions or amounts payable on redemption of the Preferred Securities or otherwise, and, in such event, holders of the Preferred Securities would not be able to rely upon the Guarantee for payment of such amounts. Instead, holders of the Preferred Securities would be required to rely on the enforcement by (i) the Institutional Trustee of its rights as registered holder of the Convertible Debentures against the Company pursuant to the terms of the Convertible Debentures or (ii) such holder of its right against the Company under certain circumstances to enforce payments on the Convertible Debentures. See "--Enforcement of Certain Rights by Holders of Preferred Securities," "Description of the Guarantee" and "Description of the Convertible Debentures." The Declaration provides that each holder of Preferred Securities, by acceptance thereof, agrees to the provisions of the Guarantee, including the subordination provisions thereof, and the Indenture. 9 Enforcement of Certain Rights by Holders of Preferred Securities. If a Declaration Event of Default occurs and is continuing, then the holders of Preferred Securities would rely on the enforcement by the Institutional Trustee of its rights as a holder of the Convertible Debentures against the Company. In addition, the holders of a majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee or to direct the exercise of any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional Trustee to exercise the remedies available to it as a holder of the Convertible Debentures. If the Institutional Trustee fails to enforce its rights under the Convertible Debentures, to the fullest extent permitted by law, any holder of Preferred Securities may directly institute a legal proceeding against the Company to enforce the Institutional Trustee's rights under the Convertible Debentures without first instituting any legal proceeding against the Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay principal on the Convertible Debentures on the date such principal is otherwise payable (or in the case of redemption, on the redemption date), then a holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of the Convertible Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder (a "Direct Action") on or after the respective due date specified in the Convertible Debentures. In connection with such Direct Action, the Company will be subrogated to the rights of such holder of Preferred Securities under the Declaration to the extent of any payment made by the Company to such holder of Preferred Securities in such Direct Action. The holders of Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Convertible Debentures. The Indenture provides that the Indenture Trustee shall give holders of the Convertible Debentures notice of all uncured defaults or events of default within 30 days after occurrence. However, except in the case of a default or an event of default in payment on the Convertible Debentures, the Indenture Trustee is protected in withholding such notice if its officers or directors in good faith determine that withholding of such notice is in the interest of the holders. Company Option to Extend Interest Payment Periods; OID Risk. The Company has the right under the Indenture to defer payment of interest on the Convertible Debentures by extending the interest payment period at any time (so long as no Indenture Event of Default has occurred and is continuing), and from time to time, on the Convertible Debentures. As a consequence of such an extension, quarterly Distributions on the Preferred Securities would be deferred (although such Distributions would continue to accrue thereon compounded quarterly) by the Trust during any such extended interest payment period. Such right to extend the interest payment period for the Convertible Debentures is limited to a period not exceeding 20 consecutive quarters, during which no interest shall be due and payable, provided that no such Extension Period may extend beyond the maturity date of the Convertible Debentures. In the event that the Company exercises this right to defer interest payments, the Company has agreed, among other things, (a) not to declare or pay dividends on, or make a distribution with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock in connection with the satisfaction by the Company of its obligations under any employee benefit plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of Common Stock, (ii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iii) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (iv) purchases or acquisitions of shares of the Company's Common Stock to be used in connection with acquisitions of the Company's Common Stock by stockholders pursuant to a dividend reinvestment plan or (v) stock dividends paid by the Company where the dividend stock is the same stock as that on which the dividend is paid), (b) not to make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Company that rank pari passu with or junior to the Convertible Debentures and (c) not to make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantee). Prior to the termination of any such Extension Period, the Company may further extend the interest payment period; provided that such Extension Period, together with all such previous and further extensions thereof, may not exceed 20 consecutive quarters or extend beyond the maturity date of the 10 Convertible Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, the Company may commence a new Extension Period, subject to the above requirements. See "Description of the Preferred Securities--Distributions," "Description of the Convertible Debentures-- Interest Income and Option to Extend Interest Payment Periods" and "United States Federal Income Taxation--Interest Income and Original Issue Discount." Should the Company exercise its right to defer payments of interest by extending the interest payment period, each holder of Preferred Securities will continue to accrue income (as OID) in respect of the deferred interest allocable to its Preferred Securities for United States federal income tax purposes, which will be allocated but not distributed to holders of record of Preferred Securities. As a result, each such holder of Preferred Securities will recognize income for United States federal income tax purposes in advance of the receipt of cash and will not receive the cash from the Trust related to such income if such holder disposes of its Preferred Securities prior to the record date for distributions of such amounts. There could be multiple Extension Periods of varying lengths throughout the term of the Convertible Debentures. The Company has no current intention of exercising its rights to defer payments of interest by extending the interest payment period on the Convertible Debentures. However, should the Company determine to exercise such right in the future, the market price of the Preferred Securities is likely to be adversely affected. In that event, a holder that disposes of its Preferred Securities during an Extension Period might not receive the same return on its investment as a holder that continues to hold its Preferred Securities. See "--Uncertainty with Respect to Trading Price" and "United States Federal Income Taxation--Interest Income and Original Issue Discount." Special Event Redemption or Distribution. Upon the occurrence of a Special Event, the Trust shall be dissolved, except in the limited circumstance described below, with the result that the Convertible Debentures would be distributed to the holders of the Trust Securities in connection with the liquidation of the Trust. In the case of a Special Event that is a Tax Event, in certain circumstances, the Company shall have the right to redeem the Convertible Debentures, in whole or in part, in lieu of a distribution of the Convertible Debentures by the Trust, in which event the Trust will redeem the Trust Securities on a pro rata basis to the same extent as the Convertible Debentures are redeemed by the Company. See "Description of the Preferred Securities--Special Event Redemption or Distribution." Under current United States federal income tax law, a distribution of Convertible Debentures upon the dissolution of the Trust would not be a taxable event to holders of the Preferred Securities. Upon the occurrence of a Tax Event, however, a dissolution of the Trust in which holders of the Preferred Securities receive cash would be a taxable event to such holders. See "United States Federal Income Taxation--Receipt of Convertible Debentures or Cash Upon Liquidation of the Trust." There can be no assurance as to the market prices for the Preferred Securities or the Convertible Debentures that may be distributed in exchange for the Preferred Securities if a dissolution or liquidation of the Trust were to occur. Accordingly, the Preferred Securities that an investor may purchase, whether in this Offering or in the secondary market, or the Convertible Debentures that a holder of Preferred Securities may receive on dissolution and liquidation of the Trust, may trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. Because holders of Preferred Securities may receive Convertible Debentures upon the occurrence of a Special Event, prospective purchasers of Preferred Securities are also making an investment decision with regard to the Convertible Debentures and should carefully review all the information regarding the Convertible Debentures contained in this Prospectus. See "Description of the Preferred Securities---Special Event Redemption or Distribution." Limited Voting Rights. Holders of Preferred Securities have limited voting rights and are not entitled to vote to appoint, remove, replace, or increase or decrease the number of Trustees, which voting rights are vested exclusively in the holder of the Common Securities. Prior to any conversion, holders of Preferred Securities do not have any voting rights with respect to the Common Stock of the Company. See "Description of the Preferred Securities." Uncertainty with Respect to Trading Price. The Preferred Securities may trade at a price that does not fully reflect the value of accrued but unpaid interest with respect to the underlying Convertible Debentures. In 11 addition, as a result of the Company's right to defer interest payments, the market price of the Preferred Securities (which represent an undivided interest in the assets of the Trust) may be more volatile than other similar securities where the issuer does not have such right to defer interest payments. A holder who disposes of his or her Preferred Securities between record dates for payments of distributions thereon will be required to include in income accrued but unpaid interest on the Convertible Debentures through the date of disposition as ordinary income (i.e., OID) and to add such amount to his or her adjusted tax basis in his or her pro rata share of the underlying Convertible Debentures deemed disposed. To the extent the selling price is less than the holder's adjusted tax basis, a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for federal income tax purposes. See "United States Federal Income Taxation -- Interest Income and Original Issue Discount" and "-- Sales of Preferred Securities." THE COMPANY The Company is a worldwide leader in the design, development, manufacture and sale of automotive occupant protection systems and components. Its principal products include sensors, electronics and related software, airbags and inflators, seat belt systems and steering wheels. These products are used in over 400 vehicle models manufactured by over 45 automobile manufacturers ("OEMs"), including General Motors, Fiat, Ford, Chrysler, Suzuki and most of the other largest OEMs in the world. The Company's goal is to become the leading worldwide supplier of complete, integrated occupant protection systems, which consist of (i) sensors and electronics (including crash and occupant protection sensors, diagnostic electronics and related software), (ii) airbag modules (consisting primarily of airbags and inflators), seat belt systems (including pretensioners and retractors) and (iv) steering wheels. Since August 1994, the Company has completed ten acquisitions. As a result of these ten acquisitions, the Company has rapidly evolved from predominately the producer of a single product -- electromechanical sensors ("EMS sensors") -- to a leading manufacturer of all of the components required for complete, integrated occupant protection systems. The Company was incorporated under the laws of the State of Delaware in 1986. The Company's principal executive offices are located at 5300 Old Tampa Highway, P.O. Box 33050 Lakeland, FL 33807-3050 and its telephone number is (941) 668-6000. RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS The following table sets forth the consolidated ratio of earnings to combined fixed charges and preferred stock dividends of the Company. For purposes of computing the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of earnings before income taxes and extraordinary item plus combined fixed charges and preferred stock dividends. Combined fixed charges and preferred stock dividends consist of interest expense, whether expensed or capitalized, amortization of debt issuance costs, an estimated portion of rental expense that is representative of the interest factor in such rentals and distributions on the Preferred Securities (which are calculated on the basis of the amount of pre-tax income required to pay such distributions).
PRO FORMA (a) NINE MONTHS ENDED PRO FORMA (b) YEAR ENDED JUNE 30, ------------- MARCH 31, ----------------- ------------------------------ YEAR ENDED ----------------- NINE MONTHS ENDED 1993 1994 1995 1996 1997 JUNE 30, 1997 1997 1998 MARCH 31, 1998 ----- ----- ----- ----- ---- ------------- -------- -------- ----------------- 13.5x 52.3x 96.3x 34.0x 2.0x 1.1x 2.1x (c) (c)
- -------- (a) Gives effect to the SRS Acquisition and the 1997 Acquisitions. (b) Gives effect to the SRS Acquisition. (c) During the nine months ended March 31, 1998, the Company incurred repositioning and certain other special charges aggregating $349.9 million and, as a result, earnings were insufficient to cover combined fixed charges and preferred stock dividends by $380.2 million and $396.0 million for the historical and pro forma nine months ended March 31, 1998, respectively. 12 THE TRUST The Trust is a statutory business trust created under Delaware law pursuant to (i) a trust agreement, dated as of October 17, 1997, as amended by the Amended and Restated Declaration of Trust dated as of November 25, 1997 (the "Declaration"), executed by the Company, as sponsor (the "Sponsor"), and certain of the trustees of the Trust (as described below) and (ii) the filing of a certificate of trust with the Secretary of State of the State of Delaware on October 17, 1997. The Declaration will be qualified as an indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). See "Description of the Preferred Securities." The Company has acquired all of the Common Securities of the Trust. The Trust exists for the exclusive purposes of (i) issuing the Trust Securities representing undivided beneficial interests in the assets of the Trust, (ii) investing the gross proceeds of the Trust Securities in the Convertible Debentures and (iii) engaging in only those other activities necessary or incidental thereto. The Trust's business and affairs are conducted by its trustees, each appointed by the Company as holder of the Common Securities. Pursuant to the Declaration, the number of trustees of the Trust is currently five: Wilmington Trust Company, as the institutional trustee (the "Institutional Trustee"), Wilmington Trust Company, as the Delaware trustee (the "Delaware Trustee"), and three individual trustees (the "Regular Trustees" and, together with the Institutional Trustee and the Delaware Trustee, the "Trustees"), who are, and any successor Regular Trustees must be, persons who are employees or officers of, or who are affiliated with, the Company. The Regular Trustees are initially Charles J. Speranzella, Jr., Fred J. Musone and Frank J. Gnisci, each of whom is an officer of the Company. The Institutional Trustee will act as the sole indenture trustee under the Declaration for purposes of compliance with the Trust Indenture Act until removed or replaced by the holder of the Common Securities. Wilmington Trust Company will also act as indenture trustee (the "Guarantee Trustee") under the Guarantee for the purposes of compliance with the provisions of the Trust Indenture Act. See "Description of the Guarantee" and "Description of the Convertible Debentures." The Institutional Trustee holds title to the Convertible Debentures for the benefit of the holders of the Trust Securities and, in its capacity as the holder, the Institutional Trustee has the power to exercise all rights, powers and privileges under the Indenture pursuant to which the Convertible Debentures are issued. In addition, the Institutional Trustee maintains exclusive control of a segregated non-interest bearing bank account (the "Property Account") to hold all payments made in respect of the Convertible Debentures for the benefit of the holders of the Trust Securities. The Institutional Trustee will make payments of distributions and payments on liquidation, redemption and otherwise for the holders of the Trust Securities out of funds from the Property Account. The Guarantee Trustee holds the Guarantee for the benefit of the holders of the Preferred Securities. The Company, as the direct or indirect holder of all the Common Securities, has the right, subject to certain restrictions contained in the Declaration, to appoint, remove or replace any Trustee and to increase or decrease the number of Trustees. The Company has agreed to pay all fees and expenses related to the Trust and the Offering of the Trust Securities. See "Description of the Convertible Debentures--Miscellaneous". USE OF PROCEEDS The Selling Holders will receive all of the proceeds from any sale of the Offered Securities. Neither the Company nor the Trust will receive any proceeds from the sale of the Offered Securities. The rights of the holders of the Preferred Securities, including economic rights, rights to information and voting rights are set forth in the Declaration, the Delaware Business Trust Act, as amended (the "Trust Act"), and the Trust Indenture Act. See "Description of the Preferred Securities." The place of business and the telephone number of the Trust are the principal executive offices and telephone numbers of the Company. ACCOUNTING TREATMENT The financial statements of the Trust will be reflected in the Company's consolidated financial statements, with the Preferred Securities shown as "Company-obligated Mandatorily Redeemable Convertible Preferred Securities of BTI Capital Trust holding solely Convertible Debentures." 13 DESCRIPTION OF THE PREFERRED SECURITIES The Preferred Securities were issued pursuant to the terms of the Declaration. The Declaration has been qualified as an indenture under the Trust Indenture Act. Wilmington Trust Company, as Institutional Trustee, acts as indenture trustee under the Declaration for purposes of compliance with the provisions of the Trust Indenture Act. The terms of the Preferred Securities include those stated in the Declaration and those made part of the Declaration by the Trust Indenture Act. The following summary of the material terms and provisions of the Preferred Securities does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Declaration, the Trust Act and the Trust Indenture Act. GENERAL The Declaration authorizes the Regular Trustees to issue on behalf of the Trust the Trust Securities, which represent undivided beneficial interests in the assets of the Trust. All of the Common Securities are owned, directly or indirectly, by the Company. The Common Securities rank pari passu, and payments are made thereon on a pro rata basis, with the Preferred Securities, except that upon the occurrence and during the continuance of a Declaration Event of Default, the rights of the holders of the Common Securities to receive payment of periodic Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of the holders of the Preferred Securities. The Declaration does not permit the issuance by the Trust of any securities other than the Trust Securities or the incurrence of any indebtedness by the Trust. Pursuant to the Declaration, the Institutional Trustee holds title to the Convertible Debentures purchased by the Trust for the benefit of the holders of the Trust Securities. The payment of Distributions out of money held by the Trust, and payments upon redemption of the Preferred Securities or liquidation of the Trust out of money held by the Trust, are guaranteed by the Company to the extent described under "Description of the Guarantee." The Guarantee is held by the Guarantee Trustee, for the benefit of the holders of the Preferred Securities. The Guarantee does not cover payment of Distributions when the Trust does not have sufficient available funds to pay such Distributions. In such event, the remedy of a holder of Preferred Securities is to (i) vote to direct the Institutional Trustee to enforce the Institutional Trustee's rights under the Convertible Debentures or (ii) if the failure of the Trust to pay distributions is attributable to the failure of the Company to pay interest or principal on the Convertible Debentures, to institute a proceeding directly against the Company for enforcement of payment to such holder of the principal of or interest on the Convertible Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder on or after the respective due date specified in the Convertible Debentures. See "--Declaration Events of Default" and "--Voting Rights." DISTRIBUTIONS Distributions on Preferred Securities are fixed at a rate per annum of 6.50% of the stated liquidation amount of $50 per Preferred Security. Distributions in arrears beyond the first date such Distributions are payable or would be payable, if not for any Extension Period or default by the Company on the Convertible Debentures, bear interest thereon at the rate per annum of 6.50% thereof, compounded quarterly. The term "Distribution" as used herein includes any such interest payable unless otherwise stated. The amount of Distributions payable for any period is computed on the basis of a 360-day year of twelve 30-day months. Distributions on the Preferred Securities are cumulative, accrue from the date of initial issuance and are payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing February 15, 1998, when, as and if available for payment. Distributions are made by the Institutional Trustee, except as otherwise described below. The Distribution rate and the Distribution payment dates and other payment dates for the Preferred Securities correspond to the interest rate and interest payment dates and other payment dates on the Convertible Debentures. Distributions on the Preferred Securities are made on the dates payable to the extent that the Trust has funds available for the payment of such Distributions in the Property Account. The Trust's funds available for 14 distribution to the holders of the Preferred Securities are limited to payments received by the Trust from the Company pursuant to the Convertible Debentures. See "Description of the Convertible Debentures." The payment of Distributions out of monies held by the Trust is guaranteed by the Company to the extent set forth under "Description of the Guarantee." Distributions on the Preferred Securities are payable to the holders thereof as they appear on the books and records of the Trust at the close of business on the relevant record dates, which, as long as the Preferred Securities remain in book-entry-only form, will be one Business Day (as defined below) prior to the relevant payment dates. Such Distributions will be paid through the Institutional Trustee, who holds amounts received in respect of the Convertible Debentures in the Property Account for the benefit of the holders of the Trust Securities. In the event that any date on which Distributions are payable on the Preferred Securities is not a Business Day, then payment of the Distributions payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date (the date on which Distributions are actually payable, a "Distribution Date"). The period beginning on, and including, the date of original issuance of the Preferred Securities, and ending on, but excluding, the first Distribution Date, and each successive period beginning on, and including, a Distribution Date, and ending on, but excluding, the next succeeding Distribution Date is herein called a "Distribution Period." A "Business Day" shall mean any day other than Saturday, Sunday or any other day on which banking institutions in New York, New York or Wilmington, Delaware are permitted or required by any applicable law or executive order to close. So long as no Indenture Event of Default has occurred and is continuing, the Company has the right under the Indenture to defer payments of interest on the Convertible Debentures by extending the interest payment period from time to time on the Convertible Debentures for an Extension Period not exceeding 20 consecutive quarterly interest periods during which no interest shall be due and payable; provided, that no such Extension Period may extend beyond the maturity date of the Convertible Debentures. As a consequence of the Company's extension of the interest payment period, quarterly Distributions on the Preferred Securities would be deferred (though such Distributions would continue to accrue with interest thereon compounded quarterly since interest would continue to accrue on the Convertible Debentures) during any such Extension Period. In the event that the Company exercises its right to extend the interest payment period, then (a) the Company shall not declare or pay dividends on, or make any distribution or liquidation payment with respect to, or redeem, purchase or acquire any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock in connection with the satisfaction by the Company of its obligations under any employee benefit plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of the Common Stock, (ii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iii) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (iv) purchases or acquisitions of shares of the Company's Common Stock to be used in connection with the acquisition of the Company's Common Stock by stockholders pursuant to a dividend reinvestment plan or (v) stock dividends paid by the Company where the dividend stock is the same stock as that on which the dividend is paid), (b) the Company shall not make any payment of interest on or principal of (or premium, if any, on) or repay, repurchase or redeem any debt securities (including guarantees) issued by the Company that rank pari passu with or junior to the Convertible Debentures and (c) the Company shall not make any guarantee payment with respect to the foregoing (other than pursuant to the Guarantees). Prior to the termination of any Extension Period, the Company may further extend such Extension Period; provided, that such Extension Period, together with all previous and further extensions thereof, may not exceed 20 consecutive quarters; and provided further that no Extension Period may extend beyond the maturity date of the Convertible Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, the Company may commence a new Extension Period, subject to the above requirements. See "Description of the Convertible Debentures--Interest" and "Description of the Convertible Debentures--Interest Income and Option to Extend Interest Payment Periods." 15 The Regular Trustees shall give the holders of the Preferred Securities notice of any Extension Period upon receipt of notice thereof from the Company. See "Description of the Convertible Debentures--Interest Income and Option to Extend Interest Payment Periods." If distributions are deferred as a result of an Extension Period, the deferred distributions and accrued interest thereon shall be paid to holders of record of the Preferred Securities as they appear on the books and records of the Trust on the record date next following the termination of such deferral period. CONVERSION RIGHTS General. The Preferred Securities are convertible at any time on or after January 25, 1998 and prior to the close of business on the Business Day immediately preceding the date of repayment of such Preferred Securities (or in the case of Preferred Securities called for redemption, prior to the close of business on the Business Day prior to the Redemption Date), whether at maturity or upon redemption, at the option of the holder thereof and in the manner described below, into shares of Common Stock at an initial conversion rate of 2.1973 shares of Common Stock for each Preferred Security (equivalent to a conversion price of $22.755 per share of Common Stock) (the "Initial Conversion Price"), subject to adjustment as described under "--Conversion Price Adjustments--General" and "--Conversion Price Adjustments--Fundamental Change" below. The Indenture Trustee has covenanted in the Indenture not to convert Convertible Debentures held by it except pursuant to a notice of conversion delivered to the Institutional Trustee, as conversion agent (the "Conversion Agent"), by a holder of Preferred Securities. A holder of a Preferred Security wishing to exercise its conversion right must deliver an irrevocable notice of conversion, together, if the Preferred Security is held in certificated form, with such certificated Preferred Security, to the Conversion Agent, which shall, on behalf of such holder, exchange such Preferred Security for a portion of the Convertible Debentures and immediately convert such Convertible Debentures into Common Stock. Holders may obtain copies of the required form of the notice of conversion notice from the Conversion Agent. Procedures for converting book-entry Preferred Securities into shares of Common Stock will differ, as described under "--Book-Entry-Only Issuance--The Depository Trust Company." Accrued Distributions will not be paid on Preferred Securities that are converted, except that holders of Preferred Securities at the close of business on a Distribution record date will be entitled to receive the Distribution payable on such Preferred Securities on the corresponding Distribution Date notwithstanding the conversion of such Preferred Securities following such Distribution record date but prior to such Distribution Date, and when so surrendered for conversion, the Preferred Securities must be accompanied by payment of an amount equal to the Distribution payable on such Distribution payment date. Except as described above, no Distribution will be payable by the Company on converted Preferred Securities with respect to any Distribution Date subsequent to the date of conversion. Except as provided above, neither the Trust nor the Company will make, or be required to make, any payment, allowance or adjustment for accumulated and unpaid Distributions, whether or not in arrears, on Preferred Securities. Each conversion will be deemed to have been effected immediately prior to the close of business on the day on which the related conversion notice was received by the Conversion Agent. Shares of Common Stock issued upon conversion of Preferred Securities will be validly issued, fully paid and nonassessable. No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof such fractional interest will be paid by the Company in cash based on the last reported sale price of Common Stock on the date such Preferred Securities are surrendered for conversion. Conversion Price Adjustments--General. The Initial Conversion Price is subject to adjustment (under formulae set forth in the Indenture) in certain events, including (a) the issuance of shares of Common Stock as a dividend or a distribution with respect to Common Stock, (b) subdivisions, combinations and reclassifications of Common Stock, (c) the issuance to all holders of Common Stock of rights or warrants entitling them (for a period not exceeding 45 days) to subscribe for shares of Common Stock at less than the then Current Market Price (as 16 defined below) of the Common Stock, (d) the distribution to holders of Common Stock of (i) equity securities of the Company (other than Common Stock), (ii) evidences of indebtedness of the Company and/or (iii) other assets (including securities, but excluding (A) any rights or warrants referred to in clause (c) above, (B) any rights or warrants to acquire any capital stock of any entity other than the Company or any subsidiary of the Company, (C) any dividends or distributions in connection with the liquidation, dissolution or winding-up of the Company, (D) any dividends payable solely in cash that may from time to time be fixed by the Board of Directors of the Company and (E) any dividends or distributions referred to in clause (a) above), (e) distributions to all holders of Common Stock, consisting of cash, excluding (i) any cash dividends on Common Stock to the extent that the aggregate cash dividends per share of Common Stock in any consecutive 12-month period do not exceed the greater of (x) the amount per share of Common Stock of the cash dividends paid on Common Stock in the immediately preceding 12-month period, to the extent that such dividends for the immediately preceding 12-month period did not require an adjustment of the conversion price pursuant to this clause (e) (as adjusted to reflect subdivisions or combinations of Common Stock), and (y) 15% of the Current Market Price of Common Stock for the trading day immediately prior to the date of declaration of such dividend, and (ii) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company or a redemption of any rights issued under a rights agreement; provided, however, that no adjustment shall be made pursuant to this clause (e) if such distribution would otherwise constitute a Fundamental Change (as defined below) and be reflected in a resulting adjustment described below, and (f) the consummation of a tender offer by the Company or any subsidiary of the Company for the Common Stock that involves an aggregate consideration that, together with (X) any cash and other consideration payable in respect of any tender offer consummated by the Company or a subsidiary of the Company for the Common Stock consummated within the 12 months preceding the consummation of such tender offer and (Y) the aggregate amount of all cash distributions (excluding any cash distributions referred to in (d) above) to all holders of the Common Stock within the 12 months preceding the consummation of such tender offer, exceeds 110% of the Company's market capitalization at the date of consummation of such tender offer. "Current Market Price" means the average of the daily closing prices for the ten consecutive trading days selected by the Company commencing not more than 20 trading days before, and ending not later than, the day in question. If any adjustment is required to be made as set forth in clause (e) above as a result of a distribution that is a dividend described in clause (e) above but exceeds the amount of the dividend permitted to be excluded pursuant to such subclause (i) of clause (e), such adjustment would be based upon the amount by which such distribution exceeds the amount permitted to be excluded. If an adjustment is required to be made as set forth in clause (e) above as a result of a distribution that is not such a dividend, such adjustment would be based upon the full amount of such distribution. If an adjustment is required to be made as set forth in clause (f) above, such adjustment would be calculated based upon the amount by which the aggregate consideration paid for the Common Stock acquired in the tender offer exceeds 110% of the Company's market capitalization at the date of consummation of such tender offer. In lieu of making such a conversion price adjustment in the case of certain dividends or distributions, the Company may provide that upon the conversion of the Preferred Securities the holder converting such Preferred Securities will receive, in addition to the Common Stock to which such holder is entitled, the cash, securities or other property which such holder would have received if such holder had, immediately prior to the record date for such dividend or distribution, converted its Preferred Securities into Common Stock. The Company from time to time may, to the extent permitted by law, reduce the conversion price of the Convertible Debentures (and thus, the conversion price of the Preferred Securities) by any amount selected by the Company for any period of at least 20 days, in which case the Company shall give at least 15 days' notice of such reduction. The Company may, at its option, make such reductions in the conversion price, in addition to those set forth above, as the Company's Board of Directors deems advisable to avoid or diminish any income tax to holders of Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. See "United States Federal Income Taxation-- Conversion of Preferred Securities." 17 No adjustment of the conversion price will be made upon the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan. No adjustment in the conversion price will be required unless such adjustment would require a change of at least 1% in the conversion price then in effect; provided, however, that any adjustment that would not be required to be made shall be carried forward and taken into account in any subsequent adjustment. If any action would require adjustment of the conversion price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value to the holders of the Preferred Securities. Conversion Price Adjustments--Fundamental Change. In the event that the Company shall be a party to any transaction or series of transactions constituting a Fundamental Change, including, without limitation, (i) any recapitalization or reclassification of the Common Stock (other than a change in par value or as a result of a subdivision or combination of the Common Stock); (ii) any consolidation or merger of the Company with or into another entity as a result of which holders of Common Stock shall be entitled to receive securities or other property or assets (including cash) with respect to or in exchange for Common Stock (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of the outstanding Common Stock); (iii) any sale or transfer of all or substantially all of the assets of the Company constituting a Fundamental Change; or (iv) any compulsory share exchange, pursuant to any of which holders of Common Stock shall be entitled to receive other securities, cash or other property or assets, then appropriate provision shall be made so that the holders of all the Preferred Securities then outstanding shall have the right thereafter to convert such Preferred Securities only into (x) if any such transaction is a Non-Stock Fundamental Change (as defined below), the kind and amount of the securities, cash or other property or assets that would have been receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock issuable upon conversion of such Preferred Securities immediately prior to such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange, after giving effect to any adjustment in the conversion price in accordance with clause (i) of the following paragraph, and (y) if any such transaction constitutes a Common Stock Fundamental Change (as defined below), shares of common stock of the kind received by holders of Common Stock as a result of such Common Stock Fundamental Change in an amount determined in accordance with clause (ii) of the following paragraph. The company formed by such consolidation or resulting from such merger or which acquires such assets or which acquires the Common Stock, as the case may be, shall enter into a supplemental indenture with the Indenture Trustee, satisfactory in form to the Indenture Trustee and executed and delivered to the Indenture Trustee, the provisions of which shall establish such right. Such supplemental indenture shall provide for adjustments, which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as practical to the relevant adjustments provided for in the preceding paragraphs and in this paragraph. Notwithstanding any other provision in the preceding paragraphs, if any Fundamental Change occurs, the conversion price in effect will be adjusted immediately after that Fundamental Change as follows: (i) in the case of a Non-Stock Fundamental Change, the conversion price per share of Common Stock immediately following such Non-Stock Fundamental Change will be the lower of (A) the conversion price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to the preceding paragraphs, and (B) the result obtained by multiplying (X) the greater of the Applicable Price (as defined below) and the then applicable Reference Market Price (as defined below) by (Y) a fraction, the numerator of which is $50 and the denominator of which is (I) the applicable Redemption Price for one Preferred Security if the redemption date were the date of such Non-Stock Fundamental Change (or for the twelve-month periods commencing November 25, 1997, November 25, 1998 and November 25, 1999, the product of 106.50%, 105.20% and 103.90%, respectively, times $50) plus (II) any then-accrued but unpaid Distributions on one Preferred Security; and (ii) in the case of a Common Stock Fundamental Change, the conversion price per share of Common Stock will be the conversion price in effect immediately prior to the Common Stock Fundamental Change, 18 but after giving effect to any other prior adjustments effected pursuant to the preceding paragraphs, multiplied by a fraction, the numerator of which is the Purchaser Stock Price (as defined below) and the denominator of which is the Applicable Price; provided, however, that in the event of a Common Stock Fundamental Change in which (A) 100% of the value of the consideration received by a holder of Common Stock (subject to certain limited exceptions) is shares of common stock of the successor, acquiror or other third party (and cash, if any, paid with respect to any fractional interests in the shares of common stock resulting from the Common Stock Fundamental Change) and (B) all of the Common Stock (subject to certain limited exceptions) shall have been exchanged for, converted into, or acquired for, shares of common stock (and cash, if any, with respect to fractional interests) of the successor, acquiror or other third party, the conversion price per share of Common Stock immediately following the Common Stock Fundamental Change shall be the conversion price in effect immediately prior to the Common Stock Fundamental Change divided by the number of shares of common stock of the successor, acquiror, or other third party received by a holder of one share of Common Stock as a result of the Common Stock Fundamental Change. The foregoing conversion price adjustments are designed, in "Fundamental Change" transactions where all or substantially all of the Common Stock is converted into securities, cash, or property and not more than 50% of the value received by the holders of Common Stock consists of stock listed or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the Nasdaq National Market ("NNM") (a "Non-Stock Fundamental Change," as defined herein), to increase the securities, cash or property into which each Preferred Security is convertible. In a Non-Stock Fundamental Change transaction where the initial value received per share of Common Stock (measured as described in the definition of Applicable Price below) is lower than the then applicable conversion price of the Preferred Securities but greater than or equal to the Reference Market Price, the conversion price will be adjusted as described above with the effect that each Preferred Security will be convertible into securities, cash or property of the same type received by the holders of Common Stock in such transaction but in an amount per Preferred Security equal to the amount indicated as the denominator as of the date of such transaction as set forth in clause (i) above with respect to conversion prices for Non-Stock Fundamental Changes. In a Non-Stock Fundamental Change transaction where the initial value received per share of Common Stock (measured as described in the definition of Applicable Price below) is lower than both the conversion price of a Preferred Security and the Reference Market Price, the conversion price will be adjusted as described above but calculated as though such initial value had been the Reference Market Price. In a Fundamental Change transaction where all or substantially all the Common Stock is converted into securities, cash, or property and more than 50% of the value received by the holders of Common Stock (subject to certain limited exceptions) consists of listed or NNM-traded common stock (a "Common Stock Fundamental Change," as defined herein), the foregoing adjustments are designed to provide in effect that (a) where Common Stock is converted partly into such common stock and partly into other securities, cash, or property, each Preferred Security will be convertible solely into a number of shares of such common stock determined so that the initial value of such shares (measured as described in the definition of Purchaser Stock Price below) equals the value of the shares of Common Stock into which such Preferred Security was convertible immediately before the transaction (measured as aforesaid) and (b) where Common Stock is converted solely into such common stock, each Preferred Security will be convertible into the same number of shares of such common stock receivable by a holder of the number of shares of Common Stock into which such Preferred Security was convertible before such transaction. In determining the amount and type of consideration received by a holder of Common Stock in the event of a Fundamental Change, consideration received by a holder of Common Stock pursuant to a statutory right of appraisal will be disregarded. 19 "Applicable Price" means (i) in the event of a Non-Stock Fundamental Change in which the holders of Common Stock receive only cash, the amount of cash receivable by a holder of one share of Common Stock and (ii) in the event of any other Fundamental Change, the Current Market Price for one share of Common Stock on the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change or, if there is no such record date, on the date on which the holders of the Common Stock will have the right to receive such cash, securities, property or other assets. "Common Stock Fundamental Change" means any Fundamental Change in which more than 50% of the value (as determined in good faith by the Company's Board of Directors) of the consideration received by holders of Common Stock (subject to certain limited exceptions) pursuant to such transaction consists of shares of common stock that, for the twenty consecutive trading days immediately prior to such Fundamental Change, has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the NNM; provided, however, that a Fundamental Change will not be a Common Stock Fundamental Change unless either (i) the Company continues to exist after the occurrence of such Fundamental Change and the outstanding Preferred Securities continue to exist as outstanding Preferred Securities, or (ii) the outstanding Preferred Securities continue to exist as Preferred Securities and are convertible into shares of common stock of the successor to the Company. "Fundamental Change" means the occurrence of any transaction or event or series of transactions or events pursuant to which all or substantially all of the Common Stock is exchanged for, converted into, acquired for or constitutes solely the right to receive cash, securities, property or other assets (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); provided, however, in the case of a plan involving more than one such transaction or event, for purposes of adjustment of the conversion price, such Fundamental Change will be deemed to have occurred when substantially all of the Common Stock has been exchanged for, converted into, or acquired for or constitutes solely the right to receive cash, securities, property or other assets but the adjustment shall be based upon the consideration that the holders of Common Stock received in the transaction or event as a result of which more than 50% of the Common Stock shall have been exchanged for, converted into, or acquired for, or shall constitute solely the right to receive such cash, securities, property or other assets. "Non-Stock Fundamental Change" means any Fundamental Change other than a Common Stock Fundamental Change. "Purchaser Stock Price" means, with respect to any Common Stock Fundamental Change, the Current Market Price of common stock received by holders of Common Stock in such Common Stock Fundamental Change on the record date for the determination of the holders of Common Stock entitled to receive such shares of common stock or, if there is no such record date, on the date upon which the holders of Common Stock shall have the right to receive such shares of common stock. "Reference Market Price" will initially mean $12.33 (which is 66 2/3% of the last reported sales price per share of Common Stock on the NYSE on the date of the Offering Memorandum used in connection with the Original Offering) and, in the event of any adjustment to the conversion price other than as a result of a Fundamental Change, the Reference Market Price will also be adjusted so that the ratio of the Reference Market Price to the conversion price after giving effect to any adjustment will always be the same as the ratio of the initial Reference Market Price to the Initial Conversion Price of the Preferred Securities. Conversions of the Preferred Securities may be effected by delivering them to the office or agency of the Company maintained for such purpose in the Borough of Manhattan, The City of New York. Conversion price adjustments or omissions in making such adjustments may, under certain circumstances, result in constructive distributions that could be taxable as dividends under the Internal Revenue Code of 1986, 20 as amended (the "Code") to holders of Preferred Securities or to the holders of Common Stock. See "United States Federal Income Taxation--Conversion of Preferred Securities." MANDATORY REDEMPTION The Preferred Securities have no stated maturity date but will be redeemed upon the maturity of the Convertible Debentures or to the extent the Convertible Debentures are redeemed. The Convertible Debentures will mature on November 15, 2027 and are redeemable in whole or in part, from time to time, on or after November 25, 2000 (as described under "Description of the Convertible Debentures--Optional Redemption"). The Institutional Trustee shall simultaneously use the proceeds from any such redemption to redeem Trust Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Convertible Debentures redeemed by the Company at the redemption prices (expressed as a percentage of the liquidation amount) specified below for the twelve-month period commencing November 25, in the year indicated:
ORIGINAL YEAR REDEMPTION PRICE ---- ---------------- 2000...................................................... 102.60% 2001...................................................... 101.30
and 100% if redeemed on or after November 25, 2002. plus, in each case, accrued and unpaid Distributions to the date set for redemption. Upon the redemption of the Convertible Debentures by the Company, in whole or in part, at any time in certain circumstances upon the occurrence of a Tax Event described under "--Special Event Redemption or Distribution," the Institutional Trustee shall simultaneously use the proceeds from such redemption to redeem Trust Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Convertible Debentures redeemed by the Company at a redemption price equal to 100% of the liquidation amount thereof plus accrued and unpaid Distributions (including Distributions with respect to Additional Interest (as defined herein) and Compound Interest (as defined herein), if any, on the corresponding Convertible Debentures so redeemed) to the date set for redemption (subject to the right of holders on the relevant record date to receive Distributions due on the applicable Distribution payment date that is on or prior to the redemption date). Holders of the Trust Securities shall be given not less than 30 nor more than 60 days' notice of any redemption. In the event that fewer than all of the outstanding Preferred Securities are to be redeemed, the Preferred Securities will be redeemed pro rata as described under "--Book-Entry-Only Issuance--The Depository Trust Company" below. SPECIAL EVENT REDEMPTION OR DISTRIBUTION As used herein, "Tax Event" means that the Regular Trustees shall have received an opinion of nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that as a result of (a) any amendment to, clarification of, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any judicial decision, official administrative pronouncement, ruling, regulatory procedure, notice or announcement, including any notice or announcement of intent to adopt such procedures or regulations (an "Administrative Action"), or (c) any amendment to, clarification of, or change in, the official position or the interpretation of such Administrative Action or judicial decision that differs from the theretofore generally accepted position by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), in each case after the date of this Prospectus, there is more than an insubstantial risk that (i) the Trust is, or will be, subject to United States federal income tax with respect to income accrued or received on the Convertible Debentures, (ii) the Trust is, or will be, subject to more than a de minimis amount of other taxes, duties or other 21 governmental charges or (iii) interest paid in cash by the Company to the Trust on the Convertible Debentures is not, or will not be, deductible, in whole or in part, by the Company for United States federal income tax purposes. As used herein, "Investment Company Event" means that the Regular Trustees shall have received an opinion of a nationally recognized independent counsel experienced in practicing under the Investment Company Act of 1940 (the "1940 Act"), to the effect that, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), which Change in 1940 Act Law becomes effective on or after the date of this Prospectus, there is more than an insubstantial risk that the Trust is or will be considered an "investment company" which is required to be registered under the 1940 Act. If, at any time, a Tax Event or an Investment Company Event (in either case, a "Special Event") shall occur and be continuing, the Trust shall, except in the limited circumstances described below, be dissolved with the result that Convertible Debentures, with an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Distribution rate of, with accrued and unpaid interest equal to accrued and unpaid Distributions on, and having the same record date for payment as, the Preferred Securities outstanding at such time, would be distributed to the holders of the Trust Securities in liquidation of such holders' interests in the Trust, on a pro rata basis within 90 days following the occurrence of such Special Event; provided, however, that such dissolution and distribution shall be conditioned on the Regular Trustees receipt of an opinion of nationally recognized independent tax counsel experienced in such matters (a "No Recognition Opinion"), which No Recognition Opinion may rely on, among other things, published revenue rulings of the Internal Revenue Service, to the effect that the holders of the Preferred Securities will not recognize any gain or loss for United States federal income tax purposes as a result of such dissolution and distribution of Convertible Debentures; and, provided, further, that if at the time there is available to the Company or the Trust the opportunity to eliminate, within such 90-day period, the Special Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that, in the sole judgment of the Company, has or will cause no adverse effect on the Trust, the Company or the holders of the Trust Securities, the Company or the Trust will pursue such measure in lieu of dissolution. Furthermore, if in the case of the occurrence of a Tax Event, (i) the Company has received an opinion (a "Redemption Tax Opinion") of nationally recognized independent tax counsel experienced in such matters that, as a result of such Tax Event, there is more than an insubstantial risk that the Company would be precluded from deducting the interest on the Convertible Debentures, in whole or in part, for United States federal income tax purposes, even after the Convertible Debentures were distributed to the holders of Trust Securities in liquidation of such holders' interests in the Trust as described above, or (ii) the Regular Trustees shall have been informed by such tax counsel that it cannot deliver a No Recognition Opinion to the Regular Trustees, the Company shall have the right, upon not less than 30 nor more than 60 days' notice to the holders of the Preferred Securities, to redeem the Convertible Debentures, in whole or in part, at 100% of the principal amount thereof plus accrued and unpaid interest thereon for cash within 90 days following the occurrence of such Tax Event, and promptly following such redemption, Preferred Securities with an aggregate liquidation amount equal to the aggregate principal amount of Convertible Debentures so redeemed shall be redeemed by the Trust at the Redemption Price on a pro rata basis; provided, however, that if, at the time, there is available to the Company or the Trust the opportunity to eliminate, within such 90-day period, the Tax Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that, in the sole judgment of the Company, has or will cause no adverse effect on the Trust, the Company or the holders of the Trust Securities, the Company or the Trust will pursue such measure in lieu of redemption. After the date fixed for any distribution of Convertible Debentures upon dissolution of the Trust, (i) the Preferred Securities will no longer be deemed to be outstanding, (ii) the depositary or its nominee, as the record holder of the Preferred Securities, will receive a registered global certificate or certificates representing the Convertible Debentures to be delivered to the holders of the Preferred Securities upon such distribution and (ii) any certificates representing Preferred Securities not held by the securities depositary or its nominee will be deemed to represent beneficial interests in Convertible Debentures having an aggregate principal amount equal 22 to the aggregate stated liquidation amount of, with an interest rate identical to the Distribution rate of, and with accrued and unpaid interest equal to accrued and unpaid Distributions on, such Preferred Securities until such certificates are presented to the Company or its agent for transfer or reissuance. There can be no assurance as to the market prices either for the Preferred Securities or for the Convertible Debentures that may be distributed in exchange for Preferred Securities if a dissolution and liquidation of the Trust were to occur. Accordingly, the Preferred Securities that an investor may purchase, whether pursuant to the offer made hereby or in the secondary market, or the Convertible Debentures that the investor may receive if a dissolution and liquidation of the Trust were to occur, may trade at a discount to the price the investor paid to purchase Preferred Securities. REDEMPTION PROCEDURES The Trust may not redeem fewer than all of the outstanding Preferred Securities unless all accrued and unpaid Distributions have been paid on all Preferred Securities for all quarterly Distribution Periods occurring on or prior to the date of redemption. If the Trust gives a notice of redemption in respect of Preferred Securities (which notice will be irrevocable), then, if the Company has paid to the Institutional Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Convertible Debentures by 12:00 noon New York City time on the redemption date, the Institutional Trustee will irrevocably deposit (i) with the Depository Trust Company ("DTC"), funds sufficient to pay the applicable Redemption Price on redemption of all Preferred Securities represented by the Global Certificates (as defined herein) and will give DTC irrevocable instructions and authority to pay such amount in respect of Preferred Securities represented by the Global Certificates and (ii) with the paying agent for the Preferred Securities, funds sufficient to pay the applicable Redemption Price in respect of any certificated Preferred Securities and will give such paying agent irrevocable instructions and authority to pay such Redemption Price to the holders of certificated Preferred Securities upon surrender of their certificates. See "--Book-Entry-Only Issuance--The Depository Trust Company." If notice of redemption shall have been given and funds are deposited as required, then immediately prior to the close of business on the date of such deposit Distributions will cease to accrue and all rights of holders of Preferred Securities so called for redemption will cease, except the right of the holders of such Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price. In the event that any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the applicable Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in respect of Preferred Securities is improperly withheld or refused and not paid either by the Trust or by the Company pursuant to the Guarantee, Distributions on such Preferred Securities will continue to accrue at the applicable rate from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. In the event that fewer than all of the outstanding Preferred Securities are to be redeemed, the Preferred Securities will be redeemed as described below under "--Book-Entry-Only Issuance--The Depository Trust Company." Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Company or its subsidiaries may at any time, and from time to time, purchase outstanding Preferred Securities by tender, in the open market or by private agreement. SUBORDINATION OF COMMON SECURITIES Payment of Distributions on, and the amount payable upon redemption of, the Trust Securities, as applicable, shall be made pro rata based on the liquidation amount of the Trust Securities; provided, however, 23 that, if on any Distribution date or redemption date a Declaration Event of Default shall have occurred and be continuing, no payment of any Distribution on, or amount payable upon redemption of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions on all outstanding Preferred Securities for all distribution periods terminating on or prior thereto, or in the case of payment of the amount payable upon redemption of the Preferred Securities, all of such amount in respect of all outstanding Preferred Securities shall have been made or provided for, and all funds available to the Institutional Trustee shall first be applied to the payment in full in cash of all Distributions on, or the amount payable upon redemption of, Preferred Securities then due and payable. In the case of any Declaration Event of Default, the holders of Common Securities will be deemed to have waived any such Declaration Event of Default with respect to the Common Securities until all such Declaration Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until any such Declaration Events of Default with respect to the Preferred Securities have been so cured, waived or otherwise eliminated, the Institutional Trustee will act solely on behalf of the holders of the Preferred Securities and not the holders of the Common Securities and only the holders of the Preferred Securities will have the right to direct the Institutional Trustee to act on their behalf. LIQUIDATION DISTRIBUTION UPON DISSOLUTION In the event of any voluntary or involuntary liquidation, dissolution, winding-up or termination of the Trust (each, a "Liquidation"), the holders of the Preferred Securities will be entitled to receive out of the assets of the Trust, after satisfaction of liabilities of the Trust, distributions in an amount equal to the aggregate of the stated liquidation amount of $50 per Preferred Security plus accrued and unpaid Distributions thereon to the date of payment (the "Liquidation Distribution"), unless, in connection with such Liquidation, Convertible Debentures in an aggregate stated principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Distribution rate of, and accrued and unpaid interest equal to accrued and unpaid Distributions on, the Preferred Securities outstanding at such time have been distributed on a pro rata basis to the holders of the Preferred Securities. If, upon any such Liquidation, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Preferred Securities shall be paid on a pro rata basis. The holders of the Common Securities will be entitled to receive distributions upon any such dissolution pro rata with the holders of the Preferred Securities, except that if a Declaration Event of Default has occurred and is continuing, the holders of the Common Securities shall not be permitted to receive such distributions until such Declaration Event of Default has been cured. Pursuant to the Declaration, the Trust shall dissolve: (i) upon the bankruptcy of the Company or the holder of the Common Securities; (ii) upon the filing of a certificate of dissolution or its equivalent with respect to the holder of the Common Securities or the Company, the filing of a certificate of cancellation with respect to the Trust after having obtained the consent of at least a majority in liquidation amount of the Trust Securities, voting together as a single class, to file such certificate of cancellation, or the revocation of the charter of the Company or the holder of the Common Securities and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) upon the entry of a decree of judicial dissolution of the holder of the Common Securities, the Company or the Trust; (iv) when all of the Trust Securities shall have been called for redemption and the amounts necessary for redemption thereof, including any Additional Interest and Compound Interest, shall have been paid to the holders thereof in accordance with the terms of the Trust Securities; (v) upon the distribution of Convertible Debentures upon the occurrence of a Special Event; (vi) upon the distribution of the Common Stock to all Holders of the Trust Securities upon conversion of all outstanding Preferred Securities; or (vii) on November 15, 2027, the expiration of the term of the Trust. 24 DECLARATION EVENTS OF DEFAULT An event of default under the Indenture (an "Indenture Event of Default") constitutes an event of default under the Declaration with respect to the Trust Securities (a "Declaration Event of Default"); provided, that pursuant to the Declaration, the holder of the Common Securities will be deemed to have waived any Declaration Event of Default with respect to the Common Securities until all Declaration Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until such Declaration Events of Default with respect to the Preferred Securities have been so cured, waived or otherwise eliminated, the Institutional Trustee will be deemed to be acting solely on behalf of the holders of the Preferred Securities, and only the holders of the Preferred Securities will have the right to direct the Institutional Trustee with respect to certain matters under the Declaration and, therefore, the Indenture. In the event any Declaration Event of Default with respect to the Preferred Securities is waived by the holders of the Preferred Securities as provided in the Declaration, the holders of Common Securities pursuant to the Declaration have agreed that such waiver also constitutes a waiver of such Declaration Event of Default with respect to the Common Securities for all purposes under the Declaration without any further act, vote or consent of the holders of Common Securities. See "--Voting Rights." The Institutional Trustee shall notify all holders of the Preferred Securities of any notice of default received from the Indenture Trustee with respect to the Convertible Debentures. Such notice shall state that such Indenture Event of Default also constitutes a Declaration Event of Default. If the Institutional Trustee fails to enforce its rights under the Convertible Debentures, any holder of Preferred Securities may, to the fullest extent permitted by law, directly institute a legal proceeding against the Company to enforce the Institutional Trustee's rights under the Convertible Debentures without first instituting any legal proceeding against the Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Convertible Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), the Company acknowledges that a holder of Preferred Securities may then also directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Convertible Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder on or after the respective due date specified in the Convertible Debentures without first (i) directing the Institutional Trustee to enforce the terms of the Convertible Debentures or (ii) instituting a legal proceeding against the Company to enforce the Institutional Trustee's rights under the Convertible Debentures. In connection with such Direct Action, the Company will be subrogated to the rights of such holder of Preferred Securities under the Declaration to the extent of any payment made by the Company to such holder of Preferred Securities in such Direct Action. Consequently, the Company will be entitled to payment of amounts that a holder of Preferred Securities receives in respect of an unpaid Distribution that resulted in the bringing of a Direct Action to the extent that such holder receives or has already received full payment with respect to such unpaid Distribution from the Trust. The holders of Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Convertible Debentures. Upon the occurrence of an Indenture Event of Default, the Institutional Trustee as the sole holder of the Convertible Debentures will have the right under the Indenture to declare the principal of and interest on the Convertible Debentures to be immediately due and payable. The Company and the Trust are each required to file annually with the Institutional Trustee an officers' certificate as to its compliance with all conditions and covenants under the Declaration. After the date for any distribution of Convertible Debentures upon dissolution of the Trust, (i) the Preferred Securities will no longer be deemed to be outstanding, (ii) the depositary or its nominee, as the record holder of the Preferred Securities, will receive a registered global certificate or certificates representing the Convertible Debentures to be delivered upon such distribution and (iii) any certificates representing Preferred Securities not held by the depositary or its nominee will be deemed to represent Convertible Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Distribution rate of, and accrued and unpaid interest equal to accrued and unpaid Distributions on, such Preferred Securities until such certificates are presented to the Company or its agent for transfer or reissuance. 25 REGISTRATION RIGHTS The Company, the Trust and the Initial Purchasers entered into a Registration Rights Agreement dated November 25, 1997 (the "Registration Rights Agreement") pursuant to which the Company and the Trust agreed to file with the Commission, on or prior to March 19, 1998 (the "Required Filing Date"), a shelf registration statement (the "Shelf Registration Statement") on Form S-1 or Form S-3 to cover resales of Transfer Restricted Securities (as defined below) by the holders thereof. The Company further agreed to use its best efforts to cause such Shelf Registration Statement to be declared effective by the Commission as soon as practicable following the filing thereof, but in any case no later than June 17, 1998 (the "Required Effectiveness Date") and to maintain the effectiveness thereof until two years after the date of the Original Offering Date or such earlier date as of which all the Transfer Restricted Securities have been sold pursuant to the Shelf Registration Statement. Notwithstanding the foregoing, the Company is permitted to prohibit offers and sales of Transfer Restricted Securities pursuant to the Shelf Registration Statement under certain circumstances and subject to certain conditions (any period during which offers and sales are prohibited being referred to as a "Suspension Period"). "Transfer Restricted Securities" means each Preferred Security and any underlying Convertible Debenture or Common Stock until the date on which such Preferred Security or underlying Convertible Debenture or Common Stock (i) has been effectively registered under the Securities Act and disposed of pursuant to the Shelf Registration Statement, (ii) is distributed to the public pursuant to Rule 144 under the Securities Act or (iii) may be sold or transferred pursuant to Rule 144(k) under the Securities Act (or any similar provisions then in force). If (i) the Shelf Registration Statement is not filed with the Commission prior to the Required Filing Date, (ii) the Shelf Registration Statement has not been declared effective by the Commission under the Securities Act on or prior to the Required Effectiveness Date or (iii) a Suspension Period is in effect then, in any such case referred to in clause (i), (ii) or (iii), a "Registration Default" shall have occurred. During such period as a Registration Default shall occur and until either the Shelf Registration Statement is declared effective or the Suspension Period is terminated, as the case may be, the Company will pay to each holder of Transfer Restricted Securities as liquidated damages ("Liquidated Damages") an amount equal to an additional one-quarter of one percent (25 basis points) per quarter, payable in arrears, with the first quarterly payment due on the first interest or Distribution date following the date on which such Liquidated Damages begin to accrue in respect of any Preferred Security that is a Transfer Restricted Security owned by such holder. Holders of Transfer Restricted Securities are required, among other things, to make certain representations to the Company and the Trust (as described in the Registration Rights Agreement) in connection with the Shelf Registration Statement pursuant to which such holder proposes to offer and sell Transfer Restricted Securities. The Company will provide to each holder of Transfer Restricted Securities copies of the prospectus which is a part of the Shelf Registration Statement, notify each such Holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Transfer Restricted Securities. A holder that proposes to sell Transfer Restricted Securities pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registrations Rights Agreement that are applicable to such a holder (including indemnification and contribution rights and obligations). The summary herein of certain provisions of the Registration Rights Agreement is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement. The Company will provide a copy of the Registration Rights Agreement upon request. VOTING RIGHTS Except as described in this Prospectus and except as provided under the Trust Act and the Trust Indenture Act and as otherwise required by law and the Declaration, the holders of the Preferred Securities have no voting rights. 26 Subject to the requirement of the Institutional Trustee's obtaining a tax opinion in certain circumstances set forth in the following paragraph, the holders of a majority in aggregate liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee, or to direct the exercise of any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional Trustee, as holder of the Convertible Debentures, to (i) exercise the remedies available to the Institutional Trustee under the Indenture with respect to the Convertible Debentures, (ii) waive any past Indenture Event of Default and its consequences that is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Convertible Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Convertible Debentures where such consent shall be required; provided, however, that where a consent or action under the Indenture would require the consent or act of the holders of more than a majority in principal amount of Convertible Debentures (a "Super Majority") affected thereby, only the holders of at least such Super Majority in aggregate liquidation amount of the Preferred Securities may direct the Institutional Trustee to give such consent or take such action. If the Institutional Trustee fails to enforce its rights under the Convertible Debentures, any record holder of Preferred Securities may, to the fullest extent permitted by law, directly institute a legal proceeding against the Company to enforce the Institutional Trustee's rights under the Convertible Debentures without first instituting any legal proceeding against the Institutional Trustee or any other person or entity. Notwithstanding the foregoing, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Convertible Debentures on the date such interest or principal is otherwise payable (or in the case of redemption on the redemption date), the Company acknowledges that a holder of Preferred Securities may then institute a Direct Action for enforcement of payment to such holder of the principal of or interest on the Convertible Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder on or after the respective due date specified in the Convertible Debentures. The Institutional Trustee shall, within 90 days, notify all holders of the Preferred Securities of any notice of default received from the Indenture Trustee with respect to the Convertible Debentures. Such notice shall state that such Indenture Event of Default also constitutes a Declaration Event of Default. Except with respect to directing the time, method and place of conducting a proceeding for a remedy available to the Institutional Trustee, the Institutional Trustee, as holder of the Convertible Debentures, shall be under no obligation to take any action in accordance with the direction of the holders of Preferred Securities under clauses (i), (ii) or (iii) of the preceding paragraph unless the Institutional Trustee has obtained an opinion of independent tax counsel experienced in such matters to the effect that as a result of such action, the Trust will not fail to be classified as a grantor trust for United States federal income tax purposes. The holders of a majority in aggregate outstanding principal amount of Convertible Debentures may annul any declaration of acceleration under the Indenture and waive any default if the default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Indenture Trustee. In the case of the Convertible Debentures held by the Institutional Trustee on behalf of the Trust, a waiver of any default shall not be effective until a majority in liquidation amount of the Trust Securities shall have consented to such waiver; provided, however, that if the Indenture requires the consent of a Super Majority, such waiver shall be effective only if the holders of at least the proportion in liquidation amount of the Trust Securities that the relevant Super Majority represents of the aggregate principal amount of the Convertible Debentures outstanding so consent. In the event the consent of the Institutional Trustee, as the holder of the Convertible Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Institutional Trustee shall request the written direction of the holders of the Trust Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a majority in liquidation amount of the Trust Securities voting together as a single class; provided, however, that where any amendment, modification or termination under the Indenture would require the consent of a Super Majority, the Institutional Trustee may only give such consent at the direction of the holders of at least the proportion in aggregate stated liquidation amount of the Trust Securities which the relevant Super 27 Majority represents of the aggregate principal amount of the Convertible Debentures outstanding. The Institutional Trustee shall be under no obligation to take any such action in accordance with the direction of the holders of the Trust Securities unless the Institutional Trustee has obtained an opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that for United States federal income tax purposes the Trust will not be classified as other than a grantor trust. A waiver of an Indenture Event of Default constitutes a waiver of the corresponding Declaration Event of Default. Any required approval or direction of holders of Preferred Securities may be given at a separate meeting of holders of Preferred Securities convened for such purpose, at a meeting of all of the holders of Trust Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be mailed to each holder of record of Preferred Securities. Each such notice will include a statement setting forth the following information: (i) the date of such meeting or the date by which such action is to be taken; (ii) a description of any resolution proposed for adoption at such meeting on which such holders are entitled to vote or of such matter upon which written consent is sought; and (iii) instructions for the delivery of proxies or consents. No vote or consent of the holders of Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or distribute Convertible Debentures in accordance with the Declaration. Notwithstanding that holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned at such time by the Company or any entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Company, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if such Preferred Securities were not outstanding. The procedures by which holders of Preferred Securities represented by the Global Certificates may exercise their voting rights are described below. See "--Book-Entry-Only Issuance--The Depository Trust Company." Holders of the Preferred Securities have no right to appoint or remove any of the Trustees, who may be appointed, removed or replaced solely by the Company as the indirect or direct holder of the Common Securities. MODIFICATION OF THE DECLARATION The Declaration may be modified and amended if approved by the Regular Trustees (and, in certain circumstances, the Institutional Trustee and/or the Delaware Trustee), except that if any proposed amendment provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the holders of the Trust Securities, whether by way of amendment to the Declaration or otherwise or (ii) the dissolution, winding-up or termination of the Trust other than pursuant to the terms of the Declaration, then the holders of the Trust Securities voting together as a single class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of holders of at least a majority in liquidation amount of the Trust Securities affected thereby; provided, that if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a majority in liquidation amount of such class of Trust Securities. Notwithstanding the foregoing, no amendment or modification may be made to the Declaration if such amendment or modification would (i) cause the Trust to be classified for United States federal income tax purposes as other than a grantor trust, (ii) reduce or otherwise adversely affect the powers of the Institutional Trustee or (iii) cause the Trust to be deemed an "investment company" that is required to be registered under the 1940 Act. 28 MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to, any corporation or other body, except as described below or as otherwise set forth in the Declaration. The Trust may, with the consent of the Regular Trustees and without the consent of the holders of the Trust Securities, the Institutional Trustee or the Delaware Trustee, consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to, a trust organized as such under the laws of any State provided, however, that (i) if the Trust is not the survivor, such successor entity either (x) expressly assumes all of the obligations of the Trust under the Trust Securities or (y) substitutes for the Trust Securities other securities having substantially the same terms as the Trust Securities (the "Successor Securities"), so long as the Successor Securities rank the same as the Trust Securities rank with respect to Distributions, assets and payments upon liquidation, redemption and otherwise, (ii) the Company expressly acknowledges a trustee of such successor entity possessing the same powers and duties as the Institutional Trustee, in its capacity as the holder of the Convertible Debentures, (iii) the Preferred Securities or any Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on the NNM, any national securities exchange or another organization on which the Preferred Securities are then listed or quoted, (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity), (vi) such successor entity has a purpose substantially identical to that of the Trust, (vii) the Company guarantees the obligations of such successor entity under the Successor Securities to the same extent as provided by the Guarantees and (viii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Company has received an opinion of a nationally recognized independent counsel to the Trust and experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease will not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity) and (B) following such merger, consolidation, amalgamation or replacement, neither the Trust nor such successor entity will be required to register as an "investment company" under the 1940 Act. Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in liquidation amount of the Trust Securities, consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to, any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if, in the opinion of a nationally recognized independent tax counsel experienced in such matters, such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease, would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. In addition, so long as any Preferred Securities remain outstanding and are not held entirely by the Company, the Trust may not voluntarily liquidate, dissolve, wind-up or terminate except as described above under "--Special Event Redemption or Distribution." BOOK-ENTRY-ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY The Preferred Securities were issued in fully registered form. Except as provided below, Preferred Securities held by "qualified institutional buyers," as defined in Rule 144A under the Securities Act ("QIBs"), are currently evidenced by one or more global certificates representing Preferred Securities (collectively, the "Restricted Global Certificate"), which has been deposited with DTC and registered in the name of Cede & Co. ("Cede") as DTC's nominee. Preferred Securities held by persons who acquired such Preferred Securities in compliance with Regulation S under the Securities Act ("Non-U.S. persons") are currently evidenced by one or more global certificates (collectively, the "Regulation S Global Certificate" and together with the Restricted Global Certificate, the "Global Certificates" or each individually, a "Global Certificate"), which has been registered in 29 the name of a nominee of DTC for the accounts of the Euroclear System ("Euroclear") or Cedel Bank, societe anonyme ("Cedel"). A QIB may hold its interest in the Restricted Global Certificate directly through DTC if such QIB is a participant in DTC, or indirectly through organizations that are participants in DTC ("Participants"). The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in definitive form. Such laws may impair the ability to transfer beneficial interests in the Preferred Securities as represented by the Restricted Global Certificate. Beneficial interests in the Restricted Global Certificate may be transferred to a person who takes delivery in the form of an interest in the Regulation S Global Certificate only upon receipt by the Institutional Trustee of a written certification from the transferor to the effect that such transfer is being made in accordance with Regulation S or Rule 144A under the Securities Act and that the interest transferred will be held immediately thereafter through Euroclear or Cedel. Any beneficial interest in one of the Global Certificates will, upon transfer, cease to be an interest in such Global Certificate and become an interest in such other Global Certificate and, accordingly, thereafter will be subject to all transfer restrictions and other procedures applicable to beneficial interest in such other Global Certificate for as long as it remains such an interest. Investors may hold their interests in the Regulation S Global Certificate through Euroclear or Cedel, if they are participants in such systems, or indirectly through organizations that are participants in such systems. Investors also may hold such interests through organizations other than Euroclear or Cedel that are Participants in DTC. Euroclear and Cedel will hold interests in the Regulation S Global Certificate on behalf of their participants through customers' securities accounts in their respective names on the books of DTC. All interests in a Global Certificate, including those held through Euroclear or Cedel, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear and Cedel also may be subject to the procedures and requirements of such systems. QIBs and Non-U.S. persons that are not Participants may beneficially own interests in a Global Certificate held by DTC only through Participants, including Euroclear and Cedel, or certain banks, brokers, dealers, trust companies and other parties that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("Indirect Participants"). So long as the nominee of DTC is the registered owner of a Global Certificate, such nominee will be considered for all purposes the sole holder of the Global Certificate. Except as provided below, owners of beneficial interests in a Global Certificate will not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered holders thereof. Because DTC can act only on behalf of Participants, who in turn act on behalf of Indirect Participants and certain banks, the ability of a person having a beneficial interest in Preferred Securities represented by a Global Certificate to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate evidencing such interest. DTC has advised the Company and the Trust as follows: DTC is a limited- purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its Participants deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Participants in DTC include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and 30 dealers, banks and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. The rules applicable to DTC and its Participants are on file with the Commission. Purchases of Preferred Securities within the DTC system must be made by or through Participants, which will receive a credit for the Preferred Securities on DTC's records. The ownership interest of each actual purchaser of each Preferred Security ("Beneficial Owner") is in turn recorded on the Participants' and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Participants or Indirect Participants through which the Beneficial Owners purchased Preferred Securities. Transfers of ownership interests in the Preferred Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Preferred Securities, except in the event that use of the book-entry system for the Preferred Securities is discontinued. Accordingly, each Beneficial Owner must rely on the procedures of DTC to exercise any rights under the Preferred Securities. Transfers between Participants will be effected in accordance with DTC's procedures and will be settled in same-day funds. Transfers between participants in Euroclear and Cedel will be effected in the ordinary way in accordance with their respective rules and operating procedures. Cross-market transfers between Participants, on the one hand, and Euroclear participants or Cedel participants, on the other hand, will be effected in DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Cedel, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the Preferred Securities in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Cedel participants may not deliver instructions directly to the depositaries for Euroclear or Cedel. Because of time zone differences, the securities account of a Euroclear or Cedel participant purchasing an interest in a Preferred Security from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear participant or Cedel participant, during the securities settlement processing day (which must be a business day for Euroclear and Cedel, as the case may be) immediately following the DTC settlement date. Cash received in Euroclear or Cedel as a result of sales of interests in a Preferred Security by or through a Euroclear or Cedel participant to a Participant in DTC will be received with value on the DTC settlement date, but will be available in the relevant Euroclear or Cedel cash account only as of the business day for Euroclear or Cedel following the DTC settlement date. DTC has advised the Company that it will take any action permitted to be taken by a holder of Preferred Securities (including the presentation of Preferred Securities for exchange as described below) only at the direction of one or more Participants to whose account the DTC interests in the Global Certificates are credited and only in respect of such portion of the aggregate liquidation amount of Preferred Securities as to which such Participant or Participants has or have given such direction. Conveyance of notices and other communications by DTC to Participants, by Participants to Indirect Participants, and by Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Conversion and redemption notices shall be sent to DTC. If less than all of the Preferred Securities are being redeemed, DTC will reduce the amount of the interest of each Participant in such Preferred Securities in accordance with its procedures. 31 Although voting with respect to the Preferred Securities is limited, in those cases where a vote is required, DTC will not itself consent or vote with respect to the Preferred Securities. Under its usual procedures, DTC would mail an omnibus proxy to the Trust as soon as possible after the record date. The omnibus proxy assigns DTC's consenting or voting rights to those Participants to whose accounts the Preferred Securities are credited on the record date (identified in a listing attached to the omnibus proxy). Distributions on the Preferred Securities in the form of Global Certificates will be made to DTC. DTC's practice is to credit Participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by Participants and Indirect Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers in bearer form or registered in "street name," and such payments will be the responsibility of such Participants and not of DTC, the Trust or the Company, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of Distributions to DTC is the responsibility of the Trust, disbursement of such payments to Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Participants and Indirect Participants. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Certificates among Participants of DTC, DTC is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company, the Trust nor any Trustee will have any responsibility for the performance by DTC or its Participants or Indirect Participants under the rules and procedures governing DTC. DTC may discontinue providing its services as securities depositary with respect to the Preferred Securities at any time by giving reasonable notice to the Trust. Under such circumstances, in the event that a successor securities depositary is not obtained, Preferred Securities in the form of physical certificates will be delivered in exchange for beneficial interests in each Global Certificate. Additionally, the Trust (with the consent of the Company) may decide to discontinue use of the system of book- entry transfers through DTC (or a successor depositary) with respect to the Preferred Securities. In that event, certificates for the Preferred Securities will be printed and delivered. In each of the above circumstances, the Company will appoint a paying agent with respect to the Preferred Securities. The information in this Section concerning DTC, Cedel, Euroclear and DTC's book-entry system has been obtained from sources that the Trust and the Company believe to be reliable, but neither the Trust nor the Company takes responsibility for the accuracy thereof. INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE The Institutional Trustee, prior to the occurrence of a default with respect to the Trust Securities and after the curing of any default that may have occurred, undertakes to perform only such duties as are specifically set forth in the Declaration and, after such a default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provisions, the Institutional Trustee is under no obligation to exercise any of the powers vested in it by the Declaration at the request of any holder of Preferred Securities, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. Notwithstanding the foregoing, the holders of Preferred Securities will not be required to offer such indemnity in the event such holders, by exercising their voting rights, direct the Institutional Trustee to take any action following a Declaration Event of Default. The Institutional Trustee also serves as Delaware Trustee and as trustee under the Guarantee and the Indenture. PAYMENT Payments in respect of the Preferred Securities represented by the Global Certificates will be made to DTC, which will credit the relevant accounts at DTC on the applicable Distribution Dates or, in the case of certificated Preferred Securities, such payments shall be made by check mailed to the address of the holder entitled thereto as such address shall appear on the Register. 32 REGISTRAR, TRANSFER AGENT, PAYING AGENT AND CONVERSION AGENT The Institutional Trustee acts as Registrar, Transfer Agent, Paying Agent and Conversion Agent for the Preferred Securities. The Paying Agent initially is the Institutional Trustee, which is presently located in Wilmington, Delaware. The Paying Agent is permitted to resign as Paying Agent upon 30 days' written notice to the Trustees. In the event that the Institutional Trustee will no longer be the Paying Agent, the Regular Trustees shall appoint a successor to act as Paying Agent (which shall be a bank or trust company). Registration of transfers of Preferred Securities will be effected without charge by or on behalf of the Trust, but upon payment (with the giving of such indemnity as the Trust or the Company may require) in respect of any tax or other government charges that may be imposed in relation to it. The Trust will not be required to register or cause to be registered the transfer of Preferred Securities after such Preferred Securities have been called for redemption. GOVERNING LAW The Declaration and the Preferred Securities are governed by, and construed in accordance with, the internal laws of the State of Delaware. MISCELLANEOUS The Regular Trustees are authorized and directed to operate the Trust in such a way that the Trust will not be deemed to be an "investment company" required to be registered under the 1940 Act or characterized as other than a grantor trust for United States federal income tax purposes. In this connection, the Company and the Regular Trustees are authorized to take any action, not inconsistent with applicable law, the certificate of trust or the Declaration that each of the Company and the Regular Trustees determine in their discretion to be necessary or desirable for such purposes as long as such action does not materially adversely affect the interests of the holders of the Preferred Securities. Holders of the Preferred Securities have no preemptive or similar rights. DESCRIPTION OF THE CONVERTIBLE DEBENTURES Set forth below is a description of the specific terms of the Convertible Debentures in which the Trust has invested the proceeds from the initial issuance and sale of the Trust Securities. The Convertible Debentures have been qualified under the Trust Indenture Act. The following description does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Indenture, dated as of November 25, 1997 (the "Indenture") between the Company and Wilmington Trust Company, as trustee (the "Indenture Trustee"). Certain capitalized terms used herein are defined in the Indenture. Under certain circumstances involving the dissolution of the Trust following the occurrence of a Special Event, Convertible Debentures may be distributed to the holders of the Trust Securities in liquidation of the Trust. See "Description of the Preferred Securities--Special Event Redemption or Distribution." GENERAL The Convertible Debentures were issued as unsecured debt under the Indenture. The Convertible Debentures were limited in aggregate principal amount to approximately $257.7 million, such amount being the sum of the aggregate stated liquidation amount of the Preferred Securities and the capital contributed by the Company in exchange for the Common Securities. 33 The Convertible Debentures are not subject to a sinking fund provision. The entire principal amount of the Convertible Debentures will mature and become due and payable, together with any accrued and unpaid interest thereon, including Compound Interest and Additional Interest, if any, on November 15, 2027. If Convertible Debentures are distributed to holders of Preferred Securities in liquidation of such holder's interest in the Trust, such Convertible Debentures will initially be issued in the form of one or more Global Securities (as defined below). As described herein under certain limited circumstances, Convertible Debentures may be issued in certificated form in exchange for a Global Security. In the event that Convertible Debentures are issued in certificated form, such Convertible Debentures will be in denominations of $50 and integral multiples thereof and may be transferred or exchanged at the offices described below. Payments on Convertible Debentures issued as a Global Security will be made to DTC, a successor depositary or, in the event that no depositary is used, to a paying agent for the Convertible Debentures. In the event Convertible Debentures are issued in certificated form, principal and interest will be payable, the transfer of the Convertible Debentures will be registrable and Convertible Debentures will be exchangeable for Convertible Debentures of other denominations of a like aggregate principal amount at the corporate trust office of the Indenture Trustee in New York, New York; provided, however, that payment of interest may be made at the option of the Company by check mailed to the address of the persons entitled thereto. There are no covenants or provisions in the Indenture that afford holders of Convertible Debentures protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect such holders. SUBORDINATION The Indenture provides that the Convertible Debentures are subordinate and junior in right of payment to all existing and future Senior Indebtedness of the Company. No payment of principal of (including redemption payments), premium, if any, or interest (including Additional Interest and Compound Interest) on, the Convertible Debentures may be made if (i) any Senior Indebtedness of the Company has not been paid when due and any applicable grace period with respect to such default has ended and such default has not been cured or waived, or ceased to exist or (ii) the maturity of any Senior Indebtedness of the Company has been accelerated because of a default. At April 30, 1998, Senior Indebtedness of the Company aggregated approximately $924 million. Upon any distribution of assets of the Company to creditors upon any dissolution, winding-up, liquidation or reorganization, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all principal, premium, if any, and interest due or to become due on, all Senior Indebtedness of the Company must be paid in full before the holders of the Convertible Debentures are entitled to receive or retain any payment. Upon satisfaction of all claims related to all Senior Indebtedness of the Company then outstanding, the rights of the holders of the Convertible Debentures will be subrogated to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions applicable to Senior Indebtedness until all amounts owing on the Convertible Debentures are paid in full. The term "Senior Indebtedness" means, with respect to the Company, (i) the principal, premium, if any, and interest in respect of (A) every obligation of the Company for money borrowed and (B) every obligation of the Company evidenced by securities, notes, debentures, bonds or other similar instruments including obligations incurred in connection with the acquisition of property, assets or businesses, (ii) all capital lease obligations of the Company, (iii) all obligations of the Company issued or assumed as the deferred purchase price of property, all conditional sale obligations of the Company and all obligations of the Company under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of the Company for the reimbursement of any letter of credit, banker's acceptance, security purchase facility or similar credit transaction issued for the account of the Company, (v) all obligations of the Company in respect of derivative products, including interest rate swap, cap or other similar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements, (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons for the payment of which the 34 Company is responsible or liable as obligor, guarantor or otherwise, and (vii) all obligations of the type referred to in clauses (i) through (vi) above of other persons secured by any lien on any property or asset of the Company (whether or not such obligation is assumed by the Company), except for (1) any such indebtedness that is by its terms subordinated to or pari passu with the Convertible Debentures and (2) any indebtedness between or among the Company and its affiliates, including all other debt securities and guarantees in respect of those debt securities issued to (a) the Trust or a trustee of the Trust and (b) any other trust, or a trustee of such trust, partnership or other entity affiliated with the Company that is a financing vehicle of the Company (a "financing entity") in connection with the issuance by such financing entity of preferred securities or other securities that rank pari passu with, or junior to, the Preferred Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness and be entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Indebtedness. In addition, because a significant portion of the Company's operations is conducted through its subsidiaries and the subsidiaries have not guaranteed the payment of and interest on the Convertible Debentures, all liabilities of such subsidiaries, including trade payables (which aggregated approximately $433 million at April 30, 1998), are effectively senior to the Convertible Debentures. The Indenture does not limit the aggregate amount of Senior Indebtedness that may be issued by the Company. OPTIONAL REDEMPTION The Company has the right to redeem the Convertible Debentures, in whole or in part, from time to time, on or after November 25, 2000 upon not less than 30 nor more than 60 days' notice, at the following Redemption Prices (expressed as a percentage of the principal amount of the Convertible Debentures), if redeemed during the twelve-month period commencing November 25 in the year indicated:
ORIGINAL YEAR REDEMPTION PRICE ---- ---------------- 2000...................................................... 102.60% 2001...................................................... 101.30
and 100% if redeemed on or after November 25, 2002. plus, in each case, accrued and unpaid interest, including Additional Interest and Compound Interest, if any, to, but not including, the date set for redemption. The Company may also redeem the Convertible Debentures, in whole or in part, at any time in certain circumstances upon the occurrence of a Tax Event as described under "Description of the Preferred Securities-Special Event Redemption or Distribution" at a redemption price equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest, including Additional Interest and Compound Interest, if any, to the date set for redemption (subject to the rights of holders of record on the relevant record date to receive interest due on an Interest Payment Date (as defined below) that is on or prior to the redemption date). If a partial redemption of the Preferred Securities resulting from a partial redemption of the Convertible Debentures would result in the delisting of the Preferred Securities, the Company may only redeem Convertible Debentures in whole. INTEREST Each Convertible Debenture bears interest at the rate of 6.50% per annum from the original date of issuance, payable quarterly in arrears on February 15, May 15, August 15 and November 15 (each, an "Interest Payment Date"), commencing February 15, 1998 to the person in whose name such Convertible Debenture is registered, subject to certain exceptions, at the close of business on the Business Day next preceding such Interest Payment Date. In the event the Convertible Debentures shall not continue to remain in book-entry only form, the Company 35 shall have the right to select record dates, which shall be more than 14 days but less than 60 days prior to the Interest Payment Date. The amount of interest payable for any period is computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed. In the event that any date on which interest is payable on the Convertible Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, then such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. INTEREST INCOME AND OPTION TO EXTEND INTEREST PAYMENT PERIODS So long as no Indenture Event of Default has occurred and is continuing, the Company has the right at any time, and from time to time, during the term of the Convertible Debentures, to defer payments of interest by extending the interest payment period for a period not exceeding 20 consecutive quarters with respect to each Extension Period; provided, that no Extension Period may extend beyond the maturity of the Convertible Debentures, and at the end of which Extension Period the Company shall pay all interest then accrued and unpaid (including any Additional Interest) together with interest thereon compounded quarterly at the rate specified for the Convertible Debentures to the extent permitted by applicable law ("Compound Interest"); provided, further, that during any such Extension Period, (a) the Company shall not declare or pay dividends on, or make any distribution or liquidation payment with respect to, or redeem, purchase or acquire any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock in connection with the satisfaction by the Company of its obligations under any employee benefit plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of the Common Stock, (ii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iii) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (iv) purchases or acquisitions of shares of the Company's Common Stock to be used in connection with acquisitions of the Company's Common Stock by stockholders pursuant to a dividend reinvestment plan, or (v) stock dividends paid by the Company where the dividend stock is the same stock as that on which the dividend is paid), (b) the Company shall not make any payment of interest on or principal of (or premium, if any, on) or repay, repurchase or redeem any debt securities (including guarantees) issued by the Company which rank pari passu with or junior to the Convertible Debentures and (c) the Company shall not make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantees). Prior to the termination of any such Extension Period, the Company may further defer payments of interest by extending the interest payment period; provided, however, that such Extension Period together with all previous and further extensions thereof may not exceed 20 consecutive quarters; and provided further that no Extension Period may extend beyond the maturity of the Convertible Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, the Company may commence a new Extension Period, subject to the terms set forth in this section. No interest shall be due and payable during an Extension Period. There could be multiple Extension Periods of varying lengths throughout the terms of the Convertible Debentures. The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Convertible Debentures. If the Institutional Trustee shall be the sole holder of the Convertible Debentures, the Company shall give the Regular Trustees, the Indenture Trustee and the Institutional Trustee written notice of its selection of such Extension Period at least one Business Day prior to the earlier of (i) the date the Distributions on the Preferred Securities would be payable, if not for such Extension Period or (ii) the date the Regular Trustees are required to give notice to any applicable self-regulatory organization or to holders of the Preferred Securities of the record date or the date such Distribution would be payable if not for such Extension Period, but in any event not less than one Business Day prior to such record date. The Regular Trustees shall give notice of the Company's selection 36 of such Extension Period to the holders of the Preferred Securities. If the Institutional Trustee shall not be the sole holder of the Convertible Debentures, the Company shall give the holders of the Convertible Debentures and the Indenture Trustee written notice of its selection of such Extension Period at least ten Business Days prior to the earlier of (i) the next succeeding Interest Payment Date or (ii) the date upon which the Company is required to give notice to any applicable self-regulatory organization or to holders of the Convertible Debentures on the record or payment date of such related interest payment. ADDITIONAL INTEREST If at any time the Trust shall be required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, the Company will pay as additional interest ("Additional Interest") on the Convertible Debentures such additional amounts as shall be required so that the net amounts received and retained by the Trust after paying any such taxes, duties, assessments or governmental charges will be not less than the amounts the Trust would have received had no such taxes, duties, assessments or governmental charges been imposed. CONVERSION OF THE CONVERTIBLE DEBENTURES The Convertible Debentures are convertible into Common Stock at the option of the holders of the Convertible Debentures at any time on or after January 25, 1998 and prior to 5:00 P.M. (Eastern time) on the Business Day immediately preceding the date of repayment of such Convertible Debentures, whether at maturity or upon redemption (or, in the case of Convertible Debentures called for redemption, the close of business or the Business Day prior to the Redemption Date), at the Initial Conversion Price subject to the conversion price adjustments described under "Description of the Preferred Securities-- Conversion Rights." The Trust has agreed not to convert Convertible Debentures held by it except pursuant to a notice of conversion delivered to the Conversion Agent by a holder of Preferred Securities. Upon surrender of a Preferred Security to the Conversion Agent for conversion, the Trust will distribute Convertible Debentures to the Conversion Agent on behalf of the holder of the Preferred Securities so converted, whereupon the Conversion Agent will convert such Convertible Debentures to Common Stock on behalf of such holder. The Company's delivery to the holders of the Convertible Debentures (through the Conversion Agent) of the fixed number of shares of Common Stock into which the Convertible Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) will be deemed to satisfy the Company's obligation to pay the principal amount of the Convertible Debentures so converted, and the accrued and unpaid interest thereon attributable to the period from the last date to which interest has been paid or duly provided for; provided, however, that if any Convertible Debenture is converted after a record date for payment of interest, the interest payable on the related interest payment date with respect to such Convertible Debenture shall be paid to the Trust (which will distribute such interest to the converting holder of such Preferred Security on the record date) or other holder of Convertible Debentures, as the case may be, despite such conversion; provided, further that if any Convertible Debenture is delivered for conversion during an Extension Period by a holder after receiving a notice of redemption from the Institutional Trustee, the Company shall be required to pay to the Trust all accrued and unpaid interest, if any, on such Convertible Debenture through the date of conversion, which amount shall be simultaneously distributed to the holders of the Preferred Securities in respect of which such Convertible Debentures were delivered. See "-- Optional Redemption," "Description of the Preferred Securities--Conversion Rights" and "Description of the Preferred Securities--Mandatory Redemption." CERTAIN COVENANTS In the Indenture, so long as any Convertible Debentures are outstanding, if (i) there shall have occurred and be continuing any event that with the giving of notice or the lapse of time or both, would constitute an Indenture Event of Default, or (ii) the Company shall be in default with respect to its payment of any obligations under the Guarantee, or (iii) the Company has exercised its option to defer interest payments on the Convertible Debentures by extending the interest payment period and such period, or any extension thereof, shall be continuing, then (a) the Company shall not declare or pay dividends on, or make any distribution or liquidation payment with 37 respect to, or redeem, purchase or acquire any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock in connection with the satisfaction by the Company of its obligations under any employee benefit plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of the Common Stock, (ii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iii) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (iv) purchases or acquisitions of shares of the Common Stock to be used in connection with acquisitions of the Common Stock by shareholders pursuant to a dividend reinvestment plan, or (v) stock dividends paid by the Company where the dividend stock is the same stock as that on which the dividend is paid), (b) the Company shall not make any payment of interest on or principal of (or premium, if any, on) or repay, repurchase or redeem any debt securities (including guarantees) issued by the Company that rank pari passu with or junior to the Convertible Debentures and (c) the Company shall not make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantees). The Company has covenanted (i) to maintain, directly or indirectly, 100% ownership of the Common Securities of the Trust; provided, however, that any permitted successor of the Company under the Indenture may succeed to the Company's ownership of such Common Securities, (ii) as issuer of the Convertible Debentures, not to voluntarily terminate, wind-up or liquidate the Trust, except in connection with (a) a distribution of Convertible Debentures to the holders of the Trust Securities in liquidation of the Trust or (b) certain mergers, consolidations or amalgamations permitted by the Declaration, (iii) to use its reasonable efforts (a) to cause the Convertible Debentures to continue to be classified as indebtedness of the Company for United States federal income tax purposes, and (b) to cause the Trust to otherwise continue to be classified as a grantor trust for United States federal income tax purposes. CONSOLIDATION, MERGER AND SALE OF ASSETS The Indenture provides that the Company will not consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety unless (a) if the Company is not the survivor, the successor is a corporation organized under the laws of a State of the United States and expressly assumes the due and punctual payment of the principal of (and premium, if any) and interest on all Convertible Debentures issued under the Indenture and the performance or observance of every other covenant of the Indenture on the part of the Company, (b) immediately thereafter no Indenture Event of Default and no event which, after notice or lapse of time, or both, would become an Indenture Event of Default, shall have occurred and be continuing and (c) the Company shall have delivered to the Indenture Trustee an officers' certificate and an opinion of counsel, each stating that such transaction and any supplemental indenture required pursuant to such transaction, comply with the terms of the Indenture and that all conditions precedent provided for therein relating to such transaction have been complied with. Upon any such consolidation, merger, conveyance or transfer, the successor corporation shall succeed to and be substituted for the Company under the Indenture and thereafter the predecessor corporation shall be relieved of all obligations and covenants under the Indenture and the Convertible Debentures. INDENTURE EVENTS OF DEFAULT The Indenture provides that any one or more of the following described events that has occurred and is continuing constitutes an Indenture Event of Default with respect to the Convertible Debentures: (i) failure for 30 days to pay interest on the Convertible Debentures, including any Additional Interest and Compound Interest in respect thereof, when due; provided, however, that a valid extension of an interest payment period will not constitute a default in the payment of interest (including any Additional Interest and Compound Interest) for this purpose; or (ii) failure to pay principal of or premium, if any, on the Convertible Debentures when due whether at maturity, upon redemption, by declaration or otherwise; or (iii) failure to observe or perform, or breach of, in any material respect, any other covenant or agreement contained in the Indenture that shall not have been 38 remedied for a period of 90 days after notice to the Company by the Indenture Trustee or by the holders of not less than 25% in aggregate outstanding principal amount of the Convertible Debentures; or (iv) failure by the Company to deliver shares of Common Stock upon an election by a holder of Preferred Securities to convert such Preferred Securities; or (v) the dissolution, winding-up or termination of the Trust, except in connection with (A) the distribution of Convertible Debentures to the holders of Preferred Securities in liquidation of the Trust upon the redemption of all outstanding Preferred Securities and (B) certain mergers, consolidations or amalgamations permitted by the Declaration; or (vi) certain events of bankruptcy, insolvency or reorganization of the Company. The Indenture provides that the Indenture Trustee may withhold notice to the holders of the Convertible Debentures (except notice relating to any default in the payment of principal, premium, if any, or interest on, the Convertible Debentures) if the Indenture Trustee considers it in the interest of such holders to do so. The Indenture Trustee or the holders of not less than 25% in aggregate outstanding principal amount of the Convertible Debentures may declare the principal of and interest on the Convertible Debentures due and payable immediately on the occurrence of an Indenture Event of Default; provided, however, that, after such acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding Convertible Debentures may, under certain circumstances, rescind and annul such acceleration if all Indenture Events of Default, other than the nonpayment of accelerated principal, have been cured or waived as provided in the Indenture. For information as to waiver of defaults, see "--Modifications and Amendments of the Indenture." Notwithstanding the foregoing, if an Indenture Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Convertible Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, the redemption date), the Company acknowledges that, in such event, a holder of Preferred Securities may then institute a Direct Action for payment on or after the respective due date specified in the Convertible Debentures. The Company may not amend the Indenture to remove the foregoing right to bring a Direct Action without the prior written consent of all the holders of Preferred Securities. Notwithstanding any payment made to such holder of Preferred Securities by the Company in connection with a Direct Action, the Company shall remain obligated to pay the principal of (premium, if any, on) or interest on the Convertible Debentures held by the Trust or the Institutional Trustee, and the Company shall be subrogated to the rights of the holder of such Preferred Securities with respect to payments on the Preferred Securities to the extent of any payment made by the Company to such holder in any Direct Action. The holders of Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Convertible Debentures. The holders of not less than a majority in principal amount of the outstanding Convertible Debentures may on behalf of the holders of all the Convertible Debentures waive any past default and its consequences except (a) a default in payment of the principal of (or premium, if any) or interest (including Additional Interest and Compound Interest) on any Convertible Debentures and (b) a default in respect of a covenant or provision of the Indenture that cannot be amended or modified without the consent of the holder of each Convertible Debenture; provided, however, that if the Convertible Debentures are held by the Trust or a trustee of the Trust, such waiver or modification to such waiver shall not be effective until the holders of a majority in liquidation amount of Trust Securities shall have consented to such waiver or modification to such waiver; and provided, further, that if the consent of the holder of each outstanding Convertible Debenture is required, such waiver shall not be effective until each holder of the Trust Securities shall have consented to such waiver. A default under any other indebtedness of the Company would not constitute an Indenture Event of Default. Subject to the provisions of the Indenture relating to the duties of the Indenture Trustee, in case an Indenture Event of Default shall occur and be continuing, the Indenture Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any holders of Convertible Debentures, unless such holders shall have offered to the Indenture Trustee reasonable indemnity against expenses and 39 liabilities. Subject to such provisions for the indemnification of the Indenture Trustee and subject to any rule of law, the holders of a majority in aggregate principal amount of the Convertible Debentures then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee, or exercising any trust or power conferred on the Indenture Trustee. No holder of any Convertible Debenture has any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless (i) such holder shall have previously given to the Indenture Trustee written notice of a continuing Indenture Event of Default, (ii) if the Trust is not the sole holder of Convertible Debentures, the holders of not less than 25% in aggregate principal amount of the Convertible Debentures then outstanding shall also have made a written request to the Indenture Trustee, (iii) such holder has offered reasonable indemnity to the Indenture Trustee to institute such proceeding as Indenture Trustee, (iv) the Indenture Trustee shall have failed to institute such proceeding within 60 days of such notice, and (v) the Indenture Trustee shall not have received from the holders of a majority in aggregate principal amount of the outstanding Convertible Debentures a direction inconsistent with such request. However, such limitations do not apply to a suit instituted by a holder of a Convertible Debenture for enforcement of payment of the principal of or interest on such Convertible Debenture on or after the respective due dates set forth in such Convertible Debenture. The Indenture requires the Company to file annually with the Indenture Trustee and the Institutional Trustee a certificate as to the absence of certain defaults and whether or not the Company is in compliance with all the conditions and covenants under the Indenture. MODIFICATIONS AND AMENDMENTS OF THE INDENTURE The Indenture contains provisions permitting the Company and the Indenture Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding Convertible Debentures, to modify the Indenture or the rights of the holders of Convertible Debentures; provided, however, that no such modification shall, without the consent of the holder of each outstanding Convertible Debenture affected thereby, (i) change the stated maturity of the Convertible Debentures or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or make the principal of, or interest or premium, if any, on the Convertible Debentures payable in any coin or currency other than that provided in the Convertible Debentures, or impair or affect the right of any holder of Convertible Debentures to institute suit for the payment thereof or the right of prepayment, if any, at the option of the holder, or adversely affect the right to convert Convertible Debentures or the subordination provisions of the Indenture in a manner adverse to the holders of Convertible Debentures, (ii) reduce the percentage in aggregate principal amount of outstanding Convertible Debentures, for which the consent of the holders is required for any such modification or (iii) modify any provision of the Indenture with respect to (A) modification of the Indenture or (B) waiver of defaults except under certain limited circumstances. If Convertible Debentures are held by the Trust or a trustee thereof, a supplemental indenture requiring such consent will not be effective until the holders of a majority in liquidation amount of the Trust Securities shall have consented to such supplemental indenture; provided, that if the consent of the holders of each outstanding Convertible Debenture is required, such supplemental indenture shall not be effective until each holder of the Trust Securities shall have consented to such supplemental indenture. As a result of these pass-through voting rights with respect to modifications to the Indenture, no modification thereto shall be effective until the holders of a majority in liquidation amount of the Trust Securities consent to such modification and no modification described in clauses (i) or (ii) shall be effective without the consent of each holder of Preferred Securities and each holder of Common Securities. In addition, the Company and the Indenture Trustee may execute, without the consent of any holder of Convertible Debentures, any supplemental indenture to cure any ambiguities, comply with the Trust Indenture Act and for certain other customary purposes. 40 SATISFACTION AND DISCHARGE The Indenture provides that when, among other things, all Convertible Debentures not previously delivered to the Indenture Trustee for cancellation (i) have become due and payable or (ii) will become due and payable at their stated maturity within one year, and the Company deposits or causes to be deposited with the Indenture Trustee trust funds, in trust, for the purpose of, and in an amount sufficient for, payment and discharge of the entire indebtedness on the Convertible Debentures not previously delivered to the Indenture Trustee for cancellation, for the principal (and premium, if any) and interest and any Compound Interest and Additional Interest to the date of the deposit or to the maturity of the Convertible Debentures or the Redemption Date, as the case may be, then the Indenture will cease to be of further effect (except as to the Company's obligations to pay all other sums due pursuant to the Indenture and to provide the officers' certificates and opinions of counsel described therein), and the Company will be deemed to have satisfied and discharged the Indenture. BOOK-ENTRY AND SETTLEMENT If distributed to holders of Preferred Securities in connection with the involuntary or voluntary dissolution, winding-up or liquidation of the Trust as a result of the occurrence of a Special Event, the Convertible Debentures will be issued in the same form as the Preferred Securities that such Convertible Debentures replace. Any Preferred Securities evidenced by a Global Certificate will be replaced by Convertible Debentures in the form of one or more global certificates (each, a "Global Security") registered in the name of the depositary or its nominee. Except under the limited circumstances described below under "--Discontinuance of the Depositary's Services," Convertible Debentures represented by a Global Security will not be exchangeable for, and will not otherwise be issuable as, Convertible Debentures in definitive form. The Global Securities described above may not be transferred except by the depositary to a nominee of the depositary or by a nominee of the depositary to the depositary or another nominee of the depositary or to a successor depositary or its nominee. The laws of some jurisdictions require that certain purchasers of securities take delivery of such securities in definitive form. Such laws may impair the ability to transfer beneficial interests in such a Global Security. Except as described below under "--Discontinuance of the Depositary's Services," owners of beneficial interests in such a Global Security will not be entitled to receive physical delivery of Convertible Debentures in definitive form and will not be considered the holders thereof for any purpose under the Indenture, and no Global Security representing Convertible Debentures shall be exchangeable, except for another Global Security of like denomination and tenor to be registered in the name of the depositary or its nominee or to a successor depositary or its nominee. Accordingly, each beneficial owner must rely on the procedures of the depositary or if such person is not a Participant, on the procedures of the Participant through which such person owns its interest to exercise any rights of a holder under the Indenture. THE DEPOSITARY If Convertible Debentures are distributed to holders of Preferred Securities in liquidation of such holders' interest in the Trust, DTC will act as securities depositary for the Convertible Debentures. For a description of DTC and the specific terms of the depositary arrangements, see "Description of the Preferred Securities--Book-Entry-Only Issuance--The Depository Trust Company." As of the date of this Prospectus, the description herein of DTC's book-entry system and DTC's practices as they relate to purchases, transfers, notices and payments with respect to the Preferred Securities in the form of Global Certificates apply in all material respects to any debt obligations represented by one or more Global Securities held by DTC. The Company may appoint a successor to DTC or any successor depositary in the event DTC or such successor depositary is unable or unwilling to continue as a depositary for the Global Securities. None of the Company, the Trust, the Indenture Trustee, any paying agent and any other agent of the Company or the Indenture Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security for such Convertible Debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. 41 DISCONTINUANCE OF THE DEPOSITARY'S SERVICES Each Global Security shall be exchangeable for a Convertible Debenture registered in the names of persons other than the depositary or its nominee only, if (i) the depositary notifies the Company that it is unwilling or unable to continue as a depositary for such Global Security and no successor depositary shall have been appointed, (ii) the depositary, at any time, ceases to be a clearing agency registered under the Exchange Act at which time the depositary is required to be so registered to act as such depositary and no successor depositary shall have been appointed, (iii) the Company, in its sole discretion, determines that such Global Security shall be so exchangeable or (iv) there shall have occurred an Indenture Event of Default with respect to such Convertible Debentures. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Convertible Debentures registered in such names as the depositary shall direct. It is expected that such instructions will be based upon directions received by the depositary from its Participants with respect to ownership of beneficial interests in such Global Security. GOVERNING LAW The Indenture and the Convertible Debentures are governed by, and construed in accordance with, the internal laws of the State of New York. INFORMATION CONCERNING THE INDENTURE TRUSTEE The Indenture Trustee, prior to default, undertakes to perform only such duties as are specifically set forth in the Indenture and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provision, the Indenture Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any holder of Convertible Debentures, unless offered reasonable security or indemnity by such holder against the costs, expenses and liabilities that might be incurred thereby. The Indenture Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Indenture Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. The Indenture Trustee also serves as the Institutional Trustee and Delaware Trustee under the Declaration and the Guarantee Trustee under the Guarantee. MISCELLANEOUS The Indenture provides that the Company will pay all fees and expenses related to (i) the offering of the Trust Securities and the Convertible Debentures, (ii) the organization, maintenance and dissolution of the Trust, (iii) the retention of the Trustees and (iv) the enforcement by the Institutional Trustee of the rights of the holders of the Preferred Securities. The payment of such fees and expenses is fully and unconditionally guaranteed by the Company. DESCRIPTION OF THE GUARANTEE Set forth below is a summary of information concerning the Guarantee that has been executed and delivered by the Company for the benefit of the holders of Preferred Securities. The summary does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Guarantee. The Guarantee incorporates by reference the terms of the Trust Indenture Act. The Guarantee has been qualified under the Trust Indenture Act. Wilmington Trust Company, as the Guarantee Trustee, holds the Guarantee for the benefit of the holders of the Preferred Securities. Any references in this Prospectus to the "Guarantees" shall mean both the Guarantee and the guarantee with respect to the Common Securities. 42 GENERAL Pursuant to and to the extent set forth in the Guarantee, the Company has agreed, irrevocably and unconditionally, to pay in full to the holders of the Preferred Securities (except to the extent paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim which the Trust may have or assert, the following payments (the "Guarantee Payments"), without duplication: (i) any accrued and unpaid Distributions that are required to be paid on the Preferred Securities, to the extent the Trust has funds available therefor, (ii) the Redemption Price with respect to any Preferred Securities called for redemption by the Trust, to the extent the Trust has funds available therefor, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of Convertible Debentures to the holders of Preferred Securities or the redemption of all the Preferred Securities), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Preferred Securities to the date of payment and (b) the amount of assets of the Trust remaining available for distribution to holders of Preferred Securities upon the liquidation of the Trust. The Company's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amount by the Company to the holders of Preferred Securities or by causing the Trust to pay such amounts to such holders. The Guarantee is a guarantee on a subordinated basis with respect to the Preferred Securities from the time of issuance of such Preferred Securities but does not apply to any payment of Distributions or Redemption Price, or to payments upon the dissolution, winding-up or termination of the Trust, except to the extent the Trust shall have funds available therefor. If the Company does not make interest payments on the Convertible Debentures, the Trust will not pay Distributions on the Preferred Securities and will not have funds available therefor. See "Description of the Convertible Debentures." The Guarantee, when taken together with the Company's obligations under the Convertible Debentures, the Indenture and the Declaration, including its obligations to pay costs, expenses, debts and liabilities of the Trust (other than with respect to the Trust Securities), provides a full and unconditional guarantee on a subordinated basis by the Company of payments due on the Preferred Securities. The Company has also agreed, irrevocably and unconditionally, to guarantee the obligations of the Trust with respect to the Common Securities to the same extent as the Guarantee for the Preferred Securities, except that upon an Indenture Event of Default, holders of Preferred Securities shall have priority over holders of Common Securities with respect to distributions and payments on liquidation, redemption or otherwise. CERTAIN COVENANTS OF THE COMPANY In the Guarantee, the Company has covenanted that so long as any Preferred Securities remain outstanding, if (i) the Company has exercised its option to defer interest payments on the Convertible Debentures by extending the interest payment period and such extension shall be continuing, (ii) the Company shall be in default with respect to its payment or other obligations under the Guarantee or (iii) there shall have occurred and be continuing any event that, with the giving of notice or the lapse of time or both, would constitute an Indenture Event of Default or a Declaration Event of Default, then the Company shall not (a) declare or pay dividends on, or make a distribution or liquidation payment with respect to, or redeem, purchase or acquire any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock in connection with the satisfaction by the Company of its obligations under any employee benefit plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of Common Stock, (ii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iii) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, (iv) purchases or acquisitions of shares of the Company's Common Stock to be used in connection with acquisitions of the Company's Common Stock by shareholders pursuant to a dividend reinvestment plan or (v) stock dividends paid by the Company where the dividend stock is the same stock as that on which the dividend is paid), (b) make any payment of interest on or principal of (or premium, if any, on) or repay, repurchase or redeem any debt securities of the Company 43 (including guarantees) that rank pari passu with or junior to the Convertible Debentures, or (c) make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantees). As part of the Guarantee, the Company has agreed that it will honor all obligations described therein relating to the conversion of the Preferred Securities into Common Stock as described in "Description of the Preferred Securities--Conversion Rights." MODIFICATION OF THE GUARANTEE; ASSIGNMENT Except with respect to any changes that do not adversely affect the rights of holders of Preferred Securities (in which case no vote will be required), the Guarantee may be amended only with the prior approval of the holders of at least a majority in aggregate liquidation amount of all the outstanding Preferred Securities. All guarantees and agreements contained in the Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Company and shall inure to the benefit of the holders of the Preferred Securities then outstanding. Except in connection with any permitted merger or consolidation of the Company with or into another entity or any permitted sale, transfer or lease of the Company's assets to another entity as described under "Description of the Convertible Debentures--Consolidation, Merger and Sale of Assets," the Company may not assign its rights or delegate its obligations under the Guarantee without the prior approval of the holders of at least a majority of the aggregate stated liquidation amount of the Preferred Securities then outstanding. All guarantees and agreements contained in the Guarantee shall bind the permitted successors, assigns and transferees of the Company and shall inure to the benefit of the holders of the Preferred Securities then outstanding. EVENTS OF DEFAULT An Event of Default under the Guarantee will occur upon the failure of the Company to perform any of its payment or other obligations thereunder. The holders of a majority in aggregate liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce the Guarantee Trustee's rights under the Guarantee, any holder of Preferred Securities may directly institute a legal proceeding against the Company to enforce the Guarantee Trustee's rights under the Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person or entity. A holder of Preferred Securities may also directly institute a legal proceeding against the Company to enforce such holder's right to receive payment under the Guarantee without first (i) directing the Guarantee Trustee to enforce the terms of the Guarantee or (ii) instituting a legal proceeding against the Trust or any other person or entity. The Company is required to provide annually to the Guarantee Trustee a statement as to the performance by the Company of certain of its obligations under the Guarantee and as to any default in such performance. INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE The Institutional Trustee, prior to the occurrence of a default with respect to the Trust Securities, undertakes to perform only such duties as are specifically set forth in the Declaration and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provisions, the Institutional Trustee is under no obligation to exercise any of the powers vested in it by the Declaration at the request of any holder of Preferred Securities unless offered reasonable indemnity by such holder against the costs, expenses and liabilities that might be incurred thereby. The holders of Preferred Securities are not required to offer such indemnity in the event such holders, by exercising their voting rights, direct the Institutional Trustee to take any action following a Declaration Event of Default. 44 TERMINATION OF THE GUARANTEE The Guarantee will terminate as to the Preferred Securities upon (i) full payment of the Redemption Price of all Preferred Securities; (ii) distribution of the Convertible Debentures held by the Trust to the holders of the Preferred Securities; (iii) full payment of the amounts payable in accordance with the Declaration upon liquidation of the Trust; or (iv) distribution of Common Stock to the holders in respect of conversion of the holders' Preferred Securities into Common Stock. The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of Preferred Securities must restore payment of any sum paid under such Preferred Securities or the Guarantee. STATUS OF THE GUARANTEE The Guarantee constitutes an unsecured obligation of the Company and ranks (i) subordinate and junior to all other liabilities of the Company except any liabilities that may be pari passu expressly by their terms, (ii) pari passu with the most senior preferred or preference stock, if any, issued from time to time by the Company, including the Series A Preference Shares issued to Siemens Aktiengesellschaft ("Siemens") in connection with the Siemens Investment (as defined herein) and with any guarantee now or hereafter entered into by the Company in respect of any preferred or preference stock or preferred securities of any affiliate of the Company and (iii) senior to the Common Stock. The terms of the Preferred Securities provide that each holder of Preferred Securities by acceptance thereof agrees to the subordination provisions and other terms of the Guarantee. See "Description of Capital Stock--Siemens Investment." The Guarantee constitutes a guarantee of payment and not of collection (that is, the guaranteed party may directly institute a legal proceeding against the Company to enforce its rights under a Guarantee without instituting a legal proceeding against any other person or entity). GOVERNING LAW The Guarantee is governed by, and construed in accordance with, the internal laws of the State of New York. EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE DEBENTURES AND THE GUARANTEE As set forth in the Declaration, the sole purpose of the Trust is to issue the Trust Securities evidencing undivided beneficial interests in the assets of the Trust, to invest the proceeds from such issuance and sale in the Convertible Debentures and to engage in only those other activities that are necessary or incidental to the issuance of the Trust Securities and investment in the Convertible Debentures. As long as payments of interest and other payments are made when due on the Convertible Debentures, such payments will be sufficient to cover Distributions and payments due on the Trust Securities because of the following factors: (i) the aggregate principal amount of Convertible Debentures will be equal to the sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the interest rate and the interest and other payment dates on the Convertible Debentures will match the Distribution rate and Distribution and other payment dates for the Preferred Securities; (iii) pursuant to the Indenture, the Company shall pay all, and the Trust shall not be obligated to pay, directly or indirectly, any, costs, expenses, debts and liabilities of the Trust other than with respect to the Trust Securities; and (iv) the Declaration further provides that the Trustees will not cause or permit the Trust to, among other things, engage in any activity that is not consistent with the purposes of the Trust. Payments of Distributions (to the extent funds therefor are available) and other payments due on the Preferred Securities (to the extent funds therefor are available) are guaranteed by the Company as and to the extent set forth under "Description of the Guarantee." If the Company does not make interest payments on the Convertible Debentures purchased by the Trust, it is expected that the Trust will not have sufficient funds to pay 45 Distributions on the Preferred Securities. The Guarantee is a guarantee on a subordinated basis with respect to the Preferred Securities from the time of its issuance but does not apply to any payment of Distributions unless and until the Trust has sufficient funds for the payment of such Distributions. The Guarantee covers the payment of distributions and other payments on the Preferred Securities only if and to the extent that the Company has made a payment of interest or principal on the Convertible Debentures held by the Trust as its sole asset. The Guarantee, when taken together with the Company's obligations under the Convertible Debentures and the Indenture and its obligations under the Declaration, including its obligations to pay costs, expenses, debts and liabilities of the Trust (other than with respect to the Trust Securities), provides a full and unconditional guarantee of amounts on the Preferred Securities. If the Company fails to make interest or other payments on the Convertible Debentures when due (taking account of any Extension Period), the Declaration provides a mechanism whereby the holders of the Preferred Securities, using the procedures described in "Description of the Preferred Securities--Voting Rights" and "--Book-Entry-Only Issuance--The Depository Trust Company," may direct the Institutional Trustee to enforce its rights under the Convertible Debentures. If the Institutional Trustee fails to enforce its rights under the Convertible Debentures, to the fullest extent permitted by law, any holder of Preferred Securities may directly institute a legal proceeding against the Company to enforce the Institutional Trustee's rights under the Convertible Debentures without first instituting any legal proceeding against the Institutional Trustee or any other person or entity. If a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Convertible Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a holder of Preferred Securities may institute a Direct Action for payment on or after the respective due date specified in the Convertible Debentures. In connection with such Direct Action, the Company will be subrogated to the rights of such holder of Preferred Securities under the Declaration to the extent of any payment made by the Company to such holder of Preferred Securities in such Direct Action. The Company, under the Guarantee, acknowledges that the Guarantee Trustee shall enforce the Guarantee on behalf of the holders of the Preferred Securities. If the Company fails to make payments under the Guarantee, the Guarantee provides a mechanism whereby the holders of the Preferred Securities may direct the Guarantee Trustee to enforce its rights thereunder. If the Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred Securities may directly institute a legal proceeding against the Company to enforce the Guarantee Trustee's rights under the Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee, or any other person or entity. The Company and the Trust believe that the above mechanisms and obligations, taken together, are equivalent to a full and unconditional guarantee by the Company of payments due on the Preferred Securities. See "Description of Guarantee--General." DESCRIPTION OF CAPITAL STOCK As of May 31, 1998, there were outstanding an aggregate of 36,806,701 shares of Common Stock held of record by 798 stockholders, and 1 Series A Preference Share held of record by one stockholder. COMMON STOCK The Company is authorized to issue up to 75,000,000 shares of Common Stock, par value $.01 per share. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive ratably such dividends if, as and when declared by the Board of Directors out of assets legally available therefor, subject to any preferential dividend rights of outstanding Preferred Stock and restrictions set forth in the Company's existing loan agreements and restrictions, if any, imposed by other indebtedness outstanding from time to time, including any new loan agreement that may be 46 entered into after this Offering. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company remaining available after the satisfaction of all debts and other liabilities and the payment of the liquidation preference of any outstanding Preferred Stock. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights, nor are they entitled to the benefits of any sinking fund provisions. The outstanding shares of Common Stock are fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock which the Company may designate and issue in the future. WARRANTS Pursuant to a Warrant Agreement between NationsBank, N.A. ("NationsBank") and the Company dated October 30, 1997, as amended March 2, 1998 (the "Warrant Agreement"), in connection with that certain loan agreement dated as of October 30, 1997 by and among the Company and certain subsidiaries as borrowers, NationsBank as agent and lender, and the lenders party thereto from time to time (the "Loan Agreement"), the Company issued to NationsBank a warrant (the "NB Warrant") exercisable for 250,000 shares of Common Stock of the Company (the "Warrant Shares") at an exercise price of $23.125 per share. The Warrant Agreement and the NB Warrant expire on October 30, 2000. NationsBank may elect that the Warrant Shares be included in certain registration statements filed by the Company under the Securities Act and also has certain demand registration rights until October 30, 2002. In connection with the Company's June 1995 acquisition of VTI Hamlin OY ("VTI"), a Finnish company that designs and manufactures silicon capacitive micro-machined accelerometers and angular rate and differential and absolute pressure sensors, the Company issued to the former stockholders of VTI warrants to purchase an aggregate of 100,000 shares of Common Stock for a purchase price of $25.75 per share. These warrants are exercisable between July 1, 1998 and June 30, 2000. The Company granted certain demand and incidental registration rights with respect to the shares of Common Stock issuable upon the exercise of these warrants. PREFERRED STOCK The Company is authorized to issue up to 5,000,000 shares of Preferred Stock, par value $.001 per share. The Board of Directors is authorized, subject to any limitations prescribed by law, without further stockholder approval, to issue such shares of Preferred Stock in one or more series. Each such series of Preferred Stock shall have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Board of Directors. The purpose of authorizing the Board of Directors to issue Preferred Stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any additional shares of Preferred Stock. SIEMENS INVESTMENT Stock Purchase Agreement. On October 30, 1997, pursuant to a Stock Purchase Agreement dated October 14, 1997 (the "Stock Purchase Agreement"), Siemens acquired 4,883,227 Series A Preference Shares for an aggregate purchase price of $115.0 million (the "Siemens Investment"). Pursuant to the Stock Purchase Agreement, the Company made certain customary representations and warranties concerning its business, agreed to certain post-closing covenants, including an agreement to provide Siemens with substantially equivalent rights to those granted in the future to any stockholder acquiring an equal or smaller percentage of voting interest in the Company as Siemens, agreed to indemnify Siemens for breaches of representations and warranties for a period of up to 18 months, agreed to indemnify Siemens for breaches of covenants and granted Siemens certain anti-dilution rights. The indemnification obligations of the Company are subject to a $1.5 million deductible and a cap of $30.0 million. 47 Series A Preference Shares. Each Series A Preference Share represents one one-thousandth ( 1/1000) of a share of 1997 Series A Convertible Non-Voting Preferred Stock of the Company and, subject to adjustment, is convertible into one share of Common Stock. Except for voting rights required by law, and except for the right to elect as a class one director of the Company during the period that begins on the date when any Series A Preference Shares are converted into Common Stock and ends on the date of the termination of the Stockholders Agreement (as defined below), the holders of shares of Series A Preference Shares have no voting rights. All other rights of the holders of Series A Preference Shares, including rights upon liquidation or dissolution of the Company, are identical to the rights of the holders of Common Stock and are shared ratably on an as-converted basis. On January 20, 1998, Siemens converted 4,883,226 of its Series A Preference Shares into 4,883,226 shares of Common Stock. As of the date of this Prospectus, Siemens is the record holder of one Series A Preference Share. Stockholders Agreement. In connection with the Siemens Investment, the Company entered into a Stockholders Agreement (the "Stockholders Agreement") with Siemens, Allen K. Breed, Johnnie Cordell Breed, AB, L.P. and JB, L.P. (collectively, the "Breed Holders"). See "Principal Stockholders." The Stockholders Agreement obligates the Breed Holders to vote their shares and take other necessary and appropriate corporate action to elect a designee of Siemens to the Board of Directors of the Company at any time the right of the holders of Series A Preference Shares to elect a member of the Board of Directors is not in effect and to ensure that the Siemens director is a member of the Audit Committee of the Board of Directors. The Stockholders Agreement also (i) grants Siemens rights of first offer for up to five years with respect to certain future issuances of Common Stock or securities convertible into Common Stock by the Company (subject to certain exceptions), (ii) allows Siemens to participate in certain sales of Common Stock by the Breed Holders, (iii) grants the Company and the Breed Holders rights of first offer for up to three years with respect to any sales by Siemens or its affiliates (subject to certain exceptions), (iv) prohibits Siemens for three years from acquiring certain securities of the Company (subject to certain exceptions), (v) grants Siemens rights of first offer for up to three years with respect to transfers of certain securities by the Breed Holders (subject to certain exceptions) and (vi) grants the Siemens director special consent rights with respect to certain business activities of the Company, including the conduct by the Company of any business in the field of electronic components for automotive safety restraint systems, other than through the joint venture the Company and Siemens agreed to form in December 1997 (the "Siemens Joint Venture") or as currently conducted by designated subsidiaries of the Company. The Stockholders Agreement terminates upon the earlier to occur of the date on which Siemens and certain of its affiliates first collectively beneficially own less than the number of shares of Common Stock issued or issuable pursuant to the conversion of the shares of Series A Preference Shares acquired by Siemens pursuant to the Stock Purchase Agreement or the delivery of a "First Make-Whole Notice" (as defined in the Make-Whole Agreement). The Make-Whole Agreement. In connection with the Siemens Investment, the Company entered into a Make-Whole Agreement (the "Make-Whole Agreement") with Siemens. Under the Make-Whole Agreement, within 30 days after a "Triggering Event," Siemens will have the right to require the Company, at the Company's election, either (i) to repurchase the Series A Preference Shares purchased pursuant to the Stock Purchase Agreement (and any securities issuable with respect to such Series A Preference Shares) for a purchase price equal to $115.0 million plus $15,753 per day for each day between December 15, 1997 and the termination of the right (the "Make-Whole Price") or (ii) if the net proceeds from the bona fide sale of such Series A Preference Shares by Siemens to a third party financial institution do not equal the Make-Whole Price, to issue to Siemens such number of Series A Preference Shares (subject to certain limits) the net proceeds from the sale of which would equal the amount of the deficit. Under the Make-Whole Agreement, a "Triggering Event" means, among other things, any of the following: (a) the parties shall have been unable, after diligent and good faith efforts, to obtain the requisite governmental approvals with respect to the formation of the Siemens Joint Venture; or (b) the formation of the Siemens Joint Venture shall not have been completed by June 30, 1998. The Make-Whole Agreement terminates (x) if, prior to Siemens' delivery of a notice that it has entered into an agreement to sell its Series A Preference Shares to a third party financial institution as described above, Siemens 48 sells or otherwise transfers any of the securities subject to the Make-Whole Agreement to any person other than a direct or indirect subsidiary of Siemens or (y) if Siemens has not delivered such a notice by the later to occur of (i) July 31, 1998 or (ii) 45 days after a Triggering Event. Registration Rights Agreement. In connection with the Siemens Investment, the Company entered into a Registration Rights Agreement with Siemens (the "Siemens Registration Rights Agreement"). Pursuant to the Siemens Registration Rights Agreement, Siemens shall have the right, after June 1, 1998 and before the tenth anniversary of the date of the Siemens Registration Rights Agreement, to require the Company to file up to three registration statements under the Securities Act to register any shares of Common Stock or Series A Preference Shares owned by Siemens for sale to the public, subject to certain limitations. The Company is required to pay all expenses (other than discounts and commissions) in connection with such demand registrations. In addition, if the Company elects to register securities under the Securities Act for its account or for the account of other stockholders, Siemens shall have the right to register its shares under any such registration statement, subject to certain limitations. DELAWARE LAW AND CERTAIN CHARTER PROVISIONS The Company is subject to Section 203 of the Delaware General Corporation Law, which prohibits a publicly held Delaware corporation from consummating a "business combination," except under certain circumstances, with an "interested stockholder" for a period of three years after the date such person became an "interested stockholder" unless (i) before such person became an interested stockholder, the board of directors of the corporation approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination; (ii) upon consummation of the transaction that resulted in the interested stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding shares held by directors who are also officers of the corporation and certain shares held by employee stock plans); or (iii) following the transaction in which such person became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of 66 2/3% of the outstanding voting stock of the corporation not owned by the interested stockholder. An "interested stockholder" generally is defined as a person who, together with affiliates and associates, owns (or, within the prior three years, owned) 15% or more of a corporation's outstanding voting stock. A "business combination" includes mergers, asset sales and certain other transactions resulting in a financial benefit to an interested stockholder. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Company's Common Stock is First Chicago Trust Company of New York. 49 UNITED STATES FEDERAL INCOME TAXATION THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH HEREIN IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES AND COMMON STOCK, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. GENERAL The following is a summary of certain of the material United States federal income tax consequences of the purchase, ownership, disposition and conversion of Preferred Securities and Common Stock. This summary does not deal with special classes of holders such as banks, thrift institutions, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, or persons that will hold the Preferred Securities or Common Stock as part of a straddle, hedge or conversion transaction, or as other than a capital asset. This summary also does not address tax consequences to persons that have a functional currency other than the U.S. Dollar or the tax consequences to shareholders, partners or beneficiaries of a holder of Preferred Securities or Common Stock. Further, it does not include any description of any alternative minimum tax consequences or the tax laws of any state or local government or of any foreign government that may be applicable to the Preferred Securities or Common Stock. This summary is based on the Code, United States Treasury Regulations thereunder ("Treasury Regulations") and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. As used herein, the term "U.S. Holder" means any beneficial owner of Preferred Securities or Common Stock that is, for United States federal income tax purposes, (i) a citizen or resident of the United States, (ii) a corporation or partnership created or organized in or under the laws of the United States, any state thereof, or the District of Columbia (other than a partnership that is not treated as a United States person under any applicable Treasury Regulations), (iii) an estate the income of which is subject to United States federal income taxation regardless of its source, or (iv) a trust if (A) a court within the United States is able to exercise primary supervision over the administration of the trust and (B) one or more United States persons have the authority to control all substantial decisions of the trust. Notwithstanding the preceding sentence, to the extent provided in Treasury Regulations, certain trusts in existence on August 20, 1996 and treated as United States persons prior to such date that elect to continue to be treated as United States persons also will be U.S. Holders. As used herein, the term "Non-U.S. Holder" means a beneficial owner of Preferred Securities or Common Stock that is not a U.S. Holder. CLASSIFICATION OF THE CONVERTIBLE DEBENTURES King & Spalding, special tax counsel to the Company and the Trust ("Tax Counsel"), has rendered an opinion to the effect that under current law and assuming full compliance with the terms of the Declaration and the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, the Convertible Debentures to be held by the Trust will be classified for United States federal income tax purposes as indebtedness of the Company. Such opinion is not binding on the Internal Revenue Service ("IRS") and, accordingly, no complete assurance can be given that the IRS will not challenge the classification of the Convertible Debentures as debt, or if the classification were challenged, that such a challenge would not be successful. The remainder of this discussion assumes that the Convertible Debentures will be classified as indebtedness of the Company for United States federal income tax purposes. CLASSIFICATION OF THE TRUST Tax Counsel also has rendered its opinion to the effect that, under current law and assuming full compliance with the terms of the Declaration and the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, the Trust will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation. Because the Trust will be classified as a grantor trust for United States federal income tax purposes, each holder of Preferred Securities generally 50 will be considered the owner of an undivided interest in the Convertible Debentures and, as discussed below, each holder will be required to include in gross income its allocable share of interest (or OID) paid or accrued on the Convertible Debentures. INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT Because the Company has the option, under the terms of the Convertible Debentures, to defer payments of interest by extending interest payment periods for up to 20 consecutive quarters, and the likelihood of the Company's exercise of this option is not remote, the Convertible Debentures were issued with OID. As a result, U.S. Holders of Preferred Securities will be required to include in income their allocable share of the interest income earned by the Trust from the Convertible Debentures on an economic accrual basis over the period of time the Preferred Securities (and underlying allocable share of the Convertible Debentures) are held, regardless of their method of accounting and whether interest has been paid on the Convertible Debentures or distributions are made on the Preferred Securities. The amount of OID that accrues in any taxable period will be approximately equal to the amount of stated interest payments called for under the terms of the Convertible Debentures. Actual distributions of stated interest will not be separately reported as taxable income. Any OID included in income will increase the U.S. Holder's tax basis in the Preferred Securities and the U.S. Holder's actual receipt of interest payments will reduce such basis. If the Company were to exercise its option to defer payments of stated interest on the Convertible Debentures, U.S. Holders of the Preferred Securities would continue to accrue OID income even though the Company would not be making any actual cash payments during the Extension Period. Because income on the Preferred Securities will constitute interest for federal income tax purposes, corporate U.S. Holders of Preferred Securities will not be entitled to a dividends received deduction with respect to any income recognized with respect to the Preferred Securities. ACQUISITION PREMIUM; PREMIUM A U.S. Holder who purchases a Preferred Security will be considered to have purchased the underlying Convertible Debenture at an "acquisition premium" if such U.S. Holder's adjusted basis in the Preferred Security immediately after the purchase is (i) greater than the "adjusted issue price" of the underlying Convertible Debenture as of the purchase date and (ii) less than or equal to the sum of all amounts payable on the underlying Convertible Debenture after the purchase date. The "adjusted issue price" of a Convertible Debenture equals its issue price (i.e., the first price at which a substantial amount of the Convertible Debentures were sold, excluding sales to bond houses, brokers or other persons acting in the capacity of an underwriter or selling agent), plus the amount of OID allocable to all prior periods, and minus the amount of any prior payments on the Convertible Debenture. Under the acquisition premium rules, the amount of OID which such U.S. Holder must include in its gross income for any taxable year (or portion thereof in which the U.S. Holder holds the Preferred Securities) will be reduced (but not below zero) by the portion of the acquisition premium properly allocable to the period. A. U.S. Holder who purchases a Preferred Security will be considered to have purchased the underlying Convertible Debenture at a "premium" if such U.S. Holder's adjusted basis in the Preferred Security immediately after the purchase is greater than the sum of all amounts payable on the underlying Convertible Debenture after the purchase date. A U.S. Holder that purchases a Preferred Security at a "premium" will not include any OID in gross income. MARKET DISCOUNT A U.S. Holder who purchases a Preferred Security will be considered to have purchased the underlying Convertible Debenture at a "market discount" if such U.S. Holder's adjusted basis in the Preferred Security immediately after the purchase is less than the adjusted issue price of the underlying Convertible Debenture as of the purchase date, unless such market discount is less than a specified de minimis amount (generally 1/4 of 1 51 percent of the adjusted issue price of the Convertible Debenture as of the purchase date multiplied by its weighted average maturity as of such date). Under the market discount rules, a U.S. Holder will be required to treat any gain realized on the sale, exchange, retirement or other disposition of the Preferred Securities as ordinary income to the extent of the lesser of (i) the amount of such realized gain or (ii) the market discount which has not previously been included in income and is treated as having accrued on the underlying Convertible Debentures at the time of such disposition. Market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity date of the Convertible Debentures, unless the U.S. Holder elects to accrue market discount on a constant yield basis. Once made, such an election is irrevocable. A U.S. Holder may be required to defer the deduction of all or a portion of the interest paid or accrued on any indebtedness incurred or maintained to purchase or carry Preferred Securities with market discount until the maturity of the Convertible Debentures or certain earlier dispositions, because a current deduction is only allowed to the extent the interest expense exceeds the portion of market discount allocable to the days during the taxable year in which the Preferred Securities were held by the taxpayer. A U.S. Holder may elect to include market discount in income currently as it accrues (on either a ratable or constant yield basis), in which case the rules described above regarding the treatment as ordinary income of gain upon the disposition of the Preferred Securities and the deferral of interest deductions will not apply. Generally, such currently included market discount is treated as ordinary interest for federal income tax purposes. Such an election will apply to all debt instruments with market discount acquired by the holder on or after the first day of the taxable year to which such election applies and may be revoked only with the consent of the IRS. RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST Under certain circumstances, as described under the caption "Description of the Preferred Securities--Special Event Redemption or Distribution," the Convertible Debentures may be distributed to holders in exchange for the Preferred Securities and in liquidation of the Trust. Under current law, such a distribution, for United States federal income tax purposes, would be treated as a non-taxable event to each holder, and each holder would receive an aggregate tax basis in the Convertible Debentures equal to such holder's aggregate tax basis in its Preferred Securities. A holder's holding period in the Convertible Debentures so received in liquidation of the Trust would include the period during which the Preferred Securities were held by such holder. Under certain circumstances described under "Description of the Preferred Securities--Special Event Redemption or Distribution," the Convertible Debentures may be redeemed for cash and the proceeds of such redemption distributed to holders in redemption of their Preferred Securities. Such a redemption of the Convertible Debentures would, for United States federal income tax purposes, constitute a taxable disposition of the redeemed Preferred Securities, and a holder could recognize gain or loss as if it sold such redeemed Preferred Securities for cash. See "--Sales of Preferred Securities." SALES OF PREFERRED SECURITIES A U.S. Holder that sells Preferred Securities will recognize gain or loss equal to the difference between its adjusted tax basis in the Preferred Securities and the amount realized on the sale of such Preferred Securities. For purposes of determining gain or loss, a U.S. Holder's adjusted tax basis in Preferred Securities generally will equal the cost of the Preferred Securities to such Holder, increased by any OID included in income (and accrued market discount, if any, if the U.S. Holder has included such market discount in income), and decreased by the amount of any payment received with respect to such Preferred Securities. Subject to the discussion below about accrued and unpaid interest, such gain or loss generally will be a capital gain or loss. In the case of a U.S. Holder that is treated as an individual or as an estate or trust, the tax rate applicable to such a capital gain will depend, among other things, upon the U.S. Holder's holding period for the Preferred Securities that are sold. The Preferred Securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest with respect to the underlying Convertible Debentures. A U.S. Holder who disposes of Preferred 52 Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Convertible Debentures through the date of disposition in income as ordinary income (i.e., OID) and to add such amount to his or her adjusted tax basis in his or her pro rata share of the underlying Convertible Debentures deemed disposed of. To the extent the selling price is less than the U.S. Holder's adjusted tax basis (which will include, in the form of OID, all accrued but unpaid interest), a U.S. Holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. CONVERSION OF PREFERRED SECURITIES A U.S. Holder generally will not recognize income, gain or loss upon the conversion of its Preferred Securities into Common Stock, except to the extent of ordinary income recognized with respect to accrued and unpaid interest on the Convertible Debentures at that time. A U.S. Holder also will recognize gain upon the receipt of cash in lieu of a fractional share of Common Stock equal to the amount of cash received less the U.S. Holder's tax basis in such fractional share. A U.S. Holder's tax basis in the Common Stock received upon exchange and conversion should generally be equal to the U.S. Holder's tax basis in the Preferred Securities exchanged, less the basis allocated to any fractional share for which cash is received. Such U.S. Holder's holding period in the Common Stock received upon exchange and conversion should generally begin on the date the holder acquired the Preferred Securities exchanged. DIVIDENDS The amount of any distribution by the Company in respect of the Common Stock will be equal to the amount of cash and the fair market value, on the date of distribution, of any property distributed. Generally, distributions will be treated as a dividend, subject to tax as ordinary income, to the extent of the Company's current or accumulated earnings and profits, then as a tax-free return of capital to the extent of a U.S. Holder's tax basis in the Common Stock and thereafter as gain from the sale of exchange of such stock. In general, a dividend distribution to a corporate U.S. Holder will qualify for the 70% dividends received deduction if the U.S. Holder owns less than 20% of the voting power and value of the Company's stock (other than any non- voting, non-convertible, non-participating preferred stock). A corporate U.S. Holder that owns 20% or more of the voting power and value of the Company's stock (other than any non-voting, non-convertible, non-participating preferred stock) generally will qualify for an 80% dividends received deduction. The dividends received deduction is subject, however, to certain holding period, taxable income and other limitations. SALE OF COMMON STOCK Upon the sale or exchange of Common Stock, a U.S. Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash and the fair market value of any property received upon the sale or exchange and (ii) such U.S. Holder's adjusted tax basis in the Common Stock. In the case of a U.S. Holder other than a corporation, the tax rate applicable to such a capital gain will depend, among other things, upon the U.S. Holder's holding period for the Common Stock that is sold. A U.S. Holder's basis and holding period in Common Stock received upon conversion of the Preferred Securities are determined as discussed above under "--Conversion of Preferred Securities." ADJUSTMENT OF CONVERSION PRICE Treasury Regulations promulgated under Section 305 of the Code would treat holders of Preferred Securities as having received a constructive distribution from the Company in the event the conversion ratio of the Convertible Debentures were adjusted if (i) as a result of such adjustment, the proportionate interest (measured by the quantum of Common Stock into or for which the Convertible Debentures are convertible or exchangeable) of the holders of the Preferred Securities in the assets or earnings and profits of the Company were increased, and (ii) the adjustment was not made pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in the conversion ratio would not be considered made pursuant to such a formula if the adjustment was made to 53 compensate for certain taxable distributions with respect to the Common Stock. Thus, under certain circumstances, a reduction in the conversion price for the holders may result in deemed dividend income to U.S. Holders to the extent of the current or accumulated earnings and profits of the Company. U.S. Holders of the Preferred Securities would be required to include their allocable share of such deemed dividend income in gross income but would not receive any cash related thereto. INFORMATION REPORTING AND BACKUP WITHHOLDING In general, information reporting requirements will apply to income earned on Preferred Securities, payments of dividends on Common Stock, and payments of the proceeds of the sale of Preferred Securities or Common Stock. Such income and payment of proceeds may be subject to a "backup" withholding tax of 31% unless the holder complies with certain identification and certification requirements. Any withheld amounts will be allowed as a credit against the holder's United States federal income tax, provided the required information is provided to the IRS on a timely basis. NON-U.S. HOLDERS The rules governing United States federal income taxation of a beneficial owner of Preferred Securities or Common Stock that, for United States federal income tax purposes, is a Non-U.S. Holder are complex and no attempt will be made herein to provide more than a summary of such rules. NON-U.S. HOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX LAWS WITH REGARD TO AN INVESTMENT IN THE PREFERRED SECURITIES AND COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS. Payment of Interest Generally, interest income (or OID) of a Non-U.S. Holder that is not effectively connected with a United States trade or business will be subject to a withholding tax at a 30% rate (or, if applicable, a lower tax rate specified by a treaty). However, OID earned on the Convertible Debentures by a Non-U.S. Holder will qualify for the "portfolio interest exemption" and therefore will not be subject to United States federal income tax or withholding tax, provided that such interest income is not effectively connected with a United States trade or business of the Non-U.S. Holder and provided that (i) the Non-U.S. Holder does not actually or constructively own (pursuant to the conversion feature of the Preferred Securities or otherwise) 10% or more of the combined voting power of all classes of stock of the Company entitled to vote, (ii) the Non-U.S. Holder is not a controlled foreign corporation related to the Company actually or constructively through stock ownership, (iii) the Non-U.S. Holder is not a bank which acquired the Preferred Securities in consideration for an extension of credit made pursuant to a loan agreement entered into in the ordinary course of business and (iv) either (a) the Non-U.S. Holder provides a Form W-8 (or a suitable substitute form) signed under penalties of perjury that includes its name and address and certifies as to its Non-U.S. status, or (b) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business provides a statement to the Company or its agent under penalties of perjury in which it certifies that a Form W-8 (or a suitable substitute) has been received by it from the Non-U.S. Holder or qualifying intermediary and furnishes the Company or its agent with a copy thereof. Recently issued Treasury Regulations provide alternative methods for satisfying the certification requirements described in clause (iv) above. Based on IRS Notice 98-16, the Treasury Regulations will be effective for payments made after December 31, 1999, subject to certain transition rules. Except to the extent that an applicable treaty otherwise provides, a Non- U.S. Holder generally will be taxed in the same manner as a U.S. Holder with respect to interest (or OID) if the interest (or OID) income is effectively connected with a United States trade or business of the Non-U.S. Holder. Effectively connected interest (or OID) received or accrued by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or, if applicable, a lower tax rate specified by a 54 treaty). Even though such effectively connected interest (or OID) is subject to income tax, and may be subject to the branch profits tax, it is not subject to withholding tax if the holder delivers a properly executed IRS Form 4224 (or successor form) to the payor. Interest (or OID) income of a Non-U.S. Holder that is not effectively connected with a United States trade or business and that does not qualify for the portfolio interest exemption described above generally will be subject to a withholding tax at a 30% rate (or, if applicable, a lower tax rate specified by a treaty). Sale, Exchange or Redemption of Preferred Securities A Non-U.S. Holder of Preferred Securities generally will not be subject to United States federal income tax or withholding tax on any gain realized on the sale, exchange or redemption of the Preferred Securities (including the receipt of cash in lieu of fractional shares upon conversion of Preferred Securities into Common Stock) unless (1) the gain is effectively connected with a United States trade or business of the Non-U.S. Holder, (2) in the case of a Non-U.S. Holder who is an individual, such holder is present in the United States for a period or periods aggregating 183 days or more during the taxable year of the disposition, and either such holder has a "tax home" in the United States or the disposition is attributable to an office or other fixed place of business maintained by such holder in the United States, or (3) the holder is subject to tax pursuant to the provisions of the Code applicable to certain United States expatriates. Conversion of the Preferred Securities In general, no United States federal income tax or withholding tax will be imposed upon the conversion of Preferred Securities into Common Stock by a Non-U.S. Holder except with respect to the receipt of cash in lieu of fractional shares by Non-U.S. Holders upon conversion of Preferred Securities where one of the conditions described above under "--Sale, Exchange or Redemption of Preferred Securities" is satisfied. Sale or Exchange of Common Stock A Non-U.S. Holder generally will not be subject to United States federal income tax or withholding tax on the sale or exchange of Common Stock unless one of the conditions described above under "--Sale, Exchange or Redemption of Preferred Securities" is satisfied. Dividends Distributions by the Company with respect to the Common Stock that are treated as dividends paid (or deemed paid), as described above under "-- Dividends" to a Non-U.S. Holder (excluding dividends that are effectively connected with the conduct of a trade or business in the United States by such holder and are taxable as described below) will be subject to United States federal withholding tax at a 30% rate (or a lower rate provided under any applicable tax treaty). Except to the extent that an applicable tax treaty otherwise provides, a Non-U.S. Holder will be taxed in the same manner as a U.S. Holder on dividends paid (or deemed paid) that are effectively connected with the conduct of a trade or business in the United States by the Non-U.S. Holder. If such Non-U.S. Holder is a foreign corporation, it may also be subject to a United States branch profits tax on such effectively connected income at a 30% rate or such lower rate as may be specified by an applicable tax treaty. Even though such effectively connected dividends are subject to income tax, and may be subject to the branch profits tax, they will not be subject to U.S. withholding tax if the holder delivers a properly executed IRS Form 4224 (or successor form) to the payor. Under current Treasury Regulations, dividends paid to an address in a foreign country are presumed to be paid to a resident of that country (unless the payor has knowledge to the contrary) for purposes of the withholding discussed above and for purposes of determining the applicability of a tax treaty rate. Under recently issued Treasury Regulations, however, Non-U.S. Holders of Common Stock who wish to claim the benefit of an applicable treaty rate would be required to satisfy certain certification requirements. Based on IRS Notice 98-16, the new Treasury Regulations are effective for payments made after December 31, 1999. 55 Death of a Non-U.S. Holder Preferred Securities held by an individual who is not a citizen or resident of the United States at the time of death will not be includable in the decedent's gross estate for United States federal estate tax purposes, provided that such holder or beneficial owner did not at the time of death actually or constructively own 10% or more of the combined voting power of all classes of stock of the Company entitled to vote, and provided that, at the time of death, payments with respect to such Preferred Securities would not have been effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States. Common Stock actually or beneficially held (other than through a foreign corporation) by a Non-U.S. Holder at the time of his or her death (or previously transferred subject to certain retained rights or powers) will be subject to United States federal estate tax unless otherwise provided by an applicable estate tax treaty. Information Reporting and Backup Withholding Tax United States information reporting requirements and backup withholding tax will not apply to payments on Preferred Securities to a Non-U.S. Holder if the statement described in "--Payment of Interest" is duly provided by such holder, provided that the payor does not have actual knowledge that the holder is a United States person. Information reporting requirements and backup withholding tax will not apply to any payment of the proceeds of the sale of Preferred Securities, or any payment of the proceeds of the sale of Common Stock effected outside the United States by a foreign office of a "broker" (as defined in applicable Treasury Regulations), unless such broker (i) is a United States person, (ii) is a foreign person that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States or (iii) is a controlled foreign corporation for United States federal income tax purposes. Payment of the proceeds of any such sale effected outside the United States by a foreign office of any broker that is described in (i), (ii) or (iii) of the preceding sentence will not be subject to backup withholding tax, but will be subject to information reporting requirements unless such broker has documentary evidence in its records that the beneficial owner is a Non- U.S. Holder and certain other conditions are met, or the beneficial owner otherwise establishes an exemption. Payment of the proceeds of any such sale to or through the United States office of a broker is subject to information reporting and backup withholding requirements unless the beneficial owner of the Preferred Securities provides the statement described in "--Payment of Interest" or otherwise establishes an exemption. If paid to an address outside the United States, dividends on Common Stock held by a Non-U.S. Holder generally will not be subject to the information reporting and backup withholding requirements described in this section. However, under recently issued Treasury Regulations, dividend payments will be subject to information reporting and backup withholding unless applicable certification requirements are satisfied. Based on IRS Notice 98-16, the new Treasury Regulations apply to dividend payments made after December 31, 1999. United States Real Property Holding Corporations The discussion of the United States taxation of Non-U.S. Holders of Preferred Securities and Common Stock assumes that the Company is at no time a United States real property holding corporation within the meaning of Section 897(c) of the Code. If the Company were a United States real property holding corporation, gain realized on the sale of the Common Stock by a Non-U.S. Holder who owns 5 percent or more of the Common Stock, or gain realized on the sale of Preferred Securities by a Non-U.S. Holder whose Preferred Securities have a value greater than 5 percent of the Common Stock on the date the Preferred Securities are acquired, generally would be subject to United States federal income tax. Under present law, the Company would not be a United States real property holding corporation so long as (a) the fair market value of its United States real property interests is less than (b) 50% of the sum of the fair market value of its United States real property interests, its interests in real property located outside the United States, and its other assets which are used or held or use in a trade or business. The Company believes that it is not, and has not been at any time during the last five years, a United States real property holding corporation and does not expect to become such a corporation. 56 THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF THE PREFERRED SECURITIES AND THE COMMON STOCK, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS WITH POSSIBLE RETROACTIVE EFFECTS. SELLING HOLDERS The Convertible Preferred Securities were originally issued by the Trust and sold by Prudential Securities Incorporated and Furman Selz LLC (the "Initial Purchasers"), in transactions exempt from the registration requirements of the Securities Act, to persons reasonably believed by such Initial Purchasers to be "qualified institutional buyers" (as defined in Rule 144A of the Securities Act), or outside the United States to Non-U.S. persons in reliance on Regulation S under the Securities Act. The Selling Holders may from time to time offer and sell pursuant to this Prospectus any or all of the Preferred Securities, the Convertible Debentures, the Common Stock issued upon conversion of the Preferred Securities, and the associated Guarantee. The term "Selling Holder" includes the holders listed below and the beneficial owners of the Convertible Preferred Securities and their transferees, pledgees, donees or other successors. The Offered Securities have been registered pursuant to the Registration Rights Agreement which provides that the Company file a registration statement with regard to the Offered Securities by March 19, 1998 and use its best efforts to keep such registration statement effective until two years after the Original Offering Date or such earlier date as of which all the Transfer Restricted Securities have been sold pursuant to this Registration Statement. The following table sets forth information, as of June 5, 1998, with respect to the Selling Holders of the Preferred Securities and the respective number of Preferred Securities and Common Stock beneficially owned by each Selling Holder that may be offered pursuant to this Prospectus. Such information has been obtained from the Selling Holders. Except as otherwise indicated, to the knowledge of the Company, all persons listed below have sole voting and investment power with respect to their securities.
SELLING PREFERRED SECURITIES PREFERRED SECURITIES COMMON STOCK COMMON STOCK HOLDER BENEFICIALLY OWNED OFFERED HEREBY BENEFICIALLY OWNED OFFERED HEREBY ------- -------------------- -------------------- ------------------ --------------
[Information to be provided by Amendment] None of the Selling Holders has, or within the past three years has had, any position, office or other material relationship with the Trust or the Company or any of their predecessors or affiliates. Because the Selling Holders may, pursuant to this Prospectus, offer all or some portion of the Preferred Securities, the Convertible Debentures or the Common Stock issuable upon conversion of the Preferred Securities, no estimate can be given as to the amount of the Preferred Securities, Convertible Debentures or Common Stock issuable upon conversion of Preferred Securities that will be held by the Selling Holders upon termination of any such sales. In addition, the Selling Holders identified above may have sold, transferred or otherwise disposed of all or a portion of their Preferred Securities since the date on which they provided the information regarding their Preferred Securities included herein in transactions exempt from the registration requirements of the Securities Act. See "Plan of Distribution." 57 Although none of the Selling Holders (other than those Selling Holders listed above) have advised the Company that they currently intend to sell all or any of the Offered Securities pursuant to this Prospectus, the Selling Holders may choose to sell the Offered Securities from time to time upon notice to the Company and the Trust. See "Plan of Distribution." Prior to any use of this Prospectus in connection with an offering of the Offered Securities, this Prospectus will be supplemented to set forth the name and number of shares beneficially owned by the Selling Holder intending to sell such Offered Securities, and the number of Offered Securities to be offered. The Prospectus Supplement will also disclose whether any Selling Holder selling in connection with such Prospectus Supplement has held any position or office with, been employed by or otherwise has a material relationship with, the Company or any of its affiliates during the three (3) years prior to the date of the Prospectus Supplement. PLAN OF DISTRIBUTION The Offered Securities may be sold from time to time to purchasers directly by the Selling Holders. Alternatively, the Selling Holders may from time to time offer the Offered Securities to or through underwriters, broker/dealers or agents, who may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Holders or the purchasers of such securities for whom they may act as agents. The Selling Holders, and any underwriters, broker/dealers or agents that participate in the distribution of Offered Securities may be deemed to be "underwriters" within the meaning of the Securities Act, and any profit on the sale of such securities and any discounts, commissions, concessions or other compensation received by any such underwriter, broker/dealer or agent may be deemed to be underwriting discounts and commissions under the Securities Act. The Offered Securities may be sold from time to time in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. The sale of the Offered Securities may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Offered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or in the over-the-counter market or (iv) through the writing and exercise of options. At the time a particular offering of the Offered Securities is made, a Prospectus Supplement, if required, will be distributed, which will set forth the aggregate amount and type of Offered Securities being offered and the terms of the offering, including the name or names of any underwriters, broker/dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Holders and any discounts, commissions or concessions allowed or reallowed to paid broker/dealers. To comply with the securities laws of certain jurisdictions, if applicable, the Offered Securities will be offered or sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain jurisdictions the Offered Securities may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or any exemption from registration or qualification is available and is complied with. The Selling Holders will be subject to applicable provisions of the Exchange Act and rules and regulations thereunder, which provisions may limit the timing of purchases and sales of any of the Offered Securities by the Selling Holders. The foregoing may affect the marketability of such securities. Pursuant to the Registration Rights Agreement, the Company and the Trust shall pay all expenses of the registration of the Offered Securities including, without limitation, all registration and filing fees and expenses and fees and expenses of compliance with federal securities or state blue sky laws; provided, however, that the Selling Holders will pay all broker's commissions and underwriting discounts and commissions, if any. The Selling Holders will be indemnified by the Company and the Trust, jointly and severally against certain civil liabilities, including certain liabilities under the Securities Act or the Exchange Act or otherwise, or will be entitled to contribution in connection therewith. The Company and the Trust will be indemnified by the Selling 58 Holders severally against certain civil liabilities, including certain liabilities under the Securities Act or otherwise, or will be entitled to contribution in connection therewith. LEGAL MATTERS Unless otherwise indicated in the applicable Prospectus Supplement, the validity of the Convertible Debentures, the Guarantee and the Common Stock issuable upon the conversion of the Preferred Securities will be passed upon for the Company by King & Spalding. Certain matters of Delaware law relating to the validity of the Preferred Securities will be passed upon on behalf of the Trust by Richards, Layton & Finger, P.A., special Delaware counsel to the Trust. Certain United States income taxation matters have been passed upon for the Company and the Trust by King & Spalding. EXPERTS The consolidated financial statements of the Company at June 30, 1996 and 1997 and for each of the years in the two-year period ended June 30, 1997 included herein and appearing in the Company's Annual Report on Form 10-K incorporated by reference herein have been audited by Ernst & Young LLP, independent certified public accountants, as set forth in their reports thereon included and incorporated by reference herein which, as to 1997 is based in part on the report of KPMG S.p.A., independent auditors. The financial statements referred to above are included and incorporated by reference herein in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. The audited consolidated financial statements of the Company for the year ended June 30, 1995 that are included herein and incorporated herein by reference in this Prospectus and elsewhere in the Registration Statement have been audited by KPMG Peat Marwick LLP, independent certified public accountants, as indicated in their report with respect thereto, and are included herein and incorporated herein in reliance upon the authority of said firm as experts in accounting and auditing. The combined financial statements of Safety Restraint Systems, a division of AlliedSignal Inc., as of December 31, 1995 and 1996 and for each of the three years in the period ended December 31, 1996 incorporated by reference in this Prospectus from the Company's Current Report on Form 8-K/A dated October 30, 1997 have been so incorporated in reliance on the report (which contains an explanatory paragraph relating to Safety Restraint Systems' transactions and relationships with AlliedSignal Inc.) of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 59 INDEX TO FINANCIAL STATEMENTS
PAGE ---- BREED: Reports of Independent Auditors......................................... F-2 Consolidated Balance Sheets at June 30, 1997 and 1996................... F-5 Consolidated Statements of Earnings for the three years in the period ended June 30, 1997.................................................... F-6 Consolidated Statements of Cash Flows for the three years in the period ended June 30, 1997.................................................... F-7 Consolidated Statement of Stockholders' Equity for the three years in the period ended June 30, 1997.......................................................... F-8 Notes to Consolidated Financial Statements.............................. F-9
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders BREED Technologies, Inc. We have audited the accompanying consolidated balance sheets of BREED Technologies, Inc. and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of MOMO S.p.A., a wholly-owned subsidiary acquired April 15, 1996, which statements reflect total assets of $106,398,000 as of June 30, 1997 and net sales of $73,093,000 for the year then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for MOMO S.p.A., is based solely on the report of the other auditors. The consolidated financial statements of BREED Technologies, Inc. and subsidiaries for the year ended June 30, 1995, were audited by other auditors whose report, dated July 21, 1995, expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the 1997 and 1996 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BREED Technologies, Inc. and subsidiaries at June 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Ernst & Young LLP July 31, 1997, except for Note 12, as to which the date is August 27, 1997 Tampa, Florida F-2 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders BREED Technologies, Inc.: We have audited the consolidated statements of earnings, stockholders' equity, and cash flows of BREED Technologies, Inc. and subsidiaries for the year ended June 30, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of BREED Technologies, Inc. and subsidiaries for the year ended June 30, 1995, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Tampa, Florida July 21, 1995 F-3 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Momo S.p.A. We have audited the accompanying combined and consolidated balance sheet of the Momo group as of 30 June 1997 and the related combined and consolidated income statement, retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the management of Momo S.p.A. Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Momo group as of 30 June 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles as defined in the United States. KPMG S.p.A. Milan, 25 July 1997 F-4 BREED TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS
JUNE 30, ------------------ 1997 1996 -------- -------- IN THOUSANDS ASSETS Current assets: Cash and cash equivalents................................. $ 18,707 $ 95,830 Accounts receivable, principally trade.................... 207,951 110,656 Inventories............................................... 75,347 52,890 Prepaid expenses.......................................... 13,519 7,247 -------- -------- Total current assets.................................... 315,524 266,623 -------- -------- Property, plant and equipment: Land...................................................... 15,206 10,805 Buildings................................................. 106,122 73,342 Machinery and equipment................................... 212,542 126,947 Construction in progress.................................. 28,013 14,417 Less accumulated depreciation........................... (85,433) (53,858) -------- -------- Net property, plant and equipment....................... 276,450 171,653 -------- -------- Other assets: Intangible assets......................................... 220,956 45,053 Investments and other assets.............................. 11,603 20,473 Net assets held for sale.................................. 52,620 -- -------- -------- Total other assets...................................... 285,179 65,526 -------- -------- Total assets.......................................... 877,153 503,802 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt....... 191,744 120,688 Accounts payable.......................................... 121,505 33,940 Employee compensation and benefits........................ 16,818 13,844 Accrued expenses.......................................... 32,661 7,980 -------- -------- Total current liabilities............................... 362,728 176,452 -------- -------- Long-term debt.............................................. 231,700 42,123 Other long-term and deferred liabilities.................... 16,306 10,147 -------- -------- Total liabilities..................................... 610,734 228,722 -------- -------- Stockholders' equity: Common stock.............................................. 317 316 Additional paid-in capital................................ 77,470 76,652 Retained earnings......................................... 207,964 201,981 Foreign currency translation adjustments.................. (18,843) (2,927) Unearned compensation..................................... (489) (942) -------- -------- Total stockholders' equity.............................. 266,419 275,080 -------- -------- Total liabilities and stockholders' equity............ $877,153 $503,802 ======== ========
See Notes to Consolidated Financial Statements F-5 BREED TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEAR ENDED JUNE 30, ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- IN THOUSANDS, EXCEPT PER SHARE DATA Net sales................................. $ 794,880 $ 431,689 $ 400,972 Cost of sales........................... 631,283 277,044 244,551 ----------- ----------- ----------- Gross profit.......................... 163,597 154,645 156,421 Operating expenses: Selling, general and administrative..... 70,583 38,243 33,098 Engineering, research and development... 36,121 23,588 18,506 Amortization of intangibles............. 6,310 2,001 286 ----------- ----------- ----------- Total operating expenses.............. 113,014 63,832 51,890 ----------- ----------- ----------- Operating income.......................... 50,583 90,813 104,531 Interest income (expense), net............ (24,460) (1,137) 704 Other income (expense), net............... 3,524 8,662 4,898 ----------- ----------- ----------- Earnings before income taxes.............. 29,647 98,338 110,133 Income taxes.............................. 14,800 35,300 37,800 ----------- ----------- ----------- Net earnings.............................. $ 14,847 $ 63,038 $ 72,333 =========== =========== =========== Earnings per share (Note 14): Basic................................... $ 0.47 $ 2.00 $ 2.30 =========== =========== =========== Diluted ................................ $ 0.47 $ 1.99 $ 2.29 =========== =========== =========== Shares used for computation: Basic................................... 31,648 31,550 31,434 =========== =========== =========== Diluted................................. 31,867 31,644 31,624 =========== =========== ===========
See Notes to Consolidated Financial Statements F-6 BREED TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED JUNE 30, ---------------------------- 1997 1996 1995 --------- -------- ------- IN THOUSANDS Cash flows from operating activities: Net earnings.................................... $ 14,847 $ 63,038 $72,333 Adjustments: Depreciation of plant and equipment............ 42,224 18,090 13,609 Amortization of intangible assets.............. 6,310 2,001 286 Deferred income taxes.......................... 1,157 1,665 (1,550) (Gain) loss from sale of assets................ 634 (1,517) (1,349) Compensation related to stock plan............. 89 230 296 Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable........................... (16,284) (30,667) (5,473) Inventories................................... 2,234 (1,548) (6,526) Prepaid expenses.............................. (720) (717) (334) Accounts payable.............................. 37,047 843 1,915 Accrued expenses.............................. (7,597) (9,215) (3,173) Other assets and liabilities.................. 9,418 (1,000) (891) --------- -------- ------- Net cash provided by operating activities.... 89,359 41,203 69,143 --------- -------- ------- Cash flows from investing activities: Purchases of property, plant and equipment...... (75,851) (45,370) (69,268) Sale (purchases) of short-term investments, net............................................ -- 10,601 12,386 Cost of acquisition, net of cash acquired....... (291,922) (48,507) (6,941) Deposit on Gallino acquisition.................. -- (10,299) -- Investment in and advances to affiliates........ (874) -- (6,376) Proceeds from sale of assets.................... 1,382 2,742 1,349 --------- -------- ------- Net cash used in investing activities........ (367,265) (90,833) (68,850) --------- -------- ------- Cash flows from financing activities: Proceeds from short-term borrowings............. 577,688 86,957 5,486 Repayments of long-term debt and other borrowings..................................... (412,830) (6,356) (9,333) Proceeds from long-term debt.................... 45,441 45,000 -- Cash dividends paid............................. (8,861) (6,938) (4,715) Common stock issued--options and stock plans.... 1,182 2,050 1,741 --------- -------- ------- Net cash provided by (used in) financing activities.................................. 202,620 120,713 (6,821) --------- -------- ------- Effect of exchange rate on cash.................. (1,837) (1,608) (587) Net increase (decrease) in cash and cash equivalents..................................... (77,123) 69,475 (7,115) Cash and cash equivalents at beginning of year... 95,830 26,355 33,470 --------- -------- ------- Cash and cash equivalents at end of year......... $ 18,707 $ 95,830 $26,355 ========= ======== ======= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest....................................... $ 20,776 $ 2,347 $ 1,794 Income taxes................................... 12,914 32,230 39,520 Cost of acquisitions: Working capital (deficiency), net of cash acquired..................................... (23,534) 125 6,824 Property, plant and equipment................. (144,995) (18,021) (4,483) Patents....................................... (16,000) -- (5,272) Costs in excess of net assets of businesses acquired..................................... (158,073) (35,718) (3,634) Other assets.................................. (2,231) (3,066) (451) Long-term debt and other long-term liabilities.................................. 52,911 8,173 75 --------- -------- ------- Net cost of acquisitions..................... $(291,922) $(48,507) $(6,941) ========= ======== =======
See Notes to Consolidated Financial Statements F-7 BREED TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOREIGN COMMON STOCK ADDITIONAL CURRENCY ------------------ PAID-IN RETAINED TRANSLATION UNEARNED SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS COMPENSATION ---------- ------ ---------- -------- ----------- ------------ IN THOUSANDS, EXCEPT FOR DATA BALANCE AT JUNE 30, 1994................... 31,342,033 $313 $71,395 $ 80,477 $ (937) $ -- Shares issued under Stock Option Plans... 52,024 1 686 -- -- -- Shares sold under Employee Stock Purchase Plan........ 51,843 -- 1,054 -- -- -- Shares terminated under Stock Incentive Plan, net of granted shares............... 69,490 1 1,927 -- -- (1,927) Compensation expense.. -- -- -- -- -- 296 Net earnings.......... -- -- -- 72,333 -- -- Translation adjustments.......... -- -- -- -- (606) -- Cash dividends -- $.20 per share............ -- -- -- (6,292) -- -- ---------- ---- ------- -------- -------- ------- BALANCE AT JUNE 30, 1995................... 31,515,390 315 75,062 146,518 (1,543) (1,631) Shares issued under Stock Option Plans... 67,561 1 786 -- -- -- Shares sold under Employee Stock Purchase Plan........ 60,906 -- 1,038 -- -- -- Shares terminated under Stock Incentive Plan, net of granted shares............... (17,200) -- (459) -- -- 459 Compensation expense.. -- -- -- -- -- 230 Tax benefit from exercise of stock options.............. -- -- 225 -- -- -- Net earnings.......... -- -- -- 63,038 -- -- Translation adjustments.......... -- -- -- -- (1,384) -- Cash dividends -- $.24 per share............ -- -- -- (7,575) -- -- ---------- ---- ------- -------- -------- ------- BALANCE AT JUNE 30, 1996................... 31,626,657 316 76,652 201,981 (2,927) (942) Shares issued under Stock Option Plans... 38,695 1 537 -- -- -- Shares sold under Employee Stock Purchase Plan........ 27,082 -- 529 -- -- -- Compensation expense.. -- -- -- -- -- 89 Shares terminated under Stock Incentive Plan, net of granted shares............... (12,992) -- (364) -- -- 364 Tax benefit from exercise of stock options.............. -- -- 116 -- -- -- Net earnings.......... -- -- -- 14,847 -- -- Translation adjustments.......... -- -- -- -- (15,916) -- Cash dividends -- $.28 per share............ -- -- -- (8,864) -- -- ---------- ---- ------- -------- -------- ------- BALANCE AT JUNE 30, 1997................... 31,679,442 $317 $77,470 $207,964 $(18,843) $ (489)
Preferred stock: Authorized 5,000,000 shares, par value $.001 per share. To date, none of these shares has been issued. Common stock: Authorized 50,000,000 shares, par value $.01 per share. See Notes to Consolidated Financial Statements F-8 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of BREED Technologies, Inc. (the Company) and its wholly- and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined primarily using the first-in, first-out method for inventories in North America and primarily using the average cost method for inventories in Europe. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method applied to individual items based on estimated useful lives of the assets which range from 5 to 40 years for buildings and improvements, and 3 to 10 years for machinery, computer and office equipment. Replacements and betterments that extend the lives of assets are capitalized, while maintenance and repairs are expensed as incurred. INTANGIBLE ASSETS Cost in excess of net assets of businesses acquired (goodwill) is being amortized on a straight-line basis over a period of 3 to 40 years and is stated net of accumulated amortization of $6,247,000 and $895,000 at June 30, 1997 and 1996, respectively. Goodwill is reevaluated when business events and circumstances indicate that the carrying amount may not be recoverable. Reevaluation is based on projections of undiscounted future cash flows. Patents are stated at cost less accumulated amortization of $1,271,000 and $527,000 at June 30, 1997 and 1996, respectively. These items, which were acquired in connection with the VTI Hamlin OY (VTI) and USS acquisitions, as discussed in Note 3, are capitalized and amortized on a straight-line basis over the average remaining life of the related patents. TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE CONTRACTS All assets and liabilities in the balance sheets of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated at year-end exchange rates except stockholders' equity which is translated at historical rates. Translation gains and losses are accumulated as a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in determining net earnings. The Company uses foreign exchange contracts to hedge certain foreign denominated payables and receivables and also to hedge firm sales and purchase commitments. Realized and unrealized gains and losses are deferred and recognized as the related transactions are settled. The Company does not enter into foreign exchange contracts for trading purposes. At June 30, 1997, the Company had outstanding Canadian contracts to buy US$43 million, maturing through January 1999 and to sell US$9 million, maturing through August 1997. At June 30, 1996, the Company had outstanding contracts to sell 10.5 million German marks, maturing through June 1997. F-9 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate restated to conform to the Statement 128 requirements. See Note 14. RECLASSIFICATIONS Certain amounts in the prior years' Consolidated Financial Statements have been reclassified to conform to the current year's presentation. 2. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK Financial instruments consist primarily of cash equivalents, short-term investments, accounts receivable, accounts payable and bank debt. At June 30, 1997, the fair value of these financial instruments approximates the carrying amount because of the short-term maturity of these items. The Company has entered into various agreements with three major customers to secure certain long-term sales contracts, however these do not commit the customers to purchase specific quantities of products from the Company. The agreement with Ford expires at the end of the 1999 model year. The Company is in the process of negotiating its long-term contract through the model year 2000 with Delco-GM. In addition, a long-term sales agreement with Fiat expires on December 31, 1999. Sales by the Company to Fiat in 1997 and 1996, accounted for 32% and 14%, respectively, of the Company's net sales for such years. Sales by the Company to Ford in fiscal 1997, 1996 and 1995, accounted for 25%, 33% and 37%, respectively, of the Company's net sales for such years. Sales by the Company to Delco-GM in fiscal 1997, 1996 and 1995, accounted for 13%, 26% and 40%, respectively, of the Company's net sales for such years. Concentrations of credit risk with respect to trade accounts receivable are limited due to the strong financial condition of the Company's customer base. However, as of June 30, 1997, the Company's receivables from Fiat, Ford, and Delco-GM amounted to 38%, 12% and 8% respectively, of total trade accounts receivable. 3. ACQUISITIONS During the three years ended June 30, 1997, the Company made the acquisitions set forth below. The Hamlin merger was accounted for as a pooling of interests. All of the other acquisitions were accounted for by the purchase method of accounting; accordingly, the purchased assets and liabilities have been recorded at their estimated fair value at the date of acquisition, and the consolidated financial statements include the operating results of each business from the date of acquisition. FISCAL 1995 Hamlin On August 31, 1994, the Company completed a merger with Hamlin, Incorporated (Hamlin), a manufacturer of crash sensors and reed switch products, with operations in the United States, Mexico and Europe. The Company issued 838,324 shares of common stock for all of the outstanding common stock of Hamlin. There were no adjustments necessary to conform the companies' methods of accounting. There were no significant transactions between the companies prior to the merger. F-10 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) VTI In June 1995, the Company acquired VTI Hamlin OY (VTI), a Finnish company that designs and manufactures silicon capacitive micro machined acceleration, angular rate and differential and absolute pressure sensors, for $1.7 million in cash. Additionally, the Company issued stock warrants to certain of the former stockholders of VTI which enable the holders to purchase up to 100,000 shares of common stock between July 1, 1998 and June 30, 2000, at a purchase price of $25.75 per share ($2 above the market value of the Company's common stock at the date of acquisition). The purchase price exceeded the fair value of the net assets acquired by approximately $4.5 million. The resulting goodwill is being amortized on a straight-line basis over seven years. Concurrent with the purchase, the Company acquired, for $5.3 million in cash, technology rights to use awarded and pending patents and related intellectual property. FISCAL 1996 MOMO On April 15, 1996, the Company acquired all of the outstanding shares of MOMO S.p.A. and G. Holding, S.r.1. (collectively MOMO), an original equipment manufacturer and aftermarket supplier of luxury steering wheels and alloy wheels, for $45.2 million in cash. The purchase price exceeded the fair value of the net assets acquired by $31.1 million. The resulting goodwill is being amortized over 40 years. Italtest On April 22, 1996, the Company acquired all of the outstanding shares of Italtest S.r.l., an Italian manufacturer of printed circuit boards for the automotive, computer and telecommunications markets for $1.8 million in cash. The purchase price exceeded the fair value of the net assets acquired by $1.8 million. The resulting goodwill is being amortized over 10 years. Force Imaging Technologies, Inc. On May 31, 1996, the Company acquired all of the outstanding shares of Force Imaging Technologies, Inc., a manufacturer of thin-profile variable force sensors for multi-function automotive capabilities for $3 million in cash. The purchase price exceeded the fair value of the net assets acquired by $2.8 million. The resulting goodwill is being amortized over 5 years. The pro forma unaudited results of operations for the years ended June 30, 1996 and 1995, assuming the purchase of the acquisitions had been consummated as of July 1, 1994, are as follows:
1996 1995 ---------- ---------- IN THOUSANDS, EXCEPT PER SHARE DATA Net sales............................................. $493,845 $482,885 Net earnings.......................................... $ 59,768 $ 65,377 Net earnings per share................................ $ 1.89 $ 2.08
FISCAL 1997 Gallino On July 1, 1996, the Company completed the acquisition of Gallino Plasturgia, S.r.l. and affiliates (Gallino) from IAO Industrie Riunite S.p.A. Gallino manufactures steering wheels, instrument panels, bumpers and other plastic trim components used in automotive original equipment and aftermarket applications. The aggregate purchase price was $126 million, comprised of cash of $74 million and liabilities assumed of $52 million. The F-11 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) acquisition was financed through borrowings on the Company's revolving credit agreements. The purchase price exceeded the fair value of net assets acquired by approximately $40 million. The resulting goodwill is being amortized on a straight-line basis over 40 years. United Steering Systems (USS) On October 25, 1996, the Company completed the acquisition of certain assets and the assumption of certain liabilities of the "North American Steering Wheels Operation" of United Technologies and all of the shares of United Technologies Automotive Clifford Limited (collectively USS). USS produces steering wheels, airbag covers, horn pads and related molded products in the U.S., Mexico and England. The purchase price was $154 million, financed through borrowings under the Company's Revolving Credit Agreements. The purchase price exceeded the fair value of net assets acquired by approximately $75 million. The resulting goodwill is being amortized on the straight-line basis over 40 years. Custom Trim On February 25, 1997, the Company completed the acquisition of the stock of BTI Investments, Inc. ("BTI"), a holding company that owned the Custom Trim group of companies, for $70 million. Additionally, up to $5 million may be paid on September 1, 2002, contingent upon BTI attaining certain operating profit targets for each of the years subsequent to the acquisition date. The acquired operations produce leather-wrapped steering wheels and other automotive leather-wrapped products in Canada and Mexico. The funds used by the Company to acquire BTI were obtained from borrowings under the Company's Revolving Credit Agreements. The purchase price exceeded the fair market value of net assets acquired by $48 million. The allocation of the purchase price is subject to change pending completion of the Company's integration plans. The resulting goodwill is being amortized on a straight-line basis over 40 years. The pro forma unaudited results of operations for the years ended June 30, 1997 and 1996, assuming the purchase of the acquisitions had been consummated as of July 1, 1995, are as follows:
1997 1996 ---------------------- IN THOUSANDS, EXCEPT PER SHARE DATA Net sales............................................. $901,058 $1,056,588 Net earnings.......................................... $ 20,965 $ 45,897 Net earnings per share................................ $ .66 $ 1.45
4. NET ASSETS HELD FOR SALE The Company acquired Gallino in July 1996 primarily for the steering wheel business. However, in order to acquire the steering wheel business it was necessary to also acquire Gallino's instrument panel, bumper and other plastic trim component business (non-steering wheel business). In 1997, the Company evaluated whether the non-steering wheel business of Gallino could be integrated into the core business of the Company. During the fourth quarter of fiscal 1997, the Company committed to a plan to dispose of Gallino's instrument panel, bumper and other plastic trim component business (non-steering wheel business). In July 1997, the Company signed a letter of intent to sell approximately 65% of the net assets of Gallino's non- steering wheel business. F-12 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company is negotiating with other prospective buyers for the remaining portion of Gallino's non-steering wheel business. For financial reporting purposes, the assets and liabilities attributable to all of Gallino's non-steering wheel business, which are recorded at amounts approximating their net realizable value, have been classified in the consolidated balance sheet as "Net assets held for sale" and consist of the following at June 30, 1997:
IN THOUSANDS Current assets.................................................. $42,221 Property, plant and equipment, net.............................. 62,739 Other noncurrent assets......................................... 977 ------- Total assets.................................................. 105,937 ------- Current liabilities............................................. 31,661 Other liabilities............................................... 21,656 ------- Total liabilities............................................. 53,317 ------- Net assets held for sale........................................ $52,620 =======
5. INCOME TAXES The components of earnings before income taxes are as follows:
1997 1996 1995 ------- ------- -------- IN THOUSANDS Domestic............................................ $23,699 $98,285 $107,521 Foreign............................................. 5,948 53 2,612 ------- ------- -------- $29,647 $98,338 $110,133 ======= ======= ========
The components of income tax expense are as follows:
1997 1996 1995 ------- ------- ------- IN THOUSANDS Current Federal.......................................... $ 6,442 $30,818 $37,214 Foreign.......................................... 6,434 2,001 750 State............................................ 767 816 1,386 ------- ------- ------- Total current.................................. 13,643 33,635 39,350 Deferred Federal.......................................... 1,501 1,665 (1,550) Foreign.......................................... (344) -- -- ------- ------- ------- Total deferred................................. 1,157 1,665 (1,550) Income taxes....................................... $14,800 $35,300 $37,800 ======= ======= =======
A provision for income taxes has not been made for the undistributed earnings of foreign subsidiaries of approximately $10 million at June 30, 1997, which have been or are intended to be permanently reinvested in expanded foreign business operations. F-13 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The provision for income taxes differs from the expected federal tax provision as follows:
1997 1996 1995 ------- ------- ------- IN THOUSANDS Tax at U.S. statutory rate........................ $10,260 $34,418 $38,547 State taxes, net of Federal tax benefit........... 498 530 900 Change in valuation allowance..................... 1,816 2,161 (2,115) Amortization of goodwill, without tax benefit..... 1,300 -- -- Foreign rate differential......................... 677 -- -- Reduction of taxes provided in prior years........ -- (1,154) -- Other............................................. 249 (655) 468 ------- ------- ------- $14,800 $35,300 $37,800 ======= ======= =======
The temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of June 30, 1997 and 1996, respectively, are presented below:
1997 1996 ------- ------ IN THOUSANDS Deferred tax assets Accrued expenses......................................... $ 5,132 $1,842 Net operating losses..................................... 3,977 -- Other.................................................... 923 961 Valuation allowance...................................... (3,977) -- ------- ------ 6,055 2,803 ------- ------ Deferred tax liabilities Depreciation and amortization............................ (7,845) (892) Acquisition related asset basis differences.............. -- (2,544) ------- ------ (7,845) (3,436) ------- ------ $(1,790) $ (633) ======= ======
Management has determined, based on the Company's history of domestic taxable income and its expectation of the future, that domestic operating income of the Company will likely be sufficient to fully recognize the net deferred tax assets. At June 30, 1997, the Company had foreign net operating loss carryforwards (NOLs) for tax purposes of $11.7 million of which $6.1 million expires in the year 2006 and $1.7 million expires in the year 2007. The remaining NOLs have no expiration date. For financial reporting purposes, a valuation allowance of $4.0 million has been recognized to reduce the deferred tax assets related to those NOLs. 6. NOTES PAYABLE AND LONG-TERM DEBT During fiscal 1997, the Company replaced its $200 million unsecured domestic credit agreement. The Company now maintains two multi-currency credit agreements totaling $450 million that expire on April 29, 1998 ($250 million) and April 30, 2002 ($200 million). The amount outstanding under the new agreements at June 30, 1997, was $358 million of which $200 million is due April 30, 2002. The interest rate under the agreements is at or below the prime rate or, at the Company's option, LIBOR plus a margin. The weighted average interest rate on the outstanding borrowings at June 30, 1997, was 6.7%. A commitment fee of between F-14 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) .125% and .3% per year is paid on the unused portion of the commitment dependent upon the Company's level of leverage as set forth in the agreements. Under the terms of the agreements, the Company must maintain acceptable ratios, such as leverage ratio, minimum net worth, and interest coverage ratio. At June 30, 1997, the Company was in compliance with all covenants. The Company's subsidiaries outside of the United States have short-term lines of credit aggregating approximately $100 million from various banks worldwide. Most of these arrangements are reviewed periodically for renewal. The amounts outstanding under these lines of credit with banks at June 30, 1997 and 1996 were $27.3 million and $34.1 million, respectively. Interest rates are generally based on the prevailing bank prime rate in the various countries in which the Company has operations. Additionally, the subsidiaries have outstanding mortgage and equipment financing loans amounting to $38.1 million. 7. OTHER FINANCIAL DATA The components of inventories consist of the following:
1997 1996 ------- ------- IN THOUSANDS Finished goods............................................... $24,832 $19,439 Work in process.............................................. 23,385 14,417 Raw materials................................................ 27,130 19,034 ------- ------- $75,347 $52,890 ======= =======
Other income (expense), net consists of the following:
1997 1996 1995 ------ ------ ------ IN THOUSANDS Foreign exchange gain (loss), net................... $2,161 $2,385 $ (352) Gain (loss) on disposition of property, plant and equipment.......................................... (634) 1,517 1,349 Royalty income...................................... 93 3,976 3,483 Government grant.................................... 1,000 -- -- Other, net.......................................... 904 784 418 ------ ------ ------ $3,524 $8,662 $4,898 ====== ====== ======
8. EMPLOYEE BENEFIT PLANS The Company's Omnibus Stock Plan provides for the granting of 2,500,000 shares of common stock for awards of options under the Company's 1992 Stock Option Plan, the 1992 Employee Stock Purchase Plan, and the 1994 Stock Incentive Plan. Under the 1992 Stock Option Plan, options to purchase up to 1,500,000 shares of common stock may be granted to officers, employees and consultants to the Company. The Company may grant options that are either qualified (Incentive Stock Options) or nonqualified under the Internal Revenue Code of 1986, as amended. Options under the Plan will generally vest over a three-year period and the option term may not exceed ten years. Total options granted under this plan amounted to 48,313 in fiscal 1997 and 45,000 in fiscal 1996. The Company's 1992 Employee Stock Purchase Plan provides that eligible employees may contribute up to 10% of their base earnings toward the semiannual purchase of the Company's common stock, at a price equal to 85% of the lower of the market value of the common stock on the first and last day of the applicable period. F-15 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) There are limitations on the number of shares that can be purchased in any period. Total shares issued under this plan were 27,082 in fiscal 1997 and 60,906 in fiscal 1996. Since the plan is noncompensatory, no charges to operations have been recorded. The 1994 Stock Incentive Plan permits the issuance of options of common stock in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, performance shares, restricted stock or unrestricted stock to selected employees of the Company. Options under the plan vest over a four-year period. Stock appreciation rights entitle recipients to receive an amount determined in whole or in part by appreciation in the fair market value of the stock between the date of the award and the date of exercise. Performance share awards entitle recipients to acquire shares of stock upon attainment of specified performance goals. Restricted stock awards entitle recipients to acquire shares of stock, subject to the right of the Company to repurchase under certain circumstances all or part of the shares at their purchase price (or to require forfeiture of such shares if purchased at no cost) from the recipient. Restricted shares vest over a five- year period. Unearned compensation, representing the fair market value of the shares at the date of issuance, is charged to earnings over the vesting period. Total options granted under this plan amounted to 63,744 in fiscal 1997 and 648,873 in fiscal 1996. No stock appreciation rights or performance shares were granted in fiscal 1997 or fiscal 1996. In addition to the above plans, the Company's 1992 Director Stock Option Plan provides for the grant of nonqualified stock options to the Company's nonemployee directors. The total number of shares to be issued under this plan may not exceed 50,000 shares. Options granted under the 1992 Director Stock Option Plan have an exercise price equal to the fair market value of the common stock on the date of the grant and a term equal to ten years. Total options granted under this plan amounted to 5,310 in fiscal 1997 and 14,600 in fiscal 1996. Following is a summary of the option and warrant transactions for the fiscal years 1997 and 1996:
SHARES PRICE --------- --------------- Balance at June 30, 1995.......................... 622,028 $ 3.14 - 32 1/4 Granted......................................... 708,473 16 3/4 - 20 3/8 Exercised....................................... (67,561) 3.14 - 24 Canceled........................................ (113,704) 12 - 28 3/8 Balance at June 30, 1996.......................... 1,149,236 12 - 32 1/4 Granted......................................... 117,367 21 3/8 - 28 1/4 Exercised....................................... (38,695) 19 3/4 - 28 Canceled........................................ (127,547) 16 3/4 - 28 5/8 Balance at June 30, 1997.......................... 1,100,361 12 - 32 1/4 Exercisable at June 30, 1997...................... 318,996 12 - 32 1/4 Shares reserved for future issuance............... 2,175,262
The Company maintains a 401(k) retirement plan which covers substantially all full-time U.S. employees. Under the plan, the Company will match employee contributions at rates which are determined annually by management. Employer contributions for the years ended June 30, 1997, 1996 and 1995 amounted to $762,000, $911,000 and $669,000, respectively. The Company adopted Statement of Financial Accounting Standard No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," in fiscal 1997, but elected to continue to measure compensation cost using the intrinsic value method, in accordance with APB Opinion No 25 ("APB 25"), "Accounting for Stock Issued to Employees." Accordingly, no compensation cost for stock options has been recognized. If compensation cost had been determined based on the estimated fair value of options granted in fiscal 1997 and fiscal 1996, F-16 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) consistent with the methodology in SFAS 123, the pro forma effects on the Company's net earnings and income per share would not have been material. 9. INFORMATION RELATED TO CUSTOMERS AND OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS The Company operates in one principal industry segment: the design, manufacture and sale of automotive occupant safety systems--which represents more than 90% of consolidated net sales. The following financial information relates to operations in different geographic areas. Net sales to unaffiliated customers are based on the location of the Company's operating entity. Transfers between geographic areas are recorded at amounts above cost and in accordance with the rules and regulations of the respective governing tax authorities. Identifiable assets of geographic areas are those assets used in the Company's operations in each area. Corporate assets include cash and cash equivalents, intangibles, long-term investments and deferred income taxes.
1997 1996 1995 -------- -------- -------- IN THOUSANDS Net sales to unaffiliated customers: North America................................. $379,270 $324,565 $345,640 Europe........................................ 415,610 107,124 55,332 -------- -------- -------- Total net sales............................. $794,880 $431,689 $400,972 ======== ======== ======== Transfers between geographic areas (eliminated in consolidation): North America................................. $ 42,809 $ 51,057 $ 27,018 Europe........................................ 35,043 21,832 22,689 -------- -------- -------- Total transfers............................. $ 77,852 $ 72,889 $ 49,707 ======== ======== ======== Earnings before income taxes: Operating income: North America................................. $ 46,597 $ 88,371 $100,514 Europe........................................ 3,986 2,442 4,017 Interest and other income (expense), net........ (20,936) 7,525 5,602 -------- -------- -------- Earnings before income taxes................ $ 29,647 $ 98,338 $110,133 ======== ======== ======== Identifiable assets: North America................................. $447,076 $196,776 $185,574 Europe........................................ 410,577 219,340 38,410 Corporate assets.............................. 19,500 87,686 54,714 -------- -------- -------- Total assets................................ $877,153 $503,802 $278,698 ======== ======== ========
The Company also had foreign export sales from the United States amounting to $34,559,000, $27,354,000 and $24,515,000 for the years ended June 30, 1997, 1996 and 1995, respectively. The Company operates its Mexican manufacturing facilities under the "Maquiladora" program. Pursuant to this program, materials and components owned by the Company are transferred to the Mexican subsidiaries where they are used to produce finished goods. The finished goods are returned to the United States and the Company reimburses the Mexican subsidiaries for their manufacturing costs without any intended significant profit or loss of consequence. Accordingly, the Mexican sales, transfers, and income amounts are excluded from the above geographic area information. F-17 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. COMMITMENTS AND CONTINGENCIES The Company is the subject of various lawsuits, claims and environmental contingencies. In the opinion of management, the expected liability resulting from these matters is adequately covered by amounts accrued, and will not have a material adverse effect on the Company's consolidated financial position or future results of operations. 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following tables set forth selected quarterly financial information.
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR --------------- --------------- --------------- --------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL 1997 Net sales............... $ 158,671 $ 182,567 $ 209,409 $ 244,233 $ 794,880 Gross profit............ 41,648 36,690 37,955 47,304 163,597 Operating income........ 18,210 9,330 7,128 15,915 50,583 Net earnings............ 7,846 3,150 1,501 2,350 14,847 Earnings per share...... .25 .10 .05 .07 .47 Cash dividends per share.................. .07 .07 .07 .07 .28 Market price range...... 18 1/2 - 27 7/8 22 5/8 - 28 1/2 19 1/4 - 27 1/4 17 3/8 - 23 17 3/8 - 28 1/2 FISCAL 1996 Net sales............... $ 92,601 $ 105,655 $ 103,927 $ 129,506 $ 431,689 Gross profit............ 34,864 42,844 35,841 41,096 154,645 Operating income........ 19,446 26,854 19,671 24,842 90,813 Net earnings............ 12,601 17,842 14,892 17,703 63,038 Earnings per share...... .40 .57 .47 .56 2.00 Cash dividends per share.................. .05 .05 .07 .07 .24 Market price range...... 19 1/8 - 24 1/4 17 - 20 1/4 16 3/8 - 19 5/8 18 3/4 - 24 1/4 16 3/8 - 24 1/4 FISCAL 1995 Net sales............... $ 87,359 $ 99,001 $ 109,876 $ 104,736 $ 400,972 Gross profit............ 28,999 39,016 44,846 43,560 156,421 Operating income........ 17,538 26,488 31,759 28,746 104,531 Net earnings............ 11,231 18,191 21,984 20,927 72,333 Earnings per share...... .36 .58 .70 .66 2.30 Cash dividends per share.................. .05 .05 .05 .05 .20 Market price range...... 25 1/4 - 33 3/4 25 1/2 - 36 3/8 20 1/4 - 29 18 3/8 - 24 1/4 18 3/8 - 36 3/8
The Company recognized a charge during the fourth quarter of fiscal 1997 which decreased net income by $2.2 million. This charge increased income tax expense to reflect an increase in the effective tax rate for the year due to loss carryforwards in foreign countries that could not be utilized as management had originally anticipated. This adjustment reduced fiscal 1997 fourth quarter net income per share by $.07. 12. SUBSEQUENT EVENT On August 27, 1997, the Company entered into an Asset Purchase Agreement with AlliedSignal Inc. ("Allied") to acquire substantially all of the assets and certain liabilities of Allied's worldwide automotive occupant restraint products and systems (the "Division"). The purchase price is $710 million in cash and is subject to post-closing adjustments based on the net asset value of the Division as of the closing date. F-18 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 13. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES The Company conducts a significant portion of its business through subsidiaries. The Senior Subordinated Notes due 2008 (the "Notes") of the Company are guaranteed, jointly and severally on a senior subordinated basis, by the domestic subsidiaries (the "Subsidiary Guarantors") of the Company other than BTI Capital Trust. The Company's foreign subsidiaries do not guarantee the Notes (the "Non-Guarantor Subsidiaries"). The Notes will be effectively subordinated in right of payment to all indebtedness and other liabilities (including trade payables) of the Non-Guarantor Subsidiaries. Presented below are condensed consolidating balance sheets as of June 30, 1997 and 1996, condensed consolidating statements of earnings for the years ended June 30, 1997, 1996 and 1995 and condensed consolidating statements of cash flows for the year ended June 30, 1997, 1996, 1995, for the Subsidiary Guarantors, the Non-Guarantor Subsidiaries and the Company consolidated. Separate financial statements for the Subsidiary Guarantors are not presented based on management's determination that they do not provide additional information that is material to investors. BREED TECHNOLOGIES, INC. AND SUBSIDIARIES JUNE 30, 1997
SUBSIDIARY NON-GUARANTOR GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------- ------------ ------------ (IN MILLIONS) ASSETS Cash and cash equivalents... $ (1.3) $ 20.0 $ -- $ 18.7 Accounts receivable, net.... 85.2 130.9 (8.1) 208.0 Inventories................. 30.4 45.2 (0.3) 75.3 Other current assets........ 177.7 18.7 (182.9) 13.5 ------ ------ ------- ------ Total current assets.... 292.0 214.8 (191.3) 315.5 Property, plant and equipment, net............. 158.7 109.6 8.2 276.5 Intangibles, net............ 97.5 123.5 -- 221.0 Assets held for sale........ -- 52.6 -- 52.6 Other assets................ 290.3 2.1 (280.8) 11.6 ------ ------ ------- ------ Total assets............ $838.5 $502.6 $(463.9) $877.2 ====== ====== ======= ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long- term debt................ $158.0 $ 33.7 $ -- $191.7 Accounts payable.......... 23.2 98.5 (0.2) 121.5 Accrued expenses.......... 6.0 134.5 (91.0) 49.5 ------ ------ ------- ------ Total current liabilities............ 187.2 266.7 (91.2) 362.7 Long-term debt.............. 200.0 31.7 -- 231.7 Other long-term liabilities................ 3.4 12.9 -- 16.3 ------ ------ ------- ------ Total liabilities....... 390.6 311.3 (91.2) 610.7 Stockholders' equity........ 447.9 191.3 (372.7) 266.5 ------ ------ ------- ------ Total liabilities and stockholders' equity... $838.5 $502.6 $(463.9) $877.2 ====== ====== ======= ======
F-19 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) BREED TECHNOLOGIES, INC. AND SUBSIDIARIES JUNE 30, 1996
SUBSIDIARY NON-GUARANTOR GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------- ------------ ------------ (IN MILLIONS) ASSETS Cash and cash equivalents... $ 53.6 $ 42.2 $ -- $ 95.8 Accounts receivable, net.... 44.1 66.6 -- 110.7 Inventories................. 23.0 29.9 -- 52.9 Other current assets........ 82.3 3.1 (78.2) 7.2 ------ ------ ------- ------- Total current assets.... 203.0 141.8 (78.2) 266.6 Property, plant and equip- ment, net.................. 121.6 50.0 -- 171.6 Intangibles, net............ 2.7 42.4 -- 45.1 Other assets................ 146.8 1.8 (128.1) 20.5 ------ ------ ------- ------- Total assets............ $474.1 $236.0 $(206.3) $ 503.8 ====== ====== ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long- term debt................ $ 85.0 $ 35.7 $ -- $ 120.7 Accounts payable.......... 12.3 21.6 -- 33.9 Accrued expenses.......... 23.9 76.2 (78.2) 21.9 ------ ------ ------- ------- Total current liabili- ties................... 121.2 133.5 (78.2) 176.5 Long-term debt.............. 40.5 1.6 -- 42.1 Other long-term liabili- ties....................... 1.7 8.4 -- 10.1 ------ ------ ------- ------- Total liabilities....... 163.4 143.5 (78.2) 228.7 Stockholders' equity........ 310.7 92.5 (128.1) 275.1 ------ ------ ------- ------- Total liabilities and stockholders' equity... $474.1 $236.0 $(206.3) $ 503.8 ====== ====== ======= =======
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES YEAR ENDED JUNE 30, 1997
SUBSIDIARY NON-GUARANTOR GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------- ------------ ------------ (IN MILLIONS) Net sales.................. $386.2 $453.9 $(45.2) $794.9 Cost of goods sold......... 280.6 395.7 (45.0) 631.3 ------ ------ ------ ------ Gross profit........... 105.6 58.2 (0.2) 163.6 Selling, general and admin- istrative expenses........ 32.6 37.9 0.1 70.6 Engineering, research, and development............... 30.8 5.3 -- 36.1 Amortization of intangi- bles...................... 1.5 4.9 (0.1) 6.3 ------ ------ ------ ------ Operating income....... 40.7 10.1 (0.2) 50.6 Interest income (expense), net....................... (17.5) (7.0) -- (24.5) Other income, net.......... 1.1 2.0 0.4 3.5 ------ ------ ------ ------ Earnings before income taxes................. 24.3 5.1 0.2 29.6 Income tax ................ 8.7 6.1 -- 14.8 ------ ------ ------ ------ Net earnings (loss).... $ 15.6 $ (1.0) $ 0.2 $ 14.8 ====== ====== ====== ======
F-20 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) BREED TECHNOLOGIES, INC. AND SUBSIDIARIES YEAR ENDED JUNE 30, 1996
SUBSIDIARY NON-GUARANTOR GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------- ------------ ------------ (IN MILLIONS) Net sales.................. $363.7 $107.1 $(39.1) $431.7 Cost of goods sold......... 222.4 94.2 (39.5) 277.1 ------ ------ ------ ------ Gross profit........... 141.3 12.9 0.4 154.6 Selling, general and admin- istrative expenses........ 31.1 7.1 -- 38.2 Engineering, research, and development............... 21.0 2.6 -- 23.6 Amortization of intangi- bles...................... 0.6 1.4 -- 2.0 ------ ------ ------ ------ Operating income....... 88.6 1.8 0.4 90.8 Interest income (expense), net....................... 0.9 (2.3) 0.3 (1.1) Other income (expense), net....................... 8.1 0.8 (0.3) 8.6 ------ ------ ------ ------ Earnings before income taxes................. 97.6 0.3 0.4 98.3 Income tax ................ 33.1 2.2 -- 35.3 ------ ------ ------ ------ Net earnings (loss).... $ 64.5 $ (1.9) $ 0.4 $ 63.0 ====== ====== ====== ======
BREED TECHNOLOGIES, INC. AND SUBSIDIARIES YEAR ENDED JUNE 30, 1995
SUBSIDIARY NON-GUARANTOR GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------- ------------ ------------ (IN MILLIONS) Net sales.................. $372.9 $61.3 $(33.2) $401.0 Cost of goods sold......... 224.4 53.1 (32.9) 244.6 ------ ----- ------ ------ Gross profit........... 148.5 8.2 (0.3) 156.4 Selling, general and administrative expenses... 28.8 4.3 -- 33.1 Engineering, research, and development............... 18.5 -- -- 18.5 Amortization of intangibles............... 0.3 -- -- 0.3 ------ ----- ------ ------ Operating income....... 100.9 3.9 (0.3) 104.5 Interest income (expense), net....................... 1.0 (0.3) -- 0.7 Other income (expense), net....................... 5.8 (0.9) -- 4.9 ------ ----- ------ ------ Earnings before income taxes................. 107.7 2.7 (0.3) 110.1 Income tax................. 37.0 0.8 -- 37.8 ------ ----- ------ ------ Net earnings (loss).... $ 70.7 $ 1.9 $ (0.3) $ 72.3 ====== ===== ====== ======
F-21 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) BREED TECHNOLOGIES, INC. AND SUBSIDIARIES YEAR ENDED JUNE 30, 1997
SUBSIDIARY NON-GUARANTOR GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------- ------------ ------------ (IN MILLIONS) Cash flows from operating activities: Net earnings/(loss)...... $ 15.6 $ (1.01) $ 0.3 $ 14.9 Adjustments to reconcile net cash use in operating activities: Depreciation and amortization............ 28.4 20.1 48.5 Other adjustments........ 1.9 1.9 Changes in operating assets and liabilities.. (120.3) 144.7 (0.3) 24.1 ------ ------- ----- ------ Net cash (used in) provided by operating activities.............. (74.4) 163.8 -- 89.4 ------ ------- ----- ------ Cash flows from investing activities: Capital expenditures..... (40.6) (35.3) (75.9) Cost of acquisitions, net of cash acquired........ (151.2) (140.7) (291.9) Investment in and advances to affiliates.. (0.9) -- (0.9) Proceeds from sale of assets and equipment.... 0.8 0.6 -- 1.4 ------ ------- ----- ------ Net cash (used in) investing activities.... (191.9) (175.4) (367.3) ------ ------- ----- ------ Cash flows from financing activities: Net change in debt....... 219.1 (8.8) 210.3 Net change in equity..... (7.7) -- (7.7) ------ ------- ----- ------ Net cash provided by (used in) financing activities............ 211.4 (8.8) 202.6 ------ ------- ----- ------ Effects of exchange rate changes on cash........... (1.8) (1.8) Decrease in cash and cash equivalents............... (54.9) (22.2) (77.1) Cash and cash equivalents at beginning of year...... 53.6 42.2 -- 95.8 ------ ------- ----- ------ Cash and cash equivalents at end of year............ $ (1.3) $ 20.0 $ 18.7 ====== ======= ===== ======
F-22 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) BREED TECHNOLOGIES, INC. AND SUBSIDIARIES YEAR ENDED JUNE 30, 1996
SUBSIDIARY NON-GUARANTOR GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------- ------------ ------------ (IN MILLIONS) Cash flows from operating activities: Net earnings/(loss)...... $ 64.5 $ (1.9) $ 0.4 $ 63.0 Adjustments to reconcile net cash use in operating activities: Depreciation and amortization............ 18.8 1.3 20.1 Other adjustments........ 0.4 0.4 Changes in operating assets and liabilities.. (125.3) 83.4 (0.4) (42.3) ------- ------ ----- ------ Net cash (used in) provided by operating activities.............. (41.6) 82.8 -- 41.2 ------- ------ ----- ------ Cash flows from investing activities: Capital expenditures..... (32.3) (13.1) (45.4) Sale of short-term investments............. 10.6 -- 10.6 Cost of acquisitions, net of cash acquired........ (3.0) (45.5) (48.5) Deposit on Gallino acquisition............. (10.3) -- (10.3) Proceeds from sale of assets and equipment.... 2.7 -- -- 2.7 ------- ------ ----- ------ Net cash used in investing activities.... (32.3) (58.6) (90.9) ------- ------ ----- ------ Cash flows from financing activities: Net change in debt....... 108.3 17.3 125.6 Net change in equity..... (4.9) -- (4.9) ------- ------ ----- ------ Net cash provided by (used in) financing activities............ 103.4 17.3 120.7 ------- ------ ----- ------ Effects of exchange rate changes on cash........... -- (1.6) (1.6) Increase in cash and cash equivalents............... 29.5 39.9 69.4 Cash and cash equivalents at beginning of year...... 24.1 2.3 -- 26.4 ------- ------ ----- ------ Cash and cash equivalents at end of year............ $ 53.6 $ 42.2 $ 95.8 ======= ====== ===== ======
F-23 BREED TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) BREED TECHNOLOGIES, INC. AND SUBSIDIARIES YEAR ENDED JUNE 30, 1995
SUBSIDIARY NON-GUARANTOR GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------- ------------ ------------ (IN MILLIONS) Cash flows from operating activities: Net earnings/(loss)...... $70.7 $ 1.9 $(0.3) $72.3 Adjustments to reconcile net cash use in operating activities: Depreciation and amortization............ 12.8 1.1 13.9 Other adjustments........ (2.6) (2.6) Changes in operating assets and liabilities.. (25.2) 10.4 0.3 (14.5) ----- ----- ----- ----- Net cash (used in) provided by operating activities.............. 55.7 13.4 -- 69.1 ----- ----- ----- ----- Cash flows from investing activities: Capital expenditures..... (66.5) (2.8) (69.3) Sale of short-term investments............. 12.4 -- 12.4 Cost of acquisitions, net of cash acquired........ (2.9) (4.0) (6.9) Investment in and advances to affiliates.. (6.4) -- (6.4) Proceeds from sale of assets and equipment.... 1.4 -- -- 1.4 ----- ----- ----- ----- Net cash used in investing activities.... (62.0) (6.8) (68.8) ----- ----- ----- ----- Cash flows from financing activities: Net change in debt....... -- (3.8) (3.8) Net change in equity..... (3.0) -- (3.0) ----- ----- ----- ----- Net cash provided by (used in) financing activities............ (3.0) (3.8) (6.8) ----- ----- ----- ----- Effects of exchange rate changes on cash........... -- (0.6) (0.6) Increase (decrease) in cash and cash equivalents...... (9.3) 2.2 (7.1) Cash and cash equivalents at beginning of year...... 33.4 0.1 -- 33.5 ----- ----- ----- ----- Cash and cash equivalents at end of year............ $24.1 $ 2.3 $26.4 ===== ===== ===== =====
14. EARNINGS PER SHARE The following table sets forth the computation of the numerator and denominator of the basic and diluted per share calculations (in thousands):
YEAR ENDED JUNE 30, ----------------------- 1997 1996 1995 ------- ------- ------- Numerator: Net earnings........................................... $14,847 $63,038 $72,333 Numerator for basic and dilutive earnings per share- income available to common stockholders.............. $14,847 $63,038 $72,333 ------- ------- ------- Denominator: Denominator for basic earnings per share-weighted- average shares....................................... 31,648 31,550 31,434 ------- ------- ------- Effect of dilutive securities: Employee stock options................................ 219 94 190 ------- ------- ------- Denominator for diluted earnings per share-adjusted weighted-average shares and assumed conversions...... 31,867 31,644 31,624 ======= ======= =======
For the years ended June 30, 1997, 1996 and 1995 options of 140,741, 354,761, and 169,749, respectively, are not included in the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares and therefore, the effect would be antidilutive. F-24 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission registration fee................... $ 73,750 Legal fees and expenses............................................... 75,000 Accounting fees and expenses.......................................... 25,000 Printing and engraving expenses....................................... 75,000 Miscellaneous expenses................................................ 11,250 -------- Total............................................................... $405,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law permits indemnification of officers and directors of the Company under certain conditions and subject to certain limitations. Section 145 of the Delaware General Corporation law also provides that a corporation has the power to purchase and maintain insurance on behalf of its officers and directors against any liability asserted against such person and incurred by him or her in such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of Section 145 of the Delaware General Corporation Law. Pursuant to Article 8 of the of the Company's Second Restated Certificate of Incorporation (the "Restated Certificate"), the Company will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that such person is or was, or has agreed to become, a director or officer of the Company, or is or was serving, or has agreed to serve, at the Company's request, in a similar capacity with another enterprise. The Company will indemnify such officers and directors in an action by or in the right of the Company to procure a judgment in its favor under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the Company. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the Company must indemnify him or her against the expenses (including attorneys' fees) which he or she actually and reasonably incurred in connection therewith. In the event that the Company does not assume the defense of any action, suit or proceeding, the Company will, in advance of the final disposition of any such action, pay the expenses (including attorneys' fees) incurred by any officer or director in defending such action, provided that the director or officer undertakes to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company as authorized by Article 8 of the Restated Certificate. The indemnification provided by the Restated Certificate is not deemed to be exclusive of any other rights to which an officer or director may be entitled under any law, agreement, vote or otherwise, and inures to the benefit of the estate, heirs, executors and administrators of the officer or director. The Company is authorized to enter into agreements with its officers and directors providing indemnification rights different from those provided in the Restated Certificate, and may grant indemnification rights to other employees or agents of, or other persons serving, the Company. The Company is also permitted to purchase directors' and officers' liability insurance. Article 8 of the Restated Certificate also provides that if the Delaware General Corporation Law is amended after the adoption of the Restated Certificate, the Company will indemnify its officers and directors to the fullest extent permitted by applicable law in effect from time to time. The foregoing statements are subject to the detailed provisions of Article 8 of the Restated Certificate. II-1 The Declaration of Trust of BTI Capital Trust, filed as Exhibit 4.2 to this Registration Statement, limits the liability of the Trustee to the Trust and certain persons and provides for the indemnification by the Trust or the Company of the Trustees, their officers, directors and employees and certain other persons. ITEM 16. EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 4.1* -- Certificate of Trust of BTI Capital Trust. 4.2* -- Declaration of Trust of BTI Capital Trust dated as of October 17, 1997, among Breed Technologies, Inc. and Wilmington Trust Company. 4.3* -- Amended and Restated Declaration of Trust dated as of November 25, 1997 between Breed Technologies, Inc., as Sponsor, Wilmington Trust Company, as Delaware Trustee and Institutional Trustee, and Charles J. Speranzella, Jr., Fred J. Musone, and Frank J. Gnisci, as Regular Trustees. 4.4* -- Indenture for the Convertible Debentures dated as of November 25, 1997 between Breed Technologies, Inc. and Wilmington Trust Company, as Indenture Trustee. 4.5* -- Form of Preferred Security. 4.6* -- Form of Convertible Debentures. 4.7* -- Common Securities Guarantee Agreement dated as of November 25, 1997 by Breed Technologies, Inc., as Guarantor. 4.8* -- Preferred Securities Guarantee Agreement dated as of November 25, 1997 between Breed Technologies, Inc., as Guarantor, and Wilmington Trust Company, as Preferred Guarantee Trustee. 4.9 -- Amendment No. 1 to Warrant Agreement dated March 2, 1998 between Breed Technologies, Inc. and NationsBank, N.A. 4.10 -- Indenture dated as of April 28, 1998, among Breed Technologies, Inc., the Subsidiary Guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee. 4.11** -- Amended and Restated Credit Agreement dated as of April 28, 1998, by and among Breed Technologies, Inc., certain subsidiaries of Breed Technologies, Inc. designated as Borrowers therein, NationsBank, National Association and certain other financial institutions named therein as Lenders, and NationsBank, National Association, as Agent for the Lenders. 5.1 -- Opinion of King & Spalding as to the legality of the Convertible Debentures, the Breed Technologies, Inc. Common Stock issuable on the conversion of the Preferred Securities and the Preferred Securities Guarantee (including the Consent of such Counsel). 5.2** -- Opinion of Richards, Layton & Finger, P.A. as to the legality of the Preferred Securities to be issued by BTI Capital Trust (including the consent of such Counsel). 8.1 -- Tax Opinion of King & Spalding. 12.1 -- Computation of the Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 23.1 -- Consent of Ernst & Young LLP. 23.2 -- Consent of KPMG Peat Marwick LLP. 23.3 -- Consent of Price Waterhouse LLP. 23.4** -- Consent of KPMG S.p.A. 23.5 -- Consent of King & Spalding (included in Exhibit 5.1). 23.6** -- Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2). 24.1* -- Power of Attorney (previously filed with signature pages to the Registration Statement). 25.1* -- Statement of Eligibility of Indenture Trustee under the Indenture. 25.2* -- Statement of Eligibility of Institutional Trustee under the Amended and Restated Declaration of Trust of BTI Capital Trust. 25.3* -- Statement of Eligibility of Preferred Guarantee Trustee under the Preferred Securities Guarantee of Breed Technologies, Inc. for the benefit of the holders of Preferred Securities of BTI Capital Trust.
- -------- *Previously filed **To be filed by Amendment II-2 ITEM 17. UNDERTAKINGS Each of the undersigned registrants (the "Registrants") hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by any Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of any Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) That, insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by any Registrant of expenses incurred or paid by a director, officer or controlling person of such Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-3 (6) That, (i) for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (ii) for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, each Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lakeland, State of Florida, on June 4, 1998. BREED TECHNOLOGIES, INC. /s/ Johnnie Cordell Breed By: _________________________________ Johnnie Cordell Breed Chairman of the Board and Chief Executive Officer BTI CAPITAL TRUST /s/ Charles J. Speranzella, Jr. By: _________________________________ Charles J. Speranzella, Jr. Regular Trustee /s/ Fred J. Musone By: _________________________________ Fred J. Musone Regular Trustee /s/ Frank J. Gnisci By: _________________________________ Frank J. Gnisci Regular Trustee II-5 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES WITH BREED TECHNOLOGIES, INC. AND ON THE DATE INDICATED. SIGNATURE TITLE DATE Chairman of the * Board and Chief June 4, 1998 - ------------------------------------ Executive Officer JOHNNIE CORDELL BREED Vice Chairman and * Director June 4, 1998 - ------------------------------------ CHARLES J. SPERANZELLA, JR. President, Chief * Operating Officer June 4, 1998 - ------------------------------------ and Director FRED J. MUSONE Executive Vice * President and June 4, 1998 - ------------------------------------ Chief Financial FRANK J. GNISCI Officer Director * June 4, 1998 - ------------------------------------ LARRY W. MCCURDY Director * June 4, 1998 - ------------------------------------ ROBERT W. SHOWER Director * June 4, 1998 - ------------------------------------ ALBERTO NEGRO Director * June 4, 1998 - ------------------------------------ DR.-ING. FRANZ WRESSNIGG /s/ Lizanne Guptill By: ________________________________ Attorney-in-Fact II-6 EX-4.9 2 AMENDMENT NO. 1 TO WARRANT AGREEMENT EXHIBIT 4.9 AMENDMENT NO. 1 TO WARRANT AGREEMENT THIS AMENDMENT TO WARRANT AGREEMENT made and entered into this 2nd day of March 1998 between BREED TECHNOLOGIES, INC., a Delaware corporation (the "Corporation"), and NATIONSBANK, N.A. ("NationsBank"). WHEREAS, the Corporation and NationsBank have entered into a Warrant Agreement dated October 30, 1997 (the "Agreement") pursuant to which the Corporation has granted to NationsBank the Warrants described therein; WHEREAS, the Corporation and NationsBank have agreed to amend the Agreement in the manner set forth herein; and WHEREAS, on the date hereof, the Corporation has accepted and agreed to the terms of a Commitment Letter and the related "Term Sheet" referred to therein, made and agreed to by NationsBank, and in consideration of such acceptance and agreement by the Corporation, NationsBank has agreed to enter into this Amendment Agreement. NOW THEREFORE, the Corporation and NationsBank hereby agree that the Agreement shall be and hereby is amended, effective as of the date hereof by deleting the date "April 27, 1998" appearing twice in clause (c) of Section 3.1(a) of the Agreement and inserting in lieu thereof the date "July 26, 1998" in lieu thereof. Except as amended hereby, all terms and conditions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment Agreement to be duly executed, as of the date first above written. BREED TECHNOLOGIES, INC. By: /s/ Frank J. Gnisci ---------------------------------- Name: Frank J. Gnisci Title: Executive Vice President and Chief Financial Officer NATIONSBANK, NATIONAL ASSOCIATION By: /s/ Miles C. Dearden III ---------------------------------- Name: Miles C. Dearden III Title: Senior Vice President EX-4.10 3 INDENTURE DATED APRIL 28, 1998 EXHIBIT 4.10 BREED TECHNOLOGIES, INC., Issuer, EACH OF THE SUBSIDIARY GUARANTORS LISTED ON SCHEDULE I HERETO, Subsidiary Guarantors, and IBJ SCHRODER BANK & TRUST COMPANY, Trustee ____________________ INDENTURE Dated as of April 28, 1998 _____________________ $330,000,000 9 1/4% Senior Subordinated Notes due 2008 =============================================================================== BREED TECHNOLOGIES, INC. RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND INDENTURE, DATED AS OF APRIL 28, 1998 TRUST INDENTURE ACT SECTION INDENTURE SECTION (S) 310(a)(1) ................................ 607 (a)(2) ................................ 607 (b) ................................ 608 (S) 312(c) ................................ 701 (S) 314(a) ................................ 703 (a)(4) ................................ 1008(a) (c)(1) ................................ 102 (c)(2) ................................ 102 (e) ................................ 102 (S) 315(b) ................................ 601 (S) 316(a)(last sentence) ................................ 101 ("Outstanding") (a)(1)(A) ................................ 502, 512 (a)(1)(B) ................................ 513 (b) ................................ 508 (c) ................................ 105(d) (S) 317(a)(1) ................................ 503 (a)(2) ................................ 504 (b) ................................ 1003 (S) 318(a) ................................ 111 TABLE OF CONTENTS
PAGE PARTIES............................................................. 1 RECITALS OF THE COMPANY............................................. 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION (a) SECTION 101. Definitions........................... 2 (b) Acquired Indebtedness............................... 2 (c) Act................................................. 2 (d) Additional Securities............................... 2 (e) Adjusted Net Assets................................. 3 (f) Affiliate........................................... 3 (g) Asset Sale.......................................... 3 (h) Asset Sale Offer.................................... 3 (i) Asset Sale Purchase Date............................ 3 (j) Banks............................................... 3 (k) Board of Directors.................................. 4 (l) Board Resolution.................................... 4 (m) Borrowing Base...................................... 4 (n) Business Day........................................ 4 (o) Capitalized Lease Obligation........................ 4 (p) Capital Stock....................................... 4 (q) Cash Equivalents.................................... 4 (r) Change of Control................................... 4 (s) Change of Control Offer............................. 5 (t) Change of Control Payment Date...................... 5 (u) Closing Date........................................ 5 (v) Commission.......................................... 5 (w) Company............................................. 5 (x) Company Request..................................... 5 (y) Consolidated EBITDA................................. 5 (z) Consolidated Net Income............................. 6
- -------------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture.
PAGE (aa) Consolidated Net Worth.............................. 7 (bb) Convertible Debentures.............................. 7 (cc) Corporate Trust Office.............................. 7 (dd) December 1997 Charges............................... 7 (ee) Default............................................. 7 (ff) Defaulted Interest.................................. 7 (gg) Depositary.......................................... 8 (hh) Designated Senior Indebtedness...................... 8 (ii) Disinterested Director.............................. 8 (jj) Disqualified Stock.................................. 8 (kk) Domestic Restricted Subsidiary...................... 8 (ll) Domestic Subsidiary................................. 8 (mm) Equity Offering..................................... 8 (nn) Event of Default.................................... 9 (oo) Exchange Act........................................ 9 (pp) Exchange Offer...................................... 9 (qq) Exchange Offer Registration Statement............... 9 (rr) Exchange Securities................................. 9 (ss) Fair market value................................... 9 (tt) Federal Bankruptcy Code............................. 9 (uu) Fixed Charges....................................... 9 (vv) Fixed Charge Coverage Ratio......................... 10 (ww) Foreign Subsidiary.................................. 10 (xx) Gallino Disposition................................. 10 (yy) Generally Accepted Accounting Principles............ 10 (zz) Guarantee........................................... 10 (aaa) Hedging Obligations................................. 10 (bbb) Holder.............................................. 10 (ccc) Indebtedness........................................ 10 (ddd) Indenture........................................... 11 (eee) Indenture Obligations............................... 11 (fff) Initial Securities.................................. 11 (ggg) Interest Payment Date............................... 11 (hhh) Investment.......................................... 11 (iii) Joint Venture Agreement............................. 12 (jjj) Lien................................................ 12 (kkk) Maturity............................................ 12 (lll) Moody's............................................. 12 (mmm) Net Cash Proceeds................................... 12
ii
PAGE (nnn) New Credit Facility................................. 13 (ooo) New Credit Facility Agent........................... 13 (ppp) Non-U.S. Person..................................... 13 (qqq) Offering............................................ 13 (rrr) Officers' Certificate............................... 13 (sss) Opinion of Counsel.................................. 13 (ttt) Outstanding......................................... 13 (uuu) Pari Passu Indebtedness............................. 14 (vvv) Paying Agent........................................ 14 (www) Permitted Holder.................................... 14 (xxx) Permitted Investments............................... 14 (yyy) Person.............................................. 16 (zzz) Predecessor Security................................ 16 (aaaa) Preferred Securities................................ 16 (bbbb) Preferred Stock..................................... 16 (cccc) Qualified Equity Interest........................... 16 (dddd) Qualified Stock..................................... 16 (eeee) QIB................................................. 16 (ffff) Receivables and Related Assets...................... 16 (gggg) Receivables Program................................. 17 (hhhh) Receivables Subsidiary.............................. 17 (iiii) Redemption Date..................................... 17 (jjjj) Redemption Price.................................... 17 (kkkk) Refinancing of Existing Credit Facility............. 17 (llll) Registrar........................................... 17 (mmmm) Registration Rights Agreement....................... 17 (nnnn) Registration Statement.............................. 17 (oooo) Regular Record Date................................. 17 (pppp) Regulation S........................................ 17 (qqqq) Restricted Payments................................. 17 (rrrr) Restricted Subsidiary............................... 18 (ssss) Rule 144A........................................... 18 (tttt) Securities.......................................... 18 (uuuu) Securities Act...................................... 18 (vvvv) Security Register................................... 18 (wwww) Senior Indebtedness................................. 18 (xxxx) Shelf Registration Statement........................ 19 (yyyy) Siemens............................................. 19 (zzzz) Siemens Joint Venture............................... 19
iii
PAGE (aaaaa) Significant Subsidiary.............................. 19 (bbbbb) S&P................................................. 19 (ccccc) Special Record Date................................. 19 (ddddd) SRS Acquisition..................................... 19 (eeeee) Stated Maturity..................................... 19 (fffff) Subordinated Indebtedness........................... 20 (ggggg) Subsidiary.......................................... 20 (hhhhh) Subsidiary Guarantee................................ 20 (iiiii) Subsidiary Guarantor................................ 20 (jjjjj) Subsidiary Guarantor Senior Indebtedness............ 20 (kkkkk) Trust Indenture Act................................. 21 (lllll) Trustee............................................. 21 (mmmmm) Unrestricted Subsidiary............................. 21 (nnnnn) U.S. Government Obligations......................... 21 (ooooo) Voting Stock........................................ 21 (ppppp) Weighted Average Life............................... 21 (qqqqq) Wholly Owned Restricted Subsidiary.................. 22 (rrrrr) SECTION 102. Compliance Certificates and Opinions.............................. 22 (sssss) SECTION 103. Form of Documents Delivered Trustee............................... 23 (ttttt) SECTION 104. Acts of Holders....................... 23 (uuuuu) SECTION 105. Notices, etc., to Trustee, Company.... 25 (vvvvv) SECTION 106. Notice to Holders; Waiver............. 25 SECTION 107. Conflict of any Provision of Indenture with Trust Indenture Act............ 25 (wwwww) SECTION 108. Effect of Headings and Table of Contents.............................. 26 (xxxxx) SECTION 109. Successors and Assigns................ 26 (yyyyy) SECTION 110. Separability Clause................... 26 (zzzzz) SECTION 111. Benefits of Indenture................. 27 (aaaaaa) SECTION 112. Governing Law......................... 27 (bbbbbb) SECTION 113. Legal Holidays........................ 27
iv
PAGE ARTICLE TWO SECURITY FORMS (cccccc) SECTION 201. Forms Generally....................... 28 (dddddd) SECTION 202. Restrictive Legends................... 29 ARTICLE THREE THE SECURITIES (eeeeee) SECTION 301. Title and Terms....................... 31 (fffff) SECTION 302. Denominations......................... 32 (gggggg) SECTION 303. Execution, Authentication, Delivery and Dating............................ 32 (hhhhhh) SECTION 304. Temporary Securities.................. 34 (iiiiii) SECTION 305. Registration, Registration of Transfer and Exchange................. 34 (jjjjjj) SECTION 306. Book-Entry Provisions for U.S. Global Security....................... 36 (kkkkkk) SECTION 307. Special Transfer Provisions........... 37 (llllll) SECTION 308. Mutilated, Destroyed, Lost and Stolen Securities..................... 41 (mmmmmm) SECTION 309. Payment of Interest; Interest Rights Preserved...................... 42 (nnnnnn) SECTION 310. Persons Deemed Owners................. 43 (oooooo) SECTION 311. Cancellation.......................... 44 (pppppp) SECTION 312. Issuance of Additional Securities..... 44 SECTION 313. CUSIP and CINS Numbers................ 44 (qqqqqq) SECTION 314. Computation of Interest............... 44 ARTICLE FOUR SATISFACTION AND DISCHARGE (rrrrrr) SECTION 401. Satisfaction and Discharge of Indenture............................. 45 (ssssss) SECTION 402. Application of Trust Money............ 46
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PAGE ARTICLE FIVE REMEDIES (tttttt) SECTION 501. Events of Default..................... 46 (uuuuuu) SECTION 502. Acceleration of Maturity; Rescission and Annulment.............. 48 (vvvvvv) SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee............ 49 (wwwwww) SECTION 504. Trustee May File Proofs of Claim...... 50 (xxxxxx) SECTION 505. Trustee May Enforce Claims Without Possession of Securities.............. 51 (yyyyyy) SECTION 506. Application of Money Collected........ 51 (zzzzzz) SECTION 507. Limitation on Suits................... 52 (aaaaaaa) SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest.............................. 53 (bbbbbbb) SECTION 509. Restoration of Rights and Remedies.... 53 (ccccccc) SECTION 510. Rights and Remedies Cumulative........ 53 (ddddddd) SECTION 511. Delay or Omission Not Waiver.......... 53 (eeeeeee) SECTION 512. Control by Holders.................... 54 (fffffff) SECTION 513. Waiver of Past Defaults............... 54 (ggggggg) SECTION 514. Waiver of Stay or Extension Laws...... 54 SECTION 515. Undertaking for Costs................. 55 ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults.................... 55 (hhhhhhh) SECTION 602. Certain Rights of Trustee............. 56 (iiiiiii) SECTION 603. Trustee Not Responsible for Recitals or Issuance of Securities............. 57 (jjjjjjj) SECTION 604. May Hold Securities................... 57 (kkkkkkk) SECTION 605. Money Held in Trust................... 58 (lllllll) SECTION 606. Compensation and Reimbursement........ 58
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PAGE (mmmmmmm) SECTION 607. Corporate Trustee Required; Eligibility........................... 59 (nnnnnnn) SECTION 608. Resignation and Removal; Appointment of Successor.............. 59 (ooooooo) SECTION 609. Acceptance of Appointment by Successor............................. 61 (ppppppp) SECTION 610. Merger, Conversion, Consolidation or Succession to Business............. 61 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE (qqqqqqq) SECTION 701. Disclosure of Names and Addresses of Holders............................ 62 (rrrrrrr) SECTION 702. Reports by Trustee.................... 62 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE (sssssss) SECTION 801. Company May Consolidate, etc., Only on Certain Terms................. 62 (ttttttt) SECTION 802. Successor Substituted................. 64 ARTICLE NINE SUPPLEMENTS AND AMENDMENTS TO INDENTURE (uuuuuuu) SECTION 901. Without Consent of Holders............ 64 (vvvvvvv) SECTION 902. With Consent of Holders............... 65 (wwwwwww) SECTION 903. Execution of Supplemental Indentures............................ 66 (xxxxxxx) SECTION 904. Effect of Supplemental Indentures..... 66 (yyyyyyy) SECTION 905. Conformity with Trust Indenture Act... 67
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PAGE (zzzzzzz) SECTION 906. Reference in Securities to Supplemental Indentures............... 67 (aaaaaaaa) SECTION 907. Notice of Supplemental Indentures..... 67 ARTICLE TEN COVENANTS (bbbbbbbb) SECTION 1001. Payment of Principal, Premium, If Any, and Interest................. 67 (cccccccc) SECTION 1002. Maintenance of Office or Agency...... 68 (dddddddd) SECTION 1003. Money for Security Payments to Be Held in Trust........................ 68 (eeeeeeee) SECTION 1004. Corporate Existence.................. 70 (ffffffff) SECTION 1005. Payment of Taxes and Other Claims.... 70 (gggggggg) SECTION 1006. Maintenance of Properties............ 70 (hhhhhhhh) SECTION 1007. Insurance............................ 71 (iiiiiiii) SECTION 1008. Statement by Officers As to Default.............................. 71 (jjjjjjjj) SECTION 1009. Provision of Reports and Financial Statements................. 71 (kkkkkkkk) SECTION 1010. Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock................... 72 (llllllll) SECTION 1011. Limitation on Restricted Payments.... 75 (mmmmmmmm) SECTION 1012. Purchase of Securities upon a Change of Control.................... 79 (nnnnnnnn) SECTION 1013. Limitation on Certain Asset Sales.... 80 (oooooooo) SECTION 1014. Limitation on Transactions with Affiliates........................... 82 (pppppppp) SECTION 1015. Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries.............. 84 (qqqqqqqq) SECTION 1016. Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries......................... 85 (rrrrrrrr) SECTION 1017. Limitation on Liens.................. 85 (ssssssss) SECTION 1018. Unrestricted Subsidiaries............ 86 (ssssssss) SECTION 1019. Limitations on Layering Indebtedness......................... 86
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PAGE (tttttttt) SECTION 1020. Limitation on Guarantees of Indebtedness by Restricted Subsidiaries......................... 87 (uuuuuuuu) SECTION 1021. Payment for Consent.................. 88 (vvvvvvvv) SECTION 1022. Waiver of Certain Covenants.......... 88 ARTICLE ELEVEN REDEMPTION OF SECURITIES (wwwwwwww) SECTION 1101. Right of Redemption.................. 88 (xxxxxxxx) SECTION 1102. Applicability of Article............. 89 (yyyyyyyy) SECTION 1103. Election to Redeem; Notice to Trustee.............................. 89 (zzzzzzzz) SECTION 1104. Selection by Trustee of Securities to Be Redeemed....................... 89 (aaaaaaaaa) SECTION 1105. Notice of Redemption................. 90 (bbbbbbbbb) SECTION 1106. Deposit of Redemption Price.......... 91 (ccccccccc) SECTION 1107. Securities Payable on Redemption Date................................. 91 (ddddddddd) SECTION 1108. Securities Redeemed in Part.......... 91 ARTICLE TWELVE DEFEASANCE AND COVENANT DEFEASANCE (eeeeeeeee) SECTION 1201. Company Option to Effect Defeasance or Covenant Defeasance............... 92 (fffffffff) SECTION 1202. Defeasance and Discharge............. 92 (ggggggggg) SECTION 1203. Covenant Defeasance.................. 92 (hhhhhhhhh) SECTION 1204. Conditions to Defeasance or Covenant Defeasance.................. 93 (iiiiiiiii) SECTION 1205. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions....... 95 (jjjjjjjjj) SECTION 1206. Reinstatement........................ 95
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PAGE ARTICLE THIRTEEN SUBSIDIARY GUARANTEES (kkkkkkkkk) SECTION 1301. Subsidiary Guarantees................ 96 (lllllllll) SECTION 1302. Guaranty Absolute.................... 97 (mmmmmmmmm) SECTION 1303. Waivers.............................. 99 (nnnnnnnnn) SECTION 1304. Subrogation.......................... 99 (ooooooooo) SECTION 1305. No Waiver; Remedies.................. 100 (ppppppppp) SECTION 1306. Continuing Guaranty; No Right of Set-Off; Independent Obligation...... 100 (qqqqqqqqq) SECTION 1307. Subsidiary Guarantors May Consolidate, Etc., on Certain Terms................................ 101 (rrrrrrrrr) SECTION 1308. Additional Subsidiary Guarantors..... 101 (sssssssss) SECTION 1309. Releases............................. 101 (ttttttttt) SECTION 1310. Benefits Acknowledged................ 102 (uuuuuuuuu) SECTION 1311. Severability......................... 102 ARTICLE FOURTEEN SUBORDINATION OF SECURITIES AND SUBSIDIARY GUARANTEES (vvvvvvvvv) SECTION 1401. Securities and Subsidiary Guarantees Subordinate to Senior Indebtedness......................... 103 (wwwwwwwww) SECTION 1402. Payment Over of Proceeds Upon Dissolution, Etc..................... 103 (xxxxxxxxx) SECTION 1403. No Payment When Certain Senior Indebtedness in Default.............. 105 (yyyyyyyyy) SECTION 1404. Payment Permitted If No Default...... 106 (zzzzzzzzz) SECTION 1405. Subrogation to Rights of Holders of Senior Indebtedness.................. 106 (aaaaaaaaaa) SECTION 1406. Provisions Solely to Define Relative Rights............................... 107 (bbbbbbbbbb) SECTION 1407. Trustee to Effectuate Subordination.. 108 (cccccccccc) SECTION 1408. No Waiver of Subordination Provisions 108 (dddddddddd) SECTION 1409. Notice to Trustee.................... 109 (eeeeeeeeee) SECTION 1410. Reliance on Judicial Order or Certificate of Liquidation Agent..... 109
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PAGE (ffffffffff) SECTION 1411. Trustee Not Fiduciary for Holders of Senior Indebtedness............... 110 (gggggggggg) SECTION 1412. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights.................. 110 (hhhhhhhhhh) SECTION 1413. Applicability to Paying Agents....... 110 (iiiiiiiiii) SECTION 1414. Defeasance of this Article Fourteen............................. 111 (jjjjjjjjjj) SECTION 1415. Subordination Provisions Controlling.......................... 111
SCHEDULE I - Subsidiary Guarantors EXHIBITS Exhibit A - Form of Security Exhibit B - Form of Certificate to Be Delivered upon Termination of Restricted Period Exhibit C - Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Institutional Accredited Investors Exhibit D - Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S xi INDENTURE, dated as of April 28, 1998 between Breed Technologies, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), each of the Company's subsidiaries listed on Schedule I hereto (collectively, the "Subsidiary Guarantors") and IBJ Schroder Bank & Trust Company, a bank and trust company duly organized and existing under the laws of New York, trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of and issue of 9 1/4% Senior Subordinated Notes due 2008 (herein called the "Initial Securities"), and 9 1/4% Senior Series B Subordinated Notes due 2008 (the "Exchange Securities" and, together with the Initial Securities, the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. Each of the Subsidiary Guarantors has duly authorized its guarantee of the Securities, and to provide therefor each of them has duly authorized the execution and delivery of this Indenture. Upon the issuance of the Exchange Securities, if any, or the effectiveness of the Exchange Offer Registration Statement (as defined herein) or, under certain circumstances, the effectiveness of the Shelf Registration Statement (as defined herein), this Indenture will be subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. The Company has also duly authorized the creation of up to $100,000,000 aggregate principal amount of additional Securities to be issued from time to time having identical terms and conditions to the Securities offered hereby. All things necessary have been done to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company and to make this Indenture a valid agreement of the Company and the Subsidiary Guarantors, each in accordance with their respective terms. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. ----------- For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper", as used in TIA Section 311, shall have the meanings assigned to them in the rules of the Commission adopted under the Trust Indenture Act; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article Two, Eight, Ten and Twelve are defined in that Article. "Acquired Indebtedness" means Indebtedness of a Person (a) existing at the time such Person is merged with or into the Company or becomes a Restricted Subsidiary or (b) assumed in connection with the acquisition of assets from such Person; provided that any Indebtedness of such Person that is redeemed, -------- defeased, retired or otherwise repaid at the time of or immediately upon consummation of the transaction by which such Person is merged with or into the Company, becomes a Restricted Subsidiary or such assets are acquired from such Person shall not be Acquired Indebtedness. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Additional Securities" has the meaning set forth in Section 301. "Adjusted Net Assets" has the meaning set forth in Section 1301. 2 "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding the foregoing, no Person (other than the Company or any Subsidiary of the Company) in whom a Receivables Subsidiary makes an Investment in connection with a Receivables Program shall be deemed to be an Affiliate of the Company or any of its Subsidiaries solely by reason of such Investments. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition (including, without limitation, by way of merger, consolidation or sale and leaseback transaction) (collectively, a "transfer") by the Company or a Restricted Subsidiary, directly or indirectly, in one or a series of related transactions, of (a) any Capital Stock of any Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (b) all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries representing a division or line of business or (c) any other properties or assets of the Company or any Restricted Subsidiary, other than in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include any transfer of properties or assets (i) that is governed by the provisions of this Indenture in Article Eight, (ii) between or among the Company and its Restricted Subsidiaries pursuant to transactions that do not violate any other provision of this Indenture, (iii) to any Person to the extent it constitutes a Restricted Payment that is permitted under the covenant described in Section 1011. (iv) consisting of inventory or wornout, obsolete or permanently retired equipment and facilities, (v) consisting of Receivables and Related Assets transferred pursuant to a Receivables Program, (vi) the gross proceeds of which (exclusive of indemnities) do not exceed $1.0 million in connection with any transfer, (vii) that are the subject of the Gallino Disposition or (viii) that constitutes a Permitted Investment. "Asset Sale Offer" has the meaning set forth in Section 1013. "Asset Sale Purchase Date" has the meaning set forth in Section 1013. "Banks" means the banks and other financial institutions that from time to time are lenders under the New Credit Facility. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. 3 "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Borrowing Base" means, as of any date, an amount equal to the sum of (a) 80% of the face amount of the accounts receivable owned by the Company and its Restricted Subsidiaries (other than any Receivables Subsidiary) and (b) 60% of the book value of all inventory owned by the Company and its Restricted Subsidiaries, all calculated on a consolidated basis and in accordance with GAAP as of the last day of the immediately preceding fiscal quarter for which internal financial statements are available on such date. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York are authorized or obligated by law or executive order to close. "Capitalized Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" of any Person means any and all shares, partnership interests, participations, rights in or other equivalents of, or interest in, the equity of such Person, but excluding any debt securities convertible into such equity. "cash equivalents" means (i) any evidence of Indebtedness with a maturity of 180 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of 180 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500,000,000; and (iii) commercial paper with a maturity of 180 days or less issued by a corporation that is not an Affiliate of the Company and is organized under the laws of any state of the United States or the District of Columbia and rated at least A-1 by S&P or at least P-1 by Moody's. "Change of Control" means the occurrence of any of the following events: (a) Any Person or "group" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person will be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than a majority of the voting power of all classes of Voting Stock of the Company. 4 (b) During any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election to such Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office. (c) The Company is liquidated or dissolved or adopts a plan of liquidation or dissolution, other than a transaction that complies with the provisions of Article Eight." "Change of Control Offer" has the meaning set forth in section 1012. "Change of Control Payment Date" has the meaning set forth in Section 1012. "Closing Date" means the date on which the Initial Securities are originally issued under this Indenture. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Company" means the Person named as the "Company" in the first paragraph of this Indenture, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman, its President, any Vice President, its Treasurer or an Assistant Treasurer, and delivered to the Trustee. "Consolidated EBITDA" means, for any period, the sum of, without duplication, Consolidated Net Income for such period, plus (or, in the case of clause (e) below, plus or minus) the following items to the extent included in computing Consolidated Net Income for such period (a) Fixed Charges for such period, plus (b) the federal, state, local and foreign income tax expense of the Company and its Restricted Subsidiaries for such period, plus (c) the depreciation and amortization expense of the Company and its Restricted Subsidiaries for such period, plus (d) one time charges associated with cash disruption costs not to exceed $15.0 million in fiscal year 1998 and $15.0 million in fiscal year 1999, plus (e) any other non-cash charges for such period and minus non-cash credits for such period, other than non-cash charges or credits resulting from changes in prepaid assets or accrued liabilities 5 in the ordinary course of business plus (f) the December 1997 Charges; provided -------- that income tax expense, depreciation and amortization expense and non-cash charges and credits of a Restricted Subsidiary shall be included in Consolidated EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income for such period. "Consolidated Net Income" means, for any period, the net income (or net loss) of the Company and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, adjusted to the extent included in calculating such net income or loss by excluding (a) any net after-tax extraordinary gains or losses (less all fees and expenses relating thereto), (b) any net after-tax gains or losses (less all fees and expenses relating thereto) attributable to Asset Sales, (c) the net income (but not the net loss) of any Person (other than the Company or a Restricted Subsidiary), in which the Company or any Restricted Subsidiary has an equity interest, except that the aggregate amount of dividends or other distributions actually paid to the Company or any Restricted Subsidiary in cash during such period will be included in such Consolidated Net Income, (d) the net income (or loss) of any Person acquired by the Company or any Restricted Subsidiary in a "pooling of interests" transaction attributable to any period prior to the date of such acquisition, (e) the net income (but not the net loss) of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is at the date of determination restricted, directly or indirectly, except that the aggregate amount of such net income that could be paid to the Company or a Restricted Subsidiary thereof by loans, advances, intercompany transfers, principal repayments or otherwise will be included in such Consolidated Net Income and (f) dividends paid or accrued on the Preferred Securities or any other Preferred Stock issued by the Company or any Restricted Subsidiary; provided, however, -------- ------- that, so long as the Company retains a minority investment in the Siemens Joint Venture, Consolidated Net Income for any period shall include the Company's proportionate share of the net income or net loss of the Siemens Joint Venture for such period determined as if the Siemens Joint Venture were accounted for by the Company on an equity accounting basis in accordance with GAAP and, provided -------- further that notwithstanding the foregoing proviso, if the Siemens Joint Venture - ------- generates net income for any period, the amount of such net income that is included in Consolidated Net Income for such period shall not exceed the aggregate amount of (i) dividends or other distributions plus (ii) other payments by the Siemens Joint Venture under any management agreement, royalty agreement or other similar arrangement, in either case actually paid to the Company or any Restricted Subsidiary in cash during such period. "Consolidated Net Worth" means, at any date of determination, stockholders' equity of the Company and its Restricted Subsidiaries as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Restricted Subsidiaries, less any amounts attributable to Disqualified Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of the Capital Stock of the Company 6 or any of its Restricted Subsidiaries and less, to the extent included in calculating such stockholders' equity of the Company and its Restricted Subsidiaries, the stockholders' equity attributable to Unrestricted Subsidiaries, each item to be determined in conformity with GAAP (excluding the effects of foreign currency adjustments under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 52). "Convertible Debentures" means the Company's 6.5% Convertible Subordinated Debentures due 2027 which were sold to BTI Capital Trust in the original aggregate principal amount of $257.7 million. "Corporate Trust Office" means the principal corporate trust office of the Trustee, at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Indenture is located at One State Street, New York, NY 10004, except that with respect to presentation of Securities for payment or for registration of transfer or exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust and agency business shall be conducted. "December 1997 Charges" means aggregate costs of approximately $349.9 million recorded by the Company during the three month period ended December 31, 1997 which include (i) a $244.0 million charge incurred by the Company in connection with its repositioning, (ii) a $77.5 million charge relating to the write-off of in-process research and development for technology acquired in the SRS Acquisition that had not been established as technologically feasible and (iii) a $28.4 million charge against cost of sales for inventory and long-term customer contracts relating to manufacturing processes that will be exited by the Company. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 309. "Depositary" means The Depository Trust Company, its nominees and successors. "Designated Senior Indebtedness" means (i) all Senior Indebtedness under the New Credit Facility and (ii) any other issue of Senior Indebtedness or refinancing thereof permitted by the definition of Senior Indebtedness, having a principal amount of at least $25.0 million. "Disinterested Director" means, with respect to any transaction or series of transactions in respect of which the Board of Directors is required to deliver a resolution of the Board of Directors, to make a finding or otherwise take action under the Indenture, a 7 member of the Board of Directors who does not have any material direct or indirect financial interest in or with respect to such transaction or series of transactions. "Disqualified Stock" means any class or series of Capital Stock that, either by its terms, or by the terms of any security into which it is convertible or exchangeable or by contract or otherwise (a) is, or upon the happening of an event or passage of time would be, required to be redeemed prior to one year after the final Stated Maturity of the Securities, (b) is redeemable at the option of the holder thereof at any time prior to one year after such final Stated Maturity or (c) at the option of the holder thereof, is convertible into or exchangeable for debt securities at any time prior to one year after such final Stated Maturity; provided that any Capital Stock that would not -------- constitute Disqualified Stock but for provisions therein giving holders thereof the right to cause the issuer thereof to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the Stated Maturity of the Securities will not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in Sections 1012 and 1013 and such Capital Stock specifically provides that the issuer will not repurchase or redeem any of such stock pursuant to such provision prior to the Company's repurchase of such of the Securities as are required to be repurchased pursuant to Sections 1012 and 1013. "Domestic Restricted Subsidiary" means a Domestic Subsidiary that is a Restricted Subsidiary. "Domestic Subsidiary" means any Subsidiary whose jurisdiction of incorporation, organization or formation is the United States, any state thereof or the District of Columbia. "Equity Offering" means an offer and sale by the Company of its common stock (which is Qualified Stock) to one or more Persons other than a Subsidiary. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities and Exchange Act of 1934, as amended from time to time, and the rules and regulations thereunder. "Exchange Offer" means the exchange offer that may be effected pursuant to the Registration Rights Agreement. "Exchange Offer Registration Statement" means the Exchange Offer Registration Statement as defined in the Registration Rights Agreement. "Exchange Securities" has the meaning stated in the first recital of this Indenture and refers to any Exchange Securities containing terms substantially identical to the 8 Initial Securities (except that such Exchange Securities shall not contain terms with respect to the interest rate step-up provisions in Section 309 of the Initial Securities and transfer restrictions in Section 307 of the Initial Securities) that are issued and exchanged for the Initial Securities pursuant to the Registration Rights Agreement and this Indenture. "Fair market value" means, with respect to any asset, the price which could be negotiated in an arm's-length free market transaction, for cash, between an informed and willing seller and an informed and willing buyer, neither of which is under pressure or compulsion to complete the transaction. "Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the United States Code, as amended from time to time. "Fixed Charges" means, for any period, without duplication, the sum of (a) the amount that, in conformity with GAAP, would be set forth opposite the caption "interest expense" (or any like caption) on a consolidated statement of operations of the Company and its Restricted Subsidiaries for such period, including, without limitation, (i) amortization of debt discount, (ii) the net cost of interest rate contracts (including amortization of discounts), (iii) the interest portion of any deferred payment obligation, (iv) amortization of debt issuance costs and (v) the interest component of Capitalized Lease Obligations, plus (b) cash dividends paid on Preferred Stock and Disqualified Stock by the Company and any Restricted Subsidiary (to any Person other than the Company and its Restricted Subsidiaries), including cash dividends on the Preferred Securities, plus (c) all interest on any Indebtedness of any Person guaranteed by the Company or any of its Restricted Subsidiaries; provided, however, that -------- ------- Fixed Charges shall not include (i) any gain or loss from extinguishment of debt, including the write-off of debt issuance costs and (ii) the fixed charges of a Restricted Subsidiary to the extent (and in the same proportion) that the net income of such Subsidiary was excluded in calculating Consolidated Net Income pursuant to clause (e) of the definition thereof for such period. "Fixed Charge Coverage Ratio" means, for any period, the ratio of (a) Consolidated EBITDA for such period to (b) Fixed Charges for such period. "Foreign Subsidiary" means any Subsidiary other than a Domestic Subsidiary. "Gallino Disposition" means the proposed sale by the Company of the plastic interior and exterior parts business of Gallino Plasturgia, S.r.l. "Generally Accepted Accounting Principles" or "GAAP" means generally accepted accounting principles in the United States, consistently applied, that are in effect on the Closing Date. 9 "Guarantee" means, as applied to any obligation, (a) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of all or any part of such obligation and (b) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limitation, the payment of amounts drawn down under letters of credit. "Hedging Obligations" means the obligations of any Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or the value of foreign currencies. "Holder" means the Person in whose name a Security is, at the time of determination, registered on the Security Register. "Indebtedness" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (a) every obligation of such Person for money borrowed, (b) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person (other than up to $10.0 million of obligations at any time outstanding with respect to letters of credit securing obligations entered into in the ordinary course of business of such Person to the extent such letters are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed not later than the fifth Business Day following receipt of a demand for reimbursement following payment on the letter of credit), (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services, (e) the amount of every Capitalized Lease Obligation of such Person, (f) all Disqualified Stock of such Person valued at its maximum fixed repurchase price (including, without duplication, accrued and unpaid dividends), (g) all obligations of such Person under or in respect of Hedging Obligations and (h) every obligation of the type referred to in clauses (a) through (g) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed. For purposes of this definition, the "maximum fixed repurchase price" of any Disqualified Stock that does not have a fixed repurchase price 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 is required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock, such fair market value shall be determined in good faith by the board of directors of the issuer of such Disqualified Stock. Notwithstanding the foregoing, trade accounts payable and accrued liabilities arising in the ordinary course of business and any liability for federal, state or local taxes or other taxes owed by such Person shall not be considered Indebtedness for purposes of this definition. 10 "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Indenture Obligations" means the obligations of the Company and any other obligor hereunder or under the Securities, including the Subsidiary Guarantors, to pay principal of (and premium, if any) and interest on the Securities when due and payable at Maturity, and all other amounts due or to become due under or in connection with this Indenture, the Securities and the performance of all other obligations to the Trustee (including all amounts due to the Trustee under Section 606 hereof) and the Holders under this Indenture and the Securities, according to the terms hereof and thereof. "Initial Securities" has the meaning stated in the first recital of this Indenture. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Investment" in any Person means (a) any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of guarantee or similar arrangement) or capital contribution to such Person, the purchase or other acquisition of any Capital Stock, Indebtedness or other securities issued by such Person, the acquisition (by purchase or otherwise) of all or substantially all of the business or assets of such Person, or the making of any investment in such Person, (b) the designation of any Restricted Subsidiary as an Unrestricted Subsidiary, (c) the transfer of any assets or properties from the Company or a Restricted Subsidiary to an Unrestricted Subsidiary, other than the transfer of assets or properties made in the ordinary course of business and (d) the fair market value of the Capital Stock (or any other Investment), held by the Company or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a Restricted Subsidiary, including, without limitation, by reason of any transaction permitted by clause (d) of Section 1016. Investments exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. "Joint Venture Agreement" means the Joint Venture Agreement between the Company and Siemens pursuant to which the Company and Siemens agreed to form the Siemens Joint Venture. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Maturity", when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as 11 therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or otherwise. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or cash equivalents, including payments in respect of deferred payment obligations, but only as and when received, in the form of, or stock or other assets when disposed of for, cash or cash equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary), net of (a) brokerage commissions and other fees and expenses (including fees and expenses of legal counsel, accountants and investment banks) related to such Asset Sale, (b) provisions for all taxes payable or required to be accrued in accordance with GAAP as a result of such Asset Sale, (c) payments made to retire Indebtedness where payment of such Indebtedness is secured by a Lien on the assets that are the subject of such Asset Sale, (d) amounts required to be paid to any Person (other than the Company or any Restricted Subsidiary) owning a beneficial interest in the assets that are subject to the Asset Sale and (e) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the seller after such Asset Sale, including pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "New Credit Facility" means the credit agreement dated as of April 28, 1998 between the Company, NationsBank, N.A., as agent, and the Banks, as such agreement may be amended, restated, supplemented, refinanced or otherwise modified from time to time. "New Credit Facility Agent" means NationsBank, N.A., as agent for the Banks under the New Credit Facility or any successor thereto as "agent" identified in written notice to the Trustee given by the predecessor agent. "Non-U.S. Person" means a Person that is not a "U.S. Person" as defined in Regulation S. "Offering" means the offering of 9 1/4% Senior Subordinated Notes Due 2008 by the Company. "Officers' Certificate" means a certificate signed by the Chairman, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. 12 "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, including an employee of the Company, and who shall be reasonably satisfactory to the Trustee. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (a) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Securities, or portions thereof, for whose payment, redemption or purchase money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if -------- such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (c) Securities, except to the extent provided in Sections 1202 and 1203, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Twelve; and (d) Securities which have been paid pursuant to Section 308 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands the Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite - -------- ------- principal amount of Outstanding Securities have given any request, demand, authorization, direction, consent, notice or waiver hereunder, and for the purpose of making the calculations required by TIA Section 313, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. 13 "Pari Passu Indebtedness" means any Indebtedness of the Company or any Subsidiary Guarantor, whether outstanding at the date of this Indenture or incurred thereafter, that ranks pari passu in right of payment with the Securities or any Subsidiary Guarantee, as the case may be. "Paying Agent" means IBJ Schroder Bank & Trust Company and any successor (including the Company acting as Paying Agent) authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Permitted Holder" means (i) Allen K. Breed and Johnnie Cordell Breed, any trust existing solely for the benefit of Allen K. Breed and/or Johnnie Cordell Breed and the estate or any executor, administrator, conservator or other legal representative of Allen K. Breed or Johnnie Cordell Breed and (ii) Siemens and its Affiliates. "Permitted Investments" means any of the following: (a) Investments in (i) securities with a maturity of one year or less issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of one year or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus of not less than $500,000,000; (iii) commercial paper with a maturity of one year or less issued by a corporation that is not an Affiliate of the Company and is organized under the laws of any state of the United States or the District of Columbia and having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Ratings Services and (iv) money market mutual funds that invest substantially in securities of the type described in the preceding clauses (i) through (iii). (b) Investments by the Company or any Restricted Subsidiary in another Person, if as a result of such Investment such other Person (i) becomes a Restricted Subsidiary or (ii) is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to, the Company or a Restricted Subsidiary. (c) Investments by the Company or any of the Restricted Subsidiaries in any one of the other of them. (d) Investments in existence on the Closing Date. (e) Investments made as a result of the receipt of non-cash consideration in an Asset Sale permitted under Section 1013. (f) Investments in assets owned or used in the ordinary course of business. 14 (g) Investments in any Person in the form of a capital contribution of the Company's common stock. (h) Property and assets, including cash, constituting the Company's initial contribution to the Siemens Joint Venture pursuant to the Joint Venture Agreement, and other Investments in the Siemens Joint Venture that do not exceed, during any fiscal quarterly period, an amount equal to 9% of the net sales of the Company and its consolidated subsidiaries for the immediately preceding fiscal quarterly period determined in accordance with GAAP. (i) Other Investments that do not exceed $10.0 million in the aggregate at any time outstanding. (j) Any acquisition of assets, Capital Stock or other securities to the extent made in exchange for the issuance of Capital Stock (other than Disqualified Stock) of the Company. (k) Investments in securities of trade creditors or customers received pursuant to any plan or reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers. (l) Investments by the Company or a Restricted Subsidiary in a Receivables Subsidiary. "Person" means any individual, corporation, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 308 in exchange for a mutilated security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Security. "Preferred Securities" means $250.0 million aggregate liquidation amount of 6.5% Convertible Trust Preferred Securities issued by BTI Capital Trust. "Preferred Stock" means, with respect to any Person, any and all shares, interests, partnership interests, participations, or other equivalents (however designated) of such Person's preferred or preference stock, whether now outstanding or issued after the Closing Date, and including, without limitation, all classes and series of preferred or preference stock of such Person. 15 "Qualified Equity Interest" means any Qualified Stock and all warrants, options or other rights to acquire Qualified Stock (but excluding any debt security that is convertible into or exchangeable for Capital Stock). "Qualified Stock" of any Person means any and all Capital Stock of such Person, other than Disqualified Stock. "QIB" means a "Qualified Institutional Buyer" under Rule 144A. "Receivables and Related Assets" means accounts receivable, instruments, chattel paper, obligations, general intangibles and other similar assets, including interests in merchandise or goods, the sale or lease of which give rise to the foregoing, related contractual rights, guarantees, insurance proceeds, collections, other related assets and proceeds of all of the foregoing. "Receivables Program" means, with respect to any Person, any accounts receivable securitization program pursuant to which such Person, directly or indirectly, pledges, sells or otherwise transfers or encumbers its accounts receivable, including to a trust, limited liability company, special purpose entity or other similar entity. "Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary of the Company (i) created for the purpose of financing receivables created in the ordinary course of business of the Company and its Restricted Subsidiaries and (ii) the sole assets of which consist of Receivables and Related Assets of the Company and its Restricted Subsidiaries and related Permitted Investments. "Redemption Date", when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Refinancing of Existing Credit Facility" means the use of proceeds from the offering of the Initial Securities, together with borrowings under the New Credit Facility, to repay borrowings outstanding on the Closing Date under a $900.0 million credit facility arranged by NationsBank, N.A. "Registrar" means IBJ Schroder Bank & Trust Company and any successor authorized by the Company to act as Registrar. "Registration Rights Agreement" means the Registration Rights Agreement between the Company and the Initial Purchasers named therein, dated as of April 28, 1998 relating to the Securities. 16 "Registration Statement" means the Registration Statement as defined in the Registration Rights Agreement. "Regular Record Date" for the interest payable on any Interest Payment Date means the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. "Restricted Payments" has the meaning set forth in Section 1011. "Restricted Subsidiary" means any Subsidiary other than an Unrestricted Subsidiary and includes BTI Capital Trust. "Rule 144A" means Rule 144A under the Securities Act. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. For all purposes of this Indenture, the term "Securities" shall include any Exchange Securities to be issued and exchanged for any Initial Securities in accordance with the Exchange Offer as provided for in the Registration Rights Agreement and this Indenture. From and after the issuance of any Additional Securities pursuant to Section 312 (but, not for purposes of determining whether such issuance is permitted hereunder), "Securities" shall include such Additional Securities for purposes of this Indenture, and all Initial Securities, Exchange Securities and Additional Securities shall vote together as one series of Securities under this Indenture. "Securities Act" means the Securities Act of 1933, as amended from time to time, and the rules and regulations thereunder. "Security Register" has the meaning set forth in Section 305. "Senior Indebtedness" means the principal of and premium, if any, and interest on (including interest accruing after the filing of a petition initiating any proceeding pursuant to any bankruptcy law, whether or not allowed) and other amounts due on or in connection with any Indebtedness of the Company (other than the Securities or Pari Passu Indebtedness), whether outstanding on the Closing Date or thereafter incurred, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness will be subordinate in right of payment to any Indebtedness or other general unsecured obligations of the Company. Without limiting the generality of the foregoing, "Senior Indebtedness" includes the principal of and premium, if any, and interest (including interest accruing after the occurrence of an event of default or after the filing of a petition initiating any proceeding pursuant to any 17 bankruptcy law, whether or not allowed) on all obligations of every nature of the Company from time to time owed to the Banks under the New Credit Facility, provided, however, that any Indebtedness under any refinancing, refunding or - -------- ------- replacement of the New Credit Facility shall not constitute Senior Indebtedness to the extent that the Indebtedness thereunder is by its express terms subordinate to any other Indebtedness of the Company. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Securities, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of the Company, (c) Indebtedness that, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company, (d) Indebtedness that is represented by Disqualified Stock, (e) Indebtedness for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade payables ties (other than Indebtedness in respect of any services rendered by or purchased from, or current liabilities owing to, banks or financial institutions or the current portion of any long-term Indebtedness that would constitute Senior Indebtedness but for the operation of this clause (e)), (f) Indebtedness of or amounts owed by the Company for compensation to employees or for services rendered to the Company, (g) any liability for foreign, federal, state, local or other taxes owed or owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness that, at the time of the incurrence, is incurred by the Company in violation of the Indenture and (j) amounts owing under leases (other than Capital Lease Obligations). "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Siemens" means Siemens Aktiengesellschaft. "Siemens Joint Venture" means BST Restraint Systems International Gmbh & Co. KG, a joint venture formed (or to be formed, as the case may be) pursuant to the Joint Venture Agreement for the purpose of providing for the research, development, engineering, assembly and marketing of integrated occupant protection systems. "Significant Subsidiary" means any Restricted Subsidiary of the Company that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-K promulgated by the Commission as such Rule is in effect on the date of the Indenture. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, and its successors. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 309. 18 "SRS Acquisition" means the Company's acquisition of the safety restraint systems business of AlliedSignal Inc. on October 30, 1997. "Stated Maturity" means, when used with respect to any Security or any installment of interest thereon, the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable and, when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness or any installment of interest thereon is due and payable, and will not, in either case, include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subordinated Indebtedness" means Indebtedness of the Company or a Subsidiary Guarantor that is subordinated in right of payment to the Securities or the Subsidiary Guarantee issued by such Subsidiary Guarantor, as the case may be. "Subsidiary" means any Person a majority of the equity ownership or Voting Stock of which is at the time owned, directly or indirectly, by the Company and/or one or more Subsidiaries of the Company. "Subsidiary Guarantee" means a guarantee of the Securities by a Restricted Subsidiary in accordance with the provisions of the Indenture. "Subsidiary Guarantor" means, initially, each of the Company's Subsidiaries listed on Schedule I hereto, and thereafter, any Restricted Subsidiary that issues or has issued a Subsidiary Guarantee pursuant to or as required by the provisions of this Indenture. "Subsidiary Guarantor Senior Indebtedness" means, as to any Subsidiary Guarantor, the principal of and premium, if any, and interest on (including interest accruing after the filing of a petition initiating any proceeding pursuant to any bankruptcy law, whether or not allowed) and other amounts due on or in connection with any Indebtedness of such Subsidiary Guarantor (other than the Subsidiary Guarantee made by such Subsidiary Guarantor or Pari Passu Indebtedness), whether outstanding on the Closing Date or thereafter incurred, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness will be subordinate in right of payment to any Indebtedness or other general unsecured obligations of such Subsidiary Guarantor. Without limiting the generality of the foregoing, "Subsidiary Guarantor Senior Indebtedness" includes the principal of and premium, if any, and interest (including interest accruing after the occurrence of an event of default or after the filing of a petition initiating any proceeding pursuant to any bankruptcy law, whether or not allowed) on all obligations of every nature of such Subsidiary Guarantor from time to time owed to the Banks under the New Credit Facility, provided, however, that any Indebtedness under any refinancing, -------- ------- refunding or replacement of the New Credit Facility shall not constitute 19 Senior Indebtedness to the extent that the Indebtedness thereunder is by its express terms subordinate to any other Indebtedness of such Subsidiary Guarantor. Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a) Indebtedness evidenced by the Securities, (b) Indebtedness that is expressly subordinate or junior in right of payment to any Indebtedness of such Subsidiary Guarantor, (c) Indebtedness that, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to such Subsidiary Guarantor, (d) Indebtedness that is represented by Disqualified Stock, (e) Indebtedness for goods, materials or services purchased in the ordinary course of business or Indebtedness consisting of trade payables or other current liabilities (other than Indebtedness in respect of any services rendered by or purchased from, or current liabilities owing to, banks or financial institutions or the current portion of any long- term Indebtedness that would constitute Subsidiary Guarantor Senior Indebtedness but for the operation of this clause (e)), (f) Indebtedness of or amounts owed by such Subsidiary Guarantor for compensation to employees or for services rendered to such Subsidiary Guarantor, (g) any liability for foreign, federal, state, local or other taxes owed or owing by such Subsidiary Guarantor, (h) Indebtedness of such Subsidiary Guarantor to a Subsidiary of the Company or any other Affiliate of the Company or any of such Affiliate's Subsidiaries, (i) that portion of any Indebtedness that, at the time of the incurrence, is incurred by such Subsidiary Guarantor in violation of the Indenture and (j) amounts owing under leases (other than Capital Lease Obligations). "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this Indenture was executed, except as provided in Section 905. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Subsidiary" means (a) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary in accordance with Section 1018 and (b) any Subsidiary of an Unrestricted Subsidiary. "U.S. Government Obligations" has the meaning set forth in Section 1204. "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes has, or might have, voting power by reason of the happening of any contingency). "Weighted Average Life" means, as of the date of determination with respect to any Indebtedness or Disqualified Stock, the quotient obtained by dividing (a) the sum of the 20 products of (i) the number of years from the date of determination to the date or dates of each successive scheduled principal or liquidation value payment of such Indebtedness or Disqualified Stock, respectively, multiplied by (ii) the amount of each such principal or liquidation value payment by (b) the sum of all such principal or liquidation value payments. "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all of the outstanding Capital Stock (other than directors' qualifying shares or shares of Foreign Restricted Subsidiaries required to be owned by foreign nationals pursuant to applicable law) of which is owned, directly or indirectly, by the Company. SECTION 102. Compliance Certificates and Opinions. ------------------------------------ Upon any application or request by the Company or any Subsidiary Guarantor to the Trustee to take any action under any provision of this Indenture, the Company or such Subsidiary Guarantor, as the case may be, shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 1008(a)) shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) 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; (c) a statement that, in the opinion of each such individual, 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 (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. 21 SECTION 103. Form of Documents Delivered to Trustee. -------------------------------------- In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company and/or any Subsidiary Guarantor may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company and/or any such Subsidiary Guarantor stating that the information with respect to such factual matters is in the possession of the Company and/or any such Subsidiary Guarantors, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. --------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in Person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company or the Subsidiary Guarantors. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee, the Company and the Subsidiary Guarantors, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying 22 that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The ownership of Securities shall be proved by the Security Register. (d) If the Company or any Subsidiary Guarantor shall solicit from the Holders of Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company or any such Subsidiary Guarantor (as the case may be), may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company or any such Subsidiary Guarantor (as the case may be) shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders -------- on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company and/or the Subsidiary Guarantors in reliance thereon, whether or not notation of such action is made upon such Security. (f) For all purposes of this Indenture, all Initial Securities and Exchange Securities shall vote together as one series of Securities under this Indenture. SECTION 105. Notices, etc., to Trustee, Company. ---------------------------------- Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, 23 (a) the Trustee by any Holder, the Company or any Subsidiary Guarantor shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing or mailed, first-class postage prepaid, to or with the Trustee at its Corporate Trust Office, Attention: Corporate Finance Department, or sent by facsimile to the Trustee at (212) 858-2952 (with receipt confirmed by telephone at (212) 858-2300); or (b) the Company by the Trustee, any Holder or any Subsidiary Guarantor shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at 5300 Old Tampa Highway, P.O. Box 33050, Lakeland, Florida 33807, Attention: Stuart Boyd, Esq., or sent by facsimile to the Company at (941) 668-6036 (with receipt confirmed by telephone at (941) 668-6000), or at any other address or facsimile number previously furnished in writing to the Trustee by the Company; or (c) any Subsidiary Guarantor by the Company, any other Subsidiary Guarantor, the Trustee or any Holder shall be sufficient for any purpose hereunder (unless otherwise herein expressly provided) if in writing, and mailed, first class postage prepaid, to such Subsidiary Guarantor addressed to it at c/o BREED Technologies, Inc. 5300 Old Tampa Highway, P.O. Box 33050, Lakeland, Florida 33807, Attention: Stuart Boyd, Esq., or sent by facsimile to such Subsidiary Guarantor at (941) 668-6000 (with receipt confirmed by telephone), or at any other address or facsimile number previously furnished in writing to the Trustee by such Subsidiary Guarantor. SECTION 106. Notice to Holders; Waiver. ------------------------- Where this Indenture provides for notice of any event to Holders by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. 24 In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. SECTION 107. Conflict of any Provision of Indenture with Trust ------------------------------------------------- Indenture Act. - ------------- If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Sections 310 to 318, inclusive, of the Trust Indenture Act, or conflicts with any provision (an "incorporated provision") required by or deemed to be included in this Indenture by operation of such Trust Indenture Act sections, such imposed duties or incorporated provision shall control. SECTION 108. Effect of Headings and Table of Contents. ---------------------------------------- The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. Successors and Assigns. ---------------------- All covenants and agreements in this Indenture by the Company and the Subsidiary Guarantors shall bind its respective successors and assigns, whether so expressed or not. SECTION 110. Separability Clause. ------------------- 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 111. Benefits of Indenture. --------------------- Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Securities Registrar and their successors hereunder, and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. 25 SECTION 112. Governing Law. ------------- This Indenture and the Securities shall be governed by and construed in accordance with the law of the State of New York. Upon the issuance of the Exchange Securities, if any, or the effectiveness of the Exchange Offer Registration Statement (as defined herein) or, under certain circumstances, the effectiveness of the Shelf Registration Statement (as defined herein), this Indenture shall be subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 113. Legal Holidays. -------------- In any case where any Interest Payment Date, Redemption Date, date established for payment of Defaulted Interest pursuant to Section 309, Stated Maturity or Maturity, Change of Control Purchase Date or Asset Sale Purchase Date with respect to any Security or other day on which principal, premium or interest in respect or the Securities is due, shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of principal (or premium, if any) or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date, date established for payment of Defaulted Interest pursuant to Section 309, Stated Maturity or Maturity, Change of Control Purchase Date or Asset Sale Purchase Date; provided that no interest shall accrue for the period from and after such -------- Interest Payment Date or other such day, Redemption Date, date established for payment of Defaulted Interest pursuant to Section 309, Stated Maturity or Maturity, Change in Control Purchase Date or Asset Sale Purchase Date, as the case may be, to the next succeeding Business Day. 26 ARTICLE TWO SECURITY FORMS SECTION 201. Forms Generally. --------------- The Securities and the Trustee's certificate of authentication shall be in substantially the form annexed hereto as Exhibit A, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security. The definitive Securities shall be printed, lithographed or engraved on steel-engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Securities, as evidenced by their execution of such Securities. The terms and provisions contained in the form of 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, the Subsidiary Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Initial Securities offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Securities substantially in the form set forth in Exhibit A (the "U.S. Global Security") deposited with, or on behalf of, the Depositary or with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the U.S. Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Initial Securities offered and sold in reliance on Regulation S shall be issued initially in the form of temporary certificated Securities in registered form substantially in the form set forth in Exhibit A (the "Temporary Offshore Global Securities"). The Temporary Offshore Global Securities will be registered in the name of, and held by, a temporary certificate holder designated by NationsBanc Capital Markets, Inc. until the termination of the "restricted period" (as defined in Regulation S) with respect to the offer and sale of the Initial Securities (the "Offshore Securities Exchange Date"). At any time following the Offshore Securities Exchange Date, upon receipt by the Trustee and the Company of a certificate 27 substantially in the form of Exhibit B hereto, the Company shall execute, and the Trustee shall authenticate and deliver, one or more permanent certificated Securities in registered form substantially in the form set forth in Exhibit A (the "Permanent Offshore Physical Securities"), in exchange for the surrender of Temporary Offshore Global Securities of like tenor and amount. Initial Securities offered and sold other than as described in the preceding two paragraphs shall be issued in the form of permanent certificated Securities in registered form in substantially the form set forth in Exhibit A (the "U.S. Physical Securities"). The Temporary Offshore Global Securities, Permanent Offshore Physical Securities and U.S. Physical Securities are sometimes collectively herein referred to as the "Physical Securities". SECTION 202. Restrictive Legends. ------------------- Unless and until (i) an Initial Security is sold under an effective Registration Statement or (ii) an Initial Security is exchanged for an Exchange Security in connection with an effective Registration Statement, in each case pursuant to the Registration Rights Agreement, each certificate representing a Security shall contain a legend substantially to the following effect (the "Private Placement Legend") on the face thereof: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH BREED TECHNOLOGIES, INC. (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT 28 REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) PRIOR TO THE END OF THE 40-DAY RESTRICTED PERIOD WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR PURSUANT TO CLAUSES (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Each U.S. Global Security, whether or not an Initial Security, shall also bear the following legend on the face thereof: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY 29 TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE. ARTICLE THREE THE SECURITIES SECTION 301. Title and Terms. --------------- The initial aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $330,000,000, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 307, 308, 906, 1012, 1013 or 1108, pursuant to an Exchange Offer or pursuant to Section 312. The Company may also issue up to $100 million aggregate principal amount of Additional Securities having identical terms and conditions to the Securities, subject to compliance with the covenants contained herein (the "Additional Securities"). The Initial Securities shall be known and designated as the "9 1/4% Senior Subordinated Notes due 2008" and the Exchange Securities shall be known and designated as the "9 1/4% Exchange Senior Subordinated Notes due 2008." Their Stated Maturity shall be April 15, 2008, and they shall bear interest at the rate of 9 1/4% per annum from April 28, 1998, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, payable semiannually on April 15 and October 15 in each year, commencing October 15, 1998, until the principal thereof is paid or duly provided for, to the Person in whose name the Security (or any predecessor Security) is registered at the close of business on the April 1 or October 1 next preceding such Interest Payment Date. The principal of (and premium, if any), and interest on the Securities shall be payable, and the Securities shall be exchangeable and transferable, at the office or agency of the Company in The City of New York maintained for such purposes, (which initially shall be 30 the office of the Trustee located at One State Street, New York, NY 10004) or, at the option of the Company, interest may be paid by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register; provided that all payments with respect to the U.S. Global -------- Securities, as well as Physical Securities the Holders of which have given wire transfer instructions to the Trustee (or other Paying Agent) by the Regular Record Date for such payment, will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Securities that remain outstanding after the consummation of the Exchange Offer and Exchange Securities issued in connection with the Exchange Offer will be treated as a single class of securities under this Indenture. The Securities shall be redeemable as provided in Article Eleven. SECTION 302. Denominations. ------------- The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 303. Execution, Authentication, Delivery and Dating. ---------------------------------------------- The Securities shall be executed on behalf of the Company by its Chairman, its President or a Vice President. The signature of any of these officers on the Securities may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Securities. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Initial Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Initial Securities directing the Trustee to authenticate the Securities and certifying that all conditions precedent to the issuance of Securities contained herein have been fully complied with, and the Trustee in accordance with such Company Order shall authenticate and deliver such Initial Securities. On Company Order, the Trustee shall authenticate for original issue Exchange Securities in an aggregate principal amount not to exceed $330,000,000 plus the aggregate principal amount of any Additional Securities issued; provided that such Exchange Securities shall be issuable only -------- upon the valid surrender for cancellation of Initial Securities of a like aggregate principal amount in accordance with an Exchange Offer pursuant to the Registration Rights Agreement and a Company Order for the authentication of such securities 31 certifying that all conditions precedent to the issuance have been complied with (including the effectiveness of a registration statement related thereto). In each case, the Trustee shall be entitled to receive an Officers' Certificate and an Opinion of Counsel of the Company that it may reasonably request in connection with such authentication of Securities. Such order shall specify the amount of Securities to be authenticated and the date on which the original issue of Initial Securities or Exchange Securities is to be authenticated. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for in Exhibit A duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. In case the Company, pursuant to Article Eight, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Securities as specified in such request for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. SECTION 304. Temporary Securities. -------------------- Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other 32 variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without 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 office or agency of the Company designated for such purpose pursuant to Section 1002, 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 principal amount of definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 305. Registration, Registration of Transfer and Exchange. --------------------------------------------------- The Company shall cause to be kept at the Corporate Finance Department of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. At all reasonable times, the Security Register shall be open to inspection by the Trustee. The Trustee is hereby initially appointed as "Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 1002, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange (including an exchange of Initial Securities for Exchange Securities), the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive; provided that no exchange -------- of Initial Securities for Exchange Securities shall occur until an Exchange Offer Registration Statement shall have been declared effective by the Commission and that the Initial Securities to be exchanged for the Exchange Securities shall be cancelled by the Trustee. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the 33 same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Securities, 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 any registration 304, 906, 1012, 1013 or 1108 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the selection of Securities to be redeemed under Section 1104 and ending at the close of business on the day of such mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. Notwithstanding anything to the contrary contained herein, the Trustee shall have no duty whatsoever to monitor compliance with Federal or State securities laws other than to collect the certificates required herein. 34 SECTION 306. Book-Entry Provisions for U.S. Global Security. ---------------------------------------------- (a) The U.S. Global Security initially shall (i) be registered in the name of Cede & Co., as nominee of the Depositary, (2) be deposited with, or on behalf of, the Depositary or with the Trustee, as custodian for such Depositary, and (iii) bear legends as set forth in Section 202. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any U.S. Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under the U.S. Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such U.S. Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or shall impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Security. (b) Transfers of the U.S. Global Security shall be limited to transfers of such U.S. Global Security in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in the U.S. Global Security may be transferred in accordance with the rules and procedures of the Depositary and the provisions of Section 307. In addition, if (i) the Company notifies the Trustee in writing that the Depositary is no longer willing or able to act as a depositary and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Securities in the form of Physical Securities hereunder then, upon surrender by the Global Security Holder of its Global Security, Physical Securities will be issued to each Person that the Global Security Holder and the Depositary identify as being the beneficial owner of the related Securities. (c) In connection with any transfer of a portion of the beneficial interest in the U.S. Global Security to beneficial owners pursuant to subsection (b) of this Section, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the beneficial interest in the U.S. Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Securities of like tenor and amount. (d) In connection with the transfer of the entire U.S. Global Security to beneficial owners pursuant to subsection (b) of this Section, the U.S. Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the 35 Depositary in exchange for its beneficial interest in the U.S. Global Security, an equal aggregate principal amount of U.S. Physical Securities of authorized denominations. (e) Any U.S. Physical Security delivered in exchange for an interest in the U.S. Global Security pursuant to subsection (c) or subsection (d) of this Section shall, except as otherwise provided by paragraph (a)(i)(x) and paragraph (f) of Section 307, bear the applicable legend regarding transfer restrictions applicable to the U.S. Physical Security set forth in Section 202. (f) The Holder of the U.S. Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 307. Special Transfer Provisions. --------------------------- The Trustee is entitled to rely upon the certificates delivered pursuant to this Section 307 and is irrevocably authorized to produce such certificates or copies thereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered thereby. Unless and until (i) an Initial Security is sold under an effective Registration Statement, or (ii) an Initial Security is exchanged for an Exchange Security in connection with an effective Registration Statement, in each case pursuant to the Registration Rights Agreement, the following provisions shall apply: (a) Transfers to Non-QIB Institutional Accredited Investors. The ------------------------------------------------------- following provisions shall apply with respect to the registration of any proposed transfer of an Initial Security to any institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) which is not a QIB (excluding Non-U.S. Persons): (i) The Registrar shall register the transfer of any Initial Security, whether or not such Initial Security bears the Private Placement Legend, if (x) the requested transfer is at least two years after the original issue date of the Initial Securities or (y) the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto. (ii) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Security, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (i) and (y) instructions given in accordance with the Depositary's and the Registrar's procedures therefor, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the beneficial interest in 36 the U.S. Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Securities of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with ----------------- respect to the registration of any proposed transfer of an Initial Security to a QIB (excluding Non-U.S. Persons): (i) If the Security to be transferred consists of U.S. Physical Securities, Temporary Offshore Global Securities or Permanent Offshore Physical Securities, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Initial Security stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Initial Security stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Initial Security for its own account or an account with respect to which it exercises sole investment discretion and that it, or the Person on whose behalf it is acting with respect to any such account, is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. (ii) If the proposed transferee is an Agent Member, and the Initial Security to be transferred consists of U.S. Physical Securities, Temporary Offshore Global Securities or Permanent Offshore Physical Securities, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures therefor, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the U.S. Physical Securities, Temporary Offshore Global Securities or Permanent Offshore Physical Securities, as the case may be, to be transferred, and the Trustee shall cancel the Physical Security so transferred. (c) Transfers by Non-U.S. Persons on or Prior to June 8, 1998. The --------------------------------------------------------- following provisions shall apply with respect to registration of any proposed transfer of an Initial Security by a Non-U.S. Person on or prior to June 8, 1998: (i) The Registrar shall register the transfer of any Initial Security (x) if the proposed transferee is a Non-U.S. Person and the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto or (y) if the proposed transferee is a QIB and the proposed transferor has checked the box provided 37 for on the form of Initial Security stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Initial Security stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Initial Security for its own account or an account with respect to which it exercises sole investment discretion and that it, or the Person on whose behalf it is acting with respect to any such account, is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. Unless clause (ii) below is applicable, the Company shall execute, and the Trustee shall authenticate and deliver, one or more Temporary Offshore Physical Securities of like tenor and amount. (ii) If the proposed transferee is an Agent Member, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures therefor, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the Temporary Offshore Global Security to be transferred, and the Trustee shall cancel the Temporary Offshore Global Security so transferred. (d) Transfers by Non-U.S. Persons After June 8, 1998. The following ------------------------------------------------ provisions shall apply with respect to any transfer of an Initial Security by a Non-U.S. Person after June 8, 1998: (i) (x) If the Initial Security to be transferred is a Permanent Offshore Physical Security, the Registrar shall register such transfer, (y) if the Initial Security to be transferred is a Temporary Offshore Global Security, upon receipt of a certificate substantially in the form of Exhibit D from the proposed transferor, the Registrar shall register such transfer and (z) in the case of either clause (x) or (y), unless clause (ii) below is applicable, the Company shall execute, and the Trustee shall authenticate and deliver, one or more Permanent Offshore Physical Securities of like tenor and amount. (ii) If the proposed transferee is an Agent Member, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures therefor, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the Temporary Offshore Global Security or Permanent Offshore Physical Security to be transferred, and the Trustee shall cancel the Physical Security so transferred. 38 (e) Transfers to Non-U.S. Persons at Any Time. The following ----------------------------------------- provisions shall apply with respect to any transfer of an Initial Security to a Non-U.S. Person: (i) Prior to June 8, 1998, the Registrar shall register any proposed transfer of an Initial Security to a Non-U.S. Person upon receipt of a certificate substantially in the form of Exhibit D hereto from the proposed transferor and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Temporary Offshore Global Securities of like tenor and amount. (ii) On and after June 8, 1998, the Registrar shall register any proposed transfer to any Non-U.S. Person (w) if the Initial Security to be transferred is a Permanent Offshore Physical Security, (x) if the Initial Security to be transferred is a Temporary Offshore Global Security, upon receipt of a certificate substantially in the form of Exhibit D from the proposed transferor, (y) if the Initial Security to be transferred is a U.S. Physical Security or an interest in the U.S. Global Security, upon receipt of a certificate substantially in the form of Exhibit D from the proposed transferor and (z) in the case of either clause (w), (x) or (y), the Company shall execute, and the Trustee shall authenticate and deliver, one or more Permanent Offshore Physical Securities of like tenor and amount. (iii) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Security, upon receipt by the Registrar of (x) the document, if any, required by paragraph (i), and (y) instructions in accordance with the Depositary's and the Registrar's procedures therefor, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the beneficial interest in the U.S. Global Security to be transferred and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Permanent Offshore Physical Securities of like tenor and amount. (f) Private Placement Legend. Upon the transfer, exchange or ------------------------ replacement of Securities not bearing the Private Placement Legend, the Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Registrar shall deliver only Securities that bear the Private Placement Legend unless either (i) the circumstances contemplated by the fifth paragraph of Section 201 or paragraphs (a)(i)(x), (d)(i) or (e)(ii) of this Section 307 exist and the Company directs the Trustee pursuant to an Officers' Certificate to remove such legend or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. 39 (g) General. By its acceptance of any Security bearing the Private ------- Placement Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Registrar shall retain as required by law copies of all letters, notices and other written communications received pursuant to Section 306 or this Section 307. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. SECTION 308. Mutilated, Destroyed, Lost and Stolen Securities. ------------------------------------------------ If (i) any mutilated Security is surrendered to the Trustee or the Registrar, or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. 40 SECTION 309. Payment of Interest; Interest Rights Preserved. ---------------------------------------------- Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company in The City of New York maintained for such purposes (which initially shall be the office of the Trustee located at One State Street, New York, NY 10004) pursuant to Section 1002 or, at the option of the Company, interest may be paid by check mailed to the address of the Person entitled thereto pursuant to 310 as such address appears in the Security Register; provided that all payments with respect to Global Securities and -------- Physical Securities the Holders of which have given wire transfer instructions to the Trustee (or other Paying Agent) by the Regular Record Date shall be required to be made by wire transfer of immediately available funds to the accounts specified by the holders thereof. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") may be paid by the Company, at its election in each case, as provided in clause (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, 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, and at the same time the Company shall deposit with the Trustee an amount of money 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 money 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 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by 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 given in the manner provided for in Section 106, 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 so given, such Defaulted Interest shall be 41 paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. If the Company shall be required to pay any additional interest pursuant to the terms of the Registration Rights Agreement, it shall deliver an Officers' Certificate to the Trustee setting forth the new interest rate and the period for which such rate is applicable. SECTION 310. Persons Deemed Owners. --------------------- Prior to the due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 305 and 309) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 311. Cancellation. ------------ All Securities surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for 42 any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures and certification of their disposal delivered to the Company unless by Company Order the Company shall direct that cancelled Securities be returned to it. SECTION 312. Issuance of Additional Securities. The Company may, --------------------------------- subject to Article Ten of this Indenture, issue up to $100,000,000 aggregate principal amount of additional Securities having identical terms and conditions to the Securities offered hereby (the "Additional Securities"). Any Additional Securities will be part of the same issue as the Securities offered hereby and will vote on all matters with the Securities offered hereby. SECTION 313. CUSIP and CINS Numbers. The Company in issuing the ---------------------- Securities may use "CUSIP" and "CINS" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" and "CINS" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no -------- representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. SECTION 314. Computation of Interest. ----------------------- Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. 43 ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture. --------------------------------------- This Indenture shall upon Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Securities, as expressly provided for herein or pursuant hereto) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when (a) either (i) all the Securities theretofore authenticated and delivered (other than mutilated, destroyed, lost or stolen Securities that have been replaced or paid as provided in Section 308 and Securities that have been subject to defeasance under Article Twelve) have been delivered to the Trustee for cancellation; or (ii) all Securities not theretofore delivered to the Trustee for cancellation (A) have become due and payable, (B) will become due and payable at Stated Maturity within one year, or (C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, or the Subsidiary Guarantors, as the case may be, in the case of (A), (B) or (C) above, has irrevocably deposited or caused to be deposited with the Trustee funds in trust for the purpose in an amount sufficient to pay and discharge the entire Indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any, on) and interest on the Securities to the date of such deposit (in the case of Securities that have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (b) the Company or the Subsidiary Guarantors, as the case may be, has paid or caused to be paid all sums payable hereunder by the Company; and 44 (c) the Company or the Subsidiary Guarantors, as the case may be, has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 606 and, if money shall have been deposited with the Trustee pursuant to subclause (ii) of clause (a) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. Application of Trust Money. -------------------------- Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. ARTICLE FIVE REMEDIES SECTION 501. Events of Default. ----------------- "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest on any Security when it becomes due and payable, and continuance of such default for a period of 30 days (whether or not prohibited by the subordination provisions of this Indenture); (2) default in the payment of the principal of (or premium, if any, on) any Security when due (whether or not prohibited by the subordination provisions of this Indenture); (3) failure to perform or comply with the provisions described in Article Eight, Section 1012 or Section 1013 hereof; 45 (4) default in the performance, or breach, of any covenant or agreement of the Company or any Subsidiary Guarantor contained in this Indenture or any Subsidiary Guarantee (other than as contemplated by clauses (1), (2) and (3) above) and continuance of such default or breach for a period of 60 days after written notice has been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Securities then Outstanding; (5) an event of default has occurred under any mortgage, bond, indenture, loan agreement or other document evidencing Indebtedness of the Company or any Significant Subsidiary, which Indebtedness has an aggregate outstanding principal amount of $10,000,000 or more, and such default (i) results in the acceleration of such Indebtedness prior to its Stated Maturity or (ii) constitutes a failure to make any payment when due of any such Indebtedness; (6) failure by the Company or any of its Restricted Subsidiaries to pay one or more final judgments the uninsured portion of which exceeds in the aggregate $10,000,000, which judgment or judgments are not paid, discharged or stayed for a period of 60 days; (7) any Subsidiary Guarantee issued by a Significant Subsidiary ceases to be in full force and effect or is declared null and void or any Subsidiary Guarantor denies that it has any further liability under any Subsidiary Guarantee, or gives notice to such effect (other than by reason of the termination of this Indenture or the release of any such Subsidiary Guarantee in accordance with this Indenture), and such condition has continued for a period of 30 days after written notice of such failure requiring the Subsidiary Guarantor and the Company to remedy the same has been given (x) to the Company by the Trustee or (y) to the Company and the Trustee by the Holders of 25% in aggregate principal amount of the Securities then outstanding; or (8) entry of a decree or order by a court having jurisdiction in the premises adjudging the Company or any Significant Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustments or composition of or in respect of the Company or any Significant Subsidiary under the Federal Bankruptcy Code or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; (9) the institution by the Company or any Significant Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a 46 petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other applicable federal or state law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due; or SECTION 502. Acceleration of Maturity; Rescission and Annulment. -------------------------------------------------- If an Event of Default (other than as specified in Section 501(8) or (9)) occurs and is continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities then Outstanding, by written notice to the Company, may, and the Trustees at the request of such Holders, by written notice to the Company, shall, declare the principal of, and accrued and unpaid interest on, all of the Outstanding Securities immediately due and payable and, upon any such declaration, such principal and interest will become due and payable immediately. If an Event of Default specified in Section 501(8) or (9) above occurs and is continuing, then the principal of all of the Securities Outstanding will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of Securities. The Company shall deliver to the Trustee, within 10 days after the occurrence thereof, notice of any default or acceleration referred to the Section 501(5). At any time after a declaration of acceleration, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind such declaration and its consequences if (i) the Company or any Subsidiary Guarantor has paid or deposited with the Trustee a sum sufficient to pay, (A) all overdue interest on all Securities, (B) all unpaid principal of (and premium, if any, on) any Outstanding Securities that has become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, and (C) to the extent that payment of such interest is lawful, interest on overdue interest and overdue principal at the rate borne by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and 47 (ii) all Events of Default, other than the non-payment of amounts of principal of (or premium, if any, on) or interest on the Securities that have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. Notwithstanding the preceding paragraph, in the event of a declaration of acceleration in respect of the Securities because of an Event of Default specified in Section 501(5) shall have occurred and be continuing, such declaration of acceleration shall be automatically annulled if the Indebtedness that is the subject of such Event of Default has been discharged or the holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness, and written notice of such discharge or rescission, as the case may be, shall have been given to the Trustee by the Company and countersigned by the holders of the requisite percentage of such Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days after such declaration of acceleration in respect of the Securities, and no other Event of Default has occurred during such 30-day period which has not been cured or waived during such period. SECTION 503. Collection of Indebtedness and Suits for Enforcement ---------------------------------------------------- by Trustee. - ---------- The Company and each of the Subsidiary Guarantors covenants that if (a) default is made in the payment of any installment of interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company and each Subsidiary Guarantor will, upon demand of the Trustee, pay to the Trustee for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and interest on any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installment of interest, at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company or any Subsidiary Guarantor, as the case may be, fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and 48 unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company, such Subsidiary Guarantor or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company, such Subsidiary Guarantor or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. -------------------------------- In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities (including the Subsidiary Guarantors) or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other securities or property payable or deliverable upon the conversion or exchange of such securities or upon any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder 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 Holders, to pay the Trustee any amount due 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 606. 49 Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment 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 Holder in any such proceeding. SECTION 505. Trustee May Enforce Claims Without Possession of ------------------------------------------------ Securities. - ---------- All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. ------------------------------ Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 606; SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; and THIRD: The balance, if any, to the Company and/or the Subsidiary Guarantors, as the case may be, or as a court of competent jurisdiction may direct. SECTION 507. Limitation on Suits. ------------------- No Holder of any Securities shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; 50 (b) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities (including fees and expenses of its agents and counsel) to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority or more in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, --------------------------------------------------- Premium and Interest. - -------------------- Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article Twelve) and in such Security of the principal of (and premium, if any) and (subject to Section 309) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. ---------------------------------- If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Subsidiary Guarantors, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. 51 SECTION 510. Rights and Remedies Cumulative. ------------------------------ Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 308, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. ---------------------------- No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. Control by Holders. ------------------ The Holders of not less than a majority in principal amount of the Outstanding Securities shall have the right to 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 the Trustee, provided that -------- (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (c) the Trustee need not take any action which might involve it in personal liability or be unjustly prejudicial to the Holders not consenting. SECTION 513. Waiver of Past Defaults. ----------------------- The Holders of not less than a majority in principal amount of the Outstanding Securities may, on behalf of the Holders of all of the Securities, waive any past defaults hereunder, except a default 52 (a) in the payment of the principal of (or premium, if any) or interest on any Security, or (b) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Security Outstanding. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 514. Waiver of Stay or Extension Laws. -------------------------------- The Company and each Subsidiary Guarantor covenant (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company and each Subsidiary Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 515. Undertaking for Costs. ---------------------- All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, 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, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorney's fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal (or premium, if any ) or interest on any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). 53 ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults. ------------------ If a Default or an Event of Default occurs and is continuing and is known to the Trustee, the Trustee shall mail to each Holder of the Securities in the manner and to the extent provided in TIA Section 313(c) notice of the Default or Event of Default within 90 days after the occurrence thereof; provided, however, that, except in the case of a Default or an Event of Default - -------- ------- in the payment of principal of (and premium, if any, on) or interest on any Securities, the Trustee may withhold the notice to the Holders of the Securities if a committee of its trust officers in good faith determines that withholding such notice is in the interests of the Holders of the Securities. SECTION 602. Certain Rights of Trustee. ------------------------- Subject to the provisions of TIA Sections 315(a) through 315(d): (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting, pursuant to the terms of this Indenture or otherwise, upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper Person or Persons; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order with sufficient detail as may be requested by the Trustee and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate or an Opinion of Counsel; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; 54 (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities (including fees and expenses of its agents and counsel) which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into, and may conclusively rely upon, the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and (i) except during the continuance of an Event of Default, the Trustee need perform only those duties as are specifically set forth in this Indenture. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 603. Trustee Not Responsible for Recitals or Issuance of --------------------------------------------------- Securities. - ---------- The recitals contained herein and in the Securities, except for the Trustee's certificates of authentication, shall be taken as the statements of the Company and the Subsidiary Guarantors, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture, the Securities or any Subsidiary Guarantee, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder and, upon the effectiveness of the Registration Statement, that the 55 statements made by it in a Statement of Eligibility on Form T-1 supplied to the Company are true and accurate, subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof or any money paid to the Company or upon the Company's direction under any provision of this Indenture. The Trustee shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee. SECTION 604. May Hold Securities. ------------------- The Trustee, any Paying Agent, any Registrar or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Registrar or such other agent. SECTION 605. Money Held in Trust. ------------------- Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company or any Subsidiary Guarantor, as the case may be. SECTION 606. Compensation and Reimbursement. ------------------------------ The Company agrees: (a) to pay to the Trustee (in its capacity as Trustee, Paying Agent and Registrar) from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustee promptly upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses (including the reasonable expenses and disbursements of counsel) of enforcing this Indenture against the Company or the Subsidiary Guarantors (including 56 this Section 606) and of defending itself against any claim (whether asserted by any Holder or the Company or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligations of the Company under this Section to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture and any termination under any bankruptcy law. As security for the performance of such obligations of the Company, the Trustee shall have a claim prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(8) or (9), the expenses (including the reasonable charges and expenses of its counsel) of and the compensation for such services are intended to constitute expenses of administration under any applicable bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the termination of this Indenture. SECTION 607. Corporate Trustee Required; Eligibility. --------------------------------------- There shall be at all times a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of Federal, State, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 608. Resignation and Removal; Appointment of Successor. ------------------------------------------------- (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 609. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 609 shall not have been delivered to the Trustee within 30 days after the giving of such notice of 57 resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of not less than a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, except when the Trustee's duty to resign is stayed in accordance with the provisions of TIA Section 310(b), or (2) the Trustee shall cease to be eligible under Section 607 and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, by a Board Resolution, may remove the Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. 58 (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders of Securities in the manner provided for in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Finance Department. SECTION 609. Acceptance of Appointment by Successor. -------------------------------------- Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder subject to the retiring Trustee's rights as provided under the last sentence of Section 606. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 610. Merger, Conversion, Consolidation or Succession to -------------------------------------------------- Business. - -------- Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to 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. In case at that time any of the Securities shall not have been authenticated, any successor Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor Trustee. In all such cases such certificates shall have the full force and effect which this Indenture provides that the certificate of authentication of the Trustee shall have; provided, however, that the right to adopt the certificate of -------- ------- authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. 59 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE SECTION 701. Disclosure of Names and Addresses of Holders. -------------------------------------------- Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company or the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with TIA Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). SECTION 702. Reports by Trustee. ------------------ Within 60 days after May 15 of each year commencing with the first May 15 after the first issuance of Securities, the Trustee shall transmit to the Holders, in the manner and to the extent provided in TIA Section 313(c), a brief report dated as of such May 15 if required by TIA Section 313(a). ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, etc., Only on Certain Terms. ---------------------------------------------------- The Company shall not consolidate or merge with or into any other Person (whether or not the Company is the surviving Person), or directly or indirectly convey, sell, assign, transfer, lease or otherwise dispose of all or substantially all of its properties or assets (determined on a consolidated basis for the Company and its Subsidiaries taken as a whole) in one transaction or a series of related transactions, unless each of the following conditions is satisfied: (a) either (i) the Company is the surviving corporation or (ii) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person that acquires by conveyance, sale, assignment, transfer, lease or other disposition the properties and assets of the Company substantially as an entirety (the "Surviving Entity") (A) is a corporation, partnership or trust organized and validly existing under the laws of the United States, any state thereof or the District of Columbia and (B) expressly assumes, by a supplemental indenture in form reasonably 60 satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (b) immediately after giving effect to such transaction, no Default or Event of Default has occurred and is continuing; (c) immediately after giving effect to such transaction on a pro forma basis, the Consolidated Net Worth of the Company (or of the Surviving Entity if the Company is not the continuing obligor under this Indenture) is equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (d) immediately after giving effect to such transaction on a pro forma basis (on the assumption that the transaction occurred at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available), the Company (or the Surviving Entity if the Company is not the continuing obligor under this Indenture) could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the first paragraph of Section 1010; (e) if the Company is not the continuing obligor under this Indenture, each Subsidiary Guarantor, unless it is the other party to the transaction described above, has by supplemental indenture, upon the reasonable request of the Trustee, confirmed that its Subsidiary Guarantee applies to the Surviving Entity's obligations under this Indenture and the Securities; and (f) the Company delivers, or causes to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such transaction complies with the requirements of this Indenture. In the event of a merger of a Wholly Owned Restricted Subsidiary into the Company, the Company need not comply with the foregoing clauses (c) and (d). For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries that constitutes all or substantially all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 802. Successor Substituted. --------------------- In the event of any transaction described in and complying with the conditions listed in the first paragraph of Section 801 in which the Company is not the continuing obligor under this Indenture, the Surviving Entity shall succeed to, and be substituted for, and may 61 exercise every right and power of, the Company under this Indenture with the same effect as if such Surviving Entity had been named as the Company herein, and thereafter the Company shall, except in the case of a lease, be discharged of all its obligations and covenants under this Indenture and the Securities. ARTICLE NINE SUPPLEMENTS AND AMENDMENTS TO INDENTURE AND SUBSIDIARY GUARANTEES SECTION 901. Without Consent of Holders. -------------------------- Without the consent of any Holders, the Company and any affected Subsidiary Guarantor, each when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, for any of the following purposes: (a) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Securities; or (b) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein or in the Securities conferred upon the Company; or (c) to add any additional Events of Default; or (d) to provide for uncertificated Securities in addition to or in place of the certificated Securities; (e) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Section 609; or (f) to secure the Securities or any Subsidiary Guarantee; (g) to cure any ambiguity or mistake, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture; provided that such action shall not -------- adversely affect the interests of the Holders in any material respect; or 62 (h) to qualify, or maintain the qualification of, this Indenture under the Trust Indenture Act; (i) to add a Subsidiary Guarantor pursuant to Section 1308 hereof; (j) to make any other change that does not adversely affect the rights of any Holder. Upon the request of the Company accompanied by a Board Resolution authorizing the execution of any such amended or supplemental Indenture, Security or Subsidiary Guarantee, and upon receipt by the Trustee of the documents described in Section 602 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture or Subsidiary Guarantee authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture or Subsidiary Guarantee that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 902. With Consent of Holders. ----------------------- With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company, and upon the filing with the Trustee of evidence of consent of the Holders as aforesaid, any affected Subsidiary Guarantor and the Trustee, the Company and the Subsidiary Guarantor, each when authorized by a Board Resolution, and the Trustee may amend or supplement in any manner this Indenture or any Subsidiary Guarantee or modify in any manner the rights of the Holders under this Indenture or any Subsidiary Guarantee; provided, however, -------- ------- that no such supplement, amendment or modification may, without the consent of the Holder of each Outstanding Security affected thereby: (a) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (b) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any waiver of compliance with certain provisions of, or certain defaults and their consequences provided for under, this Indenture, or 63 (c) waive a default in the payment of principal of, or premium, if any, or interest on the Securities or reduce the percentage or aggregate principal amount of Outstanding Securities the Consent of whose Holders is necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults; or (d) modify any of the provisions of the Indenture relating to the subordination of the Securities or the Subsidiary Guarantees in a manner materially adverse to the Holders. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. Execution of Supplemental Indentures. ------------------------------------ In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officer's Certificate and Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and that such supplemental indenture constitutes the legal, valid and binding obligation of the Company and the Subsidiary Guarantor subject to the customary exceptions and such other matters as the Trustee may reasonably request. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustees own rights, duties or immunities under this Indenture or otherwise. SECTION 904. Effect of Supplemental Indentures. --------------------------------- Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. Conformity with Trust Indenture Act. ----------------------------------- Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 906. Reference in Securities to Supplemental Indentures. -------------------------------------------------- Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If 64 the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 907. Notice of Supplemental Indentures. --------------------------------- Promptly after the execution by the Company, any affected Subsidiary Guarantor and the Trustee of any supplemental indenture pursuant to the provisions of Section 902, the Company shall give notice thereof to the Holders of each Outstanding Security affected, in the manner provided for in Section 106, setting forth in general terms the substance of such supplemental indenture. ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, If Any, and Interest. --------------------------------------------------- The Company covenants and agrees for the benefit of the Holders that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. Principal of (premium, if any) and interest shall be considered paid on the date due if as of 10:00 a.m. (New York City time) on such date the Trustee or the Paying Agent if other than the Company or an Affiliate of the Company holds in accordance with this Indenture money in immediately available funds sufficient to pay all principal (premium, if any) and interest then due and the Trustee, the Paying Agent or the Affiliate of the Company, as the case may be, is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture. SECTION 1002. Maintenance of Office or Agency. ------------------------------- The Company will maintain in The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Corporate Trust Office located at One State Street, New York, NY 10004 of the Trustee shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish 65 the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Finance Department of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, however, that no such -------- ------- designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. SECTION 1003. Money for Security Payments to Be Held in Trust. ----------------------------------------------- If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (or premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal of (or premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Securities, it will, on or before each due date of the principal of (or premium, if any) or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. The Company will cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; and 66 (c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (or premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such -------- ------- Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. Corporate Existence. ------------------- Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence and corporate power of the Company and each Restricted Subsidiary; provided, however, that the Company shall not be required to preserve any such - -------- ------- corporate existence and corporate power if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries taken as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1005. Payment of Taxes and Other Claims. --------------------------------- The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of 67 the Company or any Subsidiary except for such taxes, assessments and governmental charges being contested in good faith and (b) all material lawful claims for labor, materials and supplies, which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary that could produce a material adverse effect on the consolidated financial condition of the Company; provided, however, that the Company shall not be required to pay or discharge or - -------- ------- cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1006. Maintenance of Properties. ------------------------- The Company will cause all properties owned by the Company or any Subsidiary or used or held for use in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will 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, except, in every case, as and to the extent that the Company may be prevented by fire, strikes, lockouts, acts of God, inability to obtain labor or materials, governmental restrictions, enemy action, civil commotion or unavoidable casualty or similar causes beyond the control of the Company; provided, however, that nothing in this Section shall prevent the -------- ------- Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 1007. Insurance. --------- The Company will at all times keep all of its and its Subsidiaries' properties which are of an insurable nature insured with insurers, believed by the Company to be responsible, against loss or damage to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties. SECTION 1008. Statement by Officers As to Default. ----------------------------------- (a) The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of compliance by the Company and the Restricted Subsidiaries with all conditions and covenants under this Indenture. For purposes of this Section 1008(a), such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. 68 (b) When any Default has occurred and is continuing under this Indenture, the Company shall deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission an officers certificate specifying such event, notice or other action within ten Business Days of its occurrence. SECTION 1009. Provision of Reports and Financial Statements. --------------------------------------------- The Company shall be required to file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15(d) of the Exchange Act. The Company shall also be required (a) to supply to the Trustee and each Holder, or supply to the Trustee for forwarding to each such Holder, without cost to such Holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required and (b) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at the Company's cost copies of such reports and documents to any prospective Holder of Securities promptly upon written request. 69 SECTION 1010. Limitation on Incurrence of Indebtedness and -------------------------------------------- Issuance of Disqualified Stock. - ------------------------------ The Company shall not, and shall not permit any Restricted Subsidiary to, create, issue, assume, guarantee or in any manner become directly or indirectly liable for the payment of, or otherwise incur (collectively, "incur"), any Indebtedness (including Acquired Indebtedness) or issue any Disqualified Stock, except that the Company or a Restricted Subsidiary may incur Indebtedness or issue Disqualified Stock if, at the time of such event, the Fixed Charge Coverage Ratio for the immediately preceding four full fiscal quarters for which internal financial statements are available, taken as one accounting period, would have been equal to at least 2.0 to 1.0. In making the foregoing calculation for any four-quarter period which includes the Closing Date, pro forma effect shall be given to the Refinancing of the Existing Credit Facility, as if such transactions had occurred at the beginning of such four-quarter period. In addition (but without duplication), in making the foregoing calculation, pro forma effect will be given to: (i) the incurrence of such Indebtedness and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness was incurred and the application of such proceeds occurred at the beginning of such four-quarter period, (ii) the incurrence, repayment or retirement of any other Indebtedness by the Company or its Restricted Subsidiaries since the first day of such four-quarter period as if such Indebtedness was incurred, repaid or retired at the beginning of such four- quarter period, (iii) if such four-quarter period ends before December 31, 1998, the SRS Acquisition as if such Acquisition occurred at the beginning of such four-quarter period, (iv) the acquisition (whether by purchase, merger or otherwise) or disposition (whether by sale, merger or otherwise) of any other company, entity or business (as defined in Rule 11-01 under Article 11 of Regulation S-X under the Securities Act) acquired or disposed of by the Company or any Restricted Subsidiary, as the case may be, since the first day of such four-quarter period, as if such acquisition or disposition occurred at the beginning of such four-quarter period and (v) any pro forma expenses and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act attributable to any acquisition referred to in the foregoing clause (iv). In making a computation under the foregoing clause (i) or (ii), (A) interest on Indebtedness bearing a floating interest rate shall be computed as if the rate in effect on the dated of computation had been the applicable rate for the entire period (taking into account any Hedging Obligations applicable to such Indebtedness if such Hedging Obligations have a remaining term at the date of determination in excess of 12 months), (B) if such Indebtedness bears, at the option of the Company, a fixed or floating rate of interest, interest thereon will be computed by applying, at the option of the Company, either the fixed or floating rate and (C) the amount of any Indebtedness under a revolving credit facility will be computed based on the average daily balance of such Indebtedness during such four-quarter period. 70 Notwithstanding the foregoing, the Company may, to the extent expressly permitted below, and may permit its Restricted Subsidiaries to, incur any of the following Indebtedness ("Permitted Indebtedness"): (i) Indebtedness of the Company or any Restricted Subsidiary under the New Credit Facility or one or more other credit facilities in an aggregate principal amount at any one time outstanding not to exceed the greater of (x) $675.0 million or (y) the amount of the Borrowing Base, less in either case (A) any amounts applied to the permanent reduction of the New Credit Facility or any such other credit facility pursuant to Section 1013 and (B) the amount of Indebtedness of all Receivables Subsidiaries then outstanding in excess of $150.0 million; (ii) Indebtedness of the Company or any Restricted Subsidiary outstanding on the Closing Date (other than Indebtedness described under clause (i) above or clause (xii) below); (iii) Indebtedness owed by the Company to any Wholly Owned Restricted Subsidiary or owed by any Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary (provided that such Indebtedness is held by the -------- Company or such Wholly Owned Restricted Subsidiary); provided, however, --------- ------- that any Indebtedness of the Company owing to any such Wholly Owned Restricted Subsidiary is unsecured and subordinated in right of payment from and after such time as the Securities shall become due and payable (whether at Stated Maturity, acceleration, or otherwise) to the payment and performance of the Company's obligations under the Securities; (iv) Indebtedness represented by the Securities (other than the Additional Securities) and the Subsidiary Guarantees; (v) Indebtedness of the Company or any Restricted Subsidiary in respect of Hedging Obligations incurred in the ordinary course of business; (vi) Capitalized Lease Obligations of the Company or any Restricted Subsidiary, provided that the aggregate amount of Indebtedness under this -------- clause (vi) and clause (vii) below does not exceed 3.5% of the total assets of the Company and its consolidated subsidiaries at any one time outstanding; (vii) Indebtedness of the Company or any Restricted Subsidiary under purchase money mortgages or secured by purchase money security interests so long as (x) such Indebtedness is not secured by any property or assets of the Company or any Restricted Subsidiary other than the property and assets so acquired and (y) such Indebtedness is created within 90 days of the acquisition of the related property; provided that the aggregate amount of Indebtedness under this clause (vii) and clause 71 (vi) above does not exceed 3.5% of the total assets of the Company and its consolidated subsidiaries at any one time outstanding; (viii) Indebtedness of the Company or any Restricted Subsidiary consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets, including, without limitation, shares of Capital Stock; (ix) Guarantees by any Restricted Subsidiary (A) of Indebtedness referred to in clause (i) above or (B) made in accordance with the provisions of Section 1020; (x) Indebtedness of the Company or any Restricted Subsidiary, not otherwise permitted by the first paragraph of this Section 1010 and any other clause of this definition, in an aggregate principal amount not to exceed $20.0 million at any one time outstanding; (xi) Indebtedness incurred by a Receivable Subsidiary, other than Indebtedness described in clause (iii) above, in an amount not exceeding 95% of the aggregate unpaid balance of the Receivables and Related Assets of such Receivables Subsidiary at the time of such incurrence pursuant to a Receivables Program, provided that, after giving effect thereto, if the aggregate amount of -------- Indebtedness incurred by all Receivable Subsidiaries under this clause (xi) then outstanding exceeds $150.0 million, the Company could incur $1.00 of Indebtedness under the foregoing clause (i); (xii) Indebtedness of one or more Foreign Subsidiaries under one or more credit facilities in an aggregate principal amount at any one time outstanding not to exceed $140 million; (xiii) Guarantees by the Company of Indebtedness of any Restricted Subsidiary, that was permitted to be incurred by another provision of this covenant; and (xiv) any renewals, extensions, substitutions, refinancings or replacements (each, for purposes of this clause, a "refinancing") of any outstanding Indebtedness, other than Indebtedness incurred pursuant to clause (i), (iii), (v), (vi), (vii), (ix), (x), (xi), (xii), or (xiii) of this definition, including any successive refinancings thereof, so long as (A) any such new Indebtedness is in a principal amount that does not exceed the principal amount so refinanced, plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness refinanced or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing, plus the amount of the expenses of the Company reasonably estimated to be incurred in connection with such refinancing, (B) in the case of any refinancing of Subordinated Indebtedness of the Company or any Subsidiary 72 Guarantors, such new Indebtedness is made subordinate to the Securities or the Subsidiary Guarantees, as the case may be, at least to the same extent as the Indebtedness being refinanced and (C) such refinancing Indebtedness does not have a Weighted Average Life less than the Weighted Average Life of the Indebtedness being refinanced and does not have a final scheduled Maturity earlier than the final scheduled Maturity, or permit redemption at the option of the holder earlier than the earliest date of redemption at the option of the holder, of the Indebtedness being refinanced. SECTION 1011. Limitation on Restricted Payments. --------------------------------- The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, take any of the following actions: (a) declare or pay any dividend on, or make any distribution to holders of, any shares of the Capital Stock of the Company or any Restricted Subsidiary, other than (i) dividends or distributions payable solely in Qualified Equity Interests, (ii) dividends or distributions by a Restricted Subsidiary payable to the Company or another Restricted Subsidiary or (iii) pro rata dividends or distributions on common stock of a Restricted Subsidiary held by minority stockholders, provided that such dividends do not in the aggregate exceed the minority stockholders' pro rata share of such Restricted Subsidiaries' net income from the first day of the Company's fiscal quarter during which the Closing Date occurs; (b) purchase, redeem or otherwise acquire or retire for value, directly or indirectly, any shares of Capital Stock (or any options, warrants or other rights to acquire shares of Capital Stock) of (i) the Company or any Unrestricted Subsidiary or (ii) any Restricted Subsidiary held by any Affiliate of the Company (other than, in either case, any such Capital Stock owned by the Company or any of its Restricted Subsidiaries); (c) make any principal payment on, or repurchase, redeem, defease or otherwise acquire or retire for value, prior to any scheduled principal payment, sinking fund payment or Maturity, Pari Passu Indebtedness or any Subordinated Indebtedness (except a payment of principal at Stated Maturity), or make any payment on or in respect of the Convertible Debentures; or (d) make any Investment (other than a Permitted Investment) in any Person (such payments or other actions described in (but not excluded from) clauses (a) through (d) being referred to as "Restricted Payments"), unless at the time of, and immediately after giving effect to, the proposed Restricted Payment: (i) no Default or Event of Default has occurred and is continuing; 73 (ii) the Company could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the first paragraph of Section 1010; and (iii) the aggregate amount of all Restricted Payments declared or made after the Closing Date does not exceed the sum of: (A) 50% of the aggregate Consolidated Net Income of the Company during the period (taken as one accounting period) from the first day of the Company's fiscal quarter during which the Closing Date occurs to the last day of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net Income is a loss, minus 100% of such amount), plus (B) the aggregate net proceeds, including the fair market value of property other than cash (as determined by the Board of Directors, whose good faith determination will be conclusive), received by the Company after the Closing Date from the issuance or sale (other than to a Subsidiary) of, or as a capital contribution in respect of, Qualified Equity Interests of the Company (excluding from this computation proceeds of an Equity Offering received by the Company that are used by it to redeem Securities), plus (C) the aggregate net proceeds, including the fair market value of property other than cash (as determined by the Board of Directors, whose good faith determination will be conclusive), received by the Company after the Closing Date from the issuance or sale (other than to a Subsidiary) of debt securities or Disqualified Stock that have been converted into or exchanged for Qualified Stock of the Company, together with the aggregate net cash proceeds received by the Company at the time of such conversion or exchange, plus (D) $10.0 million. Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may take any of the following actions, so long as (with respect to clauses (e), (f), (g) and (j) below) no Default or Event of Default has occurred and is continuing or would occur: (a) the payment of any dividend within 60 days after the date of declaration thereof, if at the declaration date such payment would not have been prohibited by the foregoing provision; 74 (b) the repurchase, redemption or other acquisition or retirement for value of any shares of Capital Stock of the Company, in exchange for, or out of the net cash proceeds of a substantially concurrent issuance and sale (other than to a Subsidiary) of, Qualified Equity Interests of the Company; (c) the purchase, redemption, defeasance or other acquisition or retirement for value of any Pari Passu Indebtedness or Subordinated Indebtedness in exchange for, or out of the net cash proceeds of a substantially concurrent issuance and sale (other than to a Subsidiary) of Qualified Equity Interests of the Company; (d) the purchase, redemption, defeasance or other acquisition or retirement for value of Pari Passu Indebtedness or Subordinated Indebtedness in exchange for, or out of the net cash proceeds of a substantially concurrent issuance or sale (other than to a Subsidiary) of, Subordinated Indebtedness, so long as the Company or a Subsidiary would be permitted to refinance such original Subordinated Indebtedness with such new Subordinated Indebtedness pursuant to clause (xiv) of the definition of Permitted Indebtedness; (e) the repurchase of any Subordinated Indebtedness at a purchase price not greater than 101% of the principal amount of such Subordinated Indebtedness in the event of a "change of control" in accordance with provisions similar to the provisions of Section 1012; provided that, prior -------- to or simultaneously with such repurchase, the Company has made the Change of Control Offer as provided in such covenant with respect to the Securities and has repurchased all Securities validly tendered for payment in connection with such Change of Control Offer; (f) the payment of dividends or other distributions on the Preferred Securities (and corresponding payments of interest on the Convertible Debentures in an amount equal to the amount of such dividends or other distributions) on or prior to March 31, 1999; and the payment of such dividends or other distributions (and such corresponding payments of interest) after March 31, 1999, provided that, immediately after giving -------- effect to any such payment made after March 31, 1999, the Company could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the first paragraph of Section 1010; (g) loans or advances to officers, directors and employees of the Company or any of its Restricted Subsidiaries made in the ordinary course of business after the Closing Date in an amount not to exceed $5.0 million in the aggregate at any one time outstanding; (h) the acquisition by a Receivables Subsidiary in connection with a Receivables Program of Capital Stock of a trust or other Person established by such Receivables Subsidiary in connection with such Receivables Program; 75 (i) payments or distributions to stockholders pursuant to appraisal rights in respect of up to 10% of the Capital Stock of the Company or any Restricted Subsidiary required by law in connection with a consolidation, merger or transfer of assets that complies with Section 801; and (j) the purchase, redemption, defeasance or other acquisition or retirement for value of Capital Stock of the Company or any Restricted Subsidiary from employees, former employees, directors or former directors of the Company or any such Restricted Subsidiary (or permitted transferees of such employees, former employees, directors or former directors or their respective estates) pursuant to any employment agreement, management equity subscription agreement or stock option agreement, provided that the aggregate -------- price paid for all such repurchased, redeemed, defeased or acquired or retired shares of Capital Stock does not exceed $2.0 million in any 12-month period. The payments described in clauses (b), (c), (e), (f) and (g) of this paragraph shall be Restricted Payments that shall be permitted to be taken in accordance with this paragraph but shall reduce the amount that would otherwise be available for Restricted Payments under clause (iii) of the first paragraph of this Section 1011 and the payments described in clauses (a) and (d) of this paragraph shall be Restricted Payments that shall be permitted to be taken in accordance with this paragraph and shall not reduce the amount that would otherwise be available for Restricted Payments under clause (iii) of the first paragraph of this Section 1011. For the purpose of making any calculations under this Indenture (i) if a Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company shall be deemed to have made an Investment in an amount equal to the fair market value or net book value of the net assets of such Restricted Subsidiary at the time of such designation as determined by the Board of Directors of the Company, whose good faith determination will be conclusive, (ii) any property transferred to or from an Unrestricted Subsidiary will be valued at fair market value at the time of such transfer, as determined by the Board of Directors of the Company, whose good faith determination will be conclusive and (iii) subject to the foregoing, the amount of any Restricted Payment, if other than cash, will be determined by the Board of Directors of the Company, whose good faith determination will be conclusive. If the aggregate amount of all Restricted Payments calculated under the first paragraph of this Section 1011 includes an Investment in an Unrestricted Subsidiary or other Person that thereafter becomes a Restricted Subsidiary, the aggregate amount of all Restricted Payments calculated under the first paragraph of this Section 1011 shall be reduced by the lesser of (x) the net asset value of such Subsidiary at the time it becomes a Restricted Subsidiary and (y) the initial amount of such Investment. If an Investment resulted in the making of a Restricted Payment, the aggregate amount of all Restricted Payments calculated under this Section 1011 shall be reduced by the 76 amount of any net reduction in such Investment (resulting from the payment of interest or dividends, loan repayment, transfer of assets or otherwise), to the extent such net reduction is not included in the Company's Consolidated Net Income; provided that the total amount by which the aggregate amount of all Restricted Payments may be reduced shall not exceed the lesser of (x) the cash proceeds received by the Company and its Restricted Subsidiaries in connection with such net reduction and (y) the initial amount of such Investment. In computing the Consolidated Net Income of the Company for purposes of the foregoing clause (iii)(A) of the first paragraph of this Section 1011, (i) the Company may use audited financial statements for the portions of the relevant period for which audited financial statements are available on the date of determination and unaudited financial statements and other current financial data based on the books and records of the Company for the remaining portion of such period and (ii) the Company will be permitted to rely in good faith on the financial statements and other financial data derived from the books and records of the Company that are available on the date of determination. If the Company makes a Restricted Payment that, at the time of the making of such Restricted Payment, would in the good faith determination of the Company be permitted under the requirements of this Indenture, such Restricted Payment shall be deemed to have been made in compliance with this Indenture notwithstanding any subsequent adjustments made in good faith to the Company's financial statements affecting Consolidated Net Income of the Company for any period. SECTION 1012. Purchase of Securities upon a Change of Control. ----------------------------------------------- If a Change of Control occurs at any time, then each Holder will have the right to require that the Company purchase such Holder's Securities and Additional Securities, if any, in whole or in part in integral multiples of $1,000, at a purchase price in cash equal to 101% of the principal amount of such Securities and Additional Securities, if any, plus accrued and unpaid interest, if any, to the date of purchase, pursuant to the offer described below (the "Change of Control Offer") and the other procedures set forth in this Indenture. Within 30 days following any Change of Control, the Company shall notify the Trustee thereof and give written notice of such Change of Control to each holder of Securities and Additional Securities by first-class mail, postage prepaid, at its address appearing in the Security Register, stating, among other things, (i) the purchase price and the purchase date, which will be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed or such later date as is necessary to comply with requirements under the Exchange Act; (ii) that any Security or Additional Security not tendered will continue to accrue interest; (iii) that, unless the Company defaults in the payment of the purchase price, any Securities or Additional Securities accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control purchase date; (iv) that Holders electing to have any Securities purchased pursuant to a Change of Control Offer shall be required to surrender the Securities, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Securities completed, to the Paying Agent at the address 77 specified in the notice prior to the close of business on the third Business Day preceding the purchase date (the "Change of Control Payment Date"); (v) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Securities delivered for purchase, and a statement that such Holder is withdrawing his election to have such Securities purchased; (vi) that Holders whose Securities are being purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof; (vii) the instructions that the Holders of Securities must follow in order to tender their Securities; and (viii) the circumstances and relevant facts regarding such Change of Control. The Company shall comply with the applicable tender offer rules including Rule 14e-1 under the Exchange Act, and any other applicable securities laws and regulations in connection with a Change of Control Offer. SECTION 1013. Limitation on Certain Asset Sales. --------------------------------- (a) The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any Asset Sale unless (i) the consideration received by the Company or such Restricted Subsidiary for such Asset Sale is not less than the fair market value of the assets sold (as determined by the Board of Directors of the Company, whose good faith determination will be conclusive) and (ii) the consideration received by the Company or the relevant Restricted Subsidiary in respect of such Asset Sale consists of at least 75% (A) cash or cash equivalents or (B) the assumption by the transferee of Indebtedness of the Company or a Restricted Subsidiary that is senior to or pari passu with the Securities or the Subsidiary Guarantees, as the case may be, and release of the Company or such Restricted Subsidiary from all liability on such Indebtedness, or a combination of the foregoing. (b) If the Company or any Restricted Subsidiary engages in an Asset Sale, the Company may, at its option, within 12 months after such Asset Sale, (i) apply all or a portion of the Net Cash Proceeds to the permanent reduction of amounts outstanding under the New Credit Facility or other credit facility referred to in clause (i) of the definition of Permitted Indebtedness or to the repayment of other Senior Indebtedness of the Company or a Restricted Subsidiary or (ii) invest (or enter into a legally binding agreement to invest) all or a portion of such Net Cash Proceeds in properties and assets to replace the properties and assets that were the subject of the Asset Sale or in properties and assets that will be used in businesses of the Company or its Restricted Subsidiaries, as the case may be, existing on the Closing Date. If any such legally binding agreement to invest such Net Cash Proceeds is terminated, the Company may, within 90 days of such termination or within 12 months of such Asset Sale, whichever is later, invest such Net Cash Proceeds as provided in clause (b)(i) or (b)(ii) (without regard to the parenthetical contained in such clause (b)(ii)) above. The amount 78 of such Net Cash Proceeds not so used as set forth above in this paragraph (b) constitutes "Excess Proceeds." (c) When the aggregate amount of Excess Proceeds exceeds $5,000,000, the Company shall, within 30 days thereafter, make an offer to purchase (an "Asset Sale Offer") from all Holders of Securities and Additional Securities, if any, and from the holders of any Pari Passu Indebtedness, to the extent required by the terms thereof, on a pro rata basis, in accordance with the procedures set forth in paragraph (d) below or the agreement governing any such Pari Passu Indebtedness, the maximum principal amount (expressed as a multiple of $1,000) of Securities and Additional Securities, if any, and any such Pari Passu Indebtedness that may be purchased with the Excess Proceeds. The offer price as to each Security and Additional Security, if any, and any such Pari Passu Indebtedness will be payable in cash in an amount equal to (solely in the case of the Securities and Additional Securities) 100% of the principal amount of such Security and Additional Security, if any, and (solely in the case of Pari Passu Indebtedness) no greater than 100% of the principal amount (or accreted value, as applicable) of such Pari Passu Indebtedness, plus in each case accrued and unpaid interest, if any, to the date of purchase. To the extent that the aggregate principal amount of Securities and Additional Securities, if any, and any such Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use the portion of the Excess Proceeds not required to be used to repurchase the Securities and Additional Securities and such Pari Passu Indebtedness for general corporate purposes. If the aggregate principal amount of Securities and Additional Securities, if any, and any such Pari Passu Indebtedness validly tendered and not withdrawn by holders thereof exceeds the Excess Proceeds, the Securities and Additional Securities and any such Pari Passu Indebtedness to be purchased will be selected on a pro rata basis (based upon the principal amount of Securities and Additional Securities and the principal amount or accreted value of such Pari Passu Indebtedness tendered by each holder). Upon completion of such offer to purchase, the amount of Excess Proceeds will be reset to zero. (d) Within the time period described in (c) above for making an Asset Sale Offer, the Company shall mail a notice to each Holder in the manner provided in Section 106 stating: (1) that the Asset Sale Offer is being made pursuant to the provisions of Section 1013 of this Indenture and that all Securities and Additional Securities, if any, duly and timely tendered shall be accepted for payment (except, as provided above, if the aggregate principal amount as the case may be, of the Securities, Additional Securities and any Pari Passu Indebtedness surrendered exceeds the amount of Excess Proceeds); (2) the purchase price and the purchase date (the "Asset Sale Purchase Date"), which date shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed; (3) that any Securities or new Additional Securities not tendered shall continue to accrue interest; (4) that, unless the Company defaults in the payment of the purchase price, all Securities and Additional Securities accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Asset Sale Purchase Date; (5) that Holders electing to have any Securities and Additional Securities purchased pursuant to an Asset Sale Offer shall be required to surrender the 79 Securities, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Securities completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Asset Sale Purchase Date; (6) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Asset Sale Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Securities and Additional Securities delivered for purchase, and a statement that such Holder is withdrawing his election to have such Securities purchased; (7) that Holders whose Securities and Additional Securities are being purchased only in part shall be issued new Securities or new Additional Securities equal in principal amount to the unpurchased portion of the Securities or Additional Securities surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof; (8) any other procedures that the Holders of Securities and Additional Securities must follow in order to tender their Securities; and (9) the circumstances and relevant facts regarding such Asset Sale. SECTION 1014. Limitation on Transactions with Affiliates. ------------------------------------------- The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into or suffer to exist any transaction with, or for the benefit of, any Affiliate of the Company unless (a) such transaction is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could have been obtained in an arm's length transaction with third parties who are not Affiliates and (b) either (i) with respect to any transaction or series of related transactions involving aggregate payments in excess of $2,000,000, but less than $10,000,000, the Company delivers a resolution of the Board of Directors of the Company set forth in an Officers' Certificate to the Trustee certifying that such transaction or transactions comply with clause (a) above and that such transaction or transactions have been approved by the Board of Directors (including a majority of the Disinterested Directors) of the Company or (ii) with respect to a transaction or series of related transactions involving aggregate payments equal to or greater than $10,000,000, the Company delivers to the Trustee (x) an Officers' Certificate certifying that such transaction or transactions have been approved by the Board of Directors (including a majority of the Disinterested Directors) of the Company and (y) a written opinion from a nationally recognized investment banking firm or an independent financial advisor of national standing to the effect that such transaction or transactions are fair to the Company or such Restricted Subsidiary from a financial point of view. The foregoing covenant shall not restrict any of the following: (A) transactions among the Company and/or its Restricted Subsidiaries; (B) the Company from paying reasonable and customary regular compensation or fees to, or entering into customary expense reimbursement, 80 indemnification or similar arrangements with, directors and officers of the Company or any Restricted Subsidiary; (C) so long as Siemens is not an Affiliate of the Company, transactions with the Siemens Joint Venture provided such transactions are -------- either (i) in accordance with the terms and provisions of the Joint Venture Agreement, (ii) in accordance with the operating budget of the Siemens Joint Venture, which operating budget has been adopted and approved in accordance with the terms of the Joint Venture Agreement or (iii) approved by the Company and Siemens; (D) transactions permitted by the provisions of Section 1011; (E) transactions between a Receivables Subsidiary and any Person in which the Receivables Subsidiary has an Investment; and (F) in the case of joint ventures (other than the Siemens Joint Venture) in which the Company has an interest, so long as other parties to the joint venture that are not Affiliates of the Company own at least 50% of the equity of such joint venture, transactions between such joint venture and the Company or any Restricted Subsidiary. SECTION 1015. Limitation on Dividends and Other Payment Restrictions ------------------------------------------------------ Affecting Restricted Subsidiaries. - --------------------------------- The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (c) make loans or advances to the Company or any other Restricted Subsidiary or (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of any of the following: (i) any agreement in effect on the Closing Date; (ii) customary non-assignment provisions of any lease governing a leasehold interest of the Company or any Restricted Subsidiary; (iii) the refinancing or successive refinancing of Indebtedness incurred under the agreements in effect on the Closing Date, so long as such encumbrances or restrictions are no less favorable to the Company or any Restricted Subsidiary than those contained in such original agreement; 81 (iv) any agreement or other instrument of a Person acquired by the Company or any Restricted Subsidiary in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; (v) any agreement providing for the incurrence of Indebtedness by a Restricted Subsidiary in compliance with the provisions of Section 1010, provided that such Restricted Subsidiary is or becomes a Subsidiary -------- Guarantor; (vi) contained in any agreement pursuant to which Indebtedness was issued if (A) the encumbrance or restriction applies only in the event of a payment default or a default with respect to a financial covenant contained in such Indebtedness, (B) the encumbrance or restriction is not materially more disadvantageous to the Holders of the Securities than is customary in comparable financings (as determined by the Company) and (C) the Company determines that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Securities; (vii) in the case of clause (d) above, any security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restriction restricts the transfer of the property subject to such security agreements or mortgages; (viii) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (d) above on the property so acquired; (ix) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements; and (x) any agreement entered into by a Restricted Subsidiary that provides for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition. SECTION 1016. Limitation on Issuances and Sales of Capital Stock of ----------------------------------------------------- Restricted Subsidiaries. - ----------------------- The Company shall not sell, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell any shares of Capital Stock of a Restricted Subsidiary (including options, warrants or other rights to purchase shares of such Capital Stock) except (a) to the Company or a Wholly Owned Restricted Subsidiary, (b) issuances or sales to foreign nationals of shares of Capital Stock of Foreign Restricted Subsidiaries, to the extent required 82 by applicable law, or issuances or sales to directors of directors' qualifying shares, (c) if, immediately after giving effect to such issuance or sale, neither the Company nor any of its Subsidiaries owns any shares of Capital Stock of such Restricted Subsidiary (including options, warrants or other rights to purchase shares of such Capital Stock) or (d) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any remaining Investment in such Person would have been permitted to be made under the provisions of Section 1011 if made on the date of such issuance or sale. The Company shall not permit any Restricted Subsidiary that is a Subsidiary Guarantor to issue Preferred Stock. SECTION 1017. Limitation on Liens. ------------------- The Company shall not, and shall not permit any Subsidiary Guarantor to, create, incur, affirm or suffer to exist any Lien of any kind securing any Pari Passu Indebtedness or Subordinated Indebtedness (including any assumption, guarantee or other liability with respect thereto by any Subsidiary Guarantor) upon any property or assets (including any intercompany notes) of the Company or any Subsidiary Guarantor now owned or acquired after the Closing Date, or any income or profits therefrom, unless the Securities are directly secured equally and ratably with (or prior to in the case of Subordinated Indebtedness) the obligation or liability secured by such Lien, and except for any Lien securing Acquired Indebtedness created prior to the incurrence of such Indebtedness by the Company or any Subsidiary Guarantor, provided that any such Lien only -------- extends to the assets that were subject to such Lien securing such Acquired Indebtedness prior to the related acquisition by the Company or the Subsidiary Guarantor. SECTION 1018. Unrestricted Subsidiaries. ------------------------- (a) The Board of Directors of the Company may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither the Company nor any Restricted Subsidiary is directly or indirectly liable for any Indebtedness of such Subsidiary, (ii) no default with respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity, (iii) any Investment in such Subsidiary made as a result of designating such Subsidiary an Unrestricted Subsidiary will not violate the provisions of Section 1011, (iv) neither the Company nor any Restricted Subsidiary has a contract, agreement, arrangement, understanding or obligation of any kind, whether written or oral, with such Subsidiary other than those that might be obtained at the time from Persons who are not Affiliates of the Company and (v) neither the Company nor any Restricted Subsidiary has any obligation to subscribe for additional shares of Capital Stock or other equity interest in such Subsidiary, or 83 to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. (b) The Board of Directors of the Company may designate any Unrestricted Subsidiary as a Restricted Subsidiary; provided that (i) no Default -------- or Event of Default has occurred and is continuing following such designation and (ii) the Company could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the first paragraph of Section 1010 (treating any Indebtedness of such Unrestricted Subsidiary as the incurrence of Indebtedness by a Restricted Subsidiary). SECTION 1019. Limitation on Layering Indebtedness. ------------------------------------ The Company and each Subsidiary Guarantor shall not, directly or indirectly, incur or otherwise permit to exist any Indebtedness that is subordinate in right of payment to any Indebtedness of the Company or such Subsidiary Guarantor, as the case may be, unless such Indebtedness is also pari passu with, or subordinate in right of payment to, the Securities or the Subsidiary Guarantee issued by such Subsidiary Guarantor, as the case may be, or subordinate in right of payment to the Securities or such Subsidiary Guarantee, as the case may be. SECTION 1020. Limitation on Guarantees of Indebtedness by ------------------------------------------- Restricted Subsidiaries. - ----------------------- Except with respect to the guarantee by a Foreign Restricted Subsidiary of the payment of Indebtedness of another Foreign Restricted Subsidiary, the Company shall not permit any Restricted Subsidiary that is not a Subsidiary Guarantor, directly or indirectly, to guarantee, assume or in any other manner become liable for the payment of any Indebtedness of the Company or any Indebtedness of any other Restricted Subsidiary, unless (a) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture providing for a guarantee of payment of the Securities by such Restricted Subsidiary; and (b) with respect to any guarantee of Subordinated Indebtedness by a Restricted Subsidiary, any such guarantee is subordinated to such Restricted Subsidiary's guarantee with respect to the Securities at least to the same extent as such Subordinated Indebtedness is subordinated to the Securities, provided that the foregoing provision shall not be applicable to any guarantee - -------- by any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary. 84 Any guarantee by a Restricted Subsidiary of the Securities pursuant to the preceding paragraph may provide by its terms that it shall be automatically and unconditionally released and discharged upon: (a) any sale, exchange or transfer to any Person not an Affiliate of the Company of all of the Company's and the Restricted Subsidiaries' Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the Indenture); (b) the release or discharge of the guarantee that resulted in the creation of such guarantee of the Securities, except a discharge or release by or as a result of payment under such guarantee; or (c) the designation of such Restricted Subsidiary as an Unrestricted Subsidiary in accordance with the terms of this Indenture. SECTION 1021. Payment for Consent. ------------------- Neither the Company nor any of its Restricted Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid or is paid to all Holders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. SECTION 1022. Waiver of Certain Covenants. --------------------------- The Company or any Restricted Subsidiary may omit in any particular instance to comply with any term, provision or condition set forth in Sections 1006 through 1021, inclusive, if before or after the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities, by Act of such Holders, waive such compliance in such instance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Right of Redemption. ------------------- (a) The Securities may be redeemed at the option of the Company, as a whole or from time to time in part, at any time on or after April 15, 2003, subject to the conditions and at the Redemption Prices specified in the form of Security attached hereto as Exhibit A, together with accrued interest to the Redemption Date. 85 (b) In addition, at any time or from time to time prior to April 15, 2001, the Company may redeem, on one or more occasions, up to 35% of the sum of (i) the initial aggregate principal amount of the Securities and (ii) the initial aggregate principal amount of any Additional Securities with the net proceeds of one or more Equity Offerings at a redemption price equal to 109.25% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided that, immediately after giving effect to such redemption, at least 65% - -------- of the initial aggregate principal amount of the Securities (including any Additional Securities) remains outstanding; provided further that such -------- ------- redemptions occur within 90 days of the date of closing of the related Equity Offering. SECTION 1102. Applicability of Article. ------------------------ Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 1103. Election to Redeem; Notice to Trustee. ------------------------------------- The election of the Company to redeem any Securities pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to Section 1104. SECTION 1104. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by lot or such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Securities; provided, however, that no such partial -------- ------- redemption shall reduce the portion of the principal amount of a Security not redeemed to less than $1,000. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. 86 For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 1105. Notice of Redemption. -------------------- Notice of redemption shall be given in the manner provided for in Section 106 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price and the amount of accrued interest to the Redemption Date payable as provided in Section 1107, if any, (3) if less than all Outstanding Securities are to be redeemed, the identification (and, in the case of a partial redemption, the principal amounts) of the particular Securities to be redeemed, (4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the holder will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price (and accrued interest, if any, to the Redemption Date payable as provided in Section 1107) will become due and payable upon each such Security, or the portion thereof, to be redeemed, and that interest thereon will cease to accrue on and after said date, (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price and accrued interest, if any, and (7) the CUSIP or CINS number, as the case may be. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. 87 SECTION 1106. Deposit of Redemption Price. --------------------------- On or prior to 10:00 a.m. (New York City time) on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and accrued interest on, all the Securities which are to be redeemed on that date. SECTION 1107. Securities Payable on Redemption Date. ------------------------------------- Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of interest whose -------- ------- Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 309. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Securities. SECTION 1108. Securities Redeemed in Part. --------------------------- Any Security which is to be redeemed only in part shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. 88 ARTICLE TWELVE DEFEASANCE AND COVENANT DEFEASANCE SECTION 1201. Company Option to Effect Defeasance or Covenant ----------------------------------------------- Defeasance. - ---------- The Company may, at its option by Board Resolution at any time, with respect to the Securities, elect to have either Section 1202 or Section 1203 be applied to all Outstanding Securities upon compliance with the conditions set forth below in this Article Twelve. SECTION 1202. Defeasance and Discharge. ------------------------ Upon the Company's exercise under Section 1201 of the option applicable to this Section 1202, the Company and the Subsidiary Guarantors shall be deemed to have been discharged from their obligations with respect to all Outstanding Securities on the date the conditions set forth in Section 1204 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 1205 and the other Sections of this Indenture referred to in (A) and (B) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Securities to receive payments in respect of the principal of (and premium, if any, on) and interest on such Securities when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 304, 305, 308, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Twelve. Subject to compliance with this Article Twelve, the Company may exercise its option under this Section 1202 notwithstanding the prior exercise of its option under Section 1203 with respect to the Securities. SECTION 1203. Covenant Defeasance. ------------------- Upon the Company's exercise under Section 1201 of the option applicable to this Section 1203, each of the Company and the Subsidiary Guarantors shall be released from its obligations under any covenant contained in Section 801 and in Sections 1004 through 1022 with respect to the Outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Securities shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, 89 such covenant defeasance means that, with respect to the Outstanding Securities, the Company and any Subsidiary Guarantor may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Sections 501(3), 501(4), 501(5), 501(6) and 501(7) but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. SECTION 1204. Conditions to Defeasance or Covenant Defeasance. ----------------------------------------------- The following shall be the conditions to application of either Section 1202 or Section 1203 to the Outstanding Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 607 who shall agree to comply with the provisions of this Article Twelve applicable to it) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations (as defined herein) that through the scheduled payment of principal and interest thereon will provide money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay and discharge the principal of (and premium, if any, on) and interest on the Outstanding Securities on the Stated Maturity (or upon Redemption Date, if applicable) of such principal (and premium, if any) or installment of interest; provided that the Trustee shall have been irrevocably instructed to apply such--------money or the proceeds of such U.S. Government Obligations to said payments with respect to the Securities. Before such a deposit, the Company may give to the Trustee, in accordance with Section 1103 hereof, a notice of its election to redeem all of the Outstanding Securities at a future date in accordance with Article Eleven hereof, which notice shall be irrevocable. Such irrevocable redemption notice, if given, shall be given effect in applying the foregoing. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction 90 from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (2) No Default or Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit or, insofar as paragraphs (8) and (9) of Section 501 hereof are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any Subsidiary Guarantor is a party or by which it is bound. (4) In the case of an election under Section 1202, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the Closing Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities 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. (6) In the case of an election under Section 1203, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Securities Outstanding will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (7) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1202 or the covenant defeasance under Section 1203, as the case may be, have been complied with. SECTION 1205. Deposited Money and U.S. Government Obligations to Be ----------------------------------------------------- Held in Trust; Other Miscellaneous Provisions. - --------------------------------------------- Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or 91 other qualifying trustee, collectively for purposes of this Section 1205, the "Trustee") pursuant to Section 1204 in respect of the Outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Governmental Obligations deposited pursuant to Section 1204 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. Anything in this Article Twelve to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1204 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance, as applicable, in accordance with this Article. SECTION 1206. Reinstatement. ------------- If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 1205 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 1202 or 1203, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 1205; provided, however, that if the Company makes any payment of -------- ------- principal of (or premium, if any) or interest on any Security following 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 held by the Trustee or Paying Agent. ARTICLE THIRTEEN SUBSIDIARY GUARANTEES SECTION 1301. Subsidiary Guarantees. --------------------- 92 (a) Subject to Article Fourteen and clause (b) of this Section 1301, each Subsidiary Guarantor hereby, jointly and severally, fully, absolutely, unconditionally and irrevocably guarantees to each Holder of a Security authenticated and delivered by the Trustee, and to the Trustee on behalf of each Holder, the punctual payment when due of all Indenture Obligations which, for purposes of its Subsidiary Guarantee, shall also be deemed to include all commissions, fees, charges, costs and other expenses (including reasonable legal fees and disbursements of counsel) arising out of or incurred by the Trustee or the Holders in connection with the enforcement of any Subsidiary Guarantee. Without limiting the generality of the foregoing, each Subsidiary Guarantor's liability shall extend to all amounts that constitute part of the Indenture Obligations and would be owed by the Company to such Holder or the Trustee under the Securities or this Indenture but for the fact that they are unenforceable, reduced, limited, suspended or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company. (b) Each Subsidiary Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Federal Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act of any similar federal or state law or the provisions of its local law relating to fraudulent transfer or conveyance. To effectuate the foregoing intention, the Holders and each Subsidiary Guarantor hereby irrevocably agree that the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee shall be limited to the maximum amount as shall, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guaranmade by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to paragraph (c) of this Section 1301, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. (c) In order to provide for just and equitable contribution among the Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the event any payment or distribution is made by any Subsidiary Guarantor (a "Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor shall be entitled to a contribution from each other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by the Funding Guarantor in discharging the Indenture Obligations of the Company or any other Subsidiary Guarantor's obligations with respect to its Subsidiary Guarantee. "Adjusted Net Assets" of such Subsidiary Guarantor at any date shall mean the lesser of (x) the amount by which the fair value of the property of such Subsidiary Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under the Subsidiary Guarantee of such Subsidiary Guarantor at such date 93 and (y) the amount by which the present fair salable value of the assets of such Subsidiary Guarantor at such date exceeds the amount that shall be required to pay the probable liability of such Subsidiary Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), excluding debt in respect of the Subsidiary Guarantee, as they become absolute and matured. SECTION 1302. Guaranty Absolute. ----------------- Subject to the limitations in Section 1301, each Subsidiary Guarantor guarantees that the Securities shall be paid or performed strictly in accordance with the terms of the Securities and this Indenture, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Holder with respect thereto. The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee are independent of the obligations of the Company under the Securities and this Indenture, and a separate action or actions may be brought and prosecuted against such Subsidiary Guarantor to enforce its Subsidiary Guarantee, irrespective of whether any action is brought against the Company or any other Subsidiary Guarantor or whether the Company or any other Subsidiary Guarantor is joined in any such action or actions. The liability of each Subsidiary Guarantor under its Subsidiary Guarantee shall be absolute and unconditional and the liability and obligations of such Subsidiary Guarantor hereunder shall not be released, discharged, mitigated, waived, impaired or affected in whole or in part by: (a) any lack of validity or enforceability of this Indenture or the Securities with respect to the Company or any Subsidiary Guarantor or any agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Indenture Obligations, or any other amendment or waiver of or any consent to departure from this Indenture, including any increase in the Indenture Obligations resulting from the extension of additional credit to the Company or otherwise; (c) the failure to give notice to the Subsidiary Guarantor of the occurrence of a Default under the provisions of this Indenture or the Securities; (d) any taking, release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the Indenture Obligations; (e) any failure, omission, delay by or inability on the part of the Trustee or the Holders to assert or exercise any right, power or remedy conferred on the Trustee or the Holders in this Indenture or the Securities; 94 (f) any change in the corporate structure, or termination, dissolution, consolidation or merger of the Company or any Subsidiary Guarantor with or into any other Person, the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets of the Company or any Subsidiary Guarantor, the marshalling of the assets and liabilities of the Company or any Subsidiary Guarantor, the receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with the creditors, or readjustment of, or other similar proceedings affecting the Company or any Subsidiary Guarantor, or any of the assets of any of them; (g) the assignment of any right, title or interest of the Trustee or any Holder in this Indenture or the Securities to any other Person; or (h) any other event or circumstance (including any statute of limitations), whether foreseen or unforeseen and whether similar or dissimilar to any of the foregoing, that might otherwise constitute a defense available to, or a discharge of, the Company or a Subsidiary Guarantor, other than payment in full of the Indenture Obligations; it being the intent of each Subsidiary Guarantor that its obligations hereunder shall not be discharged except by payment of all amounts owing pursuant to this Indenture or the Securities. The Subsidiary Guarantee of each Subsidiary Guarantor shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Indenture Obligations is rescinded or must otherwise be returned by any Holder or the Trustee upon the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. Each Subsidiary Guarantor further agrees, to the fullest extent that it may lawfully do so, that, as between such Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Five of this Indenture for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (ii) in the event of any acceleration of such obligations as provided in Article Five of this Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantor for the purpose of this Subsidiary Guarantee. SECTION 1303. Waivers. ------- (a) Each Subsidiary Guarantor hereby expressly waives (to the extent permitted by law) notice of the acceptance of its Subsidiary Guarantee and notice of the existence, renewal, extension or the non-performance, non-payment, or non-observance on the part of the Company of any of the terms, covenants, conditions and provisions of this Indenture or the Securities or any other notice whatsoever to or upon the Company or such Subsidiary Guarantor with respect to the Indenture Obligations. Each Subsidiary Guarantor 95 hereby acknowledges communication to it of the terms of this Indenture and the Securities and all of the provisions herein contained and consents to and approves the same. Each Subsidiary Guarantor hereby expressly waives (to the extent permitted by law) diligence, presentment and protest. (b) Without prejudice to any of the rights or recourse which the Trustee or the Holders may have against the Company, each Subsidiary Guarantor hereby expressly waives (to the extent permitted by law) any right to require the Trustee or the Holders to: (1) initiate or exhaust any rights, remedies or recourse against the Company, any Subsidiary Guarantor or any other Person; (2) value, realize upon, or dispose of any security of the Company or any other Person held by the Trustee or the Holders; or (3) initiate or exhaust any other remedy which the Trustee or the Holders may have in law or equity; before requiring, becoming entitled to or demanding payment from such Subsidiary Guarantor under this Subsidiary Guarantee. SECTION 1304. Subrogation. ----------- Each Subsidiary Guarantor shall not exercise any rights that it may acquire by way of subrogation under this Subsidiary Guarantee, by any payment made hereunder or otherwise, until all the Indenture Obligations shall have been paid in full. If any amount shall be paid to any Subsidiary Guarantor on account of any such subrogation rights at any time when all the Indenture Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of the Holders and the Trustees and shall forthwith be paid to the Trustee, on behalf of the Holders, to be credited and applied to the Indenture Obligations, whether matured or unmatured. SECTION 1305. No Waiver; Remedies. ------------------- No failure on the part of any Holder or the Trustee to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 96 SECTION 1306. Continuing Guaranty; No Right of Set-Off; Independent ----------------------------------------------------- Obligation. - ---------- (a) This Subsidiary Guarantee is a continuing guarantee of the payment of all Indenture Obligations and shall remain in full force and effect until the payment in full (subject to Section 1301) of all of the Indenture Obligations and all other amounts payable under this Subsidiary Guarantee and shall apply to and secure any ultimate balance due or remaining unpaid to the Trustee or the Holders under this Indenture or the Securities; and this Subsidiary Guarantee shall not be considered as wholly or partially satisfied by the payment or liquidation at any time or from time to time of any sum of money for the time being due or remaining unpaid to the Trustee or the Holders. (b) Subject to Section 1301, each Subsidiary Guarantor hereby guarantees that the Indenture Obligations shall be paid to the Trustee without set-off or counterclaim or other reduction whatsoever (whether for taxes, withholding or otherwise) in lawful currency of the United States of America. (c) Subject to Section 1301, each Subsidiary Guarantor guarantees that the Indenture Obligations shall be paid strictly in accordance with their terms regardless of any lack of validity or enforceability of any of such terms or the rights of the Holders with respect thereto. (d) Each Subsidiary Guarantor's liability to pay or perform or cause the performance of the Indenture Obligations under this Subsidiary Guarantee shall arise forthwith after demand for payment by the Trustee has been given to such Subsidiary Guarantor in the manner prescribed in this Indenture. SECTION 1307. Subsidiary Guarantors May Consolidate, Etc., on Certain ------------------------------------------------------- Terms. - ------ (a) Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or another Subsidiary Guarantor, which consolidation, merger, sale or conveyance is otherwise in accordance with the terms of this Indenture. (b) Other than as set forth in paragraph (a) of this Section, no Subsidiary Guarantor may consolidate with or merge with or into (whether or not such Subsidiary Guarantor is the surviving Person) another Person whether or not affiliated with such Subsidiary Guarantor unless: (i) subject to the provisions of Section 1309, the Person formed by or surviving such consolidation or merger (if other than such Subsidiary Guarantor) assumes all of the obligations of such Subsidiary Guarantor under this Indenture and its 97 Subsidiary Guarantee, pursuant to a supplemental indenture in form and substance satisfactory to the Trustee, and (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. SECTION 1308. Additional Subsidiary Guarantors. --------------------------------- The Company will cause each Person that becomes a Domestic Restricted Subsidiary (other than BTI Capital Trust and certain domestic subsidiaries owned by a foreign subsidiary of the Company), or any other Restricted Subsidiary that guarantees any other Indebtedness of the Company or of a Domestic Restricted Subsidiary (other than BTI Capital Trust and certain domestic subsidiaries owned by a foreign subsidiary of the Company), after the date of this Indenture to become a Subsidiary Guarantor with respect to the Indenture Obligations by executing and delivering a supplemental indenture to this Indenture providing for a Subsidiary Guarantee by such Subsidiary under this Article Thirteen (or under a separate guarantee agreement consistent in all material respects with this Article Thirteen). The Company shall deliver to the Trustee, together with the supplemental indenture referred to above, an Opinion of Counsel that such Subsidiary Guarantee is a legal, valid, binding and enforceable obligation of such Subsidiary Guarantor, subject to customary local law exceptions and customary exceptions for bankruptcy and equitable principles. SECTION 1309. Releases. -------- (a) In the event of (i) the conveyance, sale, assignment, transfer or other disposition (by way of merger, consolidation or otherwise) of all of the Capital Stock of a Subsidiary Guarantor to a Person that is not an Affiliate of the Company in compliance with this Section 1309 and the terms of this Indenture or (ii) a conveyance, sale, assignment, transfer or other disposition of all or substantially all of the assets of a Subsidiary Guarantor (by way of merger, consolidation or otherwise) to a Person that is not an Affiliate of the Company in compliance with this Section 1309 and the terms of this Indenture, then such Subsidiary Guarantor (or Person acquiring such assets in the event of a sale or other disposition of all of the assets of such Subsidiary Guarantor) shall be deemed automatically and unconditionally released from and discharged from all of its obligations under this Article Thirteen and its Subsidiary Guarantee without any further action required on the part of the Trustee or any Holder; provided that, in the event such transaction constitutes an Asset Sale, the Net - -------- Proceeds of such sale, transfer or other disposition are applied in accordance with Section 1013 hereof. (b) Any Subsidiary Guarantor that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary, or such Subsidiary Guarantor ceases to be a Subsidiary of the Company, in accordance with the terms of this Indenture may, at such time, at the option of the Board of Directors, be released and relieved of its obligations under its Subsidiary Guarantee. 98 (c) Concurrently with the defeasance of the Securities under Section 1202 hereof, or the covenant defeasance of the Securities under Section 1203 hereof, the Subsidiary Guarantors shall be released from all their obligations under their Subsidiary Guarantees under this Article Thirteen. (d) The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a Company Request accompanied by an Officers' Certificate certifying as to the compliance with this Section 1306. Any Subsidiary Guarantor not so released shall remain liable for the full amount of principal of and interest on the Securities as provided in its Subsidiary Guarantee. SECTION 1310. Benefits Acknowledged. --------------------- Each Subsidiary Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that its guarantee and waivers pursuant to its Subsidiary Guarantee are knowingly made in contemplation of such benefits. SECTION 1311. Severability. ------------ In case any provision of this Subsidiary Guarantee 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. ARTICLE FOURTEEN SUBORDINATION OF SECURITIES AND SUBSIDIARY GUARANTEES SECTION 1401. Securities and Subsidiary Guarantees Subordinate to --------------------------------------------------- Senior Indebtedness. - -------------------- (a) The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article Fourteen, the indebtedness represented by the Securities and the payment of the principal of (and premium, if any) and interest on each and all of the Securities (but not amounts owing to the Trustee by the Company pursuant to Section 606 hereof) are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. (b) Each Subsidiary Guarantor covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article Fourteen, the indebtedness represented by the 99 Subsidiary Guarantee of such Subsidiary Guarantor is hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Subsidiary Guarantor Senior Indebtedness of such Subsidiary Guarantor. SECTION 1402. Payment Over of Proceeds Upon Dissolution, Etc. ----------------------------------------------- In the event of any payment or distribution of assets of the Company or any Subsidiary Guarantor to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency or similar proceedings, whether voluntary or involuntary, of the Company or any Subsidiary Guarantor (the Company or such Subsidiary Guarantor being the "Affected Obligor"), then (except (x) in connection with the consolidation or merger of the Company or its liquidation or dissolution following the conveyance, transfer or lease of its properties and assets substantially as an entirety, upon the terms and conditions described in Article Eight or (y) in connection with the consolidation or merger of a Subsidiary Guarantor, or its liquidation or dissolution, not in violation of any provision of this Indenture) (each such event referred to in clause (x) or (y) above, if any, herein sometimes referred to as a "Proceeding"), (i) if the Affected Obligor is the Company, the holders of Senior Indebtedness shall first be entitled to receive payment in full, in cash or cash equivalents, of all amounts due or to become due on or in respect of such Senior Indebtedness (including, to the extent permitted by applicable law, interest accruing after the commencement of any such Proceeding at the rate specified therein) before the Holders of the Securities are entitled to receive any payment or distribution of any kind with respect to the Securities or on account of the purchase or redemption or other acquisition of Securities by the Company or any Subsidiary of the Company and (ii) if the Affected Obligor is a Subsidiary Guarantor, the holders of Subsidiary Guarantor Senior Indebtedness of such Subsidiary Guarantor shall first be entitled to receive payment in full, in cash or cash equivalents, of all amounts due or to become due on or in respect of such Subsidiary Guarantor Senior Indebtedness (including, to the extent permitted by applicable law, interest accruing after the commencement of any such Proceeding at the rate specified therein) before the Holders of the Securities are entitled to receive any payment or distribution of any kind with respect to the Subsidiary Guarantee of such Subsidiary Guarantor (any payment on or purchase, redemption or acquisition of the Securities, referred to in clause (i), and any payment on a Subsidiary Guarantee, referred to in clause (ii), being, individually and collectively, a "Securities Payment"), and, to that end, if the Affected Obligor is the Company, the holders of Senior Indebtedness and, if the Affected Obligor is a Subsidiary Guarantor, the holders of Subsidiary Guarantor Senior Indebtedness of such Subsidiary Guarantor (such Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness, as the case may be, being "Affected Obligor Senior Indebtedness" of such Affected Obligor) shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities which may be payable or deliverable in respect of the Securities in any such Proceeding. 100 In the event that, notwithstanding the foregoing provisions of this Section 1402, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of an Affected Obligor of any kind or character before all Affected Obligor Senior Indebtedness is paid in full, then such payment or distribution, except for amounts subject to the claim granted to the Trustee in Section 606 hereof, shall be held in trust for the holders of Affected Obligor Senior Indebtedness and shall be paid over or delivered forthwith to the trustee in bankruptcy or other Person making payment or distribution of assets of the Affected Obligor for application to the payment of all Affected Obligor Senior Indebtedness remaining unpaid, to the extent necessary to pay all Affected Obligor Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of the Affected Obligor Senior Indebtedness. For purposes of this Article Fourteen only, the words "any payment or distribution of any kind or character, cash, property or securities" shall not be deemed to include a payment or distribution of equity or subordinated securities of the Affected Obligor provided for by a plan of reorganization or readjustment or of any other corporation provided for by such plan of reorganization or readjustment that, in the case of subordinated securities, are subordinated in right of payment to all then outstanding Affected Obligor Senior Indebtedness to at least the same extent as the Securities or Subsidiary Guarantees, as the case may be, are so subordinated as provided in this Article Fourteen. SECTION 1403. No Payment When Certain Senior Indebtedness in Default. ------------------------------------------------------- In the event that any Senior Payment Default (as defined below) shall have occurred and be continuing, then no Securities Payment shall be made unless and until such Senior Payment Default shall have been cured or waived or shall have ceased to exist or all amounts then due and payable in respect of the Designated Senior Indebtedness or other obligations that are the subject of such Senior Payment Default shall have been paid in full. For purposes hereof, "Senior Payment Default" means any default in the payment of principal of (or premium, if any), or interest on, Designated Senior Indebtedness or a default in the payment of any other obligation under the New Credit Facility, when due, whether at the Stated Maturity of any such payment or by declaration of acceleration, call for redemption or otherwise. In the event that any Senior Nonmonetary Default (as defined below) shall have occurred and be continuing, then, upon the receipt by the Company and the Trustee of written notice of such Senior Nonmonetary Default from the New Credit Facility Agent or from an authorized Person on behalf of any holder of Designated Senior Indebtedness, no Securities Payment shall be made during the period (the "Payment Blockage Period") commencing on the date of receipt of such written notice (the "Blockage Notice") and ending on the earliest of (i) the 179th day after the date of such receipt of the Blockage Notice (the "Initial Period") unless a Senior Payment Default has occurred and is continuing at the end of such 179-day period, (ii) the date, if any, on which the Designated Senior Indebtedness to which such default relates 101 is discharged or such default is waived or otherwise cured and (iii) the date, if any, on which such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the New Credit Facility Agent or from the Person who gave the Blockage Notice. In any event, not more than one Payment Blockage Period may be commenced during any period of 360 consecutive days, and there must be a period of at least 181 consecutive days in each period of 360 consecutive days when no Payment Blockage Period is in effect. No Senior Nonmonetary Default that existed or was continuing on the date of commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or can be, made the basis for the commencement of a subsequent Payment Blockage Period unless such Senior Nonmonetary Default shall have been cured or waived for a period of not less than 90 consecutive days. For purposes hereof, "Senior Nonmonetary Default" means the occurrence or existence of any event, circumstance, condition or state of facts that, by the terms of any instrument pursuant to which any Designated Senior Indebtedness is outstanding, permits one or more holders of such Designated Senior Indebtedness (or a trustee or agent on behalf of the holders thereof) to declare such Designated Senior Indebtedness due and payable prior to the date on which it would otherwise become due and payable, other than a Senior Payment Default. Notwithstanding the foregoing, the Company and the Subsidiary Guarantors may make Securities Payments without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from a representative of such Designated Senior Indebtedness affected by such Senior Payment Default or Senior Nonmonetary Default. In the event that, notwithstanding the foregoing, the Company or any Subsidiary Guarantor shall make any payment to the Trustee or any Holder prohibited by the foregoing provisions of this Section 1403, then such payment shall be held in trust for the holders of the Affected Obligor Senior Indebtedness and shall be paid over and delivered forthwith to the holders of the Affected Obligor Senior Indebtedness remaining unpaid, to the extent necessary to pay in full all the Affected Obligor Senior Indebtedness. SECTION 1404. Payment Permitted If No Default. ------------------------------- Nothing contained in this Article Fourteen or elsewhere in this Indenture or in any of the Securities shall, at any time except during the pendency of any Proceeding referred to in Section 1402 or under the conditions described in Section 1403, prevent (a) the Company or any Subsidiary Guarantor from making Securities Payments, or (b) the application by the Trustee of any money deposited with it hereunder to Securities Payments or the retention of such payment by the Holders. SECTION 1405. Subrogation to Rights of Holders of Senior ------------------------------------------ Indebtedness. - ------------- Subject to the payment in full of all Senior Indebtedness, the rights of the Holders of the Securities shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable 102 to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Securities shall be paid in full. Subject to the payment in full of all Subsidiary Guarantor Senior Indebtedness, the rights of the Holders of the Securities shall be subrogated to the rights of the holders of such Subsidiary Guarantor Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to such Subsidiary Guarantor Senior Indebtedness until the principal of (and premium, if any) 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 or Subsidiary Guarantor Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article Fourteen, and no payments over pursuant to the provisions of this Article Fourteen to the holders of Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, the Subsidiary Guarantors, their respective creditors (other than holders of Senior Indebtedness and the Subsidiary Guarantor Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness). Neither the Holders of the Securities nor the Trustee shall have any claim against the holders of the Senior Indebtedness or the Subsidiary Guarantor Senior Indebtedness or the New Credit Facility Agent for any impairment of the subrogation rights herein granted arising out of any release of Liens securing the Senior Indebtedness or the Subsidiary Guarantor Senior Indebtedness. SECTION 1406. Provisions Solely to Define Relative Rights. -------------------------------------------- The provisions of this Article Fourteen 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 and Subsidiary Guarantor Senior Indebtedness on the other hand. Nothing contained in this Article Fourteen or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors (other than holders of Senior Indebtedness) and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this Article Fourteen of the holders of Senior Indebtedness, is intended to rank equally with all other general obligations of the Company) to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) impair, as among the Subsidiary Guarantors, their creditors (other than holders of Subsidiary Guarantor Senior Indebtedness) and the Holders of the Securities, the obligation of the Subsidiary Guarantors, which is absolute and unconditional (and which, subject to the rights under this Article Fourteen of the holders of Subsidiary Guarantor Senior Indebtedness, is intended to rank equally with all other general obligations of the Subsidiary Guarantors) to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (c) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company (other than the holders of Senior Indebtedness) or the relative rights against the Subsidiary Guarantors of the Holders of the 103 Securities and creditors of the Subsidiary Guarantors (other than the Holders of Subsidiary Guarantor Senior Indebtedness); or (d) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Fourteen of the holders of Senior Indebtedness and Subsidiary Guarantor Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. The holders of the Senior Indebtedness and the New Credit Facility Agent, as the case may be, shall be entitled to enforce the provisions of this Article Fourteen against the Company, the Subsidiary Guarantors, the Holders of the Securities and the Trustee. SECTION 1407. Trustee to Effectuate Subordination. ------------------------------------ Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Fourteen and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 1408. No Waiver of Subordination Provisions. -------------------------------------- No right of any present or future holder of any Senior Indebtedness or Subsidiary Guarantor 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 on the part of the Company or any Subsidiary Guarantor or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company or any Subsidiary Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness, as the case may be, may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Trustee or the Holders of the Securities and without impairing or releasing the subordination provided in this Article Fourteen or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness, as the case may be, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness, as the case may be, or otherwise amend or supplement in any manner Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness, as the case may be, or any instrument evidencing the same or any agreement under which Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness, as the case may be, is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness or any Subsidiary Guarantor Senior Indebtedness, as the case may be; (iii) release any Person liable in any manner for the collection of Senior Indebtedness 104 or any Subsidiary Guarantor Senior Indebtedness, as the case may be; and (iv) exercise or refrain from exercising any rights against the Company or any Subsidiary Guarantor and any other Person. SECTION 1409. Notice to Trustee. ----------------- The Company and each Subsidiary Guarantor shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities and of any subsequent cure or waiver thereof. Notwithstanding the provisions of this Article Fourteen or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or a holder of Subsidiary Guarantor Senior Indebtedness or from any trustee or agent therefor; and, prior to the receipt of any such written notice, the Trustee, shall be entitled in all respects to assume that no such facts exist. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness or a holder of Subsidiary Guarantor Senior Indebtedness (or a trustee or agent therefor) to establish that such notice has been given by a holder of Senior Indebtedness or a holder of Subsidiary Guarantor Senior Indebtedness (or a trustee or agent therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness or a holder of Subsidiary Guarantor Senior Indebtedness, as the case may be, to participate in any payment or distribution pursuant to this Article Fourteen, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness, as the case may be, held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Fourteen, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 1410. Reliance on Judicial Order or Certificate of -------------------------------------------- Liquidation Agent. - ------------------ Upon any payment or distribution of assets of the Company or any Subsidiary Guarantor referred to in this Article Fourteen, the Trustee and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in a Proceeding, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the 105 holders of the Senior Indebtedness, Subsidiary Guarantor Senior Indebtedness and other indebtedness of the Company and the Subsidiary Guarantors, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Fourteen. SECTION 1411. Trustee Not Fiduciary for Holders of Senior ------------------------------------------- Indebtedness. - ------------- Except to the extent of its obligations under the penultimate paragraph of Section 1402 and the last paragraph of Section 1403, the Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness shall be entitled by virtue of this Article Fourteen or otherwise. The Trustee's duties with respect to holders of Senior Indebtedness and Subsidiary Guarantor Senior Indebtedness are limited to those specifically set forth in this Indenture, and no implied covenants or obligations shall be construed by any provision hereof. SECTION 1412. Rights of Trustee as Holder of Senior Indebtedness; --------------------------------------------------- Preservation of Trustee's Rights. - --------------------------------- The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article Fourteen with respect to any Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness or Subsidiary Guarantor Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article Fourteen shall apply to claims of, or payments to, the Trustee under or pursuant to Section 606. SECTION 1413. Applicability to Paying Agents. ------------------------------ In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article Fourteen shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article Fourteen in addition to or in place of the Trustee; provided, however, that this Section 1413 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. 106 SECTION 1414. Defeasance of this Article Fourteen. ------------------------------------ The subordination of the Securities and the Subsidiary Guarantees provided by this Article Fourteen is expressly made subject to the provisions for defeasance or covenant defeasance in Article Twelve hereof and, anything herein to the contrary notwithstanding, upon the effectiveness of any such defeasance or covenant defeasance, the Securities and the Subsidiary Guarantees then outstanding shall thereupon cease to be subordinated pursuant to this Article Fourteen. SECTION 1415. Subordination Provisions Controlling. ------------------------------------- Notwithstanding anything to the contrary contained in this Indenture, to the extent that any provision contained in Articles One (other than Section 101) through Thirteen of this Indenture conflicts with any provision contained in Article Fourteen (including the definitions of certain terms used in Article Fourteen) of this Indenture, the provisions contained in Article Fourteen of this Indenture shall govern and control. This Indenture may be signed in any number of counterparts each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Indenture. 107 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. BREED TECHNOLOGIES, INC. By ------------------------------ Name: Title: BREED ARIZONA, INC. By ------------------------------ Name: Title: BREED INTERNATIONAL MANUFACTURING DEVELOPMENT CORP. By ------------------------------ Name: Title: BREED ALABAMA, INC. By ------------------------------ Name: Title: BREED AUTOMOTIVE OF FLORIDA, INC. By ------------------------------ Name: Title: BREED AUTOMOTIVE TECHNOLOGY, INC. By ------------------------------ Name: Title: BREED STEERING SYSTEMS, INC. By ------------------------------ Name: Title: BREED NEVADA, INC. By ------------------------------ Name: Title: BREED MANUFACTURING OF TEXAS, INC. By ------------------------------ Name: Title: BREED AUTOMOTIVE WEST, INC. By ------------------------------ Name: Title: BTI TENNESSEE, INC. By ------------------------------ Name: Title: BTI MICHIGAN, INC. By ------------------------------ Name: Title: INNOVATIVE MIM TECHNOLOGIES, INC. By ------------------------------ Name: Title: HAMLIN, INCORPORATED By ------------------------------ Name: Title: BREED ASIAN HOLDINGS, INC. By ------------------------------ Name: Title: FORCE IMAGING TECHNOLOGIES, INC. By ------------------------------ Name: Title: ARTISTIC ANALYTICAL METHODS, INC. By ------------------------------ Name: Title: AUTO TRIM, INC. By ------------------------------ Name: Title: BREED AUTOMOTIVE, L.P. By ------------------------------ Name: Title: BREED TENNESSEE HOLDINGS, L.P. By ------------------------------ Name: Title: IBJ SCHRODER BANK & TRUST COMPANY By ------------------------------ Name: Title: SCHEDULE I Subsidiary Guarantors Breed Arizona, Inc. Breed International Manufacturing Development Corp. Breed Alabama, Inc. Breed Automotive of Florida, Inc. Breed Automotive Technology, Inc. Breed Steering Systems, Inc. Breed Nevada, Inc. Breed Manufacturing of Texas, Inc. Breed Automotive West, Inc. BTI Tennessee, Inc. BTI Michigan, Inc. Innovative Mim Technologies, Inc. Hamlin, Incorporated Breed Asian Holdings, Inc. Force Imaging Technologies, Inc. Artistic Analytical Methods, Inc. Auto Trim, Inc. Breed Automotive, L.P. Breed Tennessee Holdings, L.P. Exhibit A --------- [FACE OF SECURITY] BREED TECHNOLOGIES, INC. 9 1/4% [Series B]/** /Senior Subordinated Note due 2008 CUSIP ______________ No. _______ $_________________ BREED TECHNOLOGIES, INC., a Delaware corporation (the "Company", which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to ___________, or its registered assigns, the principal sum of ____________________________________ ($___________), on April 15, 2008. [Initial Interest Rate: 9.25% per annum.]* [Interest Rate: 9.25% per annum.]** Interest Payment Dates: April 15 and October 15 of each year commencing October 15, 1998. Regular Record Dates: April 1 and October 1 of each year. Reference is hereby made to the further provisions of this Security 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 Company has caused this Security to be signed manually or by facsimile by its duly authorized officer. Date: ______________ BREED TECHNOLOGIES, INC. By: ----------------------------- Title: A-1 (Form of Trustee's Certificate of Authentication) This is one of the 9-1/4% [Series B]* Senior Subordinated Notes due 2008 described in the within-mentioned Indenture. IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: ----------------------------- Authorized Signatory - -------------------- ** Include only for Exchange Securities. A-2 [REVERSE SIDE OF SECURITY] BREED TECHNOLOGIES, INC. 9-1/4% Senior Subordinated Note due 2008 1. Principal and Interest. ---------------------- The Company will pay the principal of this Security on April 15, 2008. The Company promises to pay interest on the principal amount of this Security on each Interest Payment Date, as set forth below, at the rate of [9.25% per annum (subject to adjustment as provided below)]* [9.25% per annum, except that interest accrued on this Security pursuant to the penultimate paragraph of this Section 1 for periods prior to the applicable Exchange Date (as such term is defined in the Registration Rights Agreement referred to below) will accrue at the rate or rates borne by the Securities from time to time during such periods].** Interest will be payable semiannually (to the holders of record of the Securities (or any predecessor Securities) at the close of business on the April 1 or October 1 immediately preceding the Interest Payment Date) on each Interest Payment Date, commencing October 15, 1998. [The Holder of this Security is entitled to the benefits of the Registration Rights Agreement, dated April 28, 1998, among the Company and the Initial Purchasers named therein (the "Registration Rights Agreement"). In the event that either (a) the Exchange Offer Registration Statement (as such term is defined in the Registration Rights Agreement) is not filed with the Securities and Exchange Commission on or prior to the 60th calendar day following the date of original issue of the Securities or (b) the Exchange Offer (as such term is defined in the Registration Rights Agreement) is not consummated or a Shelf Registration Statement (as such term is defined in the Registration Rights Agreement) is not declared effective on or prior to the 180th calendar day following the date of original issue of the Securities, the interest rate borne by this Security shall be increased by 0.25% per annum for - -------------------- * Include only for Initial Securities. ** Include only for Exchange Securities. A-3 the first 90 days following the 60-day period referred to in clause (a) above or the 180-day period referred to in clause (b) above. Such interest will be increased by an additional 0.25% per annum at the beginning of each subsequent 90-day period in the case of clause (a) or clause (b) above; provided, however, -------- ------- that in no event will the interest rate borne by the Securities be increased by more than 1.50%. Upon the filing of the Exchange Offer Registration Statement, the consummation of the Exchange Offer or the effectiveness of a Shelf Registration Statement, as the case may be, the interest rate borne by this Security from the date of such filing, consummation or effectiveness, as the case may be, will be reduced to the original interest rate set forth above; provided, however, that, if after such reduction in interest rate, a different - -------- ------- event specified in clause (a) or (b) above occurs, the interest rate may again be increased pursuant to the foregoing provisions.]* Interest on this Security will accrue from the most recent date to which interest has been paid [on this Security or the Security surrendered in exchange herefor]** or, if no interest has been paid, from April 28, 1998; provided that, if there is no existing default in the payment of interest and if - -------- this Security is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at a rate per annum equal to the rate of interest applicable to the Securities. 2. Method of Payment. ----------------- The Company will pay interest (except defaulted interest) on the principal amount of the Securities on each April 15 and October 15 to the persons who are Holders (as reflected in the Security Register at the close of business on the April 1 and October 1 immediately preceding the Interest Payment Date), in each case, even if the Security is cancelled on registration of transfer or registration of exchange after such record date; provided that, with -------- respect to the payment of principal, the Company will make payment to the Holder that surrenders this Security to any Paying Agent on or after April 15, 2008. - -------------------- * Include only for Initial Securities. ** Include only for Exchange Securities A-4 The Company will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. [Payment of the principal of (and premium, if any) and interest on the Securities will be made at the office or agency of the Company maintained for that purpose in The City of New York (which shall be the Corporate Finance Department of the Trustee, unless the Company shall designate and maintain some other office or agency for such purpose), or at such other office or agency of the Company as may be maintained for such purpose, in lawful money of the United States of America, or payment of interest may be made at the option of the Company by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register; provided, -------- however, that all payments to Holders who have given wire transfer instructions - ------- to the Company will be made by wire transfer of immediately available funds to the accounts specified by such Holder.]* [All payments will be made by wire transfer of immediately available funds to the accounts specified by the Holder.]** If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 3. Paying Agent and Registrar. -------------------------- Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar upon written notice thereto. The Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or co-registrar. 4. Subsidiary Guarantees. --------------------- This Security is entitled to the benefits of the Subsidiary Guarantees made by each of the Subsidiary Guarantors as described in the Indenture, pursuant to which the Subsidiary Guarantors have irrevocably and unconditionally, jointly and severally, guaranteed on a senior subordinated basis the punctual payment when due, whether at Stated Maturity, by acceleration, redemption or otherwise, of all obligations of the Company under the Indenture and this Security. A Subsidiary Guarantor shall be released from its Subsidiary Guarantee upon the terms and subject to the conditions set forth in the Indenture. - -------------------- *** Include for Physical Securities only. ** Include for U.S. Global Security only. A-5 5. Subordination. ------------- This Security and the Subsidiary Guarantees are subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all existing and future Senior Indebtedness and Subsidiary Guarantor Senior Indebtedness. Each of the Company and the Subsidiary Guarantors agrees, and each Holder by accepting this Security agrees, to the subordination provisions set forth in the Indenture, authorizes the Trustee to give them effect and appoints the Trustee as attorney-in-fact for such purposes. 6. Indenture; Limitations. ---------------------- The Company issued the Securities under an Indenture dated as of April 28, 1998 (the "Indenture"), among the Company, certain active domestic subsidiaries of the Company (the "Subsidiary Guarantors," which term will include all successor subsidiary guarantors under the Indenture) and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise indicated. 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. The Securities are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Security and the terms of the Indenture, the terms of the Indenture shall control. The Securities are general unsecured obligations of the Company. 7. Redemption. ---------- Optional Redemption. The Securities may be redeemed at the option of ------------------- the Company, in whole or in part, at any time and from time to time on or after April 15, 2003, at the following Redemption Prices (expressed in percentages of principal amount), plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), if redeemed during the 12-month period beginning April 15 of each of the years set forth below:
Redemption Year Price ---- ---------- 2003............................ 104.625% 2004............................ 103.083% 2005............................ 101.542% 2006 and thereafter............. 100.000%
A-6 In addition, at any time or from time to time prior to April 15, 2001, the Company may redeem up to 35% of the sum of (i) the initial aggregate principal amount of the Securities and (ii) the initial aggregate principal amount of any Additional Securities with the net proceeds of one or more Equity Offerings at a redemption price equal to 109 1/4% of the principal amount thereof, plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant Interest Payment Date); provided that, -------- immediately after giving effect to such redemption, at least 65% of the initial aggregate principal amount of the Securities (including any Additional Securities) remains outstanding; provided further that such redemptions occur -------- ------- within 90 days of the date of closing of the related Equity Offering. Notice of a redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at such Holder's last address as it appears in the Security Register. Securities in original denominations larger than $1,000 may be redeemed in part in integral multiples of $1,000. On and after the Redemption Date, interest ceases to accrue on Securities or portions of Securities called for redemption, unless the Company defaults in the payment of the Redemption Price. 8. Repurchase upon a Change in Control and Asset Sales. --------------------------------------------------- (a) Upon the occurrence of a Change of Control, the Company is obligated to make an offer to purchase all outstanding Securities at a redemption price of 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase and (b) upon Asset Sales, the Company may be obligated to make offers to purchase Securities with a portion of the Net Cash Proceeds of such Asset Sales at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. 9. Denominations; Transfer; Exchange. --------------------------------- The Securities are in registered form without coupons, in denominations of $1,000 and multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Securities in accordance with 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 register the transfer or exchange of any Securities selected for redemption (except the unredeemed portion of any Security being redeemed in part). Also, it need not register the transfer or exchange of any Securities for a period of 15 days before a selection of Securities to be redeemed is made. A-7 10. Persons Deemed Owners. --------------------- A Holder may be treated as the owner of a Security for all purposes. 11. Unclaimed Money. --------------- If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment, 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 Company irrevocably deposits, or causes to be deposited, with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Securities to redemption or maturity, the Company will be discharged from the Indenture and the Securities, except in certain circumstances for certain sections thereof. 13. Amendment; Supplement; Waiver. ----------------------------- Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Securities then Outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then Outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency and make any change that does not materially adversely affect the rights of any Holder. 14. Restrictive Covenants. --------------------- The Indenture contains certain covenants, including, without limitation, covenants with respect to the following matters: (i) Indebtedness; (ii) Restricted Payments; (iii) certain Asset Sales; (iv) transactions with Affiliates; (v) dividends and other payment A-8 restrictions affecting Restricted Subsidiaries; (vi) issuances and sale of Capital Stock of Restricted Subsidiaries; (vii) designation of Unrestricted Subsidiaries; (viii) Liens; and (ix) merger and certain transfers of assets. Within 120 days after the end of each fiscal year, the Company must report to the Trustee on compliance with such limitations. 15. Successor Persons. ----------------- When a successor person or other entity assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor person will be released from those obligations. 16. Remedies for Events of Default. ------------------------------ If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee or the Holders of not less than 25% in principal amount of the Securities then Outstanding may declare all the Securities to be immediately due and payable. If a bankruptcy or insolvency default with respect to the Company or any of its Significant Subsidiaries occurs and is continuing, the Securities automatically become immediately due and payable. Holders 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 at least a majority in principal amount of the Securities then Outstanding may direct the Trustee in its exercise of any trust or power. 17. Trustee Dealings with Company. ----------------------------- The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may make loans to, accept deposits from, perform services for, and otherwise deal with, the Company and its Affiliates as if it were not the Trustee. 18. Authentication. -------------- This Security shall not be valid until the Trustee signs the certificate of authentication on the other side of this Security. A-9 19. Abbreviations. ------------- Customary abbreviations may be used in the name of a Holder 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 (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to Breed Technologies, Inc., 5300 Old Tampa Highway, P.O. Box 33050, Lakeland, Florida 33807, Attention: Stuart Boyd, Esq. A-10 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - ---------------------------------- (Please print or typewrite name and address including zip code of assignee) the within Security and all rights thereunder, hereby irrevocably constituting and appointing attorney to transfer such Security on the books of the Company with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES EXCEPT, PERMANENT OFFSHORE PHYSICAL CERTIFICATES] In connection with any transfer of this Security occurring prior to the date which is the earlier of the date of an effective Registration Statement or April 28, 2000 the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] --------- [ ] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder. or - -- [ ] (b) this Security is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. A-11 If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 307 of the Indenture shall have been satisfied. Date: ____________________ ________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. Signature Guarantee: TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ________________________________ NOTICE: To be executed by an executive officer, general partner, trustee or similar representative. A-11 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Security purchased by the Company pursuant to Section 1012 or Section 1013 of the Indenture, check the Box: [ ]. If you wish to have a portion of this Security purchased by the Company pursuant to Section 1012 or Section 1013 of the Indenture, state the amount (in original principal amount) below: $_____________________. 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 of the New York Stock Exchange or a commercial bank or trust company) A-12 Exhibit B --------- Form of Certificate to Be Delivered upon Termination of Restricted Period -------------------------------- On or after June 8, 1998 Breed Technologies, Inc. 5300 Old Tampa Highway P.O. Box 33050 Lakeland, Florida 33807 c/o IBJ Schroder Bank & Trust Company One State Street New York, NY 10004 Attention: Corporate Trust Office, Corporate Finance Department Re: Breed Technologies, Inc. (the "Company") 9 1/4% Senior Subordinated Notes due 2008 (the "Notes") ------------------------------------------------------ Ladies and Gentlemen: This letter relates to $________ principal amount of Notes represented by the temporary global note certificate (the "Temporary Certificate"). Pursuant to Section 201 of the Indenture dated as of April 28, 1998 relating to the Notes (the "Indenture"), we hereby certify that (1) we are the beneficial owner of such principal amount of Notes represented by the Temporary Certificate and (2) we are a person outside the United States to whom the Notes could be transferred in accordance with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933, as amended. Accordingly, the Company and the Trustee are hereby requested to issue a Certificated Note representing the undersigned's interest in the principal amount of Notes represented by the Temporary Certificate, all in the manner provided by the Indenture. The Trustee and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Holder] By: ____________________________ Authorized Signature B-2 Exhibit C --------- Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Institutional Accredited Investors ------------------------------------------------------- ___________________, ____ Breed Technologies, Inc. 5300 Old Tampa Highway P.O. Box 33050 Lakeland, Florida 33807 c/o IBJ Schroder Bank & Trust Company One State Street New York, NY 10004 Attention: Corporate Trust Office, Corporate Finance Department Re: Breed Technologies, Inc. (the "Company") 9 1/4% Senior Subordinated Notes due 2008 (the "Notes") ------------------------------------------------------ Ladies and Gentlemen: In connection with our proposed purchase of $____________ aggregate principal amount of the Notes: 1. We hereby confirm that: (i) we are an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act"), or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (an "Institutional Accredited Investor"); (ii) any purchase of the Notes by us will be for our own account or for the account of one or more other Institutional Accredited Investors; (iii) in the event that we purchase any of the Notes, we will acquire Notes having a minimum purchase price of not less than $100,000 for our own account or for any separate account for which we are acting; (iv) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing the Notes; (v) we are not acquiring the Notes with a view to any distribution thereof in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdictions, provided that the disposition of our property and the property of any accounts for which we are acting as fiduciary shall remain at all times within our control; and (vi) we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase the Notes. 2. We understand that the Notes are being offered in a transaction not involving any public offering within the meaning of the Securities Act and that the Notes have not been registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire any Notes, that such Notes may be offered, resold, pledged or otherwise transferred only (i) to a person whom we reasonably believe to be a qualified institutional buyer (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, in a transaction meeting the requirements of Rule 144 under the Securities Act or in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (ii) to the Company or (iii) pursuant to an effective registration statement under the Securities Act, and, in each case, in accordance with any applicable securities laws of any State of the United States or any other applicable jurisdiction. We understand that the registrar and transfer agent will not be required to accept for registration of transfer any Notes, except upon presentation of evidence satisfactory to the Company as applicable, that the foregoing restrictions on transfer have been complied with. We further understand that the Notes will be in the form of definitive physical certificates and that any such certificates will bear a legend reflecting the substance of this paragraph. C-2 3. The Trustee and the Company are entitled to rely upon this letter and the Trustee and the Company are irrevocably authorized to produce this letter or a copy hereof to any interested party in any C-3 administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: ______________________________ (NAME OF PURCHASER) Date: Upon transfer, the Notes should be registered in the name of the new beneficial owner as follows: Name: Address: Taxpayer ID Number: C-4 Exhibit D --------- Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S -------------------------------------- _________________, ___ Breed Technologies, Inc. 5300 Old Tampa Highway P.O. Box 33050 Lakeland, Florida 33807 c/o IBJ Schroder Bank & Trust Company One State Street New York, NY 10004 Attention: Corporate Trust Office, Corporate Finance Department Re: Breed Technologies, Inc. (the "Company") 9 1/4% Senior Subordinated Notes due 2008 (the "Notes") ------------------------------------------------------ Ladies and Gentlemen: In connection with our proposed sale of $________ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended, and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933, as amended. In addition, if the sale is made during a restricted period and the provisions of Rule 903(c)(2) or Rule 904(c)(1) of Regulation S are applicable thereto, we confirm that such sale has been made in accordance with the applicable provisions of Rule 903(c)(2) or Rule 904(c)(1), as the case may be. The Trustee and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: __________________________ Authorized Signature D-2 EX-5.1 4 OPINION OF KING & SPAULDING EXHIBIT 5.1 June 4, 1998 Breed Technologies, Inc. 5300 Old Tampa Highway Lakeland, Florida 33807 Ladies and Gentlemen: We have acted as counsel to Breed Technologies, Inc., a Delaware corporation (the "Company"), in connection with the registration, pursuant to a Registration Statement on Form S-3 (File Nos. 333-48231/-01) (the "Registration Statement") filed by the Company and BTI Capital Trust, a Delaware statutory business trust (the "Trust" and, together with the Company, the "Registrants") under the Securities Act of 1933, as amended, of (i) 5,000,000 shares of 6.5% Convertible Trust Preferred Securities representing beneficial ownership interests in the assets of the Trust (the "Preferred Securities") that were issued by the Trust on November 19, 1997, (ii) 6.5% Convertible Subordinated Debentures due 2007 (the "Debentures") that were issued by the Company on November 19, 1997, (iii) 10,986,500 shares of common stock, par value $.01 per share, of the Company (the "Conversion Stock") and (iv) the unconditional and irrevocable guarantee by the Company of the obligations of the Trust under the Preferred Securities (the "Guarantee"). In our capacity as such counsel, we have reviewed (i) the Registration Statement, (ii) the Indenture (the "Indenture"), dated as of November 25, 1997, between the Company and Wilmington Trust Company, as Indenture Trustee, relating to the Debentures and filed as an exhibit to the Registration Statement and (iii) the Preferred Securities Guarantee Agreement (the "Guarantee Agreement"), dated as of November 25, 1997, between the Company and Wilmington Trust Company, as Preferred Guarantee Trustee, relating to the Guarantees and filed as an exhibit to the Registration Statement. We have also reviewed such matters of law and examined original, certified, conformed or photographic copies of such other documents, records, agreements and certificates as we have deemed necessary as a basis for the opinions hereinafter expressed. In such review, we have assumed the genuineness of signatures on all documents submitted to us as originals, the conformity to original documents of all copies submitted to us as certified, conformed or photographic copies, and, as to certificates of public officials, we have assumed the same to be accurate and to have been given properly. We have relied, as to the matters set forth therein, on certificates of public officials, and we have assumed the same to have been properly given and to be accurate. We have assumed that the execution and delivery of, and the performance of all obligations under, the Indenture and the Guarantee Agreement were duly authorized by all requisite action by each party thereto, and that such documents, when executed and delivered by the parties thereto, were duly executed and delivered by the parties thereto, and are valid and binding agreements of the parties thereto (other than the Company) enforceable against the parties thereto (other than the Company) in accordance with their respective terms. Breed Technologies, Inc. June 4, 1998 Page 2 - -------------------- This opinion is limited in all respects to the laws of the State of New York, and no opinion is expressed with respect to the laws of any other jurisdiction or any effect that such laws may have on the opinions expressed herein. This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. Based upon and subject to the foregoing, we are of the opinion that: 1. The Debentures issued under the Indenture constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject, as to the enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally, general equitable principles and the discretion of courts in granting equitable remedies. 2. The Guarantee issued pursuant to the Guarantee Agreement constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject, as to the enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally, general equitable principles and the discretion of courts in granting equitable remedies. 3. The Conversion Shares, when issued upon conversion of the Preferred Securities in accordance with the terms of the Preferred Securities, will be duly authorized, validly issued, fully paid and nonassessable. . This opinion is given as of the date hereof, and we assume no obligation to update this opinion to reflect any fact or circumstance that may hereafter come to our attention or any change in any law or regulation that may hereafter occur. We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the reference to us under the caption "Legal Matters" in the prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act. Very truly yours, /s/ King & Spalding EX-8.1 5 TAX OPINION OF KING & SPAULDING EXHIBIT 8.1 June __, 1998 Breed Technologies, Inc. BTI Capital Trust 5300 Old Tampa Highway Lakeland, Florida 33807 Ladies and Gentlemen: We have acted as special tax counsel to Breed Technologies, Inc. (the "Company") and to BTI Capital Trust (the "Trust") in connection with the registration under the Securities Act of 1933, as amended (the "1933 Act"), of 6.50% Convertible Trust Preferred Securities (the "Preferred Securities"). The Preferred Securities represent preferred undivided beneficial interests in the assets of the Trust, consisting of 6.50% Convertible Subordinated Debentures due 2027 (the "Convertible Debentures"). The Preferred Securities and the Convertible Debentures have been described in that certain Prospectus dated ______, 1998, which is included in the Registration Statement on Form S-3 (File No. 333-48231), as amended, filed with the Securities and Exchange Commission (the "Commission"). In connection therewith, you have requested our opinions with respect to the status of the Convertible Debentures and the Trust for United States federal income tax purposes and the accuracy of the discussion included in the Prospectus under the heading "United States Federal Income Taxation." All capitalized terms used herein without definition shall have the same meaning as in the Prospectus. FACTS AND ASSUMPTIONS RELIED UPON --------------------------------- In rendering the opinions expressed herein, we have examined such documents as we have deemed appropriate, including (but not limited to) the Registration Statement, the Prospectus and all exhibits thereto. In our examination of documents, we have assumed, with your consent, that all documents submitted to us are authentic originals or, if submitted as photocopies or telecopies, that they faithfully reproduce the originals thereof, that all such documents have been or will be duly executed to the extent required, that all representations and statements set forth in such documents are true and correct, and that all obligations imposed by any such document on the parties thereto are enforceable, and have been or will be performed or satisfied in accordance with their terms. Breed Technologies, Inc. BTI Capital Trust June __, 1998 Page 2 OPINIONS -------- Based upon and subject to the foregoing, we are of the following opinions: (1) The Convertible Debentures will be treated as indebtedness of the Company for United States federal income tax purposes. (2) The Trust will be classified as a grantor trust and will not be treated as an association taxable as a corporation for United States federal income tax purposes. As a result, each beneficial owner of Preferred Securities (a "Securityholder") will be required to include in its gross income its pro rata share of the interest income, including original issue discount, paid or accrued with respect to the Convertible Debentures, whether or not cash is actually distributed to the Securityholder. (3) The discussion contained in that portion of the Prospectus under the caption "United States Federal Income Taxation" constitutes, in all material respects, a fair and accurate summary of the principal United States federal income tax consequences of the purchase, ownership, disposition, and conversion of Preferred Securities under current law. The opinions expressed herein are given as of the date hereof and are based on the Internal Revenue Code of 1986, as amended, the United States Treasury Regulations promulgated thereunder, current administrative positions of the United States Internal Revenue Service, and existing judicial decisions, any of which could be changed at any time, possibly on a retroactive basis. Any such change could adversely affect the opinions rendered herein and the tax consequences to the Trust and to the holders of Preferred Securities. In addition, our opinions cannot be relied upon if any of the facts contained in the documents that we have examined, or if any of the assumptions that we have made, is, or later becomes, inaccurate. We will advise you of any facts or circumstances that come to our attention, or of any changes in law that occur, and which affect the opinions expressed herein, prior to the date that the Registration Statement is declared effective by the Commission. We assume no such obligation, however, to so advise you after such date. Finally, our opinions are limited to the tax matters specifically covered thereby, and we have not been asked to address, nor have we addressed, any other tax consequences relating to the Trust, Convertible Debentures or Preferred Securities. Breed Technologies, Inc. BTI Capital Trust June __, 1998 Page 3 We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the reference to us under the caption "Legal Matters" in the Prospectus. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the 1933 Act. Very truly yours, KING & SPALDING EX-12.1 6 COMPUTATION OF THE RATIOS OF EARNINGS TO FIXED Exhibit 12.1 BREED Technologies, Inc. Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (In thousands, except per ratios)
Pro Pro forma Nine Nine forma (2) months months (1) Year nine-month Fiscal Years ended June 30, ended ended ended period ended ---------------------------------------------------------- March 31, March 31, June 30, March 31, 1993 1994 1995 1996 1997 1998 1997 1997 1998 ------------ -------- --------- ----------- ----------- ----------- ---------- ------- ----------- Earnings Computation Pre-tax earnings (losses) from continuing operations 27,638 73,009 110,133 98,338 29,647 (374,400) 20,600 24,700 (383,700) Add: Fixed Charges 2,218 1,423 1,156 2,979 29,451 70,844 19,244 107,982 74,444 Subtract: Dividends on redeemable preferred stock (5,700) (16,300) (12,200) Subtract: Capitalized Interest 0 0 0 0 (90) (68) (68) (90) (68) ------------ -------- --------- ----------- ----------- ----------- ---------- ------- ----------- Total Earnings as Adjusted 29,856 74,432 111,289 101,317 59,008 (309,324) 39,776 116,292 (321,524) Fixed Charges Computation Interest expensed 2,112 1,062 829 2,664 26,800 47,800 17,800 84,600 58,400 Capitalized interest 90 68 68 90 68 Amortization of deferred financing costs 726 15,900 3,400 2,400 Estimated interest factor on operating leases 106 361 327 315 1,835 1,376 1,376 3,592 1,376 Dividends on redeemable preferred stock 5,700 0 16,300 12,200 ------------ -------- --------- ----------- ----------- ----------- ---------- ------- ----------- Total Fixed Changes 2,218 1,423 1,156 2,979 29,451 70,844 19,244 107,982 74,444 ============ ======== ========= =========== =========== =========== ========== ======= =========== Ratio of earnings to combined fixed charges and preferred stock dividends 13.46 52.31 96.27 34.01 2.00 (4.37) 2.07 1.08 (4.32) ============ ======== ========= =========== =========== =========== ========== ======= =========== Insufficiency of earnings to cover combined fixed charges and preferred stock dividends 380,168 395,968 ============ ======== ========= =========== =========== =========== ========== ======= ==========
(1) Gives effect to the 1997 Acquisitions and the SRS Acquisition (2) Gives effect to the SRS Acquisition NOTE: The Ratio of earnings to combined fixed charges and preferred stock - ---- dividends would not be effected by the conversion of Preferred Securities into Convertible Debentures because (i) the Distribution rate of 6.5% on the Preferred Securities is equal to the coupon rate of the Convertible Debentures and (ii) the total principal amount outstanding will be unchanged. EX-23.1 7 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 We consent to the reference to our firm under the caption "Experts" and to the use of our report dated July 31, 1997, except for Note 12, as to which the date is August 27, 1997, in the Registration Statement, as amended, (Form S-3 Nos. 333-48231 and 333-48231-01) and related Prospectus of BREED Technologies, Inc. for the Registration of 10,986,500 shares of its Common Stock, its 6.5% Convertible Subordinated Debentures, and the 6.50% Convertible Trust Preferred Securities of BTI Capital Trust. /s/ Ernst & Young Tampa, Florida June 4, 1998 EX-23.2 8 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23.2 The Board of Directors Breed Technologies, Inc. We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP Tampa, Florida June 4, 1998 EX-23.3 9 CONSENT OF PRICE WATERHOUSE LLP EXHIBIT 23.3 We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 333-48231/333- 48231-1) of Breed Technologies, Inc. of our report dated October 31, 1997 (which contains an explanatory paragraph relating to Safety Restraint Systems' transactions and relationships with AlliedSignal, Inc.) relating to the combined financial statements of Safety Restraint Systems, a Division of AlliedSignal, Inc., which appears in the Current Report on Form 8-K/A of Breed Technologies, Inc. dated October 30, 1997. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Price Waterhouse LLP Price Waterhouse LLP Bloomfield Hills, Michigan June 3, 1998 -----END PRIVACY-ENHANCED MESSAGE-----